NEGOTIABLE INSTRUMENTS LAW

I.

INTRODUCTION

A.

GOVERNING LAWS – ACT No. 2031 effective June 2, 1911 (which
amended some of the provisions of the Rules of the Law Merchant),
the Code of Commerce and the Civil Code.

B.

APPLICABILITY OF THE NEGOTIABLE INSTRUMENTS LAW – the
Act applies only to negotiable instruments or those that meet the
requirements under Sec. 1 of Act No. 2031.
KRAUFFMAN VS. PNB (GR No. 16454, Sept. 29, 1921) - Herein plaintiff
was entitled to P98,000 of the Philippine Fiber and Produce Company’s
dividend for the year 1917. George B. Wicks, treasurer of the Company,
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
P90,355.50, total cost of said transfer, including exchange and cost of
message which was accepted by the officer selling the exchange in
payment of the transfer in question. As evidence of this transaction a
document was made out and delivered to Wicks, which is referred to by
the bank's assistant cashier as its official receipt. On the same day the
Philippine National Bank dispatched to its New York agency a cablegram
for $45,000. However, the bank's representative in New York replied
suggesting the advisability of withholding this money from Kauffman. The
PNB dispatched to its New York agency another message to withhold the
Kauffman payment as suggested. Meanwhile, upon advice of Wicks that
the money has been placed to his credit, Kauffman presented himself at
the office of the Philippine National Bank in New York and demanded the
money. By this time, however, the message from the Philippine National
Bank directing the withholding of payment had been received in New
York, and payment was therefore refused. Thus the present complaint to
recover said sum, with interest and costs. ISSUE: WON Act No. 2031 is
applicable in the above case? HELD: NO. The provisions of the
Negotiable Instruments Law to come into operation, there must be a
document in existence of the character described in section 1 of the Law;
and no rights properly speaking arise in respect to said instrument until it
is delivered. In the case before us there was an order transmitted by the
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
payable "to order or "to bearer," as required in Section 1(d) of that Act;
and inasmuch as it never left the possession of the bank, or its
representative in New York City, there was no delivery in the sense
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
the purchaser of the telegraphic order, and already set out above, cannot
itself be viewed in the light of a negotiable instrument, although it affords
complete proof of the obligation actually assumed by the bank.
GSIS VS. CA (GR No. L-40824, Feb. 23, 1989) - Private respondents, Mr.
and Mrs. Isabelo R. Racho, together with the Lagasca spouses, executed a
deed of mortgage in favor of petitioner GSIS. Subsequently, another deed
of mortgage was executed in connection with earlier two loans granted. A
parcel of land, co-owned by said mortgagor spouses, was given as
security under the aforesaid two deeds and they also executed a
"promissory note". The Lagasca spouses executed an instrument
denominated "Assumption of Mortgage" under which they obligated
themselves to assume obligation to the GSIS. This undertaking was not
fulfilled. Upon failure of the mortgagors to comply with the conditions of
the mortgage, particularly the payment of the amortizations due, GSIS
extra-judicially foreclosed the mortgage and caused the mortgaged
property to be sold at public auction. Private respondents filed a complaint
against the petitioner and the Lagasca spouses praying that the
extrajudicial foreclosure be declared null and void. In their aforesaid
complaint, they alleged that they signed the mortgage contracts not as
sureties or guarantors for the Lagasca spouses but they merely gave their
common property to the said co-owners who were solely benefited by the
loans from the GSIS. Trial court dismissed the case. CA reversed decision
stating that the respondents are that only of an accommodation party.
ISSUE: WON the NIL is applicable to the promissory note and mortgage
deed? HELD: No. Both parties relied on the provisions of Section 29 of Act
No. 2031, otherwise known as the Negotiable Instruments Law, which

provide that an accommodation party is one who has signed an
instrument as maker, drawer, acceptor of indorser without receiving value
therefor, but is held liable on the instrument to a holder for value although
the latter knew him to be only an accommodation party. This approach of
both parties appears to be misdirected and their reliance misplaced. The
promissory note hereinbefore quoted, as well as the mortgage deeds
subject of this case, are clearly not negotiable instruments. These
documents do not comply with the fourth requisite to be considered as
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.
Absent the aforesaid requisite, the provisions of Act No. 2031 would not
apply, governance shall be afforded, instead, by the provisions of the Civil
Code and special laws on mortgages.
C.

CONCEPT OF NEGOTIABLE INSTRUMENTS
1.

DEFINITION: Negotiable Instruments are written statements
signed by the maker or drawer containing an unconditional promise
or order to pay a sum certain money, payable on demand or at a
fixed or determinable future time, to order or to bearer.

2.

FUNCTIONS OF NEGOTIABLE INSTRUMENTS
a. Substitute for money - although they are not considered
legal tender. One of its distinct characteristics is its negotiability
which allows it to go from hand to hand in the commercial
markets and to take the part of money in commercial
transactions free from all personal defenses available against
the original owner.
b. Media of exchange – they thus increase the purchasing
medium in circulation. They are a safe and convenient means of
doing business that eliminate the risk of dealing in cash.
c. Medium of credit transactions – they allow men of
undoubted credit (such as those with illiquid properties) to carry
on business enterprise upon their promissory notes, bills of
exchange and checks knowing that other businessmen will treat
these promises as cash.
Checks are primarily used for immediate payment (substitute
for money); while ordinary bill of exchange and the promissory
note are intended for the circulation of credits (credit
instruments)

3.

LEGAL TENDER – that amount which the creditor can be compelled
to accept as payment.

Sec. 52,
New
Central
Bank
Act

Sec. 60

Legal Tender Power. — All notes and coins issued by the
Bangko Sentral shall be fully guaranteed by the Government
of the Republic of the Philippines and shall be legal tender in
the Philippines for all debts, both public and private:
Provided, however, That, unless otherwise fixed by the
Monetary Board, coins shall be legal tender in amounts not
exceeding Fifty pesos (P50.00) for denominations of Twentyfive centavos and above, and in amounts not exceeding
Twenty pesos (P20.00) for denominations of Ten centavos.
Legal Character. — Checks representing demand deposits
do not have legal tender power and their acceptance in the
payment of debts, both public and private, is at the option of
the creditor: Provided, however, That a check which has
been cleared and credited to the account of the creditor shall
be equivalent to a delivery to the creditor of cash in an
amount equal to the amount credited to his account

TIBAJIA VS. CA (GR No. 100290, June 4, 1993) - A writ of attachment
was issued by the trial court in connection to the collection of a sum of
money filed by Eden Tan against the Tibajia spouses. The fund was then
on deposit with the cashier of the Regional Trial Court of Pasig. The
Tibajia spouses thereafter delivered to the Deputy Sheriff the total money
judgment in the form of Cashier's Check worth P262,750.00. However,
Eden Tan, refused to accept the payment made and instead insisted that
the garnished funds deposited with the cashier of the Regional Trial Court

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

of Pasig be withdrawn to satisfy the judgment obligation. Petitioners filed
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
ground that payment in cashier's check is not payment in legal tender.
When the petitioners' motion for reconsideration was denied, the spouses
Tibajia filed herein petition. ISSUE: WON the delivery of the cashier's
check is considered payment in legal tender? HELD: No. A check, whether
a manager's check or ordinary check, is not legal tender, and an offer of a
check in payment of a debt is not a valid tender of payment and may be
refused receipt by the obligee or creditor. (Philippine Airlines, Inc. vs.
Court of Appeals and Roman Catholic Bishop of Malolos, Inc. vs.
Intermediate Appellate Court). The ruling in the two (2) abovementioned
cases decided by the Supreme Court applies the statutory provisions
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
or personal check.
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
complaint for damages against petitioner Philippine Airlines. On appeal,
the CA upheld the decision of the CFI with minor modifications as to the
damages to be awarded. The corresponding writ of execution was duly
referred to Deputy Sheriff Emilio Z. Reyes for enforcement with checks in
the name of the latter. Four months later, Amelia Tan moved for the
issuance of an alias writ of execution since the judgment remained
unsatisfied. The petitioner filed an opposition to the motion for the
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
court, Emilio Z. Reyes, as evidenced by cash vouchers properly signed and
received by said Emilio Z. Reyes. On March 3,1978, the Court of Appeals
denied the issuance of the alias writ for being premature, ordering the
executing sheriff Emilio Z. Reyes to appear with his return and explain the
reason for his failure to surrender the amounts paid to him by petitioner
PAL. However, the order could not be served upon Deputy Sheriff Reyes
because he already absconded or disappeared. ISSUE: WON the payment
rendered through a check made by PAL to the absconding sheriff in his
name operate to satisfy the judgment debt? HELD: Under ordinary
circumstances, payment by the judgment debtor to the sheriff should be
valid payment to extinguish the judgment debt. There are circumstances,
however, which compel a different conclusion such as when the payment
made by the petitioner to the absconding sheriff was not in cash or legal
tender but in checks. The delivery of promissory notes payable to order,
or bills of exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when through the
fault of the creditor they have been impaired. In the meantime, the action
derived from the original obligation shall be held in abeyance. Since a
negotiable instrument is only a substitute for money and not money, the
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,
and an offer of a check in payment of a debt is not a valid tender of
payment and may be refused receipt by the obligee or creditor. Mere
delivery of checks does not discharge the obligation under a judgment.
The obligation is not extinguished and remains suspended until the
payment by commercial document is actually realized (Art. 1249, Civil
Code, par. 3). PAL created a situation which permitted the said Sheriff to
personally encash said checks and misappropriate the proceeds thereof to
his exclusive personal benefit. For the prejudice that resulted, the
petitioner himself must bear the fault. As between two innocent persons,
one of whom must suffer the consequence of a breach of trust, the one
who made it possible by his act of confidence must bear the loss.
D.

CHARACTERISTICS OF NEGOTIABLE INSTRUMENTS
1.

2.

NEGOTIABILITY – is that quality or attribute of a bill or note
whereby it may pass from one person to another similar to money,
so as to give the holder in due course the right to collect on the
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
themselves.
ACCUMULATION OF SECONDARY CONTRACTS – as they are
transferred from one person to another. Once an instrument is
issued, additional parties can become involved.

E.

INCIDENTS IN THE LIFE OF NEGOTIABLE INSTRUMENTS
PROMISSORY NOTE
BILL OF EXCHANGE
Preparation & Signing
Issuance
Negotiation
Presentment for Acceptance
Acceptance
Dishonor by Non-acceptance
Presentment for payment
Dishonor by Non-payment
Notice of Dishonor
Payment
Discharge

F.

G.

KINDS OF NEGOTIABLE INSTRUMENTS
1.

PROMISSORY NOTES (Sec. 184, NIL) – An unconditional promise
in writing mace by one person to another, signed by the maker,
engaging to pay on demand, or at a fixed or determinable future
time, a sum certain in money to order or to bearer.
a. Parties to a Negotiable Promissory Note are (1) Maker and
(2) Payee;
b. Kinds of Negotiable Promissory Note include certificates of
deposits, bank notes, due bills and bonds.

2.

BILLS OF EXCHANGE (Sec. 126, 185, NIL) – An unconditional
order in writing addressed by one person to another, signed by the
person giving it, requiring the person to whom it is addressed to pay
on demand, or at a fixed or determinable future time, a sum certain
in money to order or bearer.
a. Parties to a Bill of Exchange are (1) Drawer, (2) Payee and
(3) Drawee;
b. Kinds of Bills of Exchange include drafts, trade acceptances
and banker’s acceptances.

WHEN BILLS TREATED AS NOTES

Sec. 130

Sec. 17(e)

When bill may be treated as promissory note. - Where
in a bill the drawer and drawee are the same person or where
the drawee is a fictitious person or a person not having
capacity to contract, the holder may treat the instrument at
his option either as a bill of exchange or as a promissory note
Construction where instrument is ambiguous. - Where
the language of the instrument is ambiguous or there are
omissions therein, the following rules of construction apply:
(e) Where the instrument is so ambiguous that there is doubt
whether it is a bill or note, the holder may treat it as either at
his election;

H.

BILLS AND NOTES DISTINGUISHED

PROMISSORY NOTES
2 parties – Maker and Payee
Maker cannot be the payee
There is unconditional PROMISE by
the maker
Presentment for payment without
prior acceptance
Liability of the maker is primary and
absolute
I.

BILLS OF EXCHANGE
3 parties – Drawer, Payee and
Drawee
Drawer and payee may be the same
person
There is unconditional ORDER by the
drawer to the drawee
Some Bills need prior acceptance by
the drawee before presentment for
payment
Liability of the drawer is secondary
and conditional

NEGOTIABLE INSTRUMENTS COMPARE WITH OTHER PAPERS
(Negotiability vs. Assignability)
SESBRENO VS. CA (GR No. 89252, May 24, 1993) - Petitioner Sesbreno
made a money market placement in the amount of P300,000 with the

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

Philippine Underwriters Finance Corporation (PhilFinance), with a term of
32 days. PhilFinance issued to Sesbreno (1) the Certificate of Confirmation
of Sale of a Delta Motor Corporation Promissory Note, (2) the Certificate of
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
checks drawn against the Insular Bank of Asia and America for
P304,533.33 payable on March 13, 1981. The checks were dishonored for
having been drawn against insufficient funds. Pilipinas Bank never
released the note, nor any instrument related thereto, to Sesbreno; but
Sesbreno learned that the Delta Promissory Note maturing on 6 April
1981, has a face value of P2,300,833.33 with PhilFinance as payee and
Delta Motors as maker; and was stamped “non-negotiable” on its face.
PhilFrance was later on placed under the custody of the Securities and
Exchange Commission. As Sesbreno was unable to collect his investment
and interest thereon, he filed an action for damages against Delta Motors
and Pilipinas Bank. Delta Motors contends that said promissory note was
not intended to be negotiated or otherwise transferred by Philfinance as
manifested by the word "non-negotiable" stamped across the face of the
Note. The trial court and the CA dismissed petitioner’s complaint and
appeal, respectively, for lack of cause of action. If anything, petitioner has
a cause of action against Philfrance, which, however, was not impleaded.
ISSUE: WON the non-negotiability of a promissory note prevents its
assignment? HELD: No. 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 nonnegotiable 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. The
subject promissory note, while marked "non-negotiable," was not at the
same time stamped "non-transferable" or "non-assignable." It contained
no stipulation which prohibited Philfinance from assigning or transferring
such note, in whole or in part.
J.

II. FORM AND INTERPRETATION OF NEGOTIABLE INSTRUMENTS
A.

CALTEX VS. COURT OF APPEALS (GR No. 97753, Aug. 10, 1992) Respondent bank issued 280 certificates of time deposit (CTDs) in favor of
Angel dela Cruz who delivered the same to herein petitioner in connection
with his purchased fuel products. Eventually, dela Cruz executed and
delivered an Affidavit of Loss for the reissuance of the CTDs. Dela Cruz
later on obtained a loan from respondent bank and negotiated the said
CTDs, executing a Deed of Assignment of Time Deposit which stated,
among others, that the bank has full control of the indicated time deposits
from and after date of the assignment and may set-off such and apply the
same to the payment of amount or amounts that may be due on the loan
upon maturity.
Petitioner then went to the Sucat branch for verification of the CTDs
declared lost, alleging that the same were delivered to herein petitioner as
“security for purchases made with Caltex Philippines, Inc.” and requested
that the CTDs be pre-terminated, which was refused by the respondent
bank due to the failure of petitioner to present requested documents to
prove such allegation. Petitioner then filed a complaint in the RTC, which
was dismissed. On appeal, the CA affirmed the decision of the RTC. Thus,
the present petition. ISSUE: WON the CTDs are considered negotiable?
HELD: Yes. A sample text of the certificates of time deposit is reproduced
below:
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICE P4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
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
PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE
P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731
days. after date, upon presentation and surrender of this certificate, with interest
at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
AUTHORIZED SIGNATURES

SOME NON-NEGOTIABLE INSTRUMENTS
1. Document of Title – like a certificate of stock, bill of lading and
warehouse receipt (non-negotiable because there is no unconditional
promise or order to pay a certain sum in money);
2. Letter of Credit – a letter from a merchant or bank or banker in
one place, addressed to another, in another place or country,
requesting the addressee to pay money or deliver goods to a third
party therein named, the writer of the letter undertaking to provide
him the money for the goods or to repay him. It is a letter requesting
one person to make advances to a third person on the credit of the
writer. (It is in favor of a certain person and not to order)
3. Treasury Warrant - it is a government warrant for the payment of
money such as that issued in favor of a public officer or employee
covering payment or replenishment of cash advances for official
expenditures. (It is payable out of a specific fund or appropriation)
4. Postal Money Order

Section 1, of Act No. 2031, otherwise known as the Negotiable
Instruments Law, enumerates the requisites for an instrument to become
negotiable. The CTDs in question undoubtedly meet the requirements of
the law for negotiability. The accepted rule is that the negotiability or nonnegotiability of an instrument is determined from the writing, that is, from
the fact of the instrument itself. Contrary to what respondent court held
(that the CTDs are payable to the “depositor” which is Angel dela Cruz),
the documents provide that the amounts deposited shall be repayable to
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
Cruz and that the amounts deposited are repayable specifically to him.
Rather, the amounts are to be repayable to the bearer of the documents
or, for that matter, whosoever may be the bearer at the time of
presentment.

PHILIPPINE EDUCATION CO. VS. SORIANO (GR No. L-22405, June
30, 1971) - Enrique Montinola sought to purchase from the Manila Post
Office 10 money orders (P200 each), offering to pay for them with a
private check. Montinola was able to leave the building with his check and
the 10 money orders without the knowledge of the teller. Upon discovery,
message was sent to all postmasters and banks involving the unpaid
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
with the Bank of America, which cleared it with the Bureau of Post. The
Postmaster, through the Chief of the Money Order Division of the Manila
Post Office informed the bank of the irregular issuance of the money
order. The bank debited the account of the company. The company
moved for reconsideration. ISSUE: WON postal money orders are
negotiable instruments? HELD: No. Philippine postal statutes are
patterned from those of the United States, and the weight of authority in
said country is that Postal money orders are not negotiable instruments
inasmuch as the establishment of a postal money order is an exercise of
governmental power for the public’s benefit. Furthermore, some of the
restrictions imposed upon money order by postal laws and regulations are
inconsistent with the character of negotiable instruments. For instance,
postal money orders may be withheld under a variety of circumstances,
and which are restricted to not more than one indorsement

HOW NEGOTIABILITY IS DETERMINED?

B.

EFFECT OF ESTOPPEL
BANCO DE ORO SAVINGS VS. EQUITABLE BANKING CORP. (GR No.
74917, Jan. 20, 1988) - Manager's checks (Checks) having an aggregate
amount of P45,982.23 and payable to certain member establishments of
Visa Card. Subsequently, the Checks were deposited with the defendant
(respondent Equitable) to the credit of its depositor (Aida Trencio’s
account). Following normal procedures, and after stamping at the back of
the Checks the usual endorsements (All prior and/or lack of endorsement
guaranteed), Equitable sent the checks for clearing through the Philippine
Clearing House Corporation (PCHC). Accordingly, BDO paid the Checks; its
clearing account was debited for the value of the Checks and defendant's
clearing account was credited for the same amount. Thereafter, BDO
discovered that the endorsements appearing at the back of the Checks,
purporting to be that of the payees, were forged and/or unauthorized or
otherwise belong to persons other than the payees. Pursuant to the PCHC
Clearing Rules and Regulations, it presented the Checks directly to

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

Equitable for the purpose of claiming reimbursement from the latter.
However, Equitable refused to do so. After an exhaustive investigation and
hearing, the Arbiter rendered a decision in favor of BDO and against
Equitable ordering the PCHC to debit the clearing account of the
defendant (E), and to credit the clearing account of the plaintiff (B) of the
foregoing amount with interest at the rate of 12% per annum from date of
the complaint. The Board of Directors of the PCHC affirmed the decision of
the Arbiter. Hence this petition. ISSUE 1: Were the subject checks nonnegotiable and if not, does it fall under the ambit of the power of the
PCHC? OR Does the PCHC has jurisdiction over the controversy involved in
view of petitioner’s claim that the subject matter of the case (the Checks)
was not negotiable. HELD: Yes. As provided in the articles of
incorporation of PCHC, its operation extend to "clearing checks and other
clearing items." No doubt transactions on non-negotiable checks are
within the ambit of its jurisdiction. The term check as used in the said
Articles of Incorporation of PCHC can only connote checks in general use
in commercial and business activities. It cannot be conceived to be limited
to negotiable checks only. Checks are used between banks and bankers
and their customers, and are designed to facilitate banking operations. It
is of the essence to be payable on demand, because the contract between
the banker and the customer is that the money is needed on demand.
Further, the participation of the two banks, petitioner and private
respondent, in the clearing operations of PCHC is a manifestation of their
submission to its jurisdiction. ISSUE 2: How does principle of estoppel
apply? HELD: Petitioner is estopped from raising the defense of nonnegotiability of the checks in question. It stamped its guarantee on the
back of the checks and subsequently presented these checks for clearing
and it was on the basis of these endorsements by the petitioner that the
proceeds were credited in its clearing account. The principle of estoppel
effectively prevents the defendant from denying liability for any damages
sustained by the plaintiff which, relying upon an action or declaration of
the defendant, paid on the Checks. The same principle of estoppel
effectively prevents the defendant from denying the existence of the
Checks. The petitioner by its own acts and representation cannot now
deny liability because it assumed the liabilities of an endorser by stamping
its guarantee at the back of the checks. The petitioner having stamped its
guarantee of "all prior endorsements and/or lack of endorsements" (Exh.
A-2 to F-2) is now estopped from claiming that the checks under
consideration are not negotiable instruments. The checks were accepted
for deposit by the petitioner stamping thereon its guarantee, in order that
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
purposes treated the said cheeks as negotiable instruments and
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
respondent to believe that it was acting as endorser of the checks and on
the strength of this guarantee said respondent cleared the checks in
question and credited the account of the petitioner. Petitioner is now
barred from taking an opposite posture by claiming that the disputed
checks are not negotiable instrument.
PBCOM VS. JOSE ARUEGO (GR No. L-25836-37, Jan. 31, 1981) - Herein
plaintiff instituted against an action against defendant for the recovery of
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
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
represents the cost of the printing of "World Current Events," a periodical
published by the defendant. To facilitate the payment of the printing the
defendant obtained a credit accommodation from the plaintiff. Thus, for
every printing of the "World Current Events," the printer collected the cost
of printing by drawing a draft against the plaintiff, said draft being sent
later to the defendant for acceptance. As an added security for the
payment of the amounts advanced to printer, the plaintiff bank also
required defendant Aruego to execute a trust receipt in favor of said bank
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
plaintiff the proceeds of the sale of said publication to answer for the
payment of all obligations arising from the draft. Defendant filed an
answer interposing for his defense that he signed the drafts in a
representative capacity, that he signed only as accommodation party and
that the drafts signed by him were not really bills of exchange but mere

pieces of evidence of indebtedness because payments were made before
acceptance. ISSUE1: WON the drafts Aruego signed were bills of
exchange? HELD: YES. Under the Negotiable Instruments Law, a bill of
exchange is an unconditional order in writing addressed by one person to
another, signed by the person giving it, requiring the person to whom it is
addressed to pay on demand or at a fixed or determinable future time a
sum certain in money to order or to bearer. As long as a commercial paper
conforms with the definition of a bill of exchange, that paper is considered
a bill of exchange. The nature of acceptance is important only in the
determination of the kind of liabilities of the parties involved, but not in
the determination of whether a commercial paper is a bill of exchange or
not. ISSUE2: WON Aruego is personally liable? HELD: YES. Firstly,
Section 20 of the Negotiable Instruments Law provides that "Where the
instrument contains or a person adds to his signature words indicating
that he signs for or on behalf of a principal or in a representative capacity,
he is not liable on the instrument if he was duly authorized; but the mere
addition of words describing him as an agent or as filing a representative
character, without disclosing his principal, does not exempt him from
personal liability." An inspection of the drafts accepted by the defendant
shows that nowhere has he disclosed that he was signing as a
representative of the Philippine Education Foundation Company. He
merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE
ARGUEGO For failure to disclose his principal, Aruego is personally liable
for the drafts he accepted. Secondly, an accommodation party is one
who has signed the instrument as maker, drawer, indorser, without
receiving value therefor and for the purpose of lending his name to some
other person. Such person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of the taking of the instrument
knew him to be only an accommodation party. In lending his name to the
accommodated party, the accommodation party is in effect a surety for
the latter. He lends his name to enable the accommodated party to obtain
credit or to raise money. He receives no part of the consideration for the
instrument but assumes liability to the other parties thereto because he
wants to accommodate another. In the instant case, the defendant signed
as a drawee/acceptor. Under the Negotiable Instrument Law, a drawee is
primarily liable. Thus, if the defendant who is a lawyer, he should not
have signed as an acceptor/drawee. In doing so, he became primarily and
personally liable for the drafts.
C.

REQUISITES OF NEGOTIABILITY

Section 1. Form of negotiable instruments. - An instrument to be
negotiable must conform to the following requirements
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
(a) It must be in writing and signed by the maker or drawer;
Section 191. Definition and meaning of terms.
“Written” includes printed, and “writing” includes print.

Signature of the maker or drawer is usually written, preferably with the full
name or at least the surname. However, initials or any mark will be sufficient,
provided that such signature be used as a substitute and the maker or drawer
intends to be bound by it.

Signature is presumed valid, the person denying and to whom the
signature operates must provide evidence of its invalidity.
(b) Must contain an unconditional promise or order to pay a sum
certain in money;

Money is the medium of exchange authorized or adopted by a domestic or
foreign government as part of its currency. In a literal sense, the term means
“cash”. It includes all legal tender which has been defined in p.1.

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

Promise or Order to Pay Must be Unconditional Condition – Resolutory or Suspensive .000 to be paid on Jan. . or authority (like “I request you to pay”.The instrument need not follow the language of this Act. 2(b): STATED instalments must clearly indicate the amount due on each instalment and the interest. Clearly stamped on their face is the word "non-negotiable. shall depend upon the happening of the event which constitutes the condition (Art. etc. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. “M obliges himself to pay”. or (b) by stated installments. when sufficient. Sec. 18. Sections 1 and 3 of the Negotiable Instruments Law especially underscored this requirement. Any other words like “Let the bearer” or “Drawer obliges the drawee to pay P or order” are sufficient. “good for”. After being told to wait several times. although it is to be paid: (a) with interest. unless words constituting a promise to pay is added. Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had previously withdrawn..The sum payable is a sum certain within the meaning of this Act. but any terms are sufficient which clearly indicate an intention to conform to the requirements hereof. whether the fund has sufficient funds at maturity. 88866. 3. The simple reason is that this law is not applicable to the non-negotiable treasury warrants. Clear intention of the parties – the substance of the transaction rather than the form is the criterion of negotiability. it is indicated that they are payable from a particular fund. METROPOLITAN BANK & TRUST CO. which forwarded them to the Bureau of Treasury for special clearing. An order is a command or imperative direction and. or “I hope you will pay” or “I authorize you to pay”) is not sufficient. or (e) with costs of collection or an attorney's fee. therefore. “to be paid”. the word “holder” may be used. to wit. What constitutes certainty as to sum. 3 (a): does not render the instrument non-negotiable because the reimbursement is a subsequent act to the payment.In conditional obligations. Instead of “promise” the words “bind myself” may be used. 4. the words “on call” may be used and instead of “bearer”. . Sec. Sec. Sec.000” or “for value received” do not constitute promise to pay and are non-negotiable. 2(d): refers to instruments payable in foreign currency. bare acknowledgements like “IOU”. or (c) by stated installments. Sec. 1181. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . last paragraph: The instrument is deemed non-negotiable because ネ the payment depends upon the adequacy or existence of the fund designated. The indorsement was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for clearing. Provisions which do not affect certainty of sum The Basic Test: is whether the holder can determine by calculation or computation the amount payable when the instrument is due. the whole shall become due. if any. like “IOU (or Due) P1. Six of these were directly payable to Gomez while the others appeared to have been indorsed by their respective payees. The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay "not unconditional" and the warrants themselves non-negotiable. On various dates all these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account in the Metrobank. like “Pay P or order the sum of P10. When is a promise unconditional Promissory Notes: It is not essential that the word “promise” be used. Conditional Indorsement. CA (GR No. 2. which still makes it absolute. Acceleration at the option of the HOLDER will render the instrument nonnegotiable." in accordance with Section 66 of the Negotiable Instruments Law. Mere defect in language or grammatical error – The words “himself order” may be construed as “himself or order” and thus not render the instrument non-negotiable. “Due P1. . 10 Promise or Order to Pay Terms. Conditional indorsement. Gloria Castillo and Gomez made subsequent withdrawals at Metrobank with the impression that the treasury warrants had been cleared. NCC) Period – As opposed to a condition. “due on demand”. However. whether at a fixed rate or at the current rate. Fund 501. Sec. such as failure to pay an instalment. 13. 2. 1991) ." Moreover.An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with: (a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount. Golden Savings assumed that they were "genuine and in all respects what they purport to be. a mere request. Sec. Extension clause – allows additional time for the payment of the loan due. Feb. Same is true if there is indication of a particular fund to be “debited”. as when the debtor suddenly loses a significant source of income. is when the event is certain to happen or come. A bill or note indicating “payable in two instalments” or “in instalments” does not fulfil the requirement of the law. p.see Part III. followed by Gomez as second indorser. Any words equivalent to a promise or assumption of responsibility for the payment of the note (like “payable”. Bills of Exchange: It is not necessary to use the word “order”. Insecurity clause – allows the creditor to demand immediate and full payment of the loan balance if the creditor has reason to believe that the debtor is about to default. ISSUE: WON treasury warrants are negotiable instruments? HELD: No. supplication. 2(c): Stated instalments with acceleration clause: Acceleration clause – requires the debtor to pay off the balance sooner than the due date if some specified event occurs. 8”.1. because here the instrument is payable absolutely. the acquisition of rights. Metrobank cannot contend that by indorsing the warrants in general. or (d) with exchange. the use of polite words like “please” does not convert an order to a request. the “debit” of the account is also a subsequent act to the payment. They were then sent for clearing by the branch office to the principal office of Metrobank. “I agree to pay”.000 and charge it to my account”. 3. . 3 When promise is unconditional. Soriano Jr.) are sufficient to constitute a “promise to pay”. Sec. The demand was rejected. as well as the extinguishment or loss of those already acquired. 39 But an order or promise to pay out of a particular fund is not unconditional. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and counter-signed by its Auditor. to make up the deficit in its account. Sec. VS. upon default in payment of any installment or of interest. instead of “on demand”. or (b) A statement of the transaction which gives rise to the instrument. It is immaterial. “I guarantee to pay”.Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38 treasury warrants. However. in case payment shall not be made at maturity. with a provision that. Exchange is the charge for the expense of providing funds at the place where the instrument is Cesar Nickolai F. The treasury warrants in question are not negotiable instruments.

