BATAAN CIGAR AND CIGARETTE FACTORY, INC., vs. Court of Appeals[G.R. No. 93048, 3 March 1994]Principle: Rights of a holder (Negotiable Instruments Law)

Facts: Bataan Cigar and Cigarette Factory Inc. (BCCFI) engaged one of its suppliers, Kim Tim Pua George (George King), to deliver bales of tobacco leaf. In consideration thereof, BCCFI issued postdated cross checks in the total amount of P820K to King. King sold 2 checks both in the amount of P100K, post dated September 15 & 30, 1979 respectively, drawn by BCCFI w/ George as payee, at a discount, to the State Investment House Inc. (SIHI). As King failed to deliver the bales of tobacco leaf despite demand, BCCFI issued stop payment orders on the checks. Efforts by SIHI to collect from BCCFI failed. SIHI filed suit.

Issue: Whether SIHI can recover the value of the checks, premised on the issue whether SIHI is a holder in due course.

Held: The Negotiable Instruments Law states what constitutes a holder in due course, thus:

Sec. 52 — A holder in due course 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 person negotiating it.

Section 59 of the NIL further states that every holder is deemed prima facie a holder in due course. However, when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims, acquired the title as holder in due course.

The facts of the case are on all fours to the case of SIHI vs. Intermediate Appellate Court. The crossing of the checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser’s title to the check or the nature of his possession. Failing in this respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith, contrary to Section 52 (c) of the Negotiable Instruments Law, and as such the consensus of authority is to the effect that the holder of the check is not a holder in due course. BCCFI cannot be obliged to pay the checks as there is a failure of consideration (King being unable to supply the bales of tobacco leaf, for which the checks were intended for). Still, SIHI -- a holder not in due course -- can collect from the immediate indorser, George King. Such is the disadvantage of a holder not in due course, i.e. the instrument is subject to defenses as if it were non-negotiable.

Effect of crossing of a check:

1. check may not be encashed but only deposited in the bank

2. check may be negotiated only once — to one who has an account with a bank3. act of crossing the check serves as warning to the holder that the check has been

issued for a definite purpose - he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course

ENGR. JOSE E. CAYANAN vs. NORTH STAR INTERNATIONAL TRAVEL, INC.,[G.R. No. 172954]

DRAWER: Engr. CayananPAYEE: North Star International Travel Inc.

Facts: North Star International Travel Incorporated (North Star) is a corporation engaged in the travel agency business while petitioner is the owner/general manager of JEAC International Management and Contractor Services, a recruitment agency. Virginia Balagtas, the General Manager of North Star, in accommodation and upon the instruction of its client, petitioner herein, sent the amount of US$60,000 to View Sea Ventures Ltd., in Nigeria from her personal account in Citibank Makati. On March 29, 1994, Virginia again sent US$40,000 to View Sea Ventures by telegraphic transfer, with US$15,000 coming from petitioner. Likewise, on various dates, North Star extended credit to petitioner for the airplane tickets of his clients, with the total amount of such indebtedness under the credit extensions eventually reaching P510,035.47.

To cover payment of the foregoing obligations, petitioner issued five checks to North Star

When presented for payment, the checks were dishonored for insufficiency of funds while the other three checks were dishonored because of a stop payment order from petitioner. North Star, through its counsel, wrote petitioner informing him that the checks he issued had been dishonored. North Star demanded payment, but petitioner failed to settle his obligations. Hence, North Star instituted Criminal Case charging petitioner with violation BP 22, before the MTC.

MTC found ENGR. CAYANAN GUILTY beyond reasonable doubt of Violation of BP22. RTC acquitted petitioner of the criminal charges. The RTC also held that there is no basis for the imposition of the civil liability on petitioner because the checks issued by the accused were presented beyond the period of NINETY (90) DAYS and therefore, there is no violation of the provision of Batas Pambansa Blg. 22 and the accused is not considered to have committed the offense. There being no offense committed, accused is not criminally liable and there would be no basis for the imposition of the civil liability arising from the offense.

CA reversed the decision of the RTC insofar as the civil aspect is concerned and held petitioner civilly liable for the value of the subject checks. The CA ruled that although Cayanan was acquitted of the criminal charges, he may still be held civilly liable for the

checks he issued since he never denied having issued the five postdated checks which were dishonored.

Petitioner argues that the CA erred in holding him civilly liable to North Star for the value of the checks since North Star did not give any valuable consideration for the checks. He insists that the US$85,000 sent to View Sea Ventures was not sent for the account of North Star but for the account of Virginia as her investment. He points out that said amount was taken from Virginia’s personal dollar account in Citibank and not from North Star’s corporate account.

Issue: What is the presumption of consideration under Section 24?

Held: We have held that upon issuance of a check, in the absence of evidence to the contrary, it is presumed that the same was issued for valuable consideration which may consist either in some right, interest, profit or benefit accruing to the party who makes the contract, or some forbearance, detriment, loss or some responsibility, to act, or labor, or service given, suffered or undertaken by the other side. Under the Negotiable Instruments Law, it is presumed that every party to an instrument acquires the same for a consideration or for value. As petitioner alleged that there was no consideration for the issuance of the subject checks, it devolved upon him to present convincing evidence to overthrow the presumption and prove that the checks were in fact issued without valuable consideration.[16] Sadly, however, petitioner has not presented any credible evidence to rebut the presumption, as well as North Star’s assertion, that the checks were issued as payment for the US$85,000 petitioner owed.

Notably, petitioner anchors his defense of lack of consideration on the fact that he did not personally receive the US$85,000 from Virginia. However, we note that in his pleadings, he never denied having instructed Virginia to remit the US$85,000 to View Sea Ventures. Evidently, Virginia sent the money upon the agreement that petitioner will give to North Star the peso equivalent of the amount remitted plus interest.

State Investment House vs. IAC[G.R. No. 72764, 13 July 1989]

Facts: New Sikatuna Wood Industries Inc. (NSWI) requested for a loan from Harris Chua, who issued 3 crossed checks. Subsequently, NSWI entered in an agreement with the State Investment House Inc. (SIHI), under a deed of sale, where the former assigned and discounted 11 postdated checks including the 3 issued by Chua. When the 3 checks were allegedly deposited by SIHI, the checks were dishonored by reason of “insufficient funds,” “stop payment” and “account closed.” SIHI made demands upon Chua to make good said checks, Chua failed to do so.

