Negotiable Instruments LAW Negotiable Instruments LAW

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Negotiable Instruments LAW
Accounting (Cagayan State University)
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NEGOTIABLE INSTRUMENTS LAW

I. INTRODUCTION provide that an accommodation party is one who has signed an
instrument as maker, drawer, acceptor of indorser without receiving value
A. GOVERNING LAWS – ACT No. 2031 effective June 2, 1911 (which therefor, but is held liable on the instrument to a holder for value although
amended some of the provisions of the Rules of the Law Merchant), the latter knew him to be only an accommodation party. This approach of
the Code of Commerce and the Civil Code. both parties appears to be misdirected and their reliance misplaced. The
promissory note hereinbefore quoted, as well as the mortgage deeds
B. APPLICABILITY OF THE NEGOTIABLE INSTRUMENTS LAW – the subject of this case, are clearly not negotiable instruments. These
Act applies only to negotiable instruments or those that meet the documents do not comply with the fourth requisite to be considered as
requirements under Sec. 1 of Act No. 2031. such under Section 1 of Act No. 2031 because they are neither payable to
order nor to bearer. The note is payable to a specified party, the GSIS.
KRAUFFMAN VS. PNB (GR No. 16454, Sept. 29, 1921) - Herein plaintiff Absent the aforesaid requisite, the provisions of Act No. 2031 would not
was entitled to P98,000 of the Philippine Fiber and Produce Company’s apply, governance shall be afforded, instead, by the provisions of the Civil
dividend for the year 1917. George B. Wicks, treasurer of the Company, Code and special laws on mortgages.
requested that a telegraphic transfer of $45,000 to the plaintiff in New
York City. Wicks drew and delivered a check for the amount of C. CONCEPT OF NEGOTIABLE INSTRUMENTS
P90,355.50, total cost of said transfer, including exchange and cost of
message which was accepted by the officer selling the exchange in 1. DEFINITION: Negotiable Instruments are written statements
payment of the transfer in question. As evidence of this transaction a signed by the maker or drawer containing an unconditional promise
document was made out and delivered to Wicks, which is referred to by or order to pay a sum certain money, payable on demand or at a
the bank's assistant cashier as its official receipt. On the same day the fixed or determinable future time, to order or to bearer.
Philippine National Bank dispatched to its New York agency a cablegram
for $45,000. However, the bank's representative in New York replied 2. FUNCTIONS OF NEGOTIABLE INSTRUMENTS
suggesting the advisability of withholding this money from Kauffman. The a. Substitute for money - although they are not considered
PNB dispatched to its New York agency another message to withhold the legal tender. One of its distinct characteristics is its negotiability
Kauffman payment as suggested. Meanwhile, upon advice of Wicks that which allows it to go from hand to hand in the commercial
the money has been placed to his credit, Kauffman presented himself at markets and to take the part of money in commercial
the office of the Philippine National Bank in New York and demanded the transactions free from all personal defenses available against
money. By this time, however, the message from the Philippine National the original owner.
Bank directing the withholding of payment had been received in New b. Media of exchange – they thus increase the purchasing
York, and payment was therefore refused. Thus the present complaint to medium in circulation. They are a safe and convenient means of
recover said sum, with interest and costs. ISSUE: WON Act No. 2031 is doing business that eliminate the risk of dealing in cash.
applicable in the above case? HELD: NO. The provisions of the c. Medium of credit transactions – they allow men of
Negotiable Instruments Law to come into operation, there must be a undoubted credit (such as those with illiquid properties) to carry
document in existence of the character described in section 1 of the Law; on business enterprise upon their promissory notes, bills of
and no rights properly speaking arise in respect to said instrument until it exchange and checks knowing that other businessmen will treat
is delivered. In the case before us there was an order transmitted by the these promises as cash.
defendant bank to its New York branch, for the payment of a specified
sum of money to George A. Kauffman. But this order was not made Checks are primarily used for immediate payment (substitute
payable "to order or "to bearer," as required in Section 1(d) of that Act; for money); while ordinary bill of exchange and the promissory
and inasmuch as it never left the possession of the bank, or its note are intended for the circulation of credits (credit
representative in New York City, there was no delivery in the sense instruments)
intended in Section 16 of the same Law. In this connection it is
unnecessary to point out that the official receipt delivered by the bank to 3. LEGAL TENDER – that amount which the creditor can be compelled
the purchaser of the telegraphic order, and already set out above, cannot to accept as payment.
itself be viewed in the light of a negotiable instrument, although it affords
complete proof of the obligation actually assumed by the bank. Sec. 52, Legal Tender Power. — All notes and coins issued by the
New Bangko Sentral shall be fully guaranteed by the Government
GSIS VS. CA (GR No. L-40824, Feb. 23, 1989) - Private respondents, Mr. Central of the Republic of the Philippines and shall be legal tender in
and Mrs. Isabelo R. Racho, together with the Lagasca spouses, executed a Bank the Philippines for all debts, both public and private:
deed of mortgage in favor of petitioner GSIS. Subsequently, another deed Act Provided, however, That, unless otherwise fixed by the
of mortgage was executed in connection with earlier two loans granted. A Monetary Board, coins shall be legal tender in amounts not
parcel of land, co-owned by said mortgagor spouses, was given as exceeding Fifty pesos (P50.00) for denominations of Twenty-
security under the aforesaid two deeds and they also executed a five centavos and above, and in amounts not exceeding
"promissory note". The Lagasca spouses executed an instrument Twenty pesos (P20.00) for denominations of Ten centavos.
denominated "Assumption of Mortgage" under which they obligated Sec. 60 Legal Character. — Checks representing demand deposits
themselves to assume obligation to the GSIS. This undertaking was not do not have legal tender power and their acceptance in the
fulfilled. Upon failure of the mortgagors to comply with the conditions of payment of debts, both public and private, is at the option of
the mortgage, particularly the payment of the amortizations due, GSIS the creditor: Provided, however, That a check which has
extra-judicially foreclosed the mortgage and caused the mortgaged been cleared and credited to the account of the creditor shall
property to be sold at public auction. Private respondents filed a complaint be equivalent to a delivery to the creditor of cash in an
against the petitioner and the Lagasca spouses praying that the amount equal to the amount credited to his account
extrajudicial foreclosure be declared null and void. In their aforesaid
complaint, they alleged that they signed the mortgage contracts not as TIBAJIA VS. CA (GR No. 100290, June 4, 1993) - A writ of attachment
sureties or guarantors for the Lagasca spouses but they merely gave their was issued by the trial court in connection to the collection of a sum of
common property to the said co-owners who were solely benefited by the money filed by Eden Tan against the Tibajia spouses. The fund was then
loans from the GSIS. Trial court dismissed the case. CA reversed decision on deposit with the cashier of the Regional Trial Court of Pasig. The
stating that the respondents are that only of an accommodation party. Tibajia spouses thereafter delivered to the Deputy Sheriff the total money
ISSUE: WON the NIL is applicable to the promissory note and mortgage judgment in the form of Cashier's Check worth P262,750.00. However,
deed? HELD: No. Both parties relied on the provisions of Section 29 of Act Eden Tan, refused to accept the payment made and instead insisted that
No. 2031, otherwise known as the Negotiable Instruments Law, which the garnished funds deposited with the cashier of the Regional Trial Court
ド Cesar Nickolai F. Soriano Jr.

Arellano University School of Law 2011-0303
NEGOTIABLE INSTRUMENTS LAW (Act No. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang

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of Pasig be withdrawn to satisfy the judgment obligation. Petitioners filed E. INCIDENTS IN THE LIFE OF NEGOTIABLE INSTRUMENTS
a motion to lift the writ of execution on the ground that the judgment
debt had already been paid but was denied by the trial court on the PROMISSORY NOTE BILL OF EXCHANGE
ground that payment in cashier's check is not payment in legal tender. Preparation & Signing
When the petitioners' motion for reconsideration was denied, the spouses Issuance
Tibajia filed herein petition. ISSUE: WON the delivery of the cashier's Negotiation
check is considered payment in legal tender? HELD: No. A check, whether Presentment for Acceptance
a manager's check or ordinary check, is not legal tender, and an offer of a Acceptance
check in payment of a debt is not a valid tender of payment and may be Dishonor by Non-acceptance
refused receipt by the obligee or creditor. (Philippine Airlines, Inc. vs.
Presentment for payment
Court of Appeals and Roman Catholic Bishop of Malolos, Inc. vs.
Dishonor by Non-payment
Intermediate Appellate Court). The ruling in the two (2) abovementioned
Notice of Dishonor
cases decided by the Supreme Court applies the statutory provisions
Payment
which lay down the rule that a check is not legal tender and that a creditor
may validly refuse payment by check, whether it be a manager's, cashier's Discharge
or personal check.
F. KINDS OF NEGOTIABLE INSTRUMENTS
PAL VS. CA (GR No. 49188, Jan. 30, 1990) - CFI Manila ruled in favor of
Amelia Tan [under the name and style of Able Printing Press] in a 1. PROMISSORY NOTES (Sec. 184, NIL) – An unconditional promise
complaint for damages against petitioner Philippine Airlines. On appeal, in writing mace by one person to another, signed by the maker,
the CA upheld the decision of the CFI with minor modifications as to the engaging to pay on demand, or at a fixed or determinable future
damages to be awarded. The corresponding writ of execution was duly time, a sum certain in money to order or to bearer.
referred to Deputy Sheriff Emilio Z. Reyes for enforcement with checks in a. Parties to a Negotiable Promissory Note are (1) Maker and
the name of the latter. Four months later, Amelia Tan moved for the (2) Payee;
issuance of an alias writ of execution since the judgment remained b. Kinds of Negotiable Promissory Note include certificates of
unsatisfied. The petitioner filed an opposition to the motion for the deposits, bank notes, due bills and bonds.
issuance of an alias writ of execution stating that it had already fully paid
its obligation to plaintiff through the deputy sheriff of the respondent 2. BILLS OF EXCHANGE (Sec. 126, 185, NIL) – An unconditional
court, Emilio Z. Reyes, as evidenced by cash vouchers properly signed and order in writing addressed by one person to another, signed by the
received by said Emilio Z. Reyes. On March 3,1978, the Court of Appeals person giving it, requiring the person to whom it is addressed to pay
denied the issuance of the alias writ for being premature, ordering the on demand, or at a fixed or determinable future time, a sum certain
executing sheriff Emilio Z. Reyes to appear with his return and explain the in money to order or bearer.
reason for his failure to surrender the amounts paid to him by petitioner a. Parties to a Bill of Exchange are (1) Drawer, (2) Payee and
PAL. However, the order could not be served upon Deputy Sheriff Reyes (3) Drawee;
because he already absconded or disappeared. ISSUE: WON the payment b. Kinds of Bills of Exchange include drafts, trade acceptances
rendered through a check made by PAL to the absconding sheriff in his and banker’s acceptances.
name operate to satisfy the judgment debt? HELD: Under ordinary
circumstances, payment by the judgment debtor to the sheriff should be G. WHEN BILLS TREATED AS NOTES
valid payment to extinguish the judgment debt. There are circumstances,
however, which compel a different conclusion such as when the payment Sec. 130 When bill may be treated as promissory note. - Where
made by the petitioner to the absconding sheriff was not in cash or legal in a bill the drawer and drawee are the same person or where
tender but in checks. The delivery of promissory notes payable to order, the drawee is a fictitious person or a person not having
or bills of exchange or other mercantile documents shall produce the capacity to contract, the holder may treat the instrument at
effect of payment only when they have been cashed, or when through the his option either as a bill of exchange or as a promissory note
fault of the creditor they have been impaired. In the meantime, the action Sec. 17(e) Construction where instrument is ambiguous. - Where
derived from the original obligation shall be held in abeyance. Since a the language of the instrument is ambiguous or there are
negotiable instrument is only a substitute for money and not money, the omissions therein, the following rules of construction apply:
delivery of such an instrument does not, by itself, operate as payment. A
check, whether a manager’s check or ordinary check, is not legal tender, (e) Where the instrument is so ambiguous that there is doubt
and an offer of a check in payment of a debt is not a valid tender of whether it is a bill or note, the holder may treat it as either at
payment and may be refused receipt by the obligee or creditor. Mere his election;
delivery of checks does not discharge the obligation under a judgment.
The obligation is not extinguished and remains suspended until the H. BILLS AND NOTES DISTINGUISHED
payment by commercial document is actually realized (Art. 1249, Civil
Code, par. 3). PAL created a situation which permitted the said Sheriff to PROMISSORY NOTES BILLS OF EXCHANGE
personally encash said checks and misappropriate the proceeds thereof to 2 parties – Maker and Payee 3 parties – Drawer, Payee and
his exclusive personal benefit. For the prejudice that resulted, the Drawee
petitioner himself must bear the fault. As between two innocent persons, Maker cannot be the payee Drawer and payee may be the same
one of whom must suffer the consequence of a breach of trust, the one person
who made it possible by his act of confidence must bear the loss. There is unconditional PROMISE by There is unconditional ORDER by the
the maker drawer to the drawee
D. CHARACTERISTICS OF NEGOTIABLE INSTRUMENTS Presentment for payment without Some Bills need prior acceptance by
prior acceptance the drawee before presentment for
1. NEGOTIABILITY – is that quality or attribute of a bill or note payment
whereby it may pass from one person to another similar to money, Liability of the maker is primary and Liability of the drawer is secondary
so as to give the holder in due course the right to collect on the absolute and conditional
instrument the sum payable for himself free from any defect in the
title of any of the prior parties or defenses available to them among I. NEGOTIABLE INSTRUMENTS COMPARE WITH OTHER PAPERS
themselves. (Negotiability vs. Assignability)
2. ACCUMULATION OF SECONDARY CONTRACTS – as they are
transferred from one person to another. Once an instrument is SESBRENO VS. CA (GR No. 89252, May 24, 1993) - Petitioner Sesbreno
issued, additional parties can become involved. made a money market placement in the amount of P300,000 with the
ナ Cesar Nickolai F. Soriano Jr.


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Philippine Underwriters Finance Corporation (PhilFinance), with a term of II. FORM AND INTERPRETATION OF NEGOTIABLE INSTRUMENTS
32 days. PhilFinance issued to Sesbreno (1) the Certificate of Confirmation
of Sale of a Delta Motor Corporation Promissory Note, (2) the Certificate of A. HOW NEGOTIABILITY IS DETERMINED?
Securities Delivery Receipt indicating the sale of the note with notation
that said security was in the custody of Pilipinas Bank, and (3) post-dated CALTEX VS. COURT OF APPEALS (GR No. 97753, Aug. 10, 1992) -
checks drawn against the Insular Bank of Asia and America for Respondent bank issued 280 certificates of time deposit (CTDs) in favor of
P304,533.33 payable on March 13, 1981. The checks were dishonored for Angel dela Cruz who delivered the same to herein petitioner in connection
having been drawn against insufficient funds. Pilipinas Bank never with his purchased fuel products. Eventually, dela Cruz executed and
released the note, nor any instrument related thereto, to Sesbreno; but delivered an Affidavit of Loss for the reissuance of the CTDs. Dela Cruz
Sesbreno learned that the Delta Promissory Note maturing on 6 April later on obtained a loan from respondent bank and negotiated the said
1981, has a face value of P2,300,833.33 with PhilFinance as payee and CTDs, executing a Deed of Assignment of Time Deposit which stated,
Delta Motors as maker; and was stamped “non-negotiable” on its face. among others, that the bank has full control of the indicated time deposits
PhilFrance was later on placed under the custody of the Securities and from and after date of the assignment and may set-off such and apply the
Exchange Commission. As Sesbreno was unable to collect his investment same to the payment of amount or amounts that may be due on the loan
and interest thereon, he filed an action for damages against Delta Motors upon maturity.
and Pilipinas Bank. Delta Motors contends that said promissory note was
not intended to be negotiated or otherwise transferred by Philfinance as Petitioner then went to the Sucat branch for verification of the CTDs
manifested by the word "non-negotiable" stamped across the face of the declared lost, alleging that the same were delivered to herein petitioner as
Note. The trial court and the CA dismissed petitioner’s complaint and “security for purchases made with Caltex Philippines, Inc.” and requested
appeal, respectively, for lack of cause of action. If anything, petitioner has that the CTDs be pre-terminated, which was refused by the respondent
a cause of action against Philfrance, which, however, was not impleaded. bank due to the failure of petitioner to present requested documents to
ISSUE: WON the non-negotiability of a promissory note prevents its prove such allegation. Petitioner then filed a complaint in the RTC, which
assignment? HELD: No. A negotiable instrument, instead of being was dismissed. On appeal, the CA affirmed the decision of the RTC. Thus,
negotiated, may also be assigned or transferred. The legal consequences the present petition. ISSUE: WON the CTDs are considered negotiable?
of negotiation and assignment of the instrument are different. A non- HELD: Yes. A sample text of the certificates of time deposit is reproduced
negotiable instrument may not be negotiated but may be below:
assigned or transferred, absent an express prohibition against
assignment or transfer written in the face of the instrument. The SECURITY BANK
subject promissory note, while marked "non-negotiable," was not at the AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
same time stamped "non-transferable" or "non-assignable." It contained Metro Manila, Philippines
no stipulation which prohibited Philfinance from assigning or transferring SUCAT OFFICE P4,000.00
such note, in whole or in part. CERTIFICATE OF DEPOSIT
Rate 16%
J. SOME NON-NEGOTIABLE INSTRUMENTS Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum of
1. Document of Title – like a certificate of stock, bill of lading and PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE
warehouse receipt (non-negotiable because there is no unconditional P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731
promise or order to pay a certain sum in money); days. after date, upon presentation and surrender of this certificate, with interest
2. Letter of Credit – a letter from a merchant or bank or banker in at the rate of 16% per cent per annum.
one place, addressed to another, in another place or country, (Sgd. Illegible) (Sgd. Illegible)
AUTHORIZED SIGNATURES
requesting the addressee to pay money or deliver goods to a third
party therein named, the writer of the letter undertaking to provide
Section 1, of Act No. 2031, otherwise known as the Negotiable
him the money for the goods or to repay him. It is a letter requesting
Instruments Law, enumerates the requisites for an instrument to become
one person to make advances to a third person on the credit of the
negotiable. The CTDs in question undoubtedly meet the requirements of
writer. (It is in favor of a certain person and not to order)
the law for negotiability. The accepted rule is that the negotiability or non-
3. Treasury Warrant - it is a government warrant for the payment of
negotiability of an instrument is determined from the writing, that is, from
money such as that issued in favor of a public officer or employee
the fact of the instrument itself. Contrary to what respondent court held
covering payment or replenishment of cash advances for official
(that the CTDs are payable to the “depositor” which is Angel dela Cruz),
expenditures. (It is payable out of a specific fund or appropriation)
the documents provide that the amounts deposited shall be repayable to
4. Postal Money Order
the depositor. And who, according to the document is the depositor? It is
the “bearer”. The documents do not say that the depositor is Angel dela
PHILIPPINE EDUCATION CO. VS. SORIANO (GR No. L-22405, June
Cruz and that the amounts deposited are repayable specifically to him.
30, 1971) - Enrique Montinola sought to purchase from the Manila Post
Rather, the amounts are to be repayable to the bearer of the documents
Office 10 money orders (P200 each), offering to pay for them with a
or, for that matter, whosoever may be the bearer at the time of
private check. Montinola was able to leave the building with his check and
presentment.
the 10 money orders without the knowledge of the teller. Upon discovery,
message was sent to all postmasters and banks involving the unpaid
B. EFFECT OF ESTOPPEL
money orders. One of the money orders was received by the Philippine
Education Co. as part of its sales receipt. It was deposited by the company
BANCO DE ORO SAVINGS VS. EQUITABLE BANKING CORP. (GR No.
with the Bank of America, which cleared it with the Bureau of Post. The
74917, Jan. 20, 1988) - Manager's checks (Checks) having an aggregate
Postmaster, through the Chief of the Money Order Division of the Manila
amount of P45,982.23 and payable to certain member establishments of
Post Office informed the bank of the irregular issuance of the money
Visa Card. Subsequently, the Checks were deposited with the defendant
order. The bank debited the account of the company. The company
(respondent Equitable) to the credit of its depositor (Aida Trencio’s
moved for reconsideration. ISSUE: WON postal money orders are
account). Following normal procedures, and after stamping at the back of
negotiable instruments? HELD: No. Philippine postal statutes are
the Checks the usual endorsements (All prior and/or lack of endorsement
patterned from those of the United States, and the weight of authority in
guaranteed), Equitable sent the checks for clearing through the Philippine
said country is that Postal money orders are not negotiable instruments
Clearing House Corporation (PCHC). Accordingly, BDO paid the Checks; its
inasmuch as the establishment of a postal money order is an exercise of
clearing account was debited for the value of the Checks and defendant's
governmental power for the public’s benefit. Furthermore, some of the
clearing account was credited for the same amount. Thereafter, BDO
restrictions imposed upon money order by postal laws and regulations are
discovered that the endorsements appearing at the back of the Checks,
inconsistent with the character of negotiable instruments. For instance,
purporting to be that of the payees, were forged and/or unauthorized or
postal money orders may be withheld under a variety of circumstances,
otherwise belong to persons other than the payees. Pursuant to the PCHC
and which are restricted to not more than one indorsement
Clearing Rules and Regulations, it presented the Checks directly to
ニ Cesar Nickolai F. Soriano Jr.


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Equitable for the purpose of claiming reimbursement from the latter. pieces of evidence of indebtedness because payments were made before
However, Equitable refused to do so. After an exhaustive investigation and acceptance. ISSUE1: WON the drafts Aruego signed were bills of
hearing, the Arbiter rendered a decision in favor of BDO and against exchange? HELD: YES. Under the Negotiable Instruments Law, a bill of
Equitable ordering the PCHC to debit the clearing account of the exchange is an unconditional order in writing addressed by one person to
defendant (E), and to credit the clearing account of the plaintiff (B) of the another, signed by the person giving it, requiring the person to whom it is
foregoing amount with interest at the rate of 12% per annum from date of addressed to pay on demand or at a fixed or determinable future time a
the complaint. The Board of Directors of the PCHC affirmed the decision of sum certain in money to order or to bearer. As long as a commercial paper
the Arbiter. Hence this petition. ISSUE 1: Were the subject checks non- conforms with the definition of a bill of exchange, that paper is considered
negotiable and if not, does it fall under the ambit of the power of the a bill of exchange. The nature of acceptance is important only in the
PCHC? OR Does the PCHC has jurisdiction over the controversy involved in determination of the kind of liabilities of the parties involved, but not in
view of petitioner’s claim that the subject matter of the case (the Checks) the determination of whether a commercial paper is a bill of exchange or
was not negotiable. HELD: Yes. As provided in the articles of not. ISSUE2: WON Aruego is personally liable? HELD: YES. Firstly,
incorporation of PCHC, its operation extend to "clearing checks and other Section 20 of the Negotiable Instruments Law provides that "Where the
clearing items." No doubt transactions on non-negotiable checks are instrument contains or a person adds to his signature words indicating
within the ambit of its jurisdiction. The term check as used in the said that he signs for or on behalf of a principal or in a representative capacity,
Articles of Incorporation of PCHC can only connote checks in general use he is not liable on the instrument if he was duly authorized; but the mere
in commercial and business activities. It cannot be conceived to be limited addition of words describing him as an agent or as filing a representative
to negotiable checks only. Checks are used between banks and bankers character, without disclosing his principal, does not exempt him from
and their customers, and are designed to facilitate banking operations. It personal liability." An inspection of the drafts accepted by the defendant
is of the essence to be payable on demand, because the contract between shows that nowhere has he disclosed that he was signing as a
the banker and the customer is that the money is needed on demand. representative of the Philippine Education Foundation Company. He
Further, the participation of the two banks, petitioner and private merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE
respondent, in the clearing operations of PCHC is a manifestation of their ARGUEGO For failure to disclose his principal, Aruego is personally liable
submission to its jurisdiction. ISSUE 2: How does principle of estoppel for the drafts he accepted. Secondly, an accommodation party is one
apply? HELD: Petitioner is estopped from raising the defense of non- who has signed the instrument as maker, drawer, indorser, without
negotiability of the checks in question. It stamped its guarantee on the receiving value therefor and for the purpose of lending his name to some
back of the checks and subsequently presented these checks for clearing other person. Such person is liable on the instrument to a holder for value,
and it was on the basis of these endorsements by the petitioner that the notwithstanding such holder, at the time of the taking of the instrument
proceeds were credited in its clearing account. The principle of estoppel knew him to be only an accommodation party. In lending his name to the
effectively prevents the defendant from denying liability for any damages accommodated party, the accommodation party is in effect a surety for
sustained by the plaintiff which, relying upon an action or declaration of the latter. He lends his name to enable the accommodated party to obtain
the defendant, paid on the Checks. The same principle of estoppel credit or to raise money. He receives no part of the consideration for the
effectively prevents the defendant from denying the existence of the instrument but assumes liability to the other parties thereto because he
Checks. The petitioner by its own acts and representation cannot now wants to accommodate another. In the instant case, the defendant signed
deny liability because it assumed the liabilities of an endorser by stamping as a drawee/acceptor. Under the Negotiable Instrument Law, a drawee is
its guarantee at the back of the checks. The petitioner having stamped its primarily liable. Thus, if the defendant who is a lawyer, he should not
guarantee of "all prior endorsements and/or lack of endorsements" (Exh. have signed as an acceptor/drawee. In doing so, he became primarily and
A-2 to F-2) is now estopped from claiming that the checks under personally liable for the drafts.
consideration are not negotiable instruments. The checks were accepted
for deposit by the petitioner stamping thereon its guarantee, in order that C. REQUISITES OF NEGOTIABILITY
it can clear the said checks with the respondent bank. By such deliberate
and positive attitude of the petitioner it has for all legal intents and Section 1. Form of negotiable instruments. - An instrument to be
purposes treated the said cheeks as negotiable instruments and negotiable must conform to the following requirements
accordingly assumed the warranty of the endorser when it stamped its
guarantee of prior endorsements at the back of the checks. It led the said (a) It must be in writing and signed by the maker or drawer;
respondent to believe that it was acting as endorser of the checks and on (b) Must contain an unconditional promise or order to pay a sum certain in
the strength of this guarantee said respondent cleared the checks in money;
question and credited the account of the petitioner. Petitioner is now (c) Must be payable on demand, or at a fixed or determinable future time;
barred from taking an opposite posture by claiming that the disputed (d) Must be payable to order or to bearer; and
checks are not negotiable instrument. (e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
PBCOM VS. JOSE ARUEGO (GR No. L-25836-37, Jan. 31, 1981) - Herein
plaintiff instituted against an action against defendant for the recovery of (a) It must be in writing and signed by the maker or drawer;
the total sum of money plus interests and attorney’s fees. The complaint
filed by the Philippine Bank of Commerce contains twenty-two (22) causes Section 191. Definition and meaning of terms.
of action referring to twenty-two (22) transactions entered into by the said
Bank and Aruego on different dates. The sum sought to be recovered “Written” includes printed, and “writing” includes print.
represents the cost of the printing of "World Current Events," a periodical
published by the defendant. To facilitate the payment of the printing the Signature of the maker or drawer is usually written, preferably with the full
defendant obtained a credit accommodation from the plaintiff. Thus, for name or at least the surname. However, initials or any mark will be sufficient,
every printing of the "World Current Events," the printer collected the cost provided that such signature be used as a substitute and the maker or drawer
of printing by drawing a draft against the plaintiff, said draft being sent intends to be bound by it.
later to the defendant for acceptance. As an added security for the
payment of the amounts advanced to printer, the plaintiff bank also Signature is presumed valid, the person denying and to whom the
required defendant Aruego to execute a trust receipt in favor of said bank signature operates must provide evidence of its invalidity.
wherein said defendant undertook to hold in trust for plaintiff the
periodicals and to sell the same with the promise to turn over to the (b) Must contain an unconditional promise or order to pay a sum
plaintiff the proceeds of the sale of said publication to answer for the certain in money;
payment of all obligations arising from the draft. Defendant filed an
answer interposing for his defense that he signed the drafts in a Money is the medium of exchange authorized or adopted by a domestic or
representative capacity, that he signed only as accommodation party and foreign government as part of its currency. In a literal sense, the term means
that the drafts signed by him were not really bills of exchange but mere “cash”. It includes all legal tender which has been defined in p.1.
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the payment depends upon the adequacy or existence of the fund designated.
1. Promise or Order to Pay It is immaterial, whether the fund has sufficient funds at maturity.
Sec. 10 Terms, when sufficient. - The instrument need not follow the METROPOLITAN BANK & TRUST CO. VS. CA (GR No. 88866; Feb. 18,
language of this Act, but any terms are sufficient which clearly 1991) - Eduardo Gomez opened an account with Golden Savings and
indicate an intention to conform to the requirements hereof. deposited over a period of two months 38 treasury warrants. They were
all drawn by the Philippine Fish Marketing Authority and purportedly
Clear intention of the parties – the substance of the transaction rather than signed by its General Manager and counter-signed by its Auditor. Six of
the form is the criterion of negotiability. Instead of “promise” the words “bind these were directly payable to Gomez while the others appeared to have
myself” may be used; instead of “on demand”, the words “on call” may be used been indorsed by their respective payees, followed by Gomez as second
and instead of “bearer”, the word “holder” may be used. indorser. On various dates all these warrants were subsequently indorsed
by Gloria Castillo as Cashier of Golden Savings and deposited to its
Mere defect in language or grammatical error – The words “himself Savings Account in the Metrobank. They were then sent for clearing by
order” may be construed as “himself or order” and thus not render the the branch office to the principal office of Metrobank, which forwarded
instrument non-negotiable. them to the Bureau of Treasury for special clearing. After being told to
wait several times, Gloria Castillo and Gomez made subsequent
2. Promise or Order to Pay Must be Unconditional withdrawals at Metrobank with the impression that the treasury warrants
had been cleared. Metrobank informed Golden Savings that 32 of the
Condition – Resolutory or Suspensive - In conditional obligations, the warrants had been dishonored by the Bureau of Treasury and demanded
acquisition of rights, as well as the extinguishment or loss of those already the refund by Golden Savings of the amount it had previously withdrawn,
acquired, shall depend upon the happening of the event which constitutes the to make up the deficit in its account. The demand was rejected. ISSUE:
condition (Art. 1181, NCC) WON treasury warrants are negotiable instruments? HELD: No. The
treasury warrants in question are not negotiable instruments. Clearly
Period – As opposed to a condition, is when the event is certain to happen or stamped on their face is the word "non-negotiable." Moreover, it is
come. indicated that they are payable from a particular fund, to wit, Fund 501.
Sections 1 and 3 of the Negotiable Instruments Law especially
3. When is a promise unconditional underscored this requirement. The indication of Fund 501 as the
source of the payment to be made on the treasury warrants
Promissory Notes: makes the order or promise to pay "not unconditional" and the
It is not essential that the word “promise” be used. Any words equivalent to a warrants themselves non-negotiable. Metrobank cannot contend that
promise or assumption of responsibility for the payment of the note (like by indorsing the warrants in general, Golden Savings assumed that they
“payable”, “to be paid”, “I agree to pay”, “I guarantee to pay”, “M obliges were "genuine and in all respects what they purport to be," in accordance
himself to pay”, “good for”, “due on demand”, etc.) are sufficient to constitute with Section 66 of the Negotiable Instruments Law. The simple reason is
a “promise to pay”. that this law is not applicable to the non-negotiable treasury warrants. The
indorsement was made by Gloria Castillo not for the purpose of
However, bare acknowledgements like “IOU”, “Due P1,000” or “for value guaranteeing the genuineness of the warrants but merely to deposit them
received” do not constitute promise to pay and are non-negotiable, unless with Metrobank for clearing.
words constituting a promise to pay is added, like “IOU (or Due) P1,000 to be
paid on Jan. 8”. 4. Provisions which do not affect certainty of sum
Bills of Exchange: The Basic Test: is whether the holder can determine by calculation or
It is not necessary to use the word “order”. Any other words like “Let the computation the amount payable when the instrument is due.
bearer” or “Drawer obliges the drawee to pay P or order” are sufficient.
Sec. 2. What constitutes certainty as to sum. - The sum payable is a sum
An order is a command or imperative direction and, therefore, a mere request, certain within the meaning of this Act, although it is to be paid:
supplication, or authority (like “I request you to pay”, or “I hope you will pay”
or “I authorize you to pay”) is not sufficient. However, the use of polite words (a) with interest; or
like “please” does not convert an order to a request. (b) by stated installments; or
(c) by stated installments, with a provision that, upon default in payment of
Sec. 3 When promise is unconditional. - An unqualified order or any installment or of interest, the whole shall become due; or
promise to pay is unconditional within the meaning of this Act (d) with exchange, whether at a fixed rate or at the current rate; or
though coupled with: (e) with costs of collection or an attorney's fee, in case payment shall not be
made at maturity.
(a) An indication of a particular fund out of which
reimbursement is to be made or a particular account to be Sec. 2(b): STATED instalments must clearly indicate the amount due on each
debited with the amount; or instalment and the interest, if any. A bill or note indicating “payable in two
(b) A statement of the transaction which gives rise to the instalments” or “in instalments” does not fulfil the requirement of the law.
instrument.
Sec. 2(c): Stated instalments with acceleration clause:
But an order or promise to pay out of a particular fund is not Acceleration clause – requires the debtor to pay off the balance sooner than
unconditional. the due date if some specified event occurs, such as failure to pay an
Sec. 39 Conditional indorsement., - see Part III, Conditional instalment.
Indorsement, p. 13. Insecurity clause – allows the creditor to demand immediate and full
payment of the loan balance if the creditor has reason to believe that the
Sec. 3 (a): does not render the instrument non-negotiable because the debtor is about to default, as when the debtor suddenly loses a significant
reimbursement is a subsequent act to the payment, which still makes it source of income.
absolute. Same is true if there is indication of a particular fund to be “debited”, Extension clause – allows additional time for the payment of the loan due.
like “Pay P or order the sum of P10,000 and charge it to my account”, because
here the instrument is payable absolutely, the “debit” of the account is also a Acceleration at the option of the HOLDER will render the instrument non-
subsequent act to the payment. negotiable.
Sec. 2(d): refers to instruments payable in foreign currency. Exchange is the
Sec. 3, last paragraph: The instrument is deemed non-negotiable because charge for the expense of providing funds at the place where the instrument is
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payable to meet the instrument which is issued at another place. It may be at a accommodation party – when his obligation will arise.
fixed rate or at the current rate. Ex. M promises to pay P or order $1,000 “with
exchange at ¾%” or “at the current rate”. Sec. 4. Determinable future time; what constitutes. - An instrument is
payable at a determinable future time, within the meaning of this Act, which is
Sec. 2(e): does not affect negotiability because such takes place after expressed to be payable:
maturity. (a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time specified therein; or
Sec. 5 Additional provisions not affecting negotiability. - An (c) On or at a fixed period after the occurrence of a specified event which is
instrument which contains an order or promise to do any act in certain to happen, though the time of happening be uncertain.
addition to the payment of money is not negotiable. But the
negotiable character of an instrument otherwise negotiable is not An instrument payable upon a contingency is not negotiable, and the
affected by a provision which: happening of the event does not cure the defect
(a) authorizes the sale of collateral securities in case the instrument Time Instruments
be not paid at maturity; or Sec. 4(a): To pay on Aug. 12, 2013;
(b) authorizes a confession of judgment if the instrument be not paid Sec. 4(b): To pay sixty days after date;
at maturity; or Sec. 4(c): To pay after P dies.
(c) waives the benefit of any law intended for the advantage or
protection of the obligor; or Sec. 4, last paragraph: refers to a condition which may or may not happen. A
(d) gives the holder an election to require something to be done in negotiable instrument must be payable in all events.
lieu of payment of money.
But nothing in this section shall validate any provision or stipulation Sec. 7. When payable on demand. - An instrument is payable on
otherwise illegal. demand:
Sec. 6 Omissions; seal; particular money. - The validity and negotiable (a) When it is so expressed to be payable on demand, or at sight, or on
character of an instrument are not affected by the fact that: presentation; or
(b) In which no time for payment is expressed.
(e) designates a particular kind of current money in which payment
is to be made. Where an instrument is issued, accepted, or indorsed when overdue, it is, as
regards the person so issuing, accepting, or indorsing it, payable on demand.
General Rule is that, an additional act, aside from payment of money, is
prohibited. This is based on the fact that while the “payment of money” may be Demand Instruments are those which are payable on demand, due and
indorsed, the “additional act” would have to be assigned. The following clauses payable immediately after delivery. It is a present debt due at once.
have been held to render non-negotiable the instrument:
* “pay for taxes assessed upon the note or its mortgage security” (Hubard vs. (d) Payable to order or bearer
Robert Wallace Co.);
* “keep free from encumbrance property on which the value of collateral Sec. 8 When payable to order. - The instrument is payable to order
pledged for security of the instrument depends” (Streckhold vs. National Salt where it is drawn payable to the order of a specified person or to
Co.) him or his order. It may be drawn payable to the order of:
* “promise to insure the property pledged as security” (First State Savings
Bank vs. Russel) (a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
Exceptions are: (c) The drawee; or
Sec. 5(a): “I promise to pay P or order the sum of P1,000 secured by a ring I (d) Two or more payees jointly; or
delivered to him by way of pledge and which he could sell should I fail to pay (e) One or some of several payees; or
him at maturity” – the additional act is to be performed after non-payment at (f) The holder of an office for the time being.
maturity. Until maturity, the promise is to pay money only.
Where the instrument is payable to order, the payee must be named
Sec. 5(b): “I promise to pay P or order P10,000 and I hereby authorize my or otherwise indicated therein with reasonable certainty.
attorney-at-law to appear in any court of record after the obligation becomes Sec. 9 When payable to bearer. - The instrument is payable to
due and waive the issuing and service of processes and confess a judgment bearer:
against me in favor of the holder and thereupon waive all errors in any such (a) When it is expressed to be so payable; or
proceedings and waive all right of appeal” – confession of judgment is a written (b) When it is payable to a person named therein or bearer; or
acknowledgment by the defendant of his indebtedness and liability to the (c) When it is payable to the order of a fictitious or non-existing
plaintiff. It enables the holder to obtain a judgment without the delay usually person, and such fact was known to the person making it so
incident to a lawsuit. While not authorized in this jurisdiction, because it payable; or
deprives the maker or drawer a day in court, it nevertheless does not affect (d) When the name of the payee does not purport to be the name of
negotiability. A confession of judgment given AFTER the action is brought to any person; or
save expenses is valid. (e) When the only or last indorsement is an indorsement in blank.
Sec. 5(c): “Notice of dishonor waived” – even waiver of protest, presentment Payable to Order: when it is payable to the (1) order of a specified person; or
for payment, or demand, would not destroy negotiability. (2) to him or his order. Consequently, an instrument payable to a specified
person (Pay to P), is not a negotiable order instrument.
Sec. 5(d): “or an airconditioner at the option of the holder” – since the holder
has the choice, the instrument is still negotiable because he can still demand Sec. 8(b): An instrument payable to the maker is not complete until indorsed
payment of money. If the option is on the promisor, it would be difficult to by him. (Sec. 184)
compel him to make payment in money. Sec. 8(c): Being payable to the drawee, he may pay himself at maturity from
the funds of the drawer.
(c) Payable on demand or at a fixed or determinable future time Sec. 8(d): Pay to A and B; for Sec. 8(e), Pay to A or B.
Sec. 8(f): Pay to the order of the Commissioner of Internal Revenue.
Time must be certain so that the holder will know when he may enforce the
instrument, and the person liable – maker, drawee, or acceptor – when he may Sec. 8, last paragraph: If there is no payee, there is nobody who could give
be required to pay, or the secondary parties – drawer, indorser or the order or authority to collect or otherwise indorse and, therefore, there is no
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point in considering it negotiable. easy, and cheap way to settle and secure debts. They are quick remedy
serve to save the court's time. They also save time and money of the
Bearer Instruments produce the following effect: (a) it is payable to bearer; litigants and the government the expenses that a long litigation entails. In
(b) payment to any person in possession thereof in good faith and without one sense, instruments of this character may be considered as special
notice that his title is defective, at or after maturity (Sec. 88) discharges the agreements, with power to enter up judgments on them, binding the
instrument (Sec. 119); (c) Delivery alone is enough to effect negotiation (Sec. parties to the result as they themselves viewed it. On the other hand, are
30). disadvantages to the commercial world which outweigh the considerations
just mentioned. Such warrants of attorney are void as against public
Sec. 9(a) and (b) are originally bearer instruments. Those under subsection policy, because they enlarge the field for fraud, because under these
(c), (d) and (e) are order instruments on the face converted to bearer instruments the promissor bargains away his right to a day in court, and
instruments. because the effect of the instrument is to strike down the right of appeal
accorded by statute. The recognition of such form of obligation would
Sec. 9(c): A fictitious person is meant to be one who, though named, as bring about a complete reorganization of commercial customs and
payee, has no right to it because the maker or drawer so intended and it practices, with reference to short-term obligations. It can readily be seen
matters not, whether the name of the payee used by him be that one living or that judgment notes, instead of resulting to the advantage of commercial
dead, or one who never existed. (Snyder vs. Com. Exch. Nat. Bank) life in the Philippines, might be the source of abuse and oppression, and
make the courts involuntary parties thereto. If the bank has a meritorious
Sec. 9(c) and (d): They are treated as bearer instruments because it is case, the judgment is ultimately certain in the courts. The Court is of the
impossible to indorse when it is payable to “cash, sundries” or a fictitious opinion thus that warrants of attorney to confess judgment are not
person. authorized nor contemplated by Philippine law; and that provisions in
notes authorizing attorneys to appear and confess judgments against
ANG TEK LIAN VS. CA (GR No. L-2516; Sept. 25, 1950) - Petitioner Ang makers should not be recognized in this jurisdiction by implication and
Tek Lian approached Lee Hua and asked him if he could give him should only be considered as valid when given express legislative sanction.
P4,000.00. He said that he is supposed to withdraw from the bank but his
bank was already closed. In exchange, he gave respondent Lee Hua a 1. OMISSIONS
check which is “payable to the order of ‘cash”. When Lee Hua presented
the check for payment the next day, he discovered that it has an Sec. 6 Omissions; seal; particular money. - The validity and
insufficient funds, hence, was dishonored by the bank. In his defense, Ang negotiable character of an instrument are not affected by the
Tek Lian argued that he did not indorse the check to Lee Hua when the fact that:
latter accepted the check without his indorsement. ISSUE: WON Ang Tek
Lian’s indorsement of the said check is necessary to hold him liable for the (a) it is not dated; or
dishonored check? HELD: No. Under Section 9 of the Negotiable (b) does not specify the value given, or that any value had
Instruments Law, a check drawn payable to the order of “cash” is a been given therefor; or
check payable to bearer and the bank may pay it to the person (c) does not specify the place where it is drawn or the place
presenting it for payment without drawer’s indorsement. where it is payable; or
Consequently, the form of the check was totally unconnected with its (d) bears a seal; or
dishonor. The check was returned unsatisfied because the drawer had (e) designates a particular kind of current money in which
insufficient funds and not because the drawer’s indorsement was lacking. payment is to be made.
Hence, Ang Tek Lian may be held liable for estafa because under article
315, paragraph d, subsection 2 of the Revised Penal Code, one who issues But nothing in this section shall alter or repeal any statute
a check payable to cash to accomplish deceit and knows that at the time requiring in certain cases the nature of the consideration to be
he had no sufficient deposit with the bank to cover the amount of the stated in the instrument.
check and without informing the payee of such circumstances is guilty of Sec. 11 Date, presumption as to. - Where the instrument or an
estafa. acceptance or any indorsement thereon is dated, such date is
deemed prima facie to be the true date of the making, drawing,
(e) Identity of the drawee acceptance, or indorsement, as the case may be.
Sec. 12 Ante-dated and post-dated. - The instrument is not invalid
Sec. 130. When bill may be treated as promissory note. - Where in a for the reason only that it is ante-dated or post-dated, provided
bill the drawer and drawee are the same person or where the drawee is a this is not done for an illegal or fraudulent purpose. The person
fictitious person or a person not having capacity to contract, the holder may to whom an instrument so dated is delivered acquires the title
treat the instrument at his option either as a bill of exchange or as a thereto as of the date of delivery.
promissory note Sec. 13 When date may be inserted. - Where an instrument (1)
expressed to be payable at a fixed period after date is issued
D. OMISSIONS AND PROVISIONS THAT DO NOT AFFECT undated, or (2) where the acceptance of an instrument payable
NEGOTIABILITY at a fixed period after sight is undated, any holder may insert
therein the true date of issue or acceptance, and the instrument
PNB VS. MANILA OIL REFINING (GR No. L-18103; June 8, 1922) - shall be payable accordingly. The insertion of a wrong date
The manager and treasurer of respondent company executed and does not avoid the instrument in the hands of a subsequent
delivered to the Philippine National Bank (PNB), a promissory note which holder in due course; but as to him, the date so inserted is to
provides a promise to pay petitioner bank the amount of P61,000 and that be regarded as the true date. (emphasis supplied)
in case payment was not made at time of maturity, any lawyer in the Sec. 14 Blanks; when may be filled. - Where the instrument is
Philippines is authorize to represent the company and confess judgment wanting in any material particular, the person in
for the said sum with interest, cost of suit and attorney's fees of ten% for possession thereof has a prima facie authority to complete it by
collection, a release of all errors and waiver of all rights to inquisition and filling up the blanks therein.
appeal, and to the benefit of all laws exempting property, real or personal,
from levy or sale. Indeed, Manila Oil has failed to pay on demand. This And a signature on a blank paper delivered by the person
prompted the bank to file a case in court, wherein an attorney associated making the signature in order that the paper may be converted
with them entered his appearance for the defendant. To this the into a negotiable instrument operates as a prima facie authority
defendant objected. ISSUE: WON provisions in notes authorizing to fill it up as such for any amount.
attorneys to appear and confess judgments against makers should not be
recognized in Philippine jurisdiction by implication? HELD: No. Judgments In order, however, that any such instrument when completed
by confession as appeared at common law were considered an amicable, may be enforced against any person who became a party
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thereto prior to its completion, it must be (1) filled up strictly in E. INTERPRETATION OF INSTRUMENTS
accordance with the authority given and (2) within a reasonable
time. Sec. 17. Construction where instrument is ambiguous. - Where the
language of the instrument is ambiguous or there are omissions therein,
But if any such instrument, after completion, is negotiated to a the following rules of construction apply:
holder in due course, it is valid and effectual for all purposes
in his hands, and he may enforce it as if it had been filled up (a) Where the sum payable is expressed in words and also in figures and
strictly in accordance with the authority given and within a there is a discrepancy between the two, the sum denoted by the words is
reasonable time. the sum payable; but if the words are ambiguous or uncertain, reference
may be had to the figures to fix the amount;
(separation and emphasis supplied) (b) Where the instrument provides for the payment of interest, without
Sec. 17 Construction where instrument is ambiguous. – see E. specifying the date from which interest is to run, the interest runs from
Interpretation of Instruments. the date of the instrument, and if the instrument is undated, from the
Sec. 53 When person not deemed holder in due course. – see issue thereof;
HOLDER IN DUE COURSE, p. 16 (c) Where the instrument is not dated, it will be considered to be dated as
Sec. 71 Presentment where instrument is not payable on of the time it was issued;
demand and where payable on demand. – (1) Where the (d) Where there is a conflict between the written and printed provisions of
instrument is not payable on demand, presentment must be the instrument, the written provisions prevail;
made on the day it falls due. Where it is payable on demand, (e) Where the instrument is so ambiguous that there is doubt whether it is
presentment must be made within a reasonable time after its a bill or note, the holder may treat it as either at his election;
issue, except that in the case of a bill of exchange, presentment (f) Where a signature is so placed upon the instrument that it is not clear
for payment will be sufficient if made within a reasonable time in what capacity the person making the same intended to sign, he is to be
after the last negotiation thereof. deemed an indorser;
(g) Where an instrument containing the word "I promise to pay" is signed
Sec. 11: He who claims that some other date is the true date has the burden by two or more persons, they are deemed to be jointly and severally liable
of establishing such claim. thereon.
Sec. 13: If an undated note payable to P matures on Aug. 29, 2013, 30 days Sec. 17(d): Reason for this rule is that, the written words are deemed to
after issuance, but P inserted July 15 to hasten maturity date, P cannot enforce express the true intention of the maker or drawer because they are placed
payment because it is avoided as to him who ante-dated for fraudulent there by himself. Also, because the amount in words are harder to alter
purposes (Sec. 12). But if it was indorsed to A, a holder in due course, he may (Sundiang, 2010 audio lecture).
collect on Aug. 14, as if the date inserted was the true date.
Sec. 17(g): Joint and Solidary Obligation
Sec. 14: Material Particular is any particular proper to be inserted in a
negotiable instrument to make it complete. REPUBLIC PLANTERS BANK VS. CA (GR No. 93073; Dec. 21, 1992) -
In 1979, World Garment Manufacturing, through its board authorized
Authority to Complete does not carry with it the authority to alter (Sec. Shozo Yamaguchi (president) and Fermin Canlas (treasurer) to obtain
124). credit facilities from Republic Planters Bank (RPB). For this, 9 promissory
notes were executed. Each promissory note was uniformly written in the
Authority to put any amount – there must be showing of intention to following manner:
convert it to a negotiable instrument. Otherwise, it cannot be enforced
___________, after date, for value received, I/we, jointly and severally
against the maker, even by a holder in due course (Sec. 15).
promise to pay to the ORDER of the REPUBLIC PLANTERS BANK, at its office in
Manila, Philippines, the sum of ___________ PESOS(….) Philippine Currency…
Holder NOT in due course of an instrument filled up in excess of the Please credit proceeds of this note to:
authority given is treated as a holder of a materially altered instrument (Sec.
124) and therefore cannot collect to parties prior to completion who did not ________ Savings Account ______XX Current Account No. 1372-00257-6 of
assent to the alteration. If M issues a note and authorized P, payee, to insert WORLDWIDE GARMENT MFG. CORP.
P1,000, but P inserts P2,000, N, a subsequent holder NOT in due course cannot
enforce it against M. But if N was a holder in due course, he can enforce the Sgd. Shozo Yamaguchi
Sgd. Fermin Canlas
instrument against M upto the stated amount of P2,000 since it is conclusive
that there was authority to fill up the instrument and the same was not done in
The note became due and no payment was made. RPB eventually sued
excess of authority.
Yamaguchi and Canlas. Canlas, in his defense, averred that he should not
be held personally liable for such authorized corporate acts that he
2. ADDITIONAL PROVISIONS NOT AFFECTING NEGOTIABILITY
performed inasmuch as he signed the promissory notes in his capacity as
– Sec. 5 (supra, p.6)
officer of the defunct Worldwide Garment Manufacturing. ISSUE: WON
Canlas should be held liable for the promissory notes? HELD: Yes. The
a. Confession of Judgment – see p.6
solidary liability of private respondent Fermin Canlas is made clearer and
a.1 Warrant of attorney – to confess judgment, however, are
certain, without reason for ambiguity, by the presence of the phrase “joint
not authorized nor contemplated by our law because under
and several” as describing the unconditional promise to pay to the order
these instruments, the promisor bargains away his right to a
of Republic Planters Bank. Where an instrument containing the
day in court. (PNB vs. MANILA OIL REFINING, supra, p.6)
words “I promise to pay” is signed by two or more persons, they
a.2 Cognovit Actionem – “he has confessed the action”
are deemed to be jointly and severally liable thereon. Canlas is
a.3 Relicta Verificationem – “his pleading being abandoned”;
solidarily liable on each of the promissory notes bearing his signature for
a confession of judgment accompanied by a withdrawal of the
the following reasons: The promissory notes are negotiable instruments
plea.
and must be governed by the Negotiable Instruments Law. Under the
b. Waiver of Obligor – Sec. 109. Waiver of notice. - Notice of
Negotiable lnstruments Law, persons who write their names on the face of
dishonor may be waived either before the time of giving notice has
promissory notes are makers and are liable as such. By signing the notes,
arrived or after the omission to give due notice, and the waiver may
the maker promises to pay to the order of the payee or any holder
be expressed or implied.
according to the tenor thereof.
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lOMoARcPSD|5036134
SPS. EVANGELISTA VS. MERCATER FINANCE CORP. (GR No. from one person to another;
148864; Aug. 21, 2003) - Petitioner spouses filed a complaint against
respondents for the foreclosure of the mortgage on their property and "Issue" means the first delivery of the instrument, complete in
eventual its eventual sale, claiming, among others, that they executed the form, to a person who takes it as a holder
said mortgage on their capacity as officers of Embassy Farms, and not on
their personal capacity, thus, there is no consideration received by them, Section 15: Example: M makes a note for P10,000 with the name of the
making the mortgage voidable. Respondent, on the other hand, claims payee in blank and keeps it in his drawer. P steals the note, names himself as
that the promissory note for the loan, for which the mortgage was the payee and indorses the note to A, A to B, B to C, a holder in due course.
executed, shows that the spouses signed as co-makers, also with the
succeeding promissory notes. The RTC, upon motion of the respondent, NOTE: C, even though a holder in due course, cannot enforce said note against
granted summary judgment and dismissed the complaint. On appeal, the M by virtue of Sec. 15, but C can go after P, A and B.
CA affirmed in toto the decision of the RTC. ISSUE: WON petitioners are
solidarily liable with Embassy Farms for the loan as evidenced by the Section 16: As regards immediate parties and a remote party other than a
promissory note? HELD: Yes. The promissory note reads: holder in due course, delivery is a rebuttable presumption, as such can either
be conditional or for a special purpose (without intention of transferring title).
For value received, I/We jointly and severally promise to pay to the order of MERCATOR FINANCE
CORPORATION at its office, the principal sum of EIGHT HUNDRED FORTY-FOUR THOUSAND SIX
HUNDRED TWENTY-FIVE PESOS & 78/100 (P 844,625.78), Philippine currency, x x x, in As regards a holder in due course, valid delivery, of a complete instrument (as
installments as follows: opposed to an incomplete instrument under Sec. 15), by all parties prior to him
September 16, 1982 - P154,267.87 is conclusively presumed (admission of evidence to the contrary is not allowed).
October 16, 1982 - P154,267.87 B. NEGOTIATION DEFINED