This is based on the fact that while the “payment of money” may be indorsed. or (c) On or at a fixed period after the occurrence of a specified event which is certain to happen. 8(e). last paragraph: If there is no payee. Sec. for Sec. 2(e): does not affect negotiability because such takes place after maturity.The instrument is payable to bearer: (a) When it is expressed to be so payable. accepting. last paragraph: refers to a condition which may or may not happen. But nothing in this section shall validate any provision or stipulation otherwise illegal. due and payable immediately after delivery. 5(b): “I promise to pay P or order P10. there is nobody who could give the order or authority to collect or otherwise indorse and. and the happening of the event does not cure the defect Time Instruments Sec. Soriano Jr. Pay to A or B. Payable to Order: when it is payable to the (1) order of a specified person. But the negotiable character of an instrument otherwise negotiable is not affected by a provision which: Sec. aside from payment of money. When payable on demand. it is. or (d) When the name of the payee does not purport to be the name of any person. Sec. or (b) authorizes a confession of judgment if the instrument be not paid at maturity.000 and I hereby authorize my Where the instrument is payable to order.000 “with exchange at ¾%” or “at the current rate”.) * “promise to insure the property pledged as security” (First State Savings Bank vs. It is a present debt due at once. 184) Sec. or (2) to him or his order. Ex. Sec. seal. Determinable future time. Sec. 8(f): Pay to the order of the Commissioner of Internal Revenue. there is no Cesar Nickolai F. or (b) The drawer or maker. Omissions. When payable to bearer. (c) Payable on demand or at a fixed or determinable future time Time must be certain so that the holder will know when he may enforce the instrument.payable to meet the instrument which is issued at another place. within the meaning of this Act. or (d) Two or more payees jointly. it nevertheless does not affect negotiability. 5(a): “I promise to pay P or order the sum of P1. drawee. presentment for payment. the instrument is still negotiable because he can still demand payment of money. or demand. 4(c): To pay after P dies. attorney-at-law to appear in any court of record after the obligation becomes due and waive the issuing and service of processes and confess a judgment against me in favor of the holder and thereupon waive all errors in any such proceedings and waive all right of appeal” – confession of judgment is a written acknowledgment by the defendant of his indebtedness and liability to the plaintiff.An instrument is payable on demand: (a) When it is so expressed to be payable on demand. which is expressed to be payable: (a) At a fixed period after date or sight. . Consequently. 8(b): An instrument payable to the maker is not complete until indorsed by him. what constitutes. . (d) Payable to order or bearer Sec. 4(b): To pay sixty days after date. or on presentation. 6 (a) authorizes the sale of collateral securities in case the instrument be not paid at maturity. 5(d): “or an airconditioner at the option of the holder” – since the holder has the choice. or (e) One or some of several payees. Sec. While not authorized in this jurisdiction. or (f) The holder of an office for the time being. It enables the holder to obtain a judgment without the delay usually incident to a lawsuit. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . Sec. or (b) On or before a fixed or determinable future time specified therein. Sec. It may be drawn payable to the order of: (a) A payee who is not maker. A negotiable instrument must be payable in all events. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. or drawee. the “additional act” would have to be assigned. 5(c): “Notice of dishonor waived” – even waiver of protest. Russel) accommodation party – when his obligation will arise. payable on demand. particular money. National Salt Co. or (c) When it is payable to the order of a fictitious or non-existing person. . and the person liable – maker. an instrument payable to a specified person (Pay to P). Sec. or indorsing it. 7. 8. It may be at a fixed rate or at the current rate. drawer. would not destroy negotiability. (Sec. 9 Sec. an additional act. or acceptor – when he may be required to pay. is prohibited. Sec. 8(d): Pay to A and B. or the secondary parties – drawer. . or (b) In which no time for payment is expressed. 4. and such fact was known to the person making it so payable. Where an instrument is issued. or (b) When it is payable to a person named therein or bearer. Sec.000 secured by a ring I delivered to him by way of pledge and which he could sell should I fail to pay him at maturity” – the additional act is to be performed after non-payment at maturity. indorser or ノ Sec. though the time of happening be uncertain. or indorsed when overdue. . . or (d) gives the holder an election to require something to be done in lieu of payment of money. * “keep free from encumbrance property on which the value of collateral pledged for security of the instrument depends” (Streckhold vs. Sec. General Rule is that. or at sight. An instrument payable upon a contingency is not negotiable.An instrument is payable at a determinable future time.An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable.). therefore. 4. it would be difficult to compel him to make payment in money. The following clauses have been held to render non-negotiable the instrument: * “pay for taxes assessed upon the note or its mortgage security” (Hubard vs. Demand Instruments are those which are payable on demand. accepted. If the option is on the promisor. Exceptions are: Sec. or (c) waives the benefit of any law intended for the advantage or protection of the obligor. he may pay himself at maturity from the funds of the drawer. as regards the person so issuing. is not a negotiable order instrument.The validity and negotiable character of an instrument are not affected by the fact that: (e) designates a particular kind of current money in which payment is to be made. Sec. because it deprives the maker or drawer a day in court. M promises to pay P or order $1.The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. the payee must be named or otherwise indicated therein with reasonable certainty. or (e) When the only or last indorsement is an indorsement in blank. 12. the promise is to pay money only. 5 Additional provisions not affecting negotiability. Until maturity. 8(c): Being payable to the drawee. 8 When payable to order. Sec. or (c) The drawee. Robert Wallace Co. 2013. 4(a): To pay on Aug. A confession of judgment given AFTER the action is brought to save expenses is valid.

or one who never existed. Under Section 9 of the Negotiable Instruments Law. Sec. L-18103. (emphasis supplied) Blanks. binding the parties to the result as they themselves viewed it. the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. Date. This prompted the bank to file a case in court. 130. are disadvantages to the commercial world which outweigh the considerations just mentioned. 13 But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the consideration to be stated in the instrument. Manila Oil has failed to pay on demand. however. June 8. 6 (a) it is not dated. at or after maturity (Sec. Indeed. provided this is not done for an illegal or fraudulent purpose. He said that he is supposed to withdraw from the bank but his bank was already closed. Exch. the date so inserted is to be regarded as the true date. instead of resulting to the advantage of commercial life in the Philippines. and make the courts involuntary parties thereto. (b) payment to any person in possession thereof in good faith and without notice that his title is defective. sundries” or a fictitious person.The validity and negotiable character of an instrument are not affected by the fact that: (e) Identity of the drawee bill the drawer and drawee are the same person or where the drawee is a fictitious person or a person not having capacity to contract. Bearer Instruments produce the following effect: (a) it is payable to bearer. L-2516. and that provisions in notes authorizing attorneys to appear and confess judgments against makers should not be recognized in this jurisdiction by implication and should only be considered as valid when given express legislative sanction. Nat.Where in a D. The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course.000 and that in case payment was not made at time of maturity. the form of the check was totally unconnected with its dishonor. The Court is of the opinion thus that warrants of attorney to confess judgment are not authorized nor contemplated by Philippine law. the holder may treat the instrument at his option either as a bill of exchange or as a promissory note OMISSIONS Sec. CA (GR No. and because the effect of the instrument is to strike down the right of appeal accorded by statute. 25.Petitioner Ang Tek Lian approached Lee Hua and asked him if he could give him P4. Sept. (d) and (e) are order instruments on the face converted to bearer instruments. any lawyer in the Philippines is authorize to represent the company and confess judgment for the said sum with interest. or (2) where the acceptance of an instrument payable at a fixed period after sight is undated. 9(c): A fictitious person is meant to be one who. MANILA OIL REFINING (GR No. was dishonored by the bank. particular money. such date is deemed prima facie to be the true date of the making. ANG TEK LIAN VS. a promissory note which provides a promise to pay petitioner bank the amount of P61.The instrument is not invalid for the reason only that it is ante-dated or post-dated. 1922) The manager and treasurer of respondent company executed and delivered to the Philippine National Bank (PNB). They also save time and money of the litigants and the government the expenses that a long litigation entails. the judgment is ultimately certain in the courts. Sec. 12 Sec. 1. . or (c) does not specify the place where it is drawn or the place where it is payable. or (b) does not specify the value given. a release of all errors and waiver of all rights to inquisition and appeal. or (e) designates a particular kind of current money in which payment is to be made. Those under subsection (c). The check was returned unsatisfied because the drawer had insufficient funds and not because the drawer’s indorsement was lacking. has no right to it because the maker or drawer so intended and it matters not. or indorsement. instruments of this character may be considered as special agreements. when may be filled. paragraph d. 88) discharges the instrument (Sec. as the case may be. wherein an attorney associated with them entered his appearance for the defendant. presumption as to. Consequently. . because under these instruments the promissor bargains away his right to a day in court. though named. When date may be inserted. 14 therein the true date of issue or acceptance. 11 Sec. 119). real or personal. (c) Delivery alone is enough to effect negotiation (Sec. In exchange.000. acceptance. Soriano Jr. . or (d) bears a seal. To this the defendant objected. hence. If the bank has a meritorious case. Omissions. . cost of suit and attorney's fees of ten% for collection. Hence. Sec. whether the name of the payee used by him be that one living or dead. 1950) . subsection 2 of the Revised Penal Code. drawing. The recognition of such form of obligation would bring about a complete reorganization of commercial customs and practices. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. and to the benefit of all laws exempting property. When Lee Hua presented the check for payment the next day. .Where the instrument or an acceptance or any indorsement thereon is dated. Sec. that any such instrument when completed may be enforced against any person who became a party Cesar Nickolai F. 30). but as to him. Bank) Sec. ISSUE: WON provisions in notes authorizing attorneys to appear and confess judgments against makers should not be recognized in Philippine jurisdiction by implication? HELD: No. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. 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 drawer’s indorsement. Judgments by confession as appeared at common law were considered an amicable. and the instrument shall be payable accordingly. On the other hand. It can readily be seen that judgment notes. They are quick remedy serve to save the court's time. and cheap way to settle and secure debts. OMISSIONS AND NEGOTIABILITY PROVISIONS THAT DO NOT ハ Sec. as payee. (Snyder vs. Ante-dated and post-dated. 9(a) and (b) are originally bearer instruments. might be the source of abuse and oppression. he discovered that it has an insufficient funds. . When bill may be treated as promissory note. because they enlarge the field for fraud. Ang Tek Lian argued that he did not indorse the check to Lee Hua when the latter accepted the check without his indorsement. any holder may insert AFFECT PNB VS. ISSUE: WON Ang Tek Lian’s indorsement of the said check is necessary to hold him liable for the dishonored check? HELD: No. seal. Com. Ang Tek Lian may be held liable for estafa because under article 315. he gave respondent Lee Hua a check which is “payable to the order of ‘cash”. In order. easy. from levy or sale. one who issues a check payable to cash to accomplish deceit and knows that at the time he had no sufficient deposit with the bank to cover the amount of the check and without informing the payee of such circumstances is guilty of estafa. In his defense. or that any value had been given therefor. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . 9(c) and (d): They are treated as bearer instruments because it is impossible to indorse when it is payable to “cash.point in considering it negotiable. with reference to short-term obligations.00.Where an instrument (1) expressed to be payable at a fixed period after date is issued undated. Such warrants of attorney are void as against public policy. In one sense. with power to enter up judgments on them. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery.Where the instrument is wanting in any material particular.

however. Interpretation of Instruments. Sec. Authority to put any amount – there must be showing of intention to convert it to a negotiable instrument. バ REPUBLIC PLANTERS BANK VS. averred that he should not be held personally liable for such authorized corporate acts that he performed inasmuch as he signed the promissory notes in his capacity as officer of the defunct Worldwide Garment Manufacturing. For this. 29. Where an instrument containing the words “I promise to pay” is signed by two or more persons. Sgd. Sec. it will be considered to be dated as of the time it was issued. Otherwise.Notice of dishonor may be waived either before the time of giving notice has arrived or after the omission to give due notice. presentment must be made within a reasonable time after its issue. except that in the case of a bill of exchange. and if the instrument is undated. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time. 21. Philippines. the maker promises to pay to the order of the payee or any holder according to the tenor thereof.Where the language of the instrument is ambiguous or there are omissions therein. he can enforce the instrument against M upto the stated amount of P2. CORP. Waiver of Obligor – Sec. 93073. 53 Sec. 17. (f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign. Authority to Complete does not carry with it the authority to alter (Sec. Waiver of notice. as if the date inserted was the true date. it is valid and effectual for all purposes in his hands. because the amount in words are harder to alter (Sundiang. 71 Construction where instrument is ambiguous. p. Holder NOT in due course of an instrument filled up in excess of the authority given is treated as a holder of a materially altered instrument (Sec. the sum of ___________ PESOS(…. p. Sec. By signing the notes.6 a. – (1) Where the instrument is not payable on demand. by the presence of the phrase “joint and several” as describing the unconditional promise to pay to the order of Republic Planters Bank. the holder may treat it as either at his election. 9 promissory notes were executed. Where it is payable on demand. b. from the issue thereof. 14.6) a. But if it was indorsed to A. Fermin Canlas The note became due and no payment was made. he is to be deemed an indorser. presentment must be made on the day it falls due.) Philippine Currency… Please credit proceeds of this note to: ________ Savings Account ______XX Current Account No. even by a holder in due course (Sec. But if N was a holder in due course. 14: Material Particular is any particular proper to be inserted in a negotiable instrument to make it complete. but P inserted July 15 to hasten maturity date. World Garment Manufacturing. Confession of Judgment – see p. (b) Where the instrument provides for the payment of interest. 109. it cannot be enforced against the maker. 17(g): Joint and Solidary Obligation Sec. RPB eventually sued Yamaguchi and Canlas. after completion. 2. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. The solidary liability of private respondent Fermin Canlas is made clearer and certain. he may collect on Aug. reference may be had to the figures to fix the amount. after date. 124) and therefore cannot collect to parties prior to completion who did not assent to the alteration. 1372-00257-6 of WORLDWIDE GARMENT MFG. 5 (supra.3 Relicta Verificationem – “his pleading being abandoned”. are not authorized nor contemplated by our law because under these instruments. Shozo Yamaguchi Sgd. is negotiated to a holder in due course. CA (GR No. If M issues a note and authorized P.000 since it is conclusive that there was authority to fill up the instrument and the same was not done in excess of authority. in his defense. but if the words are ambiguous or uncertain. Cesar Nickolai F. to insert P1. jointly and severally promise to pay to the ORDER of the REPUBLIC PLANTERS BANK.thereto prior to its completion. the sum denoted by the words is the sum payable. the written words are deemed to express the true intention of the maker or drawer because they are placed there by himself. payee. at its office in Manila. a subsequent holder NOT in due course cannot enforce it against M. (separation and emphasis supplied) Sec. Canlas is solidarily liable on each of the promissory notes bearing his signature for the following reasons: The promissory notes are negotiable instruments and must be governed by the Negotiable Instruments Law. a holder in due course. (d) Where there is a conflict between the written and printed provisions of the instrument. N. they are deemed to be jointly and severally liable thereon.2 Cognovit Actionem – “he has confessed the action” a. (c) Where the instrument is not dated. Under the Negotiable lnstruments Law. 11: He who claims that some other date is the true date has the burden of establishing such claim. 17 Sec. the following rules of construction apply: (a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two. Soriano Jr. Also. 16 Presentment where instrument is not payable on demand and where payable on demand. Construction where instrument is ambiguous. . without specifying the date from which interest is to run. persons who write their names on the face of promissory notes are makers and are liable as such. (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons. Sec. E. When person not deemed holder in due course.1 Warrant of attorney – to confess judgment. I/we. 13: If an undated note payable to P matures on Aug. they are deemed to be jointly and severally liable thereon. 2013. 2010 audio lecture). 17(d): Reason for this rule is that. without reason for ambiguity. But if any such instrument. P cannot enforce payment because it is avoided as to him who ante-dated for fraudulent purposes (Sec. it must be (1) filled up strictly in accordance with the authority given and (2) within a reasonable time. the written provisions prevail. the promisor bargains away his right to a day in court. Each promissory note was uniformly written in the following manner: ___________. (e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note. and the waiver may be expressed or implied. (PNB vs. presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof. ADDITIONAL PROVISIONS NOT AFFECTING NEGOTIABILITY – Sec. ISSUE: WON Canlas should be held liable for the promissory notes? HELD: Yes. INTERPRETATION OF INSTRUMENTS Sec. MANILA OIL REFINING. – see E. 124). . but P inserts P2. the interest runs from the date of the instrument. Canlas. 15).000. for value received. a confession of judgment accompanied by a withdrawal of the plea. Dec. 1992) In 1979. – see HOLDER IN DUE COURSE. p. 30 days after issuance.000. through its board authorized Shozo Yamaguchi (president) and Fermin Canlas (treasurer) to obtain credit facilities from Republic Planters Bank (RPB). supra.6) a. 12).

625. if completed and negotiated without authority.267. . NOTE: C. a valid and intentional delivery by him is presumed until the contrary is proved. They cannot eventually claim that they did not personably receive any consideration for the contract. If payable to bearer. 17 of the Negotiable Instruments Law provide: “Construction where instrument is ambiguous – Where the language of the instrument is ambiguous or there are omissions therein.87 Sec. making the mortgage voidable. 1982 - P154.87 February 16.267. delivery is a rebuttable presumption. P steals the note. also with the succeeding promissory notes. of a complete instrument (as opposed to an incomplete instrument under Sec. ISSUE. or indorsing. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . 16 Sec. with assignee Benin agreeing to shoulder all obligations including the payment of amortization to the City. valid delivery.267. . upon motion of the respondent. the principal sum of EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE PESOS & 78/100 (P 844. A to B. 21. as the case may be. in accordance with the contract between it and Urdaneta. 1982 - P154.267.Petitioner spouses filed a complaint against respondents for the foreclosure of the mortgage on their property and eventual its eventual sale. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. As stated in their verbal agreement. C. it will not. On appeal.Ciriaco Urdaneta was a grantee of a parcel of land purchased by the City of Manila and conveyed to its less privileged inhabitants. It is the less usual method which may or may not involve an indorsement in the sense of writing on the back of the instrument. as against any person whose signature was placed thereon before delivery. "Issue" means the first delivery of the instrument. it is negotiated by the indorsement of the holder and completed by delivery. 1982 - P154. ASSIGNMENT AND NEGOTIATION DISTINGUISHED Assignment is the transfer of the title to an instrument. when effectual. there is no consideration received by them. But where the instrument is in the hands of a holder in due course. (GR No. x x x. subject to all defenses available against his assignor.Where an incomplete instrument has not been delivered. A and B. and. and not on their personal capacity. but C can go after P. or for a special purpose only.87 B. it does not erase the fact that they subsequently executed a continuing suretyship agreement which makes them solidarily liable with the principal. among others.An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. must be made either by or under the authority of the party making. Inc. cannot enforce said note against M by virtue of Sec. 15). 148864. claims that the promissory note for the loan. . in order to be effectual. Definition and meaning of terms.SPS. 191 Incomplete instrument not delivered. a holder in due course. Philippine currency. a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed.Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. Respondent. 2003) .87 As regards a holder in due course. The note was signed by petitioners and Embassy Farms. September 16. 1998) . granted summary judgment and dismissed the complaint. drawing. with the signature of Eduardo Evangelista below it. Feb. As between immediate parties and as regards a remote party other than a holder in due course. as such can either be conditional or for a special purpose (without intention of transferring title). 30. As such. for which the mortgage was executed. unless the contract otherwise requires: "Delivery" means transfer of possession. Instruments payable to bearer: delivery alone without indorsement. the following rules of construction shall apply: (g) Where an instrument containing the word “I promise to pay” is signed by two or more persons. the delivery may be shown to have been conditional. if payable to order. . with the assignee generally taking only such title or rights as his assignor has. accepting. 15 Sec. even if petitioners signed merely as officers. The promissory note reads: For value received. in installments as follows: from one person to another. Section 16: As regards immediate parties and a remote party other than a holder in due course. and not for the purpose of transferring the property in the instrument. claiming. ISSUE: WON petitioners are solidarily liable with Embassy Farms for the loan as evidenced by the promissory note? HELD: Yes. in such case. actual or constructive. the CA affirmed in toto the decision of the RTC. Moreover. on the other hand. to a person who takes it as a holder Section 15: Example: M makes a note for P10. names himself as the payee and indorses the note to A. III. The RTC. パ 2.78). Sec. 115410. EVANGELISTA VS. 1982 - P154. 1983 - P154. with Urdaneta undertaking to pay the City the amount figured for a period of forty years in 480 equal installments. Another deed of assignment involving the whole lot. they are deemed to be jointly and severally liable thereon. Subsequently. thus.267. I/We jointly and severally promise to pay to the order of MERCATOR FINANCE CORPORATION at its office. the promissory note itself proves that petitioners are solidarily liable with Embassy Farms. (emphasis supplied) NEGOTIATION DEFINED 1. that they executed the said mortgage on their capacity as officers of Embassy Farms.In this Act.87 January 16. Delivery. complete in form. B to C. Applicable Law Type of transaction or instrument: Nature of the transferee: Rights acquired: Availability of personal defenses NEGOTIATION Negotiable Instruments Law ASSIGNMENT Civil Code of the Philippines Negotiable instruments only Contracts in general assignable rights Transferee is a holder who may be a holder in due course Transferee is a mere assignee and can never be a holder in due course Transferee cannot acquire more rights than the transferor because he merely steps into the shoes of the transferor Transferee is always subject to personal defenses The transferee-holder may acquire more rights than the transferor if he is a holder in due course Transferee-holder may be free from personal defenses if he is a holder in due course or CASABUENA VS. it is negotiated by delivery.000 with the name of the payee in blank and keeps it in his drawer. Aug. A deed of sale with mortgage was executed. by all parties prior to him is conclusively presumed (admission of evidence to the contrary is not allowed). November 16. even though a holder in due course. COURT OF APPEALS (GR No. when presumed. he assigned his rights and interests in 1/2 of the lot to Arsenia Benin covering full payment of his indebtedness in the amount of P500. through its land reform program. be a valid contract in the hands of any holder. October 16. TRANSFER AND NEGOTIATION A. ISSUANCE/DELIVERY OF NEGOTIABLE INSTRUMENTS Sec. What constitutes negotiation. And where the instrument is no longer in the possession of a party whose signature appears thereon. 1983 - P154. 15. Soriano Jr.87 December 16. MERCATER FINANCE CORP. Instruments payable to order: two steps are required for negotiation: (a) indorsement and (b) delivery. Urdaneta could redeem the property upon Cesar Nickolai F.267. shows that the spouses signed as co-makers. the delivery. 27.

to secure which debt the spouses ceded their rights over the land through a deed of assignment. p. Very clearly.without authorization – to petitioner Traders Royal Bank. IFC then filed a collection suit against petitioners for the recovery of the principal sum plus interest. a Release of Mortgage was executed and period of non-alienation of the land was extended from 5 to 20 years. but he shall not answer for the solvency of the debtor.payment of the loan within 3yrs. The note in question fails to meet the requirement under Sec.. An instrument payable to bearer is not converted into an instrument payable to order by being indorsed specially. What happened was Philfinance merely borrowed CBCI from Filriters. who acquires the power to enforce it to the same extent as the assignor could have enforced it against the debtor. It lacked the words of negotiability which should have served as an expression of the consent that the instrument may be transferred by negotiation. Amid the sprouting controversies involving the lot. IFC LEASING (GR No. Stated simply. is indorsed specially.000 from Philippine Underwriters Finance Corporation (Philfinance) . 1(d) of Act No. This freedom in negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to pay a sum of money to a specified person or entity for a period of time. HOW ARE NEGOTIABLE INSTRUMENTS AND NON-NEGOTIABLE INSTRUMENTS TRANSFERRED? SESBRENO VS. CPII logging operations were delayed so Vergara advised IPM that the installment payments would likewise be delayed until it fulfills its obligation under its warranty. the transfer wasn't in conformity with the regulations set by the CB. IFC is not and will never be a holder in due course of the promissory note but is merely an assignee. because an assignee cannot acquire a greater right than that pertaining to the assignor. Notwithstanding this assignment. The pertinent question then is—was the transfer of the CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB. Casabuena was Benin's rental collector but their relationship soured resulting in a litigation involving issue on ownership. attorney's fees and costs of suit contending that it was a holder in due course of a negotiable promissory note. it may nevertheless be further negotiated by delivery. of which the cause was the latter’s failure to pay rentals. The sellerassignor IPM is liable for breach of warranty and such liability as a general rule extends to the corporation (IFC) to whom it assigned its rights and interests. April 30. for lack of any consideration. Not having acquired any right over the land in question. The deed of sale with chattel mortgage with promissory note and the deed of assignment. the instrument was only payable to Filriters. Although the deed of assignment stated that the transfer was for ‘value received‘. the person who indorsed specially is liable only to those holders who can trace their title to the instrument by a series of unbroken indorsements from such special indorser. Art. so as to entitle TRB to have the CBCI registered in its name with the Central Bank? Clearly shown in the record is the fact that Philfinance’s title over CBCI is defective since it acquired the instrument from Filriters fictitiously. failure to pay would transfer physical possession of the lot to Benin for a period of 15 years. which the law throws around a holder in due course. Benin constructed a duplex (apartment) on the lot separately occupied by Jose Abejero and Juan Casabuena. who would then be allowed to proceed against the debtor. were ドト E. a sister corporation. ISSUE: WON Central Bank Certificate of Indebtedness (CBCI) is a negotiable instrument? HELD: No. Mechanics were sent to do repairs but the tractors were no longer serviceable. 30 Sec. The note in question is not a negotiable instrument for lack of the so-called words of negotiability. by a legal cause. 1987) . Benin having been deemed subrogated to the rights and obligations of the spouses. INC. Giving more credence to rule that there was no valid transfer or assignment to petitioner.Where an instrument. known as the assignor. However. there was really no consideration involved. 40 What constitutes negotiation. 40 does not apply to instruments originally payable to order which was indorsed in black. 348. The act of assignment could not have operated to efface liens or restrictions burdening the right assigned. it follows that Benin conveyed nothing to defendants with respect to the property. Meanwhile. and the freedom of negotiability is the foundation for the protection. The conveyer shall answer for the legality of the credit and for the capacity in which he made the transfer. the administration of the property was assigned to brothers Candido and Juan Casabuena. COURT OF APPEALS (GR No. Petitioner's adamant refusal to comply with such demand resulted in a complaint for ejectment and recovery of possession of property filed by Urdaneta against Casabuena and Benin. After the lot was fully paid for by the Urdanetas. Inc. Soriano Jr. ISSUE: WON a deed of assignment can transfer ownership of the property to the assignee? HELD: At the bottom of this controversy is the undisputed fact that Ciriaco Urdaneta was indebted to Benin. Code of Commerce. Furthermore. COURT OF APPEALS (supra. 93397. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . to whom Benin had transferred her right. An assignment of credit is an agreement by virtue of which the owner of a credit. 3. an assignee can only acquire rights duplicating those which his assignor is entitled by law to exercise. who collected rentals from the former. it is the process of transferring the right of the assignor to the assignee. IFC which actively participated in the sale on installment transaction from its inception cannot be regarded as a holder in due course. Thus. At most. The language of negotiability which characterizes a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money. without actual transfer of title and ownership thereto. (CPII) needed two tractors for its logging business.Consolidated Plywood Industries. IPM inspected the job site and assured that the tractors were fit for the job and gave a 90-day warranty for machine performance and availability of parts. Upon learning of the litigation between petitioner and Benin. where IPM assigned its rights and interest in the chattel mortgage in favor of IFC Leasing and Acceptance Corp. unless there is an express agreement requiring him to do so D. (supra. 72593. payable to bearer. IPM. the tractors broke down. known as the assignee. but the person indorsing specially is liable as indorser to only such holders as make title through his indorsement. she was bound by exactly the same conditions to which the latter were bound.3) CONSOLIDATED PLYWOOD INDUSTRIES. ISSUE: WON IFC is a holder in due course of a negotiable promissory note so as to bar all defenses of CPII against IPM? HELD: No. 9) Indorsement of instrument payable to bearer. who was not so much an owner as a mere assignee of the rights of her debtors. The instrument provides for a promise to pay the registered owner Filriters. The transfer of the instrument from Philfinance to TRB was merely an assignment. 1997) . Cesar Nickolai F. to the assignee.Assailed in this Petition is the Decision of the Court of Appeals affirming the nullity of the transfer of Central Bank Certificate of Indebtedness (CBC).500. title and interest for a consideration of P7. Mar. Instruments originally payable to order: Sec. from the date of assignment. the Urdaneta spouses succeeded in having the Court declare them as its true and lawful owners with the deed of assignment to Benin merely serving as evidence of Ciriaco's indebtedness to her in view of the prohibition against the sale of the land imposed by the City government. . freedom of negotiability is the touchstone relating to the protection of holders in due course. VS. all executed on the same day by and among the parties. HOW NEGOTIATION TAKES PLACE Sec. Atlantic Gulf & Pacific Company through its sister company Industrial Products Marketing (IPM) offered to sell two “used" tractors. TRADERS ROYAL BANK VS. The assignment involves no transfer of ownership but merely effects the transfer rights which the assignor has at the time. Urdaneta asked them to vacate the property and surrender to him possession thereof within 15 days from notice. transfers his credit and its accessory rights to another. she and the Casabuenas were bound to respect the prohibition against selling the property within the five-year period imposed by the City government. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. CPII officers Wee and Vergara purchased the tractors on installment and paid the down payment. p. 2013. the assignment made is a complete nullity. Hence. with a face value of P500. This being so. Even assuming that the note is negotiable. in accord with existing law. Barely 14 days after delivery. the Casabuenas merely stepped into Benin's shoes. Thus. petitioners may raise against the respondent all defenses available to it as against the seller-assignor. In the case at bar. and is not governed by the negotiable instruments law.

(RIGI) which had been transacting business with Linton Commercial Company. custodian of the paychecks of Mabanto. is not only a written evidence of a contract right but is also a species of property. Soriano Jr. leaving a balance of P1.000. provides in part: “Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto”. for the amount of P500.000. of Cebu City.Raul Sebreño filed a complaint for damages against Fiscal Bienvenido Mabanto Jr. As a result. Inc. None of these exceptions were alleged by respondent Sima Wei. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . It is the final act essential to its consummation of an obligation. Under Section 16 of the Negotiable Instruments Law. founded on said checks. issue means the first delivery of the instrument complete in its form to a person who takes it as holder. insofar as the other respondents are concerned. to hold the checks and convey them to Sebreño instead. they were dishonored because payment for the checks had been stopped and/or insufficiency of funds.00. 85419. All the drawer has to do when he wishes to issue a check is to properly fill up the blanks and sign it. ISSUE: WON De La Victoria is correct? HELD: Yes. that there was delivery to petitioner Bank. 107898. Thus. for the amount of P550. Petitioner Bank has therefore no cause of action against said respondents. An undelivered bill is unoperative. ISSUE: WON petitioner Bank has a cause of action against any or all of the defendants. these checks were never delivered to petitioner Bank. Notwithstanding the above. the latter executed and delivered to the former a promissory note. the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. 1995) . 2) The checks were delivered Linton in the same place. De La Victoria assailed the decision as he said that the paychecks and the amount thereon are not yet the property of Mabanto because they are not yet delivered to him. The allegations of the petitioner in the original complaint show that the two (2) China Bank checks. Just as a deed to a piece of land must be delivered in order to convey title to the grantee. the ff. the CA reversed the trial court’s decision on Estafa but upheld the decision on violation of BP 22. as this would in effect deprive the other party of his day in court.Manuel Lim and Rosita Lim are the officers of the Rigi Bilt Industries. The place where the bills were written. relying on the assurance of respondent Samson Tung. As ordinarily understood. This was clearly an attempt by the petitioner Bank to change not only the theory of its case but the basis of his cause of action. he was just an employee. the former did not acquire any right or interest therein and cannot therefore assert any cause of action.00 on or before June 24. sued respondent Sima Wei on the promissory note. including Sima Wei. Under Section 191 of the Negotiable Instruments Law. A negotiable instrument. The essential elements are: (1) legal right of the plaintiff. of the Producers Bank. petitioners were found guilty with Estafa and 7 counts of violation of BP 22 by the Malabon RTC. anything which the respondents may have done with respect to said checks could not have prejudiced petitioner Bank. The term holder on the other hand refers to the payee or endorsee of a bill or note who is in possession of it or the bearer thereof. Sima Wei issued two crossed checks payable to petitioner Bank drawn against China Banking Corporation. although Linton sent a collector who received the checks from the petitioners’ place of business. that since there is no delivery of the checks to Mabanto. the checks are still part of the public funds. In the case at bar. of which a check is. If at all. without admitting. 111190. A person charged with a transitory crime may be validly tried in any municipality or territory where the offense was partly committed. In the original complaint. the payee and the drawee bank. BURGOS (GR No. the delivery of checks in payment of an obligation does not constitute payment unless they are cashed or their value is impaired through the fault of the creditor. 1) 7 checks were issued to Linton in its place of business in Navotas. engaging to pay the petitioner Bank or order the amount of P1. It had no right or interest in the checks which could have been violated by said respondents. hence. in the alternative or otherwise? HELD: A cause of action is defined as an act or omission of one party in violation of the legal right or rights of another. Without the initial delivery of the instrument from the drawer to the payee. CA (GR No. it never owned them (the checks) nor did it acquire any interest therein. Sebreño won and he was awarded the payment of damages. And even granting. 1983) . delivery means the transfer of the possession of the instrument by the maker or drawer with intent to transfer title to the payee and recognize him as the holder thereof. the amount payable and the drawer's signature. Since petitioner Bank never received the checks on which it based its action against said respondents. the mere fact that he has done these does not give rise to any liability on his part. 1983 with interest at 32% per annum. June 9. who deposited the checks without the petitioner-payee's indorsement (forged or otherwise) to the account of respondent Plastic Corporation.820.LIM VS. BP 22 is a continuing crime. unless respondent Sima Wei proves that she has been relieved from liability on the promissory note by some other cause. signed or dated does not necessarily fix or determine the place where they were executed. petitioner Bank has no privity with them. To pay Linton. the name of the payee. LORETO DELA VICTORIA VS. this petition. These two checks were not delivered to the petitioner-payee or to any of its authorized representatives. Moreover. Delivery of an instrument means transfer of possession. The normal parties to a check are the drawer. bearing respectively the serial numbers 384934. and the alternative defendants. SIMA WEI (GR No. and the checks due to the foregoing cannot be the proper subject of garnishment. President of Plastic Corporation. Sima Wei made partial payments on the note. 3) The checks were dishonored in Caloocan 4) The Lims had knowledge of their insufficiency of funds. as plaintiff. Cesar Nickolai F. petitioner Bank alleged that its cause of action was not based on collecting the sum of money evidenced by the negotiable instruments stated but on quasi-delict — a claim for damages on the ground of fraudulent acts and evident bad faith of the alternative respondents. 1995) . Caloocan City. Therefore.00 and 384935. on the two checks. Her allegation that she has paid the balance of her loan with the two checks payable to petitioner Bank has no merit for. ISSUE: WON the issue was within the jurisdiction of the Malabon RTC? HELD: The venue of jurisdiction lies either in the RTC Caloocan or Malabon Trial Court. at the Balintawak branch. The issuance and delivery of the check must be to a person who takes it as a holder. 19. DEVELOPMENT BANK OF RIZAL VS. the petitioners issued seven checks. However. Hence.000. there can be no liability on the instrument. In determining the proper venue. were not delivered to the payee. every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. It is the delivery that is important. which governs checks. On appeal. Thus. Courts have long recognized the business custom of using printed checks where blanks are provided for the date of issuance. Inc. Dec. the petitioner herein.In consideration for a loan extended by petitioner Bank to respondent Sima Wei.032. However. When the checks were presented to the drawee bank (Solidbank). whether against the drawer Sima Wei or against the Producers Bank or any of the other respondents. The said checks were allegedly issued in full settlement of the drawer's account evidenced by the promissory note. Judge Burgos ordered De La Victoria. The Lims ordered several steel plates and purlins from Linton and were delivered to the Lim’s place of business which was in Caloocan. For reasons not shown. It is well-settled that a party cannot change his theory on appeal. HON. Section 16 of the Negotiable Instruments Law. it does not necessarily follow that the drawer Sima Wei is freed from liability to petitioner Bank under the loan evidenced by the promissory note agreed to by her. actual or constructive. Without the delivery of said checks to petitioner-payee. June 27. that the transaction was legal and regular. numbered 384934 and 384935. On appeal from the orders of dismissal of the Regional Trial Court. petitioner Bank has a right of action against her for the balance due thereon. and (3) an act or omission of the defendant in violation of said legal right.02. in the alternative or otherwise. as We have earlier explained. from one person to another. petitioner filed the complaint as aforestated. petitioner Bank. 1983. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. instructed the cashier of Producers Bank to accept the checks for deposit and to credit them to the account of said Plastic Corporation. these checks came into the possession of respondent Lee Kian Huat. the checks were actually issued and delivered to Linton in Navotas. On November 18. until and unless the check is delivered to the payee or his representative. Branch Manager of the ドド Balintawak branch of Producers Bank. so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract. The collector is not a holder or an agent. (2) correlative obligation of the defendant. inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no indorsement of the latter. must be considered. Cheng Uy. such delivery must be intended to give effect to the instrument.450.

