REPUBLIC PLANTERS BANK VS COURT OF APPEALS

FACTS:
Defendants Shozo Yamaguchi and Fermin Canlas were President/ Chief Operating Officer and Treasurer, respectively, of
Worldwide Garment Manufacturing, Inc. By virtue of a board resolution, the defendants were authorized to apply for
credit facilities with the petitioner Republic Planters Bank in the forms of export advances and letters of credit/ trust
receipts accommodations. Petitioner bank issued nine promissory notes, each of which were uniformly worded and stated:
“… I/we jointly and severally promise to pay to the order of the Republic Planters Bank…” On the right bottom margin of
the promissory notes appeared the signature of the defendants above their printed names with the phrase “ and (in) his
personal capacity” typewritten below.

ISSUE:
Is defendant Fermin Canlas solidarily liable with Shozo Yamaguchi on each of the nine promissory notes?

RULING:
Yes, he is solidarily liable on each of the promissory notes bearing his signature for the following reasons:
(a) Under the negotiable instruments law, persons who write their names on the face of promissory notes are makers and
are liable as such. By signing the notes, the maker promise to pay to the order of the payee or any holder according to the
tenor thereof.
(b) Where an instrument containing the words “I promise to pay” is signed by two or more persons they are deemed to be
jointly and severally liable thereon. An instrument which begins with “I”, “We” or “Either of us” promise to pay, when
signed by two or more persons, makes them solidarily liable.

Francisco v CA; G.R. No. 116320; 29 Nov 1999; 319 SCRA 354 – The Zamboangueña

FACTS:
Petitioner and private respondent Ong, as presidents of their respective corporations, entered into a contract where the
latter shall render construction and land development services and shall be paid on the basis of the completed houses and
developed lands delivered to and accepted by the former and the project financer. Years later, Ong learned that
seven checks drawn had been executed and signed payable to respondent corporation for completed and deliver work
under the contract. These checks were supposed to be delivered to him by petitioner but, instead, the latter forged his
signature at the back of the checks and deposited the same to her savings account.

ISSUE(S):
Whether or not petitioner was an agent of respondent Ong.

HELD:
NO. 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 Ong’s name, still, Francisco did not
indorse the instrument in accordance with law. Instead of signing Ong’s 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.

LIM VS. SABAN

The late Eduardo Ybanez entered into an Agreement and Authority to Negotiate and Sell (Agency Agreement) with
respondent Florencio Saban (Saban) on February 8, 1994. Under the Agency Agreement, Ybañez authorized Saban to
look for a buyer of the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark up the selling price to include the
amounts needed for payment of taxes, transfer of title and other expenses incident to the sale, as well as Saban’s
commission for the sale. Through Saban's effort, he sold said lot to Spouses Lim and Genevieve Lim. He sold the lot for
Php600, 000.00. Saban gave Ybanez Php230, 000.00. However, Ybanez found out that the lot was being sold for Php600,
000.00 and asked Lim to directly pay him the balance. Lim cancelled all checks issued to Saban and paid directly to
Ybanez. Saban said that Lim and Ybanez did it to deprive him of the commission due o him.

Issue: Whether or not Lim is liable on the checks because she issued them as an accommodation party.

Ruling: Section 29 of the Negotiable Instruments Law defines an accommodation party as a person "who has signed the
negotiable instrument as maker, drawer, acceptor or indorser, without receiving value therefor, for the purpose of lending
his name to some other person." The accommodation party is liable on the instrument to a holder for value even though
the holder at the time of taking the instrument knew him or her to be merely an accommodation party.

The accommodation party may of course seek reimbursement from the party accommodated.

As gleaned from the text of Section 29 of the Negotiable Instruments Law, the accommodation party is one who meets all
these three requisites, viz: (1) he signed the instrument as maker, drawer, acceptor, or indorser; (2) he did not receive
value for the signature; and (3) he signed for the purpose of lending his name to some other person.

In the case at bar, while Lim signed as drawer of the checks she did not satisfy the two other remaining requisites. The
absence of the second requisite becomes pellucid when it is noted at the outset that Lim issued the checks in question on
account of her transaction, along with the other purchasers, with Ybañez which was a sale and, therefore, a reciprocal
contract. Specifically, she drew the checks in payment of the balance of the purchase price of the lot subject of the
transaction. And she had to pay the agreed purchase price in consideration for the sale of the lot to her and her co-vendees.
In other words, the amounts covered by the checks form part of the cause or consideration from Ybañez’s end, as vendor,
while the lot represented the cause or consideration on the side of Lim, as vendee.

Ergo, Lim received value for her signature on the checks. Neither is there any indication that Lim issued the checks for the
purpose of enabling Ybañez, or any other person for that matter, to obtain credit or to raise money, thereby totally
debunking the presence of the third requisite of an accommodation party
Negotiable Instruments Case Digest: Francisco v. CA (1999)

FACTS:
 June 23, 1977: Adalia Francisco (Francisco) president of A. Francisco Realty & Development Corporation
(AFRDC) and Jaime C. Ong (Ong) President and General Manager of Herby Commercial & Construction
Corporation (HCCC), entered into a contract where HCCC agreed to undertake the construction of 35 housing
units and the development of 35 hectares of land. 
o HCCC was to be paid on turn-key basis (basis of the completed houses and developed lands delivered to
and accepted by AFRDC and the GSIS) 
o To facilitate payment, AFRDC executed a Deed of Assignment in favor of HCCC to enable the it to
collect payments directly from the GSIS. 
o Furthermore, the GSIS and AFRDC put up an Executive Committee Account with the Insular Bank of
Asia & America (IBAA) of P4M from which checks would be issued and co-signed by petitioner
Francisco and the GSIS Vice-President Armando Diaz (Diaz).
 February 10, 1978: HCCC filed a complaint w/ the RTC against Francisco, AFRDC and the GSIS for the
collection of the unpaid balance under the Land Development and Construction Contract in the amount of
P515,493.89 for completed and delivered housing units and land development. 
 Sometime in 1979: Ong discovered that Diaz and Francisco had executed and signed 7 checks  drawn against the
IBAA and payable to HCCC but were never delivered to HCCC
o GSIS gave Francisco custody of the checks since she promised that she would deliver the same to
HCCC. 
 Francisco forged the signature of Ong, without his knowledge or consent, at the dorsal portion of
the said checks to make it appear that HCCC had indorsed the checks; Francisco then indorsed
the checks for a second time by signing her name at the back of the checks and deposited the
checks in her IBAA savings account
 June 7, 1979: Ong filed complaints charging Francisco with estafa thru falsification of commercial documents -
dismmised by the Assistant City Fiscal
o According to Francisco, she agreed to grant HCCC the loans in the total amount of P585K and covered by
18 promissory notes in order to obviate the risk of the non-completion of the project. 
 As a means of repayment, Ong allegedly issued a Certification authorizing Francisco to collect
HCCCs receivables from the GSIS
 RTC: favored Ong and against IBAA and Francisco
 November 21, 1989: IBAA and HCCC entered into a Compromise Agreement which was approved by the trial
court, wherein HCCC acknowledged receipt of the amount of P370,475.00 in full satisfaction of its claims against
IBAA, without prejudice to the right of IBAA to pursue its claims against Francisco.
 CA affirmed RTC
 Francisco claims that she was, in any event, 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.
ISSUE: W/N Francisco can sign Ongs name on the checks and it was not forgery
HELD:  NO. 
 Francisco had custody of the checks, as proven by the check vouchers bearing her uncontested signature
 Francisco forged the signature of Ong on the checks to make it appear as if Ong had indorsed said checks 
 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
o 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
 Instead of signing Ongs name, Francisco should have signed her own name and expressly
indicated that she was signing as an agent of HCCC
Negotiable Instruments Case Digest: Jai-Alai Corp. of the Phil. v. BPI

 Jai-Alai Corp. deposited 10 checks with BPI.  

o The checks were from Ramirez, a sales agent of the Inter-Island Gas were all payable to Inter-Island Gas
Service, Inc. or order.  
o Inter-Island Gas discovered that all the indorsements made on the checks purportedly by its cashiers were
forgeries.  
o BPI debited Jai-Alai's current account and forwarded to it the checks containing the forged indorsements 

ISSUE: W/N BPI had the right to debit.