Issue: Whether or not SIHI is a holder in due course so as to recover the amounts in the checks from Chua, the drawer.

Held: The Negotiable Instruments Law does not mention “crossed checks” but the Court has recognized the practice that crossing the check (by two parallel lines in the upper left portion of the check) means that the check may only be deposited in the bank and that the check may be negotiated only once (to one who has an account with a bank). The act of crossing a check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise he is not a holder in due course. Herein, SIHI rediscounted the check knowing that it was a crossed check. His failure to inquire from the holder (NSWI) the purpose for which the checks were crossed prevents him from being considered in good faith, and thus, as a holder in due course. SIHI, therefor is subject to personal defenses, such as the lack of consideration between the NSWI and Chua, i.e. resulting from the non-consummation of the loan.

Pineda vs. dela Rama[GR L-31831, 28 April 1983]First Division, Gutierrez (J)

Facts: Jose V. dela Rama is a lawyer whose services were retained by Jesus Pineda for the purpose of making representations with the chairman and general manager of the National Rice and Corn Administration to stop and delay the institution of criminal charges against Pineda who allegedly misappropriated 11,000 cavans of palay deposited at his ricemill in Concepcion, Tarlac. Subsequently, Dela Rama filed suit to collect a P9,300 loan, evidenced by the matured promissory note, and P5,000 as attorney’s fees. The Court of First Instance ruled in favor of Pineda, which was reversed by the Court of Appeals.

Issue: Whether the promissory note is void for lack of consideration.

Held: The presumption that a negotiable instrument is issued for a valuable consideration (Section 24, Negotiable Instruments Law) is only prima facie. It can be rebutted by proof to the contrary. The term of the note sustains the version of Pineda that he signed the promissory note because he believed dela Rama’s story that these amounts had already been advanced by dela Rama and given as gifts for NARIC officials. The promissory note was thus executed for an illegal consideration; and thus is void like any other contract as per Article 1409 of the Civil Code. The consideration for the promissory note -- to influence public officers in the performance of their duties -- is contrary to law and public policy. The promissory note is void ab initio and no cause of action for the collection cases can arise from it.

Crisologo-Jose vs. Court of Appeals [GR 80599, 15 September 1989]

Facts: In 1980, Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of marketing and sales; and the president of the said corporation was Atty.

Oscar Z. Benares. On 30 April 1980, Atty. Benares, in accommodation of his clients, the spouses Jaime and Clarita Ong, issued Check 093553 drawn against Traders Royal Bank, dated 14 June 1980, in the amount of P45,000.00 payable to Ernestina Crisologo-Jose. Since the check was under the account of Mover Enterprises, Inc., the same was to be signed by its president, Atty. Oscar Z. Benares, and the treasurer of the said corporation. However, since at that time, the treasurer of Mover Enterprises was not available, Atty. Benares prevailed upon Santos to sign the aforesaid check as an alternate signatory. Santos did sign the check. The check was issued to Crisologo-Jose in consideration of the waiver or quitclaim by Crisologo-Jose over a certain property which the Government Service Insurance System (GSIS) agreed to sell to the clients of Atty. Benares, the spouses Ong, with the understanding that upon approval by the GSIS of the compromise agreement with the spouses Ong, the check will be encashed accordingly. However, since the compromise agreement was not approved within the expected period of time, the aforesaid check for P45,000.00 was replaced by Atty. Benares with another Traders Royal Bank check bearing 379299 dated 10 August 1980, in the same amount of P45,000.00, also payable to Crisologo-Jose. This replacement check was also signed by Atty. Benares and by Santos When Crisologo-Jose deposited this replacement check with her account at Family Savings Bank, Mayon Branch, it was dishonored for insufficiency of funds. A subsequent redepositing of the said check was likewise dishonored by the bank for the same reason. Hence, Crisologo-Jose through counsel was constrained to file a criminal complaint for violation of Batas Pambansa 22 (BP22) with the Quezon City Fiscal's Office against Atty. Benares and Santos The investigating Assistant City Fiscal, Alfonso Llamas, accordingly filed an amended information with the court charging both Benares and Santos for violation of BP 22 (Criminal Case Q-14867) of then Court of First Instance of Rizal, Quezon City.

Meanwhile, during the preliminary investigation of the criminal charge against Benares and Santos, before Assistant City Fiscal Llamas, Santos tendered cashier's check CC 160152 for P45,000.00 dated 10 April 1981 to Crisologo-Jose, the complainant in that criminal case. Crisologo-Jose refused to receive the cashier's check in payment of the dishonored check in the amount of P45,000.00. Hence, Santos encashed the aforesaid cashier's check and subsequently deposited said amount of P45,000.00 with the Clerk of Court on 14 August 1981. Incidentally, the cashier's check adverted to above was purchased by Atty. Benares and given to Santos to be applied in payment of the dishonored check. After trial, the court a quo, holding that it was "not persuaded to believe that consignation referred to in Article 1256 of the Civil Code is applicable to this case," rendered judgment dismissing Santos' complaint for consignation and Crisologo-Jose's counterclaim. On appeal and on 8 September 1987, the appellate court reversed and set aside said judgment of dismissal and revived the complaint for consignation, directing the trial court to give due course thereto. Crisologo-Jose filed the petition.

Issue [1]: Whether Santos, as an accommodation party, is liable thereon under the Negotiable Instruments Law.

Held [1]: Section 29 (Liability of accommodation party) of the Negotiable Instruments Law provides that "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." Consequently, to be considered an accommodation party, a person must (1) be a party to the instrument, signing as maker, drawer, acceptor, or indorser, (2) not receive value therefor, and (3) sign for the purpose of lending his name for the credit of some other person. Based on the foregoing requisites, it is not a valid defense that the accommodation party did not receive any valuable consideration when he executed the instrument. From the standpoint of contract law, he differs from the ordinary concept of a debtor therein in the sense that he has not received any valuable consideration for the instrument he signs. Nevertheless, he is liable to a holder for value as if the contract was not for accommodation, in whatever capacity such accommodation party signed the instrument, whether primarily or secondarily. Thus, it has been held that in lending his name to the accommodated party, the accommodation party is in effect a surety for the latter.

