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NEGOTIABLE INSTRUMENTS LAW
The NCC provides that obligations shall
be paid in Philippine currency and no
person can be compelled to accept a
check (which is a Negotiable
Instrument) as payment of obligation
because checks / Negotiable
Instruments do not have legal tender
power, but they are only substitutes
for money.
 EXN: negotiable instrument
is valid if it is used to
exercise a right to redeem.
 SC said that the tender of a
check (even a personal check)
to exercise right to redeem is
valid because the check was not
issued to pay an obligation but
to exercise a right under the law
(right to redeem). This
suspends the prescriptive period
of the right to redeem.
Unique Feature of Negotiable Instrument (NI)
1. The instrument itself is be negotiated.
 unlike, non-nego instruments, transfer is done
thru the execution of another document (e.g. Deed
of Sale)
 what is transferred are your rights not
the instrument itself
2. Can a MINOR (infant, in NIL) be a payee in a
Negotiable Instrument? YES. Can a minor be an
indorser? YES.
 BUT in OBLICON (NCC), hindi pwede.
 Only in NIL
 The minor has the right to transfer the
negotiable instrument but the minor could
not be made liable because of lack of
consent
 This is also an important feature of a
negotiable instrument
3. juridical person
 may transfer NI even without authority
 Transfer is valid but CANNOT proceed
against the person who signed for lack of
authority
 BUT the corporation is still liable
 credit card, letter of credit, Bill of Lading,
PMO are not negotiable instruments.
 Letter of credit- financial
engagement by bank to pay seller
under it conditions for the seller
present Bill of Lading/Warehouse
Receipt to the bank. Letter of
credit is independent from the
contract of sale between buyer and
seller following the independence
rule (where the contract of sale is
separate and distinct from the
letter of credit).
 Bill of Lading- contract and receipt of
goods issued by common carrier.
Characteristics of Negotiable Instrument:
1) Accumulation (indorsement) of
contracts;
2) Substitute for money, not legal
tender.
General Classification of NI:
1. Negotiable Promissory Note (PN)
- 2 parties (maker- payee)
- common thinking: PN is automatically a
bearer instrument- NOT NECESSARILY
- it may either be payable to order or
bearer (e.g. I promise to pay X or order 
Order Instrument)
- it is the “promise” to pay
Sec. 184. Promissory note, defined. - A negotiable
promissory note within the meaning of this Act is an
unconditional promise in writing made 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. Where a note is drawn to the maker's own
order, it is not complete until indorsed by him.
2. Negotiable Bill of Exchange (BOE)
- 3 parties (drawer- drawee- payee)
- drawer – nag-issue ng instrument
- drawee – naatasan magbayad upon
acceptance
- payee – babayaran
Sec. 126. Bill of exchange, defined. - 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.
- Bill of Exchange is not an assignment of
funds in the hands of drawee
- Payee has no right against the drawee
unless accepted/cleared.
- Bill of exchange may be treated as
Negotiable Promissory Note if drawer and
drawee are the same or drawee is
fictitious
- Checks are special kinds of Bills of Exchange.
Cashier’s/Manager’s checks are
good as cash (SC). If a check
is cert ified it is equiv al e nt t o
acceptance because the bank
issuing it commits its total
resources and not the account of
the depositor- as PN of bank.
 here, the bank is the maker of
the instrument
 it’s the bank resources which
would be used to pay the
instrument
When you receive a Negotiable Instrument, check
the following:
1. Check whether it is an order or bearer
instrument
2. Check if requirements under Sec 1 of the
NIL were complied with to determine if it
is indeed a negotiable instrument
Elements of NI:
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;
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(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.
Stages/Cycle of NI:
1. Issuance of NI
- a negotiable instrument is drawn
- Question: DO the parties have the capacity to give
consent?
 e.g. Corporation
-must be represented by an authorized
signatory
-Is he authorized under the by laws? What
is his position?
-authority must be signed by majority of
the Board in a board resolution
-hindi porke president, authorized na
kaagad! This is not automatic.