HELD: YES.

 Having indorsed the checks to BPI, Jai-Alai is deemed to have given the warranty prescribed in Section 66 of the
NIL that every single one of those checks "is genuine and in all respects what it purports to be."  
 The depositor of a check as indorser warrants that it is genuine and in all respects what it purports to be.  
 Jai Alai Corporation negligent in accepting the checks without question from Antonio Ramirez notwithstanding
that the payee was the Inter-Island Gas Services, Inc. and it did not appear that he was authorized to indorse it.

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. - Bingbing Wanders
FACTS:
Jai – Alai deposited 10 checks with a total face value of P8,030.58 with BPI. All checks were acquired by the petitioner
from one Antonio J. Ramirez, a sales agent of the Inter-Island Gas and a regular bettor at jai-alai games.

Inter-Island Gas discovered that all the indorsements made on the checks purportedly by its cashiers were forgeries.   In
due time, the Inter-Island Gas advised the petitioner, the respondent, the drawers and the drawee-banks of the said checks
about the forgeries, and filed a criminal complaint against Ramirez.

BPI debit the value of the checks against the petitioner’s account as soon as they were returned by the respective drawee-
banks.
Jai – Alai filed a case.

ISSUE:
(1) Whether BPI had the right to debit the petitioner’s current account in the amount corresponding to the total value of
the checks in question after more than three months had elapsed from the date their value was credited to the petitioner’s
account:

HELD:
YES. The instrument are bearer checks and at the same time crossed checks should have aroused the petitioner’s suspicion
as to the title of Ramirez over them and his authority to cash them.

In the case, Jai – Alai, indorsed the said checks when it deposited them with the respondent, Under Sec. 66 of NIL, a
general indorser warrants that the instrument “is genuine and in all respects what it purports to be.”

It could not have escaped the attention of the petitioner that the payee of all the checks was a corporation—the Inter-
Island Gas Service, Inc. Yet, the petitioner cashed these checks, to a mere individual who was admittedly a habitue at its
jai-alai games without making any inquiry as to his authority to exchange checks belonging to the payee-corporation

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM vs. CA and THE PHILIPPINE NATIONAL
BANK

By special arrangement with PNB, MWSS used personalized checks in drawing from its account. The checks 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: Whether or not the bank shall bear the loss resulting from the alleged forged checks.

Held: No. There was no express and categorical finding that the 23 checks were forged or signed by persons other than 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 as
MWSS committed gross negligence in the printing of its personalized checks, failed to reconcile its bank statements with
its own records, and failed to provide appropriate security measures over its own record. PNB, the drawee bank, had taken
necessary measures in the detection of forged checks and the prevention of their fraudulent encashment through constant
reminders to all its current account bookkeepers informing them of the activities of forgery syndicates. MWSS’ gross
negligence was the proximate cause of the loss (P3 million), and should bear the loss.
Gempesaw v. Court of Appeals [G.R. No. 92244. February 9, 1993]

FACTS
Petitioner argues that respondent drawee Bank should not have honored the checks because they were “crossed checks”.

ISSUE
Whether or not the issuance of “crossed checks” is restrictive indorsement.

RULING

NO. They are not the same. In restrictive indorsement, the prohibition to transfer or negotiate must be written in express
words at the back of the instrument, so that any subsequent party may be forewarned that ceases to be negotiable. Crossed
checks, on the other hand, is done by drawing two parallel lines across the face of the check to mean that it cannot be
presented for payment in cash, but can only be deposited in payee’s account. Crossing of checks do not ipso facto cause
the cessation of its negotiable character.

Gempesaw v CA; G.R. No. 92244; 09 Feb 1993; 218 SCRA 682 – The Zamboangueña

FACTS:

To facilitate payment of debts to her suppliers, petitioner draws checks against her checking account with
respondent bank as drawee. The checks are prepared and filled up by her trusted bookkeeper of eight years
and submitted to petitioner for signature together with corresponding invoice receipts. Petitioner did not make any
verification as to the correctness of the returned checks or to the payees’ actual receipt of the checks in payment. She later
discovered that in the course of two years her bookkeeper had brought eighty-two checks with forged signatures of the
payees to respondent bank which accepted them for deposit in the accounts of Alfredo Romero and Benito Lam.

ISSUE(S):
Whether or not petitioner’s negligence caused the bank to honor the checks with forged indorsement.

HELD:
YES. The petitioner failed to examine her records with reasonable diligence whether before she signed the checks or after
receiving her bank statements. Had the petitioner examined her records more carefully, particularly the invoice receipts,
cancelled checks, check book stubs, and had she compared the sums written as amounts payable in the eighty-two (82)
checks with the pertinent sales invoices, she would have easily discovered that in some checks, the amounts did not tally
with those appearing in the sales invoices. Had she noticed these discrepancies, she should not have signed those checks,
and should have conducted an inquiry as to the reason for the irregular entries.

Likewise, had petitioner been more vigilant in going over her current account by taking careful note of the daily reports
made by respondent drawee Bank on her issued checks, or at least made random scrutiny of her cancelled checks returned
by respondent drawee Bank at the close of each month, she could have easily discovered the fraud being perpetrated by
Alicia Galang, and could have reported the matter to the respondent drawee Bank. The respondent drawee Bank then
could have taken immediate steps to prevent further commission of such fraud.

Thus, petitioner’s negligence was the proximate cause of her loss. And since it was her negligence which caused the
respondent drawee Bank to honor the forged checks or prevented it from recovering the amount it had already paid on the
checks, petitioner cannot now complain should the bank refuse to recredit her account with the amount of such checks.

NATIVIDAD GEMPESAW vs. CA and PHILIPPINE BANK OF COMMUNICATIONS

Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor of several supplies. Most of
the checks for amounts in excess of actual obligations as shown in their corresponding invoices. It was only after the lapse
of more than 2 years did she discovered the fraudulent manipulations of her bookkeeper. It was also learned that the
indorsements of the payee were forged, and the checks were brought to the chief accountant of Philippine Bank of
Commerce (the Drawee Bank, Buendia Branch) who deposited them in the accounts of Alfredo Romero and Benito Lam.
Gempesaw made demand upon the bank to credit the amount charged due the checks. The bank refused. Hence, the
present action.

Issue: Who shall bear the loss resulting from the forged indorsements.