Sec. The signature of the indorser. Soriano Jr. 1950) . effect of.000. and the principal is bound only in case the agent in so signing acted within the actual limits of his authority.The indorsement must be written on the instrument itself or upon a paper attached thereto.000 in Japanese military notes but that the latter gave him only two checks of P20.000 of it and for such reason. Montinola would pay him P90. Montinola INCOMPLETE NEGOTIATION OF ORDER INSTRUMENT P30. In his defense.000 with the Provincial Treasurer (PT) of Lanao for the use of USAFFE in Cagayan de Misamis. ISSUE: WON a check payable to “cash” needs indorsement? HELD: NO. the right to have the indorsement of the transferor. he and Montinola agreed to the sale of said check and the agreement regarding the transfer of the check was that he was ドナ assignment of P30. if the allegations in the complaint are found to be true. Thereafter. The transferee acquires the legal title the transferor had and in addition. who would have a cause of action against her co-respondents. at the back of the document he wrote in longhand: Pay to the order of Enrique P. does not operate as a negotiation of the instrument. the right to have the indorsement of the transferor. without which he cannot be considered a “holder” within the definition under Sec. a supposed indorsement appearing on the back of the check was made for the whole amount of the check. or both. 31. 191 and thus cannot negotiate it. . L-2861 . . Montinola may therefore not be regarded as an indorsee. all must indorse unless the one indorsing has authority to indorse for the others. without additional words. The drawee bank need not obtain any indorsement of the check. however. he is subject to all defenses available to the drawer Provincial Treasurer of Misamis Oriental and against Ramos. Section 32 of the NIL provides that "the indorsement must be an indorsement of the entire instrument. ANG TEK LIAN VS. Under the Negotiable Instruments Law (sec. as for example. it may be indorsed as to the residue. Indorsement is the writing of the name of the payee on the instrument with the intent either to transfer the title to the same. . is deemed to be indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity An indorser cannot show by parol evidence (i." As to what was really written at the back of the check which Montinola claims to be a full indorsement of the check. the check was presented by Lee Hua Hong to the drawee bank for payment. Ramos further said that in exchange for this Sec. Ramos. sometime in 1945. outside the instrument itself) his intention to be bound in some other capacity. however.A person placing his signature upon an instrument otherwise than as maker. or acceptor. the Court agreed with trial court that the original writing of Ramos on the back of the check was to the effect that he was assigning only P30. who then was no longer connected with the USAFFE but already a civilian who needed the money only for himself and his family.000 drawn on the PNB as he had previously deposited P500. 9 [d]. 40 Sec.. it is deemed prima facie to be payable to the bank or corporation of which he is such officer. Ramos presented the check to their PT in their province for encashment.000. He also cannot be considered a “bearer” since the instrument is not payable to bearer. the defendant is not guilty of the offense charged.Where the holder of an instrument payable to his order transfers it for value without indorsing it. and hence the instrument is payable to bearer.000 emergency notes in the PNB branch in Cebu and thus he expected to have the check issued by him cashed in Cebu against said deposit. I. 42 Effect of instrument drawn or indorsed to a person as cashier.000. it is Sima Wei.. selling only P30.000 sold to him by Ramos. After his release.The indorsement must be an indorsement of the entire instrument. But where the instrument has been paid in part. G.000.000 in emergency notes and a check for P500. The balance to be deposited in the Philippine National Bank to the credit of M. Sec. is a sufficient indorsement. how made. or to strengthen the security of the holder by assuming a contingent liability for its future payment. the drawer. Petitioner was sued for estafa.A signature by "procuration” operates as notice that the agent has but a limited authority to sign. ISSUE: WON the check was legally negotiated within the meaning of the NIL in view of the fact that the instrument was indorsed for a lesser amount? HELD: NO. leaving a balance unpaid of P45. the transfer vests in the transferee such title as the transferor had therein. he signed merely as an agent.000 of the value of the document and that he was instructing the bank to deposit to his credit the balance. 21. as such assignee. Mariano Ramos. 32 Indorsement must be of entire instrument. Allonge .Knowing he had no funds therefor. 49. Equitable Assignment – the transfer of an order instrument without indorsement where the transferee acquires the instrument subject to defenses and equities available among prior parties. H. 63. payable to the order of “cash”. 1951) . the word cash ‘does not purport to be the name of any person’. and the bank may pay it to the person presenting it for payment without the drawer’s indorsement. drawer.In 1942. offered to sell the check to him. Where a check is made payable to the order of ‘cash’. WHERE INDORSEMENT SHOULD BE PLACED? Sec. and the transferee acquires in addition. It is otherwise understood as agency or proxy. he argues that as the check had been made payable to “cash” and had not been endorsed by Ang Tek Lian. Indorsement.000 only. Procuration is the act by which a principal gives power to another to act in his place as he could himself. petitioner Ang Tek Lian drew a check upon the China Banking Corporation for the sum of P4. procured cash advances in the amount of Php800. PT-Lanao did not have that amount in cash so he gave Ramos P300. 25.is a slip of paper sometimes attached to a negotiable instrument for the purpose of receiving further indorsements when the original paper is filled with indorsements. According to Montinola’s version of the circumstances that roused the present controversy. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. and may be negotiated by either the indorsement of the bank or corporation or the indorsement of the Cesar Nickolai F. Ramos was unable to encash said check for he was captured by the Japanese and later made a prisoner of war. PT-Misamis did not have enough cash to cover the check so he gave Ramos P400. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . . Feb. V. p.e. The writing made at the back of the check was. mysteriously obliterated and in its place. The next business day. an allonge may not be utilized for indorsement if there is still sufficient space on the instrument itself. Transfer without indorsement. But for the purpose of determining whether the transferee is a holder in due course. Signature by procuration. but may pay it to the person presenting it without any indorsement. L-2516. CA (GR No. Ramos. effect of. or which purports to transfer the instrument to two or more indorsees severally.000 in emergency notes and a check for P100. Sept. 41 Indorsement of instrument payable to bearer. (supra. WHEN PERSON DEEMED INDORSER Sec. Ramos allegedly indorsed the check to herein plaintiff-appellant. OTHER RULES ON INDORSEMENT ENRIQUE MONTINOLA VS.Where an instrument is drawn or indorsed to a person as "cashier” or other fiscal officer of a bank or corporation. PNB (GR No. An indorsement which purports to transfer to the indorsee a part only of the amount payable. Sec. 10) Indorsement where payable to two or more persons. He delivered it to Lee Hua Hong in exchange for money which the latter handed in the act. the balance of the deposit of Ang Tek Lian on both dates being P335 only.F. . When a person deemed indorser. in which case. the negotiation takes effect as of the time when the indorsement is actually made. a check drawn payable to the order of “cash” is a check payable to bearer. Where an instrument is payable to the order of two or more payees or indorsees who are not partners. An indorsement which purports to transfer to the indorsee a part only of the amount payable (as in this case) does not operate as a negotiation of the instrument. as disbursing officer of an army division of United States Armed Forces in the Far East (USAFFE) and based in Misamis Oriental.000 and P25. but it was dishonored for insufficiency of funds. Sec. 26. But as stated by Ramos.000. Generally. At most he may be regarded as a mere assignee of the P30.

which may be negotiated by either A or B. Feb. Sec. Notice of Demand. every indorsement is presumed prima facie to have been made at the place where the instrument is dated Striking out indorsement. . . Such an indorsement does not impair the negotiable character of the instrument. the party required to pay the instrument may disregard the condition and make payment to the indorsee or his transferee whether the condition has been fulfilled or not. (emphasis supplied) Blank indorsement. to avoid multiplicity of suits and a bill or note divided into different parts divides a single cause of action. An instrument originally payable to order but converted by virtue of a blank indorsement. and all indorsers subsequent to him. or both as the case may be. 48. he is obliged to return the amount he recovered to the conditional indorser. He is only liable for breach of warranties under Sec. presumption. . how changed to special indorsement. 4. he may do so by resorting to qualified indorsement. his proper signature. Plaintiff notified Sambok as indorsee of said note of the fact that the same has been dishonored and demanded payment. the warranty extends in favor of no holder other than the immediate transferee. (emphasis supplied) Indorsement in representative capacity. such as “payable to A or B”. A person who indorses without qualification engages that on due presentment. . Sec. . the note shall be accepted or paid. 36 Restrictive Indorsement When indorsement restrictive. when the condition did not happen. 46 Sec. 65. NONILLO Asst. The words added by said appellant do not limit his liability. But the holder cannot strike out the indorsements prior to the blank indorsement since it would be necessary for his acquisition of title.Except where the contrary appears. VS. (BACOLOD) By: RODOLFO G. The effect of such indorsement is that the note was indorsed without qualification. protest and presentment were all waived. 48: An instrument payable to bearer remains a bearer instrument and the holder thereof can strike out any special indorsements by virtue of Sec. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. Special indorsement. plaintiffappellee can go after said appellant. Conditional indorsement. Sec. and may be negotiated by delivery.A special indorsement specifies the person to whom. Soriano Jr. it becomes a qualified indorser. and there can be no partial delivery of one instrument. 41: Does not apply to instruments payable to two or more payees severally. he may indorse in such terms as to negative personal liability. 43 purports to be. L-39641 . Sec. An indorsement in blank specifies no indorsee. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . Conditional Indorsement Sec. and so forth. 38 Sec. and Presentment are hereby waived. 3. 33 Sec.officer. every negotiation is deemed prima facie to have been effected before the instrument was overdue Place of indorsement. the holder will hold the payment subject to the rights of the conditional indorser.The holder may convert a blank indorsement into a special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of the indorsement. and the indorsement of such indorsee is necessary to the further negotiation of the instrument. Dishonor. . Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. are thereby relieved from liability on the instrument Transfer without indorsement. Villaruel defaulted in the payment. .The holder may at any time strike out any indorsement which is not necessary to his title. The indorser whose indorsement is struck out. 35 Kinds of indorsement. 28. ISSUE: WON Sambok is a qualified indorser? HELD: Appellant. and it may also be either restrictive or qualified or conditional. 45 Sec. Such that. (supra. and an instrument so indorsed is payable to bearer. 65 Qualified Indorsements Qualified indorsement. Villaruel fails to pay the note. METROPOL (BACOLOD) FINANCING & INVESTMENT CORP. Trial court rendered its decision in favor of Plaintiff. 34 Sec.Where an indorsement is conditional. or to whose order. Warranty where negotiation by delivery and so forth. 38: When the indorser wants to transfer his rights over the instrument but does not want to assume responsibilities under the secondary contracts. Appellant Sambok argues that by adding the words "with recourse" in the indorsement of the note. In order to make an indorsement of an instrument payable to two or more persons effective. SAMBOK MOTORS (GR No. it agreed that if Dr. 2. Dr. by indorsing the note "with recourse'' does not make itself a qualified indorser but a general indorser who is secondarily liable. General Manager". or (b) Constitutes the indorsee the agent of the indorser. (b) That he has a good title to it. p. he will pay the amount thereof to the holder. The provisions of subdivision (c) of this section do not apply to a person negotiating public or corporation securities other than bills and notes. (d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. the instrument is to be payable. it does not warrant that if said note is dishonored by the maker on presentment. if he thinks fit. . by virtue of which he disclaims his liability to any holder or any subsequent party who might be compelled by another.Sambok Motors Company negotiated and indorsed the note in favor of plaintiff Metropol Financing & Investment Corporation with the following indorsement: "Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse. 48 Sec.A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument.An indorsement is restrictive which either: (a) Prohibits the further negotiation of the instrument. because by such indorsement. .Except where an indorsement bears date after the maturity of the instrument. dishonor. it will pay the amount to the holder. effect of. or (c) Vests the title in the indorsee in trust for or to the use of Cesar Nickolai F. 49 adding. The maker. and that if it be dishonored. SAMBOK MOTORS CO. Sec. 32: Reason: negotiation requires delivery. 44 Sec. Time of indorsement. Blank and Special Indorsements Sec. Where the name of a payee or indorsee is wrongly designated or misspelled. . Indorsement where name is misspelled. or the proceeds thereof. Also.Where any person is under obligation to indorse in a representative capacity. J. KINDS OF INDORSEMENT 1. — — Every person negotiating an instrument by delivery or by a qualified indorsement warrants: (a) That the instrument is genuine and in all respects what it ドニ But when the negotiation is by delivery only. but rather confirm his obligations as a general indorser. subject to the rights of the person indorsing conditionally If payment is made prior to the fulfilment of the condition. indorsement in blank. Sec. Protest. presumption. 1983) . But any person to whom an instrument so indorsed is negotiated will hold the same. (c) That all prior parties had capacity to contract. Sambok failed to pay. 39. Appellant Sambok's intention of indorsing the note without qualification is made even more apparent by the fact that the notice of' demand.12) Sec. the holder thereof can remove all subsequent special indorsements as he can acquire title only by delivery. that being a qualified indorser. all must indorse to effect a negotiation. he may indorse the instrument as therein described Sec.An indorsement may be either special or in blank.

9. DIFFERENT COMBINATIONS OF INDORSEMENT V. Sec. It was only after the lapse of more than 2 years did she discovered the fraudulent manipulations of her bookkeeper. places thereon his signature in blank before delivery. 36(a). subject to the provisions of this Act. in accordance with the following rules: (a) If the instrument is payable to the order of a third person. Soriano Jr.10). the banking rule banning acceptance of checks for deposit or cash payment with more than one indorsement unless cleared by some bank officials. Her negligence was the proximate cause of her loss.Where a person.Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration. P.13) NATIVIDAD GEMPESAW VS. RIGHT OF PRIOR PARTY TO NEGOTIATE – Sec. . CA (GR No. CONSIDERATION FOR ISSUANCE AND SUBSEQUENT TRANSFER Sec. INDORSEMENT OF ENTIRE INSTRUMENT – Sec.12) O. and under Section 23 of the Negotiable Instruments Law. a drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer’s account for the amount of said check.14) T. Buendia Branch) who deposited them in the accounts of Alfredo Romero and Benito Lam.The holder may at any time strike out any indorsement which is not necessary to his title.12) U. such party may. since. (emphasis supplied) Right of party who discharges instrument. PLACE OF INDORSEMENT – Sec. CONTINUATION OF NEGOTIABLE CHARACTER Sec. pursuant to Section 196 of the Negotiable Instruments Law. 49 (p. 47. . An exception to the rule is where the drawer is guilty of such negligence which causes the bank to honor such checks.13) under (b) and (c) may still be further negotiated. 8(b) (p. 41. Sec. are thereby relieved from liability on the instrument Absolute Indorsement Joint Indorsement Sec.Where the instrument is paid by a party secondarily liable thereon. 121 instrument is negotiated back to a prior party. not otherwise a party to an instrument. Most of the checks for amounts in excess of actual obligations as shown in their corresponding invoices. It was also learned that the indorsements of the payee were forged. . 37 (a) to receive payment of the instrument. In light of any case not provided for in the Act that is to be governed by the provisions of existing legislation.A restrictive indorsement confers upon the indorsee the right: drawer. 1993) Natividad Gempesaw issued checks. and he may strike out his own and all subsequent indorsements and against negotiate the instrument. Gempesaw made demand upon the bank to credit the amount charged due the checks. p.14) W. Q. 50 When prior party may negotiate instrument. Sec. does not invalidate the instrument. But all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement. and all indorsers subsequent to him. But the mere absence of words implying power to negotiate does not make an indorsement restrictive. is precluded from using forgery as a defense. reissue and further negotiable the same. The indorser whose indorsement is struck out. K. prepared by her bookkeeper. the present action. 32 (p. neither does it invalidate the negotiation or transfer of said checks. rights of indorsee. 50 (p. (b) and (c) thereof do not prevent further negotiation. STRIKING OUT OF INDORSEMENT Sec. (c) If he signs for the accommodation of the payee. . Feb. 12 7. was adjudged liable to share the loss with Gempesaw on a 50:50 ratio. On the other hand.An instrument negotiable in its origin continues to be negotiable until it has been restrictively indorsed or discharged by payment or otherwise.40) M. as discussed earlier. EFFECT OF TRANSFER WITHOUT INDORSEMENT – Sec. Restrictive indorsement as used in this provision pertains only to Sec. it is not discharged. the bank may be held liable for damages in accordance with Article 1170 of the Civil Code. WHEN INDORSEMENT NECESSARY – Sec. except: (a) Where it is payable to the order of a third person and has been paid by the drawer. and every person whose signature appears thereon Cesar Nickolai F. 36(a) is the only type of indorsement that bars further negotiation. S. Sec. 24 Presumption of consideration. (supra. 30 (p. INDORSEMENT OF BEARER INSTRUMENT – Sec.2) L. Effect of restrictive indorsement. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . . and the checks were brought to the chief accountant of Philippine Bank of Commerce (the Drawee Bank. he is liable to all parties subsequent to the maker or ドヌ Striking out indorsement. 184 (p. PRESUMPTION ON TIME.) R. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. or is payable to bearer. 50 When prior party may negotiate instrument. INDORSEMENT IN REPRESENTATIVE CAPACITY – Sec. he is liable as indorser. Indorsement where payable to two or more persons. 40 (p. 41 (p. 92244. he is liable to the payee and to all subsequent parties. in its failure to discover the fraud committed by its employee and in contravention banking rules in allowing a chief accountant to deposit the checks bearing second indorsements.6). The drawee bank. Sec. but the subsequent indorsees will also be an agent or trustee. NEGOTIATION BY PRIOR PARTY Sec. – see p. Gempesaw did not exercise prudence in taking steps that a careful and prudent businessman would take in circumstances to discover discrepancies in her account. but the party so paying it is remitted to his former rights as regard all prior parties. pursuant to Section 36 of the Negotiable Instruments Law. Hence. where the form of the indorsement authorizes him to do so. . The bank refused. Those 5. (b) If the instrument is payable to the order of the maker or drawer. 45 and 46 (p. But he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable.some other persons. The only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof. 6. 48 Irregular Indorser Liability of irregular indorser. ISSUE: Who shall bear the loss resulting from the forged indorsements? HELD: As a rule. a total of 82 checks in favor of several supplies.Where an Sec.10) N. . and (b) Where it was made or accepted for accommodation and has been paid by the party accommodated. he is liable to all parties subsequent to the payee. (b) to bring any action thereon that the indorser could bring. 119 (p. INDORSEMENT WHEN PAYABLE TO TWO OR MORE PERSONS – Sec. Continuation of negotiable character. (c) to transfer his rights as such indorsee. 44 (p. Discharge by payment or otherwise are enumerated under Sec.

No. if not all of the sale price is received during such year. . ATRIUM MANAGEMENT CORPORATION VS. and a statute provides that income shall be taxable in the year in which it is “received”. An antecedent or pre-existing debt constitutes value. a taxable disposition results. Sec. 51). a negotiable instrument is issued for a valuable consideration which may be to give. EFFECT OF VALUE PREVIOUSLY GIVEN – Sec. Soriano Jr. But upon presentment for payment. though not considered in computing for “initial payments” under Sec. ISSUE: WON the proceeds of the discounted note should have been reported as taxable income during 1976 and not deferred on installments? HELD: Yes. 2001) . endorsements which apparently show they had been deposited with the China Banking Corporation and were. – see Rights of A Holder In Cesar Nickolai F. Simple Contract as used in Sec. Consideration is not presumed when there is transfer without indorsement as in Sec. Value previously given: If M issued a note to P. and is deemed such whether the instrument is payable on demand or at a future time. the usage of trade or business with respect to such instruments. 51 Sec.T. since value has previously given by B to A. Inc. as payee.15) HOLDER FOR VALUE – Sec. Value is any consideration sufficient to support a simple contract. he will pay the amount thereof to the holder". Henry and Co.R.15) ドネ CHAN WAN VS. what constitutes. the transferee is a holder for value upto P30. . CA (GR No.Where value has at any time been given for the instrument.000 only. Henry and Co. Rights of holder in due course. then. by the latter. Sec. and the facts of the particular case. to do or not to do. held that it does not follow as a legal proposition that simply because petitioner Atrium was not a holder in due course for having taken the instruments in question with notice that the same was for deposit only to the account of payee E. 49. arguing that since the note evidencing the installment nature of the sale was discounted the same year it was issued. C is a holder for value as to A. and that if it be dishonored . February 28. On the backs of the checks. Where an installment obligation is discounted at a bank or finance company. .Where value has at any Sec. 27 (p. ISSUE: WON petitioner Atrium is a holder in due course? HELD: To emphasize. Henry that it was altogether precluded from recovering on the instrument.R. Sec. issued checks in favor of E. On the same day. the amount corresponding to the value of the checks. however. WHAT IS A HOLDER? A Holder means the payee or indorsee of a bill or note who is in possession of it or the bearer thereof (Sec. TAN KIM (G. 175 of the Tax Code. 191). absolved & ruled. What constitutes holder for value. Atrium was aware of the fact that the checks were all for deposit only to payee's account. Revenue Director of Manila authorized herein respondents Tuazon and Talon to examine the books and records of petitioner to which they assessed him for deficiency taxes. 51 Sec. X.. were all presented for payment by Chan Wan to the drawee bank. 27: If a negotiable instrument was delivered by way of pledge. On the year of sale. what constitutes. Y. who is not a holder in due course.The holder of a negotiable instrument may to sue thereon in his own name. but he may recover from A. Henry. it is still taxable in the year it was converted to cash.negotiable. One such defense is absence or failure of consideration.T. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . Henry) account only. The only disadvantage of holder who is not a holder in due course is that the negotiable instrument is subject to defense as if it were non. 102967. the indebtedness of the buyer is discharged. petitioner discounted the promissory note with Ayala. as a way of gift.Hi-Cement Corp. HOLDER Sec. the whole profit accruing from a sale of property is taxable as income in the year the sale is made. the transferee is a holder for value up to the extent of the amount secured. CA. inter alia. that Lourdes de Leon of Hi-Cement was not authorized to issue the subject checks in favor of E. Non-dealer sales of property may be reported as income under the installment method provided that the obligation is still outstanding at the close of the year. September 30. presented to the drawee bank for collection. Logically then. 43 and Sec. 26 Rights of holder to sue." The drawer in drawing the check engaged that "on due presentment. Feb.754 upon signing of the contract and the balance covered by a promissory note to be paid in four equal annual installments. the holder is deemed a holder for value in respect to all parties who become such prior to that time. may not in any case. petitioner reported the P461.308. The disadvantage of Atrium in not being a holder in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable.T. then P to A. the proceeds from the disposition or discounting of receivable. 10. CA (G. recover on the instrument. Inc. . Z. Value Sufficient need not mean that the amount of consideration and the promise to pay in the instrument are equal. – see C. The SC. 2000) – Petitioner sold to Ayala Investment Corporation (Ayala) a lot for P2. CLASSES OF HOLDER Sec. WHAT CONSTITUTES VALUE – Sec. No. The Negotiable Instruments Law does not provide that a holder.754 as sales proceeds and the balance as unrealized. however. If the sum certain state in the instrument is P50. 109491. 1960) . 25 Sec. The latter. and Hi-Cement to pay petitioner Atrium. HOLDERS A. in turn.to have become a party thereto for value. so long as it is not grossly inadequate. jointly and severally. the year of sale. he is deemed a holder for value to the extent of his lien. 193 Right of holder to sue. 27 IV. the sale should be treated as a cash transaction and not installment and accordingly the whole amount of gain on disposition should have been reported in 1976. but they "were all dishonored and returned to him unpaid due to insufficient funds and/or causes attributable to the drawer. When lien on instrument constitutes holder for value. If B purchases an overdue negotiable promissory note signed by A. if the latter has no valid excuse for refusing payment. On 1978. Inc. The court declined to order payment for two principal reasons: (a) plaintiff failed to prove he was a holder in due course. B. ISSUE: WON a holder who is not a holder in due course may recover on the checks? HELD: YES. A to B and B to C. The Negotiable Instruments Law does not provide that a holder not in due course cannot recover on the instrument. However. Atrium could not be considered a holder in due course.000.In determining what is a "reasonable time" regard is to be had to the nature of the instrument. The trial court rendered a decision ordering E. L-15380. . while the seller acquires money for the settlement of his receivables. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. the check would be paid.Eleven checks payable to "cash or bearer" and drawn by defendant Tan upon the Equitable Banking Corporation.T. 24 BIBIANO BANAS VS. 52 time been given for the instrument. Value. the checks were crossed checks and specifically indorsed for deposit to payee's (E. 26 (p.. endorsed the checks to Atrium for valuable consideration. (supra) What constitutes holder for value. the drawee bank dishonored the checks for the common reason "payment stopped" which prompted petitioner to institute this action.T. he is not a holder in due course. p.770 to be paid P461. who may sue on his own name (Sec. the holder is deemed a holder for value in respect to all parties who become such prior to that time What constitutes a holder in due course. and payment to him in due course discharges the instrument Reasonable time. But. 25 is that found under the Civil Code. As a general rule. 57 IN DUE COURSE. payment. — Where the holder has a lien on the instrument arising either from contract or by implication of law. and (b) the checks being crossed checks should not have been deposited instead with the bank mentioned in the crossing. the profit from an installment sale is to be apportioned between or among the years in which the installments are paid and received. . 26 Sec. and consistently reported in the succeeding years the installment that fell due. the income should be reported at the time of the actual gain.000 and the same was pledged for P30. Such that. Clearly. Clearly.

No.Where the instrument is made payable at a bank. If he fails to do so. Continuation of negotiable character (supra.6) Rule in case of installment instruments – a purchaser of an installment note after an installment is overdue may be a holder in due course as to the balance if he has no notice of failure to pay the first installment.A bill is dishonored by non-acceptance: (a) When it is duly presented for acceptance and such an acceptance as is prescribed by this Act is refused or cannot be obtained. In no other case is presentment for acceptance necessary in order to render any party to the bill liable. p. 47 Sec. Two days later.it is complete when it is not wanting of any material particular or particular proper to be inserted in a negotiable instrument without which the same will not be complete. ISSUE: WON petitioner can collect on the stolen check on the ground that he is a holder in due course? HELD: No. where presentment for acceptance is necessary in order to fix the maturity of the instrument. Taken Before Overdue and Before Notice of Dishonor HOLDER IN DUE COURSE Sec. 1. But the last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title.14) Additional provisions not affecting negotiability (p. 57 Sec. 53 Sec. (c) That he took it in good faith and for value. California Co-op Producers) Rule in case of demand instruments Instrument Complete and Regular Complete . what constitutes. 193 (p. 143 When person not deemed a holder in due course (supra) When presentment for acceptance must be made. If a possessor of a negotiable instrument is not a holder (i. if such was the fact. 5 a. but when it is shown that the title of any person who has negotiated the instrument was defective.000. or rates of interest. Soriano Jr. A holder who has knowledge that the instrument was previously dishonored is not a holder in due course. the burden is on the holder to prove that he or some person under whom he claims acquired the title as holder in due course. p. in the absence of an acceleration clause on failure to pay interest. He refused to say how and why it was passed to him. 191. p. he left said check on the top of the desk of the bank manager when he left the bank.. cashier's check as endorsed by the person who stole it and who refused to say how and why it was passed to him is not a holder in due course C. they are not apparent or visible on the face of the instrument. Jose Go accomplished a "STOP PAYMENT" order. amount. When person not deemed holder in due course. A transferee has no reason to conclude from the mere fact that a note circulates after the due date of one or more installments that such installments were not paid (Bliss vs.6) Rule where instrument payable at bank. petitioner became the holder of the cashier's check as endorsed by Alexander Lim who stole the check. signature of maker or drawer. What constitutes a holder in due course. 70145 November 13. . b. Sec. Associated Bank received summons and copy of a complaint for damages of Marcelo Mesina who was in possession of the lost check and is demanding payment. 3. 149 or by non-payment (promissory notes and bills of exchange) under Sec. . A Holder upon receiving an instrument which is incomplete or irregular (containing visible and apparent alterations) must be put on inquiry why it is such. Admittedly. – see 2. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No.Where an instrument payable on demand is negotiated on an unreasonable length of time after its issue. 53 Sec. p. MARCELO MESINA VS. Petitioner claims that a cashier's check cannot be countermanded in the hands of a holder in due course. or (b) Presentment is excused and the instrument is overdue and unpaid. a certain Albert Uy. the holder is not deemed a holder in due course. When instrument dishonored by non-payment. Regular – It is regular upon its face when it does not contain any material alterations or if there are. . Overdue. “Unreasonable” is relative and must be determined in relation to Sec. 87 Determinable future time. The holder of a cashier's check who is not a holder in due course cannot enforce such check against the issuing bank which dishonors the same.A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face. Associated Bank received the lost check for clearing from Prudential Bank. he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. Sec. .e. and without notice that it has been previously dishonored. or in any other case.Due Course. . 19.Jose Go purchased from Associated Bank a cashier's check for P800. or (b) Where the bill expressly stipulates that it shall be presented for acceptance. . Sec.R. Overdue interest payments – the mere fact that interests on a note was overdue does not. Unfortunately. Notice of Infirmity or Defect Cesar Nickolai F. affect an indorsee with notice of dishonor or put him on inquiry. or (b) When presentment for acceptance is excused and the bill is not accepted. Sec. Rights of a holder in due course. Presentment for acceptance must be made: (a) Where the bill is payable after sight. He had therefore notice of the defect of his title over the check from the start..Every holder is deemed prima facie to be a holder in due course. The bank manager entrusted the check for safekeeping to a bank official. (supra. 19 Who is deemed holder in due course. b. he can NEVER be a holder in due course. The holder may assume that the regular course of business has been followed and that each installment was paid when due.15) c. 149 Holder .The instrument is dishonored by non-payment when: (a) It is duly presented for payment and payment is refused or cannot be obtained. (d) That at the time it was negotiated to him. if any. While Uy went to the men's room. 59 When person not deemed holder in due course. 83. he takes the instrument subject to all defenses. and a person taking an overdue instrument must be put on inquiry why the instrument is still in circulation Dishonor may be by non-acceptance (bills of exchange) under Sec. Upon discovering that the check was lost. 4 Sec. See Rights of a Holder in Due Course p.6) When payable on demand (supra.the first requisite is that he should be a “holder” as defined under Sec. Examples of material particulars are name of payee. he is neither payee nor indorsee or bearer of a bearer instrument). 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang .00. 83 Sec. or (c) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. 1986) . Overdue – an instrument is overdue after the date of maturity fixed therein or upon happening of an event certain. ドノ Sec. 53. it is equivalent to an order to the bank to pay the same for the account of the principal debtor thereon. Petitioner failed to substantiate his claim that he is a holder in due course and for consideration or value as shown by the established facts of the case. (b) That he became the holder of it before it was overdue. When dishonored by nonacceptance. A person who became the holder of a 2. Rule in case of demand instruments. After dishonoring the same check twice. 52. Sec. CA (G. 7 Sec. the check was stolen by his visitor in the person of Alexander Lim.

defendant Gatchalian issued a "Stop Payment Order" on the check. In the case at bar the rule that a possessor of the instrument is prima facie a holder in due course does not apply because there was a defect in the title of the holder (Manuel Gonzales). 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. the factual circumstances in De Ocampo and in Bataan Cigar are not present in this case. placed upon it to show that notwithstanding the suspicious circumstances. ISSUE: WON Fernando David is a holder in due course? HELD: Yes. duress. CA. and for this reason the presumption that it is a holder in due course or that it acquired the instrument in good faith does not exist. 56 Sec. plaintiff received from Gonzales the subject check for the payment of the hospitalization of his wife. which will be shown to the owner as evidence of defendants’ good faith in the intention to purchase the said car.Infirmity means any irregularity in the instrument. 138074. Rights of a holder in due course. Moreover. To such effect is the consensus of authority CELY YANG VS. David was not aware of any "stop payment" order. and the loss was then reported to the police. or any signature thereto. CA) VICENTE DE OCAMPO & CO. CA (GR No. Sec. At that time.000 before knowing that A’s signature was forged. informed Yang. Petitioner fails to point any circumstance which should have put David on inquiry as to the why and wherefore of the possession of the checks by Chandiramani. the fact is that it acquired possession of the instrument under circumstances that should have put it to inquiry as to the title of the holder who negotiated the check to it. Soriano Jr. the stipulation of facts indicated by the appellants in their brief. we cannot hold him guilty of gross neglect amounting to legal absence of good faith. LHerein defendants issued a check 15126 . Yang lodged a Complaint for injunction and damages against Equitable. notice of an alteration which is apparent is notice of an infirmity in the instrument. Sec. David was not privy to the transaction between petitioner and Chandiramani. absent any knowledge on his part that the action in taking the instruments amounted to bad faith. allegedly lost the two cashier’s checks and the dollar draft bought by petitioner. Without knowledge of this transaction. Aug. like the fact that the drawer had no account with the payee. (supra) Sec. it (payee) cannot be considered as a holder in due course." and Section 52 (d). Ocampo Clinic. that the holder did not show or tell the payee why he had the ドハ check in his possession and why he was using it for the payment of his own personal account — show that holder's title was defective or suspicious. What constitutes notice of defect. 4. to prove that it actually acquired said check in good faith. Liong. Bataan Cigar and Cigarette Factory vs. On the other hand. or other unlawful means.To constitutes notice of an infirmity in the instrument or defect in the title of the person negotiating the same. B then indorsed it to C who paid P50. contending that plaintiff is not a holder in due course. In this action. The evidence shows that Chandiramani performed said task to the letter. it cannot be stated that the payee acquired the check without knowledge of said defect in holder's title. On the failure of Gonzales to appear the day following. he will be deemed a holder in due course only to the extent of the amount therefore paid by him. P indorsed it to A. there is no dispute that the crossed checks were delivered and duly deposited by David. that every holder is deemed prima facie to be a holder in due course. David thus had no obligation to ascertain from Chandiramani what the nature of the latter’s title to the checks was. VS. For here. and David (payee of the subject checks). who represented himself as authorized by the owner of the car.000 payable to the order of P. Chandiramani did not appear at the rendezvous and Ranigo. . Having failed in this respect. 55 Sec. . Ranigo reported the alleged loss of the checks and the dollar draft to Liong. Yang’s representative. hence. defect in the title of the person negotiating it. otherwise. The CFI of Manila then ordered defendants to pay the plaintiff the sum of P600 with legal interest until paid. Thus. In other words.Where the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he has paid the full amount agreed to be paid therefor. and it may not be considered as a holder of the check in good faith. (b) The check may be negotiated only once – to one who has an account with a bank. by fraud. 2003) – Cely Yang and Prem Chandiramani were to exchange dollar drafts and checks with the difference to be divided equally as their profit. with the drawee bank. plaintiff-appellee. why the holder had the check and used it to pay his own personal account. or force and fear. 15. Instead. without delivering the exchange consideration consisting of the PCIB manager’s check and the Hang Seng Bank dollar draft. The checks and the dollar draft were not lost because Chandiramani was able to get hold of said instruments. or when he negotiates it in breach of faith." Section 59. In this case. the person to whom it is negotiated must have had actual knowledge of the infirmity or defect. B stole the note. As holder's title was defective or suspicious. defendants seek to recover the value of the check. because the instrument is not payable to him or to bearer. Good Faith Crossed Checks produce the following effect: (a) The check may not be encashed but only deposited in the bank.000 only. amounting to legal absence of good faith. ISSUE: WON plaintiff is a holder in due course? HELD: Under the Negotiable Instruments Law. David did not close his eyes deliberately to the nature or the particulars of a fraud allegedly committed by Chandiramani upon the petitioner. Both banks complied with her request. the duty devolved upon it. instead of the presumption that payee was a holder in good faith. if any. 54 Sec. but upon the representation of PCIB. . Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. Petitioner admits that David took the step of asking the manager of his bank to verify from FEBTC and Equitable as to the genuineness of the checks and only accepted the same after being assured that there was nothing wrong with said checks. to say the least. And having presented no evidence that it acquired the check in good faith.Nov. 54: M makes a note for P100. 4771. or under such circumstances as amount to a fraud.The title of a person who negotiates an instrument is defective within the meaning of this Act when he obtained the instrument. (State Investment House Inc. C is a holder in due course upto P50. Chandiramani. ANITA GATCHALIAN (GR No. or the nature of his possession. plaintiff payee has not proved that it acquired the check in good faith and may not be deemed a holder in due course thereof. The stipulation of facts contains no statement of such good faith. Under these circumstances. 30. The burden was. 57 Notice before full amount is paid. therefore. as well as notice of forgery in the maker or drawer’s signature." and lastly Section 59. 1961) – Facts: amounting to P600 to one Manuel Gonzales. Chandiramani and David had a separate dealing in which it was precisely Chandiramani’s duty to deliver the checks to David as payee. and forged A’s signature. or knowledge of such facts that his action in taking the instrument amounted to bad faith. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . Section 52 (c) provides that a holder in due course is one who takes the instrument "in good faith and for value. the payee Cesar Nickolai F. in turn. Thus. 56 provides what constitutes notice of defect. he is not a holder in due course. FEBTC subsequently lifted the stop payment order on FEBTC Dollar Draft No. or for an illegal consideration. to bring the car and its certificate of registration and to return the check on the following day as previously agreed upon. under the circumstances of the case. vs. In the case at bar as the payee acquired the check under circumstances which should have put it to inquiry. it acquired the check in actual good faith. . "that every holder is deemed prima facie to be a holder in due course. Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be lost. . The Court rendered judgment in favor of defendant Fernando David against the plaintiff Cely Yang and declaring the former entitled to the proceeds of the two (2) cashier’s checks. absent any showing that there was something amiss about Chandiramani’s acquisition or possession of the checks. It was payee's duty to ascertain from the holder Manuel Gonzales what the nature of the latter's title to the check was or the nature of his possession. When title defective. that in order that one may be a holder in due course it is necessary that "at the time the instrument was negotiated to him "he had no notice of any . and (c) The act of crossing the check serves as 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.

a holder in due course? HELD: No. several years after the dishonor of the check.' it being merely for accommodation purposes. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. i. the latter made no payments for the construction materials thus ordered and delivered despite insistent demands for payment by the former. It never did.e.Y. SIHI instituted an action to recover from herein petitioner and was granted relief by the trial court and later on upheld by the CA. if such was the fact. Jurisprudence has pronounced that crossing a check should have the following effects: (a) the check may not be encashed but only deposited in the bank. if such was the fact. or between either of them and Armstrong Industries. The check was actually issued in said amount of P126. the present petition. CA (GR No. (b) That he became the holder of it before it was overdue. 93048..61. d. the holder is declared guilty of gross negligence amounting to legal absence of good faith.Y. Peter Rafael Limson. ISSUE: WON SIHI. signed by its President. Possession of a negotiable instrument after presentment and dishonor. 1981. The judgment sentenced Steelweld to pay to Stelco the amount of P126. or for any other purpose before it was presented for payment. Only STEELWELD filed an answer." As regards an accommodation party (such as STEELWELD). June 17. Lim. Unable to collect." Why the check was made out in the amount of P126. lack of notice of any infirmity in the instrument or defect in title of the persons negotiating it. (c) and the act of crossing the check serves as 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." On account of the dishonor of Metrobank Check 765380. They were acquitted in a decision rendered on 28 June 1984 "on the ground that the check in question was not issued by the drawer 'to apply on account for value.named therein. and the latter had agreed to give Lim a check only by way of accommodation. That he became the holder of it before it was overdue. When the latter deposited the check at its bank. and as already stated. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . The record does show that after the check had been deposited and dishonored. (4) Armstrong deposited the check to its account. George King later on sold at a discount the subject checks to SIHI." says the law.Y. 52 – A holder in due course is a holder who has taken the instrument under the following conditions: a. he had no notice of any infirmity in the instrument or defect in the title of the persons negotiating it. has no application. The record does not show any intervention or participation by STELCO in any manner or form whatsoever in these transactions.86 with legal rate of interest from 9 May 1985. despite petitioner’s demand. Hence. (d) That at the time it was negotiated to him. It is clear Cesar Nickolai F. "is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face. Romeo Lim had asked Limson for financial assistance. c. This is because Section 29 of the law above quoted preserves the right of recourse of a "holder for value" against the accommodation party notwithstanding that "such holder. (b) the check may be negotiated only once – to one who has an account with a bank.e. R. Consequently. when the case was instituted until fully paid.BCCFI issued to King Tim Pua George (George King) post-dated crossed checks for the delivery tobacco leaves. CA (GR No. Romeo Y. Lim to Armstrong." What the record shows is that: (1) the STEELWELD company check in question was given by its president to R." (3) in breach of the agreement. numbered 765380 and dated 4 April 1981. The aggregate price for the purchases was P126. (c) That he took it in good faith and for value. March 3." followed by that of "Armstrong ドバ Industries. It never appeared. (5) the check was dishonored.I. and without notice that it had been previously dishonored. 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 RYL. STELCO came into possession of it in some way. In as much as George King failed to deliver the bales of tobacco leaves as agreed. That it is complete and regular upon its face. ISSUE NO. and on complaint of Armstrong Industries (through a Mr. STELCO never became a holder for value and that "(n)owhere in the check itself does the name of Stelco Marketing appear as payee." That judgment however conditioned the acquittal with the pronouncement that "this is not however to release Steelweld Corporation from its liability under Sec. 52 of the Negotiable Instruments Law (NIL) states what constitutes a holder in due course. Although the corresponding invoices issued by STELCO stipulated that RYL would pay "COD" (cash on delivery). he is not a holder in due course. BCCFIs defense in stopping payment is as good to SIHI as it is to George King. the fourth condition. STELCO filed with the Regional Trial Court of Caloocan City a civil complaint against both RYL and STEELWELD for the recovery of the value of the steel bars and wire sold to and delivered to RYL in the amount of P126. and without notice that it had been previously dishonored. 1985. quantities of steel bars of various sizes and rolls of G. really.129. the checks were issued with the intention that George King would supply BCCFI with the bales of tobacco leaf. Because. a holder of crossed checks. the purpose behind the crossing of the checks was satisfied by the payee. SIHI is not a holder in due course. it sold to RYL Construction. it gives rise to no liability on the part of the maker or drawer and indorsers. There is no evidence whatsoever that the check was ever given to it. contrary to Sec.86." ISSUE NO. thus: Sec. That he took it in good faith and for value. b. Artemio Torres. 96160. BCCFI cannot be obliged to pay the checks STELCO MARKETING CORPORATION VS. in his bank account. Lim. RYL could no longer be located and could not be served with summons. that of "RYL Construction. Young). (2) it was given only by way of accommodation. The check was issued by Limson at the behest of his friend. and was able. Sec. in payment of an obligation. 1992) – Stelco Marketing Corporation is engaged in the distribution and sale to the public of structural steel bars. In other words. a second indorser. Judgment was rendered on 26 June 1986. These bars and wire were delivered at different places at the indication of RYL Construction.2: WON STELCO ever became a holder in due course of Check 765380. for a holder in due course is applicable to an accommodation party? HELD: "A holder in due course. STELCO's motion for reconsideration was denied by the Appellate Tribunal's resolution dated 13 November 1990. a bearer instrument within the contemplation of the Negotiable Instruments Law? HELD: NO. Soriano Jr. or payment. it was dishonored because "drawn against insufficient funds. as to notice. was given by R. 1 WON the fourth condition. Industries. at the time of taking the instrument. In the present case. indorsee or depositor thereof. "only as guaranty but not to pay for anything. Rafael Limson and Artemio Torres were charged in the Regional Trial Court of Manila with a violation of Batas Pambansa Bilang 22. plus 18% interest from 20 August 1980 and 25% of the total amount sought to be recovered as and by way of attorney's fees. and its Vice-President. 29 of the Negotiable Instruments Law for having issued it for the accommodation of Romeo Lim." When so deposited.86. On 7 different occasions in September and October 1980. is utterly inconsequential. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. Failing in this respect. at any time before the dishonor of the check. STELCO appealed. On April 4. Steelweld Corporation of the Philippines." Eleven months later — and some 4 years after issuance of the check — in May. There being failure of consideration.86. knew him to be only an accommodation party. i.86 is not explained. 52(c) of the NIL. Lim indorsed the check to Armstrong in payment of an obligation.129. to be "used as collateral for another obligation. RYL gave to Armstrong Industries — described by STELCO as its "sister corporation" and "manufacturing arm" — a check drawn against Metrobank in the amount of P126.129. There is no evidence whatever that STELCO's possession of Check 765380 ever dated back to any time before the instrument's presentment and dishonor. otherwise.859. or any communication of any sort between STEELWELD and STELCO. That check was a company check of another corporation. Inc. On the contrary. A preliminary attachment was issued by the trial court on the basis of the averments of the complaint but was shortly dissolved upon the filing of a counter-bond by STEELWELD. or indorsed to it in any manner or form in payment of an obligation or as security for an obligation. BATAAN CIGAR AND CIGARETTE FACTORY VS.129. after indorsing it. Inc. it does not make the possessor a holder for value within the meaning of the law.129. plus another sum equivalent to 25% of the total amount due as and for attorney's fees. It is settled that crossing the checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser’s title to the check or the nature of his possession. under date of 16 July 1985. the check bore two (2) indorsements. however. 1994) . President of RYL. BCCFI issued a stop payment order on all checks payable to George King. wire.