November 16, 1982 - P154,267.87
Sec. 30. What constitutes negotiation. - An instrument is negotiated when
December 16, 1982 - P154,267.87 it is transferred from one person to another in such manner as to constitute the
transferee the holder thereof. If payable to bearer, it is negotiated by delivery;
January 16, 1983 - P154,267.87 if payable to order, it is negotiated by the indorsement of the holder and
completed by delivery. (emphasis supplied)
February 16, 1983 - P154,267.87
1. Instruments payable to order: two steps are required for negotiation:

The note was signed by petitioners and Embassy Farms, Inc. with the (a) indorsement and (b) delivery.
signature of Eduardo Evangelista below it. Sec. 17 of the Negotiable 2. Instruments payable to bearer: delivery alone without indorsement.
Instruments Law provide: “Construction where instrument is ambiguous –
Where the language of the instrument is ambiguous or there are C. ASSIGNMENT AND NEGOTIATION DISTINGUISHED
omissions therein, the following rules of construction shall apply: (g)
Where an instrument containing the word “I promise to pay” is signed by Assignment is the transfer of the title to an instrument, with the assignee
two or more persons, they are deemed to be jointly and severally liable generally taking only such title or rights as his assignor has, subject to all
thereon. As such, the promissory note itself proves that petitioners defenses available against his assignor. It is the less usual method which may
are solidarily liable with Embassy Farms. Moreover, even if or may not involve an indorsement in the sense of writing on the back of the
petitioners signed merely as officers, it does not erase the fact instrument.
that they subsequently executed a continuing suretyship
agreement which makes them solidarily liable with the principal. NEGOTIATION ASSIGNMENT
They cannot eventually claim that they did not personably receive any Applicable Negotiable Instruments Law Civil Code of the Philippines
consideration for the contract. Law
Type of Negotiable instruments only Contracts in general or
III. ISSUE, TRANSFER AND NEGOTIATION transaction assignable rights
or
A. ISSUANCE/DELIVERY OF NEGOTIABLE INSTRUMENTS instrument:
Nature of Transferee is a holder who may Transferee is a mere
Sec. 15 Incomplete instrument not delivered. - Where an incomplete the be a holder in due course assignee and can never be a
instrument has not been delivered, it will not, if completed and transferee: holder in due course
negotiated without authority, be a valid contract in the hands of Rights The transferee-holder may Transferee cannot acquire
any holder, as against any person whose signature was placed acquired: acquire more rights than the more rights than the
thereon before delivery. transferor if he is a holder in transferor because he merely
Sec. 16 Delivery; when effectual; when presumed. - Every contract on due course steps into the shoes of the
a negotiable instrument is incomplete and revocable until transferor
delivery of the instrument for the purpose of giving effect thereto. Availability Transferee-holder may be free Transferee is always subject
As between immediate parties and as regards a remote party other of personal from personal defenses if he is to personal defenses
than a holder in due course, the delivery, in order to be effectual, defenses a holder in due course
must be made either by or under the authority of the party making,
drawing, accepting, or indorsing, as the case may be; and, in such CASABUENA VS. COURT OF APPEALS (GR No. 115410; Feb. 27, 1998)
case, the delivery may be shown to have been conditional, or for a - Ciriaco Urdaneta was a grantee of a parcel of land purchased by the City
special purpose only, and not for the purpose of transferring the of Manila and conveyed to its less privileged inhabitants, through its land
property in the instrument. But where the instrument is in the reform program. Subsequently, he assigned his rights and interests in 1/2
hands of a holder in due course, a valid delivery thereof by all of the lot to Arsenia Benin covering full payment of his indebtedness in the
parties prior to him so as to make them liable to him is conclusively amount of P500. A deed of sale with mortgage was executed, with
presumed. And where the instrument is no longer in the possession Urdaneta undertaking to pay the City the amount figured for a period of
of a party whose signature appears thereon, a valid and intentional forty years in 480 equal installments. Another deed of
delivery by him is presumed until the contrary is proved. assignment involving the whole lot, with assignee Benin agreeing to
Sec. 191 Definition and meaning of terms. - In this Act, unless the shoulder all obligations including the payment of amortization to the City,
contract otherwise requires: in accordance with the contract between it and Urdaneta. As stated in
their verbal agreement, Urdaneta could redeem the property upon
"Delivery" means transfer of possession, actual or constructive,
パ Cesar Nickolai F. Soriano Jr.


lOMoARcPSD|5036134
payment of the loan within 3yrs. from the date of assignment; failure to all executed on the same day by and among the parties. Barely 14 days
pay would transfer physical possession of the lot to Benin for a period of after delivery, the tractors broke down. Mechanics were sent to do repairs
15 years, without actual transfer of title and ownership thereto. but the tractors were no longer serviceable. CPII logging operations were
Meanwhile, the administration of the property was assigned to brothers delayed so Vergara advised IPM that the installment payments would
Candido and Juan Casabuena, to whom Benin had transferred her right, likewise be delayed until it fulfills its obligation under its warranty. IFC
title and interest for a consideration of P7,500. Notwithstanding this then filed a collection suit against petitioners for the recovery of the
assignment, Benin constructed a duplex (apartment) on the lot separately principal sum plus interest, attorney's fees and costs of suit contending
occupied by Jose Abejero and Juan Casabuena, who collected rentals from that it was a holder in due course of a negotiable promissory note.
the former. After the lot was fully paid for by the Urdanetas, a Release of ISSUE: WON IFC is a holder in due course of a negotiable promissory
Mortgage was executed and period of non-alienation of the land was note so as to bar all defenses of CPII against IPM? HELD: No. The note in
extended from 5 to 20 years. Casabuena was Benin's rental collector but question fails to meet the requirement under Sec. 1(d) of Act No. 2013.
their relationship soured resulting in a litigation involving issue on IFC is not and will never be a holder in due course of the promissory note
ownership, of which the cause was the latter’s failure to pay rentals. Upon but is merely an assignee. The note in question is not a negotiable
learning of the litigation between petitioner and Benin, Urdaneta asked instrument for lack of the so-called words of negotiability. The seller-
them to vacate the property and surrender to him possession thereof assignor IPM is liable for breach of warranty and such liability as a general
within 15 days from notice. Petitioner's adamant refusal to comply with rule extends to the corporation (IFC) to whom it assigned its rights and
such demand resulted in a complaint for ejectment and recovery of interests. Even assuming that the note is negotiable, IFC which actively
possession of property filed by Urdaneta against Casabuena and Benin. participated in the sale on installment transaction from its inception cannot
Amid the sprouting controversies involving the lot, the Urdaneta spouses be regarded as a holder in due course. Thus, petitioners may raise against
succeeded in having the Court declare them as its true and lawful owners the respondent all defenses available to it as against the seller-assignor,
with the deed of assignment to Benin merely serving as evidence of IPM.
Ciriaco's indebtedness to her in view of the prohibition against the sale of
the land imposed by the City government. ISSUE: WON a deed of TRADERS ROYAL BANK VS. COURT OF APPEALS (GR No. 93397;
assignment can transfer ownership of the property to the assignee? Mar. 3, 1997) - Assailed in this Petition is the Decision of the Court of
HELD: At the bottom of this controversy is the undisputed fact that Appeals affirming the nullity of the transfer of Central Bank Certificate of
Ciriaco Urdaneta was indebted to Benin, to secure which debt the spouses Indebtedness (CBC), with a face value of P500,000 from Philippine
ceded their rights over the land through a deed of assignment. An Underwriters Finance Corporation (Philfinance) - without authorization – to
assignment of credit is an agreement by virtue of which the petitioner Traders Royal Bank. ISSUE: WON Central Bank Certificate of
owner of a credit, known as the assignor, by a legal cause, Indebtedness (CBCI) is a negotiable instrument? HELD: No. The
transfers his credit and its accessory rights to another, known as instrument provides for a promise to pay the registered owner Filriters.
the assignee, who acquires the power to enforce it to the same Very clearly, the instrument was only payable to Filriters. It lacked the
extent as the assignor could have enforced it against the words of negotiability which should have served as an expression of the
debtor. Stated simply, it is the process of transferring the right of consent that the instrument may be transferred by negotiation. The
the assignor to the assignee, who would then be allowed to language of negotiability which characterizes a negotiable paper as a
proceed against the debtor. The assignment involves no transfer credit instrument is its freedom to circulate as a substitute for money.
of ownership but merely effects the transfer rights which the Hence, freedom of negotiability is the touchstone relating to the protection
assignor has at the time, to the assignee. Benin having been deemed of holders in due course, and the freedom of negotiability is the
subrogated to the rights and obligations of the spouses, she was bound by foundation for the protection, which the law throws around a holder in
exactly the same conditions to which the latter were bound. This being so, due course. This freedom in negotiability is totally absent in a certificate of
she and the Casabuenas were bound to respect the prohibition against indebtedness as it merely acknowledges to pay a sum of money to a
selling the property within the five-year period imposed by the City specified person or entity for a period of time. The transfer of the
government. The act of assignment could not have operated to efface instrument from Philfinance to TRB was merely an assignment, and is not
liens or restrictions burdening the right assigned, because an assignee governed by the negotiable instruments law. The pertinent question then
cannot acquire a greater right than that pertaining to the assignor. At is—was the transfer of the CBCI from Filriters to Philfinance and
most, an assignee can only acquire rights duplicating those which his subsequently from Philfinance to TRB, in accord with
assignor is entitled by law to exercise. In the case at bar, the Casabuenas existing law, so as to entitle TRB to have the CBCI registered in its name
merely stepped into Benin's shoes, who was not so much an owner as a with the Central Bank? Clearly shown in the record is the fact that
mere assignee of the rights of her debtors. Not having acquired any right Philfinance’s title over CBCI is defective since it acquired the instrument
over the land in question, it follows that Benin conveyed nothing to from Filriters fictitiously. Although the deed of assignment stated that the
defendants with respect to the property. transfer was for ‘value received‘, there was really no consideration
involved. What happened was Philfinance merely borrowed CBCI from
Art. 348, Code of Commerce. The conveyer shall answer for the Filriters, a sister corporation. Thus, for lack of any consideration, the
legality of the credit and for the capacity in which he made the transfer; assignment made is a complete nullity. Furthermore, the transfer wasn't in
but he shall not answer for the solvency of the debtor, unless there is an conformity with the regulations set by the CB. Giving more credence to
express agreement requiring him to do so rule that there was no valid transfer or assignment to petitioner.
D. HOW ARE NEGOTIABLE INSTRUMENTS AND NON-NEGOTIABLE E. HOW NEGOTIATION TAKES PLACE
INSTRUMENTS TRANSFERRED?
Sec. 30 What constitutes negotiation. (supra, p. 9)
SESBRENO VS. COURT OF APPEALS (supra, p.3) Sec. 40 Indorsement of instrument payable to bearer. - Where an
instrument, payable to bearer, is indorsed specially, it may
CONSOLIDATED PLYWOOD INDUSTRIES, INC. VS. IFC LEASING nevertheless be further negotiated by delivery; but the person
(GR No. 72593; April 30, 1987) - Consolidated Plywood Industries, Inc. indorsing specially is liable as indorser to only such holders as make
(CPII) needed two tractors for its logging business. Atlantic Gulf & Pacific title through his indorsement.
Company through its sister company Industrial Products Marketing (IPM)
offered to sell two “used" tractors. IPM inspected the job site and assured An instrument payable to bearer is not converted into an instrument
that the tractors were fit for the job and gave a 90-day warranty for payable to order by being indorsed specially. However, the person who
machine performance and availability of parts. CPII officers Wee and indorsed specially is liable only to those holders who can trace their title to the
Vergara purchased the tractors on installment and paid the down instrument by a series of unbroken indorsements from such special indorser.
payment. The deed of sale with chattel mortgage with promissory note
and the deed of assignment, where IPM assigned its rights and interest in Instruments originally payable to order: Sec. 40 does not apply to
the chattel mortgage in favor of IFC Leasing and Acceptance Corp., were instruments originally payable to order which was indorsed in black.
ドト Cesar Nickolai F. Soriano Jr.


lOMoARcPSD|5036134
Balintawak branch of Producers Bank, relying on the assurance of

LIM VS. CA (GR No. 107898; Dec. 19, 1995) - Manuel Lim and Rosita Lim respondent Samson Tung, President of Plastic Corporation, that the
are the officers of the Rigi Bilt Industries, Inc. (RIGI) which had been transaction was legal and regular, instructed the cashier of Producers Bank
transacting business with Linton Commercial Company, Inc. The Lims to accept the checks for deposit and to credit them to the account of said
ordered several steel plates and purlins from Linton and were delivered to Plastic Corporation, inspite of the fact that the checks were crossed and
the Lim’s place of business which was in Caloocan. To pay Linton, the payable to petitioner Bank and bore no indorsement of the latter. Hence,
petitioners issued seven checks. When the checks were presented to the petitioner filed the complaint as aforestated. ISSUE: WON petitioner Bank
drawee bank (Solidbank), they were dishonored because payment for the has a cause of action against any or all of the defendants, in the
checks had been stopped and/or insufficiency of funds. As a result, alternative or otherwise? HELD: A cause of action is defined as an act or
petitioners were found guilty with Estafa and 7 counts of violation of BP omission of one party in violation of the legal right or rights of another.
22 by the Malabon RTC. On appeal, the CA reversed the trial court’s The essential elements are: (1) legal right of the plaintiff; (2) correlative
decision on Estafa but upheld the decision on violation of BP 22, hence, obligation of the defendant; and (3) an act or omission of the defendant in
this petition. ISSUE: WON the issue was within the jurisdiction of the violation of said legal right. The normal parties to a check are the drawer,
Malabon RTC? HELD: The venue of jurisdiction lies either in the RTC the payee and the drawee bank. Courts have long recognized the business
Caloocan or Malabon Trial Court. BP 22 is a continuing crime. A person custom of using printed checks where blanks are provided for the date of
charged with a transitory crime may be validly tried in any municipality or issuance, the name of the payee, the amount payable and the drawer's
territory where the offense was partly committed. In determining the signature. All the drawer has to do when he wishes to issue a check is to
proper venue, the ff. must be considered. 1) 7 checks were issued to properly fill up the blanks and sign it. However, the mere fact that he has
Linton in its place of business in Navotas. 2) The checks done these does not give rise to any liability on his part, until and unless
were delivered Linton in the same place. 3) The checks were dishonored the check is delivered to the payee or his representative. A negotiable
in Caloocan 4) The Lims had knowledge of their insufficiency of funds. instrument, of which a check is, is not only a written evidence of a
Under Section 191 of the Negotiable Instruments contract right but is also a species of property. Just as a deed to a piece of
Law, issue means the first delivery of the instrument complete in its land must be delivered in order to convey title to the grantee, so must a
form to a person who takes it as holder. The term holder on the other negotiable instrument be delivered to the payee in order to evidence its
hand refers to the payee or endorsee of a bill or note who is in possession existence as a binding contract. Section 16 of the Negotiable Instruments
of it or the bearer thereof. The place where the bills were written, Law, which governs checks, provides in part: “Every contract on a
signed or dated does not necessarily fix or determine the place negotiable instrument is incomplete and revocable until delivery of the
where they were executed. It is the delivery that is important. It instrument for the purpose of giving effect thereto”. Thus, the payee of a
is the final act essential to its consummation of an obligation. An negotiable instrument acquires no interest with respect thereto until its
undelivered bill is unoperative. The issuance and delivery of the check delivery to him. Delivery of an instrument means transfer of possession,
must be to a person who takes it as a holder. In the case at bar, although actual or constructive, from one person to another. Without the initial
Linton sent a collector who received the checks from the petitioners’ place delivery of the instrument from the drawer to the payee, there can be no
of business, the checks were actually issued and delivered to Linton in liability on the instrument. Moreover, such delivery must be intended to
Navotas. The collector is not a holder or an agent, he was just an give effect to the instrument. The allegations of the petitioner in the
employee. original complaint show that the two (2) China Bank checks, numbered
384934 and 384935, were not delivered to the payee, the petitioner
LORETO DELA VICTORIA VS. HON. BURGOS (GR No. 111190; June herein. Without the delivery of said checks to petitioner-payee, the former
27, 1995) - Raul Sebreño filed a complaint for damages against Fiscal did not acquire any right or interest therein and cannot therefore assert
Bienvenido Mabanto Jr. of Cebu City. Sebreño won and he was awarded any cause of action, founded on said checks, whether against the drawer
the payment of damages. Judge Burgos ordered De La Victoria, custodian Sima Wei or against the Producers Bank or any of the other respondents.
of the paychecks of Mabanto, to hold the checks and convey them to In the original complaint, petitioner Bank, as plaintiff, sued respondent
Sebreño instead. De La Victoria assailed the decision as he said that the Sima Wei on the promissory note, and the alternative defendants,
paychecks and the amount thereon are not yet the property of Mabanto including Sima Wei, on the two checks. On appeal from the orders of
because they are not yet delivered to him; that since there is no delivery dismissal of the Regional Trial Court, petitioner Bank alleged that its cause
of the checks to Mabanto, the checks are still part of the public funds; and of action was not based on collecting the sum of money evidenced by the
the checks due to the foregoing cannot be the proper subject of negotiable instruments stated but on quasi-delict — a claim for damages
garnishment. ISSUE: WON De La Victoria is correct? HELD: Yes. Under on the ground of fraudulent acts and evident bad faith of the alternative
Section 16 of the Negotiable Instruments Law, every contract on a respondents. This was clearly an attempt by the petitioner Bank to change
negotiable instrument is incomplete and revocable until delivery of the not only the theory of its case but the basis of his cause of action. It is
instrument for the purpose of giving effect thereto. As ordinarily well-settled that a party cannot change his theory on appeal, as this would
understood, delivery means the transfer of the possession of the in effect deprive the other party of his day in court. Notwithstanding the
instrument by the maker or drawer with intent to transfer title to the above, it does not necessarily follow that the drawer Sima Wei is freed
payee and recognize him as the holder thereof. from liability to petitioner Bank under the loan evidenced by the
promissory note agreed to by her. Her allegation that she has paid the
DEVELOPMENT BANK OF RIZAL VS. SIMA WEI (GR No. 85419; June balance of her loan with the two checks payable to petitioner Bank has no
9, 1983) - In consideration for a loan extended by petitioner Bank to merit for, as We have earlier explained, these checks were never delivered
respondent Sima Wei, the latter executed and delivered to the former a to petitioner Bank. And even granting, without admitting, that there was
promissory note, engaging to pay the petitioner Bank or order the amount delivery to petitioner Bank, the delivery of checks in payment of an
of P1,820,000.00 on or before June 24, 1983 with interest at 32% per obligation does not constitute payment unless they are cashed or their
annum. Sima Wei made partial payments on the note, leaving a balance of value is impaired through the fault of the creditor. None of these
P1,032,450.02. On November 18, 1983, Sima Wei issued two crossed exceptions were alleged by respondent Sima Wei. Therefore, unless
checks payable to petitioner Bank drawn against China Banking respondent Sima Wei proves that she has been relieved from liability on
Corporation, bearing respectively the serial numbers 384934, for the the promissory note by some other cause, petitioner Bank has a right of
amount of P550,000.00 and 384935, for the amount of P500,000.00. The action against her for the balance due thereon. However, insofar as the
said checks were allegedly issued in full settlement of the drawer's other respondents are concerned, petitioner Bank has no privity with
account evidenced by the promissory note. These two checks were not them. Since petitioner Bank never received the checks on which it based
delivered to the petitioner-payee or to any of its authorized its action against said respondents, it never owned them (the checks) nor
representatives. For reasons not shown, these checks came into the did it acquire any interest therein. Thus, anything which the respondents
possession of respondent Lee Kian Huat, who deposited the checks may have done with respect to said checks could not have prejudiced
without the petitioner-payee's indorsement (forged or otherwise) to the petitioner Bank. It had no right or interest in the checks which could have
account of respondent Plastic Corporation, at the Balintawak branch, been violated by said respondents. Petitioner Bank has therefore no cause
Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager of the of action against said respondents, in the alternative or otherwise. If at all,
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lOMoARcPSD|5036134
it is Sima Wei, the drawer, who would have a cause of action against her selling only P30,000 of it and for such reason, at the back of the
co-respondents, if the allegations in the complaint are found to be true. document he wrote in longhand: Pay to the order of Enrique P. Montinola
P30,000 only. The balance to be deposited in the Philippine National Bank
F. INCOMPLETE NEGOTIATION OF ORDER INSTRUMENT to the credit of M. V. Ramos. Ramos further said that in exchange for this
assignment of P30,000, Montinola would pay him P90,000 in Japanese
Sec. 49. Transfer without indorsement; effect of. - Where the holder of military notes but that the latter gave him only two checks of P20,000 and
an instrument payable to his order transfers it for value without indorsing it, P25,000, leaving a balance unpaid of P45,000. The writing made at the
the transfer vests in the transferee such title as the transferor had therein, back of the check was, however, mysteriously obliterated and in its place,
and the transferee acquires in addition, the right to have the indorsement of a supposed indorsement appearing on the back of the check was made for
the transferor. But for the purpose of determining whether the transferee is a the whole amount of the check. ISSUE: WON the check was legally
holder in due course, the negotiation takes effect as of the time when the negotiated within the meaning of the NIL in view of the fact that the
indorsement is actually made. instrument was indorsed for a lesser amount? HELD: NO. Section 32 of
the NIL provides that "the indorsement must be an indorsement of the
Equitable Assignment – the transfer of an order instrument without entire instrument. An indorsement which purports to transfer to the
indorsement where the transferee acquires the instrument subject to defenses indorsee a part only of the amount payable (as in this case) does not
and equities available among prior parties. operate as a negotiation of the instrument." As to what was really written
at the back of the check which Montinola claims to be a full indorsement
The transferee acquires the legal title the transferor had and in addition, the of the check, the Court agreed with trial court that the original writing of
right to have the indorsement of the transferor, without which he cannot be Ramos on the back of the check was to the effect that he was assigning
considered a “holder” within the definition under Sec. 191 and thus cannot only P30,000 of the value of the document and that he was instructing the
negotiate it. He also cannot be considered a “bearer” since the instrument is bank to deposit to his credit the balance. Montinola may therefore not be
not payable to bearer. 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
G. WHERE INDORSEMENT SHOULD BE PLACED? is subject to all defenses available to the drawer Provincial Treasurer of
Misamis Oriental and against Ramos.
Sec. 31. Indorsement; how made. - The indorsement must be written on
the instrument itself or upon a paper attached thereto. The signature of the ANG TEK LIAN VS. CA (GR No. L-2516; Sept. 25, 1950) - Knowing he
indorser, without additional words, is a sufficient indorsement. had no funds therefor, petitioner Ang Tek Lian drew a check upon the
China Banking Corporation for the sum of P4,000, payable to the order of
Indorsement is the writing of the name of the payee on the instrument with “cash”. He delivered it to Lee Hua Hong in exchange for money which the
the intent either to transfer the title to the same, or to strengthen the security latter handed in the act. The next business day, the check was presented
of the holder by assuming a contingent liability for its future payment, or both. by Lee Hua Hong to the drawee bank for payment, but it was dishonored
for insufficiency of funds, the balance of the deposit of Ang Tek Lian on
Allonge - is a slip of paper sometimes attached to a negotiable instrument for both dates being P335 only. Petitioner was sued for estafa. In his defense,
the purpose of receiving further indorsements when the original paper is filled however, he argues that as the check had been made payable to “cash”
with indorsements. Generally, an allonge may not be utilized for indorsement if and had not been endorsed by Ang Tek Lian, the defendant is not guilty of
there is still sufficient space on the instrument itself. the offense charged. ISSUE: WON a check payable to “cash” needs
indorsement? HELD: NO. Under the Negotiable Instruments Law (sec. 9
H. WHEN PERSON DEEMED INDORSER [d], a check drawn payable to the order of “cash” is a check payable to
bearer, and the bank may pay it to the person presenting it for payment
Sec. 63. When a person deemed indorser. - A person placing his without the drawer’s indorsement. Where a check is made payable to the
signature upon an instrument otherwise than as maker, drawer, or acceptor, order of ‘cash’, the word cash ‘does not purport to be the name of any
is deemed to be indorser unless he clearly indicates by appropriate words his person’, and hence the instrument is payable to bearer. The drawee bank
intention to be bound in some other capacity need not obtain any indorsement of the check, but may pay it to the
person presenting it without any indorsement.
An indorser cannot show by parol evidence (i.e., outside the instrument itself)
his intention to be bound in some other capacity, as for example, he signed Sec. 21. Signature by procuration; effect of. - A signature by
merely as an agent. "procuration” operates as notice that the agent has but a limited authority to
sign, and the principal is bound only in case the agent in so signing acted
I. OTHER RULES ON INDORSEMENT within the actual limits of his authority.
ENRIQUE MONTINOLA VS. PNB (GR No. L-2861 ; Feb. 26, 1951) - In Procuration is the act by which a principal gives power to another to act in his
1942, Mariano Ramos, as disbursing officer of an army division of United place as he could himself. It is otherwise understood as agency or proxy.
States Armed Forces in the Far East (USAFFE) and based in Misamis
Oriental, procured cash advances in the amount of Php800,000 with the Sec. 32 Indorsement must be of entire instrument. - The indorsement
Provincial Treasurer (PT) of Lanao for the use of USAFFE in Cagayan de must be an indorsement of the entire instrument. An indorsement
Misamis. PT-Lanao did not have that amount in cash so he gave Ramos which purports to transfer to the indorsee a part only of the
P300,000 in emergency notes and a check for P500,000. Thereafter, amount payable, or which purports to transfer the instrument to
Ramos presented the check to their PT in their province for encashment. two or more indorsees severally, does not operate as a negotiation
PT-Misamis did not have enough cash to cover the check so he gave of the instrument. But where the instrument has been paid in part,
Ramos P400,000 in emergency notes and a check for P100,000 drawn on it may be indorsed as to the residue.
the PNB as he had previously deposited P500,000 emergency notes in the Sec. 40 Indorsement of instrument payable to bearer. (supra, p. 10)
PNB branch in Cebu and thus he expected to have the check issued by Sec. 41 Indorsement where payable to two or more persons. -
him cashed in Cebu against said deposit. Ramos was unable to encash Where an instrument is payable to the order of two or more payees
said check for he was captured by the Japanese and later made a prisoner or indorsees who are not partners, all must indorse unless the one
of war. After his release, sometime in 1945, Ramos allegedly indorsed the indorsing has authority to indorse for the others.
check to herein plaintiff-appellant. According to Montinola’s version of the Sec. 42 Effect of instrument drawn or indorsed to a person as
circumstances that roused the present controversy, Ramos, who then was cashier.- Where an instrument is drawn or indorsed to a person as
no longer connected with the USAFFE but already a civilian who needed "cashier” or other fiscal officer of a bank or corporation, it is
the money only for himself and his family, offered to sell the check to him. deemed prima facie to be payable to the bank or corporation of
But as stated by Ramos, he and Montinola agreed to the sale of said check which he is such officer, and may be negotiated by either the
and the agreement regarding the transfer of the check was that he was indorsement of the bank or corporation or the indorsement of the
ドナ Cesar Nickolai F. Soriano Jr.