-similar with transferring an asset of the
corporation
-the corporation could either be a drawer
or a payee
2. Negotiation
Negotiation- is the transfer of the
Negotiable Instrument from one person to
another.
If payable to bearer, negotiation is by
delivery;
If payable to order, negotiation is by
indorsement completed by delivery.
 Indorsement may be written on the
negotiable instrument or upon ALLONGE (an
attached paper).
Kinds of Indorsement:
Special - indorsement to a specific person
Pay to X
Sgd. Z
Restrictive – the word “only” would make it
restrictive; here, subsequent indorsees to Z
are not anymore holder in due course
because the further transfer was already
stopped by the restrictive indorsement
Pay to X only
Sgd. Z
Qualified
Pay to X without recourse
Or
Pay to X sans recourse
Sgd. Z
- Can this be further transferred?
 YES, however, you cannot proceed against
those persons who qualified their
indorsements
Conditional- it’s ok to impose condition ON
THE INDORSEMENT. This won’t affect the
negotiable character of the instrument
because indorsement is merely a secondary
contract to the principal contract embodied in
the NI. Hence, the NI is unconditional only in
so far as the principal is concerned.
Pay to X if he passes the bar
Sgd. Z
Here, the principal is still liable to pay.
 What will happen if condition is not
fulfilled?
 THE PRINCIPAL CAN ALWAYS DISREGARD
THE CONDITION AND PAY THE
INSTRUMENT.
However, those secondarily liable can put up
the defense of condition was not met
3. Presentment
- when the instrument is already due for payment,
indorsement must stop. Next step is to present the
instrument either for acceptance or for payment.
-To whom do you present? To the PRINCIPAL, one
who is primarily liable to the instrument (e.g.
maker, if Promissory Note [PN]), and acceptor, if Bill
of Exchange [BOE])
- otherwise, YOU CANNOT EXERCISE YOUR RIGHT
OF RECOURSE against parties secondarily liable to
the instrument
- (1) PRESENTMENT FOR PAYMENT
Presentment for payment is made by a
holder of negotiable instrument
This is necessary to charge the Drawer
and Indorsers as persons secondarily
liable, whether or not the negotiable
instrument is dishonoured by principal for
non- payment. (Jeje)
 kahit alam mong hindi ka babayaran, i-present
mo pa rin
 when not paid, next step is to send Notice of
Dishonor to persons secondarily liable
(drawer/indorser)
 the Holder has right of recourse against
all parties secondarily liable, such as
Drawer/Indorsers provided Notice of
Dishonor is given= with exceptions.
- (2) PRESENTMENT FOR ACCEPTANCE
 Usually for Bill of Exchange
 BUT you must present the instrument only, when:
Sec. 143. When presentment for
acceptance must be made. –Presentment
for acceptance must be made:
(a) Where the bill is payable after sight, or
in any other case, where presentment for
acceptance is necessary in order to fix the
maturity of the instrument; or
AFTER SIGHT
 e.g. Pay to X 100 days after sight
 present for acceptance first
 100 days from acceptance babayaran
ibig sabihin
(b) Where the bill expressly stipulates that
it shall be presented for acceptance; or
 e.g. Pay to X provided it is accepted
(c) Where the bill is drawn payable
elsewhere than at the residence or place
of business of the drawee.
 e.g. BPI is the acceptor, but it was
expressed in the NI that the instrument is
payable in BPI Davao
 hence, don ka pumunta, don ka
babayaran
 Note: never present for payment to
persons secondarily liable agad-agad,
otherwise, they are deemed relieved from
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liability
In no other case is presentment for
acceptance necessary in order to render
any party to the bill liable.
- if not needed to present under Sec 143,
presentment for payment directly!
EXN: CHECKS (special kind of Bill of Exchange) 
while it is not specifically provided for under the NIL
that a check must be presented first, Banking Laws
provide for CLEARING of checks. This is also
acceptance.
 if ordinary Bill of Exchange, if it does not fall
under Sec. 143 above, presentment for payment
rekta na!
