I.

Sesbreno vs. CA
GR 89252, 24 May 1993
Third Division, Feliciano (J)

Facts:On 9 February 1981, Raul Sesbreno made a money market placement in the amount of
P300,000 withthe Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32
days. PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor
Corporation Promissory Note (2731), the Certificate of Securities Delivery Receipt indicating the
sale of the note with notation that said security was in the custody of Pilipinas Bank, and
postdated checks drawn against the Insular Bank of Asia and America for P304,533.33 payable
on 13 March 1981. The checks were dishonored for having been drawn against insufficient
funds. Pilipinas Bank never released the note, nor any instrument related thereto, to Sesbreno;
but Sesbreno learned that the security was issued 10 April 1980, maturing on 6 April 1981, has
a face value of P2,300,833.33 with PhilFinance as payee and Delta Motors as maker; and was
stamped “non-negotiable” on its face. As Sesbreno was unable to collect his investment and
interest thereon, he filed an action for damages
against Delta Motors and Pilipinas Bank.

Issue:Whether non-negotiability of a promissory note prevents its assignment.

Held:Only an instrument qualifying as a negotiable instrument under the relevant statute may
be negotiatedeither by indorsement thereof coupled with delivery, or by delivery alone if it is in
bearer form. A negotiable instrument, instead of being negotiated, may also be assigned or
transferred. The legal consequences of negotiation and assignment of the instrument are
different. A negotiable instrument may not be negotiated but may be assigned or transferred,
absent an express prohibition against assignment or transfer written in the face of the
instrument. herein, there was no prohibition stipulated.
II.7

Caltex (Philippines) Inc. vs. CA

GR 97753, 10 August 1992
Second Division, Regalado (J)

Facts:On various dates, Security Bank and Trust Co. (SEBTC), through its Sucat branch, issued
280certificates of time deposit (CTD) in favor of one Angel dela Cruz who deposited with the bank the
aggregate amount of P1.12 million. Anger de la Cruz delivered the CTDs to Caltex in connection with his
purchase offuel products from the latter. Subsequently, dela Cruz informed the bank that he lost
all the CTDs, and thus executed an affidavit of loss to facilitate the issuance of the replacement
CTDs. De la Cruz was able to obtain a loan of P875,000 from the bank, and in turn, he executed
a notarized Deed of Assignment of Time Deposit in favor of the bank. Thereafter, Caltex
presented for verification the CTDs (which were declared lost by de la Cruz) with the bank.
Caltex formally informed the bank of its possession of the CTDs and its decision to preterminate
the same. The bank rejected Caltex’ claim and demand, after Caltex failed to furnish copy of the
requested documents evidencing the guarantee agreement, etc. In 1983, de la Cruz’ loan
matured and the bank set-off and applied the time deposits as payment for the loan. Caltex filed
the complaint, but which was dismissed.

Issue [1]:Whether the Certificates of Time Deposit (CTDs) are negotiable instruments.

Held [1]:The CTDs in question meet the requirements of the law for negotiability. Contrary to the
lowercourt’s findings, the CTDs are negotiable instruments (Section 1). Negotiability or non-
negotiability of an instrument is determined from the writing, i.e. from the face of the instrument itself.
The documents provided that the amounts deposited shall be repayable to the depositor. The
amounts are to be repayable to the bearer of the documents, i.e. whosoever may be the bearer at
the time of presentment.

Issue [2]:Whether the CTDs’ negotiation require delivery only.

Held [2]:Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose
andagreement between it (Caltex) and de la Cruz requires both delivery and indorsement; as the CTDs
were delivered to it as security for dela Cruz’ purchases of its fuel products, and not for payment. Herein,
there was no negotiation in the sense of a transfer of title, or legal title, to the CTDs in which situation
mere delivery of the bearer CTDs would have sufficed. The delivery thereof as security for the fuel
purchases at most constitutes Caltex as a holder for value by reason of his lien. Accordingly, a
negotiation for such purpose cannot be effected by mere delivery of the instrument since the terms
thereof and the subsequent disposition of such security, in the event of non-payment of the principal
obligation, must be contractually provided for.
III.7

Philippine Commercial Industrial Bank vs. CA

GR 121413, 29 January 2001
Second Division, Quisumbing (J)

Facts:Ford issued Citibank checks in favor of the Commissioner of Internal Revenue as payments of
itstaxes, through the depository bank Insular Bank of Asia and America (later PCIBank). Proceeds of
the checks were never received by the Commissioner, but were encashed and diverted to the
accounts of members of a syndicate, to which Ford’s General Ledger Accountant Godofredo Rivera
belongs. Upon demand of the Commissioner anew, Ford was forced to make second payment of its
taxes. Thus, Ford instituted actions to recover the amounts from the collecting (depository) and
drawee banks.

Issue:Whether Ford has the right to recover from the collecting bank (PCI Bank) and/or the
drawee bank(Citibank) the value of the checks.