lOMoARcPSD|5036134
officer. purports to be;

Sec. 43 Indorsement where name is misspelled, and so forth. - (b) That he has a good title to it;
Where the name of a payee or indorsee is wrongly designated or (c) That all prior parties had capacity to contract;
misspelled, he may indorse the instrument as therein described (d) That he has no knowledge of any fact which would impair the
adding, if he thinks fit, his proper signature. (emphasis supplied) validity of the instrument or render it valueless.
Sec. 44 Indorsement in representative capacity. - Where any person
is under obligation to indorse in a representative capacity, he may But when the negotiation is by delivery only, the warranty extends
indorse in such terms as to negative personal liability. in favor of no holder other than the immediate transferee.
Sec. 45 Time of indorsement; presumption. - Except where an
indorsement bears date after the maturity of the instrument, every The provisions of subdivision (c) of this section do not apply to a
negotiation is deemed prima facie to have been effected before the person negotiating public or corporation securities other than bills
instrument was overdue and notes.
Sec. 46 Place of indorsement; presumption. - Except where the
contrary appears, every indorsement is presumed prima facie to Sec. 38: When the indorser wants to transfer his rights over the instrument
have been made at the place where the instrument is dated but does not want to assume responsibilities under the secondary contracts, he
Sec. 48 Striking out indorsement. - The holder may at any time strike may do so by resorting to qualified indorsement, by virtue of which he
out any indorsement which is not necessary to his title. The disclaims his liability to any holder or any subsequent party who might be
indorser whose indorsement is struck out, and all indorsers compelled by another.
subsequent to him, are thereby relieved from liability on the
instrument He is only liable for breach of warranties under Sec. 65.
Sec. 49 Transfer without indorsement; effect of. (supra, p.12)
METROPOL (BACOLOD) FINANCING & INVESTMENT CORP. VS.
Sec. 32: Reason: negotiation requires delivery, and there can be no partial SAMBOK MOTORS (GR No. L-39641 ; Feb. 28, 1983) - Sambok Motors
delivery of one instrument. Also, to avoid multiplicity of suits and a bill or note Company negotiated and indorsed the note in favor of plaintiff Metropol
divided into different parts divides a single cause of action. Financing & Investment Corporation with the following indorsement: "Pay
to the order of Metropol Bacolod Financing & Investment Corporation
Sec. 41: Does not apply to instruments payable to two or more payees with recourse. Notice of Demand; Dishonor; Protest; and Presentment
severally, such as “payable to A or B”, which may be negotiated by either A or are hereby waived. SAMBOK MOTORS CO. (BACOLOD) By: RODOLFO G.
B. In order to make an indorsement of an instrument payable to two or more NONILLO Asst. General Manager". The maker, Dr. Villaruel defaulted in
persons effective, all must indorse to effect a negotiation. the payment. Plaintiff notified Sambok as indorsee of said note of the fact
that the same has been dishonored and demanded payment. Sambok
Sec. 48: An instrument payable to bearer remains a bearer instrument and the failed to pay. Trial court rendered its decision in favor of Plaintiff.
holder thereof can strike out any special indorsements by virtue of Sec. 48. Appellant Sambok argues that by adding the words "with recourse" in the
indorsement of the note, it becomes a qualified indorser; that being a
An instrument originally payable to order but converted by virtue of a blank qualified indorser, it does not warrant that if said note is dishonored by
indorsement, the holder thereof can remove all subsequent special the maker on presentment, it will pay the amount to the holder. ISSUE:
indorsements as he can acquire title only by delivery. But the holder cannot WON Sambok is a qualified indorser? HELD: Appellant, by indorsing
strike out the indorsements prior to the blank indorsement since it would be the note "with recourse'' does not make itself a qualified indorser
necessary for his acquisition of title. but a general indorser who is secondarily liable, because by such
indorsement, it agreed that if Dr. Villaruel fails to pay the note, plaintiff-
J. KINDS OF INDORSEMENT appellee can go after said appellant. The effect of such indorsement is
1. Blank and Special Indorsements that the note was indorsed without qualification. A person who indorses
without qualification engages that on due presentment, the note shall be
Sec. 33 Kinds of indorsement. - An indorsement may be either special accepted or paid, or both as the case may be, and that if it be dishonored,
or in blank; and it may also be either restrictive or qualified or he will pay the amount thereof to the holder. Appellant Sambok's intention
conditional. of indorsing the note without qualification is made even more apparent by
Sec. 34 Special indorsement; indorsement in blank. - A special the fact that the notice of' demand, dishonor, protest and presentment
were all waived. The words added by said appellant do not limit his
indorsement specifies the person to whom, or to whose
order, the instrument is to be payable, and the indorsement liability, but rather confirm his obligations as a general indorser.
of such indorsee is necessary to the further negotiation of the
instrument. An indorsement in blank specifies no indorsee, 3. Conditional Indorsement
and an instrument so indorsed is payable to bearer, and
may be negotiated by delivery. (emphasis supplied) Sec. 39. Conditional indorsement. - Where an indorsement is conditional,
the party required to pay the instrument may disregard the condition and
Sec. 35 Blank indorsement; how changed to special indorsement.
- The holder may convert a blank indorsement into a special make payment to the indorsee or his transferee whether the condition has
been fulfilled or not. But any person to whom an instrument so indorsed is
indorsement by writing over the signature of the indorser in blank
any contract consistent with the character of the indorsement. negotiated will hold the same, or the proceeds thereof, subject to the rights
of the person indorsing conditionally
2. Qualified Indorsements
If payment is made prior to the fulfilment of the condition, the holder will hold
the payment subject to the rights of the conditional indorser. Such that, when
Sec. 38 Qualified indorsement. - A qualified indorsement
the condition did not happen, he is obliged to return the amount he recovered
constitutes the indorser a mere assignor of the title to the
to the conditional indorser.
instrument. It may be made by adding to the indorser's
signature the words "without recourse" or any words of similar
4. Restrictive Indorsement
import. Such an indorsement does not impair the negotiable
character of the instrument.
Sec. 36 When indorsement restrictive. - An indorsement is restrictive
Sec. 65 Warranty where negotiation by delivery and so forth. —
which either:
— Every person negotiating an instrument by delivery or by a
qualified indorsement warrants:
(a) Prohibits the further negotiation of the instrument; or
(b) Constitutes the indorsee the agent of the indorser; or
(a) That the instrument is genuine and in all respects what it
(c) Vests the title in the indorsee in trust for or to the use of
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some other persons. drawer.

(c) If he signs for the accommodation of the payee, he is liable to all parties
But the mere absence of words implying power to negotiate does subsequent to the payee.
not make an indorsement restrictive.
Sec. 37 Effect of restrictive indorsement; rights of indorsee. - A K. WHEN INDORSEMENT NECESSARY – Sec. 8(b) (p.6), Sec. 30 (p.10),
restrictive indorsement confers upon the indorsee the right: Sec. 184 (p.2)
(a) to receive payment of the instrument; L. INDORSEMENT OF ENTIRE INSTRUMENT – Sec. 32 (p.40)
(b) to bring any action thereon that the indorser could bring;
(c) to transfer his rights as such indorsee, where the form of the M. INDORSEMENT OF BEARER INSTRUMENT – Sec. 40 (p.10)
indorsement authorizes him to do so.
N. INDORSEMENT WHEN PAYABLE TO TWO OR MORE PERSONS –
But all subsequent indorsees acquire only the title of the first Sec. 41 (p.12)
indorsee under the restrictive indorsement.
O. INDORSEMENT IN REPRESENTATIVE CAPACITY – Sec. 44 (p.13)
Sec. 36(a) is the only type of indorsement that bars further negotiation. Those
under (b) and (c) may still be further negotiated, but the subsequent indorsees P. PRESUMPTION ON TIME, PLACE OF INDORSEMENT – Sec. 45 and
will also be an agent or trustee. 46 (p.13)
NATIVIDAD GEMPESAW VS. CA (GR No. 92244; Feb. 9, 1993) - Q. CONTINUATION OF NEGOTIABLE CHARACTER
Natividad Gempesaw issued checks, prepared by her bookkeeper, a total
of 82 checks in favor of several supplies. Most of the checks for amounts Sec. 47. Continuation of negotiable character. - An instrument
in excess of actual obligations as shown in their corresponding invoices. It negotiable in its origin continues to be negotiable until it has been
was only after the lapse of more than 2 years did she discovered the restrictively indorsed or discharged by payment or otherwise.
fraudulent manipulations of her bookkeeper. It was also learned that the
indorsements of the payee were forged, and the checks were brought to Restrictive indorsement as used in this provision pertains only to Sec. 36(a),
the chief accountant of Philippine Bank of Commerce (the Drawee Bank, since, as discussed earlier, (b) and (c) thereof do not prevent further
Buendia Branch) who deposited them in the accounts of Alfredo Romero negotiation.
and Benito Lam. Gempesaw made demand upon the bank to credit the
amount charged due the checks. The bank refused. Hence, the present Discharge by payment or otherwise are enumerated under Sec. 119 (p.)
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 R. NEGOTIATION BY PRIOR PARTY
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 Sec. 50 When prior party may negotiate instrument. - Where an
the drawer is guilty of such negligence which causes the bank to honor instrument is negotiated back to a prior party, such party may,
such checks. Gempesaw did not exercise prudence in taking steps that a subject to the provisions of this Act, reissue and further negotiable
careful and prudent businessman would take in circumstances to discover the same. But he is not entitled to enforce payment thereof
discrepancies in her account. Her negligence was the proximate cause of against any intervening party to whom he was personally
her loss, and under Section 23 of the Negotiable Instruments Law, is liable. (emphasis supplied)
precluded from using forgery as a defense. On the other hand, the Sec. 121 Right of party who discharges instrument. - Where the
banking rule banning acceptance of checks for deposit or cash payment instrument is paid by a party secondarily liable thereon, it is not
with more than one indorsement unless cleared by some bank officials, discharged; but the party so paying it is remitted to his former
does not invalidate the instrument; neither does it invalidate the rights as regard all prior parties, and he may strike out his own
negotiation or transfer of said checks. The only kind of indorsement and all subsequent indorsements and against negotiate the
which stops the further negotiation of an instrument is a instrument, except:
restrictive indorsement which prohibits the further negotiation
thereof, pursuant to Section 36 of the Negotiable Instruments (a) Where it is payable to the order of a third person and has
Law. In light of any case not provided for in the Act that is to be been paid by the drawer; and
governed by the provisions of existing legislation, pursuant to Section 196 (b) Where it was made or accepted for accommodation and has
of the Negotiable Instruments Law, the bank may be held liable for been paid by the party accommodated.
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 S. STRIKING OUT OF INDORSEMENT
contravention banking rules in allowing a chief accountant to deposit the
checks bearing second indorsements, was adjudged liable to share the Sec. 48 Striking out indorsement. - The holder may at any time strike
loss with Gempesaw on a 50:50 ratio. out any indorsement which is not necessary to his title. The
indorser whose indorsement is struck out, and all indorsers
5. Absolute Indorsement subsequent to him, are thereby relieved from liability on the
6. Joint Indorsement instrument
Sec. 50 When prior party may negotiate instrument. (supra, p.14)
Sec. 41. Indorsement where payable to two or more persons. – see p.
12 T. EFFECT OF TRANSFER WITHOUT INDORSEMENT – Sec. 49 (p.12)
7. Irregular Indorser U. DIFFERENT COMBINATIONS OF INDORSEMENT
Liability of irregular indorser. - Where a person, not otherwise a party to V. RIGHT OF PRIOR PARTY TO NEGOTIATE – Sec. 50 (p.14)
an instrument, places thereon his signature in blank before delivery, he is
liable as indorser, in accordance with the following rules: W. CONSIDERATION FOR ISSUANCE AND SUBSEQUENT TRANSFER
(a) If the instrument is payable to the order of a third person, he is liable to Sec. 24 Presumption of consideration. - Every negotiable instrument is
the payee and to all subsequent parties. deemed prima facie to have been issued for a valuable
(b) If the instrument is payable to the order of the maker or drawer, or is consideration; and every person whose signature appears thereon
payable to bearer, he is liable to all parties subsequent to the maker or
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to have become a party thereto for value. IV. HOLDERS

Sec. 25 Value, what constitutes. Value is any consideration sufficient to
support a simple contract. An antecedent or pre-existing debt A. WHAT IS A HOLDER?
constitutes value; and is deemed such whether the instrument is
payable on demand or at a future time. A Holder means the payee or indorsee of a bill or note who is in possession of
Sec. 26 What constitutes holder for value. - Where value has at any it or the bearer thereof (Sec. 191), who may sue on his own name (Sec. 51).
time been given for the instrument, the holder is deemed a holder
for value in respect to all parties who become such prior to that Sec. 51 Right of holder to sue; payment. - The holder of a negotiable
time. instrument may to sue thereon in his own name; and payment to
Sec. 27 When lien on instrument constitutes holder for value. — him in due course discharges the instrument
Where the holder has a lien on the instrument arising either from Sec. 193 Reasonable time, what constitutes. - In determining what is
contract or by implication of law, he is deemed a holder for value to a "reasonable time" regard is to be had to the nature of the
the extent of his lien. instrument, the usage of trade or business with respect to such
instruments, and the facts of the particular case.
Consideration is not presumed when there is transfer without indorsement as
in Sec. 49. CHAN WAN VS. TAN KIM (G.R. No. L-15380; September 30, 1960) - Eleven
checks payable to "cash or bearer" and drawn by defendant Tan upon the
Simple Contract as used in Sec. 25 is that found under the Civil Code. Such Equitable Banking Corporation, were all presented for payment by Chan Wan to
that, a negotiable instrument is issued for a valuable consideration which may the drawee bank, but they "were all dishonored and returned to him unpaid
be to give, to do or not to do. due to insufficient funds and/or causes attributable to the drawer." The drawer
in drawing the check engaged that "on due presentment, the check would be
Value Sufficient need not mean that the amount of consideration and the paid, and that if it be dishonored . . . he will pay the amount thereof to the
promise to pay in the instrument are equal, so long as it is not grossly holder". On the backs of the checks, endorsements which apparently show they
inadequate. had been deposited with the China Banking Corporation and were, by the
latter, presented to the drawee bank for collection. The court declined to order
Sec. 27: If a negotiable instrument was delivered by way of pledge, the payment for two principal reasons: (a) plaintiff failed to prove he was a holder
transferee is a holder for value up to the extent of the amount secured. If the in due course, and (b) the checks being crossed checks should not have been
sum certain state in the instrument is P50,000 and the same was pledged for deposited instead with the bank mentioned in the crossing. ISSUE: WON a
P30,000, the transferee is a holder for value upto P30,000 only. holder who is not a holder in due course may recover on the checks? HELD:
YES. The Negotiable Instruments Law does not provide that a holder,
Value previously given: If M issued a note to P, then P to A, A to B and B to who is not a holder in due course, may not in any case, recover on the
C, as a way of gift. C is a holder for value as to A, since value has previously instrument. If B purchases an overdue negotiable promissory note signed by
given by B to A. A, he is not a holder in due course; but he may recover from A, if the latter has
no valid excuse for refusing payment. The only disadvantage of holder who is
X. WHAT CONSTITUTES VALUE – Sec. 24 not a holder in due course is that the negotiable instrument is subject to
defense as if it were non- negotiable.
BIBIANO BANAS VS. CA (GR No. 102967; Feb. 10, 2000) – Petitioner
sold to Ayala Investment Corporation (Ayala) a lot for P2,308,770 to be ATRIUM MANAGEMENT CORPORATION VS. CA (G.R. No. 109491;
paid P461,754 upon signing of the contract and the balance covered by a February 28, 2001) - Hi-Cement Corp. issued checks in favor of E.T. Henry and
promissory note to be paid in four equal annual installments. On the same Co. Inc., as payee. The latter, in turn, endorsed the checks to Atrium for
day, petitioner discounted the promissory note with Ayala. On the year of valuable consideration. But upon presentment for payment, the drawee bank
sale, petitioner reported the P461,754 as sales proceeds and the balance dishonored the checks for the common reason "payment stopped" which
as unrealized, and consistently reported in the succeeding years the prompted petitioner to institute this action. The trial court rendered a decision
installment that fell due. On 1978, Revenue Director of Manila authorized ordering E.T. Henry and Co., Inc. and Hi-Cement to pay petitioner Atrium,
herein respondents Tuazon and Talon to examine the books and records jointly and severally, the amount corresponding to the value of the checks. CA,
of petitioner to which they assessed him for deficiency taxes, arguing that however, absolved & ruled, inter alia, that Lourdes de Leon of Hi-Cement was
since the note evidencing the installment nature of the sale was not authorized to issue the subject checks in favor of E.T. Henry, Inc. ISSUE:
discounted the same year it was issued, the sale should be treated as a WON petitioner Atrium is a holder in due course? HELD: To emphasize, the
cash transaction and not installment and accordingly the whole amount of checks were crossed checks and specifically indorsed for deposit to payee's
gain on disposition should have been reported in 1976, the year of sale. (E.T. Henry) account only. Atrium was aware of the fact that the checks were
ISSUE: WON the proceeds of the discounted note should have been all for deposit only to payee's account. Clearly, then, Atrium could not be
reported as taxable income during 1976 and not deferred on installments? considered a holder in due course. The SC, however, held that it does not
HELD: Yes. As a general rule, the whole profit accruing from a sale of follow as a legal proposition that simply because petitioner Atrium
property is taxable as income in the year the sale is made. But, if not all of was not a holder in due course for having taken the instruments in
the sale price is received during such year, and a statute provides that question with notice that the same was for deposit only to the
income shall be taxable in the year in which it is “received”, the profit from account of payee E.T. Henry that it was altogether precluded from
an installment sale is to be apportioned between or among the years in recovering on the instrument. The Negotiable Instruments Law does not
which the installments are paid and received. However, the proceeds from provide that a holder not in due course cannot recover on the instrument. The
the disposition or discounting of receivable, though not considered in disadvantage of Atrium in not being a holder in due course is that the
computing for “initial payments” under Sec. 43 and Sec. 175 of the Tax negotiable instrument is subject to defenses as if it were non-negotiable. One
Code, it is still taxable in the year it was converted to cash. Non-dealer such defense is absence or failure of consideration.
sales of property may be reported as income under the installment
method provided that the obligation is still outstanding at the close of the B. CLASSES OF HOLDER
year. Where an installment obligation is discounted at a bank or
finance company, a taxable disposition results. Clearly, the Sec. 51 Rights of holder to sue. (supra)
indebtedness of the buyer is discharged, while the seller acquires Sec. 26 What constitutes holder for value. - Where value has at any
money for the settlement of his receivables. Logically then, the time been given for the instrument, the holder is deemed a
income should be reported at the time of the actual gain. holder for value in respect to all parties who become such prior
to that time
Y. EFFECT OF VALUE PREVIOUSLY GIVEN – Sec. 26 (p.15) Sec. 52 What constitutes a holder in due course. – see C. HOLDER
Z. HOLDER FOR VALUE – Sec. 27 (p.15) IN DUE COURSE, p.
Sec. 57 Rights of holder in due course. – see Rights of A Holder In
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Due Course, p. 19. 2. Taken Before Overdue and Before Notice of Dishonor
MARCELO MESINA VS. CA (G.R. No. 70145 November 13, 1986) - Jose Overdue – an instrument is overdue after the date of maturity fixed therein or
Go purchased from Associated Bank a cashier's check for P800,000.00. upon happening of an event certain, and a person taking an overdue
Unfortunately, he left said check on the top of the desk of the bank instrument must be put on inquiry why the instrument is still in circulation
manager when he left the bank. The bank manager entrusted the check
for safekeeping to a bank official, a certain Albert Uy. While Uy went to Dishonor may be by non-acceptance (bills of exchange) under Sec. 149 or by
the men's room, the check was stolen by his visitor in the person of non-payment (promissory notes and bills of exchange) under Sec. 83. A holder
Alexander Lim. Upon discovering that the check was lost, Jose Go who has knowledge that the instrument was previously dishonored is not a
accomplished a "STOP PAYMENT" order. Two days later, Associated Bank holder in due course.
received the lost check for clearing from Prudential Bank. After
dishonoring the same check twice, Associated Bank received summons Sec. 4 Determinable future time, what constitutes. (supra, p.6)
and copy of a complaint for damages of Marcelo Mesina who was in Sec. 7 When payable on demand (supra, p.6)
possession of the lost check and is demanding payment. Petitioner claims Sec. 87 Rule where instrument payable at bank. - Where the
that a cashier's check cannot be countermanded in the hands of a holder instrument is made payable at a bank, it is equivalent to an order
in due course. ISSUE: WON petitioner can collect on the stolen check on to the bank to pay the same for the account of the principal
the ground that he is a holder in due course? HELD: No. Petitioner failed debtor thereon.
to substantiate his claim that he is a holder in due course and for Sec. 53 When person not deemed a holder in due course (supra)
consideration or value as shown by the established facts of the case. Sec. 143 When presentment for acceptance must be made. -
Admittedly, petitioner became the holder of the cashier's check as Presentment for acceptance must be made:
endorsed by Alexander Lim who stole the check. He refused to say how
and why it was passed to him. He had therefore notice of the defect of his (a) Where the bill is payable after sight, or in any other case,
title over the check from the start. The holder of a cashier's check who is where presentment for acceptance is necessary in order to fix the
not a holder in due course cannot enforce such check against the issuing maturity of the instrument; or
bank which dishonors the same. A person who became the holder of a (b) Where the bill expressly stipulates that it shall be
cashier's check as endorsed by the person who stole it and who refused to presented for acceptance; or
say how and why it was passed to him is not a holder in due course (c) Where the bill is drawn payable elsewhere than at the
residence or place of business of the drawee.
C. HOLDER IN DUE COURSE
In no other case is presentment for acceptance necessary in
Sec. 52. What constitutes a holder in due course. .- A holder in due order to render any party to the bill liable.
course is a holder who has taken the instrument under the following conditions: Sec. 83 When instrument dishonored by non-payment. - The
(a) That it is complete and regular upon its face; instrument is dishonored by non-payment when:
(b) That he became the holder of it before it was overdue, and without notice (a) It is duly presented for payment and payment is refused or
that it has been previously dishonored, if such was the fact; cannot be obtained; or
(c) That he took it in good faith and for value; (b) Presentment is excused and the instrument is overdue and
(d) That at the time it was negotiated to him, he had no notice of any infirmity unpaid.
in the instrument or defect in the title of the person negotiating it. Sec. 149 When dishonored by nonacceptance. - A bill is dishonored
by non-acceptance:
Holder - the first requisite is that he should be a “holder” as defined under (a) When it is duly presented for acceptance and such an
Sec. 191. If a possessor of a negotiable instrument is not a holder (i.e., he is acceptance as is prescribed by this Act is refused or cannot be
neither payee nor indorsee or bearer of a bearer instrument), he can NEVER be obtained; or
a holder in due course. (b) When presentment for acceptance is excused and the bill is
not accepted.
Sec. 53 When person not deemed holder in due course. – see 2. Sec. 47 Continuation of negotiable character (supra, p.14)
Overdue, b. Rule in case of demand instruments. Sec. 5 Additional provisions not affecting negotiability (p.6)
Sec. 57 Rights of a holder in due course. See Rights of a Holder in
Due Course p. 19 a. Rule in case of installment instruments – a purchaser of an
Sec. 59 Who is deemed holder in due course. - Every holder is installment note after an installment is overdue may be a holder in
deemed prima facie to be a holder in due course; but when it is due course as to the balance if he has no notice of failure to pay
shown that the title of any person who has negotiated the the first installment. The holder may assume that the regular course
instrument was defective, the burden is on the holder to prove of business has been followed and that each installment was paid
that he or some person under whom he claims acquired the title when due. A transferee has no reason to conclude from the mere
as holder in due course. But the last-mentioned rule does not fact that a note circulates after the due date of one or more
apply in favor of a party who became bound on the instrument installments that such installments were not paid (Bliss vs. California
prior to the acquisition of such defective title. Co-op Producers)
b. Rule in case of demand instruments
1. Instrument Complete and Regular
Sec. 53. When person not deemed holder in due course. - Where an
Complete - it is complete when it is not wanting of any material particular or instrument payable on demand is negotiated on an unreasonable length of time
particular proper to be inserted in a negotiable instrument without which the after its issue, the holder is not deemed a holder in due course.
same will not be complete. Examples of material particulars are name of payee,
amount, signature of maker or drawer, or rates of interest, if any. “Unreasonable” is relative and must be determined in relation to Sec. 193
(p.15)
Regular – It is regular upon its face when it does not contain any material
alterations or if there are, they are not apparent or visible on the face of the c. Overdue interest payments – the mere fact that interests on a
instrument. note was overdue does not, in the absence of an acceleration clause
on failure to pay interest, affect an indorsee with notice of dishonor
A Holder upon receiving an instrument which is incomplete or irregular or put him on inquiry.
(containing visible and apparent alterations) must be put on inquiry why it is
such. If he fails to do so, he takes the instrument subject to all defenses. 3. Notice of Infirmity or Defect
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lOMoARcPSD|5036134
check in his possession and why he was using it for the payment of his
Infirmity means any irregularity in the instrument. Thus, notice of an own personal account — show that holder's title was defective or
alteration which is apparent is notice of an infirmity in the instrument, as well suspicious, to say the least. As holder's title was defective or suspicious, it
as notice of forgery in the maker or drawer’s signature. Sec. 56 provides what cannot be stated that the payee acquired the check without knowledge of
constitutes notice of defect. said defect in holder's title, and for this reason the presumption that it is a
holder in due course or that it acquired the instrument in good faith does
Sec. 54 Notice before full amount is paid. - Where the transferee not exist. And having presented no evidence that it acquired the check in
receives notice of any infirmity in the instrument or defect in the good faith, it (payee) cannot be considered as a holder in due course. In
title of the person negotiating the same before he has paid the other words, under the circumstances of the case, instead of the
full amount agreed to be paid therefor, he will be deemed a presumption that payee was a holder in good faith, the fact is that it
holder in due course only to the extent of the amount acquired possession of the instrument under circumstances that should
therefore paid by him. have put it to inquiry as to the title of the holder who negotiated the
Sec. 55 When title defective. - The title of a person who negotiates an check to it. The burden was, therefore, placed upon it to show that
instrument is defective within the meaning of this Act when he notwithstanding the suspicious circumstances, it acquired the check in
obtained the instrument, or any signature thereto, by fraud, actual good faith. In the case at bar as the payee acquired the
duress, or force and fear, or other unlawful means, or for an check under circumstances which should have put it to inquiry,
illegal consideration, or when he negotiates it in breach of faith, why the holder had the check and used it to pay his own personal
or under such circumstances as amount to a fraud. account, the duty devolved upon it, plaintiff-appellee, to prove
Sec. 56 What constitutes notice of defect. - To constitutes notice of that it actually acquired said check in good faith. The stipulation of
an infirmity in the instrument or defect in the title of the person facts contains no statement of such good faith, hence, plaintiff payee has
negotiating the same, the person to whom it is negotiated not proved that it acquired the check in good faith and may not be
must have had actual knowledge of the infirmity or deemed a holder in due course thereof. It was payee's duty to ascertain
defect, or knowledge of such facts that his action in from the holder Manuel Gonzales what the nature of the latter's title to the
taking the instrument amounted to bad faith. check was or the nature of his possession. Having failed in this respect,
Sec. 57 Rights of a holder in due course. (supra) we must declare that plaintiff-appellee was guilty of gross neglect in not
finding out the nature of the title and possession of Manuel Gonzales,
Sec. 54: M makes a note for P100,000 payable to the order of P, P indorsed it amounting to legal absence of good faith, and it may not be considered as
to A, B stole the note, and forged A’s signature, B then indorsed it to C who a holder of the check in good faith. To such effect is the consensus of
paid P50,000 before knowing that A’s signature was forged. In this case, C is a authority
holder in due course upto P50,000 only.
CELY YANG VS. CA (GR No. 138074; Aug. 15, 2003) – Cely Yang and
4. Good Faith Prem Chandiramani were to exchange dollar drafts and checks with the
difference to be divided equally as their profit. Chandiramani did not
Crossed Checks produce the following effect: appear at the rendezvous and Ranigo, Yang’s representative, allegedly lost
(a) The check may not be encashed but only deposited in the bank; the two cashier’s checks and the dollar draft bought by petitioner. Ranigo
(b) The check may be negotiated only once – to one who has an account with reported the alleged loss of the checks and the dollar draft to Liong.
a bank; and Liong, in turn, informed Yang, and the loss was then reported to the
(c) The act of crossing the check serves as warning to the holder that the check police. The checks and the dollar draft were not lost because
has been issued for a definite purpose so that he must inquire if he has Chandiramani was able to get hold of said instruments, without delivering
received the check pursuant to that purpose, otherwise, he is not a holder in the exchange consideration consisting of the PCIB manager’s check and
due course. (State Investment House Inc. vs. CA; Bataan Cigar and Cigarette the Hang Seng Bank dollar draft. Yang requested FEBTC and Equitable to
Factory vs. CA) stop payment on the instruments she believed to be lost. Both banks
complied with her request, but upon the representation of PCIB, FEBTC
VICENTE DE OCAMPO & CO. VS. ANITA GATCHALIAN (GR No. L- subsequently lifted the stop payment order on FEBTC Dollar Draft No.
15126 ;Nov. 30, 1961) – Facts: Herein defendants issued a check 4771. Yang lodged a Complaint for injunction and damages against
amounting to P600 to one Manuel Gonzales, who represented himself as Equitable, Chandiramani, and David (payee of the subject checks). The
authorized by the owner of the car, Ocampo Clinic, which will be shown to Court rendered judgment in favor of defendant Fernando David against
the owner as evidence of defendants’ good faith in the intention to the plaintiff Cely Yang and declaring the former entitled to the proceeds of
purchase the said car. Without knowledge of this transaction, plaintiff the two (2) cashier’s checks. ISSUE: WON Fernando David is a holder in
received from Gonzales the subject check for the payment of the due course? HELD: Yes. Petitioner fails to point any circumstance which
hospitalization of his wife. On the failure of Gonzales to appear the day should have put David on inquiry as to the why and wherefore of the
following, to bring the car and its certificate of registration and to return possession of the checks by Chandiramani. David was not privy to the
the check on the following day as previously agreed upon, defendant transaction between petitioner and Chandiramani. Instead, Chandiramani
Gatchalian issued a "Stop Payment Order" on the check, with the drawee and David had a separate dealing in which it was precisely Chandiramani’s
bank. The CFI of Manila then ordered defendants to pay the plaintiff the duty to deliver the checks to David as payee. The evidence shows that
sum of P600 with legal interest until paid. In this action, defendants seek Chandiramani performed said task to the letter. Petitioner admits that
to recover the value of the check, contending that plaintiff is not a holder David took the step of asking the manager of his bank to verify from
in due course. ISSUE: WON plaintiff is a holder in due course? HELD: FEBTC and Equitable as to the genuineness of the checks and only
Under the Negotiable Instruments Law, Section 52 (c) provides that a accepted the same after being assured that there was nothing wrong with
holder in due course is one who takes the instrument "in good faith and said checks. At that time, David was not aware of any "stop payment"
for value;" Section 59, "that every holder is deemed prima facie to be a order. Under these circumstances, David thus had no obligation to
holder in due course;" and Section 52 (d), that in order that one may be a ascertain from Chandiramani what the nature of the latter’s title to the
holder in due course it is necessary that "at the time the instrument was checks was, if any, or the nature of his possession. Thus, we cannot hold
negotiated to him "he had no notice of any . . . defect in the title of the him guilty of gross neglect amounting to legal absence of good faith,
person negotiating it;" and lastly Section 59, that every holder is absent any showing that there was something amiss about Chandiramani’s
deemed prima facie to be a holder in due course. In the case at bar the acquisition or possession of the checks. David did not close his eyes
rule that a possessor of the instrument is prima facie a holder in due deliberately to the nature or the particulars of a fraud allegedly committed
course does not apply because there was a defect in the title of the holder by Chandiramani upon the petitioner, absent any knowledge on his part
(Manuel Gonzales), because the instrument is not payable to him or to that the action in taking the instruments amounted to bad faith. Moreover,
bearer. On the other hand, the stipulation of facts indicated by the the factual circumstances in De Ocampo and in Bataan Cigar are not
appellants in their brief, like the fact that the drawer had no account with present in this case. For here, there is no dispute that the crossed
the payee; that the holder did not show or tell the payee why he had the checks were delivered and duly deposited by David, the payee
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lOMoARcPSD|5036134
named therein, in his bank account. In other words, the purpose Industries." On account of the dishonor of Metrobank Check 765380, and
behind the crossing of the checks was satisfied by the payee. on complaint of Armstrong Industries (through a Mr. Young), Rafael
Limson and Artemio Torres were charged in the Regional Trial Court of
BATAAN CIGAR AND CIGARETTE FACTORY VS. CA (GR No. 93048; Manila with a violation of Batas Pambansa Bilang 22. They were acquitted
March 3, 1994) - BCCFI issued to King Tim Pua George (George King) in a decision rendered on 28 June 1984 "on the ground that the check in
post-dated crossed checks for the delivery tobacco leaves. George King question was not issued by the drawer 'to apply on account for value,' it
later on sold at a discount the subject checks to SIHI. In as much as being merely for accommodation purposes." That judgment however
George King failed to deliver the bales of tobacco leaves as agreed, conditioned the acquittal with the pronouncement that "this is not
despite petitioner’s demand, BCCFI issued a stop payment order on all however to release Steelweld Corporation from its liability under Sec. 29 of
checks payable to George King. Unable to collect, SIHI instituted an action the Negotiable Instruments Law for having issued it for the
to recover from herein petitioner and was granted relief by the trial court accommodation of Romeo Lim." Eleven months later — and some 4 years
and later on upheld by the CA. Hence, the present petition. ISSUE: WON after issuance of the check — in May, 1985, STELCO filed with the
SIHI, a second indorser, a holder of crossed checks, a holder in due Regional Trial Court of Caloocan City a civil complaint against both RYL
course? HELD: No. Sec. 52 of the Negotiable Instruments Law (NIL) and STEELWELD for the recovery of the value of the steel bars and wire
states what constitutes a holder in due course, thus: sold to and delivered to RYL in the amount of P126,129.86, plus 18%
interest from 20 August 1980 and 25% of the total amount sought to be
Sec. 52 – A holder in due course is a holder who has taken the recovered as and by way of attorney's fees. A preliminary attachment was
instrument under the following conditions: issued by the trial court on the basis of the averments of the complaint
a. That it is complete and regular upon its face; but was shortly dissolved upon the filing of a counter-bond by
b. That he became the holder of it before it was STEELWELD. RYL could no longer be located and could not be served with
overdue, and without notice that it had been summons. It never appeared. Only STEELWELD filed an answer, under
previously dishonored, if such was the fact; date of 16 July 1985. Judgment was rendered on 26 June 1986. The
c. That he took it in good faith and for value; judgment sentenced Steelweld to pay to Stelco the amount of
d. That at the time it was negotiated to him he had no P126,129.86 with legal rate of interest from 9 May 1985, when the case
notice of any infirmity in the instrument or defect in was instituted until fully paid, plus another sum equivalent to 25% of the
the title of the person negotiating it. total amount due as and for attorney's fees. STELCO's motion for
reconsideration was denied by the Appellate Tribunal's resolution dated 13
Jurisprudence has pronounced that crossing a check should have the November 1990. STELCO appealed. ISSUE NO. 1 WON the fourth
following effects: (a) the check may not be encashed but only deposited in condition, i.e. as to notice, for a holder in due course is applicable to an
the bank; (b) the check may be negotiated only once – to one who has an accommodation party? HELD: "A holder in due course," says the law, "is a
account with a bank; (c) and the act of crossing the check serves as holder who has taken the instrument under the following conditions: (a)
warning to the holder that the check has been issued for a definite That it is complete and regular upon its face; (b) That he became the
purpose so that he must inquire if he has received the check pursuant to holder of it before it was overdue, and without notice that it had been
that purpose, otherwise, he is not a holder in due course. It is settled that previously dishonored, if such was the fact; (c) That he took it in good
crossing the checks should put the holder on inquiry and upon him faith and for value; (d) That at the time it was negotiated to him, he had
devolves the duty to ascertain the indorser’s title to the check or the no notice of any infirmity in the instrument or defect in the title of the
nature of his possession. Failing in this respect, the holder is declared persons negotiating it." As regards an accommodation party (such as
guilty of gross negligence amounting to legal absence of good faith, STEELWELD), the fourth condition, i.e., lack of notice of any infirmity in
contrary to Sec. 52(c) of the NIL. In the present case, BCCFIs defense in the instrument or defect in title of the persons negotiating it, has no
stopping payment is as good to SIHI as it is to George King. Because, application. This is because Section 29 of the law above quoted preserves
really, the checks were issued with the intention that George King would the right of recourse of a "holder for value" against the accommodation
supply BCCFI with the bales of tobacco leaf. There being failure of party notwithstanding that "such holder, at the time of taking the
consideration, SIHI is not a holder in due course. Consequently, BCCFI instrument, knew him to be only an accommodation party." ISSUE NO.2:
cannot be obliged to pay the checks WON STELCO ever became a holder in due course of Check 765380, a
bearer instrument within the contemplation of the Negotiable Instruments
STELCO MARKETING CORPORATION VS. CA (GR No. 96160; June Law? HELD: NO. It never did. There is no evidence whatever that
17, 1992) – Stelco Marketing Corporation is engaged in the distribution STELCO's possession of Check 765380 ever dated back to any time before
and sale to the public of structural steel bars. On 7 different occasions in the instrument's presentment and dishonor. There is no evidence
September and October 1980, it sold to RYL Construction, Inc. quantities whatsoever that the check was ever given to it, or indorsed to it in any
of steel bars of various sizes and rolls of G.I. wire. These bars and wire manner or form in payment of an obligation or as security for an
were delivered at different places at the indication of RYL Construction, obligation, or for any other purpose before it was presented for payment.
Inc. The aggregate price for the purchases was P126,859.61. Although the On the contrary, STELCO never became a holder for value and that
corresponding invoices issued by STELCO stipulated that RYL would pay "(n)owhere in the check itself does the name of Stelco Marketing appear
"COD" (cash on delivery), the latter made no payments for the as payee, indorsee or depositor thereof." What the record shows is that:
construction materials thus ordered and delivered despite insistent (1) the STEELWELD company check in question was given by its president
demands for payment by the former. On April 4, 1981, RYL gave to to R.Y. Lim; (2) it was given only by way of accommodation, to be "used
Armstrong Industries — described by STELCO as its "sister corporation" as collateral for another obligation;" (3) in breach of the agreement,
and "manufacturing arm" — a check drawn against Metrobank in the however, R.Y. Lim indorsed the check to Armstrong in payment of an
amount of P126,129.86, numbered 765380 and dated 4 April 1981. That obligation; (4) Armstrong deposited the check to its account, after
check was a company check of another corporation, Steelweld Corporation indorsing it; (5) the check was dishonored. The record does not show any
of the Philippines, signed by its President, Peter Rafael Limson, and its intervention or participation by STELCO in any manner or form whatsoever
Vice-President, Artemio Torres. The check was issued by Limson at the in these transactions, or any communication of any sort between
behest of his friend, Romeo Y. Lim, President of RYL. Romeo Lim had STEELWELD and STELCO, or between either of them and Armstrong
asked Limson for financial assistance, and the latter had agreed to give Industries, at any time before the dishonor of the check. The record does
Lim a check only by way of accommodation, "only as guaranty but not to show that after the check had been deposited and dishonored, STELCO
pay for anything." Why the check was made out in the amount of came into possession of it in some way, and was able, several years after
P126,129.86 is not explained. The check was actually issued in said the dishonor of the check, to give it in evidence at the trial of the civil case
amount of P126,129.86, and as already stated, was given by R.Y. Lim to it had instituted against the drawers of the check (Limson and Torres) and
Armstrong, Industries, in payment of an obligation. When the latter RYL. Possession of a negotiable instrument after presentment and
deposited the check at its bank, it was dishonored because "drawn against dishonor, or payment, is utterly inconsequential; it does not make the
insufficient funds." When so deposited, the check bore two (2) possessor a holder for value within the meaning of the law; it gives rise to
indorsements, that of "RYL Construction," followed by that of "Armstrong no liability on the part of the maker or drawer and indorsers. It is clear
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from the relevant circumstances that STELCO cannot be deemed a holder The checks, however, were dishonored by reason of "insufficient funds",
of the check for value. It does not meet two of the essential requisites "stop payment" and "account closed", respectively. Petitioner claims that
prescribed by the statute. It did not become "the holder of it before it was despite demands on Chua to make good said checks, the latter failed to
overdue, and without notice that it had been previously dishonored," and pay the same necessitating the former to file an action for collection.
it did not take the check "in good faith and for value." Neither is there any When the CA reversed the trial court ruling favoring State Investment
evidence whatever that Armstrong Industries, to whom R.Y. Lim House, the latter elevated the issue before the SC. ISSUE: WON
negotiated the check, accepted the instrument and attempted to encash it petitioner is a holder in due course as to entitle it to proceed against
in behalf, and as agent of STELCO. On the contrary, the indications are private respondents Chua for the amount stated in the dishonored checks?
that Armstrong was really the intended payee of the check and was the HELD: The Intermediate Appellate Court (now Court of Appeals), correctly
party actually injured by its dishonor; it was after all its representative (a elucidated that the effects of crossing a check are: the check may not be
Mr. Young) who instituted the criminal prosecution of the drawers, Limson encashed but only deposited in the bank; the check may be negotiated
and Torres, albeit unsuccessfully. only once to one who has an account with a bank; and the act of crossing
the check serves as a warning to the holder that the check has been
5. HOLDER FOR VALUE 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
Sec. 25 Value, what constitutes (supra, p.15) course. It results therefore that when State Investment House
Sec. 26 What constitutes holder for value (supra, p.15) rediscounted the check knowing that it was a crossed check he was
Sec. 27 When lien on instrument constitutes holder for value knowingly violating the avowed intention of crossing the check.
(supra, p.15) Furthermore, his failure to inquire from the holder, party defendant New
Sikatuna Wood Industries, Inc., the purpose for which the three checks
D. PRESUMPTION OF DUE COURSE HOLDING were cross despite the warning of the crossing, prevents him from being
considered in good faith and thus he is not a holder in due course. Being
Sec. 53 When person not deemed holder in due course (p.16) not a holder in due course, plaintiff is subject to personal
Sec. 59 Who is deemed a holder in due course (p.16) defenses, such as lack of consideration between appellants and
New Sikatuna Wood Industries. Note that under the facts the checks
E. RIGHTS OF A HOLDER IN DUE COURSE – Sec. 57 were postdated and issued only as a loan to New Sikatuna Wood
Industries, Inc. if and when deposits were made to back up the checks.
Sec. 57. Rights of a holder in due course. A holder in due course (1) holds Such deposits were not made, hence no loan was made, hence, the three
the instrument free from any defect of title of prior parties, and free checks are without consideration (Sec. 28, Negotiable Instruments Law).
from defenses available to prior parties among themselves, and (2)
may enforce payment of the instrument for the full amount thereof against 1. When subject to original defense
all parties liable thereon (emphasis supplied)
Sec. 58. When subject to original defense. - In the hands of any holder
SALAS VS. CA (G.R. No. 76788 January 22, 1990) - Juanita Salas other than a holder in due course, a negotiable instrument is subject to
(Petitioner) bought a motor vehicle from the Violago Motor Sales the same defenses as if it were non-negotiable. But a holder who derives
Corporation (VMS) as evidenced by a promissory note. This note was his title through a holder in due course, and who is not himself a party to any
subsequently endorsed to Filinvest Finance & Leasing Corporation (private fraud or illegality affecting the instrument, has all the rights of such former
respondent) which financed the purchase. Petitioner defaulted in her holder in respect of all parties prior to the latter.
installments allegedly due to a discrepancy in the engine and chassis
numbers of the vehicle delivered to her and those indicated in the sales PRUDENCIO VS. CA (GR No.; July 14, 1986) – In 1955, Concepcion and
invoice, certificate of registration and deed of chattel mortgage, which fact Tamayo Construction Enterprise had a contract with the Bureau of Public
she discovered when the vehicle figured in an accident. This failure to pay Works. The firm needed fund to push through with the contract so it
prompted private respondent to initiate an action for a sum of money convinced spouses Eulalio and Elisa Prudencio to mortgage their parcel of
against petitioner before the Regional Trial Court. ISSUE: WON private land with the Philippine National Bank for P10,000.00. Prudencio, without
respondent is a holder in due course? HELD: YES. The Promissory Note consideration, agreed and so he mortgaged the land and executed a
was negotiated by indorsement in writing on the instrument itself payable promissory note for P10k in favor of PNB. Prudencio also authorized PNB
to the Order of Filinvest Finance and Leasing Corporation and it is an to issue the P10k check to the construction firm. In December 1955, the
indorsement of the entire instrument. Under the circumstances, there firm executed a Deed of Assignment in favor of PNB which provides that
appears to be no question that Filinvest is a holder in due course, having any payment from the Bureau of Public Works in consideration of work
taken the instrument under the following conditions: [a] it is complete and done (by the firm) so far shall be paid directly to PNB – this will also
regular upon its face; [b] it became the holder thereof before it was ensure that the loan gets to be paid off before maturity. Notwithstanding
overdue, and without notice that it had previously been dishonored; [c] it the provision in the Deed of Assignment, the Bureau of Public Works
took the same in good faith and for value; and [d] when it was negotiated asked PNB if it can make the payments instead to the firm because the
to Filinvest, the latter had no notice of any infirmity in the instrument or firm needs the money to buy construction materials to complete the
defect in the title of VMS Corporation. Accordingly, respondent project. Notwithstanding the provision of the Deed of Assignment, PNB
corporation holds the instrument free from any defect of title of agreed. And so the loan matured without PNB actually receiving any
prior parties, and free from defenses available to prior parties payment from the Bureau of Public Works. Prudencio, upon learning that
among themselves, and may enforce payment of the instrument no payment was made on the loan, petitioned to have the mortgage
for the full amount thereof. This being so, petitioner cannot set cancelled (to save his property from foreclosure). The trial court ruled
up against respondent the defense of nullity of the contract of against Prudencio; the Court of Appeals affirmed the trial court. ISSUE:
sale between her and VMS. WON Prudencio should pay the promissory note to PNB? HELD: No. PNB
is not a holder in due course. Prudencio is an accommodation party for he
STATE INVESTMENT HOUSE VS. CA (GR No. ; July 13, 1989) – New signed the promissory note as maker but he did not receive value or
Sikatuna Wood Industries, Inc. requested for a loan from Chua. The latter consideration therefor. He expected the firm (accommodated party) to pay
agreed to grant the same subject to the condition that the former should the loan – this obligation was shifted to the Bureau of Public Works by
wait until December 1980 when he would have the money. In view of this way of the Deed of Assignment). As a general rule, an accommodation
agreement, private respondent Chua issued three (3) "crossed checks" party is liable on the instrument to a holder for value/in due course,
payable to New Sikatuna Wood Industries, Inc. all postdated December notwithstanding such holder at the time of taking the instrument knew
22, 1980. Subsequently, New Sikatuna entered into an agreement with him to be only an accommodation party. The exception is that if the
herein petitioner State Investment House, Inc. whereby New Sikatuna holder, in this case PNB, is not a holder in due course. The court finds
assigned and discounted with petitioner eleven (11) postdated checks that PNB is not a holder in due course because it has not acted in
including the aforementioned three (3) postdated checks issued by Chua. good faith when it waived the supposed payments from the
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Bureau of Public Works contrary to the Deed of Assignment. Had such former holder in respect of all parties prior to the latter.
the Deed been followed, the loan would have been paid off at
maturity. If a Holder is not a holder in due course, he is subject to personal defenses as
between prior parties. The only exception is an ordinary holder who derived his
STELCO MARKETING CORPORATION VS. CA (supra, p. 18) - STELCO title from a holder in due course, this is known in American case law as
came into possession of it in some way, and was able, several years after “Shelter Rule”.
the dishonor of the check, to give it in evidence at the trial of the civil case
it had instituted against the drawers of the check (Limson and Torres) and Sec. 58: does not apply to a holder who repurchased the instrument either
RYL. Possession of a negotiable instrument after presentment and personally or through an agent.
dishonor, or payment, is utterly inconsequential; it does not make the
possessor a holder for value within the meaning of the law; it gives rise to CHARLES FOSSUM VS. FERNANDEZ HERMANOS (GR No. L-19461) -
no liability on the part of the maker or drawer and indorsers. It is clear Herein petitioner was the resident agent in Manila of the American Iron
from the relevant circumstances that STELCO cannot be deemed a holder Products Company, Inc. (AIPCI), engaged in business in New York City,
of the check for value. It does not meet two of the essential requisites while Fernandez Hermanos is a general commercial partnership engaged
prescribed by the statute. It did not become "the holder of it before it was in business in the Philippines. Fossum, acting as agent of AIPCI, procured
overdue, and without notice that it had been previously dishonored," and an order from respondent to deliver a tail shaft, to be installed on the ship
it did not take the check "in good faith and for value." Neither is there any Romulus. It was stipulated that the tail shaft would be in accordance with
evidence whatever that Armstrong Industries, to whom R.Y. Lim the specifications contained in a blueprint given to Fossum and that the
negotiated the check, accepted the instrument and attempted to encash it shaft should be shipped from New York in March or April 1920. The
in behalf, and as agent of STELCO. On the contrary, the indications are manufacture and shipment of the shaft was delayed considerably.
that Armstrong was really the intended payee of the check and was the Meanwhile AIPCI had drawn a time draft for $2250, at 60 days, upon
party actually injured by its dishonor; it was after all its representative (a Fernandez Hermanos, for the price of the shaft, and payable to Philippine
Mr. Young) who instituted the criminal prosecution of the drawers, Limson National Bank (PNB). It was presented to Fernandez Hermanos for
and Torres, albeit unsuccessfully. acceptance, and was accepted by the firm according to its tenor.
Subsequently, the shaft was found not to be in conformity with the
F. RIGHTS OF HOLDER NOT IN DUE COURSE specifications and was incapable of use for its intended purpose. Upon
discovering this, Fernandez Hermanos refused to pay the draft, and it
Sec. 51 Rights of holder to sue. (supra, p.15) remained for a time dishonored in PNB Manila. Later the bank indorsed
Sec. 58 When subject to original defense (supra, p.19) the draft in blank, without consideration, and delivered it to Fossum, who
then instituted this action against Fernandez Hermanos. The trial court
G. ACCOMMODATION PARTIES – Sec. 29. held that the consideration for the draft and for its acceptance by
Fernandez Hermanos has completely failed and no action whatever can be
Sec. 29. Liability of accommodation party. - An accommodation party is maintained on the instrument by AIPCI, or by any other person against
one who has signed the instrument as maker, drawer, acceptor, or indorser, whom the defense of failure of consideration is available. ISSUE: WON
without receiving value therefor, and for the purpose of lending his name to Fossum is a holder in due course, such that an action can be maintained
some other person. Such a person is liable on the instrument to a holder for on the instrument? HELD: NO. Fossum is far from being a holder in due
value, notwithstanding such holder, at the time of taking the instrument, knew course. He was himself a party to the contract which supplied the
him to be only an accommodation party consideration for the draft, albeit acting in a representative capacity. Also,
he procured the instrument to be indorsed by the bank and delivered to
H. PAYEE AS HOLDER IN DUE COURSE himself without the payment of value, after it was overdue, and with full
notice that, as between the original parties, the consideration had
VICENTE DE OCAMPO VS. ANITA GATCHALIAN (supra, p.17) - completely failed. Under these circumstances, recovery on the draft is out
Section 191 defines "holder" as the payee or indorsee of a bill or note, of the question. He calls attention, however, to the familiar rule that a
who is in possession of it, or the bearer thereof. Sec. 52 defines a holder person who is not himself a holder in due course may yet recover against
in due course as "a holder who has taken the instrument under the the person primarily liable where it appears that such holder derives his
conditions enumerated therein. ”Since "holder", as defined in sec. title through a holder in due course. There is not a line of proof tending to
191, includes a payee who is in possession the word holder in the show that the bank itself was ever a holder in due course. It was
first clause of sec. 52 and in the second subsection may be incumbent on Fossum to show that the bank was a holder in due course,
replaced by the definition in sec. 191 so as to read "a holder in and can have no assistance from the presumption expressed in sec 59 of
due course is a payee or indorsee who is in possession," etc. NIL, to the effect that every holder is deemed prima facie to be a holder in
(Brannan's on Negotiable Instruments Law, 6th ed., p. 543). due course. This presumption arises only in favor of a person who is a
holder in the sense defined in sec 191 of NIL, that is, a payee or indorsee
EULALIO PRUDENCIO VS. CA (supra, p. 19) – Petitioners contend that who is in possession of the draft, or the bearer thereof. Under this
the payee PNB is an immediate party and, therefore, is not a holder in due definition, in order to be a holder, one must be in possession of the note
course and stands on no better footing than a mere assignee. In those or the bearer thereof. (Night & Day Bank vs. Rosenbaum) If this action
cases where a payee either acquired the note from another holder or has had been instituted by the bank itself, the presumption that the bank was
not directly dealt with the maker thereof. As was held in Bank of a holder in due course would have arisen from the tenor of the draft and
Commerce and Savings vs. Randell: “We conclude, therefore, that a payee the fact that it was in the bank's possession; but when the instrument
who receives a negotiable promissory note, in good faith, for value, before passed out of the possession of the bank and into the possession of
maturity, and without any notice of any infirmity, from a holder, not the Fossum, no presumption arises as to the character in which the bank held
maker, to whom it was negotiated as a completed instrument, is a holder the paper. The bank's relation to the instrument became past history
in due course within the purview of Negotiable Instruments Law, so as to when it delivered the document to Fossum; and it was incumbent upon
preclude the defense of fraud and failure of consideration between the him to show that the bank had in fact acquired the instrument for value
maker and the holder to whom the instrument was delivered. and under such conditions as would constitute it a holder in due course.
Moreover, Fossum personally made the contract which constituted the
I. SHELTER RULE consideration for the draft. He was therefore a party in fact, if not in law,
to the transaction giving origin to the instrument; and it is difficult to see
Sec. 58. When subject to original defense. - In the hands of any holder how he could strip himself of the character to agent with respect to the
other than a holder in due course, a negotiable instrument is subject to the origin of the contract and maintain this action in his own name where his
same defenses as if it were non-negotiable. But a holder who derives his principal could not. An agent who actually makes a contract, and who has
title through a holder in due course, and who is not himself a party to notice of all equities emanating therefrom, can stand on no better footing
any fraud or illegality affecting the instrument, has all the rights of than his principal with respect to commercial paper growing out of the
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transaction. To place him on any higher plane would be incompatible with