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 the rule is where the drawer is guilty of such negligence
which causes the bank to honor such checks. Gempesaw did not exercise prudence in taking steps that a careful and
prudent businessman would take in circumstances to discover discrepancies in her account. Her negligence was the
proximate cause of her loss, and under Section 23 of the Negotiable Instruments Law, is precluded from using forgery as a
defense. On the other hand, the banking rule banning acceptance of checks for deposit or cash payment with more than
one indorsement unless cleared by some bank officials does not invalidate the instrument; neither does it invalidate the
negotiation or transfer of said checks. The only kind of indorsement which stops the further negotiation of an instrument
is a restrictive indorsement which prohibits the further negotiation thereof, pursuant to Section 36 of the Negotiable
Instruments Law. In light of any case not provided for in the Act that is to be governed by the provisions of existing
legislation, pursuant to Section 196 of the Negotiable Instruments Law, the bank may be held liable for damages in
accordance with Article 1170 of the Civil Code. The drawee bank, in its failure to discover the fraud committed by its
employee and in contravention banking rules in allowing a chief accountant to deposit the checks bearing second
indorsements, was adjudged liable to share the loss with Gempesaw on a 50:50 ratio.

ASSOCIATED BANK V. CA 252 SCRA 620

FACTS:
The province of Tarlac maintains an account with PNB-Tarlac. Part of its funds is appropriated for the benefit of
Concepcion Emergency Hospital. During a post-audit done by the province, it was found out that 30 of its checks weren’t
received by the hospital. Upon further investigation, it was found out that the checks were encased by Pangilinan who
was a former cashier and administrative officer of the hospital through forged indorsements. This prompted
the provincial treasurer to ask for
reimbursement from PNB and thereafter, PNB from Associated Bank. As the two banks didn't want to reimburse, an
action was filed against them.
HELD:
There is a distinction on forged indorsements with regard bearer instruments and instruments payable to order.
With instruments payable to bearer, the signature of the payee or holder is unnecessary to pass title to the instrument.
Hence, when the indorsement is a forgery, only the person whose signature is forged can raise the defense of forgery
against holder in due course.
In instruments payable to order, the signature of the rightful holder is essential to transfer title to the same instrument.
When the holder’s signature is forged, all parties prior to the forgery may raise the real defense of forgery against all
parties subsequent thereto. In connection to this, an endorser warrants that the instrument is genuine. A collecting bank
is such an endorser. So even if the indorsement is forged, the collecting bank is bound by his warranties as an endorser
and cannot set up the defense of forgery as against the drawee bank.
Furthermore, in cases involving checks with forged indorsements, such as the case at bar, the chain of liability doesn’t
end with the drawee bank. The drawee bank may not debit the account of the drawer but may generally pass liability back
through the collection chain to the party who took from the forger and of course, the forger himself, if available. In other
words, the drawee bank can seek reimbursement or a return of the amount it paid from the collecting bank or person.
The collecting bank generally suffers the loss because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the
party making the presentment has done its duty to ascertain the genuineness of the indorsements.
With regard the issue of delay, a delay in informing the bank of the forgery, which deprives it of the opportunity to go
after the forger, signifies negligence on the part of the drawee bank and will preclude it from claiming reimbursement. In
this case, PNB wasn't guilty of any negligent delay. Its delay hasn’t prejudiced Associated Bank in any way because
even if there wasn’t delay, the fact that there was nothing left of the account of Pangilinan, there couldn't be anymore
reimbursement.

ASSOCIATED BANK vs. CA, PROVINCE OF TARLAC and PHILIPPINE NATIONAL BANK

The Province of Tarlac maintains a current account with the Philippine National Bank (PNB Tarlac Branch) where the
provincial funds are deposited. Portions of the funds were allocated to the Concepcion Emergency Hospital. Checks were
issued to it and were received by the hospital’s administrative officer and cashier (Fausto Pangilinan). Pangilinan, through
the help of Associated Bank but after forging the signature of the hospital’s chief (Adena Canlas), was able to deposit the
checks in his personal account. All the checks bore the stamp “All prior endorsement guaranteed Associated Bank.”
Through post-audit, the province discovered that the hospital did not receive several allotted checks, and sought the
restoration of the debited amounts from PNB. In turn, PNB demanded reimbursement from Associated Bank. Both banks
resisted payment. Hence, the present action.

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

Held: PNB is not negligent as it is not required to return the check to the collecting bank within 24 hours as the banks
involved are covered by Central Bank Circular 580 and not the rules of the Philippine Clearing House. Associated Bank,
and not PNB, is the one duty-bound to warrant the instrument as genuine, valid and subsisting at the time of indorsement
pursuant to Section 66 of the Negotiable Instruments Law. The stamp guaranteeing prior indorsement is not an empty
rubric; the collecting bank is held accountable for checks deposited by its customers. However, due to the fact that the
Province of Tarlac is equally negligent in permitting Pangilinan to collect the checks when he was no longer connected
with the hospital, it shares the burden of loss from the checks bearing a forged indorsement. Therefore, the Province can
only recover 50% of the amount from the drawee bank (PNB), and the collecting bank (Associated Bank) is liable to PNB
for 50% of the same amount.

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND

AMERICA) V. COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A.           

[G.R. No. 121413. January 29, 2001] (350 SCRA 446)

FACTS:

These consolidated petitions arose from the action filed by BIR against Citibank and PCIBank for the recovery of the
amount of Citibank Check Numbers SN-10597 and 16508. Said checks, both crossed checks were alleged to have been
negotiated fraudulently by an organized syndicate between and among two employees of Ford (General Ledger
Accountant and his assistant), and PCIBank officers.

It was established that instead of paying the crossed checks, containing two diagonal lines on its upper left corner between
which were written the words payable to the payees account only, to the CIR for the settlement of the appropriate
quarterly percentage taxes of Ford, the checks were diverted and encashed for the eventual distribution among the
members of the syndicate.  Citibank Check No. SN-10597 amounted to P5,851,706.37, while Citibank Check No. SN-
16508 amounted to P6,311,591.73.

It was found that the pro-manager of San Andres Branch of PCIBank, Remberto Castro, received Citibank Check
Numbers SN 10597 and 16508. He passed the checks to a co-conspirator, an Assistant Manager of PCIBanks Meralco
Branch, who helped Castro open a Checking account of a fictitious person named Reynaldo Reyes. Castro deposited a
worthless Bank of America Check in exactly the same amount of Ford checks. The syndicate tampered with the checks
and succeeded in replacing the worthless checks and the eventual encashment of Citibank Check Nos. SN 10597 and
16508. The PCIBank Pro-manager, Castro, and his co-conspirator Assistant Manager apparently performed their activities
using facilities in their official capacity or authority but for their personal and private gain or benefit.

The trial court and the Court of Appeals found that PCIBank had no official act in the ordinary course of business that
would attribute to it the case of the embezzlement of Citibank Check Numbers SN-10597 and 16508, because PCIBank
did not actually receive nor hold the two Ford checks at all. Neither is there any proof that defendant PCIBank contributed
any official or conscious participation in the process of the embezzlement. The Court is convinced that 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 and done without the knowledge of the
defendant PCIBank.

The evidence on record shows that Citibank as drawee bank was likewise negligent in the performance of its
duties. Citibank failed to establish that its payment of Fords checks were made in due course and legally in order. It
likewise appears that although the employees of Ford initiated the transactions attributable to an organized syndicate, their
actions were not the proximate cause of encashing the checks.

ISSUE:

Has petitioner Ford the right to recover from the collecting bank (PCIBank) and the drawee bank (Citibank) the value of
the checks intended as payment to the Commissioner of Internal Revenue? 

HELD:

YES. The mere fact that the forgery was committed by a drawer-payors confidential employee or agent, who by virtue of
his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does NOT
entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the
drawer. This rule likewise applies to the checks fraudulently negotiated or diverted by the confidential employees who
hold them in their possession.