Held:The mere fact that forgery was committed by a drawer- payor’s confidential employee or agent, who
byvirtue of his position had unusual facilities to perpetrate the fraud and imposing the forged paper upon
thebank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of some
circumstance raising estoppel against the drawer. The rule applies to checks fraudulently
negotiated or diverted by the confidential employees who hold them in their possession.

In GRs 121413 and 121479, PCIBank failed to verify the authority of Mr. Rivera to negotiate the
checks. Furthermore, PCIBank’s clearing stamp which guarantees prior or lack of indorsements
render PCIBank liable as it allowed Citibank without any other option but to pay the checks.
PCIBank, being a depository / collecting bank of the BIR, had the responsibility to make sure
that the crossed checks were deposited in “Payee’s account only” as found in the instrument.

In GR 128604, on the other hand, the switching operation involving the checks, while in transit for
clearing, were the clandestine or hidden actuations performed by the members of the syndicate in their
own personal, covert and private capacity; without the knowledge nor official or conscious participation of
PCIBank in the process of embezzlement. Central Bank Circular 580 (1977), however, provide d that any
theft affecting items in transit for clearing are for the account of the sending bank (herein PCIBank). Still,
Citibank was likewise negligent in the performance of its duties as it failed to establish its payment of
Ford’s checks were made in due course and legally in order. The fact that drawee bank did not discover
the irregularity seasonably constitutes negligence in carrying out the bank’s duty to its depositors.

III.15
MWSS vs. CA
GR L-62943, 14 July 1986
Second Division, Gutierrez Jr. (J)

Facts:By special arrangement with PNB, MWSS used personalized checks in drawing from its
account. Thechecks were printed by its printer, F. Mesina Enterprises. 23 checks were paid and
cleared by PNB, and debited against MWSS’ account from March to May 1969. The checks were
deposited by payees Raul Dizon, Arturo Sison, and Antonio Mendoza in their account with PCIBank.
Said persons were later found to be fictitious. MWSS requested PNB to restore the amount debited
due to the 23 checks, allegedly forged, to its account. The bank refused. Hence, the present action.

Issue:Who shall bear the loss resulting from the alleged forged checks.

Held:There was no express and categorical finding that the 23 checks were forged or signed by persons
otherthan the authorized MWSS signatories. Forgery is not presumed but should be established by clear,
positive and convincing evidence. MWSS is barred from setting up defense of forgery under Section 23 of
the Negotiable Instruments Law

[ G.R. No. L-222, April 26, 1950 ]

SALVACION F. VDA. DE EDUQUE, ETC. PLAINTIFF AND APPELLEE, VS. JOSE M.

OCAMPO, DEFENDANT AND APPELLANT.

Facts:
On 16 February 1935, Dr. Jose Eduque secured two loans from
Mariano Ocampo de Leon, DonaEscolastica delos Reyes and Don Jose
M. Ocampo, with amount s of P40,000 and P15,000, both
payablewithin 20 years with interest of 5% per annum. Payment of
the loans was guaranteed by mortgage on realproperty. On 6
December 1943, Salvacion F. Vda de Eduque, as administratrix of the
estate of Dr. JoseEduque, tendered payment by means of a cashier’s
check representing Japanese War notes to Jose M. Ocampo, who refused
payment. By reason of such refusal, an action was brought and the cashier’s
check wasdeposited in court. After trial, judgment was rendered against
Ocampo compelling him to accept the amount,to pay the expenses
of consignation, etc. Ocampo accepted the judgment as to the second loan
but appealed as to the first loan.

Issue:
Whether or not the tender of payment by means of a cashier’s check
representing Japanese war notes is valid.
Held:
The Supreme Court ruled that Japanese military notes were considered as
legal tender during the Japanese occupation, thus, the payment was valid.
Furthermore, defendant accepted impliedly the consignation of the cashier's
check when he himself asked the court that out of the money thus consigned
he be paid the amount of the second loan of P15,000.00.It is a rule that a
cashier's check may constitute a sufficient tender where no objection is
made on this ground.

[ GR No. L-27782, Jul 31, 1970 ]

OCTAVIO A. KALALO v. ALFREDO J. LUZ

FACTS:
Octavio Kalalo is an engineer whose services were contracted by Alfredo Luz, an
architect in 1961. Luz contracted Kalalo to work on ten projects across the country,
one of which was an in the International Rice Research Institute (IRRI) Research
Center in Los Baños, Laguna. Luz was to be paid $140,000.00 for the entire
project. For Kalalo’s work, Luz agreed to pay him 20% of what IRRI is going to
pay or equivalent to $28,000.00.
ISSUE:
Whether or not appellee be paid in US currency?
RULING:
No. The agreement was forged in 1961, years before the passage of Republic Act
529 in 1950. The said law requires that payment in a particular kind of coin or
currency other than the Philippine currency shall be discharged in Philippine
currency measured at the prevailing rate of exchange at the time the obligation
was incurred. Nothing in the law however provides which rate of exchange shall
be used hence it is but logical to use the rate of exchange at the time of payment.