Atrium Management Corporation vs. Court of Appeals[G.R. No. 109491, 28 February 2001]

Facts: Hi-Cement Corporation through its corporate signatories, Lourdes M. de Leon, treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor of E.T. Henry and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the four checks to Atrium Management Corporation for valuable consideration. Upon presentment for payment, the drawee bank dishonored all four checks for the common reason "payment stopped". On 3 January 1983, Atrium Management Corporation filed with the Regional Trial Court, Manila an action for collection of the proceeds of four postdated checks in the total amount of P2 million, after its demand for payment of the value of the checks was denied. After due proceedings, on 20 July 1989, the trial court rendered a decision ordering Lourdes M. de Leon, her husband Rafael de Leon, E.T. Henry and Co., Inc. and Hi-Cement Corporation to pay Atrium jointly and severally, the amount of P2 million corresponding to the value of the four checks, plus interest and attorney's fees. On appeal to the Court of Appeals, on 17 March 1993, the Court of Appeals promulgated its decision modifying the decision of the trial court, absolving Hi-Cement Corporation from liability and dismissing the complaint as against it. The appellate court ruled that: (1) Lourdes M. de Leon was not authorized to issue the subject checks in favor of E.T. Henry, Inc.; (2) The issuance of the subject checks by Lourdes M. de Leon and the late Antonio de las Alas constituted ultra vires acts; and (3) The subject checks were not issued for valuable consideration. Hence, Atrium filed the petition.

Issue:Whether the issuance of the checks was an ultra vires act. Whether Lourdes M. de Leon and Antonio de las Alas were personally liable for the checks issued as corporate officers and authorized signatories of the check. Held: 1. The record reveals that Hi-Cement Corporation issued the four (4) checks to extend financial assistance to E.T. Henry, not as payment of the balance of the P30 million pesos cost of hydro oil delivered by E.T. Henry to Hi-Cement. Why else would petitioner de

Leon ask for counterpart checks from E.T. Henry if the checks were in payment for hydro oil delivered by E.T. Henry to Hi-Cement? Hi-Cement, however, maintains that the checks were not issued for consideration and that Lourdes and E.T. Henry engaged in a "kiting operation" to raise funds for E.T. Henry, who admittedly was in need of financial assistance. There was no sufficient evidence to show that such is the case. Lourdes M. de Leon is the treasurer of the corporation and is authorized to sign checks for the corporation. At the time of the issuance of the checks, there were sufficient funds in the bank to cover payment of the amount of P2 million pesos. Thus, the act of issuing the checks was well within the ambit of a valid corporate act, for it was for securing a loan to finance the activities of the corporation, hence, not an ultra vires act. An ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the power conferred upon it by law" The term "ultra vires" is "distinguished from an illegal act for the former is merely voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated.

2. Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when: (1) He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; (2) He consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) He agrees to hold himself personally and solidarily liable with the corporation; or (4) He is made, by a specific provision of law, to personally answer for his corporate action." Herein, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of Hi-Cement were authorized to issue the checks. However, Ms. de Leon was negligent when she signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware that the checks were strictly endorsed for deposit only to the payee's account and not to be further negotiated. What is more, the confirmation letter contained a clause that was not true, that is, "that the checks issued to E.T. Henry were in payment of Hydro oil bought by Hi-Cement from E.T. Henry". Her negligence resulted in damage to the corporation. Hence, Ms. de Leon may be held personally liable therefor.

PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS

Facts: Ministry of Education Culture issued a check payable to Abante Marketing and drawn against Philippine National Bank (PNB). Abante Marketing, deposited the questioned check in its savings account with Capitol City Development Bank (CAPITOL). In turn, Capitol deposited the same in its account with the Philippine Bank of Communications (PBCom) which, in turn, sent the check to PNB for clearing. PNB cleared the check as good and thereafter, PBCom credited Capitol's account for the amount stated in the check. However, 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, and subsequently, sent the

check back to petitioner. PNB, however, returned the check to PBCom. On the other hand, Capitol could not in turn, debit Abante Marketing's account since the latter had already withdrawn the amount of the check. Capitol sought clarification from PBCom and demanded the re-crediting of the amount. PBCom followed suit by requesting an explanation and re-crediting from PNB. Since the demands of Capitol were not heeded, it filed a civil suit against PBCom which in turn, filed a third-party complaint against PNB for reimbursement/indemnity with respect to the claims of Capitol. PNB, on its part, filed a fourth-party complaint against Abante Marketing.

The Trial Court rendered its decision, ordering PBCom to re-credit or reimburse; PNB to reimburse and indemnify PBCom for whatever amount PBCom pays to Capitol; Abante Marketing to reimburse and indemnify PNB for whatever amount PNB pays to PBCom. The court dismissed the counterclaims of PBCom and PNB. The appellate court modified the appealed judgment by ordering PNB to honor the check. After the check shall have been honored by PNB, the court ordered PBCom to re-credit Capitol's account with it the amount. PNB filed the petition for review on certiorari averring that under Section 125 of the NIL, any change that alters the effect of the instrument is a material alteration.

Issue: WON an alteration of the serial number of a check is a material alteration under the NIL.

Held: NO, alteration of a serial number of a check is not a material alteration contemplated under Sec. 125 of the NIL.

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 Instruments Law.

In the present case what was altered is the serial number of the check in question, an item which 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. The check's 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 check's issuer was therefore insufficiently identified, rendering the referral to the serial number redundant and inconsequential.

FERNANDO MAULINI, ET AL., plaintiffs-appellees, vs. ANTONIO G. SERRANO, defendant-appellant.

[G.R. No. L-8844 December 16, 1914]

FACTS: The action was brought by Fernando Maulini, plaintiff, upon the contract of indorsement alleged to have been made in his favor by Antonio Serrano, defendant, upon the following promissory note:

3,000. Due 5th of September, 1912. We jointly and severally agree to pay to the order of Don Antonio G. Serrano on or before the 5th day of September, 1912, the sum of three thousand pesos (P3,000) for value received for commercial operations. Notice and protest renounced. If the sum herein mentioned is not completely paid on the 5th day of September, 1912, this instrument will draw interest at the rate of 11⁄2 per cent per month from the date when due until the date of its complete payment. The makers hereof agree to pay the additional sum of P500 as attorney's fees in case of failure to pay the note.

Manila, June 5, 1912.(Sgd.) For Padern, Moreno & Co., by F. Moreno, member of the firm. For Jose Padern, by F. Moreno. Angel Giminez.