 In this case, there was no evidence presented confirming the conscious participation of PCIBank in the embezzlement. As
a general rule, however, a banking corporation is liable for the wrongful or tortuous acts and declarations of its officers or
agents within the course and scope of their employment. A bank will be held liable for the negligence of its officers or
agents when acting within the course and scope of their employment. It may be liable for the tortuous acts of its officers
even as regards that species of tort of which malice is an essential element. In this case, we find a situation where the
PCIBank appears also to be the victim of the scheme hatched by a syndicate in which its own management employees had
participated.
A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds these
officers or agents were enabled to perpetrate in the apparent course of their employment; nor will it be permitted to shirk
its responsibility for such frauds, even though no benefit may accrue to the bank therefrom.  For the general rule is that a
bank is liable for the fraudulent acts or representations of an officer or agent acting within the course and apparent scope
of his employment or authority. And if an officer or employee of a bank, in his official capacity, receives money to satisfy
an evidence of indebtedness lodged with his bank for collection, the bank is liable for his misappropriation of such sum.

Citibank must likewise answer for the damages incurred by Ford on Citibank Checks Numbers SN 10597 and 16508,
because of the contractual relationship existing between the two. Citibank, as the drawee bank breached its contractual
obligation with Ford and such degree of culpability contributed to the damage caused to the latter. 

PCIBank and Citibank are thus liable for and must share the loss, (concerning the proceeds of Citibank Check Numbers
SN 10597 and 16508 totaling P12,163,298.10) on a fifty-fifty ratio. 

BANK OF THE PHILIPPINE ISLANDS v. CASA MONTESSORI INTERNATIONALE and LEONARDO T.

YABUT

[G.R. No. 149454. May 28, 2004] (430 SCRA 261)

FACTS:

          CASA Montessori International opened a current account with BPI with CASAs President Ms. Ma. Carina C.
Lebron as one of its authorized signatories. In 1991, after conducting an investigation, plaintiff discovered that nine (9) of
its checks had been encashed by a certain Sonny D. Santos since 1990 in the total amount of  P782,000.00. It turned out
that Sonny D. Santos with account at BPIs Greenbelt Branch [was] a fictitious name used by third party defendant
Leonardo T. Yabut who worked as external auditor of CASA. Third party defendant voluntarily admitted that he forged
the signature of Ms. Lebron and encashed the checks.

            The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded that the handwritings
thereon compared to the standard signature of Ms. Lebron were not written by the latter.

            On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against defendant bank.

ISSUE 1:

            Was there forgery under the Negotiable Instruments Law (NIL)?

HELD:

YES. Forgery cannot be presumed. It must be established by clear, positive and convincing evidence. Under the best
evidence rule as applied to documentary evidence like the checks in question, no secondary or substitutionary evidence
may inceptively be introduced, as the original writing itself must be produced in court. But when, without bad faith on the
part of the offeror, the original checks have already been destroyed or cannot be produced in court, secondary evidence
may be produced. Without bad faith on its part, CASA proved the loss or destruction of the original checks through the
Affidavit of the one person who knew of that fact- Yabut. He clearly admitted to discarding the paid checks to cover up
his misdeed. In such a situation, secondary evidence like microfilm copies may be introduced in court.

Even with respect to documentary evidence, the best evidence rule applies only when the contents of a document -- such
as the drawers signature on a check -- is the subject of inquiry.

ISSUE 2:

            Is BPI liable as the drawee bank for allowing payment on the checks to a wrongful and fictitious payee?

HELD:

            YES. BPI -- the drawee bank -- becomes liable to its depositor-drawer for allowing payment on the checks to a
wrongful and fictitious payee. Since the encashing bank is one of its branches, BPI can easily go after it and hold it liable
for reimbursement.  It may not debit the drawers account and is not entitled to indemnification from the drawer. In both
law and equity, when one of two innocent persons must suffer by the wrongful act of a third person, the loss must be
borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to
perpetrate the wrong.

            A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as
making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor
whose name was forged. 
BPI vs. Casa Montessori Internationale, et. al., G.R. No. 149454. May 28, 2004

Facts: Plaintiff CASA Montessori International opened a current account with BPI. In 1991, plaintiff discovered that nine
(9) of its checks had been encashed by a certain Sonny D. Santos since 1990 in the total amount of P782,000.00. It turned
out that Sonny D. Santos with account at BPIs Greenbelt Branch was a fictitious name used by third party defendant
Leonardo T. Yabut who worked as external auditor of CASA. A Third party defendant voluntarily admitted that he forged
the signature of Ms. Lebron and encashed the checks.

On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against defendant bank praying that
the latter be ordered to reinstate the amount of P782,500.00  in the current and savings accounts of the plaintiff with
interest at 6% per annum.

RTC rendered decision in favor of CASA. CA modified decision holding CASA as contributory negligent hence ordered
Yabut to reimburse BPI half the total amount claimed and CASA, the other half. It also disallowed attorney’s fees and
moral and exemplary damages.

Issues: WON there was forgery under the Negotiable Instruments Law (NIL)?

Ruling:

The Court first discussed that forgery is a defense.

“Section 23 of the NIL Section 23. Forged signature; effect of. — When a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly inoperative, and no right x x x to enforce payment
thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want of authority. “

Under this provision, a forged signature is a real or absolute defense, and a person whose signature on a negotiable
instrument is forged is deemed to have never become a party thereto and to have never consented to the contract
that allegedly gave rise to it. The counterfeiting of any writing, consisting in the signing of anothers name with
intent to defraud, is forgery. In the present case, we hold that there was forgery of the drawers signature on the check.

Negligence is attributable to BPI alone. A banking business is impressed with public interest, of paramount importance
thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence is expected, and
high standards of integrity and performance are even required, of it. BPI, despite claims of following its signature
verification procedure, still failed to detect the eight instances of forgery. Its negligence consisted in the omission of that
degree of diligence required of a bank. It cannot now feign ignorance, for very early on we have already ruled that a bank
is bound to know the signatures of its customers. and if it pays a forged check, it must be considered as making the
payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose
name was forged.
Samsung Construction Co. Philippines, Inc. v. Far East Bank and Trust Co

Enrique  P. Montinola vs. PNB, et. al., G.R. No. L-2861, Feb 26, 1951

Facts: In May 1942, Ubaldo Laya, as provincial treasurer of Misamis Oriental issued a P100,000.00 Philippine National
Bank (PNB) check to Mariano Ramos. The said check was to be used by Ramos, as disbursing officer of the US forces at
that time, for military purposes.

On the back of the check, Ramos wrote:

Pay to the order of Enrique P. Montinola P30,000 only. The balance to be deposited in the Philippine National Bank to the
credit of M. V. Ramos.

Before Ramos can encash the check, he was made a prisoner of war by the invading Japanese forces. When he got free in
December 1944, he needed some cash for himself and so he went to a certain Enrique Montinola and made arrangements.
In consideration thereof, Montinola promised to pay 85,000 in Japanese notes (that time peso notes are valued higher).
However, he was only able to pay 45k in Japanese notes to Ramos.

Later, Montinola sought to have the check encashed but PNB dishonored the check. It appears that there was an insertion
made. Under the signature of Laya, the words “Agent, Philippine National Bank” was inserted, thus making it appear that
Laya disbursed the check as an agent of PNB and not as provincial treasurer of Misamis Oriental
ISSUE: Whether or not the material alteration discharges the instrument?