Inc. notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party. hence. plaintiff is subject to personal defenses. Such deposits were not made. petitioned to have the mortgage cancelled (to save his property from foreclosure). 1990) . 59 E. the latter elevated the issue before the SC. Soriano Jr. p. 58. Negotiable Instruments Law). 5. and as agent of STELCO. Inc. such as lack of consideration between appellants and New Sikatuna Wood Industries. CA (GR No. PRUDENCIO VS. 25 Sec. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . 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." Neither is there any evidence whatever that Armstrong Industries. Note that under the facts the checks were postdated and issued only as a loan to New Sikatuna Wood Industries. Inc. Petitioner defaulted in her installments allegedly due to a discrepancy in the engine and chassis numbers of the vehicle delivered to her and those indicated in the sales invoice. party defendant New Sikatuna Wood Industries. the check may be negotiated only once to one who has an account with a bank. 1. Furthermore. The court finds that PNB is not a holder in due course because it has not acted in good faith when it waived the supposed payments from the Cesar Nickolai F. Prudencio. 1989) – New Sikatuna Wood Industries. The firm needed fund to push through with the contract so it convinced spouses Eulalio and Elisa Prudencio to mortgage their parcel of land with the Philippine National Bank for P10. Under the circumstances. certificate of registration and deed of chattel mortgage. 57. it was after all its representative (a Mr. and [d] when it was negotiated to Filinvest. whereby New Sikatuna assigned and discounted with petitioner eleven (11) postdated checks including the aforementioned three (3) postdated checks issued by Chua. CA (G. the three checks are without consideration (Sec. The Promissory Note was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest Finance and Leasing Corporation and it is an indorsement of the entire instrument. without consideration. if and when deposits were made to back up the checks. there appears to be no question that Filinvest is a holder in due course. The exception is that if the holder. all postdated December 22. On the contrary. 53 Sec. Petitioner claims that despite demands on Chua to make good said checks. and without notice that it had been previously dishonored.00. This note was subsequently endorsed to Filinvest Finance & Leasing Corporation (private respondent) which financed the purchase. accepted the instrument and attempted to encash it in behalf. Inc. July 14. respondent corporation holds the instrument free from any defect of title of prior parties. albeit unsuccessfully.from the relevant circumstances that STELCO cannot be deemed a holder of the check for value. his failure to inquire from the holder. requested for a loan from Chua. hence no loan was made.15) When lien on instrument constitutes holder for value (supra. "stop payment" and "account closed". what constitutes (supra. Notwithstanding the provision of the Deed of Assignment.16) Who is deemed a holder in due course (p. In December 1955. 1986) – In 1955. ISSUE: WON Prudencio should pay the promissory note to PNB? HELD: No. It does not meet two of the essential requisites prescribed by the statute.Juanita Salas (Petitioner) bought a motor vehicle from the Violago Motor Sales Corporation (VMS) as evidenced by a promissory note. [b] it became the holder thereof before it was overdue. ドパ The checks. and without notice that it had previously been dishonored. to whom R." and it did not take the check "in good faith and for value. Young) who instituted the criminal prosecution of the drawers. PNB agreed.R.. which fact she discovered when the vehicle figured in an accident. When subject to original defense Sec.15) What constitutes holder for value (supra. PNB is not a holder in due course. a negotiable instrument is subject to the same defenses as if it were non-negotiable. Accordingly. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. Value. This failure to pay prompted private respondent to initiate an action for a sum of money against petitioner before the Regional Trial Court. the latter failed to pay the same necessitating the former to file an action for collection. the latter had no notice of any infirmity in the instrument or defect in the title of VMS Corporation. otherwise he is not a holder in due course.16) RIGHTS OF A HOLDER IN DUE COURSE – Sec. The latter agreed to grant the same subject to the condition that the former should wait until December 1980 when he would have the money. HOLDER FOR VALUE When person not deemed holder in due course (p. upon learning that no payment was made on the loan. It results therefore that when State Investment House rediscounted the check knowing that it was a crossed check he was knowingly violating the avowed intention of crossing the check.In the hands of any holder other than a holder in due course. petitioner cannot set up against respondent the defense of nullity of the contract of sale between her and VMS. Lim negotiated the check. 26 Sec. Prudencio. and free from defenses available to prior parties among themselves. however. an accommodation party is liable on the instrument to a holder for value/in due course. Being not a holder in due course. and may enforce payment of the instrument for the full amount thereof. July 13. CA (GR No. 27 D. were dishonored by reason of "insufficient funds". No. The trial court ruled against Prudencio. has all the rights of such former holder in respect of all parties prior to the latter. Limson and Torres. New Sikatuna entered into an agreement with herein petitioner State Investment House. is not a holder in due course. the Court of Appeals affirmed the trial court. p. Inc. 1980.000. A holder in due course (1) holds the instrument free from any defect of title of prior parties. As a general rule. Subsequently. and free from defenses available to prior parties among themselves. Notwithstanding the provision in the Deed of Assignment. the Bureau of Public Works asked PNB if it can make the payments instead to the firm because the firm needs the money to buy construction materials to complete the project. Rights of a holder in due course. . private respondent Chua issued three (3) "crossed checks" payable to New Sikatuna Wood Industries. Sec. ISSUE: WON private respondent is a holder in due course? HELD: YES. This being so. STATE INVESTMENT HOUSE VS.. and (2) may enforce payment of the instrument for the full amount thereof against all parties liable thereon (emphasis supplied) SALAS VS.15) PRESUMPTION OF DUE COURSE HOLDING Sec. In view of this agreement. in this case PNB. the firm executed a Deed of Assignment in favor of PNB which provides that any payment from the Bureau of Public Works in consideration of work done (by the firm) so far shall be paid directly to PNB – this will also ensure that the loan gets to be paid off before maturity. . ISSUE: WON petitioner is a holder in due course as to entitle it to proceed against private respondents Chua for the amount stated in the dishonored checks? HELD: The Intermediate Appellate Court (now Court of Appeals). When the CA reversed the trial court ruling favoring State Investment House. p. 76788 January 22. He expected the firm (accommodated party) to pay the loan – this obligation was shifted to the Bureau of Public Works by way of the Deed of Assignment). Prudencio also authorized PNB to issue the P10k check to the construction firm. respectively. It did not become "the holder of it before it was overdue. 57 Sec. the purpose for which the three checks were cross despite the warning of the crossing. Prudencio is an accommodation party for he signed the promissory note as maker but he did not receive value or consideration therefor. prevents him from being considered in good faith and thus he is not a holder in due course. Concepcion and Tamayo Construction Enterprise had a contract with the Bureau of Public Works. [c] it took the same in good faith and for value. agreed and so he mortgaged the land and executed a promissory note for P10k in favor of PNB. But a holder who derives his title through a holder in due course.Y. having taken the instrument under the following conditions: [a] it is complete and regular upon its face. When subject to original defense. and who is not himself a party to any fraud or illegality affecting the instrument. the indications are that Armstrong was really the intended payee of the check and was the party actually injured by its dishonor. And so the loan matured without PNB actually receiving any payment from the Bureau of Public Works. 28. correctly elucidated that the effects of crossing a check are: the check may not be encashed but only deposited in the bank.

Under this definition. CA (supra. 58. It does not meet two of the essential requisites prescribed by the statute. he procured the instrument to be indorsed by the bank and delivered to himself without the payment of value. to be installed on the ship Romulus. drawer. no presumption arises as to the character in which the bank held the paper. Upon discovering this. Later the bank indorsed the draft in blank. 191. the loan would have been paid off at maturity.STELCO came into possession of it in some way. or indorser. ANITA GATCHALIAN (supra. p. a negotiable instrument is subject to the same defenses as if it were non-negotiable. who is in possession of it.An accommodation party is one who has signed the instrument as maker. If a Holder is not a holder in due course. Moreover. Randell: “We conclude. Subsequently. 52 and in the second subsection may be replaced by the definition in sec. Also. Fernandez Hermanos refused to pay the draft. ”Since "holder". to the familiar rule that a person who is not himself a holder in due course may yet recover against the person primarily liable where it appears that such holder derives his title through a holder in due course.19) ACCOMMODATION PARTIES – Sec. has all the rights of ナト such former holder in respect of all parties prior to the latter. therefore. and with full notice that. if not in law. is a holder in due course within the purview of Negotiable Instruments Law. . Inc. or by any other person against whom the defense of failure of consideration is available. Fossum personally made the contract which constituted the consideration for the draft. this is known in American case law as “Shelter Rule”. and who has notice of all equities emanating therefrom. 191 so as to read "a holder in due course is a payee or indorsee who is in possession. This presumption arises only in favor of a person who is a holder in the sense defined in sec 191 of NIL. at the time of taking the instrument. 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 RYL. it was after all its representative (a Mr. It was stipulated that the tail shaft would be in accordance with the specifications contained in a blueprint given to Fossum and that the shaft should be shipped from New York in March or April 1920. An agent who actually makes a contract. in good faith. as between the original parties. 19) – Petitioners contend that the payee PNB is an immediate party and. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. the presumption that the bank was a holder in due course would have arisen from the tenor of the draft and the fact that it was in the bank's possession. engaged in business in New York City. and payable to Philippine National Bank (PNB). the shaft was found not to be in conformity with the specifications and was incapable of use for its intended purpose. recovery on the draft is out of the question. It did not become "the holder of it before it was overdue. that is. Sec. FERNANDEZ HERMANOS (GR No. Such a person is liable on the instrument to a holder for value. RIGHTS OF HOLDER NOT IN DUE COURSE Sec. one must be in possession of the note or the bearer thereof. Meanwhile AIPCI had drawn a time draft for $2250." and it did not take the check "in good faith and for value. PAYEE AS HOLDER IN DUE COURSE VICENTE DE OCAMPO VS. The manufacture and shipment of the shaft was delayed considerably. or the bearer thereof. The bank's relation to the instrument became past history when it delivered the document to Fossum. can stand on no better footing than his principal with respect to commercial paper growing out of the Cesar Nickolai F. and for the purpose of lending his name to some other person. 6th ed. p. CHARLES FOSSUM VS. is not a holder in due course and stands on no better footing than a mere assignee. but when the instrument passed out of the possession of the bank and into the possession of Fossum. several years after the dishonor of the check. Rosenbaum) If this action had been instituted by the bank itself. or the bearer thereof. p. to whom it was negotiated as a completed instrument. a payee or indorsee who is in possession of the draft. 52 defines a holder in due course as "a holder who has taken the instrument under the conditions enumerated therein. Rights of holder to sue.In the hands of any holder other than a holder in due course. Sec. albeit acting in a representative capacity. and was able. for the price of the shaft. at 60 days. in order to be a holder. In those cases where a payee either acquired the note from another holder or has not directly dealt with the maker thereof. The trial court held that the consideration for the draft and for its acceptance by Fernandez Hermanos has completely failed and no action whatever can be maintained on the instrument by AIPCI. that a payee who receives a negotiable promissory note. and it was incumbent upon him to show that the bank had in fact acquired the instrument for value and under such conditions as would constitute it a holder in due course. Under these circumstances. p. . before maturity.. from a holder. The only exception is an ordinary holder who derived his title from a holder in due course. and delivered it to Fossum. to the effect that every holder is deemed prima facie to be a holder in due course. procured an order from respondent to deliver a tail shaft. who then instituted this action against Fernandez Hermanos.17) Section 191 defines "holder" as the payee or indorsee of a bill or note. and it remained for a time dishonored in PNB Manila. 58: does not apply to a holder who repurchased the instrument either personally or through an agent. for value. or payment. When subject to original defense. F. to the transaction giving origin to the instrument. without consideration. It is clear from the relevant circumstances that STELCO cannot be deemed a holder of the check for value. (supra. after it was overdue." etc. It was incumbent on Fossum to show that the bank was a holder in due course. and was accepted by the firm according to its tenor. EULALIO PRUDENCIO VS." Neither is there any evidence whatever that Armstrong Industries. ISSUE: WON Fossum is a holder in due course. STELCO MARKETING CORPORATION VS. Soriano Jr. and without any notice of any infirmity. 29. and can have no assistance from the presumption expressed in sec 59 of NIL. CA (supra.Bureau of Public Works contrary to the Deed of Assignment. L-19461) Herein petitioner was the resident agent in Manila of the American Iron Products Company.15) When subject to original defense (supra. notwithstanding such holder. as defined in sec. and without notice that it had been previously dishonored. he is subject to personal defenses as between prior parties. and as agent of STELCO. p. He calls attention. But a holder who derives his title through a holder in due course. 543). acting as agent of AIPCI. to whom R. Sec. includes a payee who is in possession the word holder in the first clause of sec. SHELTER RULE Sec. 18) . so as to preclude the defense of fraud and failure of consideration between the maker and the holder to whom the instrument was delivered. There is not a line of proof tending to show that the bank itself was ever a holder in due course. therefore. Had the Deed been followed. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang .Y. accepted the instrument and attempted to encash it in behalf. is utterly inconsequential. On the contrary. Possession of a negotiable instrument after presentment and dishonor. As was held in Bank of Commerce and Savings vs. the indications are that Armstrong was really the intended payee of the check and was the party actually injured by its dishonor. (AIPCI). Liability of accommodation party. acceptor. knew him to be only an accommodation party H. (Brannan's on Negotiable Instruments Law. 58 G. it gives rise to no liability on the part of the maker or drawer and indorsers. He was therefore a party in fact. without receiving value therefor. however. (Night & Day Bank vs. and who is not himself a party to any fraud or illegality affecting the instrument. not the maker. Limson and Torres. 29. while Fernandez Hermanos is a general commercial partnership engaged in business in the Philippines. It was presented to Fernandez Hermanos for acceptance. Lim negotiated the check. I. Fossum. albeit unsuccessfully. p. 51 Sec. and it is difficult to see how he could strip himself of the character to agent with respect to the origin of the contract and maintain this action in his own name where his principal could not. Young) who instituted the criminal prosecution of the drawers. it does not make the possessor a holder for value within the meaning of the law. the consideration had completely failed. He was himself a party to the contract which supplied the consideration for the draft. upon Fernandez Hermanos. such that an action can be maintained on the instrument? HELD: NO. Fossum is far from being a holder in due course.

by its terms. where the instrument is made or accepted for his accommodation. in general: Instrument Primary Promissory Note Maker Bill of Exchange Acceptor ナド Secondary General Indorsers Drawer and Indorsers Right of party who discharges instrument. When persons secondarily liable on the instrument are discharged. . Sec. (b) By payment in due course by the party accommodated. but if the instrument is. notice of dishonor must be given to the drawer and to each indorser. Order in which indorsers are liable.The drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse. as between such holders. 179 Sec. defined.When a bill is dishonored by nonacceptance. (d) By any other act which will discharge a simple contract for the payment of money. But except as herein otherwise provided. 180 Sec. and he is able and willing to pay it there at maturity. Rights of holder where bill not accepted.Where a bill is drawn in a set. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. and (b) Where it was made or accepted for accommodation and has been paid by the party accommodated. the instrument will be accepted or paid. (c) By the intentional cancellation thereof by the holder. or both. . 181 Sec. To place him on any higher plane would be incompatible with the fundamental conception underlying the relation of principal and agent. . . . 192 Warranty where negotiation by delivery and so forth (supra. J. the whole of the parts constitutes one bill. 70 Bills in set constitute one bill. Sec. A.Presentment for payment is not necessary in order to charge the person primarily liable on the instrument. General Indorser Persons primarily liable on instrument. (c) By the discharge of a prior party.Except as herein otherwise provided. Primary and Secondary Liability. (d) By a valid tender or payment made by a prior party. such ability and willingness are equivalent to a tender of payment upon his part. the holder whose title first accrues is. . – see liability of indorsers Effect of want of demand on principal debtor. except: RIGHTS OF HOLDER IN BILLS IN SET Bills in Set involve one bill although drawn in set. Where two or more parts of a set are negotiated to different holders in due course.Where the instrument is paid by a party secondarily liable thereon. (b) By the intentional cancellation of his signature by the holder. when must be made. V. 178 Sec. 61 Sec. 184 Sec. a sum certain in money to order or to bearer. how discharged.transaction. as if such parts were separate bills. is absolutely required to pay the same. (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right. and he may strike out his own and all subsequent indorsements and again negotiate the instrument. 151 (a) Where it is payable to the order of a third person and has been paid by the drawer. the paper again becomes subject in the payee's hands to the same defenses to which it would have been subject if the paper had never passed through the hands of a holder in due course. .. but protest is not required except in the case of foreign bills of exchange. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . but the party so paying it is remitted to his former rights as regard all prior parties. . – see d. 89 Liability of holder who indorses two or more parts of a set to different persons. according to its tenor. as the case may be. Sec. accepts or pays the parts first presented to him. He is given the right to demand the performance of the obligation reflected in the negotiable instrument. it is not complete until indorsed by him.A negotiable promissory note within the meaning of this Act is an unconditional promise in writing made by one person to another. . If the drawee accepts more than one part and such accepted parts negotiated to different holders in due course. 13) Liability of general indorser. 68 Sec. he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. If the original payee of a note unenforceable for lack of consideration repurchases the instrument after transferring it to a holder in due course. Indorsers. he is liable on every such part as if it were a separate bill. by the terms of the instrument. the true owner of the bill. and any drawer or indorser to whom such notice is not given is discharged When protest need not be made. it is not discharged. But the drawer may insert in the instrument an express stipulation negativing or limiting his own liability to the holder Sec.Where the holder of a set indorses two or more parts to different persons he is liable on every such part. on due presentment. The same is true where the instrument is retransferred to an agent of the payee. in due course.A person secondarily liable on the instrument is discharged: (a) By any act which discharges the instrument. when a negotiable instrument has been dishonored by non-acceptance or non-payment. Right of holders where different parts are negotiated. Where any negotiable instrument has been dishonored. an immediate right of recourse against the drawer and indorsers accrues to the holder and no presentment for payment is necessary Cesar Nickolai F. payable at a special place. . and engages that.A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor. The problem arises when different parts of the set are negotiated to separate persons who are holders in due course. the obligation to pay a sum certain in money. each part of the set being numbered and containing a reference to the other parts. (e) By a release of the principal debtor unless the holder's right of recourse against the party secondarily liable is expressly reserved. signed by the maker. 121 Sec. p. it may be protested for non-acceptance or non-payment. Where a note is drawn to the maker's own order. 66 Sec.The person "primarily" liable on an instrument is the person who. PAYMENT BY PARTY SECONDARY LIABLE Sec. presentment for payment is necessary in order to charge the drawer and indorsers To whom notice of dishonor must be given. and every indorser subsequent to him is liable on the part he has himself indorsed. 118 Sec. . B. 120 Liability of drawer. 119 PARTIES WHO ARE LIABLE PRIMARY AND SECONDARY LIABLE DISTINGUISHED Active Subject in the negotiable instrument is the holder. and that if it be dishonored and the necessary proceedings on dishonor be duly taken. (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 assent of the party secondarily liable or unless the right of recourse against such party is expressly reserved. Sec. Soriano Jr. Passive Subject is the one against whom the holder can enforce the right presented by the instrument who may be primary or secondarily liable (Sec. All other parties are "secondarily" liable. But nothing in this section affects the right of a person who. engaging to pay on demand. Promissory note.The acceptance may be written on any part and it must be written on one part only. that is. Instrument. or at a fixed or determinable future time. 65 Sec. Acceptance of bill drawn in sets. 192).

He becomes liable to the holder by his unconditional acceptance (Westminster Bank vs. Inc. Relationship with Collecting Bank – the privity of contract is between the holder-depositor and the collecting bank. grossly recreant in accepting the checks in question from Ramirez. BPI (GR No. In no other case is presentment for acceptance necessary in order to render any party to the bill liable. HTV arguing that the quality of the bales of tobacco fell short of what was expected. . 127). who in turn demanded from BPI. Drawer – secondary liability. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . Nassor. Since the indorsements were forgeries. the genuineness of his signature. p. pay the bill according to the terms of his acceptance provided it shall not have been paid by the drawee and provided also that is shall have been duly presented for payment and protested for non-payment and notice of dishonor given to him. engages that he will pay it according to its tenor. genuine and in all respects what it purports to be. PNB vs. 1922) . they are inoperative. BPI acted within legal bounds when it debited the petitioner's account. where presentment for acceptance is necessary in order to fix the maturity of the instrument. It is our view nonetheless that no creditor-debtor relationship was created between the parties. that is. does not concern the plaintiff bank. engages that he will. There is no privity of contract between the drawer and the collecting bank. Relationship with Drawee – there is a contractual relation between the drawer and the drawee. The right of an agent to indorse commercial paper is a very responsible power and will not be lightly inferred. . engages that he will pay it according to the tenor of his acceptance and admits: (a) The existence of the drawer. BPI thus debited the value of the checks against petitioner's current account and forwarded to the latter the checks containing the forged indorsements which petitioner refused to accept. making any inquiry as to his authority to exchange checks belonging to the payee-corporation.A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank. which can act only by agents. 1932) Sec. GR No. petitioner is deemed to have given the warranty prescribed in Section 66 of the NIL that every single one of those checks "is genuine and in all respects what it purports to be. by such acceptance. or in any other case. Unlike secondary liability which requires a notice of dishonor. .The maker of a negotiable instrument. L-38139. Sec. 6. the latter occurring as it does at the time of the transfer. The question of whether or not the tobacco was worth the value of the bill. a regular jai-alai bettor and a sales agent of the Inter-Island Gas. All the checks were payable to InterIsland Gas Service. vs. Aug. Tavera & Ventura (HTV) to pay PNB for the amount used to purchase bales of tobacco and Picornell’s commission. Thus. the petitioner cashed these checks to a mere individual who was admittedly a habitue at its jai-alai games without ナナ Sec. petitioner is deemed to have given the warranty prescribed in Section 66 of the NIL that every single one of those checks "is genuine and in all respects what it purports to be." BPI. Yet. or (2) he may be barred from asserting a particular defense. Agreement of acceptor for honor. But the drawer may insert in the instrument an express stipulation negativing or limiting is own liability to the holder Acceptor – it is only from the moment the drawee accepts the bill or certifies the check that the drawee becomes primarily liable. 189 Liability of acceptor. (see Sec. It could not have escaped the attention of the petitioner that the payee of all the checks was a corporation — the InterIsland Gas Service. . When presentment for acceptance must be made. 1975) – Petitioner deposited 10 checks in its current account with BPI which were acquired from Antonio Ramirez. In Insular Drug Co. a drawer may have drawn the bill against the drawee because the latter is holding an amount in trust for the drawer. Oct. 1. . or (b) Where the bill expressly stipulates that it shall be presented for acceptance. BARTOLOME PICORNELL (GR No. does not exist with respect to the bank which paid to Picornell the full value of said bill of exchange. does so at his peril. being the collecting bank is liable to the drawee banks when it submitted the checks for clearing. . Torres & K." Respondent which relied upon the petitioner's warranty should not be held liable for the resulting loss. National. The bank was a holder in due course. the payment made by the drawee banks therefore is inoperative and relationship of a creditor and debtor was not created. HTV later on accepted the bill.Bartolome Picornell executed a bill of exchange ordering Hyndman. L-29432. by making it. 143 JAI ALAI CORP OF THE PHILS. When the petitioner deposited the checks with the respondent. so that following the rule in Gullas vs. and admits the existence of the payee and his then capacity to indorse 2." LIABILITY AND/OR WARRANTIES OF PARTIES Maker – primary and unconditional c. Inc. the bank was to collect from the drawees of the checks the corresponding proceeds. ISSUE: WON BPI had the right to debit from petitioner's current account the value of the checks with the forged indorsements? HELD: Yes. moreover. Any person taking checks made payable to a corporation. or (c) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. September 26. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No.C. 60.21) a. and the drawee is not liable on the bill unless and until he accepts the same. Bill not an assignment of funds in hands of drawee. by accepting the instrument.. Inc. The depositor of a check as indorser warrants that it is LIABILITY DISTINGUISHED FROM WARRANTIES The primary and secondary liability makes the parties liable to pay the sum certain in money stated in the instrument. 165 Sec.The acceptor. Having indorsed the checks to respondent bank. on due presentment. 61. and re-accepted it after the requested extension. The drawers of the checks demanded reimbursement from the drawee-banks. an action based on breach of warranty is not so conditioned. The petitioner was. 127 Sec. 62 (see Sec. Presentment for acceptance must be made: (a) Where the bill is payable after sight. Liability of the acceptor for honor. and (b) The existence of the payee and his then capacity to indorse. While warranties are affirmations of fact on the part of the parties that impose no direct obligation to pay in the absence of breach thereof. . 27. 164 Sec. . and his capacity and authority to draw the instrument. Inter-Island Gas discovered that all the indorsements made on the checks purportedly by its cashiers were forgeries. and must abide by the consequences if the agent who indorses the same is without authority. Such partial want of consideration. or order. It is true that the respondent had already collected the proceeds of the checks when it debited the petitioner's account. if it was.The acceptor for honor is liable to the holder and to all parties to the bill subsequent to the party for whose honor he has accepted. the Court made the pronouncement that: ". or the drawee may have extended credit to the drawer and agreed to honor any bill drawn by the drawer against said drawee. and the bank is not liable to the holder unless and until it accepts or certifies the check. D. may be brought at any time. When check operates as an assignment. Having indorsed the checks to respondent bank. Sec.A bill of itself does not operate as an assignment of the funds in the hands of the drawee available for the payment thereof. the person who breached the same may (1) either be liable. the nature of the relationship created at that stage was one of agency. In case of breach of warranties. the bill was not paid upon maturity. and was such for value Cesar Nickolai F. Liability of maker. L-18751/L-18915. Soriano Jr. However. A salesman with authority to collect money belonging to his principal does not have the implied authority to indorse checks received in payment. VS.The acceptor for honor. b. After the checks had been submitted to Inter-bank clearing. ISSUE: WON HTV is still liable on the instrument considering that the bales of tobacco delivered were of poor quality? HELD: Yes. Philippine National Bank 2 it might be argued that the relationship between the parties had become that of creditor and debtor as to preclude the respondent from using the petitioner's funds to make payments not authorized by the latter.

he will pay the amount thereof to the holder. and upon which money has been advance by the plaintiff.. Upon demand of GSIS that the signatures of its officers on the check were forged.) Payment Without Acceptance PNB VS. L-26767. She appealed. Indorsers Sec. also. cannot in any manner affect his liability to the appellee. maintaining that he is only an accommodation party. 645915-B with respondent bank Philippine Commercial and Industrial Bank. 63 Sec. The trial court adjudged for herein petitioner. and does not a whit diminish nor defeat the rights of the latter who is a holder for value. at the time of his indorsement. The provisions of subdivision (c) of this section do not apply to a person negotiating public or corporation securities other than bills and notes. So that the fact that the appellant stands only as a surety in relation to the maker. she may not be made liable on account of the dishonor of the checks indorsed by her. but. or to any subsequent indorser who may be compelled to pay it. Sec. for clearing which the latter paid. or both. The HTV company cannot escape liability in view of Sec. d. (b). in the sense in which this term is used in the Negotiable Instruments Law is not required for checks. according to its tenor. The payee holds a different relation. the instrument was received by Ang Tiong who thereafter presented it to the bank for payment. ISSUE: WON prior acceptance before payment is required in the case of checks? HELD: No. Only Felipe Ang appealed. (b) That he has a good title to it. the present action. In general. General Indorser Sec. that her liability be reduced. ISSUE: WON Maniego could properly be held civilly liable after her acquittal? HELD: Yes. And. is immaterial to the claim of the appellee. But when the negotiation is by delivery only. and (b) That the instrument is. but did reduce the amount. the latter refused.and complete.12 Order in which indorsers are liable. the holder or last indorsee of a negotiable instrument has the right to "enforce payment of the instrument for the full amount thereof against all parties liable thereon. the warranty extends in favor of no holder other than the immediate transferee. February 22. — Every person negotiating an instrument by delivery or by a qualified indorsement warrants: (a) That the instrument is genuine and in all respects what it purports to be. The Court declined to negate her civil liability. or both. indorsers are liable prima facie in the order in which they indorse. or acceptor ** unless he clearly indicates by appropriate words his intention to be bound in some other capacity.50 to the government. he is in the position on a bona fide indorsee. and (c) of the next preceding section (sec. Upon the other hand. the question as to the consideration between the drawer and the acceptor cannot be inquired into. actual payment of the amount of a check implies not only an assent to said order of the drawer and a recognition of the drawer's obligation to pay the aforementioned sum. Ang Tiong then filed a suit for collection. is the payment. Even on the assumption that Ang is a mere accommodation party as he professes to be. in a legal sense a remote party. warrants to all subsequent holders in due course: (a) The matters and things mentioned in subdivisions (a). at the very least. (d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.434. within the purview of said Law. on due presentment. as the case may be. Felipe Ang is a general indorser (Section 63. together with Rizalino Ubay and Milagros Pamintuan. ** (the instrument) shall be accepted or paid. as the case may be. The drawee by acceptance becomes liable to the payee or his indorsee. LORENZO TING (G. "the acceptance of a bill is the signification by the drawee of his assent to the order of the drawer. 358. drawer. pp. again assuming him to be an accommodation indorser. 1144. it shall be accepted or paid. . of a given sum of money. through Central Bank. . 29. they have agreed otherwise. Joint payees or joint indorsees who indorse are deemed to indorse jointly and severally. 66 Liability of general indorser. in the absence of any indication by appropriate words his intention to be bound in some other capacity. L-26001. To sanction the appellant's theory is to give unwarranted legal recognition to the patent absurdity of a situation where an indorser. he engages that. Hence. as the said remedy is a matter of concern exclusively between accommodation indorser and accommodated party. NIL). or to any subsequent indorser who may be compelled to pay it. PEOPLE VS. 65. he is nevertheless by the clear mandate of section 29 of the Negotiable Instruments Law.e. . in the case of checks. 62 of the NIL is applicable to a drawee who pays a bill without having previously accepted it.Every indorser who indorses without qualification. who in turn submitted said check to PNB. The drawee bank dishonored it." which. par. In the words of the Law. Soriano Jr. . he is a stranger to the transaction between the drawer and the acceptor. for the same are payable on demand. (3 R. in addition.Accused Julia T." inter alia "engages that on due presentment. that the draft was accepted or the accommodation of the drawer. Ang Tiong made written demands on both Ting and Ang to make good the amount represented by the check. Hence. and that if it be dishonored and the necessary proceedings on dishonor be duly taken. These demands unheeded. CA (GR No. "acceptance" and "payment" are.” With Felipe ナニ Ang’s signature (indorsement in blank) at the back thereof. Warranty where negotiation by delivery and so forth. and that if it be dishonored. the drawer cannot recover of the acceptor. 1143. (c) That all prior parties had capacity to contract. praying that she be absolved from civil liability or.. supra. p. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. L. he will pay the amount thereof to the holder. and is. . essentially different things.” Such an indorser "who indorses without qualification. Indeed." Qualified Indorser Sec.R. ISSUE: WON Felipe Ang is an accommodation party? What is the liability of an accommodation indorser? HELD: NO. In a suit by him against the acceptor. But the drawer and acceptor are the immediate parties to the consideration. 65 – warranties of a person negotiating by delivery or by qualified indorsement). and if the acceptance be without consideration. when sued on an instrument by a holder in due course and for value. PNB re-credited the account of GSIS. granting this to be true for the sake of argument. "acceptance". The payee or holder gives value to the drawer. 68 When a person deemed indorser. and also to the drawer himself. is untenable. L-30910 February 27. and if he is ignorant of the equities between the drawer and the acceptor. can escape liability on his indorsement by the convenient expedient of interposing the defense that he is a mere accommodation indorser. Under the law. on demand. and the necessary proceedings on dishonor be duly taken. it is no defense to a suit against the acceptor of a draft which has been discounted. according to its tenor. Cesar Nickolai F. PNB requested reimbursement from PCIB. Appellant's contention that as mere indorser.Lorenzo Ting issued a check payable to “cash or bearer. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang .R. as between or among themselves. No. The liability of the appellant remains primary and unconditional. No. by drawing checks. ANG TIONG vs.As respect one another. 1987) . Oct. Maniego sought reconsideration of the judgment. for Malversation. 28 of the Negotiable Instruments Law. Maniego was indicted. "a person placing his signature upon an instrument otherwise than as maker. but evidence is admissible to show that. 1968) . 1968) – Agusto Lim deposited GSIS check no. C. may obtain security from the maker to protect himself against the danger of insolvency of the latter. valid and subsisting." Among the "parties liable thereon" is an indorser of the instrument i. That the appellant. Maniego was acquitted in the absence of evidence against her but ordered to pay jointly and severally the amount of P57. therefore. MANIEGO (G. a compliance with such obligation. for the former is "a promise to perform an act." whereas the latter is the "actual performance" thereof.