III.2

Astro Electronics Corp. and Peter Roxas vs. Philippine Export and Foreign Loan
Guarantee Corporation

Facts:
 - Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting to
P3,000,000.00 with interest and secured by three (3) promissory notes. [P600,000.00;
P400,000.00 and P2,000,000.00]. In each of these promissory notes, it appears that Petitioner
Roxas signed twice, as President of Astro and in his personal capacity. Roxas also signed a
Continuing Surety ship Agreement in favor of Philtrust Bank, as President of Astro and as surety.
- Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of 70% of
Astros loan, subject to the condition that the Philguarantee shall be proportionately subrogated
of Philtrust’s rights against Astro.
- Astro failed to pay its loan obligations. As a result, Philguarantee paid 70% of the guaranteed
loan to Philtrust. Philguarantee filed against Astro and Roxas a complaint for sum of money with
the RTC of Makati.
- Roxas disclaims any liability on the instruments, alleging, inter alia, that he merely signed the
same in blank and the phrases in his personal capacity and in his official capacity were
fraudulently inserted without his knowledge.
- RTC rendered its decision in favor of Philguarantee ordering the defendants Astro and Roxas to
pay jointly and severally, the plaintiff (Philguarantee) the sum of P3,621,187.52 (with interest at
stipulated rate of 16% per annum)
- CA affirmed the decision of the RTC agreeing with the trial court that Roxas failed to explain
satisfactorily why he had to sign twice in the contract and therefore the presumption that private
transactions have been fair and regular must be sustained.
Issue:
- Whetehr or not Roxas should be jointly and severally liable (solidary) with Astro for the sum
awarded by the RTC.
Held:
- Yes. The answer is in the affirmative.

Astros loan with Philtrust Bank is secured by three (3) promissory notes. These promissory notes
are valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed twice:
first, as president of Astro and second, in his personal capacity. In signing his name aside from
being the President of Astro, Roxas became a co-maker of the promissory notes and cannot
escape any liability arising from it. Under the Negotiable Instruments Law, persons who write
their names on the face of promissory notes are makers, promising that they will pay to the order
if the payee or any holder according to its tenor. Thus, even without the phrase personal capacity,
Roxas will still be primarily liable as a joint and several debtor under the notes considering that
his intention to be liable as such is manifested by the fact that he affixed his signature on each of
the promissory notes twice which necessarily would imply that he is undertaking the obligation in
two different capacities, official and personal.
ADALIA FRANCISCO, petitioner, vs. COURT OF APPEALS , HERBY COMMERCIAL &
CONSTRUCTION CORPORATION AND JAIME C. ONG, respondents.

A contract was entered into by A. Francisco Realty & Development Corporation, Adalia Francisco the
petitioner was its president and Herby Commercial & Construction Corporation, Jaime C. Ong the private
respondent as its president. The contract was a Land Development and Construction Contract pursuant to
a housing projet of petitioner’s company and financed by Government Service Insurance System. An
Executive Committee Account with Insular bank of Asia & America was set up to facililtate payments to
respondent. A case for the collection of the completed and delivered units but was dismissed after an
amicable settlement through Memorandum of Agreement signed. However,
the respondent discovered that there were checks issued in his favor but was not delivered to him. Instead,
Francisco forged his signature and deposited the checks in her IBAA savings account. Another case was
filed against the petioner charging him with estafa thru falsification of commercial documents.
Eventually, the case was dismissed on the merit that the checks were used as security for the completion
of the project. The respondent case was elevated for the collection.The Regional Trial Court held in favor
of the plaintiffs and against the defendants INSULAR BANK OF ASIA & AMERICA and ATTY.
ADALIA FRANCISCO. Moreover, the Court of Appeals affirmed the trial court’s ruling, hence this
petition for review on certiorari filed by petitioner.

Issue:
Whether or not Francisco forged the signature of Ong on the seven checks.

Held:
Yes. The forgery was satisfactorily established in the trial court upon the strength of the findings of the
NBI handwriting expert. Other than petitioners self-serving denials, there is nothing in the records to
rebut the NBIs findings. Well-entrenched is the rule that findings of trial courts which are factual in
nature, especially when affirmed by the Court of Appeals, deserve to be respected and affirmed by the
Supreme Court, provided it is supported by substantial evidence on record, as it is in the case at bench.
The petitioners claims that she was authorized to sign Ongs name on the checks by virtue of the
Certification executed by Ong in her favor giving her the authority to collect all the receivables of HCCC
from the GSIS, including the questioned checks.Petitioners alternative defense must similarly fail. The
Negotiable Instruments Law provides that where any person is under obligation to indorse in a
representative capacity, he may indorse in such terms as to negative personal liability. An agent, when so
signing, should indicate that he is merely signing in behalf of the principal and must disclose the name of
his principal; otherwise he shall be held personally liable.Even assuming that Francisco was authorized by
HCCC to sign Ongs name, still, Francisco did not indorse the instrument in accordance with law. Instead
of signing Ongs name, Francisco should have signed her own name and expressly indicated that she was
signing as an agent of HCCC. Thus, the Certification cannot be used by Francisco to validate her act of
forgery.Therefore, the court affirmed the Regional Trial Court decision in favor of private respondents.
BPI V. CASA MONTESORRI INTERNATIONALE
430 SCRA 261

