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NEGOTIABLE INSTRUMENTS LAW
CASE DOCTRINES
Midterms 2017 – 2018
1. PECO v. Soriano No. Postal money orders are not negotiable instruments. The rationale behind this
rule is the fact that in establishing and operating a postal money order system, the
government is not engaging in commercial transactions but merely exercises a
governmental power for the public benefit. In fact, postal money orders are subject
to a lot of restrictions limiting their negotiability. Particularly in this case, as far back
as 1948, there was already an agreement between Bank of America and the Manila
Post Office, that in case the post office would have an adverse claim against any Bank
of America depositor involving postal money orders issued by the post office, all
amounts cleared in relation thereto shall be refunded back to the post office’s
account with the bank – this in itself is already a limitation in the negotiability and
nature of the postal money orders issued by the post office because of the special
conditions attached.
2. Caltex Phil. v. CA A. Whether the Certificates of Time Deposit (CTDs) are negotiable instruments.
The CTDs in question meet the requirements of the law for negotiability. Contrary to
the lower court’s findings, the CTDs are negotiable instruments (Section 1).
Negotiability or non-negotiability of an instrument is determined from the writing, i.e.
from the face of the instrument itself. The documents provided that the amounts
deposited shall be repayable to the depositor. The amounts are to be repayable to the
bearer of the documents, i.e. whosoever may be the bearer at the time of
presentment.
B. Whether the CTDs’ negotiation require delivery only.

Although the CTDs are bearer instruments, a valid negotiation thereof for the true
purpose and agreement between it (Caltex) and de la Cruz requires both delivery and
indorsement; as the CTDs were delivered to it as security for De la Cruz’ purchases of
its fuel products, and not for payment. Herein, there was no negotiation in the sense
of a transfer of title, or legal title, to the CTDs in which situation mere delivery of the
bearer CTDs would have sufficed. The delivery thereof as security for the fuel
purchases at most constitutes Caltex as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be effected by mere delivery of
the instrument since the terms thereof and the subsequent disposition of such
security, in the event of non-payment of the principal obligation, must be contractually
provided for.
3. Metrobank v. CA The treasury warrants are not negotiable instruments. Clearly stamped on their face
is the word: non negotiable.” Moreover, and this is equal significance, it is indicated
that they are payable from a particular fund, to wit, Fund 501. An instrument to be
negotiable instrument must contain an unconditional promise or orders to pay a sum
certain in money. As provided by Sec 3 of NIL an unqualified order or promise to pay
is unconditional though coupled with: 1st, an indication of a particular fund out of
which reimbursement is to be made or a particular account to be debited with the
amount; or 2nd, a statement of the transaction which give rise to the instrument. But
an order to promise to pay out of particular fund is not unconditional. 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 conditional” and the warrants themselves non-
negotiable. There should be no question that the exception on Section 3 of NIL is
applicable in the case at bar.
4. Sesbreno v. CA Only an instrument qualifying as a negotiable instrument under the relevant statute
may be negotiated either by indorsement thereof coupled with delivery, or by delivery
alone where the negotiable instrument is in bearer form. A negotiable instrument may,
however, instead of being negotiated, also be assigned or transferred. The legal
consequences of negotiation as distinguished from assignment of a negotiable
instrument are, of course, different. A non-negotiable instrument may, obviously, not
be negotiated; but it may be assigned or transferred, absent an express prohibition
against assignment or transfer written in the face of the instrument:
The words “not negotiable,” stamped on the face of the bill of lading, did not destroy
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its assignability, but the sole effect was to exempt the bill from the statutory
provisions relative thereto, and a bill, though not negotiable, may be transferred by
assignment; the assignee taking subject to the equities between the original parties.
