POSTAL LAWS AND REGULATIONS ARE INCONSISTENT WITH THE CHARACTER OF

NEGOTIABLE INSTRUMENT

PHILIPPINE EDUCATION CO., INC. VS. MAURICIO A. SORIANO, ET AL.

GR NO. L-22405 JUNE 30, 1971

DOCTRINE:

It is not disputed that our postal statutes were patterned after statutes in force in the United States.
For this reason, ours are generally construed in accordance with the construction given in the
United States to their own postal statutes, in the absence of any special reason justifying a
departure from this policy or practice. The weight of authority in the United States to their own
postal orders are not negotiable instruments, the reason behind this rule being that, in establishing
and operating a postal money order system, the government is not engaging in commercial
transactions but merely exercises a governmental power for the public benefit.

FACTS:

Enrico Montinola sought to purchase from Manila Post Office ten money orders of P200.00 each
payable to EP Montinola. After the postal teller had made out of money orders numbered 124685,
124687-124695. Montinola offered to pay through private check but the said checks were not
generally accepted in payment of money orders. The teller advised to see the Money Order
Division but instead of doing so, he went away with the check and the money orders without the
knowledge of the teller.

Upon discovering the same, an urgent message was sent to all postmasters not to accept the
money orders with the mentioned numbers however, the Bank of America received a notice three
days later. On April 23, 1958 on money order number 12688 was received by the Philippine
Education Co as part of its sales receipt and deposited it with the Bank of America and cleared it
with the Bureau of Posts and received the amount of P200.00.

The Chief of the Money Order Division of Manila Post Office, Mauricio A. Soriano acting in behalf
of his co-appellee, Postmaster Enrico Palomar notified the Bank of America that they have
received one of the missing money orders. Appellant requested the Post Master General to
reconsider the action taken by his office deducting the sum of P200.00 from the clearing account
of the Bank of America, but it was denied. It was referred to the Secretary of Justice for advice. It
was elevated to the Department of Public Works and Communications but they have sustained
the action of the post offices. Montinola was charged with theft in the Court of First Instance and
was acquitted. The appellant filed an action against appellees praying to countermand the notice
given to the Bank of America deducting from said Bank’s clearing account the sum of P200.00
representing the amount of money order number 124688. The CFI rendered decision in favor of
the appellant. Appellants argue on its appealed decision of the CFI that the postal money order
in question is a negotiable instrument, that its nature as such is not in anyway affected the letter
dated October 26, 1948 signed by the Director of Posts and addressed to all banks with a clearing
account with the Post Office and that money orders when issued create a contractual relationship
of debtor and creditor, respectively, between the government, on the one hand, and the remitters
payees or endorsers, on the other hand.
ISSUE:

Are the postal money in question negotiable instruments?

RULING:

The postal money in question are not negotiable instruments. It is not disputed that our postal
statutes were patterned after statutes in force in the United States. For this reason, ours are
generally construed in accordance with the construction given in the United States to their own
postal statutes, in the absence of any special reason justifying a departure from this policy or
practice. The weight of authority in the United States to their own postal orders are not negotiable
instruments, the reason behind this rule being that, in establishing and operating a postal money
order system, the government is not engaging in commercial transactions but merely exercises a
governmental power for the public benefit.

It is to be noted in this connection that some of the restrictions imposed upon money orders by
postal laws and regulations are inconsistent with the character of negotiable instrument. For
instance, such laws and regulations usually provide for not more than one endorsement; payment
of money orders may be withheld under the variety of circumstances
CERTIFICATE OF TIME DEPOSITS ARE NEGOTIABLE INSTRUMENTS; WHEN
NEGOTIATED

CALTEX (PHILIPPINES), INC., VS. COURT OF APPEALS AND SECURITY BANK AND
TRUST COMPANY
G.R. No. 97753. AUGUST 10, 1992
REGALADO, J:

DOCTRINE:
The accepted rule is that the negotiability or non-negotiability of an instrument is determined from
the writing, that is, from the face of the instrument itself. In the construction of a bill or note, the
intention of the parties is to control, if it can be legally ascertained. While the writing may be read
in the light of surrounding circumstances in order to more perfectly understand the intent and
meaning of the parties, yet as they have constituted the writing to be the only outward and visible
expression of their meaning, no other words are to be added to it or substituted in its stead. The
duty of the court in such case is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the meaning of the words they
have used. What the parties meant must be determined by what they said.
A negotiation for purpose of security for purchases cannot be effected by mere delivery of the
instrument since, necessarily, 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. The
pertinent law on this point is that where the holder has a lien on the instrument arising from
contract, he is deemed a holder for value to the extent of his lien.
FACTS:
Angel dela Cruz was issued by the defendant 280 certificates of time deposit for his deposit of
P1,120,000.00 to the latter. Angel delivered the said CTDs to herein plaintiff in connection with
his purchased of fuel products. The branch manager lost all the CTDs so Angel executed and
delivered an Affidavit of Loss required by the bank to replace the CTDs. Angel later on negotiated
and obtained a loan from the bank and executed a Deed of Assignment of Time Deposit which
stated that he surrenders to the defendant bank “full control of the indicated time deposits” from
and after date of the assignment and further authorizes said bank to pre-terminate, set-off and
'apply the said time deposits to the payment of whatever amount or amounts may be due' on the
loan upon its maturity. The CTDs were presented to the defendant bank for verification and a
letter was sent to the defendant formally informing it of plaintiff’s possession of the same and their
decision to terminate it. Plaintiff requested the defendant to furnish it with “a copy of document
evidencing the guarantee agreement” as well as the “details of Angel’s obligation” against which
the plaintiff proposed to apply the time deposits. The documents were not produced and
accordingly, the defendant bank rejected the plaintiff’s demand for payment of the value of the
CTDs. Angel’s loan with the defendant bank matured and fell due so the latter set off and applied
the time deposits to the payment of the matured loan.
Thus, the instant complaint praying that defendant bank be ordered to pay aggregate value of the
certificates of time deposit of P1,120,000.00 plus accrued interest and compounded interest
therein at 16% per annum, moral and exemplary damages as well as attorney's fees.
ISSUE:
1. Are time deposit certificated negotiable instruments?
2. Were the CTDs negotiated to the petitioners?
RULING:
1. YES. The CTDs in question undoubtedly meet the requirements of the law for negotiability.
In compliance with the rewuisite (d) of NIL, the documents provide that the amounts deposited
shall be repayable to the depositor. And who, according to the document, is the depositor? It is
the "bearer." The documents do not say that the depositor is Angel de la Cruz and that the
amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable
to the bearer of the documents or, for that matter, whosoever may be the bearer at the time of
presentment. If it was really the intention of respondent bank to pay the amount to Angel de la
Cruz only, it could have with facility so expressed that fact in clear and categorical terms in the
documents, instead of having the word "BEARER" stamped on the space provided for the name
of the depositor in each CTD.
Therefore, time deposits are negotiable instruments.
2. NO. Under the Negotiable Instruments Law, an instrument is negotiated when it is
transferred from one person to another in such a manner as to constitute the transferee the
holder thereof, and a holder may be the payee or indorsee of a bill or note, who is in possession
of it, or the bearer thereof. In the present case, however, there was no negotiation in the sense
of a transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious
reasons, mere delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only
as security for the purchases of Angel de la Cruz (and we even disregard the fact that the amount
involved was not disclosed) could at the most constitute petitioner only 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, necessarily, 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.
Thus, the CTDs were not negotiated to the petitioners.
COURT’S INTERPRETATION IN CASE OF AMBIGUITY
SPOUSES EVANGELISTA vs. MERCATOR FINANCE CORP.
GR. NO. 148864, AUGUST 21, 2003
PUNO, J.:

DOCTRINE:
Courts can interpret a contract only if there is doubt in its letter. But, an examination of the
promissory note shows no such ambiguity. Besides assuming that there is an ambiguity, Section
17 of the Negotiable Instruments Law states:
“Construction where instrument is ambiguous. Where the language of the instrument is
ambiguous or there are omissions therein, the following rules shall apply:
xxx
(g) Where an instrument containing the word I promise to pay is signed by two or more persons,
they are deemed to be jointly and severally liable thereon.”
FACTS:
Petitioners filed a complaint for annulment of titles against respondents, Mercator Finance Corp.,
Lydia P. Salazar, Lamecs Realty and Development Corporation. Petitioners claim that they are
the registered owners of 5 parcels of land contained in the Real Estate Mortgage executed by
them and Embassy Farms INC in favor of Mercator only as officers of the farm. Petitioners
contend that they did not receive any proceeds of the loan evidenced by a promissory note, as all
of it went to Embassy Farms. So, the mortgage was without any consideration as to them since
they did not personally obtain any loan or credit accommodations. There being no principal
obligation on which the mortgage rests, the real estate mortgage is void. With the void mortgage,
they assailed the validity of the foreclosure proceedings conducted by Mercator which resulted to
transfer of title of the land to Lydia Salazar and to Lamecs Realty and Development Corp.
Mercator contends that plaintiffs executed a mortgage in favor to them for and in consideration of
certain loans and other forms of credit accommodations given by Mercator amounting to P844,
625, and those that mortgagee may extend to the plaintiff mortgagors. Since petitioners and
Embassy Farms signed the promissory note as co-makers, aside from the Continuing Suretyship
and the succeeding promissory notes restructuring the loan, then petitioners are jointly and
severally liable with Embassy Farms. Due to their failure to pay the obligation, the foreclosure and
sale of the mortgaged properties are valid. However, respondent Salazar and Lamecs, contend
that they are innocent purchasers for value and in good faith relying on the validity of the title of
Mercator.
ISSUE:
Are Spouses Evangelista and Embassy Farms solidarily liable?
RULING:
Yes, they are solidarily liable. Embassy Farms maintain that the promissory note does not convey
their true intent in executing the document. The defense is unavailing. Even if petitioners intended
to sign the note merely as officers of Embassy Farms, still this does not erase the fact that they
subsequently executed a continuing suretyship agreement. A surety is one who is solidarily liable
with the principal. Petitioners cannot claim that they did not personally receive any consideration
for the contract for is well-entrenched is the rule that the consideration necessary to support a
surety obligation need not pass directly to the surety, a consideration that makes the contract
effective between the principal parties thereto. Having executed the suretyship agreement, there
can be no dispute on the personal liability of petitioners.
As to the argument that there is an ambiguity in the wording of the promissory note and since it
was Mercator who provided the form, then the ambiguity should be resolved against it. The Court
rule that courts can interpret a contract only if there is doubt in its letter. But, an examination of
the promissory note shows no such ambiguity. Besides assuming that there is an ambiguity,
Section 17 of the Negotiable Instruments Law states:
“Construction where instrument is ambiguous. Where the language of the instrument is
ambiguous or there are omissions therein, the following rules shall apply:
xxx
(g) Where an instrument containing the word I promise to pay is signed by two or more persons,
they are deemed to be jointly and severally liable thereon.”
DELIVERY OF CHECK NECESSARY FOR A PAYEE TO ACQUIRE INTEREST; WHEN IT
DOES NOT CONSTITUTE PAYMENT OF OBLIGATION
DEVELOPMENT BANK OF RIZAL VS SIMA WEI AND/OR LEE KIAN HUAT, MARY CHENG
UY, SAMSON TUNG, ASIAN INDUSTRIAL PLASTIC CORPORATION AND PRODUCERS
BANK OF THE PHILIPPINES
G.R. No. 85419, March 9, 1993
CAMPOS, JR., J.:
DOCTRINE:
The payee of a negotiable instrument acquires no interest with respect thereto until its delivery to
him. Delivery of an instrument means transfer of possession, actual or constructive, from one
person to another. Without the initial delivery of the instrument from the drawer to the payee, there
can be no liability on the instrument. Moreover, such delivery must be intended to give effect to
the instrument.
The delivery of checks in payment of an obligation does not constitute payment unless they are
cashed or their value is impaired through the fault of the creditor.