Nov. 65 under Qualified Indorsement – p. petitioner actually had no transaction directly with said corporation. as well as the consequences arising from their acts in connection therewith. signed a note in favor of the plaintiff which stipulates that six months after date of the same. not otherwise a party to an instrument. Corporations – the rule on the liability of an accommodation party does not apply to corporations. he is liable to all parties subsequent to the maker or drawer. 64. ERNESTINA CRISOLOGO-JOSE VS. 10 Sec. to enable the latter to obtain credit or to raise money. and that the defendant. If an instrument payable to A. the accommodation party is in effect a surety for the latter. Nor is it correct to say ナヌ that the holder for value is not a holder in due course merely because at the time he acquired the instrument. 20. This is because the issue or indorsement of negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires. ISSUE: WON private respondent. together with two other persons. payable to petitioner Ernestina Crisologo-Jose. as long as he has no knowledge of such fact. 65 and 67 Sec. not to the creditor. is not dependent on whether he has. 15. 70 of the said law. in accordance with the following rules: (a) If the instrument is payable to the order of a third person. It is not a valid defense that the accommodation party did not receive any valuable consideration. RN CLARK VS. it should be taken into account that by putting his signature to the note. one of the signatories of the check issued under the account of Mover Enterprises. the former shall pay the latter the sum of P12.Such an indorser "who indorses without qualification. obtained it by fraud or without consideration. The foregoing notwithstanding. the holder may recover from the qualified indorser the consideration paid by him with interest (Cressler vs. Conditions precedent to make unqualified indorser liable Accommodation Party – Sec. ISSUE: WON defendant is liable given the defenses raised by him? HELD: The liability of the defendant. or indorser. To be considered an accommodation party. corporate officers. he lent his name. places thereon his signature in blank before delivery. received any part of the amount of the debt. and the necessary proceedings on dishonor be duly taken. – supra under How Negotiation Takes Place. as the case may be. Inc. especially since it is not involved in any aspect of the corporate business or operations. and that if it be dishonored. and as such he is liable under the provisions of Sec.While a general indorser warrants that the instrument is valid and subsisting at the time of his indorsement. and the qualified indorser does not breach his warranty even if the instrument was already impaired at the time he negotiated it. it has been held that in lending his name to the accommodated party. B is an irregular indorser. 65. Soriano Jr. Counsel for the defendant allege that the latter did not receive in that transaction either the whole or any part of the amount of the debt. Brown). but at the back has B as the first indorser. for the accommodation of his client. the qualified indorser warrants that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.Where a person. 65 Sec. as payee. that the instrument was not presented to the defendant for payment. Thus. (c) If he signs for the accommodation of the payee. A qualified indorser neither warrants payment nor binds himself to pay. ** (the instrument) shall be accepted or paid. whether primarily or secondarily. as one of the signers of the note. he is liable to all parties subsequent to the payee. acceptor. 29. being an accommodation party. Order of Liability – see Sec. who placed thereon his signature in blank before delivery or a person who indorses the instrument in an unusual. not otherwise a party to an instrument. have no power to execute for mere accommodation a negotiable instrument of the corporation for their individual debts or transactions arising from or in relation to matters in which the corporation has no legitimate concern. The defendant is really and expressly one of the joint and several debtors on the note. Warranty where negotiation by delivery and so forth. or both. – see under Qualified Indorser from previous section Liability of indorser where paper negotiable by delivery. such action is not necessary in order to charge the person primarily liable. p. Since such accommodation paper cannot thus be enforced against the corporation.The Vice-president of Mover Enterprises. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. HELD: Yes. is not liable unless the note is negotiated. he incurs all the liability of an indorser. as to presentment for payment. — Where a person places his indorsement on an instrument negotiable by delivery.13. but its amount was not paid. Sec. and (3) sign for the purpose of lending his name for the credit of some other person. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang .000 with interest at rate of 10% per annum from date until paid. issued a check drawn against Traders Royal Bank. Corollarily. 68 under d. in whatever capacity such accommodation party signed the instrument. And as to whether or not the defendant is an accommodation party. By way of exception. or to any subsequent indorser who may be compelled to pay it. he knew that the indorser was only an accommodation party. a person must (1) be a party to the instrument. 16477. The note matured. if judgment for the amount of the note is defeated by the maker on the ground that the indorser. 1989) . drawer. Persons Negotiating by Delivery – see Warranties of a Person Negotiating by mere delivery under Sec. GEORGE SELLNER (GR No. although such holder does not include nor apply to corporations which are accommodation parties. 67 Indorsement of instrument payable to bearer. Indorser of Bearer Instrument – Sec. 40 Sec. the liability of an accommodation party to a holder for value. an officer or agent of a corporation shall have the power to execute or indorse a negotiable paper in the name of the corporation for the accommodation of a third person only if specifically authorized to do so. such as the president and vice-president. p. He is liable to a holder for value as if the contract was not for accommodation. He receives no part of the consideration for the instrument but assumes liability to the other parties thereto. he will pay the amount thereof to the holder. Petitioner-payee was charged with the knowledge that the check was issued at the instance and for the personal account of the President who merely prevailed upon respondent vice-president to act as co-signatory in accordance with the arrangement of the corporation with its depository bank. While it was the corporation's check which was issued to petitioner for the amount involved. (b) If the instrument is payable to the order of the maker or drawer.. the signatories thereof (president and vice-president) shall be personally liable therefor. He is liable to a holder for value as if the contract was not for accommodation. signing as maker. Other Cases Irregular Indorser – is a person. . payable quarterly. he is liable as indorser. 40. The accommodation party lends his name to the accommodated party. he is liable to the payee and to all subsequent parties. 22. is an accommodation party under NIL and a debtor of petitioner to the extent of the amount of said check. It is not a valid defense that the accommodation party did not receive any valuable consideration when he executed the instrument. Inc. or has not. except that the former’s warranties extend only in favor of his immediate transferee. Liability of irregular indorser. 70 of NIL. f. 1921) Herein defendant. One who has taken the instrument with knowledge of the accommodation nature thereof cannot recover against a corporation where it is only an accommodation party. singular or peculiar manner. which was not done. 80599. but to those who signed with him placing Cesar Nickolai F. Indorsers PEOPLE VS. according to its tenor. (2) not receive value therefor. nevertheless. As provided in Sec." inter alia "engages that on due presentment." e. or is payable to bearer. CA (GR No. MANIEGO (supra) . or Qualified Indorser from the preceding section. Warranties of a person negotiating by delivery are similar to a qualified indorser. as is the defendant. Sept. as shown by the evidence.

acting solely as an agent. As such. it is indisputable that the spouses signed the promissory note to enable Reyes to secure a loan from the bank. pay or forego anything. For Jose Padern. the latter stating to the broker that he did not wish his name to appear on the books of the borrowing company as a lender of money and that he desired that the broker take the note in his own name.Where a broker or other Sec. but one to the maker or indorser of the note. how shown. pay the debt. 29.000 each. so far as the creditor is concerned. The accommodation to which reference is made in Sec. June 5. They signed the promissory note as a favor to Pilarita. they were declared in default. demand the collateral security and dispose of it to his benefit. In reality the legal situation of the defendant in this case may properly be regarded as that of a joint surety rather than that of an accommodation party. and where the only ナネ consideration for such indorsement passes from the indorser to the indorsee. the accommodation party is in effect a surety for the latter. For failure to pay their monthly payments. Nov. The only payment the broker received was for his services in negotiating the loan. Moreno.. As to the plaintiff. but there is no proof whatever that this was done. was an accommodation indorser. Where. not the Bank. The accommodation parties may make payment to the holder of the notes and have the right to sue the party accommodated for reimbursement. he incurs all the liabilities prescribed by Section Sixty-five of this Act. Dec. Manila. The law now is that the accommodation party can claim no benefit as such. The most plausible and reasonable stand for the defendants is that they are accommodation parties. who requests it. TOWN SAVINGS & LOAN BANK VS. negotiate a loan between the two. but to relieve himself from a distasteful situation. She was the actual beneficiary of the loan and the spouses accommodated her by signing the note. Pilarita Reyes. ISSUE: WON Ramon Maza and Francisco Mecenas are liable even if classified as accommodation parties? HELD: Yes. In lending his name to the accommodated party. ISSUE: WON Respondent spouses are liable on the promissory note which they executed in favor of the petitioner? HELD: Yes. Liability of Agent or Broker Sec. Maulini's business as a broker consisted in looking up and ascertaining persons who had money to loan as well as those who desired to borrow money and. 24224. Moreno. upon the maturity of the note. unless he discloses the name of his principal and the fact that he is acting only as agent Signature by agent. there was no agreement here. authority. FERNANDO MAULINI VS." If. 106011. PNB VS. 1914) – The promissory note reads: 3. The trial court held that it was immaterial whether there was a consideration for the transfer or not. not the bank. nor did the indorsee lose. If the sum herein mentioned is not completely paid on the 5th day of September. An accommodation note is one to which the accommodation party has put his name. which was secured by a promissory note. He receives no part of the consideration for the instrument but assumes liability to the other parties thereto because he wants to accommodate another.000) for value received for commercial operations. were mere guarantors of Reyes." under the phrase of said section 29. Unlike in the Maulini case. June 17. 29. the same as if he were himself financially interested in the transaction. an indorsement is made as a favor to the indorsee. value received. took note in his own name and immediately transferred it by indorsement to the lender. Due 5th of September. 8844. to help her raise the funds that she needed. 3. for the purpose of accommodating some other party who is to use it and is expected to pay it. The notes were not taken up by Maza and Mecenas at maturity. 69 Liability of an agent or broker. The makers hereof agree to pay the additional sum of P500 as attorney's fees in case of failure to pay the note. Serrano on or before the 5th day of September. 16. "without receiving payment for lending his name. by F.The signature Cesar Nickolai F. contrary to the erroneous finding of the appellate court.000. the spouses were acting as agents for the money lender. written or verbal. The consideration of the note signed by the Hipolitos was received by them through Pilarita. 1925) . ISSUE: WON Serrano was an accommodation indorser? HELD: No. the three were due 4 months after date. In the case at bar.PNB is suing Ramon Maza and Francisco Mecenas on five promissory notes of P10. He is also not an accommodation party under Sec. To fasten liability upon an accommodation maker. . the broker. or delivered them to the bank in payment of any pre-existing debt. Maulini. the situation does not present one creating an accommodation indorsement. not the better to secure payment. (Sgd. 1912. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang .) A. or has not. The special defines interposed by the defendants was that the promissory notes were sent in blank to them by Enrique Echaus with the request that they sign them so that Echaus might negotiate them with the PNB in case of need. ANTONIO SERRANO (GR No. or alter his position thereby. Serrano. this instrument will draw interest at the rate of 1½ per cent per month from the date when due until the date of its complete payment. They stated that the real party-in-interest is the sister of the husband. The defendant. June 5. not having received part of the loan. The trial court held that they were liable as accommodation parties to the promissory note. however. 1912. It was always the note of the indorsee. 1993) . He lends his name to enable the accommodated party to obtain credit or to raise money.himself with respect to the creditor in the same position and with the same liability as the said signers. and that it was Echaus who negotiated the note with the bank and who is accordingly the real party in interest and the party liable for the payment of the notes. Serrano. member of the firm. immediately transferred to him title thereto by indorsement. under the evidence offered. They acted as agents of Pilarita. for he had paid the money to the signers at the time the note was executed and delivered to him. it is not necessary that any consideration should move to him. MAZA (GR No. (Sgd. It should be noted that the phrase "without receiving value therefor. as in the instant case. The court rendered a judgment in favor of PNB.) For Padern. they protested against being dragged into the litigation. he is the "holder for value. without consideration. as a joint surety. is not one to the person who takes the note – that is. it is immaterial. means "without receiving value by virtue of the instrument" and not. received anything in payment of the use of his name. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. 19 agent negotiates an instrument without indorsement. Angel Gimenez. are still liable on the instruments. The consideration which supports the promise of the accommodation maker is that parted with by the person taking the note and received by the person accommodated. the payee or indorsee. the broker delivered the money personally to the borrower.G. We jointly and severally agree to pay to the order of Don Antonio G. At the special request of the indorsee and simply as a favor to him. CA (GR No. that in signing the promissory note. as the indorser. a vehicle by which the naked title to the note passed from the borrower to the lender. According to the method usually followed. he having furnished the money which was the consideration or the note directly to the maker and being the only person who had the slightest interest therein. Moreno & Co.Spouses Hipolito applied for and was granted a loan by the bank. Notice and protest renounced." as used in section 29 of the aforesaid Act. the Bank. This was reversed by the Court of Appeals. Manila. but he is liable according to the face of his undertaking. the defendants having signed the instrument without receiving value therefor and for the purpose of lending their names to some other person. Defendants move for the inclusion of Echaus as defending party. 1912. by F. 1912. There was never a moment that Serrano was the real owner of the note. Soriano Jr. It was Pilarita whom they accommodated. that the defendants have not negotiated the note with the bank nor have they received the value thereof. a sum of money was received by virtue of the note. as it apparently is supposed to mean. which was denied. He was paid absolutely nothing for becoming responsible as an indorser to the paper. 1912. the sum of three thousand pesos (P3. . acting as a mediary. The spouses. two of which is due 3 months after date. The spouses denied having any liability. The note was indorsed on the back as follows: Pay note to the order of Don Fernando Maulini. But as accommodation parties. since the relation between them is in effect that of principal and sureties. nor one where there is a consideration sufficient to sustain an action on the indorsement. may. whether one of the singers has.

2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . mistake. 6. Defenses distinguished from EQUITIES OF OWNERSHIP: the latter is raised by persons who may have legal claim over the instrument. 22. One who signs through an agent or authorized representative (Sec. but the mere addition of words describing him as an agent.Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity.Sec. 12). one is to claim the instrument and the other to resist a claim for payment. Minor – the defense of minority is real and may be enforced against all holders but is only available to the minor himself. Effect of indorsement by infant or corporation. 20 provides that “a person (who) adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity. Soriano Jr. He merely signed as follows: “JOSE ARUEGO (Acceptor) (SGD) JOSE ARUEGO”. 1. 12. although such holder does not Cesar Nickolai F. 20 Sec. and the principal is bound only in case the agent in so signing acted within the actual limits of his authority PBCOM VS. 65) VI. and the authority of the agent may be established as in other cases of agency Liability of person signing as agent. 5. . One who signs in a trade or assumed name (Sec.. 7. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. effect of. except as herein otherwise expressly provided. real defenses are those wherein the facts disclose an absence of one or more of the essential elements of a contract. he is not liable on the instrument if he was duly authorized. He may also resist the claim of a holder not in due course by raising the defense of non-delivery. Forgers of signatures (Sec. duress. For example. ARUEGO (supra. but the mere addition of words describing him as an agent. An ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the power conferred upon it by law" The term "ultra vires" is "distinguished from an illegal act for the former is merely voidable which may be enforced by performance. Persons who negotiate by mere delivery. An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was signing as representative of the Philippine Education Foundation Company.4) . he is not liable on the instrument if he was duly authorized. ATRIUM MANAGEMENT VS. For failure to disclose his principal. or persons whose signatures do appear in the instrument itself. or refuses within twenty-four hours after such delivery or within such other period as the holder may allow. p. the act of issuing the checks was well within the ambit of a valid corporate act. such as fraud. 137. 21. They have different purposes. and so forth. prior breach of contract by the holder. or estoppel.Sec. REAL DEFENSES AND PERSONAL DEFENSES REAL DEFENSE Minority (available only to the minor) Forgery Non-delivery of Incomplete Instrument Material Alteration Ultra Vires act of Corporation Fraud in Factum or Esse Contractus Illegality – if declared void for any purpose Vicious Force or Violence Want of authority Prescription Discharge in Insolvency B. for it was for securing a loan to finance the activities of the corporation. p.The indorsement or assignment of the instrument by a corporation or by an infant passes the property therein. 18. In case of constructive acceptance Sec. the defendant is excused from his obligation to perform.The liability of an accommodation party to a holder for value. . Incapacitated persons who sign through their legal guardians. Persons whose signatures were forged but who are precluded from setting up the defense of forgery (Sec. DEFENSES A. discharge before maturity. the following persons who did not sign in their own names. supra. without disclosing his principal. a maker must sign as such maker before he can be made primarily liable. 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 defense but the negotiation of the corporation may pass title to the instrument.No person is liable on the instrument whose signature does not appear thereon. 2. are still liable: 1. or as filling a representative character. For example. does not exempt him from personal liability. Liability of person signing in trade or assumed name. (Sec. not an ultra vires act. Liability of drawee returning or destroying bill. does not exempt him from personal liability Signature by procuration. 3. Signature by Procuration – Sec. p. for various reasons. and the like. CA (supra. 8. 4. CA (supra. he will be deemed to have accepted the same. CRISOLOGO-JOSE VS. p. Sec. without disclosing his principal. the corporation or infant may incur no liability thereon a. Person who should sign A person must sign the negotiable instrument before he can be made liable under the same instrument. 18). 19). PERSONAL DEFENSE Failure or Absence of Consideration Illegal Consideration Non-delivery of Complete Instrument Conditional delivery of complete instrument Fraud in inducement Filling up blank not within authority Duress or Intimidation Filling up blank beyond reasonable time Transfer in breach of faith Mistake Insertion of wrong date Ante-dating or Post-dating for illegal or fraudulent purpose REAL DEFENSES MINORITY AND ULTRA VIRES ACTS Sec. Professor William Britton: In the main. Personal defenses are those wherein the facts present a true contract but where. REAL AND PERSONAL DEFENSE DISTINGUISHED Real Defenses may be raised against all holders even against a holder in due course and attaches to the instrument itself. to return the bill accepted or non-accepted to the holder. or as filling a representative character. notwithstanding that from want of capacity. while the latter is void and cannot be validated. g. . the person from whom a bearer instrument was stolen may claim the instrument from a holder who is not in due course because of his equity of ownership. Indorsers who sign on a separate piece of paper known as allonge (see p. Aruego is personally liable for the drafts he accepted. They are liable for breach of warranty although they did not sign. Personal Defenses (also called ナノ equitable defenses) may be raised only against holders who are not holders in due course which are brought out of conduct of persons and makes it inequitable to impose payment. .Where a drawee to whom a bill is delivered for acceptance destroys the same.A signature by "procuration" operates as notice that the agent has but a limited authority to sign. 15) – ISSUE: WON the issuance of the checks were ultra vires? HELD: No. 21 of any party may be made by a duly authorized agent. No particular form of appointment is necessary for this purpose. or where the admitted contract is vitiated for all purposes for reasons of public policy.24) . ratification. 23). hence. But one who signs in a trade or assumed name will be liable to the same extent as if he had signed in his own name By way of EXCEPTION. b. 23).

3. the loan would have been paid off at maturity. (2) intelligence. or any other information. it will not. payee or any other party. even if he is a holder in due course. Soriano Jr. Situation with a COLLECTING BANK 1. However. Had the Deed been followed. Cesar Nickolai F. p. notwithstanding the fact that B’s signature was forged. Forgery of Maker’s Signature – the maker is not liable to all subsequent parties whether the instrument is an order or bearer instrument. PRUDENCIO VS. or to enforce payment thereof against any party thereto. for acting without delay (Milton Roberts. Sec. Because F forged the signature of A. SALAS VS. P. This being so. Forgery of Indorser’s Signature in a bill of exchange payable to BEARER – same rule with bearer promissory note. unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority A forged signature. F stole the note and indorsed it to C who indorsed it to D. as against any person whose signature was placed thereon before delivery. Equitable Banking Corp f.The court finds that PNB is not a holder in due course because it has not acted in good faith when it waived the supposed payments from the Bureau of Public Works contrary to the Deed of Assignment. A. the latter may recover from A considering that he can trace his title to A. g. they will only be liable to those who can trace their title to the indorsments. or those parties prior to the forged indorsement. he cannot recover from A. can be acquired through or under such signature. But B. b. and (6) apparent necessity. present holder. ORDER – Where the instrument of the payee is forged in a note payable to order.Where an incomplete instrument has not been delivered. 40. he is not liable whether or not the instrument is payable to bearer or order because the drawer was never a party to the instrument – he did not promise to pay anybody. be a valid contract in the hands of any holder. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. FORGERY AND WANT OF AUTHORITY 4. D. indorsers after the forgery are still secondarily liable to the holder by virtue of their warranty. Forged signature. (5) the presence or absence of any third person who might read or explain the instrument to him. CA (supra. 23. Eugene Ong). whose signature was forged. P delivered the note to A. drawer. may raise the defense of forgery even against a holder in due course. has a remaining equity of ownership. hence. or lack of it. Payee can claim against Collecting Bank – a payee whose signature is forged may directly proceed against the collecting bank (Westmont Bank vs. See BDO vs. The person signing does not know that he is signing a negotiable instrument and may be used as a defense even against a holder in due course. payee or the indorser whose signature was forged. his right to recover from either M who is still primarily liable or P who is secondarily liable in case M dishonors the note. who is an indorser after the forgery and is secondarily liable to subsequent parties due to their warranties. 1. petitioner cannot set up against respondent the defense of nullity of the contract of sale between her and VMS. F stole the note and forged B’s signature and later on indorsed it to C. education and business experience. if completed and negotiated without authority. F. A and B may raise the defense of non-delivery of a complete instrument as a defense. whose signature was forged. 19) – ISSUE: WON VMS’ fraud in the conduct of its business. This is because the issue or indorsement of negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires. if the holder is not a holder in due course. Forgery of Drawer’s Signature – barring gross negligence on the part of the drawer where his signature is forged. 1. c. Forgery of Indorser’s Signature in a bill of exchange payable to ORDER – subsequent holders cannot enforce payment against the drawee. Hence. M.When a signature is forged or made without the authority of the person whose signature it purports to be. maker. (3) ability to read and understand the language used. the person whose signature is forged may raise the defense of non-delivery of a complete instrument. P and M because A did not transfer his right over the instrument. Forgery of signatures and the placing of a signature in behalf of another without authority are real defenses.2. and no right to retain the instrument. CA (supra. DEFINITION: It is present when a person is induced to sign an instrument not knowing its character as a note or a bill. 3. 15 Incomplete instrument not delivered. But the indorsers after the forgery are liable because they warrant that they have good title to the instrument. e. whether it be that of the drawer. the maker may still be liable to a holder in due course even if an indorsement was forged after the issuance of the note since according to Sec. C can recover what he paid from the forger. However. NON-DELIVERY OF INCOMPLETE INSTRUMENT Example: M made a note payable to the order of P who indorsed it to A. FRAUD IN FACTUM (or Fraud in execution or Fraud in esse contractus) a. however. Example: M made a note payable to P or bearer. If. however C indorsed it to H. Later on. A and B cannot be liable since under Sec. or to give a discharge therefor. 4. is wholly inoperative and no one can gain title to the instrument through such forged signature against parties prior to the forgery. Indorsers AFTER the forgery are still secondarily liable because of their warranties. Fraud as Defense Against Holder in Due Course) 3. a. d. who becomes principal debtor because of his wrongful act of forging a signature in the note. effect of. . FACTORS FOR REASONABLE OPPORTUNITY: (1) age and sex of the obligor. If H is not a holder in due course. b. who indorsed it specially to B. H can collect from M since the liability remains that he will pay the bearer of the instrument. Thus. would release petitioner-maker from paying First Finance the amount stated in the note? HELD: No. it is wholly inoperative. can enforce the instrument against C. a holder in due course. Forgery of Indorser’s Signature in a promissory note payable to ナハ D. P and M. cannot recover from parties prior to the forgery. Forgery of Indorser’s Signature in a promissory note payable to BEARER – the signature of the payee or holder is unnecessary to pass title to the instrument. who in turn delivered it to H. 4. The note was a negotiable instrument and was validly negotiated to private respondent who is a holder in due course and as such holds the instrument free from defenses available to prior parties among themselves. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . D did not acquire any right against A. See under p. . (4) representations made to him and his reason to rely on them or to have confidence in the person making them. NOT APPLICABLE: When the person had reasonable opportunity to obtain knowledge of the character or essential terms of the instrument. the instrument cannot be enforced against the payee and the maker. 9 2. include nor apply to corporations which are accommodation parties. Sec. specifically in the delivery of a defective truck. 19) . 2. 60 he is to pay the instrument “according to its tenor” and considering that the “tenor” of the instrument is that he engages to pay any bearer of the instrument. p. c.

Her negligence was the proximate cause of her loss. upon receiving the check in question from Dominguez. ISSUE: WON Ebrada is liable to return the money paid to him by Republic Bank subject of a forged check and may the petitioner recover the proceeds given? HELD: It is clear from the provision of Section 23 of the NIL that where the signature on a negotiable instrument if forged. Jan. with the Associated Bank acting as collecting bank. in turn. RPN). It turned out that Fausto Pangilinan. Warranty of Collecting Bank  The collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements. Lorenzo. Why should he be permitted to shift the loss due to his own fault in assuming the risk. Concepcion Emergency Hospital. the 3rd indorser. the payee hospital) is essential to transfer title to the same instrument. Recourse of Collecting Bank – the collecting bank may recover from its depositor who had not given value for the money paid to him. a forged signature is “wholly inoperative. CA). So even if the indorsement on the check deposited by the bank's client is forged.Under Sec. Tarlac" or "The Chief. EBC. Lorenzo to Adelaida Dominguez. barring any claim of forgery. An EXCEPTION is when the issuance of the check itself was attended with negligence. should be declared of no effect. BDO vs. RPN). collected the questioned checks from the office of the Provincial Treasurer claiming to be assisting or helping the hospital on the release of the checks. that he has a good title to it. CA (GR No. 1975) . he forged the signature of Dr. 590. L-62943. L-40769. for having indorsed the checks. CA (GR No. drawee of the check can recover from the holder [Ebrada] the money paid to the latter on a forged instrument. 107382. and ultimately should be held liable therefor. An indorser of an order instrument warrants "that the instrument is genuine and in all respects what it purports to be. warranty not extending only to holders in due course. Soriano Jr. that all prior parties had capacity to contract. A portion of the funds of the province is allocated to the Concepcion Emergency Hospital. a drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer’s account for the amount of said check. 14) . to Ramon R. Indorsers own credulity or recklessness or misplaced confidence was the sole cause of the loss. Fausto Pangilinan. is such an indorser.W. the negotiation of the check is without force or effect. however. EBRADA (GR No. A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank. ISSUE: WON THE DRAWEE Cesar Nickolai F. After the checks were examined. Thru the Central Bank Clearing. All the checks bore the stamp of Associated Bank which reads "All prior endorsements guaranteed ASSOCIATED BANK. the Bureau of Treasury requested the Bank to refund them the amount given to Ebrada. however. is precluded from using forgery as a defense. upon the drawee. Adena Canlas chief of the payee hospital. but the negotiation of the aforesaid check from Ramon R. (Traders CA). Sison and Mendoza in their respective current accounts with the PCIB and PBC. of the total sum of P3. no one ナバ can gain title to the instrument through such forged indorsement.This is a case of what appeared to be an indorsed check by one Martin Lorenzo who turned out to be dead since 1952. It is not supposed to be its duty to ascertain whether the signatures of the payee or indorsers are genuine or not. and that the instrument is at the time of his indorsement valid and subsisting. p. 23 of the Negotiable Instruments Law. When the holder's indorsement is forged.    4. Traders Royal Bank vs. The Bank sued Ebrada upon the latter’s refusal to return the money of the forged check. The drawee bank's duty is but to verify the genuineness of the drawer's signature and not of the indorsement because the drawer is its client. PNB demanded reimbursement from the Associated Bank who refused to pay interposing the defense of forgery. In turn. NWSA addressed a letter to PNB requesting the immediate restoration to its Account No.2. the original payee. Such an indorsement prevents any subsequent party from acquiring any right as against any party whose name appears prior to the forgery. hold the forger.457. liable. such as the checks in this case. Royal Bank vs. Concepcion. was duty-bound to ascertain whether the check in question was genuine before presenting it to plaintiff Bank for payment. Ebrada warrants that she has good title to the check subject of this action. At the time of their presentation to PNB. But does this mean that the existence of one forged signature therein will render void all the other negotiations of the check with respect to the other parties whose signature are genuine? No. the collecting bank and the drawee bank were made to share in the liability because of the relative negligence that they exhibited (BPI vs. that the payee's (Lorenzo) indorsement was a forgery. The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness of any indorsement. conducted by the NBI showed that Raul Dizon. including the forged indorsement itself. 3. As a rule. Applying the principle of Beam vs. Collecting Bank. 113 N. The petitioner. is solely liable when the checks were deposited in an account other than that of the payees on the strength of forged instruments (Republic Bank vs. these checks bear the standard indorsement which reads 'all prior indorsement and/or lack of endorsement guaranteed.903. the signature of its rightful holder (here. This means that the negotiation of the check in question from Martin Lorenzo. should be considered valid and enforceable. The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the checks to it. 6. 135 Iowa 670. the 2nd indorser. REPUBLIC BANK VS. Gempesaw did not exercise prudence in taking steps that a careful and prudent businessman would take in circumstances to discover discrepancies in her account. Subsequently. ASSOCIATED BANK VS. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . Being the last indorser. it was learned that 30 checks were encashed by one Fausto Pangilinan. Ebrada. GEMPESAW VS.23 checks were deposited by the payees Dizon. July 31. July 14. 1996) – The Province of Tarlac maintains a current account with the Philippine National Bank where the provincial funds are deposited. Farrel. simply because of the accidental circumstance that the drawee afterwards failed to detect the forgery when the check was presented for payment. The forged signature of the deceased appeared at the dorsal portion of the check indorsed in favor of one Ramon Lorenzo. all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. Drawer and Collecting Bank – the drawer cannot opt to recover from the collecting bank since there is no privity of contract between him and the collecting bank (Associated Bank vs. Associated Bank can. Concepcion." The Provincial Treasurer sought to recover from PNB various amounts debited from the current account of the Province. Ebrada encashed the same in 1963 at herein petitioner Republic Bank's main office in Escolta. CA (supra. the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank. 1986) . 107612. Persons precluded from setting up forgery MWSS VS. Arturo Sison and Antonio Mendoza were all fictitious persons. The allotment checks for said government hospital are drawn to the order of "Concepcion Emergency Hospital. Upon informing petitioner Republic Bank. It was later discovered that the hospital did not receive several allotment checks drawn by the Province. From Ramon Lorenzo the same was indorsed to one Delia Dominguez and then from Dominguez to herein respondent Ebrada.' Subsequent investigation however. This is because the indorser is supposed to warrant to the drawee that the signatures of the payee and previous indorsers are genuine. ISSUE: WON Associated Bank (collecting bank) may interpose the real defense of forgery against PNB (drawee bank) as to bar recovery by the latter? HELD: NO." He cannot interpose the defense that signatures prior to him are forged. it can be safely concluded that it is only the negotiation predicated on the forged indorsement that should be declared inoperative. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. Such forged indorsement cuts-off the rights of all subsequent parties as against parties prior to the forgery. 31.00 corresponding to the total amount of these twenty-three (23) checks claimed by NWSA to be forged and/or spurious checks. who was the administrative officer and cashier of payee hospital. In other cases. Where the instrument is payable to order at the time of the forgery. To encash the checks. these checks were presented for payment by PBC and PCIB to the defendant PNB. Tarlac”. and were paid. and from Adelaida Dominguez to the defendant-appellant who did not know of the forgery. and under Section 23 of the Negotiable Instruments Law. Ebrada. An exception to the rule is where the drawer is guilty of such negligence which causes the bank to honor such checks.