FACTS:
CASA Montessori Internationale is a depositor of BPI and a holder of a current account with
BPI. It was discovered that for a material period of time, several checks were encashed by a certain
Sonny Santos, who eventually was known to be a fictitious name used by the external auditor of
CASA. The external auditor by the name of Leonardo T. Yabut admitted forging the signature of
CASA’s president to be able to encash the checks. The trial court held the bank liable but this was
modified in the decision of appellate court. The Court of Appelas in its modified decision apportioned the
loss between BPI and CASA.

Issue:
Whether or not there was forgery under the Negotiable Instruments Law (NIL)?

HELD:
Yes. In the present case, the court held that there was forgery of the drawers signature on the
check. The RTC and CA found Leonardo Yabut guilty of forgery through his Affidavit where he
voluntarily admitted that he forged the signature of CASA’s President Ms. Ma. Carina C. Lebron. Said
forgery was made on the subject checks and he also admitted that the same encashed by him. It was also
ruled by the same courts that the PNP Crime Laboratory report showing disparity in the signature of
Lebron and the signature in the said checks is admissible as it is consistent with the report said laboratory
issued to BPI upon the latter’s previous request. The court affirmed the RTC’s factual findings, especially
when affirmed by the appellate court, since these were supported by substantial evidence on record.
The court affirmed partly CA’s ruling, it held that BPI is held liable for P547,115, the total value
of the forged checks less the amount already recovered by CASA from Leonardo T. Yabut, plus interest at
the legal rate of six percent (6%) per annum -- compounded annually, from the filing of the complaint
until paid in full; and attorneys fees of ten percent (10%) thereof, subject to reimbursement from
Respondent Yabut for the entire amount, excepting attorneys fees.
PHILIPPINE NATIONAL BANK, petitioner,
vs.
HONORABLE COURT OF APPEALS, PROVINCE OF TARLAC, and
ASSOCIATED BANK, respondents. G.R. No. 107612 January 31, 1996

Facts:
The Province of Tarlac maintains a current account with the Philippine National
Bank (PNB) Tarlac Branch where the provincial funds are deposited. A portion of
the funds of the province is allocated to the Concepcion Emergency Hospital. 2 The
allotment checks for said government hospital are drawn to the order of
"Concepcion Emergency Hospital, Concepcion, Tarlac" or "The Chief, Concepcion
Emergency Hospital, Concepcion, Tarlac." In January 1981, the books of account
of the Provincial Treasurer were post-audited by the Provincial Auditor. It was then
discovered that the hospital did not receive several allotment checks drawn by the
Province. On February 1981, the Provincial Treasurer requested the manager of the
PNB to return all of its cleared checks which were issued from 1977 to 1980 in
order to verify the regularity of their encashment.The Provincial Treasurer learned
that 30 checks amounting to P203,300.00 were encashed by one Fausto Pangilinan,
with the Associated Bank acting as collecting bank. It turned out that Fausto
Pangilinan, who was the administrative officer and cashier of payee hospital until
his retirement on February 28, 1978, collected the questioned checks from the
office of the Provincial Treasurer. On February 26, 1981, the Provincial Treasurer
wrote the manager of the PNB seeking the restoration of the various amounts
debited from the current account of the Province. In turn, the PNB manager
demanded reimbursement from the Associated Bank on May 15, 1981. As both
banks resisted payment, the Province of Tarlac brought suit against PNB which, in
turn, impleaded Associated Bank as third-party defendant. The latter then filed a
fourth-party complaint against Adena Canlas and Fausto Pangilinan. RTC rendered
a decision in favor of the plaintiff, PNB and associated bank Appealed
Issue:
Where thirty checks bearing forged endorsements are paid, who bears the loss, the
drawer, the drawee bank or the collecting bank?
Ruling:
The supreme court ruled that PNB and associated bank bears the loss. The Court
finds as reasonable, the proportionate sharing of fifty percent - fifty percent (50%-
50%). Due to the negligence of the Province of Tarlac in releasing the checks to an
unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to
receive the checks for the payee hospital for a period close to three years and in not
properly ascertaining why the retired hospital cashier was collecting checks for the
payee hospital in addition to the hospital's real cashier, respondent Province
contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for
fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty
percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%)
percent of P203,300.00. It is liable on its warranties as indorser of the checks
which were deposited by Fausto Pangilinan, having guaranteed the genuineness of
all prior indorsements, including that of the chief of the payee hospital, Dr. Adena
Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of
the payee's indorsement.
The Philippine National Bank shall pay fifty percent (50%) of P203,300.00 to the
Province of Tarlac, with legal interest from March 20, 1981 until the payment
thereof. Associated Bank shall pay fifty percent (50%) of P203,300.00 to the
Philippine National Bank, likewise, with legal interest from March 20, 1981 until
payment is made.