5. Firestone v. CA The essence of negotiability which characterizes a negotiable paper as a credit
instrument lies in its freedom to circulate freely as a substitute for money. The
withdrawal slips in question lacked this character. As the withdrawal slips in question
were non-negotiable, the rules governing the giving of immediate notice of dishonor
of negotiable instruments do not apply. The respondent bank was under no
obligation to give immediate notice that it would not make payment on the subject
withdrawal slips. Citibank should have known that withdrawal slips were not
negotiable instruments. It could not expect these slips to be treated as checks by
other entities. Payment or notice of dishonor from respondent bank could not be
expected immediately, in contrast to the situation involving checks. Citibank was not
bound to accept the withdrawal slips as a valid mode of deposit. But having
erroneously accepted them as such, Citibank – and petitioner as account-holder –
must bear the risks attendant to the acceptance of these instruments.
6. Ang Tek Lian v. CA Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order
of "cash" is a check payable to bearer, and the bank may pay it to the person
presenting it for payment without the drawer's indorsement. A check payable to the
order of cash is a bearer instrument. Where a check is made payable to the order of
"cash", the word cash "does not purport to be the name of any person", and hence the
instrument is payable to bearer. The drawee bank need not obtain any indorsement
of the check, but may pay it to the person presenting it without any indorsement.
7. DBP v. Sima Wei Section 16 of the Negotiable Instruments Law, which governs checks, 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…
Thus, the payee of a negotiable instrument acquires no interest with respect thereto
until its delivery to him.3 Delivery of an instrument means transfer of possession,
actual or constructive, from one person to another.4 Without the initial delivery of the
instrument from the drawer to the payee, there can be no liability on the instrument.
Moreover, such delivery must be intended to give effect to the instrument.
8. Phil. Bank of Commerce v. Aruego 1. Signing as an agent
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.
2. Signed as an accommodation party
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.35 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.
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3. Drafts signed are bills of exchange

Under the Negotiable Instruments Law, a bill of exchange is an unconditional order in
writting 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. 36 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.
9. Francisco v. CA The Negotiable Instruments Law provides that where any person is under obligation
to indorse in a representative capacity, he may indorse in such terms as to negative
personal liability.[13] An agent, when so signing, should indicate that he is merely
signing in behalf of the principal and must disclose the name of his principal;
otherwise he shall be held personally liable.[14] Even assuming that Francisco was
authorized by HCCC to sign Ongs name, still, Francisco did not indorse the instrument
in accordance with law. Instead of signing Ongs name, Francisco should have signed
her own name and expressly indicated that she was signing as an agent of HCCC.
Thus, the Certification cannot be used by Francisco to validate her act of forgery.
10. Jai Alai v. BPI The respondent BPI acted within legal bounds when it debited the petitioner's
account. When the petitioner deposited the checks with the respondent, the nature of
the relationship created at that stage was one of agency, that is, the bank was to
collect from the drawees of the checks the corresponding proceeds. Pursuant to Sec.
23 of the NIL, a forged signature in a negotiable instrument is wholly inoperative and
no right to discharge it or enforce its payment can be acquired through or under the
forged signature except against a party who cannot invoke the forgery. It stands to
reason, upon the facts of record, that the respondent, as a collecting bank which
indorsed the checks to the drawee-banks for clearing, should be liable to the latter for
reimbursement, for the indorsements on the checks had been forged prior to their
delivery to the petitioner. In legal contemplation, therefore, the payments made by the
drawee-banks to the respondent on account of the said checks were ineffective; and,
such being the case, the relationship of creditor and debtor between the petitioner
and the respondent had not been validly effected, the checks not having been properly
and legitimately converted into cash. It is the obligation of the collecting bank to
reimburse the drawee-bank the value of the checks subsequently found to contain
the forged indorsement of the payee. The reason is that the bank with which the check
was deposited has no right to pay the sum stated therein to the forger "or anyone else
upon a forged signature." In contrast, it was petitioner’s duty to that the payee's
endorsement was genuine before cashing the check. The petitioner must in turn
shoulder the loss of the amounts which the respondent; as its collecting agent, had
to reimburse to the drawee-banks. Having indorsed the checks to respondent bank,
petitioner is deemed to have given the warranty prescribed in Section 66 of the NIL
that every single one of those checks "is genuine and in all respects what it purports
to be." Respondent which relied upon the petitioner's warranty should not be held
liable for the resulting loss. (Issue on Indorsement) Jai Alai Corporation is negligent
in accepting the checks without question from Antonio Ramirez notwithstanding that
the payee was the Inter-Island Gas Services, Inc. and it did not appear that he was
authorized to indorse it.