the fundamental conception underlying the relation of principal and agent. B. PAYMENT BY PARTY SECONDARY LIABLE
If the original payee of a note unenforceable for lack of
consideration repurchases the instrument after transferring it to Sec. 121 Right of party who discharges instrument. - Where the
a holder in due course, the paper again becomes subject in the instrument is paid by a party secondarily liable thereon, it is not
payee's hands to the same defenses to which it would have been discharged; but the party so paying it is remitted to his former
subject if the paper had never passed through the hands of a rights as regard all prior parties, and he may strike out his own
holder in due course. The same is true where the instrument is and all subsequent indorsements and again negotiate the
retransferred to an agent of the payee. instrument, except:
J. RIGHTS OF HOLDER IN BILLS IN SET (a) Where it is payable to the order of a third person and has been
paid by the drawer; and
Bills in Set involve one bill although drawn in set. The problem arises when (b) Where it was made or accepted for accommodation and has
different parts of the set are negotiated to separate persons who are holders in been paid by the party accommodated.
due course. Sec. 68 Order in which indorsers are liable. – see liability of indorsers
Sec. 70 Effect of want of demand on principal debtor. - Presentment
Sec. 178 Bills in set constitute one bill. - Where a bill is drawn in a set, for payment is not necessary in order to charge the person
each part of the set being numbered and containing a reference primarily liable on the instrument; but if the instrument is, by its
to the other parts, the whole of the parts constitutes one terms, payable at a special place, and he is able and willing to pay
bill. it there at maturity, such ability and willingness are equivalent to a
Sec. 179 Right of holders where different parts are negotiated. - tender of payment upon his part. But except as herein otherwise
Where two or more parts of a set are negotiated to different provided, presentment for payment is necessary in order to charge
holders in due course, the holder whose title first accrues is, the drawer and indorsers
as between such holders, the true owner of the bill. But Sec. 89 To whom notice of dishonor must be given. - Except as
nothing in this section affects the right of a person who, in due herein otherwise provided, when a negotiable instrument has been
course, accepts or pays the parts first presented to him. dishonored by non-acceptance or non-payment, notice of dishonor
Sec. 180 Liability of holder who indorses two or more parts of a set must be given to the drawer and to each indorser, and any drawer
to different persons.- Where the holder of a set indorses two or or indorser to whom such notice is not given is discharged
more parts to different persons he is liable on every such part, Sec. 118 When protest need not be made; when must be made. -
and every indorser subsequent to him is liable on the part he has Where any negotiable instrument has been dishonored, it may be
himself indorsed, as if such parts were separate bills. protested for non-acceptance or non-payment, as the case may
Sec. 181 Acceptance of bill drawn in sets. - The acceptance may be be; but protest is not required except in the case of foreign bills of
written on any part and it must be written on one part only. If the exchange.
drawee accepts more than one part and such accepted parts Sec. 119 Instrument; how discharged. - A negotiable instrument is
negotiated to different holders in due course, he is liable on every discharged:
such part as if it were a separate bill. (a) By payment in due course by or on behalf of the principal
debtor;
V. PARTIES WHO ARE LIABLE (b) By payment in due course by the party accommodated, where
A. PRIMARY AND SECONDARY LIABLE DISTINGUISHED the instrument is made or accepted for his accommodation;
(c) By the intentional cancellation thereof by the holder;
Active Subject in the negotiable instrument is the holder. He is given the (d) By any other act which will discharge a simple contract for the
right to demand the performance of the obligation reflected in the negotiable payment of money;
instrument, that is, the obligation to pay a sum certain in money. (e) When the principal debtor becomes the holder of the
instrument at or after maturity in his own right.
Passive Subject is the one against whom the holder can enforce the right Sec. 120 When persons secondarily liable on the instrument are
presented by the instrument who may be primary or secondarily liable (Sec. discharged. - A person secondarily liable on the instrument is
192). discharged:
(a) By any act which discharges the instrument;
Sec. 61 Liability of drawer. - The drawer by drawing the instrument (b) By the intentional cancellation of his signature by the holder;
admits the existence of the payee and his then capacity to (c) By the discharge of a prior party;
indorse; and engages that, on due presentment, the instrument (d) By a valid tender or payment made by a prior party;
will be accepted or paid, or both, according to its tenor, and that (e) By a release of the principal debtor unless the holder's right of
if it be dishonored and the necessary proceedings on recourse against the party secondarily liable is expressly reserved;
dishonor be duly taken, he will pay the amount thereof to (f) By any agreement binding upon the holder to extend the time
the holder or to any subsequent indorser who may be of payment or to postpone the holder's right to enforce the
compelled to pay it. But the drawer may insert in the instrument unless made with the assent of the party secondarily
instrument an express stipulation negativing or limiting his own liable or unless the right of recourse against such party is
liability to the holder expressly reserved.
Sec. 65 Warranty where negotiation by delivery and so forth Sec. 184 Promissory note, defined. - A negotiable promissory note
(supra, p. 13) within the meaning of this Act is an unconditional promise in
Sec. 66 Liability of general indorser. – see d. Indorsers, General writing made by one person to another, signed by the maker,
Indorser engaging to pay on demand, or at a fixed or determinable future
Sec. 192 Persons primarily liable on instrument. - The person time, a sum certain in money to order or to bearer. Where a note
"primarily" liable on an instrument is the person who, by the is drawn to the maker's own order, it is not complete until
terms of the instrument, is absolutely required to pay the same. indorsed by him,
All other parties are "secondarily" liable. Sec. 151 Rights of holder where bill not accepted. - When a bill is
dishonored by nonacceptance, an immediate right of recourse
Primary and Secondary Liability, in general: against the drawer and indorsers accrues to the holder and no
Instrument Primary Secondary presentment for payment is necessary
Promissory Note Maker General Indorsers
Bill of Exchange Acceptor Drawer and Indorsers
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C. LIABILITY DISTINGUISHED FROM WARRANTIES making any inquiry as to his authority to exchange checks belonging to
the payee-corporation. In Insular Drug Co. vs. National, the Court made
The primary and secondary liability makes the parties liable to pay the sum the pronouncement that: ". . . The right of an agent to indorse commercial
certain in money stated in the instrument. While warranties are affirmations paper is a very responsible power and will not be lightly inferred. A
of fact on the part of the parties that impose no direct obligation to pay in the salesman with authority to collect money belonging to his principal does
absence of breach thereof. not have the implied authority to indorse checks received in payment. Any
person taking checks made payable to a corporation, which can act only
In case of breach of warranties, the person who breached the same may (1) by agents, does so at his peril, and must abide by the consequences if the
either be liable; or (2) he may be barred from asserting a particular defense. agent who indorses the same is without authority." Respondent which
relied upon the petitioner's warranty should not be held liable for the
Unlike secondary liability which requires a notice of dishonor, an action based resulting loss. The depositor of a check as indorser warrants that it is
on breach of warranty is not so conditioned, the latter occurring as it does at genuine and in all respects what it purports to be. Having indorsed the
the time of the transfer, may be brought at any time. checks to respondent bank, petitioner is deemed to have given the
warranty prescribed in Section 66 of the NIL that every single one of those
D. LIABILITY AND/OR WARRANTIES OF PARTIES checks "is genuine and in all respects what it purports to be."
1. Maker – primary and unconditional
c. Acceptor – it is only from the moment the drawee accepts the bill or
Sec. 60. Liability of maker. - The maker of a negotiable instrument, by certifies the check that the drawee becomes primarily liable. (see Sec.
making it, engages that he will pay it according to its tenor, and admits the 127). He becomes liable to the holder by his unconditional acceptance
existence of the payee and his then capacity to indorse (Westminster Bank vs. Torres & K. Nassor, Inc., GR No. L-38139; Oct. 27,
1932)
2. Drawer – secondary liability. But the drawer may insert in the instrument
an express stipulation negativing or limiting is own liability to the holder Sec. 62 Liability of acceptor. - The acceptor, by accepting the
(see Sec. 61, p.21) instrument, engages that he will pay it according to the tenor
of his acceptance and admits:
a. Relationship with Drawee – there is a contractual relation between the (a) The existence of the drawer, the genuineness of his signature,
drawer and the drawee. Thus, a drawer may have drawn the bill against and his capacity and authority to draw the instrument; and
the drawee because the latter is holding an amount in trust for the (b) The existence of the payee and his then capacity to indorse.
drawer, or the drawee may have extended credit to the drawer and Sec. 127 Bill not an assignment of funds in hands of drawee. - A bill
agreed to honor any bill drawn by the drawer against said drawee. of itself does not operate as an assignment of the funds in the
hands of the drawee available for the payment thereof, and the
b. Relationship with Collecting Bank – the privity of contract is between drawee is not liable on the bill unless and until he accepts the
the holder-depositor and the collecting bank. There is no privity of same.
contract between the drawer and the collecting bank. Sec. 143 When presentment for acceptance must be made. -
Presentment for acceptance must be made:
JAI ALAI CORP OF THE PHILS. VS. BPI (GR No. L-29432; Aug. 6, (a) Where the bill is payable after sight, or in any other case,
1975) – Petitioner deposited 10 checks in its current account with BPI where presentment for acceptance is necessary in order to fix the
which were acquired from Antonio Ramirez, a regular jai-alai bettor and a maturity of the instrument; or
sales agent of the Inter-Island Gas. All the checks were payable to Inter- (b) Where the bill expressly stipulates that it shall be presented
Island Gas Service, Inc. or order. After the checks had been submitted to for acceptance; or
Inter-bank clearing, Inter-Island Gas discovered that all the indorsements (c) Where the bill is drawn payable elsewhere than at the
made on the checks purportedly by its cashiers were forgeries. The residence or place of business of the drawee.
drawers of the checks demanded reimbursement from the drawee-banks,
who in turn demanded from BPI. BPI thus debited the value of the checks In no other case is presentment for acceptance necessary in order
against petitioner's current account and forwarded to the latter the checks to render any party to the bill liable.
containing the forged indorsements which petitioner refused to accept. Sec. 164 Liability of the acceptor for honor. - The acceptor for honor is
ISSUE: WON BPI had the right to debit from petitioner's current account liable to the holder and to all parties to the bill subsequent to the
the value of the checks with the forged indorsements? HELD: Yes. BPI party for whose honor he has accepted.
acted within legal bounds when it debited the petitioner's account. When Sec. 165 Agreement of acceptor for honor. - The acceptor for honor,
the petitioner deposited the checks with the respondent, the by such acceptance, engages that he will, on due presentment,
nature of the relationship created at that stage was one of pay the bill according to the terms of his acceptance provided it
agency, that is, the bank was to collect from the drawees of the shall not have been paid by the drawee and provided also that is
checks the corresponding proceeds. It is true that the respondent shall have been duly presented for payment and protested for
had already collected the proceeds of the checks when it debited the non-payment and notice of dishonor given to him.
petitioner's account, so that following the rule in Gullas vs. Philippine Sec. 189 When check operates as an assignment. - A check of itself
National Bank 2 it might be argued that the relationship between the does not operate as an assignment of any part of the funds to the
parties had become that of creditor and debtor as to preclude the credit of the drawer with the bank, and the bank is not liable to
respondent from using the petitioner's funds to make payments not the holder unless and until it accepts or certifies the check.
authorized by the latter. It is our view nonetheless that no creditor-debtor
relationship was created between the parties. Since the indorsements PNB vs. BARTOLOME PICORNELL (GR No. L-18751/L-18915;
were forgeries, they are inoperative, the payment made by the drawee September 26, 1922) - Bartolome Picornell executed a bill of exchange
banks therefore is inoperative and relationship of a creditor and debtor ordering Hyndman, Tavera & Ventura (HTV) to pay PNB for the amount
was not created. Having indorsed the checks to respondent bank, used to purchase bales of tobacco and Picornell’s commission. HTV later
petitioner is deemed to have given the warranty prescribed in Section 66 on accepted the bill, and re-accepted it after the requested extension.
of the NIL that every single one of those checks "is genuine and in all However, the bill was not paid upon maturity, HTV arguing that the quality
respects what it purports to be." BPI, being the collecting bank is liable to of the bales of tobacco fell short of what was expected. ISSUE: WON HTV
the drawee banks when it submitted the checks for clearing. The is still liable on the instrument considering that the bales of tobacco
petitioner was, moreover, grossly recreant in accepting the checks in delivered were of poor quality? HELD: Yes. The question of whether or
question from Ramirez. It could not have escaped the attention of the not the tobacco was worth the value of the bill, does not concern the
petitioner that the payee of all the checks was a corporation — the Inter- plaintiff bank. Such partial want of consideration, if it was, does not exist
Island Gas Service, Inc. Yet, the petitioner cashed these checks to a mere with respect to the bank which paid to Picornell the full value of said bill of
individual who was admittedly a habitue at its jai-alai games without exchange. The bank was a holder in due course, and was such for value
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and complete. The HTV company cannot escape liability in view of Sec. 28 Ang’s signature (indorsement in blank) at the back thereof, the instrument
of the Negotiable Instruments Law. was received by Ang Tiong who thereafter presented it to the bank for
payment. The drawee bank dishonored it. Ang Tiong made written
The drawee by acceptance becomes liable to the payee or his demands on both Ting and Ang to make good the amount represented by
indorsee, and also to the drawer himself. But the drawer and the check. These demands unheeded, Ang Tiong then filed a suit for
acceptor are the immediate parties to the consideration, and if the collection. The trial court adjudged for herein petitioner. Only Felipe Ang
acceptance be without consideration, the drawer cannot recover of appealed, maintaining that he is only an accommodation party. ISSUE:
the acceptor. The payee holds a different relation; he is a stranger to WON Felipe Ang is an accommodation party? What is the liability of an
the transaction between the drawer and the acceptor, and is, accommodation indorser? HELD: NO. Felipe Ang is a general indorser
therefore, in a legal sense a remote party. In a suit by him against (Section 63, NIL), in the absence of any indication by appropriate words
the acceptor, the question as to the consideration between the his intention to be bound in some other capacity. Even on the assumption
drawer and the acceptor cannot be inquired into. The payee or that Ang is a mere accommodation party as he professes to be, he is
holder gives value to the drawer, and if he is ignorant of the equities nevertheless by the clear mandate of section 29 of the Negotiable
between the drawer and the acceptor, he is in the position on a bona Instruments Law. That the appellant, again assuming him to be an
fide indorsee. Hence, it is no defense to a suit against the acceptor of accommodation indorser, may obtain security from the maker to protect
a draft which has been discounted, and upon which money has been himself against the danger of insolvency of the latter, cannot in any
advance by the plaintiff, that the draft was accepted or the manner affect his liability to the appellee, as the said remedy is a matter
accommodation of the drawer. . . . (3 R. C. L., pp. 1143, 1144, par, of concern exclusively between accommodation indorser and
358.) accommodated party. So that the fact that the appellant stands only as a
surety in relation to the maker, granting this to be true for the sake of
Payment Without Acceptance argument, is immaterial to the claim of the appellee, and does not a whit
diminish nor defeat the rights of the latter who is a holder for value. The
PNB VS. CA (GR No. L-26001; Oct. 29, 1968) – Agusto Lim deposited liability of the appellant remains primary and unconditional. To sanction
GSIS check no. 645915-B with respondent bank Philippine Commercial and the appellant's theory is to give unwarranted legal recognition to the
Industrial Bank, who in turn submitted said check to PNB, through Central patent absurdity of a situation where an indorser, when sued on an
Bank, for clearing which the latter paid. Upon demand of GSIS that the instrument by a holder in due course and for value, can escape liability on
signatures of its officers on the check were forged, PNB re-credited the his indorsement by the convenient expedient of interposing the defense
account of GSIS. PNB requested reimbursement from PCIB, the latter that he is a mere accommodation indorser.
refused. Hence, the present action. ISSUE: WON prior acceptance before
payment is required in the case of checks? HELD: No. In general, PEOPLE VS. MANIEGO (G.R. No. L-30910 February 27, 1987) - Accused
"acceptance", in the sense in which this term is used in the Negotiable Julia T. Maniego was indicted, together with Rizalino Ubay and Milagros
Instruments Law is not required for checks, for the same are payable on Pamintuan, for Malversation, by drawing checks. Maniego was acquitted in
demand. Indeed, "acceptance" and "payment" are, within the purview of the absence of evidence against her but ordered to pay jointly and
said Law, essentially different things, for the former is "a promise to severally the amount of P57,434.50 to the government. Maniego sought
perform an act," whereas the latter is the "actual performance" thereof. reconsideration of the judgment, praying that she be absolved from civil
In the words of the Law, "the acceptance of a bill is the signification by liability or, at the very least, that her liability be reduced. The Court
the drawee of his assent to the order of the drawer," which, in the case of declined to negate her civil liability, but did reduce the amount. She
checks, is the payment, on demand, of a given sum of money. Upon the appealed. ISSUE: WON Maniego could properly be held civilly liable after
other hand, actual payment of the amount of a check implies not only an her acquittal? HELD: Yes. Appellant's contention that as mere indorser,
assent to said order of the drawer and a recognition of the drawer's she may not be made liable on account of the dishonor of the checks
obligation to pay the aforementioned sum, but, also, a compliance with indorsed by her, is untenable. Under the law, the holder or last
such obligation. Sec. 62 of the NIL is applicable to a drawee who indorsee of a negotiable instrument has the right to "enforce
pays a bill without having previously accepted it. payment of the instrument for the full amount thereof against all
parties liable thereon." Among the "parties liable thereon" is an
d. Indorsers indorser of the instrument i.e., "a person placing his signature upon an
instrument otherwise than as maker, drawer, or acceptor ** unless he
Sec. 63 When a person deemed indorser. supra, p.12 clearly indicates by appropriate words his intention to be bound in some
Sec. 68 Order in which indorsers are liable. - As respect one another, other capacity.” Such an indorser "who indorses without qualification,"
indorsers are liable prima facie in the order in which they inter alia "engages that on due presentment, ** (the instrument) shall be
indorse; but evidence is admissible to show that, as between or accepted or paid, or both, as the case may be, according to its tenor, and
among themselves, they have agreed otherwise. Joint payees or that if it be dishonored, and the necessary proceedings on dishonor be
joint indorsees who indorse are deemed to indorse jointly and duly taken, he will pay the amount thereof to the holder, or to any
severally. subsequent indorser who may be compelled to pay it."
General Indorser Qualified Indorser
Sec. 66 Liability of general indorser. - Every indorser who indorses without Sec. 65. Warranty where negotiation by delivery and so forth. —
qualification, warrants to all subsequent holders in due course: Every person negotiating an instrument by delivery or by a qualified
indorsement warrants:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the
next preceding section (sec. 65 – warranties of a person negotiating by delivery (a) That the instrument is genuine and in all respects what it purports to
or by qualified indorsement); and be;
(b) That the instrument is, at the time of his indorsement, valid and subsisting; (b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
And, in addition, he engages that, on due presentment, it shall be accepted or (d) That he has no knowledge of any fact which would impair the validity
paid, or both, as the case may be, according to its tenor, and that if it be of the instrument or render it valueless.
dishonored and the necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any subsequent indorser who may But when the negotiation is by delivery only, the warranty extends in favor
be compelled to pay it. of no holder other than the immediate transferee.
ANG TIONG vs. LORENZO TING (G.R. No. L-26767, February 22, 1968) The provisions of subdivision (c) of this section do not apply to a person
- Lorenzo Ting issued a check payable to “cash or bearer.” With Felipe negotiating public or corporation securities other than bills and notes.
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that the holder for value is not a holder in due course merely because at
While a general indorser warrants that the instrument is valid and the time he acquired the instrument, he knew that the indorser was only
subsisting at the time of his indorsement, the qualified indorser warrants an accommodation party.
that he has no knowledge of any fact which would impair the validity of
the instrument or render it valueless, and the qualified indorser does not Corporations – the rule on the liability of an accommodation party does
breach his warranty even if the instrument was already impaired at the not apply to corporations.
time he negotiated it, as long as he has no knowledge of such fact.
ERNESTINA CRISOLOGO-JOSE VS. CA (GR No. 80599; Sept. 15,
A qualified indorser neither warrants payment nor binds himself to pay, 1989) - The Vice-president of Mover Enterprises, Inc. issued a check
nevertheless, if judgment for the amount of the note is defeated by the drawn against Traders Royal Bank, payable to petitioner Ernestina
maker on the ground that the indorser, as payee, obtained it by fraud or Crisologo-Jose, for the accommodation of his client. Petitioner-payee was
without consideration, the holder may recover from the qualified indorser charged with the knowledge that the check was issued at the instance and
the consideration paid by him with interest (Cressler vs. Brown). for the personal account of the President who merely prevailed upon
respondent vice-president to act as co-signatory in accordance with the
Order of Liability – see Sec. 68 under d. Indorsers arrangement of the corporation with its depository bank. While it was the
corporation's check which was issued to petitioner for the amount
PEOPLE VS. MANIEGO (supra) - Such an indorser "who indorses involved, petitioner actually had no transaction directly with said
without qualification," inter alia "engages that on due presentment, ** corporation. ISSUE: WON private respondent, one of the signatories of
(the instrument) shall be accepted or paid, or both, as the case may be, the check issued under the account of Mover Enterprises, Inc., is an
according to its tenor, and that if it be dishonored, and the necessary accommodation party under NIL and a debtor of petitioner to the extent
proceedings on dishonor be duly taken, he will pay the amount thereof to of the amount of said check. HELD: Yes. To be considered an
the holder, or to any subsequent indorser who may be compelled to pay accommodation party, a person must (1) be a party to the instrument,
it." 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
e. Persons Negotiating by Delivery – see Warranties of a Person some other person. It is not a valid defense that the accommodation party
Negotiating by mere delivery under Sec. 65 under Qualified Indorsement – did not receive any valuable consideration when he executed the
p.13. or Qualified Indorser from the preceding section. instrument. He is liable to a holder for value as if the contract was not for
accommodation, in whatever capacity such accommodation party signed
Warranties of a person negotiating by delivery are similar to a qualified the instrument, whether primarily or secondarily. Thus, it has been held
indorser, except that the former’s warranties extend only in favor of his that in lending his name to the accommodated party, the accommodation
immediate transferee. party is in effect a surety for the latter. The foregoing notwithstanding,
the liability of an accommodation party to a holder for value, although
f. Other Cases such holder does not include nor apply to corporations which are
accommodation parties. This is because the issue or indorsement of
Irregular Indorser – is a person, not otherwise a party to an negotiable paper by a corporation without consideration and for
instrument, who placed thereon his signature in blank before delivery or a the accommodation of another is ultra vires. One who has taken the
person who indorses the instrument in an unusual, singular or peculiar instrument with knowledge of the accommodation nature thereof cannot
manner. If an instrument payable to A, but at the back has B as the first recover against a corporation where it is only an accommodation party. By
indorser, B is an irregular indorser. way of exception, an officer or agent of a corporation shall have the
power to execute or indorse a negotiable paper in the name of the
Sec. 64. Liability of irregular indorser. - Where a person, not otherwise a corporation for the accommodation of a third person only if specifically
party to an instrument, places thereon his signature in blank before delivery, authorized to do so. Corollarily, corporate officers, such as the president
he is liable as indorser, in accordance with the following rules: and vice-president, have no power to execute for mere accommodation a
negotiable instrument of the corporation for their individual debts or
(a) If the instrument is payable to the order of a third person, he is liable to transactions arising from or in relation to matters in which the corporation
the payee and to all subsequent parties. has no legitimate concern. Since such accommodation paper cannot thus
(b) If the instrument is payable to the order of the maker or drawer, or is be enforced against the corporation, especially since it is not involved in
payable to bearer, he is liable to all parties subsequent to the maker or any aspect of the corporate business or operations, the signatories thereof
drawer. (president and vice-president) shall be personally liable therefor, as well
(c) If he signs for the accommodation of the payee, he is liable to all parties as the consequences arising from their acts in connection therewith.
subsequent to the payee.
RN CLARK VS. GEORGE SELLNER (GR No. 16477; Nov. 22, 1921) -
Indorser of Bearer Instrument – Sec. 40, 65 and 67 Herein defendant, together with two other persons, signed a note in favor
of the plaintiff which stipulates that six months after date of the same, the
Sec. 40 Indorsement of instrument payable to bearer. – supra former shall pay the latter the sum of P12,000 with interest at rate of 10%
under How Negotiation Takes Place, p. 10 per annum from date until paid, payable quarterly. The note matured, but
Sec. 65 Sec. 65. Warranty where negotiation by delivery and so its amount was not paid. Counsel for the defendant allege that the latter
forth. – see under Qualified Indorser from previous section did not receive in that transaction either the whole or any part of the
Sec. 67 Liability of indorser where paper negotiable by delivery. — amount of the debt; that the instrument was not presented to the
Where a person places his indorsement on an instrument defendant for payment; and that the defendant, being an accommodation
negotiable by delivery, he incurs all the liability of an indorser. party, is not liable unless the note is negotiated, which was not done, as
shown by the evidence. ISSUE: WON defendant is liable given the
Conditions precedent to make unqualified indorser liable defenses raised by him? HELD: The liability of the defendant, as one of
the signers of the note, is not dependent on whether he has, or has not,
Accommodation Party – Sec. 29, p. 20. received any part of the amount of the debt. The defendant is really and
expressly one of the joint and several debtors on the note, and as such he
The accommodation party lends his name to the accommodated party, to is liable under the provisions of Sec. 70 of NIL. As provided in Sec. 70 of
enable the latter to obtain credit or to raise money. He receives no part of the said law, as to presentment for payment, such action is not necessary
the consideration for the instrument but assumes liability to the other in order to charge the person primarily liable, as is the defendant. And as
parties thereto. He is liable to a holder for value as if the contract was not to whether or not the defendant is an accommodation party, it should be
for accommodation. It is not a valid defense that the accommodation taken into account that by putting his signature to the note, he lent his
party did not receive any valuable consideration. Nor is it correct to say name, not to the creditor, but to those who signed with him placing
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lOMoARcPSD|5036134
himself with respect to the creditor in the same position and with the consideration for such indorsement passes from the indorser to
same liability as the said signers. It should be noted that the phrase the indorsee, the situation does not present one creating an
"without receiving value therefor," as used in section 29 of the accommodation indorsement, nor one where there is a consideration
aforesaid Act, means "without receiving value by virtue of the sufficient to sustain an action on the indorsement.
instrument" and not, as it apparently is supposed to mean,
"without receiving payment for lending his name." If, as in the PNB VS. MAZA (GR No. 24224; Nov. 3, 1925) - PNB is suing Ramon
instant case, a sum of money was received by virtue of the note, it is Maza and Francisco Mecenas on five promissory notes of P10,000 each,
immaterial, so far as the creditor is concerned, whether one of the singers two of which is due 3 months after date, the three were due 4 months
has, or has not, received anything in payment of the use of his name. In after date. The notes were not taken up by Maza and Mecenas at
reality the legal situation of the defendant in this case may properly be maturity. The special defines interposed by the defendants was that the
regarded as that of a joint surety rather than that of an accommodation promissory notes were sent in blank to them by Enrique Echaus with the
party. The defendant, as a joint surety, may, upon the maturity of the request that they sign them so that Echaus might negotiate them with the
note, pay the debt, demand the collateral security and dispose of it to his PNB in case of need; that the defendants have not negotiated the note
benefit; but there is no proof whatever that this was done. As to the with the bank nor have they received the value thereof, or delivered them
plaintiff, he is the "holder for value," under the phrase of said section 29, to the bank in payment of any pre-existing debt; and that it was Echaus
for he had paid the money to the signers at the time the note was who negotiated the note with the bank and who is accordingly the real
executed and delivered to him. party in interest and the party liable for the payment of the notes.
Defendants move for the inclusion of Echaus as defending party, which
FERNANDO MAULINI VS. ANTONIO SERRANO (GR No. 8844; Dec. was denied. The court rendered a judgment in favor of PNB. ISSUE: WON
16, 1914) – The promissory note reads: Ramon Maza and Francisco Mecenas are liable even if classified as
accommodation parties? HELD: Yes. The most plausible and reasonable
3,000. Due 5th of September, 1912. stand for the defendants is that they are accommodation parties. But as
accommodation parties, the defendants having signed the instrument
We jointly and severally agree to pay to the order of Don Antonio G. Serrano on or without receiving value therefor and for the purpose of lending their
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
names to some other person, are still liable on the instruments. The law
sum herein mentioned is not completely paid on the 5th day of September, 1912, now is that the accommodation party can claim no benefit as such, but he
this instrument will draw interest at the rate of 1½ per cent per month from the date is liable according to the face of his undertaking, the same as if he were
when due until the date of its complete payment. The makers hereof agree to pay himself financially interested in the transaction. To fasten liability upon an
the additional sum of P500 as attorney's fees in case of failure to pay the note. accommodation maker, it is not necessary that any consideration should
move to him. The consideration which supports the promise of the
Manila, June 5, 1912. accommodation maker is that parted with by the person taking the note
(Sgd.) For Padern, Moreno & Co., by F. Moreno, member of the firm. For Jose
and received by the person accommodated. The accommodation parties
Padern, by F. Moreno. Angel Gimenez. may make payment to the holder of the notes and have the right to sue
the party accommodated for reimbursement, since the relation between
them is in effect that of principal and sureties.
The note was indorsed on the back as follows:
TOWN SAVINGS & LOAN BANK VS. CA (GR No. 106011; June 17,
Pay note to the order of Don Fernando Maulini, value received. Manila, June 5, 1912. 1993) - Spouses Hipolito applied for and was granted a loan by the bank,
(Sgd.) A.G. Serrano. which was secured by a promissory note. For failure to pay their monthly
payments, they were declared in default. The spouses denied having any
Maulini's business as a broker consisted in looking up and ascertaining liability. They stated that the real party-in-interest is the sister of the
persons who had money to loan as well as those who desired to borrow husband, Pilarita Reyes. The spouses, not having received part of the
money and, acting as a mediary, negotiate a loan between the two. loan, were mere guarantors of Reyes. As such, they protested against
According to the method usually followed, the broker delivered the money being dragged into the litigation. The trial court held that they were liable
personally to the borrower, took note in his own name and immediately as accommodation parties to the promissory note. This was reversed by
transferred it by indorsement to the lender. At the special request of the the Court of Appeals. ISSUE: WON Respondent spouses are liable on the
indorsee and simply as a favor to him, the latter stating to the broker that promissory note which they executed in favor of the petitioner? HELD:
he did not wish his name to appear on the books of the borrowing Yes. In lending his name to the accommodated party, the accommodation
company as a lender of money and that he desired that the broker take party is in effect a surety for the latter. He lends his name to enable the
the note in his own name, immediately transferred to him title thereto by accommodated party to obtain credit or to raise money. He receives no
indorsement. The trial court held that it was immaterial whether there was part of the consideration for the instrument but assumes liability to the
a consideration for the transfer or not, as the indorser, under the evidence other parties thereto because he wants to accommodate another. In the
offered, was an accommodation indorser. ISSUE: WON Serrano was an case at bar, it is indisputable that the spouses signed the promissory note
accommodation indorser? HELD: No. There was never a moment that to enable Reyes to secure a loan from the bank. She was the actual
Serrano was the real owner of the note. It was always the note of the beneficiary of the loan and the spouses accommodated her by signing the
indorsee, Maulini, he having furnished the money which was the note. Unlike in the Maulini case, there was no agreement here, written or
consideration or the note directly to the maker and being the only person verbal, that in signing the promissory note, the spouses were acting as
who had the slightest interest therein. Serrano, the broker, acting solely agents for the money lender, the Bank. The consideration of the note
as an agent, a vehicle by which the naked title to the note passed from signed by the Hipolitos was received by them through Pilarita. They acted
the borrower to the lender. The only payment the broker received was for as agents of Pilarita, not the Bank. They signed the promissory note as a
his services in negotiating the loan. He was paid absolutely nothing for favor to Pilarita, to help her raise the funds that she needed. It was
becoming responsible as an indorser to the paper, nor did the indorsee Pilarita whom they accommodated, not the bank, contrary to the
lose, pay or forego anything, or alter his position thereby. He is also not erroneous finding of the appellate court.
an accommodation party under Sec. 29. The accommodation to which
reference is made in Sec. 29, is not one to the person who takes the note Liability of Agent or Broker
– that is, the payee or indorsee, but one to the maker or indorser of the
note. An accommodation note is one to which the accommodation party Sec. 69 Liability of an agent or broker. - Where a broker or other
has put his name, without consideration, for the purpose of agent negotiates an instrument without indorsement, he incurs all
accommodating some other party who is to use it and is expected to pay the liabilities prescribed by Section Sixty-five of this Act, unless he
it. Where, however, an indorsement is made as a favor to the discloses the name of his principal and the fact that he is acting
indorsee, who requests it, not the better to secure payment, but only as agent
to relieve himself from a distasteful situation, and where the only Sec. 19 Signature by agent; authority; how shown. - The signature
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of any party may be made by a duly authorized agent. No equitable defenses) may be raised only against holders who are not holders in
particular form of appointment is necessary for this purpose; and due course which are brought out of conduct of persons and makes it
the authority of the agent may be established as in other cases of inequitable to impose payment.
agency
Sec. 20 Liability of person signing as agent, and so forth. - Where Professor William Britton: In the main, real defenses are those wherein the
the instrument contains or a person adds to his signature words facts disclose an absence of one or more of the essential elements of a
indicating that he signs for or on behalf of a principal or in a contract, or where the admitted contract is vitiated for all purposes for reasons
representative capacity, he is not liable on the instrument if he of public policy. Personal defenses are those wherein the facts present a true
was duly authorized; but the mere addition of words describing contract but where, for various reasons, such as fraud, duress, mistake, prior
him as an agent, or as filling a representative character, without breach of contract by the holder, discharge before maturity, and the like, the
disclosing his principal, does not exempt him from personal liability defendant is excused from his obligation to perform.
Sec. 21 Signature by procuration; effect of. - A signature by
"procuration" operates as notice that the agent has but a limited Defenses distinguished from EQUITIES OF OWNERSHIP: the latter is
authority to sign, and the principal is bound only in case the agent raised by persons who may have legal claim over the instrument. They have
in so signing acted within the actual limits of his authority different purposes, one is to claim the instrument and the other to resist a
claim for payment. For example, the person from whom a bearer instrument
PBCOM VS. ARUEGO (supra, p.4) - Sec. 20 provides that “a person was stolen may claim the instrument from a holder who is not in due course
(who) adds to his signature words indicating that he signs for or on behalf because of his equity of ownership. He may also resist the claim of a holder not
of a principal or in a representative capacity, he is not liable on the in due course by raising the defense of non-delivery.
instrument if he was duly authorized; but the mere addition of words
describing him as an agent, or as filling a representative character, REAL DEFENSES AND PERSONAL DEFENSES
without disclosing his principal, does not exempt him from personal
liability. An inspection of the drafts accepted by the defendant shows that REAL DEFENSE PERSONAL DEFENSE
nowhere has he disclosed that he was signing as representative of the Minority (available only to the Failure or Absence of Consideration
Philippine Education Foundation Company. He merely signed as follows: minor)
“JOSE ARUEGO (Acceptor) (SGD) JOSE ARUEGO”. For failure to disclose Forgery Illegal Consideration
his principal, Aruego is personally liable for the drafts he accepted. Non-delivery of Incomplete Non-delivery of Complete Instrument
Instrument
Signature by Procuration – Sec. 21, supra, p. 12. Material Alteration Conditional delivery of complete
instrument
g. Person who should sign Ultra Vires act of Corporation Fraud in inducement
Fraud in Factum or Esse Contractus Filling up blank not within authority
A person must sign the negotiable instrument before he can be made Illegality – if declared void for any Duress or Intimidation
liable under the same instrument. For example, a maker must sign as such purpose
maker before he can be made primarily liable. Vicious Force or Violence Filling up blank beyond reasonable
time
Sec. 18. Liability of person signing in trade or assumed name. - No Want of authority Transfer in breach of faith
person is liable on the instrument whose signature does not appear thereon, Prescription Mistake
except as herein otherwise expressly provided. But one who signs in a trade Discharge in Insolvency Insertion of wrong date
or assumed name will be liable to the same extent as if he had signed in his Ante-dating or Post-dating for illegal
own name or fraudulent purpose
By way of EXCEPTION, the following persons who did not sign in their B. REAL DEFENSES
own names, or persons whose signatures do appear in the instrument 1. MINORITY AND ULTRA VIRES ACTS
itself, are still liable:
Sec. 22. Effect of indorsement by infant or corporation.- The
1. One who signs in a trade or assumed name (Sec. 18);
indorsement or assignment of the instrument by a corporation or by an infant
2. One who signs through an agent or authorized representative (Sec.
passes the property therein, notwithstanding that from want of capacity, the
19);
corporation or infant may incur no liability thereon
3. Incapacitated persons who sign through their legal guardians;
4. Forgers of signatures (Sec. 23);
a. Minor – the defense of minority is real and may be enforced against all
5. Persons whose signatures were forged but who are precluded from
holders but is only available to the minor himself.
setting up the defense of forgery (Sec. 23);
6. In case of constructive acceptance
b. Ultra Vires Acts – are acts done beyond the power conferred upon a
corporation by law and such want of authority may be raised as a real
Sec. 137. Liability of drawee returning or destroying bill. - Where a
defense but the negotiation of the corporation may pass title to the
drawee to whom a bill is delivered for acceptance destroys the same, or
instrument.
refuses within twenty-four hours after such delivery or within such other
period as the holder may allow, to return the bill accepted or non-accepted
ATRIUM MANAGEMENT VS. CA (supra, p. 15) – ISSUE: WON the
to the holder, he will be deemed to have accepted the same.
issuance of the checks were ultra vires? HELD: No. the act of issuing the
checks was well within the ambit of a valid corporate act, for it was for
7. Indorsers who sign on a separate piece of paper known as allonge securing a loan to finance the activities of the corporation, hence, not an
(see p. 12); ultra vires act. An ultra vires act is one committed outside the object for
8. Persons who negotiate by mere delivery. They are liable for breach of which a corporation is created as defined by the law of its organization
warranty although they did not sign. (Sec. 65)
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
VI. DEFENSES
which may be enforced by performance, ratification, or estoppel, while the
latter is void and cannot be validated.
A. REAL AND PERSONAL DEFENSE DISTINGUISHED
CRISOLOGO-JOSE VS. CA (supra, p.24) - The liability of an
Real Defenses may be raised against all holders even against a holder in due accommodation party to a holder for value, although such holder does not
course and attaches to the instrument itself. Personal Defenses (also called
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include nor apply to corporations which are accommodation parties. This is ORDER – Where the instrument of the payee is forged in a note
because the issue or indorsement of negotiable paper by a payable to order, the instrument cannot be enforced against the payee
corporation without consideration and for the accommodation of and the maker. But the indorsers after the forgery are liable because
another is ultra vires. they warrant that they have good title to the instrument.
2. NON-DELIVERY OF INCOMPLETE INSTRUMENT Example: M made a note payable to the order of P who indorsed it to A.
F stole the note and indorsed it to C who indorsed it to D, present
Sec. 15 Incomplete instrument not delivered. - Where an incomplete holder.
instrument has not been delivered, it will not, if completed and
negotiated without authority, be a valid contract in the hands of 1. D, even if he is a holder in due course, cannot recover from parties
any holder, as against any person whose signature was placed prior to the forgery. Thus, he cannot recover from A, P and M.
thereon before delivery. Because F forged the signature of A, D did not acquire any right
against A, P and M because A did not transfer his right over the
See under p. 9 instrument;
2. D, however, can enforce the instrument against C, who is an
3. FRAUD IN FACTUM (or Fraud in execution or Fraud in esse indorser after the forgery and is secondarily liable to subsequent
contractus) parties due to their warranties;
3. Later on, C can recover what he paid from the forger, F, who
a. DEFINITION: It is present when a person is induced to sign an instrument becomes principal debtor because of his wrongful act of forging a
not knowing its character as a note or a bill. The person signing does not signature in the note.
know that he is signing a negotiable instrument and may be used as a 4. A, whose signature was forged, has a remaining equity of
defense even against a holder in due course. ownership, hence, his right to recover from either M who is still
b. NOT APPLICABLE: When the person had reasonable opportunity to obtain primarily liable or P who is secondarily liable in case M dishonors
knowledge of the character or essential terms of the instrument. the note.
c. FACTORS FOR REASONABLE OPPORTUNITY: (1) age and sex of the
obligor; (2) intelligence, education and business experience; (3) ability to c. Forgery of Indorser’s Signature in a promissory note payable to
read and understand the language used; (4) representations made to him BEARER – the signature of the payee or holder is unnecessary to pass
and his reason to rely on them or to have confidence in the person making title to the instrument. Hence, the maker may still be liable to a holder
them; (5) the presence or absence of any third person who might read or in due course even if an indorsement was forged after the issuance of
explain the instrument to him, or any other information; and (6) apparent the note since according to Sec. 60 he is to pay the instrument
necessity, or lack of it, for acting without delay (Milton Roberts, Fraud as “according to its tenor” and considering that the “tenor” of the
Defense Against Holder in Due Course) instrument is that he engages to pay any bearer of the instrument.
However, if the holder is not a holder in due course, the person whose
SALAS VS. CA (supra, p. 19) – ISSUE: WON VMS’ fraud in the conduct signature is forged may raise the defense of non-delivery of a complete
of its business, specifically in the delivery of a defective truck, would instrument.
release petitioner-maker from paying First Finance the amount stated in
the note? HELD: No. The note was a negotiable instrument and was Example: M made a note payable to P or bearer, P delivered the note to
validly negotiated to private respondent who is a holder in due course and A, who indorsed it specially to B. F stole the note and forged B’s
as such holds the instrument free from defenses available to prior parties signature and later on indorsed it to C, who in turn delivered it to H.
among themselves. This being so, petitioner cannot set up against
respondent the defense of nullity of the contract of sale between her and 1. H can collect from M since the liability remains that he will pay the
VMS. bearer of the instrument.
2. P, A and B cannot be liable since under Sec. 40, they will only be
PRUDENCIO VS. CA (supra, p. 19) - The court finds that PNB is not a liable to those who can trace their title to the indorsments,
holder in due course because it has not acted in good faith when it waived notwithstanding the fact that B’s signature was forged.
the supposed payments from the Bureau of Public Works contrary to the 3. If, however C indorsed it to H, a holder in due course, the latter
Deed of Assignment. Had the Deed been followed, the loan would have may recover from A considering that he can trace his title to A. But
been paid off at maturity. B, whose signature was forged, may raise the defense of forgery
even against a holder in due course.
4. FORGERY AND WANT OF AUTHORITY 4. If H is not a holder in due course, M, A and B may raise the
defense of non-delivery of a complete instrument as a defense.
Forgery of signatures and the placing of a signature in behalf of another
without authority are real defenses. d. Forgery of Drawer’s Signature – barring gross negligence on the
part of the drawer where his signature is forged, he is not liable
Sec. 23. Forged signature; effect of. - When a signature is forged or made whether or not the instrument is payable to bearer or order because the
without the authority of the person whose signature it purports to be, it is drawer was never a party to the instrument – he did not promise to pay
wholly inoperative, and no right to retain the instrument, or to give a discharge anybody.
therefor, or to enforce payment thereof against any party thereto, can be
acquired through or under such signature, unless the party against whom it is e. Forgery of Indorser’s Signature in a bill of exchange payable to
sought to enforce such right is precluded from setting up the forgery or want of ORDER – subsequent holders cannot enforce payment against the
authority drawee, drawer, payee or the indorser whose signature was forged, or
those parties prior to the forged indorsement. Indorsers AFTER the
A forged signature, whether it be that of the drawer, maker, payee or any forgery are still secondarily liable because of their warranties. See BDO
other party, is wholly inoperative and no one can gain title to the instrument vs. Equitable Banking Corp
through such forged signature against parties prior to the forgery.
f. Forgery of Indorser’s Signature in a bill of exchange payable to
a. Forgery of Maker’s Signature – the maker is not liable to all BEARER – same rule with bearer promissory note.
subsequent parties whether the instrument is an order or bearer
instrument. However, indorsers after the forgery are still secondarily g. Situation with a COLLECTING BANK
liable to the holder by virtue of their warranty. 1. Payee can claim against Collecting Bank – a payee whose
signature is forged may directly proceed against the collecting
b. Forgery of Indorser’s Signature in a promissory note payable to bank (Westmont Bank vs. Eugene Ong);
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2. Drawer and Collecting Bank – the drawer cannot opt to can gain title to the instrument through such forged indorsement.
recover from the collecting bank since there is no privity of Such an indorsement prevents any subsequent party from acquiring
contract between him and the collecting bank (Associated Bank vs. any right as against any party whose name appears prior to the
CA); forgery. Such forged indorsement cuts-off the rights of all
3. Warranty of Collecting Bank subsequent parties as against parties prior to the forgery. As a rule,
 The collecting bank which indorses a check bearing a forged a drawee bank who has paid a check on which an indorsement has been
indorsement and presents it to the drawee bank guarantees forged cannot charge the drawer’s account for the amount of said check. An
all prior indorsements, including the forged indorsement exception to the rule is where the drawer is guilty of such negligence which
itself, and ultimately should be held liable therefor. (Traders causes the bank to honor such checks. Gempesaw did not exercise prudence
Royal Bank vs. RPN); in taking steps that a careful and prudent businessman would take in
 An EXCEPTION is when the issuance of the check itself was circumstances to discover discrepancies in her account. Her negligence was
attended with negligence. the proximate cause of her loss, and under Section 23 of the Negotiable
 Collecting Bank, for having indorsed the checks, is solely Instruments Law, is precluded from using forgery as a defense.
liable when the checks were deposited in an account other
than that of the payees on the strength of forged instruments REPUBLIC BANK VS. EBRADA (GR No. L-40769; July 31, 1975) - This is a
(Republic Bank vs. Ebrada; BDO vs. EBC; Traders Royal Bank case of what appeared to be an indorsed check by one Martin Lorenzo who
vs. RPN); turned out to be dead since 1952. The forged signature of the deceased
 In other cases, the collecting bank and the drawee bank were appeared at the dorsal portion of the check indorsed in favor of one Ramon
made to share in the liability because of the relative Lorenzo. From Ramon Lorenzo the same was indorsed to one Delia
negligence that they exhibited (BPI vs. CA); Dominguez and then from Dominguez to herein respondent Ebrada.
4. Recourse of Collecting Bank – the collecting bank may recover Subsequently, Ebrada encashed the same in 1963 at herein petitioner
from its depositor who had not given value for the money paid to Republic Bank's main office in Escolta. Upon informing petitioner Republic
him. Bank, however, that the payee's (Lorenzo) indorsement was a forgery, the
Bureau of Treasury requested the Bank to refund them the amount given to
ASSOCIATED BANK VS. CA (GR No. 107382; 107612; Jan. 31, 1996) – Ebrada. The Bank sued Ebrada upon the latter’s refusal to return the money
The Province of Tarlac maintains a current account with the Philippine of the forged check. ISSUE: WON Ebrada is liable to return the money paid
National Bank where the provincial funds are deposited. A portion of the to him by Republic Bank subject of a forged check and may the petitioner
funds of the province is allocated to the Concepcion Emergency Hospital. recover the proceeds given? HELD: It is clear from the provision of Section
The allotment checks for said government hospital are drawn to the order of 23 of the NIL that where the signature on a negotiable instrument if forged,
"Concepcion Emergency Hospital, Concepcion, Tarlac" or "The Chief, the negotiation of the check is without force or effect. But does this mean
Concepcion Emergency Hospital, Concepcion, Tarlac”. It was later discovered that the existence of one forged signature therein will render void all the
that the hospital did not receive several allotment checks drawn by the other negotiations of the check with respect to the other parties whose
Province. After the checks were examined, it was learned that 30 checks signature are genuine? No. Applying the principle of Beam vs. Farrel, 135
were encashed by one Fausto Pangilinan, with the Associated Bank acting as Iowa 670, 113 N.W. 590, it can be safely concluded that it is only the
collecting bank. It turned out that Fausto Pangilinan, who was the negotiation predicated on the forged indorsement that should be declared
administrative officer and cashier of payee hospital, collected the questioned inoperative. This means that the negotiation of the check in question from
checks from the office of the Provincial Treasurer claiming to be assisting or Martin Lorenzo, the original payee, to Ramon R. Lorenzo, the 2nd indorser,
helping the hospital on the release of the checks. To encash the checks, he should be declared of no effect, but the negotiation of the aforesaid check
forged the signature of Dr. Adena Canlas chief of the payee hospital. All the from Ramon R. Lorenzo to Adelaida Dominguez, the 3rd indorser, and from
checks bore the stamp of Associated Bank which reads "All prior Adelaida Dominguez to the defendant-appellant who did not know of the
endorsements guaranteed ASSOCIATED BANK." The Provincial Treasurer forgery, should be considered valid and enforceable, barring any claim of
sought to recover from PNB various amounts debited from the current forgery. Being the last indorser, however, Ebrada warrants that she has good
account of the Province. In turn, PNB demanded reimbursement from the title to the check subject of this action. The petitioner, drawee of the check
Associated Bank who refused to pay interposing the defense of forgery. can recover from the holder [Ebrada] the money paid to the latter on a
ISSUE: WON Associated Bank (collecting bank) may interpose the real forged instrument. It is not supposed to be its duty to ascertain whether the
defense of forgery against PNB (drawee bank) as to bar recovery by the signatures of the payee or indorsers are genuine or not. This is because the
latter? HELD: NO. Where the instrument is payable to order at the time of indorser is supposed to warrant to the drawee that the signatures of the
the forgery, such as the checks in this case, the signature of its rightful payee and previous indorsers are genuine, warranty not extending only to
holder (here, the payee hospital) is essential to transfer title to the same holders in due course. Ebrada, upon receiving the check in question from
instrument. When the holder's indorsement is forged, all parties prior Dominguez, was duty-bound to ascertain whether the check in question was
to the forgery may raise the real defense of forgery against all genuine before presenting it to plaintiff Bank for payment. Indorsers own
parties subsequent thereto. An indorser of an order instrument credulity or recklessness or misplaced confidence was the sole
warrants "that the instrument is genuine and in all respects what it cause of the loss. Why should he be permitted to shift the loss due
purports to be; that he has a good title to it; that all prior parties to his own fault in assuming the risk, upon the drawee, simply
had capacity to contract; and that the instrument is at the time of because of the accidental circumstance that the drawee afterwards
his indorsement valid and subsisting." He cannot interpose the defense failed to detect the forgery when the check was presented for
that signatures prior to him are forged. A collecting bank where a check is payment.
deposited and which indorses the check upon presentment with the drawee
bank, is such an indorser. So even if the indorsement on the check deposited Persons precluded from setting up forgery
by the bank's client is forged, the collecting bank is bound by his warranties
as an indorser and cannot set up the defense of forgery as against the MWSS VS. CA (GR No. L-62943; July 14, 1986) - 23 checks were deposited
drawee bank. The loss incurred by drawee bank-PNB can be passed on to by the payees Dizon, Sison and Mendoza in their respective current accounts
the collecting bank-Associated Bank which presented and indorsed the with the PCIB and PBC. Thru the Central Bank Clearing, these checks were
checks to it. Associated Bank can, in turn, hold the forger, Fausto Pangilinan, presented for payment by PBC and PCIB to the defendant PNB, and were
liable. The drawee bank is not similarly situated as the collecting bank paid. At the time of their presentation to PNB, these checks bear the
because the former makes no warranty as to the genuineness of any standard indorsement which reads 'all prior indorsement and/or lack of
indorsement. The drawee bank's duty is but to verify the genuineness of the endorsement guaranteed.' Subsequent investigation however, conducted by
drawer's signature and not of the indorsement because the drawer is its the NBI showed that Raul Dizon, Arturo Sison and Antonio Mendoza were all
client. fictitious persons. NWSA addressed a letter to PNB requesting the immediate
restoration to its Account No. 6, of the total sum of P3,457,903.00
GEMPESAW VS. CA (supra, p. 14) - Under Sec. 23 of the Negotiable corresponding to the total amount of these twenty-three (23) checks claimed
Instruments Law, a forged signature is “wholly inoperative, no one by NWSA to be forged and/or spurious checks. ISSUE: WON THE DRAWEE
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BANK WAS LIABLE FOR THE LOSS UNDER SECTION 23 OF THE exerts due diligence and care in preventing such faulty discharge. Forgeries
NEGOTIABLE INSTRUMENTS LAW? HELD: The NBI does not declare or often deceive the eye of the most cautious experts; and when a bank has
prove that the signatures appearing on the questioned checks are forgeries. been so deceived, it is a harsh rule which compels it to suffer although no
These reports did not touch on the inherent qualities of the signatures which one has suffered by its being deceived. The forgery may be so near like the
are indispensable in the determination of the existence of forgery. There genuine as to defy detection by the depositor himself, and yet the bank is
must be conclusive findings that there is a variance in the inherent liable to the depositor if it pays the check. The Court recognize that Section
characteristics of the signatures and that they were written by two or more 23 of the Negotiable Instruments Law bars a party from setting up the
different persons. Forgery cannot be presumed. It must be defense of forgery if it is guilty of negligence. Yet, we are unable to conclude
established by clear, positive, and convincing evidence. This was that Samsung Construction was guilty of negligence in this case. The
not done in the present case. Even if the twenty-three (23) checks appellate court failed to explain precisely how the Korean accountant was
in question are considered forgeries, considering the petitioner's negligent or how more care and prudence on his part would have prevented
gross negligence, it is barred from setting up the defense of forgery the forgery. We cannot sustain this "tar and feathering" resorted to without
under Section 23 of the Negotiable Instruments Law. One factor any basis. When the bank receives the deposit, it impliedly agrees to pay
which facilitates this fraud was the delay in the reconciliation of bank (PNB) ONLY UPON THE DEPOSITOR’S ORDER. When the Bank pays a check, on
statements with the NAWASA bank accounts. The records likewise show that which the depositor’s signature is a forgery, it has failed to comply with its
the petitioner failed to provide appropriate security measures over its own contract in this respect.
records thereby laying confidential records open to unauthorized persons.
We cannot fault the respondent drawee Bank for not having detected the PNB VS. QUIMPO (GR No. L-53194, March 14, 1988) - Private Respondent
fraudulent encashment of the checks because the printing of the petitioner's Francisco Gozon went to the Caloocan City Branch of PNB with his friend
personalized checks was not done under the supervision and control of the Ernesto Santos, who he left in the car while he transacted business in the
Bank. Under the circumstances, therefore, the petitioner was in a better bank. Santos saw that Gozon left his checkbook, he took a check therefrom,
position to detect and prevent the fraudulent encashment of its checks. filled it up for P5,000 and forged the signature of Gozon. Santos was later on
apprehended and admitted that he stole the check and encashed the same
METROPOLITAN BANK VS. CA (supra, p.5) - ISSUE: WON Metropolitan with the bank. Gozon filed an action to recover the amount from the Bank
Bank can use forgery of the warrants as defense, hence, making Golden which the court granted. Hence the petition. ISSUE: WON Gozon who left
Savings liable? HELD: No. There was no question of Gomez's identity or of his checkbook into hands of Santos was indeed the proximate cause of the
the genuineness of his signature as checked by Golden Savings. In fact, the loss and thus precluded from setting up the defense of forgery? HELD: No.
treasury warrants were dishonored allegedly because of the forgery of the A bank is bound to know the signatures of its customers; and if it pays a
signatures of the drawers, not of Gomez as payee or indorser. Under the forged check, it must be considered as making the payment out of its own
circumstances, it is clear that Golden Savings acted with due care and funds, and cannot ordinarily change the amount so paid to the account of
diligence and cannot be faulted for the withdrawals it allowed Gomez to the depositor whose name was forged' (San Carlos Milling Co. vs. Bank of
make. By contrast, Metrobank exhibited extraordinary carelessness. Despite the P.I). This rule is absolutely necessary to the circulation of drafts and
the lack of such clearance, it allowed Golden Savings to withdraw from the checks, and is based upon the presumed negligence of the drawee in failing
uncleared treasury warrants. The supposed reason for the dishonor, to wit, to meet its obligation to know the signature of its correspondent. ... There is
the forgery of the signatures of the general manager and the auditor of the nothing inequitable in such a rule. If the paper comes to the drawee in the
drawer corporation, has not been established. This was the finding of the regular course of business, and he, having the opportunity ascertaining its
lower courts which must not be disturbed. As held in MWSS v. Court of character, pronounces it to be valid and pays it, it is not only a question of
Appeals, forgery cannot be presumed. It must be established by clear, payment under mistake, but payment in neglect of duty which the
positive and convincing evidence. This was not done in the present case. commercial law places upon him, and the result of his negligence must rest
Hence, petition was denied. upon him. The prime duty of the bank is to ascertain the genuineness of the
signature of the drawer or the depositor on the check being encashed. It is
SAMSUNG CONSTRUCTION VS. FAR EAST BANK (GR No. 129015; Aug. expected to use reasonable business prudence in accepting and cashing a
15, 2003) - Petitioner maintained a current account with respondent bank. check presented to it. Obviously, petitioner was negligent in encashing
The sole signatory to petitioner’s account was Jong Kyu Lee ("Jong"), its said forged check without carefully examining the signature which
Project Manager, while the checks remained in the custody of the company’s shows marked variation from the genuine signature of private
accountant, Kyu Yong Lee ("Kyu"). A certain Roberto Gonzaga presented for respondent. The act of the plaintiff in leaving his checkbook in the
payment FEBTC Check to the bank. The check, payable to cash and drawn car cannot be considered negligence sufficient to excuse the
against Samsung Construction’s current account, was in the amount of P999, defendant bank from its own negligence. Santos could not have
500.00. After the bank teller ascertained that there were enough funds to been expected to know that Santos, a long time classmate and
cover the check and compared the signature as contained in the specimen friend, would remove a check from his checkbook.
signature, the bank teller forwarded the check with two other bank branch
officers, who counterchecked the signature. One of the bank officers noticed BANCO DE ORO VS. EQUITABLE BANKING CORPORATION (supra,
Sempio, the assistant accountant of Samsung Construction, was also in the p.3) - A commercial bank cannot escape the liability of an endorser of a
bank and when asked, Sempio vouched for the genuineness of Jong’s check and which may turn out to be a forged endorsement. Whenever any
signature. The following day, Kyu examined the balance of the bank account bank treats the signature at the back of the checks as endorsements and
and discovered that a check amounting to P999, 500.00 had been encashed. thus logically guarantees the same as such there can be no doubt said bank
Aware that he had not prepared such a check for Jong’s signature, Kyu has considered the checks as negotiable. Apropos the matter of forgery in
perused the checkbook and found that the last blank check was missing. He endorsements, this Court has succinctly emphasized that the collecting
reported the matter to Jong, who then proceeded to the bank. Jong learned bank or last endorser generally suffers the loss because it has the
of the encashment of the check, and realized that his signature had been duty to ascertain the genuineness of all prior endorsements
forged. Samsung Construction filed before the RTC against respondent bank considering that the act of presenting the check for payment to the
for violation of Section 23 of the Negotiable Instruments Law who ruled in drawee is an assertion that the party making the presentment has
favor of Samsung Construction while the CA reversed the RTC Decision and done its duty to ascertain the genuineness of the endorsements
absolved FEBTC from any liability. The Court of Appeals invoked the ruling (PNB vs. National City Bank) In another case, this court held that if the
in PNB v. National City Bank of New York that, if a loss, which must be borne drawee-bank discovers that the signature of the payee was forged after it
by one or two innocent persons, can be traced to the neglect or fault of has paid the amount of the check to the holder thereof, it can recover the
either, such loss would be borne by the negligent party, even if innocent of amount paid from the collecting bank.
intentional fraud. (equity principle). ISSUE: WON Samsung Construction
was precluded from setting up the defense of forgery under Section 23 of WESTMONT BANK VS. EUGENE ONG (GR No. 132250; Jan. 30, 2002) - It
the Negotiable Instruments Law? HELD: No. On the premise that Jong’s was undisputed that Respondent Eugene Ong maintained a current account
signature was indeed forged, FEBTC is liable for the loss since it authorized with petitioner, formerly the Associated Banking Corporation, but now known
the discharge of the forged check. Such liability attaches even if the bank as Westmont Bank. Sometime in May 1976, he sold certain shares of stocks
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through Island Securities Corporation. To pay Ong, Island Securities Bank as the collecting or last endorser generally suffers the loss because it has
purchased two (2) Pacific Banking Corporation manager’s checks, both dated the duty to ascertain the genuineness of all prior endorsements is misplaced.
May 4, 1976, issued in the name of Eugene Ong as payee. Before Ong could In the cited cases, the fact of forgery was not in issue. In the present case,
get hold of the checks, his friend Paciano Tanlimco got hold of them, forged the fact of forgery was not established with certainty. In those cited cases, the
Ong’s signature and deposited these with petitioner, where Tanlimco was collecting banks were held to be negligent for failing to observe precautionary
also a depositor. Even though Ong’s specimen signature was on file, measures to detect the forgery. In the case before us, both courts below
petitioner accepted and credited both checks to the account of Tanlimco, uniformly found that Manila Bank’s personnel diligently performed their duties,
without verifying the ‘signature indorsements’ appearing at the back thereof. having compared the signature in the checks from the specimen signatures on
Tanlimco then immediately withdrew the money and absconded. ISSUE: record and satisfied themselves that it was petitioner’s.
WON Westmont Bank is precluded from setting up the forgery or want of
authority and therefore, should suffer the loss and be made liable to herein TRADERS ROYAL BANK VS. RPN (GR No. 138510; Oct. 10, 2002) - The BIR
Respondent Ong? HELD: YES. Citing the ruling in Associated Bank vs. Court assessed plaintiffs Radio Philippines Network (RPN), Intercontinental
of Appeals, the collecting bank or last endorser generally suffers the loss Broadcasting Corporation (IBC), and Banahaw Broadcasting Corporation (BBC)
because it has the duty to ascertain the genuineness of all prior of their tax obligations for the taxable years 1978 to 1983. To pay the assessed
endorsements. The collecting bank is also made liable because it is privy to taxes, respondent networks purchased from petitioner Traders Royal Bank
the depositor who negotiated the check. The bank knows him, his address (TRB) three manager’s checks which was turned over through Aida Nuñez, TRB
and history because he is a client. Hence, it is in a better position to detect Branch Manager, to Mrs. Lourdes C. Vera, the financial comptroller of
forgery, fraud or irregularity in the indorsement. Further, respondent Ong, at respondents. The 3 manager’s checks, however, were never delivered nor paid
the time the fraudulent transaction took place, was a depositor of petitioner to the BIR but instead, the checks were presented for payment by unknown
bank. Banks are engaged in a business impressed with public interest, and it persons to Security Bank, Taytay Branch. Respondents sent letters to both TRB
is their duty to protect in return their many clients and depositors who and Security Bank thereafter demanding that the amounts covered by the
transact business with them. They have the obligation to treat their client’s checks be reimbursed or credited to their account. An action was filed where it
account meticulously and with the highest degree of care, considering the was decided that the networks should be reimbursed for the amounts of the
fiduciary nature of their relationship. The diligence required of banks, checks by petitioner bank and the latter in turn, must be reimbursed by
therefore, is more than that of a good father of a family. Since the Security Bank. In the appellate court, it was held that Traders Bank should be
signature of the payee, in the case at bar, was forged to make it the only Bank liable. ISSUE: WON Traders Royal Bank should solely bare the
appear that he had made an indorsement in favor of the forger, loss for its negligence? HELD: YES. If a bank pays a forged check, it must be
such signature should be deemed as inoperative and ineffectual. considered as paying out of its funds and cannot charge the amount so paid to
Petitioner, as the collecting bank, grossly erred in making payment the account of the depositor. Petitioner TRB ought to have known that where
by virtue of said forged signature. The payee, herein respondent, checks drawn payable to the order of one person and is presented for payment
should therefore be allowed to recover from the collecting bank. by another and purports upon its face to have been duly indorsed by the payee
The theory of said rule is that the collecting bank’s possession of such check of the check, it is the primary duty of petitioner to know that the check was
is wrongful. duly indorsed by the original payee and, where it pays the amount of the check
to a third person who has forged the signature of the payee, the loss falls upon
ILLUSORIO VS. CA (GR No. 139130; Nov. 27, 2002) – Petitioner was a petitioner who cashed the check. Its only remedy is against the person to
depositor in good standing of respondent bank, the Manila Banking whom it paid the money. A bank is engaged in a business impressed with
Corporation. As he was then running about 20 corporations, and was going out public interest and it is its duty to protect its many clients and depositors who
of the country a number of times, petitioner entrusted to his secretary, transact business with it. It is under the obligation to treat the accounts of the
Katherine E. Eugenio, his credit cards and his checkbook with blank checks. It depositors and clients with meticulous care, whether such accounts consist only
was also Eugenio who verified and reconciled the statements of said checking of a few hundred or millions of pesos. Since TRB did not pay the rightful holder
account. Between the dates September 5, 1980 and January 23, 1981, Eugenio or other person or entity entitled to receive payment, it has no right to
was able to encash and deposit to her personal account about seventeen (17) reimbursement. Petitioner TRB was remiss in its duty and obligation, and must
checks drawn against the account of the petitioner at the respondent bank. therefore suffer the consequences of its own negligence and disregard of
Upon learning that Eugenio has been using his credit cards, petitioner fired established banking rules and procedures. It should be further noted that one
Eugenio immediately, and instituted a criminal action against her for estafa thru of the checks was a crossed check. The crossing of the check should have put
falsification. Private respondent also lodged a complaint for estafa thru petitioner on guard; it was duty-bound to ascertain the indorser’s title to the
falsification of commercial documents against Eugenio on the basis of check or the nature of his possession.
petitioner’s statement that his signatures in the checks were forged. Petitioner
then requested the respondent bank to credit back and restore to its account MATERIAL ALTERATION
the value of the checks which were wrongfully encashed but respondent bank
refused. Hence, petitioner filed the instant case. Petitioner contends that A material alteration is only a partial real defense because the holder in due
Manila Bank is liable for damages for its negligence in failing to detect the course can enforce it according to its original tenor.
discrepant checks. He adds that as a general rule a bank which has obtained
possession of a check upon an unauthorized or forged endorsement of the Sec. 124 Alteration of instrument; effect of. - Where a negotiable
payee’s signature and which collects the amount of the check from the drawee instrument is materially altered without the assent of all parties
is liable for the proceeds thereof to the payee. Petitioner further contends that liable thereon, it is avoided, except as against a party who has
under Section 23 of the Negotiable Instruments Law a forged check is himself made, authorized, or assented to the alteration and
inoperative, and that Manila Bank had no authority to pay the forged checks. subsequent indorsers.
ISSUE: WON petitioner may put up the defense of forgery against Manila
bank? HELD: NO. True, it is a rule that when a signature is forged or made But when an instrument has been materially altered and is in the
without the authority of the person whose signature it purports to be, the hands of a holder in due course not a party to the alteration, he
check is wholly inoperative. No right to retain the instrument, or to give a may enforce payment thereof according to its original tenor.
discharge therefor, or to enforce payment thereof against any party, can be Sec. 125 What constitutes a material alteration. - Any alteration
acquired through or under such signature. However, the rule does provide for which changes:
an exception, namely: “unless the party against whom it is sought to enforce
such right is precluded from setting up the forgery or want of authority.” In the (a) The date;
instant case, it is the exception that applies. In our view, petitioner is (b) The sum payable, either for principal or interest;
precluded from setting up the forgery, assuming there is forgery, due (c) The time or place of payment:
to his own negligence in entrusting to his secretary his credit cards (d) The number or the relations of the parties;
and checkbook including the verification of his statements of account. (e) The medium or currency in which payment is to be made;
Petitioner’s reliance on Associated Bank vs. Court of Appeals and Philippine (f) Or which adds a place of payment where no place of payment
Bank of Commerce vs. CA to buttress his contention that respondent Manila is specified, or any other change or addition which alters the
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effect of the instrument in any respect, is a material alteration.

