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Case Doctrines on Negotaible Instruments Law Philippine Education Co. vs.

Soriano The Weight of authority in the United States is that postal money orders are not negotiable instruments, the reason being that in establishing and operating a postal money order system, the government is not engaged in commercial transactions but merely exercises a governmental power for the public benefit. Moreover, some of the restrictions imposed upon money orders by postal laws and regulations are inconsistent with the character of negotiable instruments. For instance, such laws and regulations usually provide for not more than one endorsement; payment of money orders may be withheld under a variety of circumstances.

Caltex Phil. vs. Court of Appeals A negotiable instrument that is payable to bearer may be negotiated by mere delivery. No further act other than delivery is necessary in order to negotiate the instrument and to make the transferee a holder.

Metrobank vs. Court of Appeals An instrument to be negotiable instrument must contain an unconditional promise or orders to pay a sum certain in money. As provided by Sec 3 of NIL an unqualified order or promise to pay is unconditional though coupled with: 1st, an indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or 2nd, a statement of the transaction which give rise to the instrument. But an order to promise to pay out of particular fund is not unconditional.

Sesbreno vs. Court of Appeals Only an instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by indorsement thereof coupled with delivery, or by delivery alone if it is in bearer form. A negotiable instrument, instead of being negotiated, may also be assigned or transferred. The legal consequences of negotiation and assignment of the instrument are different. A negotiable instrument may not be negotiated but may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument.

Firestone Tire & rubber Co. vs. Court of Appeals

Withdrawal slips are non negotiable instruments. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal slips lacked this character.

Ang Tek Lian vs. Court of Appeals 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 without the drawers indorsement. However, if the bank is not sure of the bearers identity or financial solvency, it has the right to demand identification or assurance against possible complication. But where the bank is satisfied of the identity or economic standing of the bearer who tenders the check for collection, it will pay the instrument without further question; and it would incur no liability to the drawer in thus acting.

Development Bank of the Phils. vs. Sima Wei The payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Delivery of an instrument means transfer of possession, actual or constructive, from one person to another. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument.

Philippine Bank of Commerce vs. Aruego There is a difference between a qualified indorser and a person negotiating by mere delivery. While a qualified indorser warrants to all subsequent holders, the warranties of the person negotiating by mere delivery extends only in favor of his immediate transferee.

Francisco vs. Court of Appeals The negotiable Instruments Law provides that when a person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. An agent, when so signing, should indicate that he is merely signing as an agent in behalf of the principal and must disclose the name of his principal. Otherwise, he will be held liable personally

Jail-Alai vs. Bank of the Philippine Islands Holders of checks may obtain payment from the drawee bank by presenting it for payment directly with the bank or by depositing it in his account in another bank known as the collecting bank or depositary

bank. When the holder deposits his check with the collecting bank, the nature of the relationship created at that stage is one of agency, that is the bank is to collect from the drawee of the check the corresponding proceeds.

Republic Bank vs. Ebreda Where the signature on a negotiable instrument is forged, the negotiation of the check is without force or effect. However, where a check has several indorsersment on it, it is only the negotiation based on the forged or unauthorized signature is inoperative. It will not render void all the other negotiations of the check with respect to other parties whose signatures are genuine.

MWSS vs. Court of Appeals It is basic that whoever alleges forgery must prove such fact. Forgery cannot be presumed, it must be duly established.

Banco de Oro vs. Equitable Banking Corporation If the instrument involved is a check, the drawee cannot charge the account of the drawer if the payees or indorsers signature is forged. The drawee, in turn has the right of recourse against the collecting bank. The drawer generally owes no duty of diligence to the collecting bak, the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to high standard of conduct. It is the collecting bank that generally suffers the loss with regard to forged indorsements because it had the duty to ascertain the genuineness of all prior indorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the indorsements.

Gempesaw vs. Court of Appeals A forged signature is wholly inoperative, no one can gain title to the instrument through such forged insdorsement. Such indorsement prevents any subsequent partyfrom acquiring any right as against parties prior to the forgery. Although rights may exist between and among parties subsequent to the forged instrument, not one of the can acquire rights agasint parties prior to the forgery. Such forged instrument cuts-off the rights of all subsequent parties as against parties prior to the forgery. However,

the law makes an exception to these rules where party is precluded from setting up forgery as a defense.