There must be conclusive findings that there is a variance in the inherent characteristics of the signatures and that they were written by two or more different persons. and realized that his signature had been forged. There was no question of Gomez's identity or of the genuineness of his signature as checked by Golden Savings. having the opportunity ascertaining its character. This rule is absolutely necessary to the circulation of drafts and checks. he sold certain shares of stocks Cesar Nickolai F.I). the petitioner was in a better position to detect and prevent the fraudulent encashment of its checks. The following day. L-53194. It must be established by clear. payable to cash and drawn against Samsung Construction’s current account. Kyu perused the checkbook and found that the last blank check was missing. It is expected to use reasonable business prudence in accepting and cashing a check presented to it.00 had been encashed. filled it up for P5. After the bank teller ascertained that there were enough funds to cover the check and compared the signature as contained in the specimen signature. can be traced to the neglect or fault of either. The check. When the Bank pays a check. it is not only a question of payment under mistake. Under the circumstances. The act of the plaintiff in leaving his checkbook in the car cannot be considered negligence sufficient to excuse the defendant bank from its own negligence. even if innocent of intentional fraud. We cannot fault the respondent drawee Bank for not having detected the fraudulent encashment of the checks because the printing of the petitioner's personalized checks was not done under the supervision and control of the Bank. which must be borne by one or two innocent persons. As held in MWSS v. 129015. 500. Sempio vouched for the genuineness of Jong’s signature. Hence. Aug. it has failed to comply with its contract in this respect. and if it pays a forged check. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. Santos saw that Gozon left his checkbook. EQUITABLE BANKING CORPORATION (supra. In fact. we are unable to conclude that Samsung Construction was guilty of negligence in this case. QUIMPO (GR No. if a loss. FAR EAST BANK (GR No. positive and convincing evidence. to wit. 15. This was the finding of the lower courts which must not be disturbed. p. The sole signatory to petitioner’s account was Jong Kyu Lee ("Jong"). Court of Appeals. CA (supra. and cannot ordinarily change the amount so paid to the account of the depositor whose name was forged' (San Carlos Milling Co. the forgery of the signatures of the general manager and the auditor of the drawer corporation. petitioner was negligent in encashing said forged check without carefully examining the signature which shows marked variation from the genuine signature of private respondent. 500. has not been established. Bank of the P. ISSUE: WON Samsung Construction was precluded from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law? HELD: No. would remove a check from his checkbook. National City Bank) In another case. Hence the petition. On the premise that Jong’s signature was indeed forged. This was not done in the present case. 30. it allowed Golden Savings to withdraw from the uncleared treasury warrants. This was not done in the present case. Yet. and yet the bank is liable to the depositor if it pays the check. Even if the twenty-three (23) checks in question are considered forgeries. EUGENE ONG (GR No.000 and forged the signature of Gozon. By contrast. but now known as Westmont Bank. 2003) . WESTMONT BANK VS. There is nothing inequitable in such a rule. ISSUE: WON Gozon who left his checkbook into hands of Santos was indeed the proximate cause of the loss and thus precluded from setting up the defense of forgery? HELD: No. such loss would be borne by the negligent party. it impliedly agrees to pay ONLY UPON THE DEPOSITOR’S ORDER. Santos could not have been expected to know that Santos. Apropos the matter of forgery in endorsements. it must be considered as making the payment out of its own funds. 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. Such liability attaches even if the bank ナパ exerts due diligence and care in preventing such faulty discharge. and he. and is based upon the presumed negligence of the drawee in failing to meet its obligation to know the signature of its correspondent.BANK WAS LIABLE FOR THE LOSS UNDER SECTION 23 OF THE NEGOTIABLE INSTRUMENTS LAW? HELD: The NBI does not declare or prove that the signatures appearing on the questioned checks are forgeries. who he left in the car while he transacted business in the bank. Aware that he had not prepared such a check for Jong’s signature. and convincing evidence. BANCO DE ORO VS. SAMSUNG CONSTRUCTION VS. A certain Roberto Gonzaga presented for payment FEBTC Check to the bank.Petitioner maintained a current account with respondent bank.It was undisputed that Respondent Eugene Ong maintained a current account with petitioner. Despite the lack of such clearance.Private Respondent Francisco Gozon went to the Caloocan City Branch of PNB with his friend Ernesto Santos. Kyu examined the balance of the bank account and discovered that a check amounting to P999. was also in the bank and when asked. One of the bank officers noticed Sempio. 1988) . who counterchecked the signature. The Court recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of forgery if it is guilty of negligence. Sometime in May 1976. therefore. the assistant accountant of Samsung Construction. The forgery may be so near like the genuine as to defy detection by the depositor himself. A bank is bound to know the signatures of its customers. PNB VS. Obviously. When the bank receives the deposit. was in the amount of P999. The appellate court failed to explain precisely how the Korean accountant was negligent or how more care and prudence on his part would have prevented the forgery. He reported the matter to Jong. it can recover the amount paid from the collecting bank. while the checks remained in the custody of the company’s accountant. making Golden Savings liable? HELD: No.00. National City Bank of New York that. These reports did not touch on the inherent qualities of the signatures which are indispensable in the determination of the existence of forgery. he took a check therefrom. p.3) . on which the depositor’s signature is a forgery. Kyu Yong Lee ("Kyu"). . It must be established by clear. hence. METROPOLITAN BANK VS. forgery cannot be presumed. FEBTC is liable for the loss since it authorized the discharge of the forged check. One factor which facilitates this fraud was the delay in the reconciliation of bank (PNB) statements with the NAWASA bank accounts. but payment in neglect of duty which the commercial law places upon him. and when a bank has been so deceived. (equity principle). 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . March 14. the bank teller forwarded the check with two other bank branch officers. The Court of Appeals invoked the ruling in PNB v. Metrobank exhibited extraordinary carelessness.A commercial bank cannot escape the liability of an endorser of a check and which may turn out to be a forged endorsement. and the result of his negligence must rest upon him. Samsung Construction filed before the RTC against respondent bank for violation of Section 23 of the Negotiable Instruments Law who ruled in favor of Samsung Construction while the CA reversed the RTC Decision and absolved FEBTC from any liability. it is clear that Golden Savings acted with due care and diligence and cannot be faulted for the withdrawals it allowed Gomez to make. 2002) .. this court held that if the drawee-bank discovers that the signature of the payee was forged after it has paid the amount of the check to the holder thereof. not of Gomez as payee or indorser.. 132250. a long time classmate and friend. We cannot sustain this "tar and feathering" resorted to without any basis. Gozon filed an action to recover the amount from the Bank which the court granted. Whenever any bank treats the signature at the back of the checks as endorsements and thus logically guarantees the same as such there can be no doubt said bank has considered the checks as negotiable. petition was denied.5) . If the paper comes to the drawee in the regular course of business. the treasury warrants were dishonored allegedly because of the forgery of the signatures of the drawers. this Court has succinctly emphasized that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements 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 endorsements (PNB vs. its Project Manager. The records likewise show that the petitioner failed to provide appropriate security measures over its own records thereby laying confidential records open to unauthorized persons. who then proceeded to the bank. Under the circumstances. it is a harsh rule which compels it to suffer although no one has suffered by its being deceived. Soriano Jr. Jan. positive. pronounces it to be valid and pays it. vs. considering the petitioner's gross negligence. formerly the Associated Banking Corporation. Santos was later on apprehended and admitted that he stole the check and encashed the same with the bank. it is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law.ISSUE: WON Metropolitan Bank can use forgery of the warrants as defense. Forgeries often deceive the eye of the most cautious experts. Forgery cannot be presumed. Jong learned of the encashment of the check. The supposed reason for the dishonor.

should suffer the loss and be made liable to herein Respondent Ong? HELD: YES. Upon learning that Eugenio has been using his credit cards. Sec. ISSUE: WON petitioner may put up the defense of forgery against Manila bank? HELD: NO. authorized. considering the fiduciary nature of their relationship. Respondents sent letters to both TRB and Security Bank thereafter demanding that the amounts covered by the checks be reimbursed or credited to their account. fraud or irregularity in the indorsement. TRADERS ROYAL BANK VS.” In the instant case. In the appellate court. 139130. and instituted a criminal action against her for estafa thru falsification. the rule does provide for an exception. and Banahaw Broadcasting Corporation (BBC) of their tax obligations for the taxable years 1978 to 1983. 27. was forged to make it appear that he had made an indorsement in favor of the forger. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . his credit cards and his checkbook with blank checks. petitioner fired Eugenio immediately. Intercontinental Broadcasting Corporation (IBC). ILLUSORIO VS. having compared the signature in the checks from the specimen signatures on record and satisfied themselves that it was petitioner’s. Eugenio was able to encash and deposit to her personal account about seventeen (17) checks drawn against the account of the petitioner at the respondent bank. it is the primary duty of petitioner to know that the check was duly indorsed by the original payee and. petitioner is precluded from setting up the forgery. the financial comptroller of respondents. must be reimbursed by Security Bank. Oct. Hence. Petitioner then requested the respondent bank to credit back and restore to its account the value of the checks which were wrongfully encashed but respondent bank refused. as the collecting bank. Petitioner’s reliance on Associated Bank vs. or to give a discharge therefor. (f) Or which adds a place of payment where no place of payment is specified. Tanlimco then immediately withdrew the money and absconded. It was also Eugenio who verified and reconciled the statements of said checking account. it was duty-bound to ascertain the indorser’s title to the check or the nature of his possession. In the case before us. Island Securities purchased two (2) Pacific Banking Corporation manager’s checks. due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account. Sec. In those cited cases.The BIR assessed plaintiffs Radio Philippines Network (RPN). however. The payee. Katherine E. namely: “unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. Petitioner. . petitioner filed the instant case. In our view.Any alteration which changes: (a) The date. No right to retain the instrument. Since TRB did not pay the rightful holder or other person or entity entitled to receive payment. 2002) – Petitioner was a depositor in good standing of respondent bank. ISSUE: WON Westmont Bank is precluded from setting up the forgery or want of authority and therefore. Petitioner contends that Manila Bank is liable for damages for its negligence in failing to detect the discrepant checks. CA to buttress his contention that respondent Manila ニト Bank as the collecting or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements is misplaced. the Manila Banking Corporation. both dated May 4. grossly erred in making payment by virtue of said forged signature. They have the obligation to treat their client’s account meticulously and with the highest degree of care. MATERIAL ALTERATION A material alteration is only a partial real defense because the holder in due course can enforce it according to its original tenor. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. it has no right to reimbursement. at the time the fraudulent transaction took place. were never delivered nor paid to the BIR but instead. where it pays the amount of the check to a third person who has forged the signature of the payee. True.Where a negotiable instrument is materially altered without the assent of all parties liable thereon. 1976. Since the signature of the payee. his address and history because he is a client. and that Manila Bank had no authority to pay the forged checks. To pay the assessed taxes. 125 But when an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration. Hence. except as against a party who has himself made. 1981. is more than that of a good father of a family. the fact of forgery was not in issue. Nov. Vera. 138510. In the present case. or to enforce payment thereof against any party. petitioner accepted and credited both checks to the account of Tanlimco. The diligence required of banks. As he was then running about 20 corporations. An action was filed where it was decided that the networks should be reimbursed for the amounts of the checks by petitioner bank and the latter in turn. (e) The medium or currency in which payment is to be made. the check is wholly inoperative. (b) The sum payable. It is under the obligation to treat the accounts of the depositors and clients with meticulous care. and it is their duty to protect in return their many clients and depositors who transact business with them. However. in the case at bar. The 3 manager’s checks. To pay Ong. 1980 and January 23. Taytay Branch. Before Ong could get hold of the checks. Court of Appeals and Philippine Bank of Commerce vs. Even though Ong’s specimen signature was on file. He adds that as a general rule a bank which has obtained possession of a check upon an unauthorized or forged endorsement of the payee’s signature and which collects the amount of the check from the drawee is liable for the proceeds thereof to the payee. either for principal or interest. The collecting bank is also made liable because it is privy to the depositor who negotiated the check. What constitutes a material alteration. petitioner entrusted to his secretary. Lourdes C. The theory of said rule is that the collecting bank’s possession of such check is wrongful. forged Ong’s signature and deposited these with petitioner. therefore. or any other change or addition which alters the Cesar Nickolai F. Petitioner TRB was remiss in its duty and obligation. the loss falls upon petitioner who cashed the check. both courts below uniformly found that Manila Bank’s personnel diligently performed their duties. whether such accounts consist only of a few hundred or millions of pesos. or assented to the alteration and subsequent indorsers. can be acquired through or under such signature. respondent Ong. Its only remedy is against the person to whom it paid the money. Private respondent also lodged a complaint for estafa thru falsification of commercial documents against Eugenio on the basis of petitioner’s statement that his signatures in the checks were forged. the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements. CA (GR No. issued in the name of Eugene Ong as payee. should therefore be allowed to recover from the collecting bank. where Tanlimco was also a depositor.through Island Securities Corporation. to Mrs. it is avoided. In the cited cases. 2002) . assuming there is forgery. RPN (GR No. the checks were presented for payment by unknown persons to Security Bank. was a depositor of petitioner bank. effect of. Soriano Jr. Petitioner TRB ought to have known that where checks drawn payable to the order of one person and is presented for payment by another and purports upon its face to have been duly indorsed by the payee of the check. . it is the exception that applies. respondent networks purchased from petitioner Traders Royal Bank (TRB) three manager’s checks which was turned over through Aida Nuñez. it was held that Traders Bank should be the only Bank liable. Citing the ruling in Associated Bank vs. 124 Alteration of instrument. (c) The time or place of payment: (d) The number or the relations of the parties. and was going out of the country a number of times. and must therefore suffer the consequences of its own negligence and disregard of established banking rules and procedures. the collecting banks were held to be negligent for failing to observe precautionary measures to detect the forgery. TRB Branch Manager. ISSUE: WON Traders Royal Bank should solely bare the loss for its negligence? HELD: YES. it is a rule that when a signature is forged or made without the authority of the person whose signature it purports to be. his friend Paciano Tanlimco got hold of them. Petitioner further contends that under Section 23 of the Negotiable Instruments Law a forged check is inoperative. it is in a better position to detect forgery. The bank knows him. Between the dates September 5. without verifying the ‘signature indorsements’ appearing at the back thereof. the fact of forgery was not established with certainty. If a bank pays a forged check. A bank is engaged in a business impressed with public interest and it is its duty to protect its many clients and depositors who transact business with it. it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. herein respondent. such signature should be deemed as inoperative and ineffectual. he may enforce payment thereof according to its original tenor. Further. The crossing of the check should have put petitioner on guard. 10. Court of Appeals. Eugenio. Banks are engaged in a business impressed with public interest. It should be further noted that one of the checks was a crossed check.

The case at the bench is unique in the sense that what was altered is the serial number of the check in question. Abante Marketing’s account since the latter had already withdrawn the amount of the check. PBCom credited Capitol’s account for the amount stated in the check. 107508. What prompted this action was the drawing of a check by Ford. Petitioner cleared the check as good and. An alteration is said to be material if it alters the effect of the instrument. and the drawer cannot be made liable until the instrument is dishonored. in payment of the purchase price of the subject lot. its alteration in this case had no material effect whatsoever on the integrity of the check. HELD: The insertion of the words "Agent. Granting that petitioner had never encashed the check. National Bank" which converts the bank from a mere drawee to a drawer and therefore changes its liability.Private respondents filed in the RTC a complaint for specific performance against petitioner herein. 1977. De Palanca). Soriano Jr. CA (GR No.00 (in cash) as earnest money. Jan. ISSUE: WON Ford’s cause of action has prescribed. which is ordinarily when the check is returned to the alleged drawer as a voucher with a statement of his account. Alteration that totally prevents recovery – in the case of Montinola vs. his failure to do so for more than ten (10) years undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. ENRIQUE MONTINOLA VS." After more than ten (10) years from the payment in party by cash and in part by check. is not an essential requisite for negotiability under Section 1 of the Negotiable Instruments Law. 1998) . 2001) . which contains a different payee. ISSUE: WON alleged sale of the subject property had been consummated? HELD: The Court finds no merit in petitioner’s arguments. PAPA VS. in turn. PNB above. The name of the drawer and the drawee were not altered. one of the checks issued by Ford was withdrawn from PCIB for alleged mistake in the amount to be paid. However. The intended payee was the same.000. Hence. when Citibank paid the face value of the check in the amount of P4. then proceeded to debit the latter’s account for the same amount.114. 1981 in the amount of P97. 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.41. even if it was negotiated to a holder in due course. CA (GR No. debit F. In turn. The sum of money due to the payee remained the same. deposited the questioned check in its savings account with said bank. which it deposited to PCIB as payment and was debited from their Citibank account. P40. cannot recover anymore from PCIB? HELD: The statute of limitations begins to run when the bank gives the depositor notice of the payment. he cannot be made to pay because there was no acceptance. It has. Petitioner's assertion that he never encashed the aforesaid check is not substantiated and is at odds with his statement in his answer that "he can no longer recall the transaction which is supposed to have happened 10 years ago. which shall be paid together with 6% interest thereon to Ford from the date when the original complaint was filed until said amount is fully paid. 1984.A check with serial number 7-3666-223-3. 1996) . Our laws on the matter provide that the action upon a written contract must be brought within ten years from the time the right of action accrues. Jan.746. 105188. sent the check to petitioner for clearing. The acceptance of a check implies an undertaking of due diligence in presenting it for payment. This was replaced with manager’s check by PCIB. It is an undisputed fact that respondents Valencia and Peñarroyo had given petitioner P5. 000. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . An action upon a check is ordinarily governed by the statutory period applicable to instruments in writing. in turn. The trial court decided in favor of Ford. PCIB was declared solely responsible for the loss of the proceeds of Citibank in the amount P4. It was later on found out that the payment wasn’t received by the Commissioner.effect of the instrument in any respect. 000. The aforementioned alteration did not change the relations between the parties. Phil. PBCom. Ford's cause of action to recover the amount was seasonably filed within the period provided by law. AU VALENCIA (GR NO. National Bank. Same rule applies if the alteration is in the payee’s name. On trial. Since the original complaint for the cause of action was filed on January 20.000. 12) – Provincial Treasurer (PT) of Misamis Oriental Ubaldo Laya issued the check in question as PT and not as agent of PNB when he signed it as drawer payable to the order of MV Ramos who later on sold the check to Montinola. a client of Capitol City Development Bank (Capitol).Ford Philippines filed actions to recover from the Concept PNB VS. he even waived the presentation of oral evidence. the presumption is that the check had been encashed. This check was drawn against Philippine National Bank (herein petitioner). PCIB claims that the action of Ford had prescribed because of its inability to seek judicial relief seasonably. a. The identity of the issuing government office or agency was not changed thereby and the amount of the check was not charged against the account of another government office or agency which had no liability under the check. Capitol could not. as collecting agent of Capitol. Meanwhile. Vda. PHILIPPINE COMMERCIAL INTERNATIONAL BANK VS. and if he from whom it is received sustains loss by want of such diligence.114. With respect to CHECKS.00 was issued by the Ministry of Education and Culture payable to F. or seven years thereafter. As a drawee. If the purpose of the serial number is merely to identify the issuing government office or agency. 1249 of the Civil Code. Abante Marketing. Hence. While it is true that the delivery of a check produces the effect of payment only when it is cashed. been held that if no presentment is made at Cesar Nickolai F. 1977 but the relief was sought only in 1983.00 in check. likewise. PNB (supra. constitutes a material alteration of the instrument without the consent of the parties liable thereon. dated August 7. it will be held to operate as actual payment of the debt or obligation for which it was given. since the holder in due course cannot enforce it according to its original tenor. Capitol deposited the same in its account with the Philippine Bank of Communications (PBCom) which. He maintained that what said respondent had actually paid was only the amount of P5. a material alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instrument Law. thereafter. considering that the alleged negligent act took place prior to December 19. Thus. 23. ニド drawee bank Citibank and collecting bank PCIB the value of several checks payable to the Commissioner of Internal Revenue as payment of percentage or manufacturer's sales taxes. alleging among others that the sale was never "consummated" as he did not encash the check (in the amount of P40. Phil. the reckoning time for the prescriptive period begins when the instrument was issued and the corresponding check was returned by the bank to its depositor. according to the NBI report. an item which. The Court of Appeals rendered a decision. it can readily be observed.41. 121413. Abante Marketing. affirming with modification the trial court's decision. barely six years had lapsed. the reason being that there was a “material alteration” of the check number. p. ISSUE: WON AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A MATERIAL ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW? HELD: No. Applying the same rule. and so discharges the instrument. F. is a material alteration. The drawee cannot be compelled to pay unless he accepts. b. In this petition. the check was severely mutilated and beneath Laya’s signature appears the words “Agent.650. 29. such holder cannot enforce the instrument against the bank as drawer. the rule is otherwise if the debtor is prejudiced by the creditor's unreasonable delay in presentment.00 in cash. the Bank cannot also be made to pay as a drawer considering that the change of liability was due to the alteration. the cause of action for the recovery of the proceeds of Citibank would normally be a month after December 19. pursuant to Art. Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals.746. 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 PR Penarroyo covering the property in question and to deliver the peaceful possession of the said property.00) given by respondents Valencia and Peñarroyo in payment of the full purchase price of the subject lot. the action of the depositor against his drawee bank commences to run from the time he is given notice of payment. petitioner PNB returned the check to PBCom and debited PBCom’s account for the amount covered by the check. EXTINCTIVE PRESCRIPTION The prescriptive period for the filing of a claim based no negotiable instruments is ten years from the time the cause of action accrued (Pay vs. in his capacity as administrator of the Testate Estate of Angela Butte. On the other hand. which were allegedly stolen by a syndicate and deposited in their own account. As already stated. 5. hence. April 25.

5. Signed blank piece of paper – (1) there must delivery of the instrument to another person. was forged by Maasim. 1. Example: If P a fan of Vilma Aunor. such as to deprive the maker of the quality of mind essential to making of a contract. 2012 as the date to collect more interest and thereafter indorsed it to B. Maasim fraudulently obtained possession of the check. With this knowledge. C. DURESS. M. payable to the order of Lazaro Melicor. E. hence threats to a feeble and old person might be duress to one while it may not be so to another. The former Bank denies any liability. Absent no. said respondents. P then endorsed it to A. or when he negotiates it in breach of faith. or where the acceptance of an instrument payable at a fixed period after sight is undated. he cannot enforce it against Vilma Aunor. When title defective. 19) . or knowledge of such facts that his action in taking the instrument amounted to bad faith. Aug. but as to him.000 on HSBC whom it had an account. Generally. Ante-dated and post-dated. 14 and illustration. 1922) .all. On the petition of HSBC. If B is a holder in due course. . and the instrument shall be payable accordingly. FORCE OR FEAR. as an endorser. FILLING UP BLANKS BEYOND AUTHORITY a. plaintiff is subject to personal defenses. About four (4) months after the check was charged to the account of the plaintiff. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. 3. hence no loan was made. If B was aware of the fraudulent insertion of the wrong date. and then personally endorsed and presented it to PNB where the amount of the check was placed to his credit. 23. but prays that. and on the next day. This is in harmony with Article 1249 of the Civil Code under which payment by way of check or other negotiable instrument is conditioned on its being cashed. (3) above. ANTEDATING OR POST-DATING that under the facts the checks were postdated and issued only as a loan to New Sikatuna Wood Industries. 1. or other unlawful means. even if A is a holder in due course. SIMPLE FRAUD.Where an instrument expressed to be payable at a fixed period after date is issued undated. or force and fear. Note ニナ b. to whom the check was made payable. and that his signature. or under such circumstances as amount to a fraud. duress. PNB endorsed the check to HSBC which paid it and charged the amount of the check to the account of the plaintiff. 2013. 4. had never received it. (2) the paper that was delivered was a blank paper containing the signature of the person who will deliver. b. Exception to the rule is when the law which declares the transaction or document issued in connection thereto is void against any party. such as lack of consideration between appellants and New Sikatuna Wood Industries. asked for her autograph and later on filled-up the paper to be a promissory note payable to his order. Considering that respondents Valencia and Peñarroyo had fulfilled their part of the contract of sale by delivering the payment of the purchase price.A holder in due course holds the instrument free from any defect of title of prior parties. Duress is a real defense if it is vicious or if it is what is referred to as duress amounting to forgery. To constitute duress. BREACH OF FAITH Sec. Generally. if a judgment should be rendered against it. it developed that Lazaro Melicor. For example. Such deposits were not made. PNB was made defendant.The instrument is not invalid for the reason only that it is ante-dated or post-dated. the person to whom it is negotiated must have had actual knowledge of the infirmity or defect. Sec. What constitutes notice of defect. PERSONAL DEFENSES 1. any holder may insert therein the true date of issue or acceptance. GREAT EASTERN LIFE INSURANCE CO.000 which was paid on the forged check. is a real defense which may be raised even against a holder in due course. provided this is not done for an illegal or fraudulent purpose. CA (supra. for the purpose of obtaining the note (or bill). the drawer cannot be held liable irrespective of loss or injury unless presentment is otherwise excused. therefore.The title of a person who negotiates an instrument is defective within the meaning of this Act when he obtained the instrument. which. and GELIC commenced this action to recover the P2. 56 Sec. p. ILLEGALITY OF CONSIDERATION. 4. 18657. and free from defenses available to prior parties among themselves.Being not a holder in due course. hence. and may enforce payment of the instrument for the full amount thereof against all parties liable thereon. Inc. . or for an illegal consideration. he can treat Dec. if a check was issued as payment for marijuana. illegality of the transaction that gave rise to a particular transaction is only a personal defense. or any signature thereto. payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged. the date so inserted is to be regarded as the true date. b. Example: On Jan. the instrument cannot be enforced against the one who delivered the instrument. which the bank refused to do. there must be an actual or threatened exercise or power possessed by the party benefited thereby. . In this example. 14 is only a personal defense. the plaintiff promptly made a demand upon the HSBC that it should be given credit for the amount of the forged check. the instrument is avoided as to him. the transaction involved is illegal but the same cannot be raised against a holder in due course. After having paid the check.When date may be inserted. If A inserted Dec. a trial was had and judgment was rendered against Cesar Nickolai F. and no objection was then made to the statement. by fraud. as the act of P converting the blank piece of paper into a negotiable instrument. it should have like judgment against the latter Bank which denies all liability to either party. 3. 12. See p. 1. Filling up in excess of the authority given as provided in Sec. like when a person who exerted the same is practically writing the note itself by holding the hands of another. would constitute fraud in factum. ABSENCE OR FAILURE OF CONSIDERATION STATE INVESTMENT HOUSE VS. Rights of holder in due course. 57 Example: Where the maximum allowed interest rate is 24% per annum.To constitutes notice of an infirmity in the instrument or defect in the title of the person negotiating the same. 2. HONGKONG & SHANGHAI BANKING CORP (HSBC) and PNB (GR No. In the ordinary course of business. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery. Soriano Jr. INTIMIDATION. Upon the issues being joined. 2012 as the true date. a. if and when deposits were made to back up the checks. had the right to compel petitioner to deliver to them the owner's certificate of title. 2. the three checks are without consideration. . and (3) there must be intention to convert it to a negotiable instrument. a. M issued a promissory note payable to the order of P for P10. The payee of a check would be a creditor under this provision and if its no-payment is caused by his negligence. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . INSERTION OF A WRONG DATE Sec. duress and/or intimidation exerted against a person gives the latter a personal defense and is available even if there is some form of consideration. ILLEGALITY 1. 55 Sec. The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course. as an endorser.000 with 12% within 6 months from date and the date is not specified in the instrument.8 for discussion on Sec. a check was ante-dated for six months in order to collect additional 12% without indicating it in the contract to hide the usurious nature of the transaction – in considered made for fraudulent purposes and may give rise to the personal defense of antedating against the one who made the ante-dating. . 2. (GELIC) VS. except when through the fault of the creditor. in turn. Duress is relative. without intention from the indicated maker. forged Melicor's signature.In May 1920. HSBC rendered a bank statement to GELIC showing that the amount of the check was charged to its account. the instrument is impaired. petitioner GELIC drew its check for P2. as discussed earlier. DURESS AND INTIMIDATION 1. who presented and deposited it to his private account in PNB. 13.

when a negotiable instrument has been dishonored by non-acceptance or non-payment. VII. or (c) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. the rules under Bills of Exchange are similar to Promissory Notes as regards Presentment for Payment and Dishonor. applied for credit accommodations with respondent Republic Bank . and he is able and willing to pay it there at maturity. April 20. and it had no legal right to pay it out to anyone except GELIC or its order. 143. such ability and willingness are equivalent to a tender of payment upon his part. the Bank filed a complaint for “sum of money” against petitioners. otherwise. presentment for payment is necessary in order to charge the drawer and indorsers. Petitioners’ admission of the genuineness and due execution of the promissory notes notwithstanding. when GELIC received its banks statement. and he never personally endorsed the check. Sec. and the legal presumption is that the bank would not honor the check without the genuine endorsement of Melicor. and he never paid to Melicor. The complaint listed ten causes of action. GELIC ordered HSBC to pay the P2. The unconditional promise attaches the moment the maker makes the instrument while the acceptor’s assent to the unconditional order attaches the moment he accepts the instrument. and his capacity and authority to draw the instrument. .Presentment for payment is not necessary in order to charge the person primarily liable on the instrument. ENFORCEMENT OF LIABILITY PARTIES PRIMARILY AND SECONDARILY LIABLE How to Enforce Primary Liability Sec. general manager . b. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. 126568. Here. that they had not received the value of said notes. The Supreme Court reversed the lower court's judgment. 2. Petitioners seek to avoid liability by claiming that Quirino and Eufemia Gonzales signed the promissory notes in blank. Presentment for acceptance must be made: (a) Where the bill is payable after sight. appear to be negotiable as they meet the requirements of Section 1 of the Negotiable Instruments Law. the genuineness of his signature. No further act is necessary in order for the liability to accrue. Sec. at the rate of 6% per annum. and the money was actually paid to Maasim and was never paid to Melicor. or authorized any one to endorse it for him. engages that he will pay it according to its tenor. notice of dishonor must be given to the drawer and to each indorser. CA (GR No. with interest thereon from 8 November 1920. GENERAL STEPS IN ENFORCING SECONDARY LIABILITY Promissory Notes a. They were to execute three more promissory notes in 1967. 70. Such being the case. together with the amount of its costs in the action. and unremitted proceeds on log exports from the Bank. and that. Cesar Nickolai F. petitioner Quirino Gonzales Logging Concessionaire (QGLC). engages that he will pay it according to the tenor of his acceptance and admits: (a) The existence of the drawer. through its proprietor. On January 27. P2. by Sec. The promissory notes. But except as herein otherwise provided. The Bank approved QGLC’s application. and that the credit line thereon was unnecessary in view of their money deposits. and placed the money to the credit of Maasim. In no other case is presentment for acceptance necessary in order to render any party to the bill liable. Its remedy is against Maasim to whom it paid the money. Here. upon the undisputed facts. That the PNB then endorsed the check and forwarded it to HSBC by whom it was paid. Effect of want of demand on principal debtor. Hence. 1977. to secure certain advances from the Bank in connection with QGLC’s exportation of logs. petitioners. and the testimony is undisputed that Melicor never did part with his title or endorse the check. and it would have been its duty to have promptly notified the bank of any forged signature. and any failure on its part would have released bank from any liability. In other words. The genuineness and due execution of the notes had been deemed admitted by petitioners. Their claim that they signed the notes in blank does not thus lie. 23 of the NIL is square in point.Except as herein otherwise provided. That is not this case. alleging non-payment of the balance of QGLC’s obligation. it had a right to assume that Melicor had personally endorsed the check. 89. payable at a special place. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . or his order. Presentment for payment must be made within the required period to the maker. Soriano Jr. by its terms. and the alleged endorsement was a forgery. Neither is GELIC estopped or bound by the bank statement. but if the instrument is. they raise want of consideration thereof. the plaintiff would have known of the forgery. When presentment for acceptance must be made. QUIRINO GONZALEZ LOGGING VS. B. the sixth to ninth of which were anchored on the promissory notes issued by petitioners allegedly to secure certain advances from the Bank in connection with the exportation of logs as reflected above. It bears noting that no sufficient evidence was adduced by petitioners to show otherwise. . It was its legal duty to know that Melicor's endorsement was genuine before cashing the check. where presentment for acceptance is necessary in order to fix the maturity of the instrument. and a corresponding judgment will be entered in favor of HSBC against PNB for the same amount. they having failed to deny the same under oath. Sec. GELIC authorized and directed HSBC to pay Melicor. and nonpayment of the promissory notes despite repeated demands. or his order.co-petitioner Quirino Gonzales. It did not authorize or direct the bank to pay the check to any other person than Melicor. the forgery was that of Melicor.GELIC and in favor HSBC and PNB from which GELIC appealed. A. What is only necessary later is for the holder to enforce such liability by presenting it for payment. Bills of Exchange PRESENTMENT FOR ACCEPTANCE Sec. and the costs of the action. and entered another in favor of GELIC and against HSBC for P2. This is not a case where the GELIC's own signature was forged to one of it checks.000. In such a case. and any drawer or indorser to whom such notice is not given is discharged Other than PRESENTMENT FOR ACCEPTANCE. In other words. who was the payee of the check. Notice of dishonor should be given. executed a promissory note in 1964 in favor of the Bank. 62 making it. who was a forger. 2003) In the expansion of its logging business. ISSUE: WON petitioners may interpose the defense of lack of consideration and that the Promissory Notes were signed in blank against the bank? HELD: NO. GELIC’s check was drawn on HSBC payable to the order of Melicor. In separate transactions. the bank would not have paid it. . ISSUE: WON plaintiff GELIC can recover? HELD: Yes. 60 Liability of maker. it must follow that HSBC has no defense to this action.000 to Melicor. such as the notes herein. and admits the existence of the payee and his then capacity to indorse Liability of acceptor. or in any other case. by accepting the instrument.The acceptor. It is admitted that the PNB cashed the check upon a forged signature. to fill in the blanks. 1. it is no defense that the promissory notes were signed in blank as Section 14 of the Negotiable Instruments Law concedes the prima facie authority of the ニニ person in possession of negotiable instruments. or (b) Where the bill expressly stipulates that it shall be presented for acceptance.The maker of a negotiable instrument. The notes were 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 their non-payment at maturity. PNB had no license or authority to pay the money to Maasim or anyone else upon a forge signature. . and (b) The existence of the payee and his then capacity to indorse.000. the notes are prima facie deemed to have been issued for consideration. however. In any case. To whom notice of dishonor must be given. which was made to it by the HSBC. The money was on deposit in HSBC. if promissory note is disonored by non-payment by the maker. and never received any of its proceeds.

34 SEC. how made. On what days presentment may be made. in the absence of any different agreement.Sec. 146 makes no such distinction. ii.Every negotiable instrument is payable at the time fixed therein without grace. under Sec. the instruments falling due or becoming payable on Saturday are to be presented for payment on the next succeeding business day except that instruments payable on demand may. . 147 Presentment where time is insufficient – see When Time is Insufficient. the holder then would be required to treat the bill as dishonored or lose his rights against prior parties (Beutel’s Brannan’s. the drawee would be required to comply on pain of being held as an acceptor. 2. and. . presentment may be made before 12:00 noon on that day. 137. 137: The bill is at all times the property of the holder. presentment must be made to them all unless one has authority to accept or refuse acceptance for all. Presentment where time is insufficient. If payable on demand – at the option of the holder.An unconditional promise in writing to accept a bill before it is drawn is deemed an actual acceptance in favor of every person who. SEC.Where a drawee to whom a bill is delivered for acceptance destroys the same. Sec. Cesar Nickolai F. 146 Sec. by and so forth. to return the bill accepted or non-accepted to the holder. but return within 24 hours unaccepted would not be a dishonor. When Deemed Accepted Sec. Time for Presentment other means than the payment of money. . Sec. with the exercise of reasonable diligence.A bill may be accepted before it has been signed by the drawer. . However. iii.The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer. 135. or while otherwise incomplete. be presented for payment before twelve o'clock noon on Saturday when that entire day is not a holiday What constitutes a sufficient presentment.The drawee is allowed twenty-four hours after presentment in which to decide whether or not he will accept the bill. may treat the bill as dishonored. b. the acceptance. the acceptance stated therein will not bind the acceptor to the subsequent holder if the said holder is not aware thereof. if the drawee after returning the bill still refused to act after the expiration of the time allowed. . the holder may require the acceptance on the bill itself. is entitled to have the bill accepted as of the date of the first presentment. When Time is Insufficient Sec. Sec. the delay caused by presenting the bill for acceptance before presenting it for payment is excused and does not discharge the drawers and indorsers. to the drawee or some person authorized to accept or refuse acceptance on his behalf. p. if given. . (3) It must not express that the drawee will perform his promise by any ニヌ Holder entitled to acceptance on face of bill. before 12:00 noon on a Saturday when the entire day is not a holiday. he will be deemed to have accepted the same. Acceptance may be made on the instrument itself or in a separate instrument. 136. 146 is different from Sec. The Rule under Sec. the delay for the presentment for payment is excused and does not discharge the drawers and indorsers. 136 vs. 147. p. .Presentment for acceptance must be made by or on behalf of the holder at a reasonable hour. or after it has been dishonored by a previous refusal to accept. 85 in that when the instrument is payable on a Saturday which is not a holiday. When Saturday is not otherwise a holiday. on a business day and before the bill is overdue. Soriano Jr. Presentment. the holder. 85 Sec. the following rules should be followed: 1.Where the holder of a bill drawn payable elsewhere than at the place of business or the residence of the drawee has no time. Future Bills Sec. iv. Proof of Acceptance Sec. this rule is applicable in Sec. otherwise. 145 How Made. 3. If the day fixed falls on a Sunday or holiday – next succeeding business day. or when it is overdue. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. Time to Accept Sec. presentment may be made to him or to his trustee or assignee. How made? i. 138. Rule When Incomplete Bill is Accepted Sec. dates as of the day of presentation. a. Balance of his account is in the same as order”. Promise to accept. . at the option of the holder. upon the faith thereof. 133. 134 (b) Where the drawee is dead. Sec. on the faith thereof. 134: If acceptance is made by a telegram. Acceptance of incomplete bill. the drawee can still accept by notification within 24 hours. or refuses within twenty-four hours after such delivery or within such other period as the holder may allow. confirming the amount in the instrument. how made. Sec. and is required to be accepted in Davao City. does not necessarily signify assent to the order. 136 Time allowed drawee to accept. 1248). In Summary. . EXAMPLE: When the instrument is payable in Pasay City two days after acceptance. 85 if the instrument is payable on demand. or by non-payment. to present the bill for acceptance before presenting it for payment on the day that it falls due. 133 Sec. receives the bill for value. Time of maturity. – see PRESENTMENT FOR PAYMENT. . The acceptance must be (1) in writing and (2) signed by the drawee. it does not bind the acceptor except in favor of a person to whom it is shown and who. it is dispensable and the instrument maybe directly presented for payment. When the day of maturity falls upon Sunday or a holiday. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . presentment may be made to his personal representative. it may be treated as dishonored. But when a bill payable after sight is dishonored by nonacceptance and the drawee subsequently accepts it. 143 provides three instances when presentment for acceptance is required.The holder of a bill presenting the same for acceptance may require that the acceptance be written on the bill. If the drawee merely stated that “I return the drawer’s order. otherwise.A bill may be presented for acceptance on any day on which negotiable instruments may be presented for payment under the provisions of Sections seventy-two and eighty-five of this Act. v. ACCEPTANCE Sec.Where an acceptance is written on a paper other than the bill itself. If the holder should demand return before the 24 hours provided by Sec. presentment for acceptance may be made before twelve o'clock noon on that day. and he is entitled to have it if he wants it. Acceptance. 72 (c) Where the drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors. receives the bill for value. Fixed day for presentment for acceptance – day fixed. Acceptance by separate instrument. . Liability of drawee returning or destroying bill. and (a) Where a bill is addressed to two or more drawees who are not partners. and consequently. 132. in which case presentment may be made to him only. when equivalent to acceptance. if such request is refused. its acceptance.