Case to Digest
Pio Baretto Realty Dev. Corp vs CA 360 SCRA 127
Inciong vs. CA 257 SCRA 578
Dev. Bank of Rizal vs Sim Wei 219 SCRA 736
BPI Family Bank vs. Buenaventura 471 SCRA 431
Gempesaw vs. CA 218 SCRA 682
Pio Baretto Realty Dev. Corp vs CA 360 SCRA 127
This petition for review on certiorari assails the Decision dated 30 June 1997 of the Court of
Appeals in CA-G.R. SP No. 33982, "Pio Barretto Realty Development Corporation v. Hon.
Perfecto A. Laguio, et al.," which dismissed the special civil action for certiorari filed by
petitioner.
Facts:
 On 2 October 1984 respondent Honor P. Moslares instituted an action for annulment of
sale with damages before the Regional Trial Court of Manila against the Testate Estate
of Nicolai Drepin
 Moslares alleged that the Deed of Sale over four (4) parcels of land of the Drepin Estate
executed in favor of the Barretto Realty was null and void on the ground that the same
parcels of land had already been sold to him by the deceased Nicolai Drepin.
 On 2 May 1986 the parties, to settle the case, executed a Compromise Agreement
 On 24 July 1986 the trial court rendered a decision approving the Compromise
Agreement.[2] However, subsequent disagreements arose on the question of who bought
the properties first.
 Moslares claimed that he bought the lots first on 15 January 1990 by delivering to Atty.
Tomas Trinidad two (2) PBCom checks, one (1) in favor of Barretto Realty for P3 million,
and the other, in favor of the Drepin Estate for P1.35 million
 But petitioner Barretto Realty denied receiving the check. Instead, it claimed that it
bought the properties
on 7 March 1990 by tendering a Traders Royal Bank Manager's Check for P1million to
Moslares, and a Far East Bank and Trust Company Cashier's Check for P1 million and a
Traders Royal Bank Manager's Check for P350,000.00 to Atty. Tomas Trinidad as
Judicial Administrator of the Estate. However, Moslares and Atty. Trinidad refused to
accept the checks.
 Barretto filed a motion with the trial court alleging that he complied with the compromise
and agreement and order Moslares and Atty. Trinidad to comply with the same.
 The court ruled in favor of Barretto
 3 years later Moslares filed a motion for execution alleging the he purchased the lot and
that he paid the amount specified as payment.
 The court issued a writ of execution but was then reversed and set aside upon the
motion for reconsideration of Barretto.
 Moslares moved to reconsider the decision insisting that Barretto Realty's payment by
check was not valid because (a) the check was not delivered personally to him but to his
counsel Atty. Pedro Ravelo, (b) the check was not encashed hence did not produce the
effect of payment; and, (c) the check was not legal tender per judicial pronouncements

Issue:
 Whether or not Barretto be is the absolute owner of the property

Ruling
 It is not disputed, and in fact borne by the records, that petitioner bought the disputed
lots of the Drepin Estate subject matter of the Compromise Agreement ahead of
Moslares and that the checks issued in payment thereof were even personally delivered
by the Deputy Sheriff of the RTC-Br. 18, Manila, upon Order of respondent Judge dated
 14 June 1990 after tender was refused by Moslares and the Drepin Estate. Respondent
Moslares never raised the invalidity of the payment through checks either through a
motion for reconsideration or a timely appeal. Hence, with the complete execution and
satisfaction of the Decision dated 24 July 1986 which approved the Compromise
Agreemen
 There was already a final and executory order issued by the same judge three years
prior. The same may no longer be amended regardless of any claim or error or
incorrectness (save for clerical errors only). It is true that a check is not a legal tender
and while delivery of a check produces the effect of payment only when it is encashed,
the rule is otherwise if the debtor (Barretto Realty) was prejudiced by the creditor’s
(Moslares’) unreasonable delay in presentment. Acceptance of a check implies an
undertaking of due diligence in presenting it for payment. If no such presentment was
made, the drawer cannot be held liable irrespective of loss or injury sustained by the
payee. Payment will be deemed effected and the obligation for which the check was
given as conditional payment will be discharged.
 Pio Barretto Realty Development Corporation is declared the absolute owner of the
disputed properties subject matter of the Compromise Agreement

Inciong vs. CA 257 SCRA 578

This is a petition for review on certiorari of the decision of the Court of Appeals affirming that of
the Regional Trial Court of Misamis Oriental, Branch 18,[1] which disposed of Civil Case No.
10507 for collection of a sum of money and damages