Associated Bank vs. Court of Appeals When a check is deposited with the collecting bank, it takes a risk on its depositor. It is only logical that this bank be held accountable for checks deposited by its customers. It is important to mention that Payee whose signature was forged may directly proceed against the collecting bank. However, the drawer cannot opt to recover from the collecting bank. There is no privity of contract between the drawer and the collecting bank.

Metrobank vs. First National City Bank When the indorsement itself is very clear when it begins with the words For clearance, clearing office such indorsement must be read together with the 24-hour rule regulation of the House operations of the Central Bank. Once that 24-hour period is over, the liability on such indorsement has ceased. Failure of drawee bank to call the attention of collecting bank to the alteration of the check in question until after the lapse of 24 hours negates whatever right it might have against the collecting bank. Its remedy lies not against collecting bank but against the party responsible for the changing of the name of the payee and the amount on the face of the check.

Republic Bank vs. Court of Appeals The 24-hour clearing house rule is valid rule applicable to commercial banks. As general rule, the collecting bank or last endorser bears the loss when the indorsement was forged. But the unqualified endorsement of the collecting bank on the check should be read together with the 24-hour regulation on the clearing house operation. Thus, when the drawee bank fails to return a forged or altered check to the collecting bank is absolved from liability. Unless an alteration is attributable to the fault or negligence of the drawer himself, the remedy of the drawee bank that negligently clears a forged and/or honor altered check for payment is against the party responsible for the forgery or alteration, otherwise, it bears the loss.

Philippine Commercial International Bank vs. Court of Appeals A bank (in this case PCIB) which cashes a check drawn upon another bank (in this case Citibank), without requiring proof as to the identity of persons presenting it, or making inquiries with regard to them, cannot hold the proceeds against the drawee when the proceeds of the checks were afterwards diverted to the hands of a third party.

Ramon Illusorio vs. Court of Appeals The collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the indorsements. As between the drawer and the drawee bank, the drawee bank should bear the loss. The drawee bank shall have recourse against the collecting bank because such collecting bank guarantees that all prior endorsements are genuine. The collecting bank then can go against the forger. In cases involving a forged check, where the drawers is forged, drawer can recover from the drawee bank. No drawee bank has a right to pay a forged check. If it does, it shall have to recredit the amount of check to the account of the drawer. The liability chain ends with drawee bank whose responsibility it is to know the drawers signature since the latter is its customer.

Samsung Construction Co. Phils, Inc vs. FEBTC and CA Under Sec. 62 of NIL, among the warranties to be assumed by the acceptor is it admits the existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument. It is incumbent upon the drawee bank to ascertain the genuineness of the signature of its depositor. The respondent bank in this case did not exercise the degree of diligence required to enable it to detect the forgery. Aside from the warranties as an indorser, the collecting bank is made liable because it is privy to the depositor who negotiated the check because it knows him, his address and history for being a client thereof. Thus, it is in a better position to detect forgery or irregularity in the indorsement aka Doctrine of Comparative Negligence

Philippine National Bank vs. Court of Appeals An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. In other words, material alteration is one which changes the items which is required to be stated under Sec 1 of NIL.

Sadaya vs. Sevilla On principle, a solidary accommodation makerwho made paymenthas the right to contribution, from his co-accomodation maker, in the absence of agreement to the contrary between them, subject

to conditions imposed by law. This right springs from an implied promise to share equally the burdens thay may ensue from their having consented to stamp their signatures on the promissory note.

Crisologo-Jose vs. Court of Appeals The provision of NIL which holds an accommodation party liable on the instrument to holder for value, although such holder at the time of taking the instrument knew him to be only an accommodation party, does not include nor apply to corporations which are accommodation parties. This is because the issue or indorsement of negotiable paper by a corporation without consideration and for accommodation of another is ultra vires. Hence, one who has taken the instrument with knowledge of the accommodation nature thereof cannot recover against a corporation where it is only a accommodation party.

Stelco Marketing vs. Court of Appeals A person cannot be holder of the check for value if it does not meet the essential requisites prescribed by the law. He must become the holder of it before it was overdue, and without notice that it had previously dishonored, and he took the check in good faith and for value before he can be considered as a holder of the check for value.

Travel-On BPI vs. Court of Appeals Check which is regular on its face is deemed prima facie to have been issued for a valuable consideration and every person whose signature appears thereon is deemed to have become a party thereto for value. Further the rule is quite settled that a negotiable instrument is presumed to have been given or indorsed for a sufficient consideration unless otherwise contradicted and overcome by another evidence.

