Mercantile Law

PHILIPPINE NATIONAL BANK (PNB) vs. RODRIGUEZ G.R. No. 170325 September 26, 2008, Fictitious Payee Rule, Negotiable Instruments Law


Respondents-Spouses Rodriguez maintained savings and demand/checking accounts with petitioner.

In line with their informal lending business, they had a discounting arrangement with PEMSLA, an association of PNB employees, which regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued to members whenever the association was short of funds, and would replace the postdated checks with their own checks issued in the name of the members.

PNB later on found out that some PEMSLA officers took out loans in the names of other members, without their knowledge or consent by forging the indorsement of the named payees in the checks.

PNB then closed the current account of PEMSLA. The checks deposited to PEMSLA however, were debited from the Rodriguez account. Thus, spouses Rodriguez incurred losses.

The spouses Rodriguez filed a civil complaint for damages against PEMSLA and PNB. They sought to recover the value of their checks that were deposited to the PEMSLA savings account amounting to P2,345,804.00. The spouses contended that PNB paid the wrong payees, hence, it should bear the loss.

The RTC rendered judgment in favor of spouses Rodriguez, and ruled that PNB is liable to return the value of the checks.

On appeal,  the CA affirmed the RTC Decicion..


Whether the subject checks are payable to order or to bearer and who bears the loss.


A check is “a bill of exchange drawn on a bank payable on demand.” It is either an order or a bearer instrument.

As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a bearer instrument.

Under Section 30 of the NIL, an order instrument requires an indorsement from the payee or holder before it may be validly negotiated. A bearer instrument, on the other hand, does not require an indorsement to be validly negotiated. It is negotiable by mere delivery.

Under Section 9(c) of the NIL, a check 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. Thus, checks issued to “Prinsipe Abante” or “Si Malakas at si Maganda,” who are well-known characters in Philippine mythology, are bearer instruments because the named payees are fictitious and non-existent.

For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not intend for the named payees to be part of the transaction involving the checks. At most, the bank’s thesis shows that the payees did not have knowledge of the existence of the checks. This lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention on the part of respondents-spouses that the payees would not receive the checks’ proceeds. Considering that respondents-spouses were transacting with PEMSLA and not the individual payees, it is understandable that they relied on the information given by the officers of PEMSLA that the payees would be receiving the checks.

Verily, the subject checks are presumed order instruments. This is because, as found by both lower courts, PNB failed to present sufficient evidence to defeat the claim of respondents that the named payees were the intended recipients of the checks’ proceeds. The bank failed to satisfy a requisite condition of a fictitious-payee situation – that the maker of the check intended for the payee to have no interest in the transaction.

Because of a failure to show that the payees were “fictitious” in its broader sense, the fictitious-payee rule does not apply. Thus, the checks are to be deemed payable to order. Consequently, the drawee bank bears the loss.

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