Effect of Non-Presentment
 ALL PERSONS SECONDARILY LIABLE ARE
RELIEVED FROM LIABILITY
WHAT IF nawawala si principal? So walang mag-a-
accept, ganon nalang yon?
 NO. You should exert efforts to locate that
principal. e.g. thru NBI, police
 hindi dapat manggaling sayo ang conclusion na
nawawala ang principal
Paano kung namatay naman?
 You find representatives of the family.
 You have two courses of action:
1. File your claim against the estate
2. Ipapirma mo nalang na hindi nila
binayaran so you can exercise your right
of recourse against persons secondarily
liable to the instrument
 better to choose option No. 2, matagal ang estate
proceedings
4. Notice of Dishonor/Protest
If you were not paid by the principal, ALWAYS
ISSUE A NOTICE OF DISHONOR, if local, or NOTICE
OF PROTEST, if the instrument is a foreign bill of
exchange.
 foreign BOI, issued here in the Philippines
payable abroad or vice versa
 Protest is the same as a Notice of
Dishonor, made by notary,
respectable resident of place of
dishonour
NIs are international in nature- as long as it is
issued by a national of another country with whom NOTE: a CHECK becomes stale after 6
we have diplomatic relations  foreign na yan! months. Does this discharge the
document? YES. But does this discharge
What if Notice of Dishonor/Protest was made the obligation to pay? NO.
orally? Kunwari tinawagan ko lang sa telepono.
 OK, if ordinary BOE lang Sec. 119. Instrument; how discharged. -
 if check, Notice of Dishonor needed! A negotiable instrument is discharged:
You must prove that there is a Notice of Dishonor (a) By payment in due course by or on
because absence of which can be put up as defense behalf of the principal debtor;
of persons secondarily liable to the instrument.
(b) By payment in due course by the party
What if ayaw tanggapin ang Notice of accommodated, where the instrument is
Dishonor/Protest? made or accepted for his
 2 ways: accommodation;
1. Publish in a newspaper of general
circulation (c) By the intentional cancellation thereof
 this is notice by the holder;
2. Send by mail
 see to it na matatanggap! (d) By any other act which will discharge a
simple contract for the payment of
money;
5. Discharge of the Negotiable Instrument
(e) When the principal debtor becomes
the holder of the instrument at or after
1) By payment of principal;
maturity in his own right.
2) Payment of accommodated party,
if principal;
3) Intentional cancellation by Brief Liability/Warranties of Parties to NI:
holder; (memorize!)
4) Any other act;
1. Drawer
5) Novation; - admits existence of payee/capacity to indorse
o Changes the terms and (Gapuz)
conditions of the instrument
o This discharges the original Sec. 61. Liability of drawer. - The drawer by
contract drawing the instrument admits the existence of the
o BUT party concerned is still payee and his then capacity to indorse; and
liable to the NEW obligation engages that, on due presentment, the instrument
6) Prescription; will be accepted or paid, or both, according to its
tenor, and that if it be dishonored and the
7) Principal becomes holder; necessary proceedings on dishonor be duly taken,
8) Renunciation. he will pay the amount thereof to the holder or to
o This is likened to a donation any subsequent indorser who may be compelled to
o Requisites: pay it. But the drawer may insert in the instrument
 1. No conditions an express stipulation negativing or limiting his
imposed own liability to the holder.
 2. It must be
accepted 2. Drawee / Acceptor
- admits genuineness of drawer’s
But payment by a party secondarily signature (Gapuz)
liable, like indorser, does not
discharge the negotiable instrument. Sec. 62. Liability of acceptor. - The
(Jejenotes) acceptor, by accepting the instrument,
engages that he will pay it according to
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the tenor of his acceptance and admits:
(a) The existence of the drawer, the
genuineness of his signature, and his
capacity and authority to draw the
instrument; and
(b) The existence of the payee and his
then capacity to indorse.