The note was indorsed on the back as follows: Pay note to the order of Don Fernando Maulini, value received. Manila, June 5, 1912. (Sgd.) A.G. Serrano.

ISSUE: Whether or not A.G. Serrano, the defendant, was an accommodation party as described in the Negotiable Instruments Law.

HELD: The Court held that the accommodation to which reference is made in Section 29 is not one to the person who takes the note but one to the maker or indorser of the note. It is true, that in the case at bar, it was an accommodation to the plaintiff, in the popular sense, to have the defendant indorse the note; but it wasn't the accommodation described in the law but rather a mere favor to him and one which in no way bound Serrano. In cases of accommodation indorsement, the indorser makes the indorsement for the accommodation of the maker. Such an indorsement is generally for the purpose of better securing the payment of the note—that is, he lends his name to the maker and not the holder.

Thus, an accommodation note is one to which the accommodation party has put his name, without consideration, for the purpose of accommodating some other party who is to use it and is expected to pay it. The credit given to the accommodation party is sufficient consideration to bind the accommodation maker. Where an indorsement is made as a favor to the indorsee, who requests it, not the better to secure payment, but to relieve himself from a distasteful situation, and where the only consideration for such indorsement passes from the indorser to the indorsee, the situation does not present one creating an accommodation indorsement, nor one where there is a consideration sufficient to sustain an action on the indorsement.

Equitable Banking Corp vs. Special Steel Products, Inc.[G.R. No. 175350, 13 June 2012]

Facts: SSPI sold welding electrodes to Interco, as evidenced by sales invoices. It is due on March 16 1991 (for the first sales invoice_ and May 11 1991 (for others). It also provided that Interco would pay interest at the rate of 36% per annum in case of delay. In payment of for the products, Interco issued 3 checks payable to the order of SSPI. Each check was crossed with the notation “account payee only” and was drawn against Equitable. The records do not identify the signatory for the checks, or explain how Uy came in possession of these checks. He claimed that he had good title thereto. He demanded the deposits in his personal accounts in Equitable. The bank did so relying on Uy’s status as a valued client and as son-in-law of Interco’s majority stockholder.

SSPI reminded Interco of the unpaid welding electrodes, explaining that its immediate need for payment as it was experiencing some financial crisis of its own. It replied that it has already issued 3 checks payable to SSPI and drawn against Equitable, which was denied by SSPI.

Later on it was discovered that it was Uy, not SSPI, who received the proceeds of 3 checks. Interco finally paid the value of 3 checks to SSPI plus portion of accrued interests. Interco refused to pay entire accrued interest on the ground that it was not responsible for the delay. Hence, Pardo filed a complaint for damages against Uy and Equitable Bank’ alleging that the 3 crossed checks, all payable to order of SSPI could be deposited and encashed by SSPI only. Trial Court rendered decision in favor of Pardo which was affirmed by CA.

Issue/s: 1. What is the nature of crossed check?2. Whether or not SSPI has a cause of action against Equitable for quasi-delict, whereby it can recover actual damages from Equitable?

Held: SSPI’s cause of action based on quasi-delist. SSPI does not ask Equitable or Uy to deliever to it the proceeds of the checks as the rightful payee. The courts below correctly ruled that SSPI has a cause of action for quasi-delict.

The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPI’s order and contained the notation “account payee only.” This creates a reasonable expectation that the payee alone would receive the proceeds of the checks and that diversion of the checks would be averted. This expectation arises from the accepted banking practice that crossed checks are intended for deposit in the named payee’s account only and no other. At the very least, crossed checks should place a bank on notice that it should exercise more caution or expend more than a cursory inquiry, to ascertain whether the payee on the check has authorized the holder to deposit the same in different account.

A crossed check with the notation “account payee only” can only be deposited in the named payee’s account. It is gross negligence for a bank to ignore this rule solely on the basis of a third party’s oral representations of having a good title there to.

RIZAL COMMERCIAL BANKING CORPORATION, petitioner vs.HI-TRI DEVELOPMENT CORPORATION and LUZ R. BAKUNAWA, Respondents.[G.R. No. 192413]

Facts: Luz Bakunawa and her husband Manuel (“Spouses Bakunawa”) are owners of six (6) parcels of land . These lots were sequestered by the Presidential Commission on Good Government [(PCGG)]. Sometime in 1990, Teresita Millan (“Millan”), through her representative, Jerry Montemayor, offered to buy said lots for “₱6,724,085.71”, with the promise that she will take care of clearing whatever preliminary obstacles there may be to effect a completion of the sale. The Spouses Bakunawa gave to Millan the Owner’s Copies of said TCTs and in turn, Millan made a downpayment of “₱1,019,514.29” for the intended purchase. However, Millan was not able to clear said obstacles. As a result, the Spouses Bakunawa rescinded the sale and offered to return to Millan her downpayment. However, Millan refused to accept back the downpayment. The Spouses Bakunawa, through their company, the Hi-Tri Development Corporation (“Hi-Tri”) took out on October 28, 1991, a Manager’s Check from RCBC-Ermita in the amount of ₱1,019,514.29, payable to Millan’s company Rosmil Realty and Development Corporation (“Rosmil”) c/o Teresita Millan. Their prayer included that Millan be ordered to receive the said amount but upon advice of their counsel, retained custody of RCBC Manager’s Check No. ER 034469 and refrained from canceling or negotiating it.

During the pendency of the case and without the knowledge of Hi-Tri and Spouses Bakunawa, RCBC reported the “₱1,019,514.29-credit existing in favor of Rosmil” to the Bureau of Treasury as among its “unclaimed balances” as of January 31, 2003. On December 14, 2006, Republic, through the Office of the Solicitor General (OSG), filed with the RTC the action for Escheat.

On April 2008, the spouses settled amicably their dispute with Rosmil and Millan. Instead of only the amount of “₱1,019,514.29”, Spouses Bakunawa agreed to pay Rosmil and Millan the amount of “₱3,000,000.00”, which is inclusive of the amount of ₱1,019,514.29. But during negotiations and evidently prior to said settlement, Manuel Bakunawa, through Hi-Tri inquired from RCBC-Ermita the availability of the ₱1,019,514.29 under RCBC Manager’s Check No. ER 034469. Unfortunately, they were informed that the amount was already subject of the escheat proceedings before the RTC. In its letter to RCBC, the spouses acknowledged that the deposit was indeed to be taken from Hi-Tri’s RCBC bank account once an order to debit is issued upon the payee’s presentation of the Manager’s Check but they also contend that since the payee rejected the negotiated Manager’s Check, presentation of the Manager’s Check was never made.