Presentment where instrument is not payable on demand and where payable on demand. by its terms. However. an acceptance to pay part only of the amount for which the bill is drawn. Requisites for Sufficiency Sec. Where presentment is excused. 73 (a) By the holder.Presentment for acceptance is excused and a bill may be treated as dishonored by non-acceptance in either of the following cases: (a) Where the drawee is dead. Where it is ニネ Place of Presentment Place of presentment. . (b) At a reasonable hour on a business day. 70 (a) Where a place of payment is specified in the instrument and it is there presented. that is to say. or is a fictitious person or a person not having capacity to contract by bill.Where the instrument is not payable on demand.Where the instrument is payable at a bank. 187 SEC. . effect of. (b) Where. payable on demand. presentment for payment must be made during banking hours. the time of payment is determined by excluding the day from which the time is to begin to run. be presented for payment before twelve o'clock noon on Saturday when that entire day is not a holiday. Effect of want of demand on principal debtor. express his dissent to the holder or he will be deemed to have assented thereto. Rule in computing time Sec.A bill of itself does not operate as an assignment of the funds in the hands of the drawee available for the payment thereof. or if presented at his last known place of business or residence. unless and until it accepts or certifies the check. (d) Qualified as to time. . unless the person to make payment has no funds there to meet it at any time during the day. Certification of check. 140 Sec. 139 Sec. . Sec. how computed. (d) In any other case if presented to the person to make payment wherever he can be found.Where a check is certified by the bank on which it is drawn. presentment must be made on the day it falls due. after sight. 148.An acceptance is qualified which is: (a) Conditional. c. one or more of the drawees but not of all. Time of maturity. and the bank is not liable to the holder. 75 (3) When the drawer or an indorser receives notice of a qualified acceptance. . the instruments falling due or becoming payable on Saturday are to be presented for payment on the next succeeding business day except that instruments payable on demand may. a. A qualified acceptance in express terms varies the effect of the bill as drawn What constitutes a general acceptance. the drawer and indorsers are discharged from liability on the bill unless they have expressly or impliedly authorized the holder to take a qualified acceptance. Sec. 87 WHEN PRESENTMENT EXCUSED Sec. or after that happening of a specified event. (c) Local. that is to say. except that in the case of a bill of exchange. 71. Nevertheless. A general acceptance assents without qualification to the order of the drawer. time for presentment for acceptance ii. but if the instrument is.Every negotiable instrument is payable at the time fixed therein without grace.Presentment for payment. which makes payment by the acceptor dependent on the fulfillment of a condition therein stated. at the option of the holder. after the exercise of reasonable diligence. Rule if payable AT A BANK (2) Where a qualified acceptance is taken. (c) At a proper place as herein defined. and by including the date of payment. – (1) The holder may refuse to take a qualified acceptance and if he does not obtain an unqualified acceptance. See p. it is equivalent to an order to the bank to pay the same for the account of the principal debtor thereon. presentment must be made within a reasonable time after its issue. . acceptance has been refused on some other ground. 141 Sec. iii. 34.When the instrument is payable at a fixed period after date. . (b) Where no place of payment is specified but the address of the person to make payment is given in the instrument and it is there presented. . 127 Sec. presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof. (d) To the person primarily liable on the instrument. within a reasonable time. What constitutes sufficient presentment. in which case presentment at any hour before the bank is closed on that day is sufficient Rule where instrument payable at bank. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. (e) The acceptance of some. presentment cannot be made. . the order must specify the particular bank. . Rule in determining MATURITY Sec. i. Soriano Jr. . 127 & 87: A check of itself does not operate as assignment of any part of the funds to the credit of the drawer with the bank. Date of Presentment Sec. Kinds of Acceptance Sec. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . 86. PRESENTMENT FOR PAYMENT In presentment for payment. Bill not an assignment of funds in hands of drawee. .An acceptance to pay at a particular place is a general acceptance unless it expressly states that the bill is to be paid there only and not elsewhere Qualified acceptance. an acceptance to pay only at a particular place. or subsequently assent thereto. Time. 85. Rights of parties as to qualified acceptance. Presentment where instrument payable at bank. although presentment has been irregular. Sec. the statement in the 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. .Presentment for payment is made at the proper place: Sec. or by some person authorized to receive payment on his behalf. and the drawee is not liable on the bill unless and until he accepts the same.Presentment for payment is not necessary in order to charge the person primarily liable on the instrument. (c) Where. or if he is absent or inaccessible. (c) Where no place of payment is specified and no address is given and the instrument is presented at the usual place of business or residence of the person to make payment. 72. . he may treat the bill as dishonored by non-acceptance. the holder exhibits the instrument to the maker or the acceptor to demand payment of the amount reflected in the negotiable instrument or whatever balance that is due. must be made: (HRPT) b. that is to say. (b) Partial.An acceptance is either (1) general or (2) qualified. When the day of maturity falls upon Sunday or a holiday.vi. even if there is no assignment of funds. to be sufficient. to any person found at the place where the presentment is made. or has absconded. he must. (segregation and emphasis supplied) Sec.Where the instrument is made payable at a bank. the certification is equivalent to an acceptance. 142 Kinds of acceptance. Cesar Nickolai F.

express or implied. When the cause of delay ceases to operate. However. Despite receipt of the notice of dishonor. Hence. the law does not require a maker to maintain funds in his bank account for only 90 days. presentment for payment is necessary in order to charge the drawer and indorsers If the holder will not present the instrument for payment at such special place provided under Sec. issued a note payable at #8 Ayala Ave. Petitioner. . petitioner prevailed upon LPI not to deposit the checks and promised to replace them within 30 days. he can be found. Duty of holder where bill not accepted. primarily liable on the instrument and no place of payment is specified. e. . After the checks were dishonored. bank. presentment for payment may be made to any one of them. Only the presumption of knowledge of insufficiency of funds was lost. Even if it would be more convenient for D to present the note for payment at A’s residence. cannot be made.Where a bill is duly presented for acceptance and is not accepted within the prescribed time. 2001) . petitioner failed to make arrangements for payment within five (5) banking days so he was charged with violation of BP 22. February 2. a check becomes stale after more than six (6) months. (b) Where the drawee is a fictitious person. Upon his failure to do so. Gutierrez). sufficient evidence that petitioner had knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the checks. where the holder can present a note. the person presenting it must treat the bill as dishonored by non-acceptance or he loses the right of recourse against the drawer and indorsers. iv. ISSUE: What constitutes REASONABLE TIME for checks? HELD: Contrary to petitioner’s assertions. he loses his right to the payment of interest. or 180 days. and where a legal offer to pay can be made (Hutchinson vs.(a) Where. and if. 77. but such knowledge could still be proven by direct or circumstantial evidence. 82 When presentment not required to charge the indorser. with the exercise of reasonable diligence. Soriano Jr. and when it is paid. .Where the (1) persons primarily liable on the instrument are liable as partners and (2) no place of payment is specified.The instrument must be exhibited to the person from whom payment is demanded. Presentment to persons liable as partners. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. Hence said checks cannot be considered stale. the parties agreed to apply the checks to the payment of petitioner’s unremitted. The agents would get the purchase orders of customers and forward them to LPI. And despite petitioner’s insistent plea of innocence. 81 Sec. However. presentment must be made with reasonable diligence. Inc. .When a bill is Cesar Nickolai F. Thus. not partners. or (b) When presentment for acceptance is excused and the bill is not accepted." By current banking practice. 80 Sec. There is. “REASONABLE TIME” LUIS WONG VS. But except as herein otherwise provided. a designation of a town or city is not sufficient. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . 151 ニノ When dishonored by nonacceptance. where A also resides. 70. and he is able and willing to pay it there at maturity. after the exercise of reasonable diligence. LPI refused to accept the checks as guarantees. to C who indorsed it to D. Rights of holder where bill not accepted. following company policy. De Victoria vs. petitioner was duly notified of such fact but failed to make arrangements for full payment within five (5) banking days thereof. . counting room. we find no error in the respondent court’s affirmance of his conviction by the trial court for violations of the Bouncing Checks Law. then give them to agents to present to customers. or place of business. Presentment to Partners Sec. ii. presentment. LPI would ship the calendars directly to the customers. the agents would come around to collect the payments. presentment for payment must be made to his personal representative. such ability and willingness are equivalent to a tender of payment upon his part. partners. . Instrument must be exhibited. . who resides in Quezon City. Presentment to Joint Debtors Sec. presentment for payment is excused (Vda. . Under Section 186 of the Negotiable Instruments Law. As found by the trial court. LPI would print sample calendars. store. (c) By waiver of presentment. 149 Sec. Presentment is not required in order to charge an indorser where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented. since there is a specified place for presentment for payment. Private respondent herein deposited the checks 157 days after the date of the check. iii. 150 payment is excused: Sec.A bill is dishonored by non-acceptance: (a) When it is duly presented for acceptance and such an acceptance as is prescribed by this Act is refused or cannot be obtained. or negligence. if such there be. Presentment where principal debtor is dead. Wong issued six (6) postdated checks initially intended to guarantee the calendar orders of customers who failed to issue post-dated checks. Sec.Delay in making presentment for payment is excused when the delay is caused by circumstances beyond the control of the holder and not imputable to his default. as required by this Act. petitioner’s customers were required to issue post-dated checks before LPI would accept their purchase orders. on record.Where there are several persons. "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. 78. Presentment for payment is not required in order to charge the drawer where he has no right to expect or require that the drawee or acceptor will pay the instrument. . Sec. After printing the calendars. where the maker can deposit or provide funds to meet it. Note that the instrument may be presented for payment to ANY partner only if there is no place of payment specified. Makati City. however. even though there has been a dissolution of the firm. petitioner reneged on his promise.Petitioner Wong was an agent of Limtong Press. he cannot do so. Rule in case Party Primarily Liable is Dead Sec. payable at a special place.R. When presentment for payment is excused. Before the maturity of the checks. How Presentment Made Sec. DISHONOR If DISHONORED BY NON-ACCEPTANCE Sec. PLACE OF PAYMENT means a house.Where the person primarily liable on the instrument is dead and no place of payment is specified. No.Presentment for Sec.. (LPI). which he duly acknowledged in a confirmation receipt he co-signed with his wife. EXAMPLE: A and B. 79 When Presentment is NOT NECESSARY or EXCUSED When presentment not required to charge the drawer. d. presentment must be made to them all. misconduct. 74. Thereafter. 79: When the drawer does not have sufficient funds with the drawee so as to require or expect it to pay the check. must be delivered up to the party paying it. CA (G. LPI was constrained to deposit the said checks. had a history of unremitted collections. LPI deposited the checks with Rizal Commercial Banking Corporation (RCBC) which were returned because the account was closed. Instead. Crutcher). 76. private respondent did not deposit the checks because of the reassurance of petitioner that he would issue new checks. 117857. When delay in making presentment is excused. present holder. Presentment to the Party Primarily Liable i. Presentment to joint debtors.

2031) provides that. and not from the dishonoring of the check alone. Petitioner and Pedro Lopez signed as endorsers of this check. brothers Renato Fernandez and Santiago Renato (officers of Sanshell Corporation) approached Rufino Yao. or (b) When presentment for acceptance is excused and the bill is not accepted. ISSUE: WON PNB has the right to apply a deposit to the debt of the depositor to the bank? HELD: No. petition was granted. L-19051.Nyco Sales has discounting privileges with BA Finance. In view of this. Hence. According to this. as long as the credit remains outstanding. to establish said liability by proving that notice was given to the defendant within the time. April 4. a bank has a right to set off the deposits in its hands for the payment of any indebtedness to it on the part of the depositor. The right of the payee to recover from the drawer based on the latter’s contractual obligation that is separate from the negotiable instrument is still binding. When dishonored by nonacceptance. 13. Thus. The bank on learning of the dishonor of the treasury warrant sent notices by mail to Gullas which could not delivered to him because he is not in Manila. had no funds therein. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . . or by or on behalf of any party to the instrument who might Cesar Nickolai F. Sec. to pay the plaintiff. and without waiting for any action by Gullas. Sanshell issued a post-dated (November 17. The drawer may no longer be secondarily liable but his contractual liability is preserved (Producers Bank of the Philippines vs. who seeks to enforce the defendant's liability upon these checks as indorser. There is no question then that the assignor-vendor is indeed liable for the invalidity of whatever he assigned to the assignee-vendee. but the latter refused to pay on the ground that the drawer. 151 b. he will pay the amount to the holder. The notice of dishonor is in order to charge all indorser and that the right of action against him does not accrue until the notice is given. the indorsers are not liable unless they are notified that the document was dishonored. This check was indorsed by the limited partners of La Insular. Chaves. this petition. Thereafter.000. Aug. Accompanying the exchange of checks was a Deed of Assignment executed by Nyco (assignor) in favor of BA Finance (assignee) with the conformity of Sanshell. Considering now the facts of the case at bar. and in the manner. NO. Gullas has an outstanding balance of P509 with PNB and had issued certain checks before he left his residence for Manila. NOV. This particular check merely evidenced the credit which was actually assigned to BA Finance. c. 89. when a negotiable instrument is dishonored for non-acceptance or non-payment. Sec. If these facts are not proven. 1991) . the assignorvendor should be held answerable therefor.A bill is dishonored by non-acceptance: (a) When it is duly presented for acceptance and such an acceptance as is prescribed by this Act is refused or cannot be obtained.The Treasurer of the United States issued a warrant in the amount of $361 payable to Francisco Bacos. Asia Banking Corporation. Inc. 1935) . notice thereof must be given to the drawer and each of the indorsers. an immediate right of recourse against the drawer and indorsers accrues to the holder and no presentment for payment is necessary. Nyco. As a result of this. required by the law that the checks in question had been dishonored. if so stipulated. notice of dishonor was received and the unpaid balance of the US Treasury was paid by him. Rights of holder where bill not accepted.Salvador Chaves drew two checks against PNB in favor of La Insular. the designation is immaterial as it could be any other check. the checks issued by him before he left for Manila were not paid because of lack of funds standing to his credit in the bank. This is because the cause of action stems from the breach of the warranties embodied in the Deed of Assignment. In 1978. Soriano Jr. The assignor-vendor warrants both the credit itself (its existence and legality) and the person of the debtor (his solvency). a. the bank applied the outstanding balances of Gullas’ current account with the PNB for the payment of the check. an immediate right of recourse against the drawer and indorsers accrues to the holder and no presentment for payment is necessary Effect of Absence of Notice on Separate Contract Failure to give notice of dishonor will not necessarily result in absence of liability on the part of the drawer.When a bill is dishonored by nonacceptance. 1978. Then. Nyco Sales shall continue to be liable to BA Finance as its assignor. Sanshell then made use of and/or negotiated the check.The instrument is dishonored by non-payment when: (a) It is duly presented for payment and payment is refused or cannot be obtained. The lower court sentenced the defendant. JAVIER (GR No. Subsequently the treasurer warrant was dishonored by the Insular Treasurer.) NYCO SALES CORPORATION VS. Hence. 83 When instrument considered dishonored When instrument dishonored by non-payment. The NIL contains provisions establishing the liability of a general indorser and giving the procedure for a notice of dishonor. Nyco agreed and so on November 15. 71694. On the return of Gullas. Section 89 of the Negotiable Instruments Law (Act No. 16. There is no proof in the record tending to show that plaintiff gave any notice whatsoever to the defendant that the checks in question had been dishonored. during and after the dishonor. Subsequently these checks were presented by the plaintiff to the Philippine National Bank for payment. by drawing checks on the plaintiff. In the case at bar.dishonored by nonacceptance. and those who are not notified shall be discharged from liability. To whom notice of dishonor must be given. . As a general rule. BA Finance made repeated demands to Nyco and Sanshell but neither of the two settled the obligation. 149 NOTICE OF DISHONOR Sec. BA Finance issued a check payable to Nyco which endorsed it in favor of Sanshell. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. as indorser. or ニハ Sec. The relationship between Nyco and BA Finance is one of assignor-assignee. and any drawer or indorser to whom such notice is not given is discharged ASIA BANKING VS. The general indorser engages that if he be dishonored and the necessary proceedings of dishonor be duly taken. BA Finance notified Sanshell. and there it has not established its cause of action. though this right to set off exist. 1923) . Thereupon it was cashed by PNB. when a negotiable instrument has been dishonored by non-acceptance or non-payment. hence. if there be any breach of the above warranties. ISSUE: WON Nyco Sales is liable to pay BA Finance? HELD: Yes. The amount represented by both checks was used by Chaves after they were deposited in the plaintiff bank. the remedy was not properly enforced because prior to the mailing of the notice of dishonor. (b) Presentment is excused and the instrument is overdue and unpaid. The dishonor of an assigned check simply stresses its liability and the failure to give a notice of dishonor will not discharge it from such liability. More importantly. . BA Finance sued Nyco who averred that it received no notice of dishonor when the second check was dishonored. the bank made use of the money standing in his account to make good for the treasury warrant. it will be incumbent upon the plaintiff. Sanshell substituted the BPI check with a Security Bank and Trust Company check. ISSUE: WON defendant’s liability can be enforced? HELD: No. Excelsa Industries. notice of dishonor must be given to the drawer and to each indorser. At that time. It is only what is represented by the said checks that Nyco is being asked to pay. the plaintiff has not sufficiently established the defendant's liability. BA FINANCE CORPORATION (GR No. Sec 90 Who should give notice By whom given. Following the discounting process agreed upon. Nyco’s pretension that it had not been notified of the fact of dishonor is belied not only by the formal demand letter issued by BA Finance but also by the fact that Nyco and Sanshell had frequent contacts before. it is beyond dispute that Nyco executed a deed of assignment in favor of BA Finance with Sanshell Corporation as the debtor-obligor.The notice may be given by or on behalf of the holder. L-43191. president and general manager of Nyco Sales Corporation (Nyco) for a credit accommodation in order for the brothers to make use of Nyco’s discounting privileges. as in the case at bar. GULLAS VS PNB (GR. . under the general principle of the law of procedure. Consequently. thru its president Rufino Yao. BA Finance is actually enforcing said deed and the check covered thereby is merely an incidental or collateral matter. . This check again bounced. The check bounced.Except as herein otherwise provided. 1978) BPI check to Nyco in the amount of P60. except where this act provides otherwise. endorsed the check in favor of BA Finance. and then deposited by Chaves in his current account with the plaintiff.

it must be deposited in the post office in time to go by mail the day following the day of dishonor. After dishonor by the drawee bank. it inures to the benefit of all subsequent holders and all prior parties who have a right of recourse against the party to whom it is given. B and C: C may not notify P. 107 Sec. the check in question was issued on September 13. 109 Sec. No. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang .Where a party has added an address to his signature. notice may be sent to the place where he is so sojourning. if it had been deposited in the post office within the time specified in the last subdivision. Thus. Whom affected by waiver. 1960. or (c) If he is sojourning in another place. (b) If given at his residence. the sender is deemed to have given due notice. after the receipt of such notice.Where notice of dishonor is duly addressed and deposited in the post office. THE HONORABLE COURT OF APPEALS. Sec. in one month time. whether such presentment and notice be totally omitted or merely delayed. who in turn may notify B. C to D. DY HIAN TAT. . and who. 93 EXAMPLE: If M issued a note to P or his order. A to B. Accordingly. ISSUE: WON presentment for payment and notice of dishonor of the questioned check were made within reasonable time? HELD: No. it must be deposited in the post office in time to reach him in usual course on the day following. Additionally. presentment must be made on the day it falls due.Notice of dishonor may be waived either before the time of giving notice has arrived or after the omission to give due notice. In the instant case. the person renounces the benefit of the act or matter in his favor. but. L36549.Notice is deemed 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 post-office department. When Notice Not Required. A and B liable because notice by an indorser inures to the benefit of the holder. a formal notice of dishonor was made by the petitioner through a letter dated April 27. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. . 103 Where parties reside in same place. Where parties reside in different places. 1988] . if it usually takes 3 days. . 1964. (b) personal service: within the same time that the mail will normally reach the destination. presentment must be made within a reasonable time after issue. it must be given before the usual hours of rest on the day following. upon taking it up. The petitioner likewise failed to show any justification for the unreasonable delay.Respondent Dy Hian Tat. notwithstanding any miscarriage in the mails. A and B because the notice by the holder inures to the benefit of all prior parties who have the right of recourse against the party to whom it is given. "Reasonable time" has been defined as so much time as is necessary under the circumstances for a reasonable prudent and diligent man to do. Effect where notice is given by party entitled thereto.Where a party receives notice of dishonor. but if he has not given such address. . or (b) If he lives in one place and has his place of business in another.R. A. Time and Place to give notice Sec. and dishonored on the same date. if D notified only C but C. . D may notify C.Where the person giving and the person to receive notice reside in the same place.Notice of dishonor may be given by any agent either in his own name or in the name of any party entitled to given notice. Under these circumstances. notice of dishonor must be sent to that address. . by the next mail thereafter. the drawer is liable. it must be given before the close of business hours on the day following. A and B.Where the person giving and the person to receive notice reside in different places. But where the notice is actually received by the party within the time specified in this Act. by waiver of notice. then the person may give notice personally within such 3 days. except that in the case of a bill of exchange. Negotiable Instruments Law). Deposit in post office. the notice must be given within the following times: (a) If sent by mail. Excused or Dispensed With Sec. (b) If given otherwise than through the post office. 2013.Where the waiver is embodied in the instrument itself. what constitutes. If D gave notice of dishonor to P. SIY CHEE and GAW SUY AN [G. it inures to the benefit of the holder and all parties subsequent to the party to whom notice is given. P need not be notified by A and B because the notice given by C inures to the benefit of all parties subsequent to the party to whom notice is given. . would have a right to reimbursement from the party to whom the notice is given. notified P. Effect of notice on behalf of holder. in turn. whether that party be his principal or not. 91 Sec. having a regard for the rights and possibility of loss. then within the time that notice would have been received in due course of mail. respondents delivered to Far East Realty Investment a China Bank Check drawn by Dy Hian Tat issued on September 13. 110 Waiver of notice. Siy Chee and Gaw Suy An sought the extension of an accommodation loan from petitioner Far East Realty Investment which the former will use to further their business. who indorsed it to A. B may notify A and P and A may notify P. 109 is the benefit of the notice. it binds him only By waiver. Where notice must be sent. and signed by them at the back of said check. notice may be sent to either place. 104 (a) If given at the place of business of the person to receive notice. (c) If sent by mail. Where the instrument is not payable on demand. a drawer or indorser is not discharged from liability by failure Cesar Nickolai F. vs.be compelled to pay it to the holder. the same time for giving notice to antecedent parties that the holder has after the dishonor. . 108 When sender deemed to have given due notice. where it is written above the signature of an indorser. 1964. it is binding upon all parties. Notice to subsequent party.. (Section 71. Sec. The loan was actually extended but when the check was presented for payment on March 5. conveniently. Notice given by agent. 1960. 106 Sec. A and P. what the contract or duty requires should be done. jointly and severally. the petitioner undoubtedly failed to exercise prudence and diligence on what he ought to do as required by law. D can already hold P. . Petitioner contends that presentment for payment and notice of dishonor are not necessary as when funds are insufficient to meet a check. e.Where notice is given by or on behalf of the holder. it will be sufficient. Where it is payable on demand. . with the assurance that after one month from September 13. 1960. 104: If a note is dishonored on March 1. 2013: (a) by mail: the notice must be deposited with the appropriate address duly stamped in such a way that it would be part of the mail that would depart on March 2. or if there be no mail at a convenient hour on last day. to the other party. Notice may be given as soon as instrument has been dishonored and unless delay is excused must be given within the time fixed by law Sec. if any. d. Respondents promised to pay. and M dishonors the instrument. he has. but was presented to the drawee bank only on March 5. it was dishonored—the account on which it is drawn has long been closed. presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof. Soriano Jr. To insure payment. 105 Sec. and the waiver may be expressed or implied. time of. then the notice must be sent as follows: ニバ (a) Either to the post-office nearest to his place of residence or to the post-office where he is accustomed to receive his letters. which in the case of Sec. On the other hand. B to C. notice must be given within the following times: Sec. the said check would be redeemed by respondents by paying cash or the said check can be presented for payment on or immediately after one month. Where notice is given by or on behalf of a party entitled to give notice. October 5. The trial court held in favor of petitioner but this was reversed by the CA by ruling that the said check wasn’t presented within reasonable time and after its issuance. present holder. 1968. FAR EAST REALTY INVESTMENT INC. 92 Sec. though not sent in accordance with the requirement of this section.

Where due notice of dishonor by non-acceptance has been given. Sec. It may be given either (1) before the time of giving of notice. 114 (c): When the drawer is the agent of the drawee. documents and checks necessary to secure the discounting line. and the indorser was aware of that fact at the time he indorsed the instrument. If the waiver is found on an indorsement only. notice of dishonor is not required if the drawer has no right to expect or require the bank to honor the check. the liability of Great Asian beyond that of a mere endorser of a negotiable instrument. the waiver is binding only on P. When notice need not be given to drawer. to secure a loan from herein Respondent (Bancasia) in an amount not to exceed P1M and also authorized Arsenio to sign all papers. solidarily. 105774. Great Asian President. the board of directors of Great Asian approved a resolution authorizing its Treasurer and GM. However. In Feb. Waiver of protest. notice of a subsequent dishonor by non-payment is not necessary unless in the meantime the instrument has been accepted. by agreement of the parties. and that obligation is to pay Bancasia the full value of the checks. Thus. When protest need not be made. Such is indispensable only in a FOREIGN BILL OF EXCHANGE but may also be the subject of a waiver. is deemed to be a waiver not only of a formal protest but also of presentment and notice of dishonor. when must be made. whether in the case of a foreign bill of exchange or other negotiable instrument. misconduct. it may be protested for non-acceptance or non-payment. documents or promissory notes necessary to secure the loan. 113 Delay in giving notice.Delay in giving notice of dishonor is excused when the delay is caused by circumstances beyond the control of the holder and not imputable to his default. “payment stopped”. 114 (e): When the drawer directed or ordered the drawee not to pay. but protest is not required except in the case of foreign bills of exchange. . and the former dishonors the bill. 103 Sec. Where any negotiable instrument has been dishonored. 2013. PROTEST NOTICE OF DISHONOR Apply to inland bills PROTEST Required in foreign bills. PROTEST is a formal statement in writing made by a notary public at the instance of the holder declaring that the instrument has been presented for payment or for acceptance but the same was dishonored. as the case may be. 114. P10. notice must be given with reasonable diligence. GREAT ASIAN SALES CENTER CORPORATION and TAN CHONG LIN VS. P indorsed the same to A. . ISSUE: WON Petitioner’s liability remains despite absence of notice of dishonor from Respondent. then A to B. Soriano Jr. — Notice of dishonor is not required to be given to an indorser in either of the following cases: EXAMPLE: If notice was not given due to a calamity like flood and typhoon. Sec. . whether or not Bancasia gives notice of dishonor to Great Asian. . NOTICE OF DISHONOR VS. No. Notice of non-payment where acceptance refused. payable to P or order. the drawers had countermanded payment. BINDING EFFECT: If the instrument reads “Pay to the order of P. or if the drawer has countermanded payment. assigning to Bancasia 15 postdated checks issued by various customers. after the exercise of reasonable diligence. When the cause of delay ceases to operate.000 on March 1. the drawers had no right to expect or require the bank to honor the checks. it is binding upon all parties secondarily liable thereon. the debts of Great Asian to Bancasia. such as “Pay to the order of A. Sec. 118. signed 2 Surety Agreements in favor of Bancasia to guarantee. or (2) after the failure to give notice. Sec. “account under garnishment”. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. signed 4 Deeds of Assignment of Receivables. Sec. It may be made either (1) expressly or (2) impliedly. P”. Notice when previously dishonored by non-acceptance Sec. it cannot be given to or does not reach the parties sought to be charged. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . Notice of Dishonor Waived.R. HELD: YES. In the first three instances. Since the common condition in the contracts had transpired. Sec. drawee. and “insufficiency of funds”. Arsenio Lim Piat. (c) When the drawer is the person to whom the instrument is presented for payment. 116. permissive inland bills Always in writing Made by a notary public or a respectable resident Protest or noting thereof should be made on the day of dishonor As a rule to be made in the place of dishonor May be verbal or written Made by a holder or any person who may be compelled to pay Required to be made usually within one day after dishonor Not made or given in the place of dishonor but in the residence of the parties and other places mentioned in Sec. including the stipulated penalty and attorney’s fees. the explicit with recourse stipulation against Great Asian effectively enlarges.of the holder to give notice. 2002) . EXAMPLE: DR issued a bill of exchange against DW. how excused. 112 When notice is dispensed with. with any of the following as reason for the dishonor: “account closed”. Tan Chong Lin. 115 (c): Since the indorser is the principal. 1982. or "payment stopped". Jr. in fact.Notice of dishonor is not required to be given to the drawer in either of the following cases: Sec. Notice of dishonor waived”. an obligation on the part of Great Asian arose from the four contracts. through Arsenio. CA and BANCASIA FINANCE AND INVESTMENT CORPORATIO (G. In the instant case. (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument. 115. April 25. all the checks were dishonored for any of the following reasons: "account closed". which were dishonored on maturity when deposited for collection by Bancasia. When B presented it for Cesar Nickolai F. (e) Where the drawer has countermanded payment. Great Asian itself will pay Bancasia. (a) When the drawee is a fictitious person or person not having capacity to contract. 111. the holder must give notice once the flood or typhoon ceases. Furthermore. "account under garnishment". In turn. insufficiency of funds". Great Asian’s four contracts assigning its fifteen (15) postdated checks to Bancasia expressly stipulate the suspensive condition that in the event the drawers of the checks fail to pay. Sec. (a) Where the drawer and drawee are the same person. the delay is excused. (b) Where the indorser is the person to whom the instrument is presented for payment. and in the last instance. such as in ordering a Stop Payment. Sec. Great Asian.Notice of dishonor is dispensed with when. or negligence. (c) Where the instrument was made or accepted for his accommodation. 114 (d): When the drawer closed his account or does not have sufficient funds with the drawee. (b) When the drawee is fictitious person or a person not having capacity to contract. the giving of the notice is not necessary anymore to hold them liable. he cannot really expect the accommodation maker to pay. the latter remains liable to Bancasia because of the with recourse stipulation which is independent of the warranties of an endorser under the Negotiable Instruments Law. It is to be noted that under the Negotiable Instruments Law. ニパ f. Sgd.In March 1981. . the board of directors of Great Asian approved a second resolution authorizing Great Asian to secure a discounting line with Bancasia in an amount not exceeding P2M and also designated Arsenio as the authorized signatory to sign all instruments. When notice need not be given to indorser.A waiver of protest.

accepted for honor. intervene and accept the bill supra protest for the honor of any party liable thereon or for the honor of the person for whose account the bill is drawn. 163. 170 (a) If it is to be presented in the place where the protest for nonpayment was made. Sec. there would be no need to give a second notice of dishonor for the non-payment. The acceptance for honor may be for part only of the sum for which the bill is drawn. Liability of the acceptor for honor. ACCEPTANCE FOR HONOR Protest is a prerequisite The acceptor must be a stranger There must be an express statement that it is for honor Consent of the holder is necessary Liability of acceptor is secondary Payment of the acceptor will not discharge the bill Acceptance may be in favor of only one or some of the parties Sec. X is not liable to P and A. and so forth. (c) By the intentional cancellation thereof by the holder. Later. 164. B to C. P indorsed it to A. . 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right. 2. Soriano Jr.Presentment for payment to the acceptor for honor must be made as follows: ACCEPTANCE FOR HONOR Sec. B. there may be a further acceptance by a different person for the honor of another party. . EXAMPLE: If a bill is payable 10 days after sight and was dishonored by nonacceptance on March 1. 1. Maturity of bill payable after sight. Presentment for Payment and Dishonor by Non-Payment Sec. 168 Presentment for payment to acceptor for honor. A to B. What constitutes payment in due course. (formal requisites) b. then it must be forwarded within the time specified in Section one hundred and four. then later on dishonored by nonpayment. Where a bill payable after sight is accepted for honor.The acceptor for honor is liable to the holder and to all parties to the bill subsequent to the party for whose honor he has accepted EXAMPLE: DR issued a bill of exchange ordering DW to pay P or order P10. In whose favor? Sec. For payment and dishonored. X is liable as acceptor for honor to B and the parties subsequent to him (C and D). how made. as where only part of the obligors are released. 169 The liability of the acceptor for honor is in effect secondary because his engagement is to pay only if it shall not have been paid by the drawee and provided also that it shall have been duly presented for payment and protested for non-payment and notice of dishonor given to him. it must be presented not later than the day following its maturity. B thereafter gave notice of dishonor to DR. it is necessary to give a notice of dishonor for non-acceptance. it must be protested for non-payment by him Requisites ORDINARY ACCEPTANCE VS. When bill may be accepted for honor. it must be protested for non-payment before it is presented for CONCEPT Discharge means release from further liability. 88. Acceptance for honor is also called acceptance supra protest or acceptance after protest. Where an acceptance for honor does not expressly state for whose honor it is made. it puts an end to it as a contractual obligation. the maturity date shall be March 11. ORDINARY ACCEPTANCE Protest is not necessary The person who accepts is a party – the drawee Any word indicating an acceptance is enough Consent of the holder is not necessary Acceptor is primarily liable Payment by the acceptor in due course discharges the bill Acceptance involves the entire instrument A. d. Protest of bill accepted for honor. how made. Protest required ヌト HOW INSTRUMENT IS DISCHARGED Sec. As to the parties to the instrument. Agreement of acceptor for honor.The acceptor for honor. its maturity is calculated from the date of the noting for non-acceptance and not from the date of the acceptance for honor e. Payment in Due Course Sec. it operates as a release of some or all of them from further obligation and liability under the instrument although the instrument may not be discharged.An acceptance for honor supra protest (5) must be in writing and indicate that it is an acceptance for honor and must be signed by the acceptor for honor. (4) with the consent of the holder. (d) By any other act which will discharge a simple contract for the payment of money. . DW dishonored it. When delay in making presentment is excused.Where a dishonored bill has been accepted for honor supra protest or contains a referee in case of need. 119 Maturity Date of Sight Bills Sec. 2013. DW refused to accept the instrument and protest was duly made. 162. . X accepted the instrument in favor of B.When a bill of exchange has been (1) protested for dishonor by non-acceptance or protested for better security and is (2) not overdue. where the instrument is made or accepted for his accommodation. obligation. VIII. When deemed to be an acceptance for honor of the drawer. payment to the acceptor for honor or referee in case of need f. (b) If it is to be presented in some other place than the place where it was protested. by such acceptance. 165. 2013. (3) any person not being a party already liable thereon may. Sec. 2. . 2013 but was accepted for honor on March 5. Sec. Acceptance for honor. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. Instrument. how discharged. C to D.000. c. it is deemed to be an acceptance for the honor of the drawer. . 2013 not March 15. P and A. . and where there has been an acceptance for honor for one party.Payment is made in due course when it is made at or after the maturity of the payment to the Cesar Nickolai F. DISCHARGE A. or from the binding effect of the negotiable instrument. 161. For acceptance and it was accepted. engages that he will. on due presentment. ACCEPTANCE FOR HONOR Sec. a. B still presented: 1.A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor. Liability of Acceptor for Honor Sec. . . As to the paper itself. present holder. pay the bill according to the terms of his acceptance provided it shall not have been paid by the drawee and provided also that is shall have been duly presented for payment and protested for non-payment and notice of dishonor given to him. (b) By payment in due course by the party accommodated. 167. 166.When the bill is dishonored by the acceptor for honor.The provisions of Section eighty-one apply where there is delay in making presentment to the acceptor for honor or referee in case of need Dishonor of bill by acceptor for honor. .acceptance.