Facts:
 Petitioner's liability resulted from the promissory note in the amount of P50,000.00 which
he signed with Rene C. Naybe and Gregorio D. Pantanosas on February 3, 1983,
holding themselves jointly and severally liable to private respondent Philippine Bank of
Communications, Cagayan de Oro City branch. The promissory note was due on May 5,
1983.
 Said due date expired without the promissors having paid their obligation.
 Private respondent then filed a complaint for collection from the three obligors
 Petitioner alleged that he only agreed to be a co-maker to the amount of 5,000 and that
it was by trickery, fraud and misrepresentation that he was made liable for the amount of
P50,000.00
  Petitioner contends that the Court of Appeals should have declared the promissory note
null and void on the following grounds: (a) the promissory note was signed in the office
of Judge Pantanosas; (b) the loan was incurred for the purpose of buying a second-hand
chainsaw which cost only P5,000.00; (c) new chainsaw cost only P27,500.00; (d) the
loan was not approved by the board or credit committee (e) the loan had no collateral; (f)
petitioner and Judge Pantanosas were not present at the time the loan was released in
(g) notices of default are sent simultaneously and separately but no notice was validly
sent to him.[8] Finally, his consent was vitiated by fraud as, contrary to their agreement
that the loan was only for the amount of P5, 000.
 Petitioner also argues that the dismissal of the complaint against Naybe, the principal
debtor, and against Pantanosas, his co-maker, constituted a release of his obligation,
especially because the dismissal of the case against Pantanosas was upon the motion
of private respondent itself

Issue:
 Whether or not Inciong should be held liable

Ruling
 Yes, because the promissory note involved in this case expressly states that the three
signatories therein are jointly and severally liable, any one, some or all of them may be
proceeded against for the entire obligation. The choice is left to the solidary creditor
(PBC) to determine against whom he will enforce collection. Consequently, the
dismissal of the case against Pontanosas may not be deemed as having discharged
Inciong from liability as well. As regards Naybe, suffice it to say that the court never
acquired jurisdiction over him. Inciong, therefore, may only have recourse against his co-
makers, as provided by law.

Development Bank of Rizal VS Sim Wei

GR No. 85419 March 9, 1993
219 SCRA 736

Facts:
 In consideration for a loan respondent Sima Wei issued two crossed checks payable to
petitioner. These two checks were not delivered to the petitioner-payee or to any of its
authorized representatives. These checks somehow came into the possession of respondent
Lee Kian Huat who deposited the checks without the petitioner-payee's indorsement to the
account of respondent Plastic Corporation.
Issue:
 Whether or not petitioner has a cause of action against any or all of the defendants.
Held:
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.
 BPI Family Bank VS Edgardo Buenaventura
GR No. 148196 September 30, 2005
471 SCRA 431

Facts:
 Edgardo Buenaventura et al accepted from Amado Franco a check jointly issued by Eladio
Teves and Joseph Teves which they used to open an account with petitioner. Later, they drew a
check which, upon presentment, was dishonored for the reason that the account was closed on
the ground that the source of fund was illegal or unauthorized. It was alleged that the check
received by Buenaventura, et al. from Amado Franco was drawn by Eladio Teves and Joseph
Teves against the Current Account of the Tevesteco Arrastre Stevedoring Co., Inc.; the funds in
the said Tevesteco account allegedly consisted mainly of funds transferred to it from another
account belonging to the First Metro Investment Corporation; such transfer of funds was
effected on the basis of an Authority to Debit bearing the signatures of certain officers of FMIC;
upon its investigation, BPI-FB found that the signatures in the Authority to Debit were forged;
before this, however, Tevesteco had already issued several checks against its Current Account,
one of which is the check received by Buenaventura, et al.
Issue:
 Whether or not petitioner should bear the loss in case of fraud.
Held:
 Unless a forgery or alteration is attributable to the fault or negligence of the drawer himself, the
remedy of the drawee bank that negligently clears a forged and/or altered check for payment is
against the party responsible for the forgery or alteration, otherwise, it bears the loss.
 Natividad Gempesaw VS Court of Appeals
GR No. 92244 February 9, 1993
218 SCRA 682

Facts:
 To facilitate payment of debts to her suppliers, petitioner draws checks against her checking
account with the respondent bank as drawee. The checks were prepared and filled up as to all
material particulars by her trusted bookkeeper. After the bookkeeper prepared the checks, the
completed checks were submitted to the petitioner for her signature, together with the
corresponding invoice receipts which indicates the correct obligations due and payable to her
suppliers. Petitioner signed each and every check without bothering to verify the accuracy of the
checks against the corresponding invoices because she reposed full and implicit trust and
confidence on her bookkeeper. The issuance and delivery of the checks to the payees named
therein were left to the bookkeeper. Practically, all the checks issued and honored by the
respondent drawee bank were crossed checks. All the eighty-two (82) checks with forged
signatures of the payees were brought to the Chief Accountant of respondent drawee Bank,
who, without authority therefor, accepted them all for deposit in the accounts of Alfredo Y.
Romero and Benito Lam who became the second endorsers of the checks.
Issue:
 Whether or not petitioner should bear the loss on the ground of her negligence.
Held:
 As a rule, a drawee bank who has paid a check on which an indorsement has been forged
cannot charge the drawer’s account for the amount of said check. An exception to this rule is
where the drawer is guilty of such negligence which causes the bank to honor such a check or
checks. If a check is stolen from the payee, it is quite obvious that the drawer cannot possibly
discover the forged indorsement by mere examination of his cancelled check. A different
situation arises where the indorsement was forged by an employee or agent of the drawer, or
done with the active participation of the latter.