The trial court declared the amounts, subject of the special proceedings, escheated to the Republic and ordered them deposited with the Treasurer of the Philippines (Treasurer) and credited in favor of the Republic. CA reversed and set aside the decision of the trial court on the ground that the bank failed to notify respondents and deprived them of an opportunity to intervene in the escheat proceedings and to present evidence to substantiate their claim, in violation of their right to due process; hence, this petition.

Issue: WON the issuance of a manager’s check works as an automatic transfer of funds to the account of the payee.

Held:NO. Manager's or cashier's checks are bills of exchange drawn by the bank’s manager or cashier, in the name of the bank, against the bank itself. Typically, a manager’s or a cashier’s check is procured from the bank by allocating a particular amount of funds to be debited from the depositor’s account or by directly paying or depositing to the bank the value of the check to be drawn. Since the bank issues the check in its name, with itself as the drawee, the check is deemed accepted in advance. Nevertheless, the mere issuance of a manager’s check does not ipso facto work as an automatic transfer of funds to the account of the payee.

In case the procurer of the manager’s or cashier’s check retains custody of the instrument, does not tender it to the intended payee, or fails to make an effective delivery, we find the following provision on undelivered instruments under the Negotiable Instruments Law applicable:

Sec. 16. Delivery; when effectual; when presumed.—Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purposes of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be; x x x

Since there was no delivery, presentment of the check for payment did no occur. An order to debit the account was never made. As a result, the assigned fund is deemed to remain part of the account of the one which procured the Manager’s Check. The doctrine that the deposit represented by a manager’s check automatically passes to the payee is inapplicable, because the instrument—although accepted in advance—remains undelivered.

Gonzales v. PCIBG.R. No. 180257, 23 February 2011

Facts: Gonzales was a client of PCIB. He was granted a credit line by the bank through a Credit-On-Hand-Loan Agreement (COHLA). He drew from the credit line through a check and said credit line was secured by collateral in the form of his accounts with PCIB which was a foreign currency deposit worth USD 8715.

He obtained below loans from PCIB:1. Obtained with his wife – P500K2. Obtained with spouses Panlilio – P1M, P300K

The above loans (total: 1.8M) were covered by 3 promissory notes and were secured by a real estate mortgage on a land co owned by Gonzales and spouses Panlilio. The promissory notes state the solidary liability of Gonzales and spouses Panlilio. However, it was the spouses Panlilio who received the proceeds of 1.8M. The monthly interest dues

were paid by the spouses Panlilio through auto debit from their PCIB account. However, they defaulted in the payment because their PCIB account had insufficient deposits.

Gonzales issued a check to Rene Unson worth 250K drawn against his credit line but said check was subsequently dishonored due to termination of Gonzales’ credit line because of the unpaid period interest dues from the loans. PCIB also froze the foreign currency deposit account of Gonzales.

Issue: Whether or not Gonzales is liable for the three promissory notes covering PHP1.8M loan he made with spouses Panlilio.

Held: Yes. A close perusal of the records shows that the courts a quo correctly found Gonzales solidarily liable with the spouses Panlilio for the three promissory notes. The solidary liability of Gonzales is clearly stipulated in the promissory notes which uniformly begin, “For value received, the undersigned (the “BORROWER”)jointly and severally promise to pay x x x.”

An accommodation party is one who meets all the three requisites according to Sec 29 of NIL:1. He must be a party to the instrument, signing as a maker, drawer, acceptor, or indorser2. He must not receive value therefor3. He must sign for the purpose of lending his name or credit to some other person.

An accommodation party lends his name to enable the accommodated party to obtain credit or raise money. He receives no part but assumed liability. The relation between an accommodation party is one of principal and surety, the AP being the surety. As such, he is deemed an original promisor and debtor from the beginning. he is considered in law as the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since their liabilities are interwoven.

Robert Dino v. Maria Luisa Loot[G.R. No. 170912, 19 April 2010]

Facts: Petitioner was induced to lend a syndicate P3,000,000.00 to be secured by a real estate mortgage on several parcels of land situated in Canjulao, Lapu-lapu City. Upon scrutinizing the documents involving the properties, petitioner discovered that the documents covered rights over government properties. Realizing he had been deceived, petitioner advised Metrobank to stop payment of his checks. However, only the payment of Check No. C-MA- 142119406-CA was ordered stopped. The other two checks were already encashed by the payees.

Meanwhile, Check No. C-MA- 142119406-CA (a cross-check) was negotiated and indorsed to respondents by petitioner in exchange for cash in the sum of P948,000.00, which respondents borrowed from Metrobank and charged against their credit line. Drawee bank, Metrobank, Cebu-Mabolo Branch, which is also their depositary bank, answered that the checks were suffiiently funded. However, the same was dishonored by the drawee bank when they tried to deposit it for reason “PAYMENT STOPPED.”

Respondents filed a collection suit against petitioner and Lobitana before the trial court.

The trial court ruled in favor of respondents and declared them due course holders of the subject check, since there was no privity between respondents and defendants. CA affirmed but modified the trial court’s decision by deleting the award of interest, moral damages, attorney’s fees and litigation expenses. The Court of Appeals opined that petitioner “was only exercising (although incorrectly), what he perceived to be his right to stop the payment of the check which he rediscounted.” The Court of Appeals ruled that petitioner acted in good faith in ordering the stoppage of payment of the subject check and thus, he must not be made liable for those amounts.

Issue: WON the respondents were holders in due course.

Held: PETITION GRANTED. Section 52 of the Negotiable Instruments Law defines a holder in due course, thus:

A holder in due course 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 has 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 person negotiating it.

In the case of a crossed check, as in this case, the following principles must additionally be considered: A crossed check (a) may not be encashed but only deposited in the bank; (b) may be negotiated only once — to one who has an account with a bank; and (c) warns the holder that it has been issued for a definite purpose so that the holder thereof must inquire if he has received the check pursuant to that purpose; otherwise, he is not a holder in due course.