In the accommodation transactions recognized by the NIL, an accommodating party lends his credit to the accommodated party, by issuing or indorsing a check which is held by the payee or indorsee as a holder in due course, who gave full value which the accommodated party must repay the accommodating party, unless of course the accommodating party intended to make a donation to the accommodated party. But the accommodating party is bound on the check to the holder in due course who is necessarily a third party and is not the accommodated party. Having issued or indorsed the check, the accommodating party has warranted to the holder in due course that he will pay the same according to its tenor.

De Ocampo vs. Gatchalian Good faith on the part of the holder is presumed, such presumption is destroyed if the payee or indorsee acquired possession of the instrument under circumstances that should have put it to inquiry as to the title of the holder who negotiated the instrument. The burden is now on the part of the holder to show that notwithstanding the suspicious circumstances, it acquired in the actual good faith.

Mesina vs. IAC The holder of a cashiers check who is not a holder in due course cannot enforce payment against the issuing bank which dishonors the same. If a payee of a cashiers check obtained it from the issuing bank by fraud, or if there is some other reason why the payee is not entitled to collect the check, the bank would of course have the right to refuse payment of the check when presented by payee.

Metropol vs. Sambok A qualified indorserment constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorsers signature the words without recourse or any words of similar import. Such indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument as provided by section 65 of NIL.

Recourse means resort to a person who is secondarily liable after the default of the person who is primarily liable. A person who indorses without qualification engages that on due presentment, the note shall be accepted or paid, or both as the case maybe, and that if it be dishonored, he will pay the amount thereof to the holder.

Sepiera vs. Court of Appeals Every indorser who indorses without qualification, warrants to all subsequent holders in due course that, on due presentment, it shall be accepted or paid or both, according to its tenor, and that if it be 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 be compelled to pay it.

Prudencial Bank vs. IAC Acceptance is presumed to be unqualified or absolute. If the drawee intends toqualify his acceptance, he must do so distinctly and unmistakably or else the acceptance will be taken as absolute.

Wong vs. Court of Appeals A check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. By current banking practice, a check becomes stale after more than six (6) months, or 180 days.

The International Corporate Bank vs. Francis S. Gueco and Ma. Luz E Gueco A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an instrument not payable on demand must be presented for payment on the day it falls due. When the instrument is payable on demand, presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof. A check must be presented for payment within a reasonable time after its issue, and in determining what is a "reasonable time," regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case. The test is whether the payee employed suchdiligence as a prudent man exercises in his own affairs. This is because the nature and theory behind the useof a check points to its immediate use and payability.

State Investment House Inc. vs. CA The withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the rights of holders in due course. For the reason that the holder who takes the negotiated paper makes a contract with the parties on the face of the instrument; there is an implied representation that funds or credit are available for the payment of the instrument in the bank upon which it is withdrawn.

Bataan Cigar and Cigarette Factory, Inc. vs. CA In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing a check should have the following effects: (1) check may not be encashed but only deposited in the bank; (2) the check may be negotiated only once, to one who has an account with a bank; (3) and the act of crossing the check serves as a warning to the holder that the check has been issued for a definite

purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise he is not a holder in due course.

Citytrust banking Corp., vs. Intermediate Appellate Court Even there was error on the account number the controlling in determining in whose account the deposit is name of the account owner. This is so because it is not likely to commit an error in ones name than merely relying on numbers which are difficult to remember. Numbers are for the convenience of the bank but was never intended to disregard the real name of its depositors. The bank is engaged in business impressed with public trust, and it is its duty to protect in return its clients and depositors who transact business with it.

Tan vs. Court of Appeals A cashiers check is a primary obligation of the issuing bank and accepted in advance by its mere issuance, and by its peculiar character and general use in the commercial world is regarded substantially to be as good as the money which it represents.

Papa vs. A.U. Valencia After more than 10 years from the payment in part by cash and in part by check, the presumption is that the check had been encashed. Failure of the payee to encash a check for more than 10 years undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay.

Bank of the Philippine Islands vs. Court of Appeals Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; every person whose signature appears thereon to have become a party thereto for value. Therefore, it is up to the party who alleges that there was absence of consideration to prove such fact. The presumption will operate only if there was negotiation. Consideration is not presumed if there was transfer without indorsement.