Think of a check:
Drawee
Pay to the order of
XX (payee)
Sgd YY (drawer)
- at this stage, wala pang liability si
drawer
- before paying, drawee will have to check
the check first
- once it accepts the check, then it
becomes an acceptor, the one primarily
liable to the instrument
 if drawee dishonors the
instrument, drawer is
secondarily liably
- once accepted, the acceptor now
warrants the genuineness of the
signature of the drawer
- kung hindi pala genuine ang signature ni
drawer, but the drawee accepts the
check, the drawee must pay the payee
because of the drawee/acceptor’s
warranty (that it admits the genuineness
of drawer’s signature)
- BUT the drawer cannot be held liable
- the drawee cannot charge the account of
the drawer
- BUT remember: THE PAYEE HAS NO
CONTRACT WITH THE DRAWEE UNTIL THE
DRAWER ACCEPTS
e.g.
Drawer’s Account - P100,000
Amount of Check - P 20,000
Bal. of Drawer - P 80,000
-nagreklamo si Drawer, forged daw ang
signature niya so it is wholly inoperative
as to him
-hence, the drawee-bank cannot charge
the account of drawer
-BUT once the drawee-bank accepted the
check, relationship between it and the
payee amounts to a debtor-creditor
relationship
3. Indorser
- warrants prior indorsements, etc.
(Gapuz)
4. Maker
- engages to pay promissory note
(jejenotes)
Sec. 60. Liability of maker. - The maker of
a negotiable instrument, by making it,
engages that he will pay it according to its
tenor, and admits the existence of the
payee and his then capacity to indorse.
5. Accommodation Party
- signs as maker, drawer, acceptor,
indorser without receiving value for his
signature, merely lends his name-surety
(jejenotes)
Sec. 29. Liability of accommodation
party. - An accommodation party is one
who has signed the instrument as maker,
drawer, acceptor, or indorser, without
receiving value therefor, and for the
purpose of lending his name to some
other person. Such a person is liable on
the instrument to a holder for value,
notwithstanding such holder, at the time
of taking the instrument, knew him to be
only an accommodation party.
Is an accommodation party liable to the instrument?
YES
What if nagpa-accommodate ka kay Dean. Sabi ni
Dean, bayaran mo ko ng P10,000 for the
accommodation. Can he still be considered as an
accommodation party? E diba nga “without receiving
value therefor” ito? YES, still accommodation party!
 because the P10,000 payment for accommodation
in the example is not to be fleshed out from the
instrument
 e.g. 1M ang payable sa instrument, pero hindi
sinabi ni Dean na doon niya kukunin sa P1M yung
P10,000 na hinihingi niya sayo, hence,
accommodation party pa rin siya!
 pero pag sinabing P10,000 OUT OF THE
INSTRUMENT – OUT OF THAT P1M, ito, hindi na siya
accommodation party
What is the liability of accommodation party and
accommodated party? THEY JOINTLY AND
SEVERALLY LIABLE (SOLIDARY)
What if a holder of a negotiable instrument
presented it to the principal but said principal
subsequently dishonored it for non-payment, can
you proceed against the accommodation party?
 YES, accommodation party is solidarily
liable with the accommodated party,
provided there is Notice of Dishonor
What if the accommodatED party paid the
instrument? Does this discharge the instrument?
 IT DEPENDS
 Determine first what is the liability of the
accommodated party
 If he is PRINCIPALLY liable, his payment
discharges the instrument
 If SECONDARILY liable, does not
discharge the instrument
When is Negotiable Instrument Payable to
Bearer?
Sec. 9. When payable to bearer. - The
instrument is payable to
bearer:
(a) When it is expressed to be so payable;
or
(b) When it is payable to a person named
therein or bearer; or
(c) When it is payable to the order of a
fictitious or non-existing person, and such
fact was known to the person making it so
payable; or
(d) When the name of the payee does not
purport to be the name of any
person; or
(e) When the only or last indorsement is
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an indorsement in blank.
When is Negotiable Instrument payable to
order?
Sec. 8. When payable to order. - The
instrument is payable to order where it is
drawn payable to the order of a specified
person or to him or his order. It may be
drawn payable to the order of:
(a) A payee who is not maker, drawer, or
drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time
being.