Based on the foregoing, respondents had the duty to ascertain the indorser’s, in this case Lobitana’s, title to the check or the nature of her possession. This respondents failed to do. Respondents’ verification from Metrobank on the funding of the check does not amount to determination of Lobitana’s title to the check. Failing in this respect, respondents are guilty of gross negligence amounting to legal absence of good faith,[15] contrary to Section 52(c) of the Negotiable Instruments Law. Hence, respondents are not deemed holders in due course of the subject check.

However, the fact that respondents are not holders in due course does not automatically mean that they cannot recover on the check. The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not in any case recover on the instrument. The only disadvantage of a holder who is not in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. Among such defenses is the absence or failure of consideration,[ which petitioner sufficiently

established in this case. Petitioner issued the subject check supposedly for a loan in favor of Consing’s group, who turned out to be a syndicate defrauding gullible individuals. Since there is in fact no valid loan to speak of, there is no consideration for the issuance of the check. Consequently, petitioner cannot be obliged to pay the face value of the check.

Metropolitan Bank and Trust Company (formerly Asianbank Corporation) vs. BA Finance Corporation and Malayan Insurance Co., Inc.GR. No. 179952, 4 December 2009First Division (C.J. Puno, Justices Carpio-Morales, Leonardo-De Castro, Bersamin and Villarama, Jr.)

Instrument: CheckDrawer: Malayan InsuranceDrawee: China BankCollecting Bank: Metrobank formerly AsianbankPayee: BA Finance / Lamberto Bitanga

Facts: Lamberto Bitanga (Bitanga) obtained from BA Finance Corporation (BA Finance) a P329,280 loan. To secure the loan he mortgaged his car to BA Finance. BA Finance on its part required Bitanga to insure the car against loss or damage by accident, fire, and theft for a period of one year in an amount not less than the outstanding balance of mortgage obligations and that all loss, if any, under such policy or policies, will be payable to BA Finance as the mortgagee, its assigns as its interest may appear. Bitanga thus had the mortgaged car insured by Malayan Insurance Co., Inc. (Malayan Insurance).

The car was stolen. On Bitanga’s claim, Malayan Insurance issued a check payable to the order of “B.A. Finance Corporation and Lamberto Bitanga” for P224,500, drawn against China Banking Corporation (China Bank). The check was crossed with the notation “For Deposit Payees’ Account Only.”

Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check to his account with the Asianbank Corporation (Asianbank), now merged with Metropolitan Bank and Trust Company (Metrobank). Bitanga subsequently withdrew the entire proceeds of the check.

In the meantime, Bitanga’s loan became past due, but despite demands, he failed to settle it. BA Finance eventually learned of the loss of the car and of Malayan Insurance’s issuance of a crossed check payable to it and Bitanga, and of Bitanga’s depositing it in his account at Asianbank and withdrawing the entire proceeds thereof.

BA Finance thereupon demanded the payment of the value of the check from Asianbank [7] but to no avail, prompting it to file a complaint before the Regional Trial Court (RTC) of Makati for sum of money and damages against Asianbank and Bitanga, alleging that, inter alia, it is entitled to the entire proceeds of the check. It also filed a third party complaint against Malayan Insurance.

The RTC ruled in favor of BA Finance and held Asianbank and Bitanga solidarily liable for the full amount of the check. A favorable ruling was also rendered on Malayan Insurance holding that Malayan was not privy to the contract between BA Finance and Bitanga and noting that it is the policy of Malayan to issue checks to both the insured and the financing company. The CA affirmed the trial court’s decision. Hence the appeal to the SC where Asianbank now Metrobank argues that it is only liable to BA Finance for only one half of the amount covered by the check.

Issue: 1. What is Section 41 of the NIL? 2. What is the effect of payment based on a forged indorsement? 3. What is the effect of a collecting bank being the last indorser?

Held:1. Section 41 of the Negotiable Instruments Law provides: Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the others.

Bitanga alone endorsed the crossed check, and Asianbank allowed the deposit and release of the proceeds thereof, despite the absence of authority of Bitanga’s co-payee BA Finance to endorse it on its behalf. [25]

2. The payment of an instrument over a missing indorsement is the equivalent of payment on a forged indorsement or an unauthorized indorsement in itself in the case of joint payees. Clearly, Asianbank, through its employee, was negligent when it allowed the deposit of the crossed check, despite the lone endorsement of Bitanga, ostensibly ignoring the fact that the check did not, it bears repeating, carry the indorsement of BA Finance. As has been repeatedly emphasized, the banking business is imbued with public interest such that the highest degree of diligence and highest standards of integrity and performance are expected of banks in order to maintain the trust and confidence of the public in general in the banking sector. Undoubtedly, BA Finance has a cause of action against Asianbank.

The provisions of the Negotiable Instruments Law and underlying jurisprudential teachings on the black-letter law provide definitive justification for Asianbank’s full liability on the value of the check.

3.To be sure, a collecting bank, Asianbank in this case, where a check is deposited and which indorses the check upon presentment with the drawee bank, is an indorser. This is because in indorsing a check to the drawee bank, a collecting bank stamps the back of the check with the phrase “all prior endorsements and/or lack of endorsement guaranteed” and, for all intents and purposes, treats the check as a negotiable instrument, hence, assumes the warranty of an indorser. Without Asianbank’s warranty, the drawee bank (China Bank in this case) would not have paid the value of the subject check.

Asianbank, as the collecting bank or last indorser, generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements 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 prior indorsements.

Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is liable in conversion to the non-indorsing payee for the entire amount of the check.

Bank of America v. Associated Citizen’s BankG.R. No. 141001

RAFAEL P. LUNARIA vs. PEOPLE OF THE PHILIPPINES[G.R. No. 160127, 11 November 2008]

Facts: Petitioner entered into a partnership agreement with private complainant Nemesio Artaiz, in the conduct of a money-lending business, with the former as industrial partner and the latter the financer. Petitioner, who was then a cashier of Far East Bank and Trust Company in Meycauayan, Bulacan, would offer loans to prospective borrowers which his branch was unable to accommodate. At the start of the business, petitioner would first inform Artaiz of the amount of the proposed loan, then the latter would issue a check charged against his account in the bank (proceeds of which will go to a borrower), while petitioner would in turn issue a check to Artaiz corresponding to the amount lent plus the agreed share of interest. The lending business progressed satisfactorily between the parties and sufficient trust was established between the parties that they both agreed to issue pre-signed checks to each other, for their mutual convenience. The checks were signed but had no payee's name, date or amount, and each was given the authority to fill these blanks based on each other's advice.