11. Republic Bank v. Ebrada 1. Forged indorsement
where a check has several indorsements on it, it was held that it is only the negotiation
based on the forged or unauthorized signature which is inoperative. Applying this
principle to the case before Us, it can be safely concluded that it is only the
negotiation predicated on the forged indorsement that should be declared
inoperative.
2. Who is liable
drawee of a check can recover from the holder the money paid to him on a forged
instrument. It is not supposed to be its duty to ascertain whether the signatures of
the payee or indorsers are genuine or not. This is because the indorser is supposed
to warrant to the drawee that the signatures of the payee and previous indorsers are
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genuine, warranty not extending only to holders in due course. plaintiff Bank should
suffer the loss when it paid the amount of the check in question to defendant-
appellant, but it has the remedy to recover from the latter the amount it paid to her.
Although the defendant- appellant to whom the plaintiff Bank paid the check was not
proven to be the author of the supposed forgery, yet as last indorser of the check, she
has warranted that she has good title to it 10 even if in fact she did not have it because
the payee of the check was already dead 11 years before the check was issued.
12. MWSS v. CA MWSS is precluded from setting up the defense of forgery. It has been proven that
MWSS has been negligent in supervising the printing of its personalized checks. It
failed to provide security measures and coordinate the same with PNB. Further, the
signatures in the forged checks appear to be genuine as reported by the National
Bureau of Investigation so much so that the MWSS itself cannot tell the difference
between the forged signature and the genuine one. The records likewise show that
MWSS failed to provide appropriate security measures over its own records thereby
laying confidential records open to unauthorized persons. Even if the twenty-three
(23) checks in question are considered forgeries, considering the MWSS’s gross
negligence, it is barred from setting up the defense of forgery under Section 23 of the
Negotiable Instruments Law.
The Supreme Court further emphasized that forgery cannot be presumed. It must be
established by clear, positive, and convincing evidence. This was not done in the
present case.
13. BDO v. Equitable Bank Petitioner is likewise estopped from raising the non-negotiability of the checks in
issue. It stamped its guarantee at the back of the checks and
subsequently presented it for clearing and it was in the basis of these
endorsements by the petitioner that the proceeds were credited in its clearing
account. The petitioner cannot now deny its liability as it assumed the liability of an
indorse by stamping its guarantee at the back of the checks.
Furthermore, the bank cannot escape liability of an indorser of a check and which
may turn out to be a forged indorsement. Whenever a bank treats the signature at
the back of the checks as indorsements and thus logically guarantees the same as
such there can be no doubt that said ban had considered the checks as negotiable.
A long line of cases also held that in the matter of forgery in endorsements, it is the
collecting bank that generally suffers the loss because it had the duty to ascertain the
genuineness of all prior indorsements considering that the act of presenting the
check for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the indorsements.
14. Gempesaw v. CA As a rule, 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. An
exception to the rule is where the drawer is guilty of such negligence which causes
the bank to honor such checks. Gempesaw did not exercise prudence in taking steps
that a careful and prudent businessman would take in circumstances to discover
discrepancies in her account. Her negligence was the proximate cause of her loss,
and under Section 23 of the Negotiable Instruments Law, is precluded from using
forgery as a defense. On the other hand, the banking rule banning acceptance of
checks for deposit or cash payment with more than one indorsement unless cleared
by some bank officials does not invalidate the instrument; neither does it invalidate
the negotiation or transfer of said checks. The only kind of indorsement which stops
the further negotiation of an instrument is a restrictive indorsement which prohibits
the further negotiation thereof, pursuant to Section 36 of the Negotiable Instruments
Law. In light of any case not provided for in the Act that is to be governed by the
provisions of existing legislation, pursuant to Section 196 of the Negotiable
Instruments Law, the bank may be held liable for damages in accordance with Article
1170 of the Civil Code. The drawee bank, in its failure to discover the fraud committed
by its employee and in contravention banking rules in allowing a chief accountant to
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deposit the checks bearing second indorsements, was adjudged liable to share the
loss with Gempesaw on a 50:50 ratios.