FACTS:
In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the latter
executed and delivered to the former a promissory note, engaging to pay the petitioner Bank or
order the amount of P1,820,000.00 on or before June 24, 1983 with interest at 32% per annum.
After partial payments, Sima Wei issued two crossed checks payable to the petitioner Bank drawn
against China Banking Corporation as payment for the balance of the loan he secured from the
petitioner bank. These two checks were not delivered to the petitioner-payee or to any of its
authorized representatives. For reasons not shown, these checks came into the possession of
respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement
(forged or otherwise) to the account of respondent Plastic Corporation, at the Balintawak branch,
Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager of the Balintawak branch of
Producers Bank, relying on the assurance of respondent Samson Tung, President of Plastic
Corporation, that the transaction was legal and regular, instructed the cashier of Producers Bank
to accept the checks for deposit and to credit them to the account of said Plastic Corporation,
inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no
indorsement of the latter. Hence, petitioner filed the complaint for sum of money to enforce
payment of the balance on promissory note and the two checks.
ISSUE:
1. Does the Development Bank of Rizal acquires interest in the negotiable instrument
despite non-delivery of the same?

2. Is Sima Wei relieved from his liability for to the petitioner Bank for issuing the two checks?
RULING:
 1. NO, Section 16 of the Negotiable Instruments Law, which governs checks, provides in
part:

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. Delivery of an instrument means transfer of possession, actual or constructive,
from one person to another. Without the initial delivery of the instrument from the drawer to the
payee, there can be no liability on the instrument. Moreover, such delivery must be intended to
give effect to the instrument.
The allegations of the petitioner in the original complaint show that the two (2) China Bank checks,
numbered 384934 and 384935, were not delivered to the payee, the petitioner herein. Without
the delivery of said checks to petitioner-payee, the former did not acquire any right or interest
therein and cannot therefore assert any cause of action, founded on said checks, whether against
the drawer Sima Wei or against the Producers Bank or any of the other respondents.
Hence, Development Bank does not acquire interest since the check has not been delivered to it.
2. NO, Sima Wei is not freed from liability to petitioner Bank under the loan evidenced by
the promissory note agreed to by her. Her allegation that she has paid the balance of her
loan with the two checks payable to petitioner Bank has no merit for, as We have earlier
explained, these checks were never delivered to petitioner Bank. And even granting,
without admitting, that there was delivery to petitioner Bank, the delivery of checks in
payment of an obligation does not constitute payment unless they are cashed or their
value is impaired through the fault of the creditor. None of these exceptions were alleged
by respondent Sima Wei.
Therefore, Sima Wei is not relieved from liability from petitioner Bank.
FACTS DETERMINING A HOLDER IN DUE COURSE
MARCELO A. MESINA VS. THE HONORABLE INTERMEDIATE APPELLATE COURT
GR NO. L-70145, NOVEMBER 13, 1986
PARAS, J.:

DOCTRINE:
A holder of a cashier’s check who is not a holder in due course cannot enforce such check against
the issuing bank which dishonors the same.

FACTS:
Jose Go purchased from Associated Bank cashier’s check for P800, 000. Unfortunately, Jose left
check on top of the desk of the bank manager when he left hence the latter entrusted the check
for safekeeping to Albert Uy ‘who had a visitor then, Alexander Lim who allegedly steal the check.
Go was suggested to accomplish “stop payment” order and executed an affidavit of loss. The
police station received an information that one of the client of Prudential Bank, Escolta Branch
tried to encash the lost check which was eventually dishonored by Associated Bank. The police
sent a letter to the manager of the Prudential Bank requesting for assistance in identifying the
person who was found as Marcelo Mesina upon the filing of a complaint for Interpleader against
the latter, he was first named as John Doe.
Mesina contended that the check was paid to him by Alexander Lim in a certain transaction and
filed a suit for damages. Associated Bank filed an Interpleader against Jose Go and Marcelo
Mesina regarding their conflicting claims over the bank’s check for P800, 000, while ruled in favor
of the bank thus an appeal for certiorari from the decision of the Intermediate Appellate Court.
ISSUE:
Is Mesina a holder in due course?
RULING:
No. Petitioner failed to substantiate his claim that he is a holder in due course, for
consideration and value.
Under the law, Sec. 52 of the Negotiable Instrument Law; what constitute a due course—
A holder in due course is a holder who has taken the instrument under the following
circumstances: (d) That at the time it was negotiated to him, he had no notice of infirmity in the
instrument or defect in the title of the person negotiating it. Admittedly, petitioner became the
holder of the cashier’s check as endorsed by Alexander Lim who stole the check. He had therefore
notice of the defect of his title over the check from the start. The holder of a cashier’s check who
is not a holder in due course cannot enforce such check against the issuing bank which dishonors
the same. If a payee of a cashier’s check obtained from issuing bank by fraud, or if there is some
other reason why the payee is not entitled to collect the check, the respondent bank would have
the right to refuse payment of the check when presented by the payee, since respondent bank
was aware of the facts surrounding the loss of the check. Moreover, the bank is not liable to
nobody on the check but only to buyer Jose Go. Go owns the money it represents and he is
therefore the drawer and drawee in the same manner as if he has a current account and he issued
a check and from the moment said cashier’s check was lost and/or stolen no one outside of Go
can be termed a holder in due course because he had not indorsed it in due course. The check
in question suffers from the infirmity of not having been properly negotiated and for value by
respondent Jose Go who as already been said is the real owner of the said instrument. Hence,
Marcelo Mesina is not a holder in due course.
A HOLDER OF A CHECK WHO IS NOT A HOLDER IN DUE COURSE CANNOT SUE THE
DRAWER-ACCOMMODATION PARTY
STELCO MARKETING CORPORATION VS. COURT OF APPEALS
G.R. NO. 96160 JUNE 17, 1992
LAPENA, JR., J.