The arrangement ended on November 1989. An accounting was paid and it was found that petitioner owed Artaiz P844,000.00 . Two checks were issued by petitioner to Artaiz during separate occasions but were subsequently dishonored for insufficient funds. Apparently, petitioner was implicated in a murder case which prevented him to raise the money to fund the checks.The RTC found petitioner guilty as charged and sentenced him to suffer the penalty of imprisonment of one (1) year, and to pay Artaiz the amount of P844,000.00, and the cost of suit.

Among the contentions, petitioner makes much of the argument that the check was not "made" or "drawn" within the contemplation of the law, nor was it for a consideration. Citing the Negotiable Instruments Law, he said the he could not have "drawn" and "issued" the subject check because "it was not complete in form at the time it was given to Artaiz.

Issue: WON the check was made and drawn by the petitioner despite the incompleteness in form.

Held: YES.

At the outset, it should be borne in mind that the exchange of the pre-signed checks without date and amount between the parties had been their practice for almost a year by virtue of their money-lending business. They had authority to fill up blanks upon information that a check can then be issued.

Thus, under the Negotiable Instruments Law, Section 14 of which reads:"Blanks, when may be filled. - Where the instrument is wanting in any material particular, the person in possession thereof has prima facie authority to complete it by filling up the blanks therein. xxx"

This practice is allowed. Because of the presumption of authority, the burden of proof that there was no authority or that authority granted was exceeded is carried by the person who questions such authority. Records show that [petitioner]had not proven lack of authority on the part of Artaiz to fill up such blanks. Having failed to prove lack of authority, it can be presumed that Artaiz was within his rights to fill up blanks on the check.

ASSOCIATED BANK and CONRADO CRUZ vs.HON. COURT OF APPEALS, and MERLE V. REYES, doing business under the name and style "Melissa's RTW," [G.R. No. 89802, May 7, 1992]

Facts: Melissa’s RTW’s customers issued cross checks payable to Melissa’s RTW, which its proprietor Merle Reyes did not receive. It was learned that the checks had been deposited with the Associated Bank by one Rafael Sayson. Sayson was not authorized by Reyes to deposit and encash said checks. Reyes filed an action for the recovery of the total value of the checks plus damages.

Issue: Whether the bank was negligent for the loss.

Held: Crossing a check means that the drawee bank should not encash the check but merely accept it for deposit, that the check may be negotiated only once by one who has an account in a bank, and that the check serves as warning that it was issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose. The effect, thus, relate to the mode of its presentment for payment, in accordance with Section 72 of the Negotiable Instruments Law. The bank paid the checks notwithstanding that title had not passed to the indorser, as the checks had been crossed and issued “for payee’s account only.” It does did so in its own peril and became liable to the payee for the value of the checks. The failure of the bank to make an inquiry as to Sayson’s authority was a breach of its duty. The bank is negligent and is thus liable to Reyes.

G.R. No. L-36549 October 5, 1988FAR EAST REALTY INVESTMENT INC., petitioner-appellant, vs. THE HONORABLE COURT OF APPEALS, DY HIAN TAT, SIY CHEE and GAW SUY AN, respondents-appellees.

Doctrine:• Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it is payable on demand, presentment must be made within a reasonable time after issue, except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof.

• Reasonable Time has been defined as so much time as is necessary under the circumstances for a reasonable prudent and diligent man to do, conveniently, what the contract or duty requires should be done, having a regard for the rights, and possibility of loss, if any, to the other party.

• No hard and fast demarcation line can be drawn between what may be considered as a reasonable or an unreasonable time, because “reasonable time” depends upon the peculiar facts and circumstances in each case.

Facts:Private respondents asked the petitioner to extend an accommodation loan in the sum of P4,500.00. Respondents delivered to the petitioner a check for P4,500.00, drawn by Dy Hian Tat, and signed by them at the back of said check, with the assurance that after one month from September 13, 1960, the said check would be redeemed by them by paying cash in the sum of P4,500.00, or the said check can be presented for payment on or immediately after one month. Petitioner agreed and extended an accommodation loan

The aforesaid check was presented for payment to the China Banking Corporation, but said check bounced and was not cashed by said bank, for the reason that the current account of the drawer thereof had already been closed. Petitioner demanded payment from the private but the latter failed and refused to pay notwithstanding repeated demands.

Both private respondents raised the defense that both have been wholly discharged by delay in presentment of the check for payment.The Lower Court ruled in favor of the petitioner. However, this was reversed by the CA upon appeal by the respondents, ruling that the check was not given as collateral to guarantee a loan secured since the check passed through other hands before reaching the petitioner and the said check was not presented within a reasonable time. Hence this petition.

Petitioner argues that presentment for payment and notice of dishonor are not necessary as when funds are insufficient to meet a check, thus the drawer is liable, whether such presentment and notice be totally omitted or merely delayed.

Issues:1. Whether or not presentment for payment can be dispensed with2. Whether or not presentment for payment and notice of dishonor of the questioned check were made within reasonable time

Held:1. No. Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it is payable on demand, presentment must be made within a reasonable time after issue, except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof (Section 71, Negotiable Instruments Law).

2. No. It is obvious in this case that presentment and notice of dishonor were not made within a reasonable time.

“Reasonable time” has been defined as so much time as is necessary under the circumstances for a reasonable prudent and diligent man to do, conveniently, what the contract or duty requires should be done, having a regard for the rights, and possibility of loss, if any, to the other party (Citizens’ Bank Bldg. v. L & E. Wertheirmer 189 S.W. 361, 362, 126 Ark, 38, Ann. Cas. 1917 E, 520).

Notice may be given as soon as the instrument is dishonored; and unless delay is excused must be given within the time fixed by the law (Section 102, Negotiable Instruments Law).

In the instant case, the check in question was issued on September 13, 1960, but was presented to the drawee bank only on March 5, 1964, and dishonored on the same date. After dishonor by the drawee bank, a formal notice of dishonor was made by the petitioner through a letter dated April 27, 1968. Under these circumstances, the petitioner undoubtedly failed to exercise prudence and diligence on what he ought to do al. required by law. The petitioner likewise failed to show any justification for the unreasonable delay.

No hard and fast demarcation line can be drawn between what may be considered as a reasonable or an unreasonable time, because “reasonable time” depends upon the peculiar facts and circumstances in each case (Tolentino, Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. I, Eighth Edition, p. 327).