15. Associated Bank v. CA There is a distinction on forged indorsements with regard bearer instruments
and instruments payable to order.
With instruments payable to bearer, the signature of the payee or holder is
unnecessary to pass title to the instrument. Hence, when the indorsement
is a forgery, only the person whose signature is forged can raise the defense of
forgery against holder in due course.
In instruments payable to order, the signature of the rightful holder is essential
to transfer title to the same instrument. When the holder’s signature is forged, all
parties prior to the forgery may raise the real defense of forgery against all parties
subsequent thereto. In connection to this, an indorser warrants that the instrument
is genuine. A collecting bank is such an indorser. So even if the indorsement
is forged, the collecting bank is bound by his warranties as an indorser and cannot
set up the defense of forgery as against the drawee bank.
Furthermore, in cases involving checks with forged indorsements, such as the case
at bar, the chain of liability doesn't end with the drawee bank. The drawee bank may
not debit the account of the drawer but may generally pass liability back through the
collection chain to the party who took from the forger and of course, the forger
himself, if available. In other words, the drawee bank can seek reimbursement or a
return of the amount it paid from the collecting bank or person. The collecting bank
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 indorsements.
With regard the issue of delay, a delay in informing the bank of the forgery, which
deprives it of the opportunity to go after the forger, signifies negligence on the part of
the drawee bank and will preclude it from claiming reimbursement. In this case,
PNB wasn't guilty of any negligent
delay. Its delay hasn't prejudiced Associated Bank in any way because
even if there wasn't delay, the fact that there was nothing left of the account
of Pangilinan, there couldn't be anymore reimbursement.
16. Metrobank v. First National Bank Under the procedure of Central Bank Circular No. 9 (Central Bank Clearing House
Law), the drawee bank receiving the check for clearing from the Central Bank Clearing
House must return the check to the collecting bank bank within the 24-hour period if
the check is defective for any reason. n that connection, this Court in the Hong Kong
& Shanghai Bank case, supra, ruled: But Plaintiff Bank insists that Defendant Bank is
liable on its indorsement during clearing house operations. The indorsement, itself, is
very clear when it begins with words 'For clearance, clearing office **** In other words,
such an indorsement must be read together with the 24-hour regulation on clearing
House Operations of the Central Bank. Once that 24- hour period is over, the liability
on such an indorsement has ceased. This being so, Plaintiff Bank has not made out
a case for relief.
17. Republic Bank v. CA The 24-hour clearing house rule is valid rule applicable to commercial banks. It is true
that when an indorsement is forged, the collecting bank or last endorser, as general
rule, bears the loss. But the unqualified endorsement of the collecting bank on the
check should be read together with the 24-hour regulation on the clearing house
operation. Thus, when the drawee bank fails to return a forged or altered check to the
collecting bank is absolved from liability. Unless an alteration is attributable to the
fault or negligence of the drawer himself, such as when he leaves spaces on the check
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which would allow the fraudulent insertion of additional numerals in the amount
appearing thereon, the remedy of the drawee bank that negligently clears a forged
and/or honor altered check for payment is against the party responsible for the
forgery or alteration, otherwise, it bears the loss. It may not charge the amount so
paid to the account of the drawer, if the latter was free from blame, nor recover it from
the collecting bank is the latter made payment after proper clearance from the
drawee.