HELD:Yes.

First, the Court pointed out: “It was not negotiated according to the Negotiable Instruments Law (NIL) hence it is not a
negotiable instrument. There was only a partial indorsement and not a negotiation contemplated under the NIL. Only P30k
of the P100k amount of the check was indorsed. This merely make Montinola a mere assignee – and this is the clear intent
of Ramos. Ramos was merely assigning P30k to Montinola. Montinola may therefore not be regarded as an indorsee and
PNB has all the right to dishonor the check. As mere assignee, he is subject to all defenses available to the drawer
Provincial Treasurer of Misamis Oriental and against Ramos.

Anent the issue of alteration, the apparent purpose of which is to make the drawee (PNB) the drawer against which
Montinola can recover from directly. The insertion of the words “Agent, Phil. National Bank” which converts the bank
from a mere drawee to a drawer and therefore changes its liability, constitutes a material alteration of the instrument
without the consent of the parties liable thereon, and so discharges the instrument. (Section 124 of the Negotiable
Instruments Law).

The check was not legally negotiated within the meaning of the Negotiable Instruments Law. Section 32 of the same law
provides that “the indorsement must be an indorsement of the entire instrument. An indorsement which purports to
transfer to the indorsee a part only of the amount payable, . . . (as in this case) does not operate as a negotiation of the
instrument.” Montinola may therefore not be regarded as an indorsee. At most he may be regarded as a mere assignee of
the P30,000 sold to him by Ramos, in which case, as such assignee, he is subject to all defenses available to the drawer
Provincial Treasurer of Misamis Oriental and against Ramos. Neither can Montinola be considered as a holder in due
course because section 52 of said law defines a holder in due course as a holder who has taken the instrument under
certain conditions, one of which is that he became the holder before it was overdue. When Montinola received the check,
it was long overdue. And, Montinola is not even a holder because section 191 of the same law defines holder as the payee
or indorsee of a bill or note and Montinola is not a payee. Neither is he an indorsee for as already stated, at most he can be
considered only as assignee. Neither could it be said that he took it in good faith. As already stated, he has not paid the full
amount of P90,000 for which Ramos sold him P30,000 of the value of the check. In the second place, as was stated by the
trial court in its decision, Montinola speculated on the check and took a chance on its being paid after the war.

At any rate, even assuming that there is proper negotiation, Montinola can no longer encash said check because when he
sought to have it encashed in January 1945, it is already stale there being two and half years passing since its time of
issuance.

Negotiable Instruments Case Digest: Montinola v. PNB (1951)

FACTS:
 April-May, 1942: Ubaldo D. Laya was the Provincial Treasurer of Misamis Oriental. 
o As such Provincial Treasurer he was ex officio agent of the Philippine National Bank branch in the
province. 
o Mariano V. Ramos worked under him as assistant agent in the bank branch 

o currency being used in Mindanao, particularly Misamis Oriental and Lanao which had not yet been
occupied by the Japanese invading forces, was the emergency currency which had been issued since
January, 1942 by the Mindanao Emergency Currency Board by authority of the late President Quezon.
 April 26, 1942: thru the recommendation of Provincial Treasurer Laya, his assistant agent M. V. Ramos was
inducted into the United States Armed Forces in the Far East (USAFFE) as disbursing officer of an army
division. 
 April 30, 1942: M. V. Ramos,disbursing officer, went to Province Lanao to procure a cash advance in the amount
of P800K for the use of the USAFFE 
o Pedro Encarnacion, Provincial Treasurer of Lanao did not have that amount in cash so he gave Ramos
P300,000 in emergency notes and a check for P500,000
o Ramos had no opportunity to cash the check because in the evening, the Japanese forces entered the
capital
 May 2, 1942: Ramos went to the office of Provincial Treasurer Laya at Misamis Oriental to encash the check for
P500,000 which he had received from the Provincial Treasurer of Lanao. Laya did not have enough cash to cover
the check so he gave Ramos P400,000 in emergency notes and a check No. 1382 for P100,000 drawn on the
Philippine National Bank. According to Laya he had previously deposited P500,000 emergency notes in the
Philippine National Bank branch in Cebu and he expected to have the check issued by him cashed in Cebu against
said deposit.
  June 10, 1942: the USAFFE forces to which he was attached surrendered.
o Ramos was made a prisoner of war until February 12, 1943

 December, 1944: M. V. Ramos allegedly indorsed the check to Enrique P. Montinola. 

 August, 1947: Enrique P. Montinola filed a complaint to collect the sum of P100,000, the amount of Check issued
by the Provincial Treasurer of Misamis Oriental to Mariano V. Ramos and supposedly indorsed to Montinola
 court: dismissed
ISSUE: 
1. W/N Montinola cannot hold PNB liable because there is "Agent, Phil. National Bank" is an alteration - YES
2. W/N Montinola is a holder in due course - NO
 Montinola's Version
o June, 1944: Ramos, needing money with which to buy foodstuffs and medicine, offered to sell him the
check; to be sure that it was genuine and negotiable, Montinola, accompanied by his agents and by Ramos
himself, went to see President Carmona of the Philippine National Bank in Manila about said check,
agreed to the sale of the check for P850,000 Japanese military notes, payable in installments; that of this
amount, P450,000 was paid to Ramos in Japanese military notes in 5 installments, and the balance of
P400,000 was paid in kind, that upon payment of the full price, M. V. Ramos duly indorsed the check to
him. 
o "Agent, Phil. National Bank" now appearing under the signature of the Provincial Treasurer on the face of
the original check - converts the bank from a mere drawee to a drawer and therefore changes its liability,
constitutes a material alteration of the instrument without the consent of the parties liable thereon, and so
discharges the instrument. (Section 124 of the Negotiable Instruments Law). - doesn't make sense so
alteration
 Montinola may therefore not be regarded as an indorsee. At most he may be regarded as a mere assignee of the
P30,000 sold to him by Ramos, in which case, as such assignee, he is subject to all defenses available to the
drawer Provincial Treasurer of Misamis Oriental and against Ramos. 
 Neither can Montinola be considered as a holder in due course because section 52 of said law defines a holder in
due course as a holder who has taken the instrument under certain conditions, one of which is that he became the
holder before it was overdue. When Montinola received the check, it was long overdue.
 Neither could it be said that he took it in good faith. He has not paid the full amount of P90,000 for which Ramos
sold him P30,000 of the value of the check. 
 check was issued to M. V. Ramos not as a person but M. V. Ramos as the disbursing officer of the USAFFE.
Therefore, he had no right to indorse it personally to plaintiff

Montinola v. PNB [G.R. No. L-2861. February 26, 1951]

FACTS
Respondent Ramos indorsed P30,000 out of P100,000 which is at the face of the instrument.
ISSUE Whether or not there was a valid indorsement to Montinola.
RULING
NO. The check was not legally negotiated within the meaning of the Negotiable Instruments Law. Section 32 of the same
law provides that “the indorsement must be an indorsement of the entire instrument. An indorsement which purports to
transfer to the indorsee a part only of the amount payable…” as in this case, does not operate as a negotiation of the
instrument. Montinola may therefore not be regarded as an indorsee. At most he may be regarded as a mere assignee of
the P30,000 sold to him by Ramos, in which case, as such assignee, he is subject to all defenses available to the drawer-
respondent Ramos.