DOCTRINE:
A holder in due course, says the law, "is a holder who has taken the instrument under the following
conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it
before it was overdue, and without notice that it had been previously dishonored, if such was the
fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him,
he had no notice of any infirmity in the instrument or defect in the title of the persons negotiating
it." As regards an accommodation party the fourth condition, i.e., lack of notice of any infirmity in
the instrument or defect in title of the persons negotiating it, has no application. This is because
Section 29 of the law above quoted preserves the right of recourse of a "holder for value" against
the accommodation party notwithstanding that "such holder, at the time of taking the instrument,
knew him to be only an accommodation party."
Possession of a negotiable instrument after presentment and dishonor, or payment, is utterly
inconsequential; it does not make the possessor a holder for value within the meaning of the law;
it gives rise to no liability on the part of the maker or drawer and indorsers. It is clear from the
relevant circumstances that STELCO cannot be deemed a holder of the check for value. It does
not meet two of the essential requisites prescribed by the statute.
FACTS:
Stelco Marketing Corporation is engaged in the distribution and sale to the public of structural
steel bars. It sold to RYL Construction, Inc. quantities of steel bars of various sizes and rolls of
G.I. wire. The aggregate price for the purchases was P126,859.61. Although the corresponding
invoices issued by STELCO stipulated that RYL would pay "COD" (cash on delivery), the latter
made no payments for the construction materials thus ordered and delivered despite insistent
demands for payment by the former.
On April 4, 1981, RYL gave to Armstrong Industries, described by STELCO as its sister
corporation and manufacturing arm, a check drawn against Metrobank in the amount of
P126,129.86, numbered 765380 and dated 4 April 1981. That check was a company check of
another corporation, Steelweld Corporation , signed by its President, Peter Rafael Limson, and
its Vice-President, Artemio Torres. The check was issued by Limson at the behest( order ) of his
friend, Romeo Y. Lim, President of RYL. Romeo Lim had asked Limson for financial assistance,
and the latter had agreed to give Lim a check only by way of accommodation, "only as guaranty
but not to pay for anything."
When the latter deposited the check at its bank, it was dishonored because of insufficiency funds.
When so deposited, the check bore two (2) indorsements, that of RYL Construction, followed by
that of Armstrong Industries. On account of the dishonor of Metrobank Check 765380, and on
complaint of Armstrong Industries , Rafael Limson and Artemio Torres were charged in the
Regional Trial Court of Manila with a violation of Batas Pambansa Bilang 22. They were acquitted
in a decision rendered on the ground that the check in question was not issued by the drawer to
apply on account for value, it being merely for accommodation purposes. That judgment however
conditioned the acquittal with the pronouncement that "this is not however to release Steelweld
Corporation from its liability under Sec. 29 of the Negotiable Instruments Law for having issued it
for the accommodation of Romeo Lim."
Eleven months later and some 4 years after issuance of the check , STELCO filed with the
Regional Trial Court of Caloocan City a civil complaint against both RYL and STEELWELD for
the recovery of the value of the steel bars and wire sold to RYL in the amount of P126,129.86,
plus interest and attorney's fees. RYL could no longer be located and could not be served with
summons. It never appeared. Only STEELWELD filed an answer. The judgment sentenced
Steelweld to pay to Stelco the amount of P126,129.86 with legal rate of interest and for attorney's
fees. STELCO's motion for reconsideration was denied by the Appellate Tribunal. STELCO
appealed.
ISSUES:
1. Whether the fourth condition, i.e. as to notice, for a holder in due course is applicable to
an accommodation party.
2. Whether STELCO became a holder in due course of Check 765380, a bearer instrument
within the contemplation of the Negotiable Instruments Law.
RULING:
1.
A holder in due course, says the law, "is a holder who has taken the instrument under the
following conditions: (a) That it is complete and regular upon its face; (b) That he became the
holder of it before it was overdue, and without notice that it had been previously dishonored, if
such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was
negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the
persons negotiating it." As regards an accommodation party (such as STEELWELD), the fourth
condition, i.e., lack of notice of any infirmity in the instrument or defect in title of the persons
negotiating it, has no application. This is because Section 29 of the law above quoted preserves
the right of recourse of a "holder for value" against the accommodation party notwithstanding that
"such holder, at the time of taking the instrument, knew him to be only an accommodation party."
2.
NO. There is no evidence that STELCO's possession of Check back to any time before the
instrument's presentment and dishonor. There is no evidence whatsoever that the check was ever
given to it, or indorsed to it in any manner or form in payment of an obligation or as security for
an obligation, or for any other purpose before it was presented for payment. On the contrary,
STELCO never became a holder for value and that nowhere in the check itself does the name of
Stelco Marketing appear as payee, indorsee or depositor thereof.
What the record shows is that: (1) the STEELWELD company check in question was given by its
president to R.Y. Lim; (2) it was given only by way of accommodation, to be "used as collateral
for another obligation;" (3) in breach of the agreement, however, R.Y. Lim indorsed the check to
Armstrong in payment of an obligation; (4) Armstrong deposited the check to its account, after
indorsing it; (5) the check was dishonored. The record does not show any intervention or
participation by STELCO in any manner or form whatsoever in these transactions, or any
communication of any sort between STEELWELD and STELCO, or between either of them and
Armstrong Industries, at any time before the dishonor of the check.
The record does show that after the check had been deposited and dishonored, STELCO came
into possession of it in some way, and was able, several years after the dishonor of the check, to
give it in evidence at the trial of the civil case it had instituted against the drawers of the check
(Limson and Torres) and RYL.
Possession of a negotiable instrument after presentment and dishonor, or payment, is utterly
inconsequential; it does not make the possessor a holder for value within the meaning of the law;
it gives rise to no liability on the part of the maker or drawer and indorsers. It is clear from the
relevant circumstances that STELCO cannot be deemed a holder of the check for value. It does
not meet two of the essential requisites prescribed by the statute.
It did not become "the holder of it before it was overdue, and without notice that it had been
previously dishonored," and it did not take the check "in good faith and for value." Neither is there
any evidence whatever that Armstrong Industries, to whom R.Y. Lim negotiated the check,
accepted the instrument and attempted to encash it in behalf, and as agent of STELCO. On the
contrary, the indications are that Armstrong was really the intended payee of the check and was
the party actually injured by its dishonor; it was after all its representative (a Mr. Young) who
instituted the criminal prosecution of the drawers, Limson and Torres, albeit (although)
unsuccessfully.
LIABILITY DUE TO NEGLIGENCE OF THE TREASURY
REPUBLIC OF THE PHILIPPINES VS. EQUITABLE BANKING CORPORATION
G.R. NO. L-15894, NO. L-15895, JANUARY 30, 1964
CONCEPCION, J.:

DOCTRINE:
Where the Treasury had not only been negligent in clearing its own warrants, but had, also,
thereby induced the two defendant banks to pay the amounts thereof to their respective
depositors, and where, moreover, the irregularity of said warrants was apparent on the face
thereof from the viewpoint of the Treasury, and said defendant banks had not been informed of
said irregularity until after the said warrants had been cleared and honored, it is held that the loss
of the amounts represented by said warrants is mainly imputable to acts and omissions of the
Treasury, for which said banks should not and cannot be penalized.
FACTS:
The Government seeks to recover:
(1) from the Equitable Banking the sum of P17,100, representing the aggregate value of four (4)
treasury warrants paid to said bank by the Treasurer of the thru the Clearing Office of the Central
Bank of the Philippines; and
(2) from the Bank of the Philippine Islands the total sum of P342,767.63, representing the
aggregate value of twenty-four (24) warrants similarly paid by the Treasurer to the PI Bank.
These claims for refund are based upon a common ground: although said 28 warrants were
executed on genuine government forms, the signature thereon of the drawing office and that
of the representative of the Auditor General in that office are forged.
Corporacion had acquired the twenty-four (24) treasury warrantsby accommodating its former
trusted employee — Jacinto Carranza — who asked the Corporacion to cash the warrants. The
Corporacion acceded to Carranza's request, provided that the warrants would first be deposited
with PI Bank, and that actual payment of the value of the warrants would be made only after the
same had been duly accepted and cleared by the Treasurer and the proceeds thereof duly
credited to the account of the Corporacion in the PI Bank. The PI Bank presented the warrants
for payment to the drawee thereof — the Government — thru the Clearing Office of the Central
Bank; that after being cleared, the warrants were paid by the Treasurer.
The PI Bank credited the proceeds of said warrants to the Corporation, which, in turn, withdrew
said proceeds by means of its own checks and eventually paid the corresponding amounts to
Jacinto Carranza. The Treasurer returned twenty-four (24) of said warrants to the Central Bank,
and demanded, on the ground that they had been forged, that the value thereof be charged
against the accounts of the PI Bank in the Clearing Office and credited back to the demand deposit
of the Bureau of the Treasury.
Four (4) warrants involved therein were deposited with the Equitable Bank by persons known
thereto as its depositors or customers that, in due course, the Equitable Bank cleared said
warrants, thru the Clearing Office, then collected the corresponding amounts from the Treasurer
and thereafter credited said amounts to the accounts of the respective depositors.
The Treasurer notified these Banks of the alleged defect of said warrants and demanded
reimbursement of the amounts thereof; and that this demand was rejected by said Banks
ISSUE:
Can the Government can recover the amounts paid erroneously in consideration of the 28
treasury warrants, which in fact, were forged?
RULING:
No.
The aforementioned twenty-eight (28) warrants were cleared and paid by the Treasurer, in view
which the PI Bank and the Equitable Bank credited the corresponding amounts to the respective
depositors of the warrants and then honored their checks for said amounts. Thus, the Treasury
had not only been negligent in clearing its own warrants, but had, also, thereby induced the PI
Bank and the Equitable Bank to pay the amounts thereof to said depositors. The gross nature of
the negligence of the Treasury becomes more apparent when we consider that each one of the
twenty-four (24) warrants involve was for over P5,000, and, hence; beyond the authority of the
auditor of the Treasury — whose signature thereon had been forged — to approve. In other words,
the irregularity of said warrants was apparent the face thereof, from the viewpoint of the Treasury.
Moreover, the same had not advertised the loss of genuine forms of its warrants. Neither had the
PI Bank nor the Equitable Bank been informed of any irregularity in connection with any of the
warrants involved.
As a consequence, the loss of the amounts thereof is mainly imputable to acts and omissions of
the Treasury, for which the PI Bank and the Equitable Bank should not and cannot be penalized.
Where a loss, which must be borne by one of two parties alike innocent of forgery, can be traced
to the neglect or fault of either, it is reasonable that it would be borne by him, even if innocent of
any intentional fraud, through whose means it has succeeded, (Phil. National Bank v. National
City Bank of New York, 63 Phil. 711, 723.)
Generally, where a drawee bank otherwise would have a right of recovery against a collecting or
indorsing bank for its payment of a forged check its action will be barred if it is guilty of an
unreasonable delay in discovering the forgery and in giving notice thereof.
FACTS MUST BE SHOWN THE DOCTRINE OF LAST CLEAR CHANCE
PHILIPPINE BANK OF COMMERCE, NOW ABSORBED BY PHILIPPINE COMMERCE
INTERNATIONAL BANK VS. THE COURT OF APPEALS
GR. 97626, MARCH 14, 1997
HERMOSISIMA, JR., J.:

DOCTRINE:
An antecedent negligence of a person does not preclude the recovery of damages for the recovery
of damages for the supervening negligence of, or bar a defense against liability sought by another,
if the latter, who had the last fair chance, could have avoided the impending harm by the exercise
of due diligence
FACTS:
Rommel’s Marketing Corporation (RMC) represented by its President and General Manager
Romeo Lipana filed a complaint against Philippine Bank of Commerce (PBC) to recover the sum
of P304, 979. 74 representing various deposits which was wrongfully credited to the account of
one Bienvenido Cotas allegedly due to the gross and inexcusable negligence.
Romeo Lipana claimed to have entrusted RMC funds to his secretary, Irene Yabut, for the purpose
of depositing said funds in the current accounts of RMC. However, instead of depositing it to the
RMC account, she deposited it to his husbands account, Cotas, without Lipana knowing it had
never been the practice of Lipana to check the monthly statement sent by the bank eposing
complete trust and confidence on the latter. This went on in span of more than one year.
Upon discovery of the loss of its funds, RMC demanded from petitioner bank the return of its
money, but the demand went unheeded hence the suit.
ISSUE:
What is the proximate cause of the loss, to the tune of P304, 979.74, suffered by the private
respondent RMC—petitioner’s bank’s negligence or that of private respondent’s?
RULING:
The Court ruled against the petitioner bank. Under the doctrine of “last clear chance”, it states
that where both parties are negligent, but the negligent act of one is appreciably later in time of
that of the other, or when it is impossible to determine whose fault or negligence should be
attributed to the incident, the one who had the last clear opportunity to avoid the impending harm
and failed to do so is chargeable with the consequence thereof.
In the case at bench, assuming that RMC was negligent in entrusting cash to dishonest employee,
thus providing the latter to defraud the company, as advanced by the petitioner bank, thus its
teller, had the last clear opportunity to overt injury incurred by its client, simply by faithfully
observing their self-imposed validation procedure.
Therefore, the petitioner bank’s negligence was the proximate cause of the loss of RMC’s fund
due to failure to exercise the due diligence repaired in banks to avoid the impeding harm to its
client.
WHO IS AN ACCOMODATION PARTY?
STELCO MARKETING CORPORATION, vs. HON. COURT OF APPEALS and STEELWELD
CORPORATION OF THE PHILIPPINES, INC.
G.R. No. 96160 June 17, 1992
NARVASA, C.J.:

DOCTRINE: An accommodation party is one who has singed the instrument as maker, drawer,
acceptor, or indorser, without receiving valued therefor, and for the purpose of lending his name
to some other person. Such a person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of taking the instrument, knew him to be only an
accommodation party.

FACTS:
Stelco Marketing Corporation sold structural steel bars to RYL Construction Inc. RYL gave
Stelco’s “sister corporation,” Armstrong Industries, a MetroBank check from Steelweld
Corporation. The check was issued by Steelweld’s President to Romeo Lim, President of RYL,
by way of accommodation, as a guaranty and not in payment of an obligation. When Armstrong
deposited the check at its bank, it was dishonored because it was drawn against insufficient funds.
When so deposited, the check bore two indorsements, i.e. RYL and Armstrong. Subsequently,
Stelco filed a civil case against RYL and Steelweld to recover the value of the steel products.

ISSUE:
Is Steelwield, the accommodating party, liable?

RULING:
Steelweld may be held liable but not by Stelco. Under Section 29 of the NIL, Steelweld Corp. can
be held liable for having issued the subject check for the accommodation of Romeo Lim. An
accommodation party is one who has singed the instrument as maker, drawer, acceptor, or
indorser, without receiving valued therefor, and for the purpose of lending his name to some other
person. Such a person is liable on the instrument to a holder for value, notwithstanding such
holder, at the time of taking the instrument, knew him to be only an accommodation party. Stelco
however, cannot be deemed a holder of the check for value as it does not meet two essential
requisites prescribed by statute, i.e. that it did not become “the holder of it before it was overdue,
and without notice that it had been previously dishonored,” and that it did not take the check “in
good faith and for value.”
NATURE OF A MANAGER’S CHECK

SECURITY BANK VS. RCBC

G.R. NO. 170984/170987 JANUARY 30, 2009
QUISUMBING, ACTING CJ

DOCTRINE:
A manager’s check is one drawn by a bank’s manager upon the bank itself. It has the same
footing as a certified check which is deemed to have been accepted by the bank that certified it.
As the bank’s own check, a manager’s check becomes the primary obligation of the bank and is
accepted in advance by the act of its issuance

FACTS
On January 9, 1981, Security Bank and Trust Company (SBTC) issued a manager’s check for P
8M, payable to "CASH," as proceeds of the loan granted to Guidon Construction and
Development Corporation (GCDC).

The check was deposited by Continental Manufacturing Corporation (CMC) in its Current
Account with Rizal Commercial Banking Corporation (RCBC). Immediately, RCBC honored
the P8M check and allowed CMC to withdraw.

On January 12, 1981, GCDC issued a "Stop Payment Order" to SBTC claiming that the P 8M
check was released to a 3rd party by mistake. SBTC dishonored and returned the manager’s
check to RCBC.