PHILIPPINE COMMERCIAL INTERNATIONAL BANK VS. CA (GR No.
a. Concept 121413; Jan. 29, 2001) - Ford Philippines filed actions to recover from the
drawee bank Citibank and collecting bank PCIB the value of several
PNB VS. CA (GR No. 107508; April 25, 1996) - A check with serial number checks payable to the Commissioner of Internal Revenue as payment of
7-3666-223-3, dated August 7, 1981 in the amount of P97,650.00 was issued percentage or manufacturer's sales taxes. What prompted this action was
by the Ministry of Education and Culture payable to F. Abante Marketing. the drawing of a check by Ford, which it deposited to PCIB as
This check was drawn against Philippine National Bank (herein petitioner). payment and was debited from their Citibank account. It was later on
F. Abante Marketing, a client of Capitol City Development Bank (Capitol), found out that the payment wasn’t received by the Commissioner.
deposited the questioned check in its savings account with said bank. In Meanwhile, according to the NBI report, one of the checks issued by Ford
turn, Capitol deposited the same in its account with the Philippine Bank of was withdrawn from PCIB for alleged mistake in the amount to be paid. This
Communications (PBCom) which, in turn, sent the check to petitioner for was replaced with manager’s check by PCIB, which were allegedly stolen
clearing. Petitioner cleared the check as good and, thereafter, PBCom by a syndicate and deposited in their own account. The trial court
credited Capitol’s account for the amount stated in the check. However, decided in favor of Ford. In this petition, PCIB claims that the action of Ford
petitioner PNB returned the check to PBCom and debited PBCom’s account had prescribed because of its inability to seek judicial relief seasonably,
for the amount covered by the check, the reason being that there was a considering that the alleged negligent act took place prior to December 19,
“material alteration” of the check number. PBCom, as collecting agent of 1977 but the relief was sought only in 1983, or seven years thereafter.
Capitol, then proceeded to debit the latter’s account for the same amount. ISSUE: WON Ford’s cause of action has prescribed, hence, cannot recover
On the other hand, Capitol could not, in turn, debit F. Abante Marketing’s anymore from PCIB? HELD: The statute of limitations begins to run when
account since the latter had already withdrawn the amount of the check. the bank gives the depositor notice of the payment, which is ordinarily when
ISSUE: WON AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A the check is returned to the alleged drawer as a voucher with a statement of
MATERIAL ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW? his account. An action upon a check is ordinarily governed by the statutory
HELD: No. An alteration is said to be material if it alters the effect of the period applicable to instruments in writing. Our laws on the matter provide
instrument. It means an unauthorized change in an instrument that purports that the action upon a written contract must be brought within ten years
to modify in any respect the obligation of a party or an unauthorized addition from the time the right of action accrues. Hence, the reckoning time for the
of words or numbers or other change to an incomplete instrument relating to prescriptive period begins when the instrument was issued and the
the obligation of a party. In other words, a material alteration is one which corresponding check was returned by the bank to its depositor. Applying the
changes the items which are required to be stated under Section 1 of the same rule, the cause of action for the recovery of the proceeds of Citibank
Negotiable Instrument Law. The case at the bench is unique in the would normally be a month after December 19, 1977, when Citibank paid the
sense that what was altered is the serial number of the check in face value of the check in the amount of P4,746,114.41. Since the original
question, an item which, it can readily be observed, is not an complaint for the cause of action was filed on January 20, 1984, barely six
essential requisite for negotiability under Section 1 of the years had lapsed. Thus, Ford's cause of action to recover the amount was
Negotiable Instruments Law. The aforementioned alteration did seasonably filed within the period provided by law. Hence, PCIB was
not change the relations between the parties. The name of the declared solely responsible for the loss of the proceeds of Citibank in the
drawer and the drawee were not altered. The intended payee was amount P4,746,114.41, which shall be paid together with 6% interest
the same. The sum of money due to the payee remained the same. thereon to Ford from the date when the original complaint was filed until
If the purpose of the serial number is merely to identify the issuing said amount is fully paid.
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 PAPA VS. AU VALENCIA (GR NO. 105188; Jan. 23, 1998) - Private
government office or agency was not changed thereby and the amount of respondents filed in the RTC a complaint for specific performance against
the check was not charged against the account of another government office petitioner herein, in his capacity as administrator of the Testate Estate of
or agency which had no liability under the check. Angela Butte. The RTC ruled in favor of the PR allowing PR to redeem the
subject property and ordering petitioner to execute a Deed of Sale in favor of
ENRIQUE MONTINOLA VS. PNB (supra, p. 12) – Provincial Treasurer PR Penarroyo covering the property in question and to deliver the peaceful
(PT) of Misamis Oriental Ubaldo Laya issued the check in question as PT and possession of the said property. Petitioner appealed the aforesaid decision of
not as agent of PNB when he signed it as drawer payable to the order of MV the trial court to the Court of Appeals, alleging among others that the sale
Ramos who later on sold the check to Montinola. On trial, the check was was never "consummated" as he did not encash the check (in the amount of
severely mutilated and beneath Laya’s signature appears the words “Agent, P40,000.00) given by respondents Valencia and Peñarroyo in payment of the
Phil. National Bank. HELD: The insertion of the words "Agent, Phil. National full purchase price of the subject lot. He maintained that what said
Bank" which converts the bank from a mere drawee to a drawer and respondent had actually paid was only the amount of P5,000.00 (in cash) as
therefore changes its liability, constitutes a material alteration of the earnest money. The Court of Appeals rendered a decision, affirming with
instrument without the consent of the parties liable thereon, and so modification the trial court's decision. ISSUE: WON alleged sale of the
discharges the instrument. subject property had been consummated? HELD: The Court finds no merit in
petitioner’s arguments. It is an undisputed fact that respondents Valencia
b. Alteration that totally prevents recovery – in the case of Montinola and Peñarroyo had given petitioner P5, 000.00 in cash, P40, 000.00 in check,
vs. PNB above, even if it was negotiated to a holder in due course, such in payment of the purchase price of the subject lot. Petitioner's assertion that
holder cannot enforce the instrument against the bank as drawer. The he never encashed the aforesaid check is not substantiated and is at odds
drawee cannot be compelled to pay unless he accepts, and the drawer with his statement in his answer that "he can no longer recall the transaction
cannot be made liable until the instrument is dishonored. As a drawee, he which is supposed to have happened 10 years ago." After more than ten
cannot be made to pay because there was no acceptance, the Bank (10) years from the payment in party by cash and in part by check, the
cannot also be made to pay as a drawer considering that the change of presumption is that the check had been encashed. As already stated, he
liability was due to the alteration. Same rule applies if the alteration is in even waived the presentation of oral evidence. Granting that petitioner had
the payee’s name, since the holder in due course cannot enforce it never encashed the check, his failure to do so for more than ten (10) years
according to its original tenor, which contains a different payee. undoubtedly resulted in the impairment of the check through his
unreasonable and unexplained delay. While it is true that the delivery of a
5. EXTINCTIVE PRESCRIPTION check produces the effect of payment only when it is cashed, pursuant to
Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced
The prescriptive period for the filing of a claim based no negotiable by the creditor's unreasonable delay in presentment. The acceptance of a
instruments is ten years from the time the cause of action accrued (Pay check implies an undertaking of due diligence in presenting it for payment,
vs. Vda. De Palanca). With respect to CHECKS, the action of the depositor and if he from whom it is received sustains loss by want of such diligence, it
against his drawee bank commences to run from the time he is given will be held to operate as actual payment of the debt or obligation for which
notice of payment. it was given. It has, likewise, been held that if no presentment is made at
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lOMoARcPSD|5036134
all, the drawer cannot be held liable irrespective of loss or injury unless that under the facts the checks were postdated and issued only as a loan to
presentment is otherwise excused. This is in harmony with Article 1249 of New Sikatuna Wood Industries, Inc. if and when deposits were made to back
the Civil Code under which payment by way of check or other negotiable up the checks. Such deposits were not made, hence no loan was made,
instrument is conditioned on its being cashed, except when through the fault hence, the three checks are without consideration.
of the creditor, the instrument is impaired. The payee of a check would be a
creditor under this provision and if its no-payment is caused by his 5. SIMPLE FRAUD, DURESS, INTIMIDATION, FORCE OR FEAR,
negligence, payment will be deemed effected and the obligation for which ILLEGALITY OF CONSIDERATION, BREACH OF FAITH
the check was given as conditional payment will be discharged. Considering
that respondents Valencia and Peñarroyo had fulfilled their part of the Sec. 55 When title defective. - The title of a person who negotiates an
contract of sale by delivering the payment of the purchase price, said instrument is defective within the meaning of this Act when he
respondents, therefore, had the right to compel petitioner to deliver to them obtained the instrument, or any signature thereto, by fraud,
the owner's certificate of title. duress, or force and fear, or other unlawful means, or for an illegal
consideration, or when he negotiates it in breach of faith, or under
C. PERSONAL DEFENSES such circumstances as amount to a fraud.
Sec. 56 What constitutes notice of defect. - To constitutes notice of
1. ANTEDATING OR POST-DATING an infirmity in the instrument or defect in the title of the person
negotiating the same, the person to whom it is negotiated must
Sec. 12. Ante-dated and post-dated. - The instrument is not invalid for the have had actual knowledge of the infirmity or defect, or
reason only that it is ante-dated or post-dated, provided this is not done for an knowledge of such facts that his action in taking the instrument
illegal or fraudulent purpose. The person to whom an instrument so dated amounted to bad faith.
is delivered acquires the title thereto as of the date of delivery. Sec. 57 Rights of holder in due course. - A holder in due course holds
the instrument free from any defect of title of prior parties, and
Example: Where the maximum allowed interest rate is 24% per annum, a free from defenses available to prior parties among themselves,
check was ante-dated for six months in order to collect additional 12% without and may enforce payment of the instrument for the full amount
indicating it in the contract to hide the usurious nature of the transaction – in thereof against all parties liable thereon.
considered made for fraudulent purposes and may give rise to the personal
defense of antedating against the one who made the ante-dating. a. DURESS AND INTIMIDATION
1. Generally, duress and/or intimidation exerted against a person gives
2. INSERTION OF A WRONG DATE the latter a personal defense and is available even if there is some
form of consideration.
Sec. 13.When date may be inserted. - Where an instrument expressed to 2. To constitute duress, there must be an actual or threatened exercise
be payable at a fixed period after date is issued undated, or where the or power possessed by the party benefited thereby, for the purpose
acceptance of an instrument payable at a fixed period after sight is undated, of obtaining the note (or bill), such as to deprive the maker of the
any holder may insert therein the true date of issue or acceptance, and the quality of mind essential to making of a contract.
instrument shall be payable accordingly. The insertion of a wrong date 3. Duress is relative, hence threats to a feeble and old person might be
does not avoid the instrument in the hands of a subsequent holder in duress to one while it may not be so to another.
due course; but as to him, the date so inserted is to be regarded as 4. Duress is a real defense if it is vicious or if it is what is referred to as
the true date. duress amounting to forgery, like when a person who exerted the
same is practically writing the note itself by holding the hands of
Example: On Jan. 1, 2013, M issued a promissory note payable to the order of another.
P for P10,000 with 12% within 6 months from date and the date is not b. ILLEGALITY
specified in the instrument. If A inserted Dec. 1, 2012 as the date to collect 1. Generally, illegality of the transaction that gave rise to a particular
more interest and thereafter indorsed it to B. transaction is only a personal defense. For example, if a check was
issued as payment for marijuana, the transaction involved is illegal
a. If B was aware of the fraudulent insertion of the wrong date, the but the same cannot be raised against a holder in due course.
instrument is avoided as to him; 2. Exception to the rule is when the law which declares the transaction
b. If B is a holder in due course, he can treat Dec. 1, 2012 as the true date. or document issued in connection thereto is void against any party.
3. FILLING UP BLANKS BEYOND AUTHORITY GREAT EASTERN LIFE INSURANCE CO. (GELIC) VS. HONGKONG &
SHANGHAI BANKING CORP (HSBC) and PNB (GR No. 18657; Aug. 23,
a. Filling up in excess of the authority given as provided in Sec. 14 is only a 1922) - In May 1920, petitioner GELIC drew its check for P2,000 on HSBC
personal defense. See p.8 for discussion on Sec. 14 and illustration. whom it had an account, payable to the order of Lazaro Melicor. E. M.
b. Signed blank piece of paper – (1) there must delivery of the instrument to Maasim fraudulently obtained possession of the check, forged Melicor's
another person; (2) the paper that was delivered was a blank paper signature, as an endorser, and then personally endorsed and presented it to
containing the signature of the person who will deliver; and (3) there must PNB where the amount of the check was placed to his credit. After having
be intention to convert it to a negotiable instrument. paid the check, and on the next day, PNB endorsed the check to HSBC which
paid it and charged the amount of the check to the account of the plaintiff.
Absent no. (3) above, the instrument cannot be enforced against the one In the ordinary course of business, HSBC rendered a bank statement to
who delivered the instrument. Example: If P a fan of Vilma Aunor, asked GELIC showing that the amount of the check was charged to its account,
for her autograph and later on filled-up the paper to be a promissory note and no objection was then made to the statement. About four (4) months
payable to his order. P then endorsed it to A. In this example, even if A is after the check was charged to the account of the plaintiff, it developed that
a holder in due course, he cannot enforce it against Vilma Aunor, as the Lazaro Melicor, to whom the check was made payable, had never received it,
act of P converting the blank piece of paper into a negotiable instrument, and that his signature, as an endorser, was forged by Maasim, who
without intention from the indicated maker, would constitute fraud in presented and deposited it to his private account in PNB. With this
factum, which, as discussed earlier, is a real defense which may be raised knowledge, the plaintiff promptly made a demand upon the HSBC that it
even against a holder in due course. should be given credit for the amount of the forged check, which the bank
refused to do, and GELIC commenced this action to recover the P2,000
4. ABSENCE OR FAILURE OF CONSIDERATION which was paid on the forged check. On the petition of HSBC, PNB was
made defendant. The former Bank denies any liability, but prays that, if a
STATE INVESTMENT HOUSE VS. CA (supra, p. 19) - Being not a holder in judgment should be rendered against it, in turn, it should have like judgment
due course, plaintiff is subject to personal defenses, such as lack of against the latter Bank which denies all liability to either party. Upon the
consideration between appellants and New Sikatuna Wood Industries. Note issues being joined, a trial was had and judgment was rendered against
ニナ Cesar Nickolai F. Soriano Jr.