NATIVIDAD GEMPESAW vs. THE HONORABLE COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS[G.R. No. 92244 February 9, 1993]

FACTS: Gempensaw was the owner of many grocery stores. She paid her suppliers through the issuance of checks drawn against her checking account with respondent bank. The checks were prepared by her bookkeeper Galang. In the signing of the checks prepared by Galang, Gempensaw didn't bother herself in verifying

to whom the checks were being paid and if the issuances were necessary. She didn't even verify the returned checks of the bank when the latter notifies her of the same. During her two years in business, there were incidents shown that the amounts paid for were in excess of what should have been paid. It was also shown that even if the checks were crossed, the intended payees didn't receive the amount of the checks. This prompted Gempensaw to demand the bank to credit her account for the amount of the forged checks. The bank refused to do so and this prompted her to file the case against the bank. HELD: Forgery is a real defense by the party whose signature was forged. A party whose signature was forged was never a party and never gave his consent to the instrument. Since his signature doesn’t appear in the instrument, the same cannot be enforced against him even by a holder in due course. The drawee bank cannot charge the account of the drawer whose signature was forged because he never gave the bank the order to pay. In the case at bar the checks were filled up by petitioner’s employee Galang and were later given to her for signature. Her signing the checks made the negotiable instruments complete. Prior to signing of the checks, there was no valid contract yet. Petitioner completed the checks by signing them and thereafter authorized Galang to deliver the same to their respective payees. The checks were then indorsed, forged indorsements thereon. As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot debit the account of a drawer for the amount of said check. An exception to this rule is when the drawer is guilty of negligence which causes the bank to honor such checks. Petitioner in this case has relied solely on the honesty and loyalty of her bookkeeper and never bothered to verify the accuracy of the amounts of the checks she signed the invoices attached thereto. And though she received her bank statements, she didn't carefully examine the same to double-check her payments. Petitioner didn't exercise reasonable diligence which eventually led to the fruition of her bookkeeper’s fraudulent schemes.

SAMSON CHING vs. CLARITA NICDAO and HON. COURT OF APPEALS[G.R. No. 141181, 27 April 2007]

Facts: Nicdao was charged eleven (11) counts of violation of Batas Pambansa Bilang (BP) 22.

MTC found her of guilty of said offenses. RTC affirmed.

Nicdao filed an appeal to the Court of Appeals. CA reversed the decision and acquitted accused.

Ching is now appealing the civil aspect of the case to the Supreme Court.

Ching vigorously argues that notwithstanding respondent Nicdao’s acquittal by the CA, the Supreme Court has the jurisdiction and authority to resolve and rule on her civil liability. He anchors his contention on Rule 111, Sec 1B: The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to necessarily include the corresponding civil action, and no reservation to file such civil action separately shall be allowed or recognized. Moreover, under the above-quoted provision, the criminal action for violation of BP 22 necessarily includes the corresponding civil action, which is the recovery of the amount of the dishonored check representing the civil obligation of the drawer to the payee.

Nicdao’s defense: Sec 2 of Rule 111 — Except in the cases provided for in Section 3 hereof, after the criminal action has been commenced, the civil action which has been reserved cannot be instituted until final judgment in the criminal action. Accdg to her, CA’s decision is equivalent to a finding that the facts upon which her civil liability may arise do not exist. The instant petition, which seeks to enforce her civil liability based on the eleven (11) checks, is thus allegedly already barred by the final and executory decision acquitting her.

Issue:1. WON Ching may appeal the civil aspect of the case within the reglementary period? YES2. WON Nicdao civilly liable? NO.

Held:

1. Ching is entitled to appeal the civil aspect of the case within the reglementary period.

“Every person criminally liable for a felony is also civilly liable. Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist.

Petitioner Ching correctly argued that he, as the offended party, may appeal the civil aspect of the case notwithstanding respondent Nicdao’s acquittal by the CA. The civil action was impliedly instituted with the criminal action since he did not reserve his right to institute it separately nor did he institute the civil action prior to the criminal action.If the accused is acquitted on reasonable doubt but the court renders judgment on the civil aspect of the criminal case, the prosecution cannot appeal from the judgment of acquittal as it would place the accused in double jeopardy. However, the aggrieved party, the offended party or the accused or both may appeal from the judgment on the civil aspect of the case within the period therefor.

GENERAL RULE:Civil liability is not extinguished by acquittal:1. where the acquittal is based on reasonable doubt;2. where the court expressly declares that the liability of the accused is not criminal but only civil in nature; and

3. where the civil liability is not derived from or based on the criminal act of which the accused is acquitted.

2. A painstaking review of the case leads to the conclusion that respondent Nicdao’s acquittal likewise carried with it the extinction of the action to enforce her civil liability. There is simply no basis to hold respondent Nicdao civilly liable to petitioner Ching.

CA’s acquittal of respondent Nicdao is not merely based on reasonable doubt. Rather, it is based on the finding that she did not commit the act penalized under BP 22. In particular, the CA found that the P20,000,000.00 check was a stolen check which was never issued nor delivered by respondent Nicdao to petitioner Ching.

CA did not adjudge her to be civilly liable to petitioner Ching. In fact, the CA explicitly stated that she had already fully paid her obligations. The finding relative to the P20,000,000.00 check that it was a stolen check necessarily absolved respondent Nicdao of any civil liability thereon as well.

Firestone Tire and Rubber vs. Ines Chaves & Co.[GR L-17106, 19 October 1966]En Banc, Regala (J)

Facts: The check was intended as part of the payment of Ines Chaves’ debt. When presented to the Security Bank and Trust Co. by Firestone, the check was returned for insufficiency of funds. Despite repeated demands, Ines Chaves failed to settle its account; hence, the suit.

Issue: Whether good faith is required in the issuance of a check.

Held: Everyone must in the performance of his duties, observe honesty and good faith. Where a person issues a postdated check without funds to cover it and informs the payee of this fact, he cannot be held guilty of estafa because there is no deceit. Herein, there is nothing in the record to show that Firestone knew that there were no funds when it accepted the check, much less that Firestone agreed to take the check with knowledgeof the lack of funds. As Ines Chavez is guilty of fraud (bad faith) in the performance of its obligation, it is liable for damages. Its conduct wanting in good faith, the award of attorney’s fees was warranted.