18. Phil. Commercial International Bank v. G.R. No. 121413/G.R. No. 121479
CA
PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a collecting bank
has been negligent in verifying the authority of Rivera to negotiate the check. It failed
to ascertain whether or not Rivera can validly recall the check and have them be
replaced with PCIB’s manager’s checks as in fact, Ford has no knowledge and did not
authorize such. A bank (in this case PCIB) which cashes a check drawn upon another
bank (in this case Citibank), without requiring proof as to the identity of persons
presenting it, or making inquiries with regard to them, cannot hold the proceeds
against the drawee when the proceeds of the checks were afterwards diverted to the
hands of a third party. Hence, PCIB is liable for the amount of the embezzled check.
G.R. No. 128604
PCIB and Citibank are liable for the amount of the checks on a 50-50 basis.
As a general rule, a bank is liable for the negligent or tortuous act of its employees
within the course and apparent scope of their employment or authority. Hence, PCIB
is liable for the fraudulent act of its employee who set up the savings account under
a fictitious name.
Citibank is likewise liable because it was negligent in the performance of its
obligations with respect to its agreement with Ford. The checks which were drawn
against Ford’s account with Citibank clearly states that they are payable to the CIR
only yet Citibank delivered said payments to PCIB. Citibank however argues that the
checks were indorsed by PCIB to Citibank and that the latter has nothing to do but to
pay it. The Supreme Court cited Section 62 of the Negotiable Instruments Law which
mandates the Citibank, as an acceptor of the checks, to engage in paying the checks
according to the tenor of the acceptance which is to deliver the payment to the
“payee’s account only”.
But the Supreme Court ruled that in the consolidated cases, that PCIB and Citibank
are not the only negligent parties. Ford is also negligent for failing to examine its
passbook in a timely manner which could have avoided further loss. But this
negligence is not the proximate cause of the loss but is merely contributory.
Nevertheless, this mitigates the liability of PCIB and Citibank hence the rate of
interest, with which PCIB and Citibank is to pay Ford, is lowered from 12% to 6% per
annum.
19. Ilusorio v. CA Sec. 23 of the Negotiable Instruments law provides that a forged check is inoperative,
meaning there was no right to enforce payment against any party. But it also provides
an exception: “unless the party against whom it is sought enforce such right is
precluded from setting up the forgery or want of authority”.
To be entitled to damages, Ilusorio has the burden of proving that the bank was
negligent in failing to detect the discrepancy in the signatures on the checks. Ilusorio
had to establish the fact of forgery which he failed to do by failing to submit his
specimen signatures for NBI to conclusively establish forgery.
Furthermore, the Bank was not negligent in verifying the checks as they verified the
drawer’s signatures against their specimen signatures and in doubt, referred to more
experienced verifier for further verification.
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On the contrary, it was Ilusorio who was found to be negligent. He accorded his
secretary with an unusual degree of trust and unrestricted access to his finances.
Furthermore, despite the fact that the bank was regularly sending statements of
account, he failed to check them until he found out that his secretary was using his
credit cards.
20. Samsung Construction v. FEBTC & CA Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law
states that a forged signature makes the instrument “wholly inoperative”. If payment
is made the drawee (Far East) cannot charge it to the drawer’s account (Samsung).
The fact that the forgery is clever is immaterial. The forged signature may so closely
resemble the genuine as to defy detection by the depositor himself. And yet, if the
bank pays the check, it is paying out with its own money and not of the depositor’s.
This rule of liability can be stated briefly in these words: “A bank is bound to know its
depositor’s signature.” The accusation of negligence on the part of Samsung was not
clearly proven. Absence of proof to the contrary, the presumption is that the ordinary
course of business was followed.
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Atty. C.

B. Whether the CTDs’ negotiation require delivery only.

3. Drafts signed are bills of exchange

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Atty.​ ​C.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​B.​ ​ ​ ​ ​Whether​ ​the​ ​CTDs’​ ​negotiation​ ​require​ ​delivery​ ​only.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​3.​ ​ ​ ​Drafts​ ​signed​ ​are​ ​bills​ ​of​ ​exchange

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Atty. C.

B. Whether the CTDs’ negotiation require delivery only.

3. Drafts signed are bills of exchange