lOMoARcPSD|5036134
GELIC and in favor HSBC and PNB from which GELIC appealed. ISSUE: person in possession of negotiable instruments, such as the notes
WON plaintiff GELIC can recover? HELD: Yes. GELIC’s check was drawn on herein, to fill in the blanks.
HSBC payable to the order of Melicor. In other words, GELIC authorized and
directed HSBC to pay Melicor, or his order, P2,000. It did not authorize or VII. ENFORCEMENT OF LIABILITY
direct the bank to pay the check to any other person than Melicor, or his
order, and the testimony is undisputed that Melicor never did part with his A. PARTIES PRIMARILY AND SECONDARILY LIABLE
title or endorse the check, and never received any of its proceeds. Neither is
GELIC estopped or bound by the bank statement, which was made to it by How to Enforce Primary Liability
the HSBC. This is not a case where the GELIC's own signature was forged to
one of it checks. In such a case, the plaintiff would have known of the Sec. 60 Liability of maker. - The maker of a negotiable instrument, by
forgery, and it would have been its duty to have promptly notified the bank making it, engages that he will pay it according to its tenor, and
of any forged signature, and any failure on its part would have released bank admits the existence of the payee and his then capacity to indorse
from any liability. That is not this case. Here, the forgery was that of Melicor, Sec. 62 Liability of acceptor. - The acceptor, by accepting the
who was the payee of the check, and the legal presumption is that the bank instrument, engages that he will pay it according to the tenor of
would not honor the check without the genuine endorsement of Melicor. In his acceptance and admits:
other words, when GELIC received its banks statement, it had a right to
assume that Melicor had personally endorsed the check, and that, otherwise, (a) The existence of the drawer, the genuineness of his signature,
the bank would not have paid it. Sec. 23 of the NIL is square in point. The and his capacity and authority to draw the instrument; and
money was on deposit in HSBC, and it had no legal right to pay it out to (b) The existence of the payee and his then capacity to indorse.
anyone except GELIC or its order. Here, GELIC ordered HSBC to pay the
P2,000 to Melicor, and the money was actually paid to Maasim and was The unconditional promise attaches the moment the maker makes the
never paid to Melicor, and he never paid to Melicor, and he never personally instrument while the acceptor’s assent to the unconditional order attaches the
endorsed the check, or authorized any one to endorse it for him, and the moment he accepts the instrument. No further act is necessary in order for the
alleged endorsement was a forgery. Hence, upon the undisputed facts, it liability to accrue. What is only necessary later is for the holder to enforce such
must follow that HSBC has no defense to this action. It is admitted that the liability by presenting it for payment.
PNB cashed the check upon a forged signature, and placed the money to the
credit of Maasim, who was a forger. That the PNB then endorsed the check B. GENERAL STEPS IN ENFORCING SECONDARY LIABILITY
and forwarded it to HSBC by whom it was paid. PNB had no license or 1. Promissory Notes
authority to pay the money to Maasim or anyone else upon a forge
signature. It was its legal duty to know that Melicor's endorsement was a. Presentment for payment must be made within the required
genuine before cashing the check. Its remedy is against Maasim to whom it period to the maker;
paid the money. The Supreme Court reversed the lower court's judgment,
and entered another in favor of GELIC and against HSBC for P2,000, with Sec. 70. Effect of want of demand on principal debtor. - Presentment for
interest thereon from 8 November 1920, at the rate of 6% per annum, and payment is not necessary in order to charge the person primarily liable on the
the costs of the action, and a corresponding judgment will be entered in instrument; but if the instrument is, by its terms, payable at a special place,
favor of HSBC against PNB for the same amount, together with the amount and he is able and willing to pay it there at maturity, such ability and
of its costs in the action. willingness are equivalent to a tender of payment upon his part. But except as
herein otherwise provided, presentment for payment is necessary in order to
QUIRINO GONZALEZ LOGGING VS. CA (GR No. 126568; April 20, 2003) - charge the drawer and indorsers.
In the expansion of its logging business, petitioner Quirino Gonzales Logging
Concessionaire (QGLC), through its proprietor, general manager - co-petitioner b. Notice of dishonor should be given, if promissory note is disonored
Quirino Gonzales, applied for credit accommodations with respondent Republic by non-payment by the maker;
Bank . The Bank approved QGLC’s application. In separate transactions,
petitioners, to secure certain advances from the Bank in connection with Sec. 89. To whom notice of dishonor must be given. - Except as herein
QGLC’s exportation of logs, executed a promissory note in 1964 in favor of the otherwise provided, when a negotiable instrument has been dishonored by
Bank. They were to execute three more promissory notes in 1967. On January non-acceptance or non-payment, notice of dishonor must be given to the
27, 1977, alleging non-payment of the balance of QGLC’s obligation, and non- drawer and to each indorser, and any drawer or indorser to whom such notice
payment of the promissory notes despite repeated demands, the Bank filed a is not given is discharged
complaint for “sum of money” against petitioners. The complaint listed ten
causes of action, the sixth to ninth of which were anchored on the promissory Other than PRESENTMENT FOR ACCEPTANCE, the rules under Bills of Exchange
notes issued by petitioners allegedly to secure certain advances from the Bank are similar to Promissory Notes as regards Presentment for Payment and
in connection with the exportation of logs as reflected above. The notes were Dishonor.
payable 30 days after date and provided for the solidary liability of petitioners
as well as attorney’s fees at ten percent of the total amount due in the event of 2. Bills of Exchange
their non-payment at maturity. Petitioners seek to avoid liability by claiming
that Quirino and Eufemia Gonzales signed the promissory notes in blank; that PRESENTMENT FOR ACCEPTANCE
they had not received the value of said notes, and that the credit line thereon
was unnecessary in view of their money deposits, and unremitted proceeds on Sec. 143. When presentment for acceptance must be made. -
log exports from the Bank. ISSUE: WON petitioners may interpose the
Presentment for acceptance must be made:
defense of lack of consideration and that the Promissory Notes were signed in
blank against the bank? HELD: NO. The genuineness and due execution of the (a) Where the bill is payable after sight, or in any other case, where
notes had been deemed admitted by petitioners, they having failed to deny the presentment for acceptance is necessary in order to fix the maturity of the
same under oath. Their claim that they signed the notes in blank does not thus instrument; or
lie. Petitioners’ admission of the genuineness and due execution of the (b) Where the bill expressly stipulates that it shall be presented for
promissory notes notwithstanding, they raise want of consideration thereof. acceptance; or
The promissory notes, however, appear to be negotiable as they meet
(c) Where the bill is drawn payable elsewhere than at the residence or place
the requirements of Section 1 of the Negotiable Instruments Law. of business of the drawee.
Such being the case, the notes are prima facie deemed to have been
issued for consideration. It bears noting that no sufficient evidence was In no other case is presentment for acceptance necessary in order to render
adduced by petitioners to show otherwise. In any case, it is no defense that
any party to the bill liable.
the promissory notes were signed in blank as Section 14 of the
Negotiable Instruments Law concedes the prima facie authority of the
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Sec. 143 provides three instances when presentment for acceptance is other means than the payment of money.
required, otherwise, it is dispensable and the instrument maybe directly
presented for payment. If the drawee merely stated that “I return the drawer’s order. Balance of his
account is in the same as order”, confirming the amount in the instrument,
a. How Made; Time for Presentment does not necessarily signify assent to the order, and consequently, its
acceptance.
Sec. 145 Presentment; how made. - Presentment for acceptance must
be made by or on behalf of the holder at a reasonable hour, on a How made?
business day and before the bill is overdue, to the drawee or i. Proof of Acceptance
some person authorized to accept or refuse acceptance on his
behalf; and
Sec. 133 Holder entitled to acceptance on face of bill. - The holder of a
bill presenting the same for acceptance may require that the
(a) Where a bill is addressed to two or more drawees who are
acceptance be written on the bill, and, if such request is refused,
not partners, presentment must be made to them all unless one
may treat the bill as dishonored.
has authority to accept or refuse acceptance for all, in which case
Sec. 134 Acceptance by separate instrument. - Where an acceptance is
presentment may be made to him only;
written on a paper other than the bill itself, it does not bind the
acceptor except in favor of a person to whom it is shown and who,
(b) Where the drawee is dead, presentment may be made to his
on the faith thereof, receives the bill for value.
personal representative;
(c) Where the drawee has been adjudged a bankrupt or an Acceptance may be made on the instrument itself or in a separate instrument.
insolvent or has made an assignment for the benefit of However, under Sec. 133, the holder may require the acceptance on the bill
creditors, presentment may be made to him or to his trustee or itself, otherwise, it may be treated as dishonored.
assignee.
Sec. 134: If acceptance is made by a telegram, the acceptance stated therein
Sec. 146 On what days presentment may be made. - A bill may be
will not bind the acceptor to the subsequent holder if the said holder is not
presented for acceptance on any day on which negotiable
aware thereof.
instruments may be presented for payment under the
provisions of Sections seventy-two and eighty-five of this
ii. When Deemed Accepted
Act. When Saturday is not otherwise a holiday, presentment for
acceptance may be made before twelve o'clock noon on that day.
Sec. 137. Liability of drawee returning or destroying bill. - Where a
Sec. 85 Time of maturity. - Every negotiable instrument is payable at
drawee to whom a bill is delivered for acceptance destroys the same, or refuses
the time fixed therein without grace. When the day of maturity
within twenty-four hours after such delivery or within such other period as the
falls upon Sunday or a holiday, the instruments falling due or
holder may allow, to return the bill accepted or non-accepted to the holder, he
becoming payable on Saturday are to be presented for payment
will be deemed to have accepted the same.
on the next succeeding business day except that instruments
payable on demand may, at the option of the holder, be presented
for payment before twelve o'clock noon on Saturday when that iii. Future Bills
entire day is not a holiday
Sec. 72 What constitutes a sufficient presentment. – see Sec. 135. Promise to accept; when equivalent to acceptance. - An
PRESENTMENT FOR PAYMENT. unconditional promise in writing to accept a bill before it is drawn is deemed an
actual acceptance in favor of every person who, upon the faith thereof,
receives the bill for value.
The Rule under Sec. 146 is different from Sec. 85 in that when the instrument
is payable on a Saturday which is not a holiday, presentment may be made
before 12:00 noon on that day, this rule is applicable in Sec. 85 if the iv. Time to Accept
instrument is payable on demand, Sec. 146 makes no such distinction.
Sec. 136 Time allowed drawee to accept. - The drawee is allowed
In Summary, the following rules should be followed: twenty-four hours after presentment in which to decide whether
1. Fixed day for presentment for acceptance – day fixed; or not he will accept the bill; the acceptance, if given, dates as of
2. If the day fixed falls on a Sunday or holiday – next succeeding business day; the day of presentation.
3. If payable on demand – at the option of the holder, before 12:00 noon on a Sec. 147 Presentment where time is insufficient – see When Time is
Saturday when the entire day is not a holiday. Insufficient, p. 34
b. When Time is Insufficient SEC. 136 vs. SEC. 137: The bill is at all times the property of the holder, and
he is entitled to have it if he wants it. If the holder should demand return
Sec. 147. Presentment where time is insufficient. - Where the holder of a before the 24 hours provided by Sec. 136, the drawee would be required to
bill drawn payable elsewhere than at the place of business or the residence of comply on pain of being held as an acceptor; but return within 24 hours
the drawee has no time, with the exercise of reasonable diligence, to present unaccepted would not be a dishonor; the drawee can still accept by notification
the bill for acceptance before presenting it for payment on the day that it falls within 24 hours; if the drawee after returning the bill still refused to act after
due, the delay caused by presenting the bill for acceptance before presenting it the expiration of the time allowed, the holder then would be required to treat
for payment is excused and does not discharge the drawers and indorsers. the bill as dishonored or lose his rights against prior parties (Beutel’s Brannan’s,
p. 1248).
EXAMPLE: When the instrument is payable in Pasay City two days after
acceptance, and is required to be accepted in Davao City, the delay for the v. Rule When Incomplete Bill is Accepted
presentment for payment is excused and does not discharge the drawers and
indorsers. Sec. 138. Acceptance of incomplete bill. - A bill may be accepted before it
has been signed by the drawer, or while otherwise incomplete, or when it is
ACCEPTANCE overdue, or after it has been dishonored by a previous refusal to accept, or by
non-payment. But when a bill payable after sight is dishonored by non-
Sec. 132. Acceptance; how made, by and so forth. - The acceptance of a acceptance and the drawee subsequently accepts it, the holder, in the absence
bill is the signification by the drawee of his assent to the order of the drawer. of any different agreement, is entitled to have the bill accepted as of the date
The acceptance must be (1) in writing and (2) signed by the drawee. (3) It of the first presentment.
must not express that the drawee will perform his promise by any
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vi. Kinds of Acceptance payable on demand, presentment must be made within a reasonable time
after its issue, except that in the case of a bill of exchange, presentment for
Sec. 139 Kinds of acceptance. - An acceptance is either (1) general or (2) payment will be sufficient if made within a reasonable time after the last
qualified. A general acceptance assents without qualification to negotiation thereof.
the order of the drawer. A qualified acceptance in express terms
varies the effect of the bill as drawn i. Rule in determining MATURITY
Sec. 140 What constitutes a general acceptance. - An acceptance to
pay at a particular place is a general acceptance unless it expressly Sec. 85. Time of maturity. - Every negotiable instrument is payable at the
states that the bill is to be paid there only and not elsewhere time fixed therein without grace. When the day of maturity falls upon Sunday
Sec. 141 Qualified acceptance. - An acceptance is qualified which is: or a holiday, the instruments falling due or becoming payable on Saturday are
to be presented for payment on the next succeeding business day except that
(a) Conditional; that is to say, which makes payment by the instruments payable on demand may, at the option of the holder, be presented
acceptor dependent on the fulfillment of a condition therein stated; for payment before twelve o'clock noon on Saturday when that entire day is not
(b) Partial; that is to say, an acceptance to pay part only of the a holiday.
amount for which the bill is drawn;
(c) Local; that is to say, an acceptance to pay only at a particular See p. 34, time for presentment for acceptance
place;
(d) Qualified as to time; ii. Rule in computing time
(e) The acceptance of some, one or more of the drawees but
not of all. Sec. 86. Time; how computed. - When the instrument is payable at a fixed
Sec. 142 Rights of parties as to qualified acceptance. – (1) The holder period after date, after sight, or after that happening of a specified event, the
may refuse to take a qualified acceptance and if he does not time of payment is determined by excluding the day from which the time
obtain an unqualified acceptance, he may treat the bill as is to begin to run, and by including the date of payment.
dishonored by non-acceptance.
iii. Rule if payable AT A BANK
(2) Where a qualified acceptance is taken, the drawer and
indorsers are discharged from liability on the bill unless they Sec. 75 Presentment where instrument payable at bank. - Where the
have expressly or impliedly authorized the holder to take a qualified instrument is payable at a bank, presentment for payment must be
acceptance, or subsequently assent thereto. made during banking hours, unless the person to make payment
has no funds there to meet it at any time during the day, in which
(3) When the drawer or an indorser receives notice of a qualified case presentment at any hour before the bank is closed on that
acceptance, he must, within a reasonable time, express his day is sufficient
dissent to the holder or he will be deemed to have assented Sec. 87 Rule where instrument payable at bank. - Where the
thereto. (segregation and emphasis supplied) instrument is made payable at a bank, it is equivalent to an order to
the bank to pay the same for the account of the principal debtor
WHEN PRESENTMENT EXCUSED thereon.
Sec. 127 Bill not an assignment of funds in hands of drawee. - A bill of
Sec. 148. Where presentment is excused. - Presentment for acceptance is itself does not operate as an assignment of the funds in the hands
excused and a bill may be treated as dishonored by non-acceptance in either of of the drawee available for the payment thereof, and the drawee is
the following cases: not liable on the bill unless and until he accepts the same.
Sec. 187 Certification of check; effect of. - Where a check is certified by
(a) Where the drawee is dead, or has absconded, or is a fictitious person the bank on which it is drawn, the certification is equivalent to an
or a person not having capacity to contract by bill. acceptance.
(b) Where, after the exercise of reasonable diligence, presentment cannot
be made. SEC. 127 & 87: A check of itself does not operate as assignment of any part
(c) Where, although presentment has been irregular, acceptance has been of the funds to the credit of the drawer with the bank, and the bank is not
refused on some other ground. liable to the holder, unless and until it accepts or certifies the check.
Nevertheless, even if there is no assignment of funds, the statement in the
PRESENTMENT FOR PAYMENT instrument that it is payable at a bank is equivalent to an order to the bank to
pay the same for the account of the principal debtor thereof. However, the
In presentment for payment, the holder exhibits the instrument to the maker or order must specify the particular bank.
the acceptor to demand payment of the amount reflected in the negotiable
instrument or whatever balance that is due. c. Place of Presentment
a. Requisites for Sufficiency Sec. 73 Place of presentment. - Presentment for payment is made at the
proper place:
Sec. 72. What constitutes sufficient presentment. - Presentment for
payment, to be sufficient, must be made: (HRPT) (a) Where a place of payment is specified in the instrument and it is
there presented;
(a) By the holder, or by some person authorized to receive payment on his (b) Where no place of payment is specified but the address of the
behalf; person to make payment is given in the instrument and it is there
(b) At a reasonable hour on a business day; presented;
(c) At a proper place as herein defined; (c) Where no place of payment is specified and no address is given
(d) To the person primarily liable on the instrument, or if he is absent or and the instrument is presented at the usual place of business or
inaccessible, to any person found at the place where the presentment is made. residence of the person to make payment;
(d) In any other case if presented to the person to make payment
b. Date of Presentment wherever he can be found, or if presented at his last known place
of business or residence.
Sec. 71. Presentment where instrument is not payable on demand and Sec. 70 Effect of want of demand on principal debtor. - Presentment
where payable on demand. - Where the instrument is not payable on for payment is not necessary in order to charge the person primarily
demand, presentment must be made on the day it falls due. Where it is liable on the instrument; but if the instrument is, by its terms,
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payable at a special place, and he is able and willing to pay (a) Where, after the exercise of reasonable diligence, presentment,
it there at maturity, such ability and willingness are as required by this Act, cannot be made;
equivalent to a tender of payment upon his part. But except (b) Where the drawee is a fictitious person;
as herein otherwise provided, presentment for payment is (c) By waiver of presentment, express or implied.
necessary in order to charge the drawer and indorsers
Sec. 79: When the drawer does not have sufficient funds with the drawee so
If the holder will not present the instrument for payment at such special place as to require or expect it to pay the check, presentment for payment is excused
provided under Sec. 70, he loses his right to the payment of interest. (Vda. De Victoria vs. Gutierrez).
PLACE OF PAYMENT means a house, bank, counting room, store, or place of “REASONABLE TIME”
business, where the holder can present a note, where the maker can deposit or
provide funds to meet it, and where a legal offer to pay can be made LUIS WONG VS. CA (G.R. No. 117857; February 2, 2001) - Petitioner
(Hutchinson vs. Crutcher). Thus, a designation of a town or city is not Wong was an agent of Limtong Press. Inc. (LPI). LPI would print sample
sufficient. calendars, then give them to agents to present to customers. The agents
would get the purchase orders of customers and forward them to LPI. After
d. Presentment to the Party Primarily Liable printing the calendars, LPI would ship the calendars directly to the
customers. Thereafter, the agents would come around to collect the
i. How Presentment Made payments. Petitioner, however, had a history of unremitted collections, which
he duly acknowledged in a confirmation receipt he co-signed with his wife.
Sec. 74. Instrument must be exhibited. - The instrument must be exhibited Hence, petitioner’s customers were required to issue post-dated checks
to the person from whom payment is demanded, and when it is paid, must be before LPI would accept their purchase orders. Wong issued six (6) post-
delivered up to the party paying it. dated checks initially intended to guarantee the calendar orders of customers
who failed to issue post-dated checks. However, following company policy,
ii. Rule in case Party Primarily Liable is Dead LPI refused to accept the checks as guarantees. Instead, the parties agreed
to apply the checks to the payment of petitioner’s unremitted. Before the
Sec. 76. Presentment where principal debtor is dead. - Where the person maturity of the checks, petitioner prevailed upon LPI not to deposit the
primarily liable on the instrument is dead and no place of payment is specified, checks and promised to replace them within 30 days. However, petitioner
presentment for payment must be made to his personal representative, if reneged on his promise. LPI deposited the checks with Rizal Commercial
such there be, and if, with the exercise of reasonable diligence, he can be Banking Corporation (RCBC) which were returned because the account was
found. closed. Despite receipt of the notice of dishonor, petitioner failed to make
arrangements for payment within five (5) banking days so he was charged
iii. Presentment to Partners with violation of BP 22. ISSUE: What constitutes REASONABLE TIME for
checks? HELD: Contrary to petitioner’s assertions, the law does not require
Sec. 77. Presentment to persons liable as partners. - Where the (1) a maker to maintain funds in his bank account for only 90 days. Under
persons primarily liable on the instrument are liable as partners and (2) no Section 186 of the Negotiable Instruments Law, "a check must be presented
place of payment is specified, presentment for payment may be made to any for payment within a reasonable time after its issue or the drawer will be
one of them, even though there has been a dissolution of the firm. discharged from liability thereon to the extent of the loss caused by the
delay." By current banking practice, a check becomes stale after
EXAMPLE: A and B, partners, issued a note payable at #8 Ayala Ave., Makati more than six (6) months, or 180 days. Private respondent herein
City, to C who indorsed it to D, present holder, who resides in Quezon City, deposited the checks 157 days after the date of the check. Hence said
where A also resides. Even if it would be more convenient for D to present the checks cannot be considered stale. Only the presumption of knowledge of
note for payment at A’s residence, he cannot do so, since there is a specified insufficiency of funds was lost, but such knowledge could still be proven by
place for presentment for payment. Note that the instrument may be presented direct or circumstantial evidence. As found by the trial court, private
for payment to ANY partner only if there is no place of payment specified. respondent did not deposit the checks because of the reassurance of
petitioner that he would issue new checks. Upon his failure to do so, LPI was
iv. Presentment to Joint Debtors constrained to deposit the said checks. After the checks were dishonored,
petitioner was duly notified of such fact but failed to make arrangements for
Sec. 78. Presentment to joint debtors. - Where there are several persons, full payment within five (5) banking days thereof. There is, on record,
not partners, primarily liable on the instrument and no place of payment is sufficient evidence that petitioner had knowledge of the insufficiency of his
specified, presentment must be made to them all. funds in or credit with the drawee bank at the time of issuance of the
checks. And despite petitioner’s insistent plea of innocence, we find no error
in the respondent court’s affirmance of his conviction by the trial court for
e. When Presentment is NOT NECESSARY or EXCUSED
violations of the Bouncing Checks Law.
Sec. 79 When presentment not required to charge the drawer. -
DISHONOR
Presentment for payment is not required in order to charge the
drawer where he has no right to expect or require that the
If DISHONORED BY NON-ACCEPTANCE
drawee or acceptor will pay the instrument.
Sec. 80 When presentment not required to charge the indorser. -
Sec. 149 When dishonored by nonacceptance. - A bill is dishonored by
Presentment is not required in order to charge an indorser where
non-acceptance:
the instrument was made or accepted for his accommodation
and he has no reason to expect that the instrument will be
(a) When it is duly presented for acceptance and such an
paid if presented.
acceptance as is prescribed by this Act is refused or cannot be
Sec. 81 When delay in making presentment is excused. - Delay in
obtained; or
making presentment for payment is excused when the delay is
(b) When presentment for acceptance is excused and the bill is not
caused by circumstances beyond the control of the holder
accepted.
and not imputable to his default, misconduct, or negligence. When
Sec. 150 Duty of holder where bill not accepted. - Where a bill is duly
the cause of delay ceases to operate, presentment must be made
presented for acceptance and is not accepted within the prescribed
with reasonable diligence.
time, the person presenting it must treat the bill as dishonored
Sec. 82 When presentment for payment is excused. - Presentment for
by non-acceptance or he loses the right of recourse against
payment is excused:
the drawer and indorsers.
Sec. 151 Rights of holder where bill not accepted. - When a bill is
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lOMoARcPSD|5036134
dishonored by nonacceptance, an immediate right of recourse (b) Presentment is excused and the instrument is overdue and
against the drawer and indorsers accrues to the holder and no unpaid.
presentment for payment is necessary. Sec. 149 When dishonored by nonacceptance. - A bill is dishonored by
non-acceptance:
NOTICE OF DISHONOR (a) When it is duly presented for acceptance and such an
acceptance as is prescribed by this Act is refused or cannot be
Sec. 89. To whom notice of dishonor must be given. - Except as herein obtained; or
otherwise provided, when a negotiable instrument has been dishonored by (b) When presentment for acceptance is excused and the bill is not
non-acceptance or non-payment, notice of dishonor must be given to the accepted.
drawer and to each indorser, and any drawer or indorser to whom such notice Sec. 151 Rights of holder where bill not accepted. - When a bill is
is not given is discharged dishonored by nonacceptance, an immediate right of recourse
against the drawer and indorsers accrues to the holder and no
ASIA BANKING VS. JAVIER (GR No. L-19051; April 4, 1923) - Salvador presentment for payment is necessary
Chaves drew two checks against PNB in favor of La Insular. This check was
indorsed by the limited partners of La Insular, and then deposited by Chaves b. Effect of Absence of Notice on Separate Contract
in his current account with the plaintiff, Asia Banking Corporation. The
amount represented by both checks was used by Chaves after they were Failure to give notice of dishonor will not necessarily result in absence of
deposited in the plaintiff bank, by drawing checks on the plaintiff. liability on the part of the drawer. The right of the payee to recover from the
Subsequently these checks were presented by the plaintiff to the Philippine drawer based on the latter’s contractual obligation that is separate from the
National Bank for payment, but the latter refused to pay on the ground that negotiable instrument is still binding. The drawer may no longer be secondarily
the drawer, Chaves, had no funds therein. The lower court sentenced the liable but his contractual liability is preserved (Producers Bank of the Philippines
defendant, as indorser, to pay the plaintiff, hence, this petition. ISSUE: vs. Excelsa Industries, Inc.)
WON defendant’s liability can be enforced? HELD: No. Section 89 of the
Negotiable Instruments Law (Act No. 2031) provides that, when a negotiable NYCO SALES CORPORATION VS. BA FINANCE CORPORATION (GR
instrument is dishonored for non-acceptance or non-payment, notice thereof No. 71694; Aug. 16, 1991) - Nyco Sales has discounting privileges with BA
must be given to the drawer and each of the indorsers, and those who are Finance. In 1978, brothers Renato Fernandez and Santiago Renato (officers
not notified shall be discharged from liability, except where this act provides of Sanshell Corporation) approached Rufino Yao, president and general
otherwise. According to this, the indorsers are not liable unless they are manager of Nyco Sales Corporation (Nyco) for a credit accommodation in
notified that the document was dishonored. Then, under the general order for the brothers to make use of Nyco’s discounting privileges. Nyco
principle of the law of procedure, it will be incumbent upon the plaintiff, who agreed and so on November 15, 1978, Sanshell issued a post-dated
seeks to enforce the defendant's liability upon these checks as indorser, to (November 17, 1978) BPI check to Nyco in the amount of P60,000. Following
establish said liability by proving that notice was given to the defendant the discounting process agreed upon, Nyco, thru its president Rufino Yao,
within the time, and in the manner, required by the law that the checks in endorsed the check in favor of BA Finance. Thereafter, BA Finance issued a
question had been dishonored. If these facts are not proven, the plaintiff has check payable to Nyco which endorsed it in favor of Sanshell. Sanshell then
not sufficiently established the defendant's liability. There is no proof in the made use of and/or negotiated the check. Accompanying the exchange of
record tending to show that plaintiff gave any notice whatsoever to the checks was a Deed of Assignment executed by Nyco (assignor) in favor of BA
defendant that the checks in question had been dishonored, and there it has Finance (assignee) with the conformity of Sanshell. The check bounced. BA
not established its cause of action. Hence, petition was granted. Finance notified Sanshell. Sanshell substituted the BPI check with a Security
Bank and Trust Company check. This check again bounced. BA Finance
GULLAS VS PNB (GR. NO. L-43191; NOV. 13, 1935) - The Treasurer of the made repeated demands to Nyco and Sanshell but neither of the two settled
United States issued a warrant in the amount of $361 payable to Francisco the obligation. Hence, BA Finance sued Nyco who averred that it received no
Bacos. Petitioner and Pedro Lopez signed as endorsers of this check. notice of dishonor when the second check was dishonored. ISSUE: WON
Thereupon it was cashed by PNB. Subsequently the treasurer warrant was Nyco Sales is liable to pay BA Finance? HELD: Yes. The relationship between
dishonored by the Insular Treasurer. At that time, Gullas has an outstanding Nyco and BA Finance is one of assignor-assignee. The assignor-vendor
balance of P509 with PNB and had issued certain checks before he left his warrants both the credit itself (its existence and legality) and the person of
residence for Manila. The bank on learning of the dishonor of the treasury the debtor (his solvency), if so stipulated, as in the case at bar.
warrant sent notices by mail to Gullas which could not delivered to him Consequently, if there be any breach of the above warranties, the assignor-
because he is not in Manila. In view of this, the bank applied the outstanding vendor should be held answerable therefor. There is no question then that
balances of Gullas’ current account with the PNB for the payment of the the assignor-vendor is indeed liable for the invalidity of whatever he assigned
check. On the return of Gullas, notice of dishonor was received and the to the assignee-vendee. Considering now the facts of the case at bar, it is
unpaid balance of the US Treasury was paid by him. As a result of this, the beyond dispute that Nyco executed a deed of assignment in favor of BA
checks issued by him before he left for Manila were not paid because of lack Finance with Sanshell Corporation as the debtor-obligor. BA Finance is
of funds standing to his credit in the bank. ISSUE: WON PNB has the right actually enforcing said deed and the check covered thereby is merely an
to apply a deposit to the debt of the depositor to the bank? HELD: No. The incidental or collateral matter. This particular check merely evidenced the
NIL contains provisions establishing the liability of a general indorser and credit which was actually assigned to BA Finance. Thus, the designation is
giving the procedure for a notice of dishonor. The general indorser engages immaterial as it could be any other check. It is only what is represented by
that if he be dishonored and the necessary proceedings of dishonor be duly the said checks that Nyco is being asked to pay. Nyco’s pretension that it
taken, he will pay the amount to the holder. The notice of dishonor is in had not been notified of the fact of dishonor is belied not only by the formal
order to charge all indorser and that the right of action against him does not demand letter issued by BA Finance but also by the fact that Nyco and
accrue until the notice is given. As a general rule, a bank has a right to set Sanshell had frequent contacts before, during and after the dishonor. More
off the deposits in its hands for the payment of any indebtedness to it on the importantly, as long as the credit remains outstanding, Nyco Sales shall
part of the depositor. In the case at bar, though this right to set off exist, the continue to be liable to BA Finance as its assignor. The dishonor of an
remedy was not properly enforced because prior to the mailing of the notice assigned check simply stresses its liability and the failure to give a
of dishonor, and without waiting for any action by Gullas, the bank made use notice of dishonor will not discharge it from such liability. This is
of the money standing in his account to make good for the treasury warrant. because the cause of action stems from the breach of the
warranties embodied in the Deed of Assignment, and not from the
a. When instrument considered dishonored dishonoring of the check alone.
Sec. 83 When instrument dishonored by non-payment. - The c. Who should give notice
instrument is dishonored by non-payment when:
(a) It is duly presented for payment and payment is refused or Sec 90 By whom given. - The notice may be given by or on behalf of the
cannot be obtained; or holder, or by or on behalf of any party to the instrument who might
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be compelled to pay it to the holder, and who, upon taking it up, (a) Either to the post-office nearest to his place of residence or to
would have a right to reimbursement from the party to whom the the post-office where he is accustomed to receive his letters; or
notice is given. (b) If he lives in one place and has his place of business in
Sec. 91 Notice given by agent. - Notice of dishonor may be given by any another, notice may be sent to either place; or
agent either in his own name or in the name of any party entitled to (c) If he is sojourning in another place, notice may be sent to the
given notice, whether that party be his principal or not. place where he is so sojourning.
Sec. 92 Effect of notice on behalf of holder. - Where notice is given by
or on behalf of the holder, it inures to the benefit of all subsequent But where the notice is actually received by the party within the
holders and all prior parties who have a right of recourse against the time specified in this Act, it will be sufficient, though not sent in
party to whom it is given. accordance with the requirement of this section.
Sec. 93 Effect where notice is given by party entitled thereto. -
Where notice is given by or on behalf of a party entitled to give FAR EAST REALTY INVESTMENT INC., vs. THE HONORABLE COURT
notice, it inures to the benefit of the holder and all parties OF APPEALS, DY HIAN TAT, SIY CHEE and GAW SUY AN [G.R. No. L-
subsequent to the party to whom notice is given. 36549, October 5, 1988] - Respondent Dy Hian Tat, Siy Chee and Gaw Suy
An sought the extension of an accommodation loan from petitioner Far East
EXAMPLE: If M issued a note to P or his order, who indorsed it to A, A to B, B Realty Investment which the former will use to further their business.
to C, C to D, present holder, and M dishonors the instrument, D may notify C, Respondents promised to pay, jointly and severally, in one month time. To
who in turn may notify B, A and P. B may notify A and P and A may notify P. insure payment, respondents delivered to Far East Realty Investment a
China Bank Check drawn by Dy Hian Tat issued on September 13, 1960, and
If D gave notice of dishonor to P, A, B and C: C may not notify P, A and B signed by them at the back of said check, with the assurance that after one
because the notice by the holder inures to the benefit of all prior parties who month from September 13, 1960, the said check would be redeemed by
have the right of recourse against the party to whom it is given. respondents by paying cash or the said check can be presented for payment
on or immediately after one month. The loan was actually extended but
On the other hand, if D notified only C but C, in turn, notified P, A and B, D can when the check was presented for payment on March 5, 1964, it was
already hold P, A and B liable because notice by an indorser inures to the dishonored—the account on which it is drawn has long been closed. The trial
benefit of the holder. Additionally, P need not be notified by A and B because court held in favor of petitioner but this was reversed by the CA by ruling
the notice given by C inures to the benefit of all parties subsequent to the party that the said check wasn’t presented within reasonable time and after its
to whom notice is given. issuance. Petitioner contends that presentment for payment and notice of
dishonor are not necessary as when funds are insufficient to meet a check,
d. Time and Place to give notice the drawer is liable, whether such presentment and notice be totally omitted
or merely delayed. ISSUE: WON presentment for payment and notice of
Sec. 103 Where parties reside in same place. - Where the person dishonor of the questioned check were made within reasonable time? HELD:
giving and the person to receive notice reside in the same place, No. Where the instrument is not payable on demand, presentment must be
notice must be given within the following times: 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
(a) If given at the place of business of the person to receive of a bill of exchange, presentment for payment will be sufficient if made
notice, it must be given before the close of business hours on the within a reasonable time after the last negotiation thereof. (Section 71,
day following. Negotiable Instruments Law). "Reasonable time" has been defined as so
(b) If given at his residence, it must be given before the usual much time as is necessary under the circumstances for a reasonable prudent
hours of rest on the day following. and diligent man to do, conveniently, what the contract or duty requires
(c) If sent by mail, it must be deposited in the post office in time should be done, having a regard for the rights and possibility of loss, if any,
to reach him in usual course on the day following. to the other party. In the instant case, the check in question was issued on
Sec. 104 Where parties reside in different places. - Where the person September 13, 1960, but was presented to the drawee bank only on March
giving and the person to receive notice reside in different places, 5, 1964, and dishonored on the same date. After dishonor by the drawee
the notice must be given within the following times: bank, a formal notice of dishonor was made by the petitioner through a
letter dated April 27, 1968. Under these circumstances, the petitioner
(a) If sent by mail, it must be deposited in the post office in time undoubtedly failed to exercise prudence and diligence on what he ought to
to go by mail the day following the day of dishonor, or if there be do as required by law. The petitioner likewise failed to show any justification
no mail at a convenient hour on last day, by the next mail for the unreasonable delay. Notice may be given as soon as instrument has
thereafter. been dishonored and unless delay is excused must be given within the time
(b) If given otherwise than through the post office, then within fixed by law
the time that notice would have been received in due course of
mail, if it had been deposited in the post office within the time Sec. 104: If a note is dishonored on March 1, 2013:
specified in the last subdivision. (a) by mail: the notice must be deposited with the appropriate address duly
Sec. 105 When sender deemed to have given due notice. - Where stamped in such a way that it would be part of the mail that would depart on
notice of dishonor is duly addressed and deposited in the post March 2, 2013;
office, the sender is deemed to have given due notice, (b) personal service: within the same time that the mail will normally reach the
notwithstanding any miscarriage in the mails. destination. Thus, if it usually takes 3 days, then the person may give notice
Sec. 106 Deposit in post office; what constitutes. - Notice is deemed personally within such 3 days.
to have been deposited in the post-office when deposited in any
branch post office or in any letter box under the control of the e. When Notice Not Required, Excused or Dispensed With
post-office department.
Sec. 107 Notice to subsequent party; time of. - Where a party Sec. 109 Waiver of notice. - Notice of dishonor may be waived either
receives notice of dishonor, he has, after the receipt of such before the time of giving notice has arrived or after the omission
notice, the same time for giving notice to antecedent parties that to give due notice, and the waiver may be expressed or implied.
the holder has after the dishonor. Sec. 110 Whom affected by waiver. - Where the waiver is embodied in
Sec. 108 Where notice must be sent. - Where a party has added an the instrument itself, it is binding upon all parties; but, where it is
address to his signature, notice of dishonor must be sent to that written above the signature of an indorser, it binds him only
address; but if he has not given such address, then the notice
must be sent as follows: By waiver, the person renounces the benefit of the act or matter in his favor,
which in the case of Sec. 109 is the benefit of the notice. Accordingly, by
waiver of notice, a drawer or indorser is not discharged from liability by failure
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of the holder to give notice, in fact, the giving of the notice is not necessary Sec. 114 (c): When the drawer is the agent of the drawee, and the former
anymore to hold them liable. dishonors the bill.
Sec. 114 (d): When the drawer closed his account or does not have sufficient
It may be made either (1) expressly or (2) impliedly; funds with the drawee.
It may be given either (1) before the time of giving of notice; or (2) after the Sec. 114 (e): When the drawer directed or ordered the drawee not to pay, such
failure to give notice. as in ordering a Stop Payment.
BINDING EFFECT: If the instrument reads “Pay to the order of P, P10,000 on GREAT ASIAN SALES CENTER CORPORATION and TAN CHONG LIN
March 1, 2013. Notice of dishonor waived”, it is binding upon all parties VS. CA and BANCASIA FINANCE AND INVESTMENT CORPORATIO
secondarily liable thereon. If the waiver is found on an indorsement only, such (G.R. No. 105774; April 25, 2002) - In March 1981, the board of directors of
as “Pay to the order of A. Notice of Dishonor Waived, Sgd. P”, the waiver is Great Asian approved a resolution authorizing its Treasurer and GM, Arsenio
binding only on P. Lim Piat, Jr. to secure a loan from herein Respondent (Bancasia) in an
amount not to exceed P1M and also authorized Arsenio to sign all papers,
Sec. 111. Waiver of protest. - A waiver of protest, whether in the case of a documents or promissory notes necessary to secure the loan. In Feb. 1982,
foreign bill of exchange or other negotiable instrument, is deemed to be a the board of directors of Great Asian approved a second resolution
waiver not only of a formal protest but also of presentment and notice of authorizing Great Asian to secure a discounting line with Bancasia in an
dishonor. amount not exceeding P2M and also designated Arsenio as the authorized
signatory to sign all instruments, documents and checks necessary to secure
PROTEST is a formal statement in writing made by a notary public at the the discounting line. In turn, Great Asian President, Tan Chong Lin, signed 2
instance of the holder declaring that the instrument has been presented for Surety Agreements in favor of Bancasia to guarantee, solidarily, the debts of
payment or for acceptance but the same was dishonored. Great Asian to Bancasia. Great Asian, through Arsenio, signed 4 Deeds of
Assignment of Receivables, assigning to Bancasia 15 postdated checks
Such is indispensable only in a FOREIGN BILL OF EXCHANGE but may also be issued by various customers, which were dishonored on maturity when
the subject of a waiver. deposited for collection by Bancasia, with any of the following as reason for
the dishonor: “account closed”, “payment stopped”, “account under
Sec. 118. When protest need not be made; when must be made. - garnishment”, and “insufficiency of funds”. ISSUE: WON Petitioner’s liability
Where any negotiable instrument has been dishonored, it may be protested for remains despite absence of notice of dishonor from Respondent. HELD:
non-acceptance or non-payment, as the case may be; but protest is not YES. Great Asian’s four contracts assigning its fifteen (15) postdated checks
required except in the case of foreign bills of exchange. to Bancasia expressly stipulate the suspensive condition that in the event the
drawers of the checks fail to pay, Great Asian itself will pay Bancasia. Since
NOTICE OF DISHONOR VS. PROTEST the common condition in the contracts had transpired, an obligation on the
part of Great Asian arose from the four contracts, and that obligation is to
NOTICE OF DISHONOR PROTEST pay Bancasia the full value of the checks, including the stipulated penalty
Apply to inland bills Required in foreign bills, and attorney’s fees. It is to be noted that under the Negotiable Instruments
permissive inland bills Law, notice of dishonor is not required if the drawer has no right to expect
May be verbal or written Always in writing or require the bank to honor the check, or if the drawer has countermanded
Made by a holder or any person Made by a notary public or a payment. In the instant case, all the checks were dishonored for any of the
following reasons: "account closed", "account under garnishment",
who may be compelled to pay respectable resident
insufficiency of funds", or "payment stopped". In the first three instances,
Required to be made usually Protest or noting thereof should
the drawers had no right to expect or require the bank to honor the checks,
within one day after dishonor be made on the day of dishonor
and in the last instance, the drawers had countermanded payment.
Not made or given in the place of As a rule to be made in the place
Furthermore, the explicit with recourse stipulation against Great Asian
dishonor but in the residence of of dishonor
effectively enlarges, by agreement of the parties, the liability of Great Asian
the parties and other places
beyond that of a mere endorser of a negotiable instrument. Thus, whether
mentioned in Sec. 103
or not Bancasia gives notice of dishonor to Great Asian, the latter remains
Sec. 112 When notice is dispensed with. - Notice of dishonor is liable to Bancasia because of the with recourse stipulation which is
dispensed with when, after the exercise of reasonable diligence,
independent of the warranties of an endorser under the Negotiable
it cannot be given to or does not reach the parties sought to be
Instruments Law.
charged.
Sec. 113 Delay in giving notice; how excused. - Delay in giving notice Sec. 115. When notice need not be given to indorser. — Notice of
of dishonor is excused when the delay is caused by
dishonor is not required to be given to an indorser in either of the following
circumstances beyond the control of the holder and not
cases:
imputable to his default, misconduct, or negligence. When the
cause of delay ceases to operate, notice must be given with
(a) When the drawee is a fictitious person or person not having capacity to
reasonable diligence.
contract, and the indorser was aware of that fact at the time he indorsed the
instrument;
EXAMPLE: If notice was not given due to a calamity like flood and typhoon, the (b) Where the indorser is the person to whom the instrument is presented for
delay is excused. However, the holder must give notice once the flood or payment;
typhoon ceases. (c) Where the instrument was made or accepted for his accommodation.
Sec. 114. When notice need not be given to drawer. - Notice of dishonor Sec. 115 (c): Since the indorser is the principal, he cannot really expect the
is not required to be given to the drawer in either of the following cases: accommodation maker to pay.
(a) Where the drawer and drawee are the same person; f. Notice when previously dishonored by non-acceptance
(b) When the drawee is fictitious person or a person not having capacity to
contract;
Sec. 116. Notice of non-payment where acceptance refused. - Where
(c) When the drawer is the person to whom the instrument is presented for
due notice of dishonor by non-acceptance has been given, notice of a
payment;
subsequent dishonor by non-payment is not necessary unless in the meantime
(d) Where the drawer has no right to expect or require that the drawee or
the instrument has been accepted.
acceptor will honor the instrument;
(e) Where the drawer has countermanded payment.
EXAMPLE: DR issued a bill of exchange against DW, drawee, payable to P or
order. P indorsed the same to A, then A to B. When B presented it for
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acceptance, DW dishonored it. B thereafter gave notice of dishonor to DR, P payment to the acceptor for honor or referee in case of need
and A. Later, B still presented:
1. For payment and dishonored, there would be no need to give a second f. Presentment for Payment and Dishonor by Non-Payment
notice of dishonor for the non-payment;
2. For acceptance and it was accepted, then later on dishonored by non- Sec. 168 Presentment for payment to acceptor for honor, how
payment, it is necessary to give a notice of dishonor for non-acceptance. made. - Presentment for payment to the acceptor for honor must
be made as follows:
ACCEPTANCE FOR HONOR
(a) If it is to be presented in the place where the protest for non-
Sec. 165. Agreement of acceptor for honor. - The acceptor for honor, by payment was made, it must be presented not later than the day
such acceptance, engages that he will, on due presentment, pay the bill following its maturity.
according to the terms of his acceptance provided it shall not have been paid (b) If it is to be presented in some other place than the place
by the drawee and provided also that is shall have been duly presented for where it was protested, then it must be forwarded within the time
payment and protested for non-payment and notice of dishonor given to him. specified in Section one hundred and four.
Sec. 169 When delay in making presentment is excused. - The
The liability of the acceptor for honor is in effect secondary because his provisions of Section eighty-one apply where there is delay in
engagement is to pay only if it shall not have been paid by the drawee and making presentment to the acceptor for honor or referee in case
provided also that it shall have been duly presented for payment and protested of need
for non-payment and notice of dishonor given to him. Acceptance for honor is Sec. 170 Dishonor of bill by acceptor for honor. - When the bill is
also called acceptance supra protest or acceptance after protest. dishonored by the acceptor for honor, it must be protested for
non-payment by him
a. Requisites
ORDINARY ACCEPTANCE VS. ACCEPTANCE FOR HONOR
Sec. 161. When bill may be accepted for honor. - When a bill of exchange
has been (1) protested for dishonor by non-acceptance or protested for better ACCEPTANCE FOR HONOR ORDINARY ACCEPTANCE
security and is (2) not overdue, (3) any person not being a party already Protest is a prerequisite Protest is not necessary
liable thereon may, (4) with the consent of the holder, intervene and accept The acceptor must be a stranger The person who accepts is a party
the bill supra protest for the honor of any party liable thereon or for the honor – the drawee
of the person for whose account the bill is drawn. The acceptance for honor There must be an express Any word indicating an acceptance
may be for part only of the sum for which the bill is drawn; and where there statement that it is for honor is enough
has been an acceptance for honor for one party, there may be a further Consent of the holder is necessary Consent of the holder is not
acceptance by a different person for the honor of another party. necessary
Liability of acceptor is secondary Acceptor is primarily liable
Sec. 162. Acceptance for honor; how made. - An acceptance for honor
Payment of the acceptor will not Payment by the acceptor in due
supra protest (5) must be in writing and indicate that it is an acceptance for discharge the bill course discharges the bill
honor and must be signed by the acceptor for honor. (formal requisites)
Acceptance may be in favor of Acceptance involves the entire
only one or some of the parties instrument
b. In whose favor?
Sec. 163. When deemed to be an acceptance for honor of the drawer. -