CHARLESS LEE, ET AL VS. COURT OF APPEALS and PHILIPPINE BANK OF

COMMUNICATIONSGR NO. 117913 & 117914, February 1, 2002375 SRA 579

FACTS: Charles Lee, as President of MICO wrote private respondent Philippine

Bank of Communications (PBCom) requesting for a grant of a discounting
loan/credit line in the sum of Three Million Pesos (P3,000,000.00) for the purpose
of carrying out MICO’s line of business as well as to maintain its volume of
business. On the same day, Charles Lee requested for another discounting
loan/credit line of Three Million Pesos (P3,000,000.00) from PBCom for the
purpose of opening letters of credit and trust receipts. Another loan of One Million
Pesos (P1,000,000.00) was availed of by MICO from PBCom which was likewise
later on renewed. Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and
Richard Velasco, in their personal capacities executed a Surety Agreement in
favour of PBCom whereby the petitioners jointly and severally, guaranteed the
prompt payment on due dates or at maturity of overdrafts, promissory notes,
discounts, drafts, letters of credit, bills of exchange, trust receipts, and other
obligations of every kind and nature, for which MICO may be held accountable
by PBCom. Charles Lee, in his capacity as president of MICO, wrote PBCom and
applied for an additional loan in the sum of Four Million Pesos (P4, 000,000.00).
The loan was intended for the expansion and modernization of the company’s
machineries. Upon approval of the said application for loan, MICO availed of the
additional loan of Four Million Pesos (P4, 000,000.00).

To secure the trust receipts transactions, MICO and Lee executed a real estate
mortgage in favour of PBCOM over several properties it owns. Upon maturity of all
credit availments obtained by MICO from PBCom, the latter made a demand for
payment.[For failure of petitioner MICO to pay the obligations incurred despite
repeated demands, PBCom extrajudicially foreclosed MICO’s real estate mortgage
and sold the said mortgaged properties in a public auction sale. Lee contends that
the letters of credit, surety agreements and loan transactions did not ripen into
valid and binding contracts since no part of the proceeds of the loan transactions
were delivered to MICO or to any of the petitioners-sureties. Petitioners-sureties
allege that Chua Siok Suy was the beneficiary of the proceeds of the loans and that
the latter made them sign the surety agreements in blank. Thus, they maintain
that they should not be held accountable for any liability that might
arise therefrom.

ISSUE: Whether or not the proceeds of the loans and letters of credit transactions
were ever delivered to MICO?

HELD: The letter of credit, as well as the security agreements, have not merely
created a prima facie case but have actually proved the solidary obligation of MICO
and the petitioners, as sureties of MICO, in favor of respondent PBCom.
While the presumption found under the Negotiable Instruments Law may not
necessarily be applicable to trust receipts and letters of credit, the presumption that
the drafts drawn in connection with the letters of credit have sufficient consideration.
Under Section 3(r), Rule 131 of the Rules of Court there is also a presumption that
sufficient consideration was given in a contract.
Hence, petitioners should have presented credible evidence to rebut that presumption
as well as the evidence presented by private respondent PBCom. The letters of credit
show that the pertinent materials/merchandise have been received by MICO. The
drafts signed by the beneficiary/suppliers in connection with the corresponding letters
of credit proved that said suppliers were paid by PBCom for the account of MICO. On
the other hand, aside from their bare denials petitioners did not present sufficient and
competent evidence to rebut the evidence of private respondent PBCom.
PHILIPPINE BANK OF COMMERCE vs. ARUEGO
102 SCRA 530, G.R NOs. L-25836-37
JAN. 31, 1981

Facts:

Jose Aruego obtained a credit accommodation from the Philippine Bank of

Commerce to facilitate the payment of printing of “World Current Events”, the
periodical he is publishing. Thus, for every printing of the periodical, the
printer, Encal Press and Photo Engraving, collected the cost of printing by
drawing a draft against the plaintiff, said draft being sent later to the defendant
for acceptance. As an added security for the payment of the amounts advanced
to Encal Press and Photo-Engraving, the plaintiff bank also required defendant
Aruego to execute a trust receipt in favor of said bank wherein said defendant
undertook to hold in trust for plaintiff the periodicals and to sell the same with
the promise to turn over to the plaintiff the proceeds of the sale of said
publication to answer for the payment of all obligations arising from the draft.
The Philippine Bank of Commerce instituted an action against Aruego to
recover the cost of printing of the latter’s periodical. Aruego however argues
that he signed the supposed bills of exchange only as an agent of the Philippine
Education Foundation Company where he is president.