In the present action. Other causes of extinguishment of obligations. e.The payment for honor supra protest. Payment By Person Secondarily Liable does not discharge the instrument. Payment by a Third Person 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 instrument. 158. 121(b). the law does not require cancellation to be in writing. the maker is discharged even if he acquired the instrument through an agent who did not disclose his principal. Payment for Honor Sec. . 119(c) F. 199 contemplates of a situation where the holder is the creditor while its drawer is the debtor. . Thus. are governed elsewhere in this Code. and he may strike out his own and all subsequent indorsements and against negotiate the instrument.A cancellation made unintentionally or under a mistake or without the authority of the holder. The acts which will discharge a simple contract for the payment of money under Sec. such as annulment. (4) By the confusion or merger of the rights of creditor and debtor. he may be considered a holder or assignee. If he may do so himself. If he were to seek reimbursement from the payee. When Ode learned that Wilson was really the agent of Joseph. the liability to such parties would ultimately be his. ISSUE: WON the obligation is extinguished? HELD: No. HELD: The Court sustained Joseph explaining that there is no principle of law that would prevent an individual from going into the market and purchasing. he may accomplish the same thing through an agent who acts without disclosing the agency. Renunciation by holder. If he intends to acquire a right over such instrument.Where the instrument is paid by a party secondarily liable thereon. Payment by the drawer discharges the instrument since he is the one ultimately liable.g. the payee. 1199(d) Sec. the same is true when payment is made to a possessor to whom the instrument was not indorsed. Accordingly. he may recover the amount paid to the holder from such drawee. is inoperative but where an instrument or any signature thereon appears to have been cancelled. in such case. the payee failed to return the checks because she already negotiated the same to the petitioner. Principal Debtor Becomes the Holder – Sec. and prescription. how made. EXCEPTIONS.Where a bill has been protested for non-payment. 122. is not prohibited from doing so. Unlike renunciation. Corazon Victoriano. Thus. it is not discharged. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . securities upon which he is indebted and which he has put in circulation. a holder who has been deprived of the instrument may still enforce payment against a payor who HAD NOTICE of defect in the payee’s title. b. the burden of proof lies on the party who alleges that the ヌド An instrument is discharged when the principal debtor becomes the holder of the instrument at or after maturity date in his own right. Payment must be to the holder. E. rescission.The notarial act of honor must be founded on a declaration made by the payer for honor or by his agent in that behalf declaring his intention to pay the bill for honor and for whose honor he pays Cesar Nickolai F. Payment for honor. Obligations are extinguished: (1) By payment or performance: (2) By the loss of the thing due: (3) By the condonation or remission of the debt. except: (a) Where it is payable to the order of a third person and has been paid by the drawer. Right of party who discharges instrument. at a discount or otherwise. signing as a secondary party. there is cancellation if the agent of the holder burned the note with the knowledge and consent of the said holder. Declaration before payment for honor. SIGLER (98 Kans. Intentional Cancellation – Sec. 171 Sec. Art. Art. SIGLER VS. When she was returning the jewelry. 173 Who may make payment for honor. Sec. An absolute and unconditional renunciation of his rights against the principal debtor made at or after the maturity of the instrument discharges the instrument. “In his own right” has been construed to exclude a case where a maker acquires the instrument in a purely representative capacity. COURT OF APPEALS (217 SCRA 32 [1993]) – Nora Moulic issued checks to Corazon Victoriano as deposit for jewelry that she obtained from the latter which were meant to be sold to other persons. indorsee(s) or the drawee.e. in order to operate as such and not as a mere voluntary payment. None of the modes outlined therein is applicable in the instant case as Sec.holder thereof in good faith and without notice that his title is defective a. Good Faith Sec. p. 172 Rule in Case of Unintentional Cancellation Sec.. any person may intervene and pay it supra protest for the honor of any person liable thereon or for the honor of the person for whose account it was drawn. cancellation was made unintentionally or under a mistake or without authority By Whom Made: Primary Party Liabile. 1. 88 also requires that the payor be in good faith and without notice that the payee’s title is defective. 2. Unless. Surety for the principal debtor. (6) By novation. a creditor. a maker or acceptor. C. he sued the latter but Joseph claimed that the instrument was discharged. must be attested by a notarial act of honor which may be appended to the protest or form an extension to it. Payment to a payee who already negotiated the instrument will not discharge the instrument because he is no longer the holder. d. Cancellation. A renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon. To Whom c. i. burden of proof. as executor or administrator. b. Later. . Soriano Jr. d. Moulic withdrew her funds from the drawee bank. Renunciation Sec. Joseph employed RC Wilson to purchase the note from Ode at the lowest possible price. unintentional. 121. 123. (5) By compensation. Nor is it discharged when the maker becomes the holder for example. the amount in the instrument has been advanced by the drawer to the drawee. . STATE INVESTMENT HOUSE VS. was no longer Moulic’s creditor at the time the jewelry were returned. 3. 1231 of the Civil Code. though not bound to accept payment from a third person. the note is not discharged when the maker acquires it as agent of another. But a renunciation does not affect the rights of a holder in due course without notice. or after its maturity. D. 119(e) a. Civil Code. Under the Civil Code. . as the case may be. HOWEVER. 1231. e. B. 119(d) are determined by other existing legislations. A person paying “on behalf of the principal debtor” also discharges the instrument under the principles of the law on agency. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No.The holder may expressly renounce his rights against any party to the instrument before. and (b) Where it was made or accepted for accommodation and has been paid by the party accommodated. fulfillment of a resolutory condition. Payment by the accommodated party discharges the instrument because he is the principal in the case contemplated by Sec. 864 [1916]) – A certain Joseph Sigler issued a negotiable note to Ode Sigler. at. . Acts that Discharges Simple Contracts – Sec. c. but the party so paying it is remitted to his former rights as regard all prior parties..

if D refused to accept payment for the honor of A. Sec. 120(a): Those previously discussed mentioned in Sec. who must also be discharged by the extension agreed upon by the principal debtor and the holder. releases those parties from secondary liability which varies from the original undertaking of the secondary parties. in order to holder the secondary liability. DW refused to pay and protest was duly made. Where holder refuses to receive payment supra protest. Sec. present holder. f. payment by the accommodated party. (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 assent of the party secondarily liable or unless the right of recourse against such party is expressly reserved. (c) By the discharge of a prior party. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. Payment for Honor vs. there must be express reservation of the right of recourse against parties secondarily liable. Rights of Payer Sec. Preference of parties offering to pay for honor. prescription or failure to give notice of dishonor but only those discharged by virtue of some act of the creditor. Holder has no option Sec. IX. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . B to C and C to D. If the instrument is not surrendered. Preference G. the provisions of this Act applicable to a bill of exchange payable on demand apply to a check Cesar Nickolai F. 2. DR and P. 48 (see p.Where two or more persons offer to pay a bill for the honor of different parties. The rule is only fair because it is the fault of the holder that he did not receive payment. It is suggested by Aquino that this rule applies to an accommodated party who is the principal debtor but not to an accommodation indorser. e. Sec. defined.A person secondarily liable on the instrument is discharged: (a) By any act which discharges the instrument. ACCEPTANCE FOR HONOR There must be prior protest for non-acceptance or for better security The bill is not yet overdue The acceptor must be a stranger The consent of the holder is a requisite Payment for Honor vs. (b) By the intentional cancellation of his signature by the holder. 177. which produces the implied reservation of their (parties secondarily liable) right of recourse against the maker. Sec. Effect on Subsequent Parties Sec. EXAMPLE: DR issued a bill of exchange ordering DW to pay P or order. d. Where the holder of a bill refuses to receive payment supra protest. it may fall in the hands of a holder in due course who may have the right to enforce the instrument despite the previous payment that was made. 119. 175. the parties secondarily liable loses their right of recourse against the former. insolvency. Payment is not in favor of specific parties Surrender of Instrument Upon Discharge CHECKS DEFINED Sec. Discharge of Persons SECONDARILY LIABLE Sec. 120(f): Extension of Term: the assurance of the drawer and the indorsers is payment according to the tenor of the instruments. c. In the previous example. If he accepted the tender of payment by a prior party. A to B. he loses his right of recourse against any party who would have been discharged by such payment. by renunciation or by any other ground that discharges simple contracts. in satisfaction of such claim or demand without any stipulation or condition. 120. The subsequent parties are likewise discharged since they are deprived of their right of recourse against the party whose signature was stricken-off. H. C and D are discharged. Effect on subsequent parties where bill is paid for honor. both the rights and duties of the holder as regards the party for whose honor he pays and all parties liable to the latter. an extension of time agreed by the holder and the principal debtor. X has a right of recourse against the persons liable to A. the subsequent party would have been discharged. Soriano Jr. . Rights of payer for honor. i. When persons secondarily liable on the instrument are discharged. does not include discharge by operation of law. the person whose payment will discharge most parties to the bill is to be given the preference. Check. Sec. Where a bill has been paid for honor. b. 13). is entitled to receive both the bill itself and the protest. and succeeds to. B.The payer for honor. Later. 120(b) and (c): The cancellation of an indorsement of a person secondarily liable may result in the discharge of that person whose signature was stricken-off and also of subsequent parties. Sec. therefore. 120(c): As suggested by the majority view. . Acceptance for Honor PAYMENT FOR HONOR There must be protest for nonpayment The bill is already overdue The person who will pay may be a stranger or a party The consent of the holder is not necessary and the holder who refuses to accept payment loses his right of recourse against any party who may be discharged by such payment. he loses his right of recourse against B and C.. (e) By a release of the principal debtor unless the holder's right of recourse against the party secondarily liable is expressly reserved. . Except as herein otherwise provided.A check is a bill of exchange drawn on a bank payable on demand. on paying to the holder the (1) amount of the bill and the (2) notarial expenses incidental to its dishonor. all parties subsequent to the party for whose honor it is paid are discharged but the payer for honor is subrogated for. such as bankruptcy. 1. P indorsed it to A. 185. .e. CHECKS A. who would have been discharged. 174. as provided in Sec. 176. 120(e): When the principal debtor is released from liability. X made a payment for the honor of A.honor payment is made a. Sec. Under this paragraph. (d) By a valid tender or payment made by a prior party. Payment by Person Primarily Liable PAYMENT FOR HONOR There must be protest for nonpayment A notarial act is necessary The person who will pay may be a stranger or may be a party It cannot be payment in due course and payment discharges only the parties after the party in whose favor payment for honor is made In favor of a specified person and the law requires that there is a statement of the person for whose ヌナ PAYMENT BY PERSON PRIMARILY LIABLE There is no need to protest for non-payment or non-acceptance A notarial act is not necessary The person who will pay is a party – maker or drawee-acceptor Payment in due course discharges the instrument The instrument must be surrendered to the payor whenever discharge is by payment by or in behalf of the principal debtor. 120(d): “Tender of Payment” means the act by one which produces and offers to a person holding a claim or demand against him the amount of money which he considers and admits to be due.

The failure of the bank to pay the check when the deposit is sufficient. 4. is not an ordinary draft.” D. ISSUE: Whether or not Catalan has a cause of action. who is thereafter a depositor to that amount (Lummus Cotton Gin Co. Schultz. RELATIONSHIP BETWEEN DRAWER. Sellers. In In Re Bank of the United States (277 NYS 96. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. And the two words are used indiscriminately. . They still refused and even asked her to submit back to them the original checks for verification. p. S. are the allegations of the complaint. entitles the drawer to substantial damages without any proof of actual damages. subject to the following conditions: C. Walker. A drawee bank who wrongfully dishonors a check is not liable to the payee for lack of privity but it is liable to the drawer because of breach of contract. Date paid. It is an order upon a third party purporting to be drawn upon a deposit of funds. It is the essence to be payable on demand. When check operates as an assignment. on demand or at a future time specified therein. v.2 million. Hence. In fact. asked HSBC Bank to clear the checks and pay her the said amount. 38 Ga. 409). for all “bills of exchange”. Catalan and her lawyer went to Hongkong on their own expense to personally submit the checks.” “A cashier's check. They still were not honored. Date issued. is not subject to countermand by the payee after indorsement. Soriano Jr. October 18. Corporation. 259. 552). 2004) . The drawer of the check is a depositor of the drawee bank. within the meaning of NIL does not operate as an assignment of funds in the hands of the drawee who is not liable on the instrument until he accepts it (Sec. A cashier's check is of a very different character. That a register of gift checks issued shall be maintained with the following minimum information: 1. 189. notwithstanding the fact that a deposit may be made later in the day. The Monetary Board.D. CA (GR No. 105836. 77 So.R. 195 Ala. the drawee is not liable to the payee just because the drawer actually issued the check to him for valuable consideration. 201 Ala. irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein. 70 So. because the contract between the banker and the customer is that the money is needed on demand (Banco de Oro Savings vs. 754. and an order by. March 7. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . 603. L-16106. It is the primary obligation of the bank which issues it (Nissenbaum v. This relationship between the drawer and the drawee bank makes the drawee bank liable to the drawer in case of wrongful dishonor of checks. 19 of the Civil Code. as well as which court has jurisdiction over it. 30. it is an open letter request from. No. it is bound to honor his checks to the extent of the amount of his deposits. As a consequence of the above provision. Ordinarily. Catalan knowing that Thomson had communicated with the Bank. The checks were dishonored for having insufficient funds. The account was transferred to HSBC [Trustee]. Although Catalan has no cause of action because under Section 189. 2.000.A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank. and is the common term. contrary to appellant’s pretense.2M. A bill of exchange. 2. “A cashier's check issued by a bank. 756. a bank is not liable for its refusal to pay a check on account of insufficient funds. That the buyer of the check is properly identified as required under Circular No. KINDS OF CHECK 1. where the bank ヌニ BSP Circular No. Name of buyer. a cashier’s check has been characterized as follows: HSBC INTERNATIONAL TRUSTEE LIMITED vs. 707 dated 10 May 2001 decided to authorize the issuance of cashier’s. Cesar Nickolai F.E. and has the same legal effects as a certificate deposit or a certified check (Walker v. 71). HELD: Yes. checks are drawn on bank accounts that are opened by drawers on drawee banks. CECILIA DIEZ CATALAN (G. The drawer issues checks in payment of an obligation to a payee. Catalan may have prayed that she be paid the value of the checks but it is axiomatic that what determines the nature of an action. and c. had sufficient funds.S. one person on another to pay a sum of money therein mentioned to a third person. as such. bearer or numbered account as an exception from the provisions of Circular no. 776) and constitutes its written promise to pay upon demand (Steinmetz v. That the amount of each check shall not exceed P10. But a payee does not have contractual relationship with the drawee bank. 3. supra. In fact.” “A cashier's check issued on request of a depositor is the substantial equivalent of a certified check and the deposit represented by the check passes to the credit of the checkholder. manager’s or certified checks or other similar instruments in blank or payable to cash. and are designed to facilitate banking operations. There is no obligation on the drawee’s part to honor the check and the payee has no cause of action against the drawee even if the dishonor was wrongful. 186). The latter is a bill of exchange payable demand. 259 dated 29 September 2000. 59 S.J. 189). HSBC did not heed her. they payee may sue the drawee based on tort under Art. App. Equitable Banking possesses funds of a depositor. in its Resolution No. and accepted in advance by the act of issuance. HSBC is not being sued on the value of the check itself but for how it acted in relation to Catalan’s claim for payment despite the repeated directives of the drawer Thomson to recognize the check the latter issued. 159590 & 15959. Amount. 100). leading Catalan to file a suit against HSBC to collect her HK$3. 1961) – A demand draft is a bill of exchange payable on demand. our law requires that they be presented either for acceptance or for payment within a reasonable time after their issuance or after their last negotiation (Sec. the term “draft” is often used. Catalan presented these checks to HSBC. for it has been held that the latter is a primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. being merely a bill of exchange drawn by a bank on itself.Frederick Arthur Thomson drew 5 checks payable to Catalan in the total amount of HK$3. b. Dec. Conversely. 1994) – The relationship between the bank and the depositor is that of a debtor and creditor. in fact. and the bank is not liable to the holder unless and until it accepts or certifies the check 3.W. PNB (GR No. 715. DRAWEE AND PAYEE 1. 241 N. failure of which will discharge the drawer from liability or to the extent of the loss caused by the delay (Sec. 127). 291 – Series of 2001 a. 734)…” The following definitions cited by appellant also confirm this view: “A cashier's check is a check of the bank's cashier on his or another bank. the banker agrees to pay checks drawn by the depositor provided that said depositor has money in the hands of the bank. State. 253. Cashier’s Check and Manager’s Check A demand draft is not therefore of the same category as a cashier's check which should come within the purview of the law. DISINGUISHED FROM DRAFT REPUBLIC OF THE PHILIPPINES VS. Thomson demanded that the checks be made good because he. SPOUSES MORAN AND LIBRADA MORAN VS. It is in effect a bill of exchange drawn by a bank on itself and accepted in advance by the act of issuance (10 C. Thomson died but Catalan was not paid yet. Catalan then requested Trustee to pay her. A demand draft is very different from a cashier’s or manager’s check. however.Checks are used between banks and bankers and their customers.3) B. By virtue of the contract of deposit between them. Sec.

the latter becomes the depositor of the drawee bank. If the aggregate instruments purchased by the same person within any thirty (30) day period amounts to at least fifty thousand pesos (P50. APPLICABLE LAW There is no provision in the NIL that governs crossed check. the certification is equivalent to an acceptance Sec. and for all intents and purposes. As testified to by the Ex-Officio Sheriff with whom it has been deposited.00 pursuant to which. The exception to the rule enunciated under 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 to a delivery to the creditor in cash in an amount equal to the amount credited to his account" shall apply in this case. 188: The holder. a provision concerning such type of check can be found in the Code of Commerce: Sec. That the deposit of said instruments shall be subject to the same requirements/scrutiny applicable to cash deposits. which in turn could go against their respective drawee banks. (2) In certification. Certification is similar to acceptance but different in the sense that: (1) Certification at the instance of the holder discharges while there is no discharge in an ordinary acceptance. said cashier’s. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. crossing a check is done by writing two parallel lines diagonally on the left top portion of the checks. must be made by the holder or by some person authorized to receive payment on his behalf.130. Prior to the auction sale. 19).5. 89802. and answers the purposes of money. the purpose of the buyer should be stated. the effect of certification is the same as thought the money had been paid by the bank to the holder and redeposited by him in his own credit. b. ISSUE: WON the private respondent can validly refuse acceptance of the payment of the judgment obligation in Cashier's check which it deposited with the Ex-Officio Sheriff before the date of the scheduled auction sale? HELD: No valid reason for the private respondent to have refused acceptance of the payment of the obligation in his favor. The effects therefore of crossing a check relate to the mode of its presentment for payment. a. SENERIS RICARDO A. That banks which issue as well as those which accept as deposits. Who the holder or authorized person is depends on the instruction stated on the face of the check.000)." or "for payee's account only. if the payment was not correctly made. 2. INC. e. in his capacity as Ex-Officio Sheriff of Zamboanga City. 1980] . Private respondent requested the scheduled auction to proceed if the petitioner cannot produce the cash. NATIONAL CITY BANK OF NEW YORK (63 Phil 11) – When a check is certified. The six checks in the case at bar had been crossed and issued "for payee's account only. or to perform the functions. d. Moreover. ヌヌ d. 1992) – ISSUE: WON Private Respondent Merle Reyes.00. since the said check had been certified by the drawee bank. vs. Under Sec. the payee of the illegally encashed checks should be allowed to recover directly from the bank responsible for such encashment regardless of whether or not the checks were actually delivered to the payee. In a similar situation. Petitioner filed an ex-parte motion for issuance of certificate of satisfaction of judgment. since they expect that the check will be presented for payment and not to be certified. It is a well-known and accepted practice in the business sector that a Cashier's Check is deemed as cash. May 7.Where a check is certified by the bank on which it is drawn. and represents so much money on deposit. This means that the drawee bank should not encash the check but merely accept it for deposit. by the certification. Deputy Sheriff Castro sold the levied properties item by item to the private respondent as the highest bidder in the amount of P50. TONG and EX-OFFICIO SHERIFF HAKIM S.00 is not an ordinary check but a Cashier's Check of the Equitable Banking Corporation. . The check becomes a basis of credit – an easy mode of passing money from hand to hand. However. which means that the drawee should pay only with the intervention of that company. p. It is to be emphasized in this connection that the check deposited by the petitioner in the amount of P50." This could only signify that the drawers had intended the same for deposit only by the person indicated. Certified Check a. 189 Effect where the holder of check procures it to be certified. As a result thereof. c. PNB VS. IAC (supra. Cesar Nickolai F. she would have a right of action against the drawer companies. petitioner deposited with the CFI. payable to the holder on demand. 188 Sec. the sum of P63. ABDULWAHID [G. a writ of execution was issued for the amount of P63. to wit. Under accepted banking practice. Provisions in NIL Related to Certified Checks Sec. In the course of the proceedings. 187 Certification of check.00.R." as in the case at bar. enters into a new contract with the bank. has a cause of action against petitioners Associated Bank and Conrado Cruz for their encashment and payment to another person of certain crossed checks issued in her favor? HELD: Yes.Where the holder of a check procures it to be accepted or certified. Thus. L-41764 December 19.00. Soriano Jr. The crossing is general where the words written between the two parallel lines are "and Co. it is a certified crossed check. NEW PACIFIC TIMBER & SUPPLY COMPANY. Private respondent refused to accept the check as well as the cash deposit. There being no evidence that the crossed checks were actually received by the private respondent. or only the words “and company”.000. Crossed Checks ASSOCIATED BANK VS CA (GR No. the funds represented by the check are transferred from the credit of the maker to that of the payee or holder. 541. f. doing business under the name and style Melissa’s RWT. presentment for payment. The payment made to a person other than the banker or institution shall not exempt the person on whom it is drawn.A compromise judgment was rendered by the respondent Judge against New Pacific Timber. and the bank is not liable to the holder unless and until it accepts or certifies the check Sec. the bank debits the drawer’s account at the time of certification and sets aside funds out of the drawer’s control. and one not within the contemplation of the drawer or a prior indorser. the drawer and all indorsers are discharged from liability thereon When check operates as an assignment. to simplify proceedings. No. effect of. of a check. In State Investment House Inc vs. 3. bearer or numbered account shall take such 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 moneylaundering activity. The crossing is special where the name of a bank or a business institution is written between the two parallel lines. . which in turn could sue the herein petitioner as collecting bank. the Court declared the effects of crossing a check. the Ex-Officio Sheriff levied upon the following personal properties of the petitioner. which he shall do by writing across the face the name of said banker or institution. manager’s or certified checks or other similar instruments issued in blank or payable to cash. ALBERTO V. 72 of the Negotiable Instruments Law. For failure of the petitioner to comply with his judgment obligation.A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank. It is analogous to a certificate of deposit of a certifying bank. HON. This motion was denied by the respondent Judge. it ceases to possess the character. to be sufficient. The maker or any legal holder of a check shall be entitled to indicate therein that it be paid to a certain banker or institution. Petitioner now questions said order as there was already a full satisfaction of the judgment before the auction sale was conducted. it was held that. the Ex-Officio Sheriff declared a deficiency of P13.000.130.130. a bank of good standing and reputation. A certified check is one drawn by a depositor upon funds to his credit in a bank which a proper officer of the bank certifies will be paid when duly presented for payment. by requesting such certification instead of payment. . with rights and duties of one in such situation. That transactions involving said instruments should be accordingly reported to the Bangko Sentral ng Pilipinas if there is reasonable ground to suspect that said transactions are being used to launder funds of illegitimate origin. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . Melissa's RTW.

Isham. GEMPESAW VS. is sent to a banker for collection. ISSUE: WON the parameters of a concept of check under B.a Mariano Lim. otherwise he is not a holder in due course. perforce. the check can only be deposited with the payee’s bank which in turn must present it for payment against the drawee bank in the course of normal banking transactions between banks. From the above definition. Traveller’s Check Traveller’s checks are instruments purchased from banks. It has the characteristics of a cashier’s check of the issuer. or (b)Two parallel transverse lines simply.k. 1992) . 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 receiving said notice. That addition constitutes a crossing. private respondent contended that although a memorandum check may not differ in form and appearance from an ordinary check. It may legally be negotiated from one person to another as long as the one who encashes the check with the drawee bank is another bank. ruling that B. herein Respondent Judge Nitafan. General and special crossings defined.And the Bills of Exchange Act of 1882. 18) – The negotiability of the check is not affected by it being crossed. (2)Where a cheque is uncrossed. 22 include all checks. p. in various denominations. E.S. Crossing by drawer or after issue. NITAFAN (GR No. was charged before ヌネ b. is still drawn on a bank and should therefore be distinguished from a promissory note. CHECKS AND BILLS OF EXCHANGE DISTINGUISHED BILLS OF EXCHANGE Not necessarily drawn on a deposit Death of a drawer of a BOE with the knowledge of the bank does not revoke the authority of the banker to pay May be presented for payment within a reasonable tie after its last negotiation if payable on demand The drawee may or may not be a bank Presentment for acceptance is necessary for certain types of bills of exchange May be payable on demand or at a fixed or determinable future time CHECKS It is necessary that a check is drawn on a deposit Death of the drawer of a check. he may cross it specially to himself. or if it is specially crossed. It is more of a warning to the holder that the check cannot be presented to the drawee bank for payment in cash.00. with the word "memorandum". or a cheque crossed generally. cited in Chan Wan vs. without any condition concerning its presentment. which check is subsequently dishonored . (2)Where a cheque bears across its face an addition of the name of a banker. shall be punished by imprisonment.000. and the cheque is crossed generally. A memorandum check must therefore fall within the ambit of B. Instead. it is clear that a memorandum check.P. Oct. "memo" or "mem" written across its face. express companies. which can be used like cash upon second signature by the purchaser. and the cheque is crossed specially and to that banker. If private respondent seeks to equate memorandum check with promissory note. CA (supra. (1)Where a cheque bears across its face an addition of— (a)The words “and company” or any abbreviation thereof between two parallel transverse lines. will be valid in his hands like any other check. and (3) 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. INC. was in the nature of a promissory note. 77 (1)A cheque may be crossed generally or specially by the drawer. and this would be have exempted him form the coverage of the law. 75954. 15): 76 Respondent Court with violation of B. which is but a mere promise to pay. The crossed check cannot be presented for payment but it can only be deposited and the drawee bank may only pay to another bank in the payee’s or indorser’s account. as he does to skirt the provisions of B. herein Private Respondent. and although may not be intended to be presented. despite receipt of notice of such dishonor. (2) the check may be negotiated only once to one who has an account with a bank. 14) – Issuing a crossed check imposes no obligation on the drawee not honor such a check. (3)Where a cheque is crossed generally the holder may cross it specially. VS. Soriano Jr. EFFECTS OF CROSSING CHECKS STATE INVESTMENT HOUSE INC. MEMORANDUM AND TRAVELLER’S CHECK 4. Lim averred that the facts did not constitute a felony because the kind of check he issued. BATAAN CIGAR AND CIGARETTE FACTORY. Consequently. this petition for review on certiorari filed by the Solicitor General in behalf of the government. IAC (supra. that are drawn against bank? HELD: YES. and if passed to the third person. (6)Where an uncrossed cheque. with the knowledge of the bank. CA (supra. 22 on which the Information was based was unconstitutional. . the banker to whom it is crossed may again cross it specially to another banker for collection.Accused K.19) – (1) the check may not be encashed but only deposited in the bank. memorandum check. has less impact and persuadability than a check. such a check is given by the drawer to the payee more in the nature of memorandum of indebtedness and. p. however.P. revokes the authority of the banker to pay Must be presented for payment within a reasonable time after its issue The drawee is always a bank Presentment for acceptance is not necessary Always payable on demand Cesar Nickolai F. signifying that the maker or drawer engages to pay the bona fide holder absolutely. he did not have sufficient funds with the drawee bank – the reason for the latter to dishonor the subject check. specifically. 22 in an Information alleging that he drew and issued to one Fatima Cortez Sasaki a check in the amount of Php143. the holder may cross it generally or specially. it being a memorandum check. b. Respondent Lim. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . issued the questioned Order quashing the Information. Citing U. has the same effect as an ordinary check. which is in the form of an ordinary check.” that addition constitutes a crossing. whether generally or specially. either with or without the words “not negotiable”. VS.P. v. A memorandum check is in the form of an ordinary check. .P.P. that at the time of issue. 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 also at the time he delivers the same to the establishment that will be paid thereby (Black’s Law Dictionary). 22. either with or without the words “not negotiable. 22. should be sued upon in a civil action. 22 which does not distinguish but merely provides that "[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 drawee bank . Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No.T.” (5)Where a cheque is crossed specially. or the like. (4)Where a cheque is crossed generally or specially. and civil in nature. In the business community a promissory note. Such a check is an evidence of debt against the drawer. . p. Hence. a. Tan Kim (supra. by the bank mentioned between parallel lines. In his Motion to Quash. well knowing. Memorandum Check PEOPLE VS. certainly. he could very well have issued a promissory note. p. . Lim a. either with or without the words “not negotiable”. the holder may add the words “not negotiable.

and that. even though such obligation be totally or partially guaranteed by a bond. 3. the collecting bank may be held liable for damages if it allows withdrawal of deposit even if the check has not yet been cleared by the drawee bank. – Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by: xxx G. Banks with existing overdrafts with the Bangko Sentral as of the effectivity of this Act shall.A check is a bill of exchange drawn on a bank payable on demand. However. or under any other obligation involving the duty to make delivery of. 1: With unfaithfulness or abuse of confidence. The knowledge of the maker. Moreover. Estafa WHEN REQUIRED TO BE PRESENTED FOR PAYMENT Sec. or settle such overdrafts. ESSENTIAL ELEMENTS: a. ELEMENTS: a. Art. b. defined. finally. That the offender postdated or issued a check in payment of an obligation contracted at the time the check was issued. b. 2 of BP Blg. the Bill of Exchange Act of 1882 provides that notice of the customer’s death revokes the banker’s authority to pay. The holder of the check may either present it for payment or he may deposit it in his account with his bank known as the depositary bank or collecting bank. The normal bank policy is to disallow withdrawal from the account of the amount covered by the check. KITING is the wrongful practice of taking advantage of the float. or for administration. however. Soriano Jr. a mere oral notice or demand to pay would appear to be insufficient for conviction under the law. Deceit or damage to the payee thereof. Interbank Settlement. The making. 2. . or by denying having received such money. There is no provision in the NIL expressing this rule. 315. . either convert the overdraft into an emergency loan or advance with a plan of payment. 2. RPC. or issuing a check in payment of an obligation when the offender had no funds in the bank. H.The Bangko Sentral shall establish facilities for interbank clearing under such rules and regulations as the Monetary Board may prescribe: Provided. or his funds deposited therein were not sufficient to cover the amount of the check. Each member of the clearinghouse forwards all deposited checks drawn on other members and receives from the clearinghouse all checks drawn on it. goods or any other personal property received by the offender in trust. further. Balances are adjusted and settled each day. 185. EFFECT OF DEATH OF DRAWER The authority of the drawee bank to honor a check drawn against it is said to be terminated by the death of the drawer. goods or other property. 22 does not state that the notice of dishonor be in writing. the provisions of this Act applicable to a bill of exchange payable on demand apply to a check. The depositary bank will then make a provisional credit to his account in the amount of the check. to the prejudice of another. 3. CRIMES INVOLVING CHECKS 1. J. the Bangko Sentral shall take such action against the bank as may be warranted under this Act. That such postdating or issuing a check was done when the offender had no funds in the bank. money. ヌノ 2.” It is only after the check has been cleared and collected from the drawee bank that final credit is made in the payee-depositor’s account. the National Internal Revenue Code already disallows withdrawal from the bank account of the deceased unless proper taxes are paid to the Bureau of Internal Revenue. IN some cases. 5. not later than the next clearing day: Provided. The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer. COLLECTION OF CHECKS 1. whichever is higher. In anticipation of the dishonor of the check that was deposited. the Cesar Nickolai F. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneously with the commission of the fraud: xxx (d) By postdating a check. the time that elapses between the deposit of the check in one bank and its collection at another. including interest thereon at a rate equivalent to one-tenth of one percent (1/10 of 1%) per day or the prevailing ninety-one-day treasury bill rate plus three percentage points. without any valid cause. 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 the clearing of checks and the settlement of interbank balances. subject to such rules and regulations as the Monetary Board may issue with respect to such operations: Provided. CA (347 SCRA 75 [2000]) – While Sec. That any bank which incurs on overdrawing in its deposit account with the Bangko Sentral shall fully cover said overdraft. Swindling (Estafa). or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment. a. or his funds deposited therein were not sufficient to cover the amount of the check. 315. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. 6. and c. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . with Sec. or to return the same. That the appropriate clearing office shall be officially notified of banks with overdrawn balances. Bouncing Checks Law (Batas Pambansa Bilang 22) BP Blg 22 was enacted to prevent the proliferation of worthless checks in the mainstream of daily business and to avert not only the undermining of the banking system of the country but also the infliction of damage and injury upon trade and commerce occasioned by the indiscriminate issuances of such checks. PERTINENT RULES PHILIPPINE CLEARING HOUSE CORPORATION Section 102. drawing and issuance of any check to apply for account or for value. c. b. ordered the bank to stop payment. DOMAGASANG VS. or on commission. The 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 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 act.F. That settlement of clearing balances shall not be effected for any account which continues to be overdrawn for five (5) consecutive banking days 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 Act: Provided. The depositary bank will honor the checks even if it has not yet been cleared. That the Bangko Sentral may charge administrative and other fees for the maintenance of such facilities. 4. Check. 3 of the law. I. taken in conjunction. within such period as may be prescribed by the Monetary Board. Except as herein otherwise provided. namely: xxx (b) By misappropriating or converting. upon failure to so comply herewith. The check thereafter goes through the process of clearing through the “clearinghouse” The clearinghouse is defined as “an association of banks or other payors for the purpose of settling accounts with each other on a daily basis. Check Kiting Art. drawer.

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. Nov. 5. it is subject to revocation by the drawer at any time before it is accepted.conspirators will replace the original check with another worthless check. As such. L-64129-31. then manager of Family Savings Bank. 18. the drawee is still contractually obligated to dishonor the check on the basis of the stop payment order. 4. 3. if he has no valid defense. Soriano Jr. However. If there was no valid reason. 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. 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. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang . which were covered by 3 different informations filed against her of the 23 criminal charges filed. FERMINA RAMOS VS. c. IAC). CA (GR. 2. NO. provided the holder is not a holder in due course (Mesinca vs. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. the drawer remains liable and he is not released from the legal obligation he contracted. A check is a mere order on a bank to pay money from the drawer’s account. I. ヌハ Cesar Nickolai F. 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. STOP PAYMENT 1. 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. 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. 1991) – Fermina Ramos. ISSUE: WON such acts are considered estafa? HELD: Yes.