On February 13, 1981, RCBC filed a complaint for damages against SBTC with CFI then
transferred to RTC. Following the rules of the Philippine Clearing House, RCBC and SBTC
stopped returning the checks to each other. By way of a temporary arrangement pending
resolution of the case, the P 8 M check was equally divided between RCBC and SBTC.

On May 9, 2000, RTC in favor of RCBC.

CA affirmed with modification RTC decision by adding interest.

ISSUE
Is SBTC liable for its manager's check.

RULING
YES. SBTC should be held liable for its manager’s check.

At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary
check but a manager’s check.
A manager’s check is one drawn by a bank’s manager upon the bank itself. It has the same
footing as a certified check which is deemed to have been accepted by the bank that certified it.
As the bank’s own check, a manager’s check becomes the primary obligation of the bank and is
accepted in advance by the act of its issuance

RCBC, in immediately crediting the amount of P8 million to CMC’s account, relied on the
integrity and honor of the check as it is regarded in commercial transactions
In the July 9, 1980 Memorandum, banks were given the discretion to allow immediate drawings
on uncollected deposits of manager’s checks, among others. It is important that banks should
guard against injury attributable to negligence or bad faith on its part. The banking business is
impressed with public interest, the trust and confidence of the public in it is of paramount
importance. Highest degree of diligence is expected, and high standards of integrity and
performance are required of it.
DESTRUCTION AFTER DELIVERY IN WAREHOUSE OF PURCHASER
TAN LEONCO VS. GO INQUI
G.R. NO. 3383, SEPTEMBER 13, 1907
JOHNSON, J.:

DOCTRINE:
Tan Leonco sold and delivered into the warehouse of J.C. a certain quantity of hemp and
received therefor a bill of exchange in payment. Later, and after the said delivery, the
warehouse and its content was destroyed. Held, that the loss so incurred was that of J.C.,
inasmuch as the title to the hemp passed to the latter upon the delivery thereof in the
warehouse.
FACTS:
The evidence shows that the plaintiff, through his agent, before the date on which the bill of
exchange was executed and delivered, deposited in a warehouse in the pueblo of Buhang a
quantity of abacá (hemp), the value of which was 800 pesos, and that the bill of exchange was
executed in payment for the abacá. The evidence also shows that the warehouse in the said
pueblo where the hemp was deposited belonged to the defendant and that it had been the
custom of the plaintiff to make deposits in the warehouse of the defendant.
After the deposit of the hemp in the manner above stated, and before the same was removed
from the warehouse by the defendant, the warehouse and its contents were destroyed by the
insurrection. The defendant alleges that he never received the hemp and therefore there was no
consideration for the bill of exchange. The plaintiff claims that when the hemp was deposited in
the warehouse it became the property of the defendant and that the defendant recognized this
fact when he stated in the bill of exchange that it was given for "value received.
ISSUE:
Is the defendant with right to invoke lack of consideration for the bill of exchange in question?
HELD:
No. The defendant cannot allege the same.
It is not disputed that the warehouse in which the hemp was deposited was the warehouse of
the defendant. The hemp became the property of the defendant upon delivery thereof in the
warehouse of the defendant (arts. 1462 and 1463, Civil Code), and was the property of the
defendant at the time of its destruction by the insurrection. There had been a complete delivery
of the said abacá to the defendant, and the loss occurring thereafter, without any fault of the
plaintiff, was the loss of the defendant. We hold that the delivery of the hemp as above stated
was duly made to the defendant and constituted a valuable consideration for the said bill of
exchange or check.
EFFECT OF ISSUING AN UNDATED CHECK ONLY AS A PROOF OF LOAN

ERNESTO T. PACHECO AND VIRGINIA O. PACHECO VS. COURT OF APPEALS, ET.AL.

G.R. NO. 126670, 2 DECEMBER 1999
YNARES-SANTIAGO, J.:

DOCTRINE:
By mutual agreement of the parties, the negotiable character of a check may be waived and the
instrument may be treated simply as proof of an obligation.

FACTS:
Petitioner spouses are engaged in the construction business. Complainant Romualdo Vicencio
was a former Judge and his wife, Luz Vicencio, owns a pawnshop in Samar. On May 17, 1989,
due to financial difficulties arising from the repeated delays in the payment of their receivables for
the construction projects from the DPWH, petitioners were constrained to obtain a loan of
P10,000.00 from Mrs. Vicencio.The latter acceded. Instead of merely requiring a note of
indebtedness, however, her husband Mr. Vicencio required petitioners to issue an undated check
as evidence of the loan which allegedly will not be presented to the bank. Despite being informed
by petitioners that their bank account no longer had any funds, Mrs. Vicencio insisted that they
issue the check, which according to her was only a formality. Thus, petitioner Virginia Pacheco
issued on May 17, 1989 an undated RCBC check with number CT 101756 for
P10,000.00. However, she only received the amount of P9,000.00 as the 10% interest on the loan
was already deducted. Mrs. Vicencio also required Virginias husband, herein petitioner Ernesto
Pacheco, to sign the check on the same understanding that the check is not to be encashed but
merely intended as an evidence of indebtedness which cannot be negotiated.

As years passed, herein petitioners obtained several loans with the same conditions and
agreements, which amounted to a total of Php 85, 000.00. However in 1992, petitioners were
surprised to receive a demand letter from Mrs. Vicencios spouse informing them that the checks
when presented for payment were dishonored due to Account Closed. Consequently, upon the
complaint of Mrs. Vicencios husband with whom petitioners never had any transaction, two
informations for estafa were filed against them

ISSUE:
Are the checks issued negotiable instruments?
Note: The negotiability of issued instruments are vital in determining whether the spouses are
guilty of estafa.