PHILIPPINE NATIONAL BANK vs. COURT OF APPEALS

FACTS: A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount of P97,650.00 was issued by the
Ministry of Education and Culture payable to F. Abante Marketing. This check was drawn against Philippine National
Bank (herein petitioner). F. Abante Marketing, a client of Capitol City Development Bank (Capitol), deposited the
questioned check in its savings account with said bank. In turn, Capitol deposited the same in its account with the
Philippine Bank of Communications (PBCom) which, in turn, sent the check to petitioner for clearing.

Petitioner cleared the check as good and, thereafter, PBCom credited Capitol’s account for the amount stated in the check.
However, petitioner PNB returned the check to PBCom and debited PBCom’s account for the amount covered by the
check, the reason being that there was a “material alteration” of the check number.
PBCom, as collecting agent of Capitol, then proceeded to debit the latter’s account for the same amount. On the other
hand, Capitol could not, in turn, debit F. Abante Marketing’s account since the latter had already withdrawn the amount of
the check.
ISSUE: WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A MATERIAL
ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW.

HELD: No. An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in
an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or
numbers or other change to an incomplete instrument relating to the obligation of a party.In other words, a material
alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instrument
Law

The case at the bench is unique in the sense that what was altered is the serial number of the check in question, an
item which, it can readily be observed, is not an essential requisite for negotiability under Section 1 of the
Negotiable Instruments Law.  The aforementioned alteration did not change the relations between the parties.  The
name of the drawer and the drawee were not altered.  The intended payee was the same. The sum of money due to
the payee remained the same.

If the purpose of the serial number is merely to identify the issuing government office or agency, its alteration in this case
had no material effect whatsoever on the integrity of the check.  The identity of the issuing government office or agency
was not changed thereby and the amount of the check was not charged against the account of another government office
or agency which had no liability under the check.
Petitioner, thus cannot refuse to accept the check in question on the ground that the serial number was altered, the same
being an immaterial or innocent one.

PNB vs CA

FACTS: The Ministry of Education and Culture issued a check with serial number 7-3666-223-3, dated August 7, 1981 in
the amount of P97,650.00 payable to F. Abante Marketing drawn against Philippine National Bank (PNB).  F. Abante
Marketing deposited the check in its savings account with Capitol City Development Bank. Then Capitol deposited the
same in its account with the Philippine Bank of Communications which, in turn, sent the check to PNB for clearing. PNB
cleared the check as good, however, it returned the check because there was material alteration of the check number.

ISSUES:
1. Whether or not an alteration of a serial number of a check is a material alteration.
2. Whether or not PNB is liable for attorney’s fees?
RULING:
1. Alteration of a serial number of a check is not a material alteration. An alteration is said to be material if it alters the
effect of the instrument. It means an unauthorized change in an instrument that purports to modify in any respect the
obligation of a party or an unauthorized addition of words or numbers or other change to an incomplete instrument
relating to the obligation of a party. In other words, a material alteration is one which changes the items which are
required to be stated under Section 1 of the Negotiable Instrument

Check number is not an essential requisite for negotiability under Section 1 of the Negotiable Instrument Law. This
alteration did not change the relations between the parties. The name of the drawer and the drawee were not altered. The
intended payee was the same. The sum of money due to the payee remained the same. The checks serial number is not the
sole indication of its origin. The name of the government agency which issued the subject check was prominently printed
therein. The checks issuer was therefore sufficiently identified, rendering the referral to the serial number redundant and
inconsequential. Petitioner, thus cannot refuse to accept the check in question on the ground that the serial number was
altered, the same being an immaterial or innocent one.

2. The Court deleted the award of attorney’s fees as it requires factual, legal and equitable justification.  The award of
attorneys fees lies within the discretion of the court and depends upon the circumstances of each case. However, the
discretion of the court to award attorneys fees under Article 2208 of the Civil Code of the Philippines demands factual,
legal and equitable justification, without which the award is a conclusion without a premise and improperly left to
speculation and conjecture. It becomes a violation of the proscription against the imposition of a penalty on the right to
litigate (Universal Shipping Lines, Inc. v. Intermediate Appellate Court, 188 SCRA 170 [1990]). The reason for the award
must be stated in the text of the courts decision. If it is stated only in the dispositive portion of the decision, the same shall
be disallowed. As to the award of attorneys fees being an exception rather than the rule, it is necessary for the court to
make findings of fact and law that would bring the case within the exception and justify the grant of the award
(Refractories Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA 539).
NOTES:
Effects on the instrument of immaterial alteration  – In his book entitled Pandect of Commercial Law and Jurisprudence,
Justice Jose C. Vitug opines that an innocent alteration (generally, changes on items other than those required to be
stated under Sec. 1, N. I. L.) and spoliation (alterations done by a stranger) will not avoid the instrument, but the holder
may enforce it only according to its original tenor.
Some examples of material and immaterial alterations:

A. Material Alterations:
(1) Substituting the words or bearer for order.
(2) Writing protest waived above blank indorsements.
(3) A change in the date from which interest is to run.
(4) A check was originally drawn as follows: Iron County Bank, Crystal Falls, Mich. Aug. 5, 1901. Pay to G.L. or order
$9 fifty cents CTR. The insertion of the figure 5 before the figure 9, the instrument being otherwise unchanged.
(5) Adding the words with interest with or without a fixed rate.
(6) An alteration in the maturity of a note, whether the time for payment is thereby curtailed or extended.
(7) An instrument was payable First Natl Bank, the plaintiff added the word Marion.
(8) Plaintiff, without consent of the defendant, struck out the name of the defendant as payee and inserted the name of the
maker of the original note.
(9) Striking out the name of the payee and substituting that of the person who actually discounted the note.
(10) Substituting the address of the maker for the name of a co-maker.

B. Immaterial Alterations:
(1) Changing I promise to pay to We promise to pay, where there are two makers.
(2) Adding the word annual after the interest clause.
(3) Adding the date of maturity as a marginal notation.
(4) Filling in the date of the actual delivery where the makers of a note gave it with the date in blank, July …
(5) An alteration of the marginal figures of a note where the sum stated in words in the body remained unchanged.
(6) The insertion of the legal rate of interest where the note had a provision for interest at . . . per cent.
(7) A printed form of promissory note had on the margin the printed words, Extended to . . . The holder on or after
maturity wrote in the blank space the words May 1, 1913, as a reference memorandum of a promise made by him to the
principal maker at the time the words were written to extend the time of payment.
(8) Where there was a blank for the place of payment, filling in the blank with the place desired.
(9) Adding to an indorsees name the abbreviation Cash when it had been agreed that the draft should be discounted by the
trust company of which the indorsee was cashier.
(10) The indorsement of a note by a stranger after its delivery to the payee at the time the note was negotiated to the
plaintiff.
(11) An extension of time given by the holder of a note to the principal maker, without the consent of the a surety co-
maker.