VIII. DISCHARGE
Where an acceptance for honor does not expressly state for whose honor it is
made, it is deemed to be an acceptance for the honor of the drawer.
A. CONCEPT
c. Liability of Acceptor for Honor Discharge means release from further liability, obligation, or from the binding
effect of the negotiable instrument.
Sec. 164. Liability of the acceptor for honor. - The acceptor for honor is 1. As to the paper itself, it puts an end to it as a contractual obligation;
liable to the holder and to all parties to the bill subsequent to the party for 2. As to the parties to the instrument, it operates as a release of some or all
whose honor he has accepted of them from further obligation and liability under the instrument although
the instrument may not be discharged, as where only part of the obligors
EXAMPLE: DR issued a bill of exchange ordering DW to pay P or order P10,000. are released.
P indorsed it to A, A to B, B to C, C to D, present holder. DW refused to accept
the instrument and protest was duly made. X accepted the instrument in favor B. HOW INSTRUMENT IS DISCHARGED
of B. X is liable as acceptor for honor to B and the parties subsequent to him (C
and D); X is not liable to P and A. Sec. 119 Instrument; how discharged. - A negotiable instrument is
discharged:
d. Maturity Date of Sight Bills
(a) By payment in due course by or on behalf of the principal
Sec. 166. Maturity of bill payable after sight; accepted for honor. - debtor;
Where a bill payable after sight is accepted for honor, its maturity is calculated (b) By payment in due course by the party accommodated,
from the date of the noting for non-acceptance and not from the date of the where the instrument is made or accepted for his
acceptance for honor accommodation;
(c) By the intentional cancellation thereof by the holder;
EXAMPLE: If a bill is payable 10 days after sight and was dishonored by non- (d) By any other act which will discharge a simple contract for
acceptance on March 1, 2013 but was accepted for honor on March 5, 2013, the payment of money;
the maturity date shall be March 11, 2013 not March 15, 2013. (e) When the principal debtor becomes the holder of the
instrument at or after maturity in his own right.
e. Protest required
A. Payment in Due Course
Sec. 167. Protest of bill accepted for honor, and so forth. - Where a
dishonored bill has been accepted for honor supra protest or contains a referee Sec. 88. What constitutes payment in due course. - Payment is made in
in case of need, it must be protested for non-payment before it is presented for due course when it is made at or after the maturity of the payment to the
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holder thereof in good faith and without notice that his title is defective cancellation was made unintentionally or under a mistake or without authority
a. By Whom Made: Unlike renunciation, the law does not require cancellation to be in writing.
1. Primary Party Liabile, i.e., a maker or acceptor; Thus, there is cancellation if the agent of the holder burned the note with the
2. Surety for the principal debtor, signing as a secondary party; knowledge and consent of the said holder.
3. A person paying “on behalf of the principal debtor” also discharges
the instrument under the principles of the law on agency; D. Acts that Discharges Simple Contracts – Sec. 1199(d)
b. Payment By Person Secondarily Liable does not discharge Civil Code, Art. 1231. Obligations are extinguished:
the instrument; EXCEPTIONS. (1) By payment or performance:
(2) By the loss of the thing due:
Sec. 121. Right of party who discharges instrument. - Where the instrument is (3) By the condonation or remission of the debt;
paid by a party secondarily liable thereon, it is not discharged; but the party so (4) By the confusion or merger of the rights of creditor and debtor;
paying it is remitted to his former rights as regard all prior parties, and he may (5) By compensation;
strike out his own and all subsequent indorsements and against negotiate the (6) By novation.
instrument, except:
Other causes of extinguishment of obligations, such as annulment, rescission,
(a) Where it is payable to the order of a third person and has been paid by the fulfillment of a resolutory condition, and prescription, are governed elsewhere
drawer; and in this Code.
(b) Where it was made or accepted for accommodation and has been paid by
the party accommodated. STATE INVESTMENT HOUSE VS. COURT OF APPEALS (217 SCRA 32
[1993]) – Nora Moulic issued checks to Corazon Victoriano as deposit for
Payment by the drawer discharges the instrument since he is the one ultimately jewelry that she obtained from the latter which were meant to be sold to
liable. If he were to seek reimbursement from the payee, indorsee(s) or the other persons. When she was returning the jewelry, the payee failed to
drawee, the liability to such parties would ultimately be his. Unless, the amount return the checks because she already negotiated the same to the petitioner.
in the instrument has been advanced by the drawer to the drawee, in such Moulic withdrew her funds from the drawee bank. ISSUE: WON the
case, he may recover the amount paid to the holder from such drawee. obligation is extinguished? HELD: No. The acts which will discharge a simple
contract for the payment of money under Sec. 119(d) are determined by
Payment by the accommodated party discharges the instrument because he is other existing legislations, e.g., Art. 1231 of the Civil Code. None of the
the principal in the case contemplated by Sec. 121(b). modes outlined therein is applicable in the instant case as Sec. 199
contemplates of a situation where the holder is the creditor while its drawer
c. Payment by a Third Person is the debtor. In the present action, the payee, Corazon Victoriano, was no
longer Moulic’s creditor at the time the jewelry were returned.
Payment by a third person who pays for the benefit or in behalf of the maker
and does not wish to acquire any right over the instrument also discharges the E. Principal Debtor Becomes the Holder – Sec. 119(e)
instrument. If he intends to acquire a right over such instrument, he may be
considered a holder or assignee, as the case may be. Under the Civil Code, a a. An instrument is discharged when the principal debtor becomes the
creditor, though not bound to accept payment from a third person, is not holder of the instrument at or after maturity date in his own right.
prohibited from doing so. b. “In his own right” has been construed to exclude a case where a
maker acquires the instrument in a purely representative capacity.
d. To Whom Thus, the note is not discharged when the maker acquires it as agent
of another.
Payment must be to the holder. Payment to a payee who already negotiated c. Nor is it discharged when the maker becomes the holder for
the instrument will not discharge the instrument because he is no longer the example, as executor or administrator.
holder, the same is true when payment is made to a possessor to whom the d. HOWEVER, the maker is discharged even if he acquired the
instrument was not indorsed. instrument through an agent who did not disclose his principal.
e. Good Faith SIGLER VS. SIGLER (98 Kans. 158, p. 864 [1916]) – A certain Joseph
Sigler issued a negotiable note to Ode Sigler. Later, Joseph employed RC
Sec. 88 also requires that the payor be in good faith and without notice that Wilson to purchase the note from Ode at the lowest possible price. When
the payee’s title is defective. Accordingly, a holder who has been deprived of Ode learned that Wilson was really the agent of Joseph, he sued the latter
the instrument may still enforce payment against a payor who HAD NOTICE of but Joseph claimed that the instrument was discharged. HELD: The Court
defect in the payee’s title. sustained Joseph explaining that there is no principle of law that would
prevent an individual from going into the market and purchasing, at a
B. Renunciation discount or otherwise, securities upon which he is indebted and which he has
put in circulation. If he may do so himself, he may accomplish the same
Sec. 122. Renunciation by holder. - The holder may expressly renounce his thing through an agent who acts without disclosing the agency.
rights against any party to the instrument before, at, or after its maturity. An
absolute and unconditional renunciation of his rights against the principal F. Payment for Honor
debtor made at or after the maturity of the instrument discharges the
instrument. But a renunciation does not affect the rights of a holder in due Sec. 171 Who may make payment for honor. - Where a bill has been
course without notice. A renunciation must be in writing unless the protested for non-payment, any person may intervene and pay it
instrument is delivered up to the person primarily liable thereon. supra protest for the honor of any person liable thereon or for the
honor of the person for whose account it was drawn.
C. Intentional Cancellation – Sec. 119(c) Sec. 172 Payment for honor; how made. - The payment for honor supra
protest, in order to operate as such and not as a mere voluntary
Rule in Case of Unintentional Cancellation payment, must be attested by a notarial act of honor which
may be appended to the protest or form an extension to it.
Sec. 123. Cancellation; unintentional; burden of proof. - A cancellation Sec. 173 Declaration before payment for honor. - The notarial act of
made unintentionally or under a mistake or without the authority of the holder, honor must be founded on a declaration made by the payer for
is inoperative but where an instrument or any signature thereon appears to honor or by his agent in that behalf declaring his intention to
have been cancelled, the burden of proof lies on the party who alleges that the pay the bill for honor and for whose honor he pays
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honor payment is made