RULING:

NO. A check has the character of negotiability and at the same time it constitutes an evidence of
indebtedness. By mutual agreement of the parties, the negotiable character of a check may be
waived and the instrument may be treated simply as proof of an obligation. There cannot be deceit
on the part of the obligor, petitioners herein, because they agreed with the obligee at the time of
the issuance and postdating of the checks that the same shall not be encashed or presented to
the banks. As per assurance of the lender, the checks are nothing but evidence of the loan or
security thereof in lieu of and for the same purpose as a promissory note. By their own covenant,
therefore, the checks became mere evidence of indebtedness. It has been ruled that a drawer
who issues a check as security or evidence of investment is not liable for estafa.
CHECK AS AN EVIDENCE OF INDEBTEDNESS

LIM VS. MINDANAO WINES AND LIQUOR GALLERIA

G.R. NO. 175851, JULY 4, 2012
DEL CASTILLO, J.:

DOCTRINE:
It is well to remember that a check may be evidence of indebtedness. A check, the entries of
which are in writing could prove a loan transaction.

FACTS:
A sales invoice and statement of account indicate that respondent Mindanao Wines and Liquor
Galleria delivered several cases of liquors to H & E Commercial owned by petitioner Emilia for
which the latter issued four Philippine National Bank (PNB) postdated checks worth P25, 000
each.

Two of the PNB postdated checks bounced for the reasons “Account Closed” and “Drawn Against
Insufficient Funds”. Respondent Mindanao Wines demanded the payment for these check but the
request was left unheeded. Finally, respondent sent a demand letter to petitioner, evidence of
receipt of the same is apparent in the signature of petitioner.

The Municipal Trial Court in Cities ruled and dismissed the criminal action for violation of B.P. 22
filed by respondent. The court held that the prosecution failed to establish and prove beyond
whisper of doubt an essential element that consummates the crime under B.P. 22 which is the
fact of dishonor of the two subject checks. The court noted that no bank representative was
presented to prove the dishonor of the checks.

Displeased with her acquittal, the petitioner appealed to the Regional Trial Court and prayed that
the civil liability attached to her case be exonerated based on her acquittal from her criminal
charge. The RTC dismissed the petitioner’s plea on the ground that although the criminal case
was dismissed based on reasonable doubt, the indebtedness was nonetheless proved by
preponderance of evidence.

Undeterred, petitioner appealed with the Court of Appeals. The appellate court likewise dismissed
petitioners plea based on the same ground ratiocinated by the trial courts above. Hence the
petition.

ISSUE:
Is the civil liability attached to the criminal case extinguished by the dismissal of the same?

HELD:
No. The civil liability stands as the same is proved by preponderance of evidence.
“The extinction of the penal action does not carry with it the extinction of the civil liability where
the acquittal is based on reasonable doubt as only preponderance of evidence is required” in civil
cases. (Alferez v. People of the Philippines, 641 SCRA 116). Moreover, “it is well to remember
that a check may be evidence of indebtedness. A check, the entries of which are in writing, could
prove a loan transaction.” (Gaw v. Chua, 551 SCRA 505). While Emilia is acquitted of violations
of BP 22, she should nevertheless pay the debt she owes.
VALIDITY OF SPOUSE’S WITHDRAWAL WITHOUT CONSENT

FAR EAST BANK AND TRUST COMPANY VS. ESTRELLA QUERIMIT

G.R. NO. 148582, 16 JANUARY 2002
MENDOZA, J.:

DOCTRINE:
As a rule, one who pleads payment has the burden of proving it. Even where the plaintiff must
allege non-payment, the general rule is that the burden rests on the defendant to prove payment,
rather than on the plaintiff to prove payment. The debtor has the burden of showing with legal
certainty that the obligation has been discharged by payment.

FACTS:
Respondent Estrella O. Querimit worked as internal auditor of the Philippine Savings Bank (PSB)
for 19 years, from 1963 to 1992. On November 24, 1986, she opened a dollar savings account in
petitioners Harrison Plaza branch, for which she was issued four (4) Certificates of Deposit. The
certificates were to mature in 60 days, on January 23, 1987, and were payable to bearer at 4.5%
interest per annum. The certificates bore the word accrued, which meant that if they were not
presented for encashment or pre-terminated prior to maturity, the money deposited with accrued
interest would be rolled over by the bank and annual interest would accumulate automatically.
The petitioner banks manager assured respondent that her deposit would be renewed and earn
interest upon maturity even without the surrender of the certificates if these were not indorsed
and withdrawn. Respondent kept her dollars in the bank so that they would earn interest and so
that she could use the fund after she retired.

In 1989, respondent accompanied her husband to the United States for medical treatment. In
January 1993, her husband died and Estrella returned to the Philippines. She went to petitioner
FEBTC to withdraw her deposit but, to her dismay, she was told that her husband had withdrawn
the money in deposit. Through counsel, respondent sent a demand letter to petitioner FEBTC. In
another letter, respondent reiterated her request for updating and payment of the certificates of
deposit, including interest earned. As petitioner FEBTC refused respondents demands, the latter
filed a complaint, joining in the action Edgardo F. Blanco, Branch Manager of FEBTC Harrison
Plaza Branch, and Octavio Espiritu, FEBTC President.

ISSUE:
1. Is there a valid withdrawal made by the husband?
2. What is the effect of validity or invalidity?

RULING:

1. NO. The finding of respondent court which shows that the subject certificates of deposit
are still in the possession of Estrella Querimit and have not been indorsed or delivered to
petitioner FEBTC is substantiated by the record and should therefore stand. The principle that
payment, in order to discharge a debt, must be made to someone authorized to receive it is
applicable to the payment of certificates of deposit.

2. THE BANK IS LIABLE. In this case, the certificates of deposit were clearly marked payable
to bearer, which means, to the person in possession of an instrument, document of title or security
payable to bearer or indorsed in blank. Petitioner should not have paid respondents husband or
any third party without requiring the surrender of the certificates of deposit.