Travel-On Inc vs Court of Appeals

Facts: Petitioner Travel-On. Inc. (“Travel-On”) is a travel agency selling airline tickets on commission basis for and in
behalf of different airline companies. Private respondent Arturo S. Miranda had a revolving credit line with petitioner. He
procured tickets from petitioner on behalf of airline passengers and derived commissions therefrom. On 14 June 1972,
Travel-On filed suit before the Court of First Instance (“CFI”) of Manila to collect on six (6) checks issued by private
respondent with a total face amount of P115,000.00. The complaint, with a prayer for the issuance of a writ of preliminary
attachment and attorney’s fees, averred that from 5 August 1969 to 16 January 1970, petitioner sold and delivered various
airline tickets to respondent at a total price of P278,201.57; that to settle said account, private respondent paid various
amounts in cash and in kind, and thereafter issued six (6) postdated checks amounting to P115,000.00 which were all
dishonored by the drawee banks. Travel-On further alleged that in March 1972, private respondent made another payment
of P10,000.00 reducing his indebtedness to P105,000.00. The writ of attachment was granted by the court a quo. In his
answer, private respondent admitted having had transactions with Travel-On during the period stipulated in the complaint.
Private respondent, however, claimed that he had already fully paid and even overpaid his obligations and that refunds
were in fact due to him. He argued that he had issued the postdated checks for purposes of accommodation, as he had in
the past accorded similar favors to petitioner. During the proceedings, private respondent contested several tickets alleged
to have been erroneously debited to his account. He claimed reimbursement of his alleged over payments, plus litigation
expenses, and exemplary and moral damages by reason of the allegedly improper attachment of his properties. 

Issue: Whether or not petitioner is an accommodated party.

Held: No. In accommodation transactions recognized by the Negotiable Instruments Law, an accommodating party lends
his credit to the accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as a holder in
due course, who gave full value therefor to the accommodated party. The latter, in other words, receives or realizes full
value which the accommodated party then must repay to the accommodating party, unless of course the accommodating
party intended to make a donation to the accommodated party. But the accommodating party is bound on the check to the
holder in due course who is necessarily a third party and is not the accommodated party. Having issued or indorsed the
check, the accommodating party has warranted to the holder in due course that he will pay the same according to its tenor.

Travel-On was entitled to the benefit of the statutory presumption that it was a holder in due course, that the checks were
supported by valuable consideration. Private respondent maker of the checks did not successfully rebut these
presumptions. The only evidence aliunde that private respondent offered was his own self-serving uncorroborated
testimony. He claimed that he had issued the checks to Travel-On as payee to “accommodate” its General Manager who
allegedly wished to show those checks to the Board of Directors of Travel-On to “prove” that Travel-On’s account
receivables were somehow “still good.” It will be seen that this claim was in fact a claim that the checks were merely
simulated, that private respondent did not intend to bind himself thereon. Only evidence of the clearest and most
convincing kind will suffice for that purpose; no such evidence was submitted by private respondent. The latter’s
explanation was denied by Travel-On’s General Manager; that explanation, in any case, appears merely contrived and
quite hollow to us. Upon the other hand, the “accommodation” or assistance extended to Travel-On’s passengers abroad
as testified by petitioner’s General Manager involved, not the accommodation transactions recognized by the NIL, but
rather the circumvention of then existing foreign exchange regulations by passengers booked by Travel-On, which
incidentally involved receipt of full consideration by private respondent.

Negotiable Instruments Case Digest: Travel-On v. CA (1992)

FACTS:

 Arturo S. Miranda 
o had a revolving credit line with Travel-On. Inc. (Travel-On), a travel agency selling airline tickets on
commission basis for and in behalf of different airline companies
o procured tickets from Travel-On on behalf of airline passengers and derived commissions therefrom.
 June 14 1972: Travel-On filed bef. the CFI to collect 6 checks issued by Miranda totaling P115,000.00
 August 5 1969 - January 16 1970:  Travel-On sold and delivered airline tickets to Miranda w/ total price of
P278,201.57
o paid in cash and 6 checks = P115,000 - all dishonored by the drawee banks
o March 1972: paid P10,000.00 reducing his debts to P105,000
 Miranda: checks were issued for to "accommodate" Travel-On's General Manager to show the BOD of Travel-On
that their receivables were still good
o Travel-On's witness, Elita Montilla: related to situations where its passengers needed money in
Hongkong, and upon request of Travel-On, Miranda would contact his friends in Hongkong to advance
Hongkong money to the passenger
 CA affirmed CFI: ordered Travel-On to pay Miranda P8,894.91 representing net overpayments by private
respondent, moral damages of P10,000.00 (later increased to P50,000 by CFI and reduced by CA to P20,000) for
the wrongful issuance of the writ of attachment and for the filing of this case, P5,000.00 for attorney's fees and the
costs of the suit - decision was because Travel-On did not show that Miranda had an outstanding balance of
P115,000.00 

ISSUE: W/N Miranda is liable for the 6 dishonored checks because there was no accomodation

HELD: YES. GRANT due course to the Petition for Review on Certiorari and to REVERSE and SET ASIDE the
Decision of the CA and trial court

  failed to give due importance the checks themselves as evidence of the debt
o check which is regular on its face is deemed prima facie to have been issued for a valuable consideration
and every person whose signature appears thereon is deemed to have become a party thereto for value.
o negotiable instrument is presumed to have been given or indorsed for a sufficient consideration unless
otherwise contradicted and overcome by other competent evidence
o Those checks in themselves constituted evidence of indebtedness of Miranda, evidence not successfully
overturned or rebutted by private respondent.
 While the Negotiable Instruments Law does refer to accommodation transactions, no such transaction was here
shown
o Sec. 29. Liability of accommodation party. — An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value 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.
o Having issued or indorsed the check, the accommodating party has warranted to the holder in due course
that he will pay the same according to its tenor. 

o Travel-On obviously was not an accommodated party; it realized no value on the checks which bounced.

Negotiable Instruments Case Digest: Agro Conglomerates Inc. v. CA (2000)

FACTS:

 July 17, 1982: Agro Conglomerates, Inc. (Agro) sold 2 parcels of land to Wonderland Food Industries, Inc
(Wonderland) for P 5M under terms and conditions: 
 1. P 1M Pesos shall be paid in cash upon the signing of the agreement
2. P 2M Pesos worth of common shares of stock of the Wonderland Food Industries, Inc.
3. balance of P2,000,000.00 shall be paid in 4 equal installments, the first installment falling due, 180 days after the
signing of the agreement and every six months thereafter, with an interest  rate of 18% per annum, to be advanced
by the vendee upon the signing of the agreement

 July 19, 1982: Agro, Wonderland and Regent Savings & Loan Bank (Regent) (formerly Summa Savings & Loan
Association) amended the arrangement resulting to a revision  - addedum was not notarized
o Agro would secure a loan in the name of Agro Conglomerates Inc. for the total amount of the initial
payments, while the settlement of loan would be assumed by Wonderland
o Mario Soriano (of Agro) signed as maker several promissory notes, payable to Regent in favor of
Wonderland
 subsidiary contract of suretyship had taken effect since Agro signed the promissory notes as
maker and accommodation party for the benefit of Wonderland
 bank released the proceeds of the loan to Agro who failed to meet their obligations as they fell
due
 bank, experiencing financial turmoil, gave Agro opportunity to settle their
account by extending payment due dates
 Mario Soriano manifested his intention to re-structure the loan, yet did
not show up nor submit his formal written request
 Regent filed 3 separate complaints before the RTC for Collection of sums of money
 CA affirmed Trial court: held Agro liable

ISSUE: W/N Agro should be liable because there was no accomodation or surety

HELD: YES. CA affirmed.

