G.R. No. 170325, 26 September 2008


Respondents Spouses Rodriguez maintained savings and demand/checking accounts as well as demand deposits (Checkings/Current Account) with petitioner PNB. They are also engaged in the informal lending business of discounting arrangement with Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB.

PEMSLA regularly granted loans to its member and Spouses would rediscount the apostate checks issued to members whenever the association was short of funds. At the same time, the spouses would replace the postdated checks with their own checks issued in the same name. PEMSLA’s policy would not approve applications with outstanding debts and in order to subvert this they created a scheme to obtain additional loans in the names of unknowing members without their knowledge and consent. PEMSLA checks were then given to spouses for rediscounting and were carried out by forging the endorsement of the named payees in the checks.

Rodriguez checks were deposited directly to PEMSLA without any endorsement from the named payees. Petitioner found out about the fraudulent acts, and took measures by closing the current account of PEMSLA. Since PEMSLA checks were dishonored and returned the respondents incurred losses from the rediscounting transactions. Spouses filed a civil complaint against PEMSLA and PNB, the court rendering judgment in favor of respondent.


Whether or not the disputed checks were payable to bearer or order making petitioner liable if it is of the latter and respondent liable if is it is the former.


The checks were payable to order, making petitioner liable for the losses.

As a rule, if the payee is fictitious or not intended to be the true recipient of the proceeds of the check it is considered as a bearer instrument—according to Sections 8 and 9 of the Negotiable Instruments Law.

The distinction lies in the manner of their negotiation. An order instrument from the payee or holder requires endorsement. A bearer instrument does not require endorsement—negotiable by mere delivery. However, under Section 9 of the same law, a checks is payable to a specified payee may nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person, and such fact is known to the person making it so payable.

According to US jurisprudence, an actual, existing and living payee may also be “fictitious” if the maker of the check did not intend for the payee to receive the check. If such a case happens then the check is a bearer instrument. In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss.

However, if there is showing of commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense. PNB’s failure to show that the payees were “fictitious”, the fictitious-payee rule does not apply making the instrument payable to order. Also, PNB was remiss in its duty as the drawee bank since its employees were the one who crested the whole fraudulent scheme.

*Case digest by Earl M. Acoymo, JD-IV, Andres Bonifacio Law School, SY 2019-2020