Issue:
Whether Aruego can be held liable by the petitioner although he signed the
supposed bills of exchange only as an agent of Philippine Education
Foundation Company.

Held:
Yes. Aruego did not disclose in any of the drafts that he accepted that he was
signing as representative of the Philippine Education Foundation Company.
Aruego contends that he signed the supposed bills of exchange as an agent of
the Philippine Education Foundation Company where he is president. Section
20 of the Negotiable Instruments Law provides that "Where the instrument
contains or a person adds to his signature words indicating that he signs for or
on behalf of a principal or in a representative capacity, he is not liable on the
instrument if he was duly authorized; but the mere addition of words
describing him as an agent or as filing a representative character, without
disclosing his principal, does not exempt him from personal liability." An
inspection of the drafts accepted by the defendant shows that nowhere has he
disclosed that he was signing as a representative of the Philippine Education
Foundation Company. He merely signed as follows: "JOSE ARUEGO (Acceptor)
(SGD) JOSE ARGUEGO For failure to disclose his principal, Aruego is
personally liable for the drafts he accepted.
LORETO DELA VICTORIA VS. JOSE BURGOS
245 SCRA 374
JUNE 27, 1995

FACTS: Raul Sebreño filed a complaint for damages against Fiscal Bienvenido
Mabanto Jr. of Cebu City. Sebreño won and he was awarded the payment of
damages. Judge Burgos ordered De La Victoria, custodian of the paychecks of
Mabanto, to hold the checks and convey them to Sebreño instead. De La Victoria
assailed the order as he said that the paychecks and the amount thereon are not
yet the property of Mabanto because they are not yet delivered to him; that since
there is no delivery of the checks to Mabanto, the checks are still part of the public
funds; and the checks due to the foregoing cannot be the proper subject of
garnishment.
ISSUE: Whether or not De La Victoria is correct.
HELD: Yes. Under Section 16 of the 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 the maker or
drawer with intent to transfer title to the payee and recognize him as the holder
thereof.
WESTMONT BANK VS. EUGENE ONG

375 SCRA 212, G.R. No. 132560

January 30, 2002

FACTS: Ong was supposed to be the payee of the checks issued by Island
Securities. Ong has a current account with petitioner bank. He opted to sell his
shares of stock through Island Securities. The company in turn issued checks
in favor of Ong but unfortunately, the latter wasn't able to receive any. His
signatures were forged by Tamlinco and the checks were deposited in his own
account with petitioner. Ong then sought to collect the money from the family
of Tamlinco first before filing a complaint with the Central Bank. As his efforts were
futile to recover his money, he filed an action against the petitioner. The trial
and appellate court decided in favor of Ong.

ISSUE: Whether or not ong can collect back his money?

HELD: Since the signature of the payee was forged, such signature should be
deemed inoperative and ineffectual. Petitioner, as the collecting bank, grossly
erred in making payment by virtue of said forged signature. The payee, herein
respondent, should therefore be allowed to collect from the collecting bank.

It should be liable for 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 with an unauthorized
or forged indorsement of the payee’s signature and who collects the amount of the
check other from the drawee, is liable for the proceeds thereof to the payee or the
other owner, notwithstanding that the amount has been paid to the person
from whom the check was obtained.
REPUBLIC BANK VS. COURT OF APPEALS
196 SCRA 100, G.R. NO. 42725
APRIL 22, 1991

FACTS: On January 25, 1966, San Miguel Corporation (SMC) issued a P240.00
check in favor of Roberto Delgado against SMC’s account with the First National
City Bank (FNCB). Delgado fraudulently changed the amount written on the check
to P9,240.00. Delgado made a check deposit with Republic Bank. Republic Bank
accepted the check and endorsed it to FNCB by stamping on the back of the check
“all prior and/or lack of indorsement guaranteed“. The check cleared and FNCB
paid Republic Bank P9,240.00.
On April 19, 1966, SMC notified FNCB that the check involved was forged. FNCB
refunded SMC the amount of the check. On May 19, 1966, FNCB informed
Republic bank about the forgery, by then Delgado withdrew his account from
Republic Bank. On August 15, 1966, FNCB demanded Republic Bank to refund
the amount of the check.
ISSUE: Whether or not Republic Bank should refund the amount to FNCB.
HELD: No. The 24-hour clearing house rule embodied in Section 4(c) of Central
Bank Circular No. 9, as amended, applies to this case. This rule mandates banks
that after a clearing, all cleared items must be returned not later than 3:00 PM of
the following business day.
It is true that when an endorsement is forged, the collecting bank or last endorser,
as a general rule, bears the loss. But the unqualified endorsement of the collecting
bank on the check should be read together with the 24-hour regulation on clearing
house operation. Thus, when the drawee bank (FNCB) fails to return a forged or
altered check to the collecting bank (Republic Bank) within the 24-hour clearing
period, the collecting bank is absolved from liability.