 First, there was no contract of sale that materialized.    The original agreement was that Wonderland would pay
cash and Argo would deliver possession of the farmlands.    But this was changed through an addendum, that
Argo would instead secure a loan and the settlement of the same would be shouldered by Wonderland.   
 contract of surety between Woodland and petitioner was extinguished by the rescission of the contract of sale of
the farmland
o With the rescission, there was confusion in the persons of the principal debtor and surety.     The
addendum thereon likewise lost its efficacy
 accommodation party - NOT in this case because of recission
o person who has signed the instrument as:
 maker
 acceptor
 indorser
o without receiving value therefor
o for the purpose of lending his name to some other person
o is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the
instrument knew (the signatory) to be an accommodation party
o has the right, after paying the holder, to obtain reimbursement from the party accommodated, since the
relation between them has in effect become one of principal and surety, the accommodation party being
the surety.
 Suretyship 
 relation which exists where:
 1 person has undertaken an obligation
 another person is also under the obligation or other duty to the obligee, who is
entitled to but one performance
 The surety’s liability to the creditor or promisee is directly and equally bound with the
principal and the creditor may proceed against any one of the solidary debtors
 Novation - NOT in this case
o extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting
another in place of the debtor, or by subrogating a third person in the rights of the creditor
o never presumed and it must be clearly and unequivocally shown
o requisites:

1. There must be a previous valid obligation - lacking

2. There must be an agreement of the parties concerned to a new contract
3. There must be the extinguishment of the old contract; and
4. There must be the validity of the new contract

 Sec. 22 of the Civil Code provides:

Every person who through an act of performance by another, or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal ground, shall return the same to him.

 Agro had no legal or just ground to retain the proceeds of the loan at the expense of Wonderland.  
 Neither could Agro excuse themselves and hold Wonderland still liable to pay the loan upon the rescission of
their sales contract - surety no effect because of the rescission
o If Agro sustained damages as a result of the rescission, they should have impleaded Wonderland and
asked damages
 The non-inclusion of a necessary party does not prevent the court from proceeding in the action,
and the judgment rendered therein shall be without prejudice to the rights of such necessary party
 But respondent appellate court did not err in holding that Agro are duty-bound under the
law to pay the claims of Regent from whom they had obtained the loan proceeds

AGRO CONGLOMERATES, INC. V CA NOVATION  

FACTS:  

(1) On July 17, 1982, petitioner Agro Conglomerates, Inc. as vendor, sold two parcels of land to Wonderland Food
Industries, Inc.  In their Memorandum of Agreement, the parties covenanted that the purchase price of Five Million
(P5,000,000.00) Pesos would be settled by the vendee, under the following terms and conditions:  
 
(1) One Million (P1,000,000.00) Pesos shall be paid in cash upon the signing of the agreement;   
(2)  Two Million (P2,000,000.00) Pesos worth of common shares of stock of the Wonderland Food Industries,
Inc.;
(3) The balance of P2,000,000.00 shall be paid in four equal installments, the first installment falling due, 180
days after the signing of the agreement and every six months thereafter, with an interest  rate of 18% per annum,
to be advanced by the vendee upon the signing of the agreement.  

(2) Whereas, the parties have agreed to qualify the stipulated terms for the payment of the said ONE MILLION THREE
HUNDRED SIXTY THOUSAND (P1,360,000.00) PESOS through loan from the  respondent bank Regent Savings &
Loan Bank (formerly Summa Savings & Loan Association), executed as Addendum to the previous Memorandum of
Agreement.  

(3) This addendum was not notarized. Consequently, petitioner Mario Soriano signed as maker several promissory notes,
payable to the respondent bank.  Thereafter, the bank released the proceeds of the loan to petitioners.   

(4) During that time, the bank was experiencing financial turmoil and was under the supervision of the Central Bank.
Central Bank examiner and liquidator Cordula de Jesus, endorsed the subject promissory notes to the bank's counsel for
collection.  The bank gave petitioners opportunity to settle their account by extending payment due dates.  Mario Soriano
manifested his intention to re-structure the loan, yet did not show up nor submit his formal written request. In their
answer, petitioners interposed the defense of novation and insisted there was a valid substitution of debtor.  They alleged
that the addendum specifically states that although the promissory notes were in their names, Wonderland shall be
responsible for the payment thereof.   

ISSUE: WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE ADDENDUM, SIGNED BY
THE PETITIONERS, RESPONDENT BANK AND WONDERLAND INC., CONSTITUTES A NOVATION OF THE
CONTRACT BY SUBSTITUTION OF DEBTOR, WHICH EXEMPTS THE PETITIONERS FROM ANY LIABILITY
OVER THE PROMISSORY NOTES.  

APPLICABLE LAW/S:

• Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one
which extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in
place of the debtor, or by subrogating a third person in the rights of the creditor. In order that a novation can take place,
the concurrence of the following requisites are indispensable:  

1) There must be a previous valid obligation; 

2) There must be an agreement of the parties concerned to a new contract; 
3) There must be the extinguishment of the old contract; and\
4) There must be the validity of the new contract.  

• Sec. 22 of the Civil Code provides:  

Every person who through an act of performance by another, or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal ground, shall return the same to him.  
HELD: (1) There was no novation as there was no previous valid obligation.   

In the instant case, the first requisite for a valid novation is lacking. There was no novation by “substitution” of debtor
because there was no prior obligation which was substituted by a new contract.  It will be noted that the promissory notes,
which bound the petitioners to pay, were executed after the addendum.  The addendum modified the contract of sale, not
the stipulations in the promissory notes which pertain to the surety contract.  At this instance, Wonderland apparently
assured the payment of future debts to be incurred by the petitioners.  Consequently, only a contract of surety arose. It was
wrong for petitioners to presume a novation had taken place.  The well-settled rule is that novation is never presumed, it
must be clearly and unequivocally shown.  

(2) Petitioners are liable as accomodation party. In the instant case the original plan was that the initial payments would be
paid in cash.  Subsequently, the parties (with the participation of respondent bank) executed an addendum providing
instead, that the petitioners would secure a loan in the name of Agro Conglomerates Inc. for the total amount of the initial
payments, while the settlement of said loan would be assumed by Wonderland.  Thereafter, petitioner Soriano signed
several promissory notes and received the proceeds in behalf of petitioner-company.  

By this time, we note a subsidiary contract of suretyship had taken effect since petitioners signed the promissory notes as
maker and accommodation party for the benefit of Wonderland. Petitioners became liable as accommodation party.   

(3) Wonderland is not liable for the loan and was not the substitute debtor of the promissory notes.   

The contract of sale between Wonderland and petitioners did not materialize.  But it was admitted that petitioners received
the proceeds of the promissory notes obtained from respondent bank. Petitioners had no legal or just ground to retain the
proceeds of the loan at the expense of private respondent bank.  Neither could petitioners excuse themselves and hold
Wonderland still liable to pay the loan upon the rescission of their sales contract.   

If petitioners sustained damages as a result of the rescission, they should have impleaded Wonderland and asked damages.
The non-inclusion of a necessary party does not prevent the court from proceeding in the action, and the judgment
rendered therein shall be without prejudice to the rights of such necessary party. But respondent appellate court did not err
in holding that petitioners are duty-bound under the law to pay the claims of respondent bank from whom they had
obtained the loan proceeds.  

DEFINITIONS: 

(1) Accommodation party : person who has signed the instrument as maker, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person and is liable on the instrument to a holder for
value, notwithstanding such holder at the time of taking the instrument knew (the signatory) to be an accommodation
party.   

He has the right, after paying the holder, to obtain reimbursement from the party accommodated, since the relation
between them has in effect become one of principal and surety, the accommodation party being the surety.   

(2) Suretyship: relation which exists where one person has undertaken an obligation and another person is also under the
obligation or other duty to the obligee, who is entitled to but one performance, and as between the two who are bound, one
rather than the other should perform.  

The surety's liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words,
he is directly and equally bound with the principal. And the creditor may proceed against any one of the solidary debtors.