a. Preference
G. Surrender of Instrument Upon Discharge
Sec. 174. Preference of parties offering to pay for honor. - Where two or
more persons offer to pay a bill for the honor of different parties, the person The instrument must be surrendered to the payor whenever discharge is by
whose payment will discharge most parties to the bill is to be given the payment by or in behalf of the principal debtor, payment by the accommodated
preference. party, by renunciation or by any other ground that discharges simple contracts.
If the instrument is not surrendered, it may fall in the hands of a holder in due
b. Effect on Subsequent Parties course who may have the right to enforce the instrument despite the previous
payment that was made.
Sec. 175. Effect on subsequent parties where bill is paid for honor. -
Where a bill has been paid for honor, all parties subsequent to the party for H. Discharge of Persons SECONDARILY LIABLE
whose honor it is paid are discharged but the payer for honor is subrogated
for, and succeeds to, both the rights and duties of the holder as regards the Sec. 120. When persons secondarily liable on the instrument are
party for whose honor he pays and all parties liable to the latter. discharged. - A person secondarily liable on the instrument is discharged:
EXAMPLE: DR issued a bill of exchange ordering DW to pay P or order. P (a) By any act which discharges the instrument;
indorsed it to A, A to B, B to C and C to D, present holder. Later, DW refused to (b) By the intentional cancellation of his signature by the holder;
pay and protest was duly made. X made a payment for the honor of A. (c) By the discharge of a prior party;
1. B, C and D are discharged; (d) By a valid tender or payment made by a prior party;
2. X has a right of recourse against the persons liable to A, i.e., DR and P. (e) By a release of the principal debtor unless the holder's right of recourse
against the party secondarily liable is expressly reserved;
c. Holder has no option (f) By any agreement binding upon the holder to extend the time of payment or
to postpone the holder's right to enforce the instrument unless made with the
Sec. 176. Where holder refuses to receive payment supra protest. - assent of the party secondarily liable or unless the right of recourse against
Where the holder of a bill refuses to receive payment supra protest, he loses such party is expressly reserved.
his right of recourse against any party who would have been
discharged by such payment. Sec. 120(a): Those previously discussed mentioned in Sec. 119;
In the previous example, if D refused to accept payment for the honor of A, he Sec. 120(b) and (c): The cancellation of an indorsement of a person
loses his right of recourse against B and C, who would have been discharged. secondarily liable may result in the discharge of that person whose signature
was stricken-off and also of subsequent parties, as provided in Sec. 48 (see p.
d. Rights of Payer 13). The subsequent parties are likewise discharged since they are deprived of
their right of recourse against the party whose signature was stricken-off.
Sec. 177. Rights of payer for honor. - The payer for honor, on paying to the
holder the (1) amount of the bill and the (2) notarial expenses incidental to its Sec. 120(c): As suggested by the majority view, does not include discharge by
dishonor, is entitled to receive both the bill itself and the protest. operation of law, such as bankruptcy, insolvency, prescription or failure to give
notice of dishonor but only those discharged by virtue of some act of the
e. Payment for Honor vs. Acceptance for Honor creditor.
PAYMENT FOR HONOR ACCEPTANCE FOR HONOR Sec. 120(d): “Tender of Payment” means the act by one which produces and
There must be protest for non- There must be prior protest for offers to a person holding a claim or demand against him the amount of money
payment non-acceptance or for better which he considers and admits to be due, in satisfaction of such claim or
security demand without any stipulation or condition. The rule is only fair because it is
The bill is already overdue The bill is not yet overdue the fault of the holder that he did not receive payment. If he accepted the
The person who will pay may be a The acceptor must be a stranger tender of payment by a prior party, the subsequent party would have been
discharged.
stranger or a party
The consent of the holder is not The consent of the holder is a
Sec. 120(e): When the principal debtor is released from liability, the parties
necessary and the holder who requisite
secondarily liable loses their right of recourse against the former. Under this
refuses to accept payment loses his
paragraph, in order to holder the secondary liability, there must be express
right of recourse against any party
reservation of the right of recourse against parties secondarily liable, which
who may be discharged by such
produces the implied reservation of their (parties secondarily liable) right of
payment.
recourse against the maker.
f. Payment for Honor vs. Payment by Person Primarily Liable
Sec. 120(f): Extension of Term: the assurance of the drawer and the
indorsers is payment according to the tenor of the instruments, an extension of
PAYMENT FOR HONOR PAYMENT BY PERSON
time agreed by the holder and the principal debtor, therefore, releases those
PRIMARILY LIABLE
parties from secondary liability which varies from the original undertaking of
There must be protest for non- There is no need to protest for the secondary parties. It is suggested by Aquino that this rule applies to an
payment non-payment or non-acceptance accommodated party who is the principal debtor but not to an accommodation
A notarial act is necessary A notarial act is not necessary indorser, who must also be discharged by the extension agreed upon by the
The person who will pay may be a The person who will pay is a party principal debtor and the holder.
stranger or may be a party – maker or drawee-acceptor
It cannot be payment in due Payment in due course discharges IX. CHECKS
course and payment discharges the instrument
only the parties after the party in A. CHECKS DEFINED
whose favor payment for honor is
made Sec. 185. Check, defined. - A check is a bill of exchange drawn on a bank
In favor of a specified person and Payment is not in favor of specific payable on demand. Except as herein otherwise provided, the provisions of this
the law requires that there is a parties Act applicable to a bill of exchange payable on demand apply to a check
statement of the person for whose
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Checks are used between banks and bankers and their customers, and are possesses funds of a depositor, it is bound to honor his checks to the extent
designed to facilitate banking operations. It is the essence to be payable on of the amount of his deposits. The failure of the bank to pay the check when
demand, because the contract between the banker and the customer is that the deposit is sufficient, entitles the drawer to substantial damages without
the money is needed on demand (Banco de Oro Savings vs. Equitable Banking any proof of actual damages. Conversely, a bank is not liable for its refusal
Corporation, supra, p.3) to pay a check on account of insufficient funds, notwithstanding the fact that
a deposit may be made later in the day.
B. DISINGUISHED FROM DRAFT
This relationship between the drawer and the drawee bank makes the
REPUBLIC OF THE PHILIPPINES VS. PNB (GR No. L-16106; Dec. 30, drawee bank liable to the drawer in case of wrongful dishonor of checks. A
1961) – A demand draft is a bill of exchange payable on demand, as such, it drawee bank who wrongfully dishonors a check is not liable to the
is an open letter request from, and an order by, one person on another to payee for lack of privity but it is liable to the drawer because of
pay a sum of money therein mentioned to a third person, on demand or at a breach of contract.
future time specified therein. In fact, the term “draft” is often used, and is
the common term, for all “bills of exchange”. And the two words are used Sec. 189. When check operates as an assignment. - A check of itself does
indiscriminately. not operate as an assignment of any part of the funds to the credit of the
drawer with the bank, and the bank is not liable to the holder unless and until it
A bill of exchange, within the meaning of NIL does not operate as an accepts or certifies the check
assignment of funds in the hands of the drawee who is not liable on
the instrument until he accepts it (Sec. 127). In fact, our law requires 3. As a consequence of the above provision, the drawee is not liable to the
that they be presented either for acceptance or for payment within a payee just because the drawer actually issued the check to him for
reasonable time after their issuance or after their last negotiation (Sec. 71), valuable consideration. There is no obligation on the drawee’s part to
failure of which will discharge the drawer from liability or to the extent of the honor the check and the payee has no cause of action against the drawee
loss caused by the delay (Sec. 186). even if the dishonor was wrongful.
A demand draft is very different from a cashier’s or manager’s check, HSBC INTERNATIONAL TRUSTEE LIMITED vs. CECILIA DIEZ
contrary to appellant’s pretense, for it has been held that the latter is a CATALAN (G.R. No. 159590 & 15959; October 18, 2004) - Frederick Arthur
primary obligation of the bank which issues it and constitutes its written Thomson drew 5 checks payable to Catalan in the total amount of HK$3.2
promise to pay upon demand. In In Re Bank of the United States (277 NYS million. Catalan presented these checks to HSBC. The checks were
96, 100), a cashier’s check has been characterized as follows: dishonored for having insufficient funds. Thomson demanded that the checks
be made good because he, in fact, had sufficient funds. Catalan knowing
“A cashier's check issued by a bank, however, is not an ordinary draft. The that Thomson had communicated with the Bank, asked HSBC Bank to clear
latter is a bill of exchange payable demand. It is an order upon a third party the checks and pay her the said amount. HSBC did not heed her. Thomson
purporting to be drawn upon a deposit of funds. A cashier's check is of a died but Catalan was not paid yet. The account was transferred to HSBC
very different character. It is the primary obligation of the bank which issues [Trustee]. Catalan then requested Trustee to pay her. They still refused and
it (Nissenbaum v. State, 38 Ga. App. 253, S.E. 776) and constitutes its even asked her to submit back to them the original checks for verification.
written promise to pay upon demand (Steinmetz v. Schultz, 59 S.D. 603, 241 Catalan and her lawyer went to Hongkong on their own expense to
N.W. 734)…” personally submit the checks. They still were not honored, leading Catalan to
file a suit against HSBC to collect her HK$3.2M. ISSUE: Whether or not
The following definitions cited by appellant also confirm this view: Catalan has a cause of action. HELD: Yes. Although Catalan has no cause of
action because under Section 189, they payee may sue the drawee based on
“A cashier's check is a check of the bank's cashier on his or another bank. It tort under Art. 19 of the Civil Code. HSBC is not being sued on the value of
is in effect a bill of exchange drawn by a bank on itself and accepted in the check itself but for how it acted in relation to Catalan’s claim for payment
advance by the act of issuance (10 C.J.S. 409).” despite the repeated directives of the drawer Thomson to recognize the
check the latter issued. Catalan may have prayed that she be paid the value
“A cashier's check issued on request of a depositor is the substantial of the checks but it is axiomatic that what determines the nature of an
equivalent of a certified check and the deposit represented by the check action, as well as which court has jurisdiction over it, are the allegations of
passes to the credit of the checkholder, who is thereafter a depositor to that the complaint, irrespective of whether or not the plaintiff is entitled to
amount (Lummus Cotton Gin Co. v. Walker, 70 So. 754, 756, 195 Ala. 552).” recover upon all or some of the claims asserted therein.
“A cashier's check, being merely a bill of exchange drawn by a bank on itself, D. KINDS OF CHECK
and accepted in advance by the act of issuance, is not subject to
countermand by the payee after indorsement, and has the same legal effects 1. Cashier’s Check and Manager’s Check
as a certificate deposit or a certified check (Walker v. Sellers, 77 So. 715,
201 Ala. 189).” BSP Circular No. 291 – Series of 2001
A demand draft is not therefore of the same category as a cashier's check The Monetary Board, in its Resolution No. 707 dated 10 May 2001 decided to
which should come within the purview of the law. authorize the issuance of cashier’s, manager’s or certified checks or other
similar instruments in blank or payable to cash, bearer or numbered account as
C. RELATIONSHIP BETWEEN DRAWER, DRAWEE AND PAYEE an exception from the provisions of Circular no. 259, subject to the following
conditions:
1. Ordinarily, checks are drawn on bank accounts that are opened by
drawers on drawee banks. The drawer of the check is a depositor of the a. That the amount of each check shall not exceed P10,000;
drawee bank.
b. That the buyer of the check is properly identified as required under Circular
2. The drawer issues checks in payment of an obligation to a payee. But a No. 259 dated 29 September 2000; and
payee does not have contractual relationship with the drawee bank.
c. That a register of gift checks issued shall be maintained with the following
SPOUSES MORAN AND LIBRADA MORAN VS. CA (GR No. 105836; minimum information:
March 7, 1994) – The relationship between the bank and the depositor is 1. Date issued;
that of a debtor and creditor. By virtue of the contract of deposit between 2. Amount;
them, the banker agrees to pay checks drawn by the depositor provided that 3. Name of buyer;
said depositor has money in the hands of the bank. Hence, where the bank 4. Date paid;
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5. If the aggregate instruments purchased by the same person within any PNB VS. NATIONAL CITY BANK OF NEW YORK (63 Phil 11) – When a
thirty (30) day period amounts to at least fifty thousand pesos check is certified, it ceases to possess the character, or to perform the
(P50,000), the purpose of the buyer should be stated. functions, of a check, and represents so much money on deposit, payable to
the holder on demand. The check becomes a basis of credit – an easy mode
d. That banks which issue as well as those which accept as deposits, said of passing money from hand to hand, and answers the purposes of money.
cashier’s, manager’s or certified checks or other similar instruments issued in
blank or payable to cash, bearer or numbered account shall take such d. Provisions in NIL Related to Certified Checks
measure(s) as may be necessary to ensure that said instruments are not being
used/resorted to by the buyer or depositor in furtherance of a money- Sec. 187 Certification of check; effect of. - Where a check is certified by
laundering activity. the bank on which it is drawn, the certification is equivalent to an
acceptance
e. That the deposit of said instruments shall be subject to the same Sec. 188 Effect where the holder of check procures it to be certified.
requirements/scrutiny applicable to cash deposits. - Where the holder of a check procures it to be accepted or
certified, the drawer and all indorsers are discharged from liability
f. That transactions involving said instruments should be accordingly reported thereon
to the Bangko Sentral ng Pilipinas if there is reasonable ground to suspect that Sec. 189 When check operates as an assignment. - A check of itself
said transactions are being used to launder funds of illegitimate origin. does not operate as an assignment of any part of the funds to the
credit of the drawer with the bank, and the bank is not liable to the
2. Certified Check holder unless and until it accepts or certifies the check
a. A certified check is one drawn by a depositor upon funds to his credit in a Sec. 188: The holder, by requesting such certification instead of payment,
bank which a proper officer of the bank certifies will be paid when duly enters into a new contract with the bank, and one not within the contemplation
presented for payment. It is analogous to a certificate of deposit of a of the drawer or a prior indorser, since they expect that the check will be
certifying bank. presented for payment and not to be certified.
b. Certification is similar to acceptance but different in the sense that: (1)
Certification at the instance of the holder discharges while there is no 3. Crossed Checks
discharge in an ordinary acceptance; (2) In certification, the bank debits
the drawer’s account at the time of certification and sets aside funds out ASSOCIATED BANK VS CA (GR No. 89802; May 7, 1992) – ISSUE: WON
of the drawer’s control. Private Respondent Merle Reyes, doing business under the name and style
c. Thus, the effect of certification is the same as thought the money had Melissa’s RWT, has a cause of action against petitioners Associated Bank and
been paid by the bank to the holder and redeposited by him in his own Conrado Cruz for their encashment and payment to another person of certain
credit. crossed checks issued in her favor? HELD: Yes. Under accepted banking
practice, crossing a check is done by writing two parallel lines
NEW PACIFIC TIMBER & SUPPLY COMPANY, INC. vs. HON. diagonally on the left top portion of the checks. The crossing is special
ALBERTO V. SENERIS RICARDO A. TONG and EX-OFFICIO SHERIFF where the name of a bank or a business institution is written between
HAKIM S. ABDULWAHID [G.R. No. L-41764 December 19, 1980] - A the two parallel lines, which means that the drawee should pay only
compromise judgment was rendered by the respondent Judge against New with the intervention of that company. The crossing is general where
Pacific Timber. For failure of the petitioner to comply with his judgment the words written between the two parallel lines are "and Co." or "for
obligation, a writ of execution was issued for the amount of P63,130.00 payee's account only," as in the case at bar. This means that the drawee
pursuant to which, the Ex-Officio Sheriff levied upon the following personal bank should not encash the check but merely accept it for deposit. In State
properties of the petitioner. Prior to the auction sale, petitioner deposited Investment House Inc vs. IAC (supra, p. 19), the Court declared the effects of
with the CFI, in his capacity as Ex-Officio Sheriff of Zamboanga City, the sum crossing a check. The effects therefore of crossing a check relate to the mode
of P63,130.00. Private respondent refused to accept the check as well as the of its presentment for payment. Under Sec. 72 of the Negotiable Instruments
cash deposit. Private respondent requested the scheduled auction to proceed Law, presentment for payment, to be sufficient, must be made by the holder or
if the petitioner cannot produce the cash. In the course of the proceedings, by some person authorized to receive payment on his behalf. Who the holder
Deputy Sheriff Castro sold the levied properties item by item to the private or authorized person is depends on the instruction stated on the face of the
respondent as the highest bidder in the amount of P50,000.00. As a result check. The six checks in the case at bar had been crossed and issued "for
thereof, the Ex-Officio Sheriff declared a deficiency of P13,130.00. Petitioner payee's account only." This could only signify that the drawers had intended
filed an ex-parte motion for issuance of certificate of satisfaction of the same for deposit only by the person indicated, to wit, Melissa's RTW. There
judgment. This motion was denied by the respondent Judge. Petitioner now being no evidence that the crossed checks were actually received by the private
questions said order as there was already a full satisfaction of the judgment respondent, she would have a right of action against the drawer companies,
before the auction sale was conducted. ISSUE: WON the private respondent which in turn could go against their respective drawee banks, which in turn
can validly refuse acceptance of the payment of the judgment obligation in could sue the herein petitioner as collecting bank. In a similar situation, it was
Cashier's check which it deposited with the Ex-Officio Sheriff before the date held that, to simplify proceedings, the payee of the illegally encashed checks
of the scheduled auction sale? HELD: No valid reason for the private should be allowed to recover directly from the bank responsible for such
respondent to have refused acceptance of the payment of the obligation in encashment regardless of whether or not the checks were actually delivered to
his favor. It is to be emphasized in this connection that the check deposited the payee.
by the petitioner in the amount of P50,000.00 is not an ordinary check but a
Cashier's Check of the Equitable Banking Corporation, a bank of good a. APPLICABLE LAW
standing and reputation. As testified to by the Ex-Officio Sheriff with whom it
has been deposited, it is a certified crossed check. It is a well-known and There is no provision in the NIL that governs crossed check. However, a
accepted practice in the business sector that a Cashier's Check is deemed as provision concerning such type of check can be found in the Code of
cash. Moreover, since the said check had been certified by the Commerce:
drawee bank, by the certification, the funds represented by the
check are transferred from the credit of the maker to that of the Sec. 541. The maker or any legal holder of a check shall be entitled to indicate
payee or holder, and for all intents and purposes, the latter therein that it be paid to a certain banker or institution, which he shall do by
becomes the depositor of the drawee bank, with rights and duties writing across the face the name of said banker or institution, or only the words
of one in such situation. The exception to the rule enunciated under “and company”.
Section 63 of the Central Bank Act to the effect "that a check which has
been cleared and credited to the account of the creditor shall be equivalent The payment made to a person other than the banker or institution shall not
to a delivery to the creditor in cash in an amount equal to the amount exempt the person on whom it is drawn, if the payment was not correctly
credited to his account" shall apply in this case. made.
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And the Bills of Exchange Act of 1882, cited in Chan Wan vs. Tan Kim (supra, Respondent Court with violation of B.P. 22 in an Information alleging that he
p. 15): drew and issued to one Fatima Cortez Sasaki a check in the amount of
Php143,000.00, well knowing, however, that at the time of issue, he did not
76 General and special crossings defined. have sufficient funds with the drawee bank – the reason for the latter to
dishonor the subject check. Respondent Lim, despite receipt of notice of
(1)Where a cheque bears across its face an addition of— such dishonor, failed to pay Sasaki the amount of said check or to make
arrangement for full payment of the same within five (5) banking days after
(a)The words “and company” or any abbreviation thereof between two receiving said notice. In his Motion to Quash, Lim averred that the facts did
parallel transverse lines, either with or without the words “not not constitute a felony because the kind of check he issued, it being a
negotiable”; or memorandum check, was in the nature of a promissory note, perforce, and
(b)Two parallel transverse lines simply, either with or without the civil in nature. Citing U.S. v. Isham, private respondent contended that
words “not negotiable”; although a memorandum check may not differ in form and appearance from
an ordinary check, such a check is given by the drawer to the payee more in
That addition constitutes a crossing, and the cheque is crossed the nature of memorandum of indebtedness and, should be sued upon in a
generally. civil action. Consequently, herein Respondent Judge Nitafan, ruling that B.P.
22 on which the Information was based was unconstitutional, issued the
(2)Where a cheque bears across its face an addition of the name of a questioned Order quashing the Information. Hence, this petition for review
banker, either with or without the words “not negotiable,” that addition on certiorari filed by the Solicitor General in behalf of the government.
constitutes a crossing, and the cheque is crossed specially and to that ISSUE: WON the parameters of a concept of check under B.P. 22 include all
banker. checks, specifically, memorandum check, that are drawn against bank?
77 Crossing by drawer or after issue. HELD: YES. A memorandum check is in the form of an ordinary
check, with the word "memorandum", "memo" or "mem" written
(1)A cheque may be crossed generally or specially by the drawer. across its face, signifying that the maker or drawer engages to pay
the bona fide holder absolutely, without any condition concerning
(2)Where a cheque is uncrossed, the holder may cross it generally or its presentment. Such a check is an evidence of debt against the drawer,
specially. and although may not be intended to be presented, has the same
effect as an ordinary check, and if passed to the third person, will
(3)Where a cheque is crossed generally the holder may cross it be valid in his hands like any other check. From the above definition, it
specially. is clear that a memorandum check, which is in the form of an ordinary
check, is still drawn on a bank and should therefore be distinguished from a
(4)Where a cheque is crossed generally or specially, the holder may promissory note, which is but a mere promise to pay. If private respondent
add the words “not negotiable.” seeks to equate memorandum check with promissory note, as he does to
skirt the provisions of B.P. 22, he could very well have issued a promissory
(5)Where a cheque is crossed specially, the banker to whom it is note, and this would be have exempted him form the coverage of the law. In
crossed may again cross it specially to another banker for collection. the business community a promissory note, certainly, has less impact and
persuadability than a check. A memorandum check must therefore fall within
(6)Where an uncrossed cheque, or a cheque crossed generally, is sent the ambit of B.P. 22 which does not distinguish but merely provides that
to a banker for collection, he may cross it specially to himself. "[a]ny person who makes or draws and issues any check knowing at the
time of issue that he does not have sufficient funds in or credit with the
b. EFFECTS OF CROSSING CHECKS drawee bank . . . which check is subsequently dishonored . . . shall be
punished by imprisonment.
STATE INVESTMENT HOUSE INC. VS. IAC (supra, p.19) – (1) the check
may not be encashed but only deposited in the bank; (2) the check may be b. Traveller’s Check
negotiated only once to one who has an account with a bank; and (3) the
act of crossing the check serves as a warning to the holder that the check Traveller’s checks are instruments purchased from banks, express companies,
has been issued for a definite purpose so that he must inquire if he has or the like, in various denominations, which can be used like cash upon second
received the check pursuant to that purpose, otherwise he is not a holder in signature by the purchaser. It has the characteristics of a cashier’s check of the
due course. issuer. It requires the signature of the purchaser at the time he buys it and also
at the time he uses it – that is when he obtains the check from the bank and
BATAAN CIGAR AND CIGARETTE FACTORY, INC. VS. CA (supra, p. 18) also at the time he delivers the same to the establishment that will be paid
– The negotiability of the check is not affected by it being crossed, whether thereby (Black’s Law Dictionary).
generally or specially. It may legally be negotiated from one person to
another as long as the one who encashes the check with the drawee bank is E. CHECKS AND BILLS OF EXCHANGE DISTINGUISHED
another bank, or if it is specially crossed, by the bank mentioned between
parallel lines. BILLS OF EXCHANGE CHECKS
Not necessarily drawn on a deposit It is necessary that a check is
GEMPESAW VS. CA (supra, p. 14) – Issuing a crossed check imposes no drawn on a deposit
obligation on the drawee not honor such a check. It is more of a warning to Death of a drawer of a BOE with Death of the drawer of a check,
the holder that the check cannot be presented to the drawee bank for the knowledge of the bank does with the knowledge of the bank,
payment in cash. Instead, the check can only be deposited with the payee’s not revoke the authority of the revokes the authority of the
bank which in turn must present it for payment against the drawee bank in banker to pay banker to pay
the course of normal banking transactions between banks. The crossed May be presented for payment Must be presented for payment
check cannot be presented for payment but it can only be deposited and the within a reasonable tie after its within a reasonable time after its
drawee bank may only pay to another bank in the payee’s or indorser’s last negotiation if payable on issue
account. demand
The drawee may or may not be a The drawee is always a bank
4. MEMORANDUM AND TRAVELLER’S CHECK bank
Presentment for acceptance is Presentment for acceptance is not
a. Memorandum Check necessary for certain types of bills necessary
of exchange
PEOPLE VS. NITAFAN (GR No. 75954; Oct. 22, 1992) - Accused K.T. Lim May be payable on demand or at a Always payable on demand
a.k.a Mariano Lim, herein Private Respondent, was charged before fixed or determinable future time
ヌネ Cesar Nickolai F. Soriano Jr.


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J. CRIMES INVOLVING CHECKS

F. WHEN REQUIRED TO BE PRESENTED FOR PAYMENT
1. Estafa
Sec. 185. Check, defined. - A check is a bill of exchange drawn on a bank
payable on demand. Except as herein otherwise provided, the provisions RPC, Art. 315. Swindling (Estafa). – Any person who shall defraud another
of this Act applicable to a bill of exchange payable on demand apply by any of the means mentioned hereinbelow shall be punished by:
to a check.
xxx
G. EFFECT OF DEATH OF DRAWER
2. By means of any of the following false pretenses or fraudulent acts executed
The authority of the drawee bank to honor a check drawn against it is said to prior to or simultaneously with the commission of the fraud:
be terminated by the death of the drawer. There is no provision in the NIL
expressing this rule. However, the Bill of Exchange Act of 1882 provides that xxx
notice of the customer’s death revokes the banker’s authority to pay.
(d) By postdating a check, or issuing a check in payment of an obligation
Moreover, the National Internal Revenue Code already disallows withdrawal when the offender had no funds in the bank, or his funds deposited
from the bank account of the deceased unless proper taxes are paid to the therein were not sufficient to cover the amount of the check. The
Bureau of Internal Revenue. failure of the drawer of the check to deposit the amount necessary to cover his
check within three (3) days from receipt of notice from the bank and/or payee
H. COLLECTION OF CHECKS or holder that said check has been dishonored for lack or insufficiency of funds
shall be prima facie evidence of deceit constituting false pretense or fraudulent
1. The holder of the check may either present it for payment or he may act.
deposit it in his account with his bank known as the depositary bank or
collecting bank. ESSENTIAL ELEMENTS:
2. The depositary bank will then make a provisional credit to his account in a. That the offender postdated or issued a check in payment of an obligation
the amount of the check. contracted at the time the check was issued;
3. The check thereafter goes through the process of clearing through the b. That such postdating or issuing a check was done when the offender had no
“clearinghouse” funds in the bank, or his funds deposited therein were not sufficient to cover
4. The clearinghouse is defined as “an association of banks or other payors the amount of the check;
for the purpose of settling accounts with each other on a daily basis. Each c. Deceit or damage to the payee thereof.
member of the clearinghouse forwards all deposited checks drawn on
other members and receives from the clearinghouse all checks drawn on 2. Bouncing Checks Law (Batas Pambansa Bilang 22)
it. Balances are adjusted and settled each day.”
5. It is only after the check has been cleared and collected from the drawee BP Blg 22 was enacted to prevent the proliferation of worthless checks in the
bank that final credit is made in the payee-depositor’s account. mainstream of daily business and to avert not only the undermining of the
6. The normal bank policy is to disallow withdrawal from the account of the banking system of the country but also the infliction of damage and injury upon
amount covered by the check. IN some cases, the collecting bank may be trade and commerce occasioned by the indiscriminate issuances of such
held liable for damages if it allows withdrawal of deposit even if the check checks.
has not yet been cleared by the drawee bank.
ELEMENTS:
I. PERTINENT PHILIPPINE CLEARING HOUSE CORPORATION a. The making, drawing and issuance of any check to apply for account or for
RULES value;
b. The knowledge of the maker, drawer, or issuer that at the time of issue he
Section 102. Interbank Settlement. - The Bangko Sentral shall establish does not have sufficient funds in or credit with the drawee bank for the
facilities for interbank clearing under such rules and regulations as the payment of such check in full upon its presentment; and
Monetary Board may prescribe: Provided, That the Bangko Sentral may charge c. The subsequent dishonor of the check by the drawee bank for insufficiency
administrative and other fees for the maintenance of such facilities. of funds or credit or dishonor for the same reason had not the drawer, without
any valid cause, ordered the bank to stop payment.
The deposit reserves maintained by the banks in the Bangko Sentral in
accordance with the provisions of Section 94 of this Act shall serve as basis for DOMAGASANG VS. CA (347 SCRA 75 [2000]) – While Sec. 2 of BP Blg. 22
the clearing of checks and the settlement of interbank balances, subject to such does not state that the notice of dishonor be in writing, taken in conjunction,
rules and regulations as the Monetary Board may issue with respect to such however, with Sec. 3 of the law, a mere oral notice or demand to pay would
operations: Provided, That any bank which incurs on overdrawing in its deposit appear to be insufficient for conviction under the law.
account with the Bangko Sentral shall fully cover said overdraft, including
interest thereon at a rate equivalent to one-tenth of one percent (1/10 of 1%) 3. Check Kiting
per day or the prevailing ninety-one-day treasury bill rate plus three percentage
points, whichever is higher, not later than the next clearing day: Provided, Art. 315, 1: With unfaithfulness or abuse of confidence, namely:
further, That settlement of clearing balances shall not be effected for any
account which continues to be overdrawn for five (5) consecutive banking days xxx
until such time as the overdrawing is fully covered or otherwise converted into
an emergency loan or advance pursuant to the provisions of Section 84 of this (b) By misappropriating or converting, to the prejudice of another, money,
Act: Provided, finally, That the appropriate clearing office shall be officially goods or any other personal property received by the offender in trust, or on
notified of banks with overdrawn balances. Banks with existing overdrafts with commission, or for administration, or under any other obligation involving the
the Bangko Sentral as of the effectivity of this Act shall, within such period as duty to make delivery of, or to return the same, even though such obligation be
may be prescribed by the Monetary Board, either convert the overdraft into an totally or partially guaranteed by a bond; or by denying having received such
emergency loan or advance with a plan of payment, or settle such overdrafts, money, goods or other property.
and that, upon failure to so comply herewith, the Bangko Sentral shall take
such action against the bank as may be warranted under this Act. a. KITING is the wrongful practice of taking advantage of the float, the time
that elapses between the deposit of the check in one bank and its collection at
another.
b. The depositary bank will honor the checks even if it has not yet been
cleared. In anticipation of the dishonor of the check that was deposited, the
ヌノ Cesar Nickolai F. Soriano Jr.


lOMoARcPSD|5036134
conspirators will replace the original check with another worthless check.
c. Check kiting has been described as a procedure whereby checks written on
accounts in separate banks are used to generate short-term purchasing power
through the use of the bank’s credit.
FERMINA RAMOS VS. CA (GR. NO. L-64129-31; Nov. 18, 1991) – Fermina
Ramos, then manager of Family Savings Bank, was accused and convicted of
Estafa for allowing her co-accused to withdraw right there and then from
their uncollected and uncleared deposit which were subsequently dishonored
by the drawee banks, which were covered by 3 different informations filed
against her of the 23 criminal charges filed. ISSUE: WON such acts are
considered estafa? HELD: Yes. The crime committed by the accused was
estafa with unfaithfulness or abuse of confidence under Article 315
subparagraph 1 (b) of the Revised Penal Code, in that she conspired and
cooperated with her co-accused to defraud the bank by allowing them to
withdraw funds of the bank against their worthless check deposits.
I. STOP PAYMENT
1. A check is a mere order on a bank to pay money from the drawer’s

account. As such, it is subject to revocation by the drawer at any time
before it is accepted.
2. The drawer may countermand payment if he has a valid defense against
the holder of the check such as failure to deliver the goods that the latter
is supposed to deliver.
3. If there was no valid reason, the drawee is still contractually obligated to
dishonor the check on the basis of the stop payment order.
4. However, if he has no valid defense, the drawer remains liable and he is
not released from the legal obligation he contracted.
5. IRON CLAD RULE – a cashier’s check is in the nature of an accepted or
certified check and the payment thereon cannot be countermanded by the
payor, provided the holder is not a holder in due course (Mesinca vs. IAC).
ヌハ Cesar Nickolai F. Soriano Jr.


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Negotiable Instruments LAW

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NEGOTIABLE INSTRUMENTS LAW

ド Cesar Nickolai F. Soriano Jr.

Downloaded by Patricia Manalang ([email protected])

ナ Cesar Nickolai F. Soriano Jr.

Downloaded by Patricia Manalang ([email protected])

ニ Cesar Nickolai F. Soriano Jr.

Downloaded by Patricia Manalang ([email protected])

ヌ Cesar Nickolai F. Soriano Jr.

Downloaded by Patricia Manalang ([email protected])

ネ Cesar Nickolai F. Soriano Jr.

Downloaded by Patricia Manalang ([email protected])

ノ Cesar Nickolai F. Soriano Jr.

Downloaded by Patricia Manalang ([email protected])

ハ Cesar Nickolai F. Soriano Jr.

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バ Cesar Nickolai F. Soriano Jr.

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October 16, 1982 - P154,267.87 B. NEGOTIATION DEFINED

1. Instruments payable to order: two steps are required for negotiation:

パ Cesar Nickolai F. Soriano Jr.

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ドト Cesar Nickolai F. Soriano Jr.

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Balintawak branch of Producers Bank, relying on the assurance of

ドド Cesar Nickolai F. Soriano Jr.

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ドナ Cesar Nickolai F. Soriano Jr.

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officer. purports to be;

ドニ Cesar Nickolai F. Soriano Jr.

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some other persons. drawer.

7. Irregular Indorser U. DIFFERENT COMBINATIONS OF INDORSEMENT

ドヌ Cesar Nickolai F. Soriano Jr.

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to have become a party thereto for value. IV. HOLDERS

ドネ Cesar Nickolai F. Soriano Jr.

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ドノ Cesar Nickolai F. Soriano Jr.

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ドハ Cesar Nickolai F. Soriano Jr.

Downloaded by Patricia Manalang ([email protected])

ドバ Cesar Nickolai F. Soriano Jr.

Downloaded by Patricia Manalang ([email protected])

ドパ Cesar Nickolai F. Soriano Jr.

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ナト Cesar Nickolai F. Soriano Jr.

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transaction. To place him on any higher plane would be incompatible with

ナド Cesar Nickolai F. Soriano Jr.

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ナナ Cesar Nickolai F. Soriano Jr.

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General Indorser Qualified Indorser

ナニ Cesar Nickolai F. Soriano Jr.