Where the instrument is payable to order, the payee
must be named or otherwise indicated therein with
reasonable certainty.
When Negotiable Instrument is PAYABLE OUT OF
A PARTICULAR FUND?
It is not unconditional, therefore not
negotiable.
EXN: But when REIMBURSABLE out of a
particular fund- it is unconditional;
considered as a Negotiable Instrument.
Sec. 3. When promise is unconditional. - An
unqualified order or promise to pay is
unconditional within the meaning of this Act
though coupled with: XXX
(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; XXX
But an order or promise to pay out of a
particular fund is not unconditional.
e.g. “I promise to pay M or order out of the
proceeds of the sale of my house and lot.”
 not negotiable
 but should this be reimbursable, “I promise to
pay M or order REIMBURSABLE out of the proceeds
of the sale of X’s house and lot”
 dito, babayaran mo out of your fund… na you can
reimburse later out of the proceeds of the sale, so
unconditional payment parin
 YES, negotiable!
Negotiable Instrument be issued for a valuable
consideration:
Consideration is presumed. Lack of
consideration; illegal consideration;
insufficient consideration are personal
defenses of party liable (not to pay)
against a holder not in due course.
An Accommodation Party (signs as
Maker, Drawer, Indorser without
receiving value therefore but to lend his
name to somebody) is liable to a holder
for value despite knowledge of being an
Accommodation Party.
Date of Negotiable Instrument is not
essential because Holder may insert the
true date of issue / deemed payable on
demand. Date is important only to
determine whether Negotiable instrument
is overdue or not (maturity). Ante/post
dating allowed.
Sec. 13. When date may be inserted. - Where an
instrument expressed to be payable at a fixed
period after date is issued undated, or where the
acceptance of an instrument payable at a fixed
period after sight is undated, any holder may
insert therein the true date of issue or acceptance,
and the instrument shall be payable accordingly.
The insertion of a wrong date does not avoid the
instrument in the hands of a subsequent holder in
due course; but as to him, the date so inserted is
to be regarded as the true date.
Sec. 12. Ante-dated and post-dated. - The
instrument is not invalid for the reason only that it is
ante-dated or post-dated, provided this is not done
for an illegal or fraudulent purpose. The person to
whom an instrument so dated is delivered acquires
the title thereto as of the date of delivery.
Forgery:
Sec. 23. Forged signature; effect of. - When a
signature is forged or made without the authority of
the person whose signature it purports to be, it is
wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto,
can be acquired through or under such signature,
unless the party against whom it is sought to
enforce such right is precluded from setting up the
forgery or want of authority.
When a signature is FORGED or, even if
genuine, if made without consent that
signature,
1. it is WHOLLY INOPERATIVE, and
2. the holder has no right to retain,
discharge, enforce,
EXN: unless forged signatory is
precluded from setting up defense of
forgery:
e.g.
1. want of authority
2. estoppel
3. gross negligence
4. waiver
This rule in forgery applies only to
the signature as against any holder,
whether a Holder in Due Course or Holder
Not in Due Course, as real defense of
forged signatory.
 Forgery is a real defense of any
party PRIOR to the forgery.
Rule on Alteration (Don’t Confuse with
Forgery)
Sec. 124. Alteration of instrument; effect of. -
Where a negotiable instrument is materially altered
without the assent of all parties liable thereon, it is
avoided, except as against a party who has himself
made, authorized, or assented to the alteration and
subsequent indorsers.
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, he may enforce payment
thereof according to its original tenor.
Sec. 125. What constitutes a material alteration.
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- Any alteration which
changes:chanroblesvirtuallawlibrary
(a) The date;
(b) The sum payable, either for principal or
interest;
(c) The time or place of
payment:chanroblesvirtuallawlibrary
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to
be made;
(f) Or which adds a place of payment where no
place of payment is specified, or any other change
or addition which alters the effect of the instrument
in any respect, is a material alteration.
The rule in alteration applies to other
material particulars of the Negotiable
Instrument, like:
- Amount
- Interest
- dates which changes the effect
of the Negotiable Instrument
If the alteration is material, it is avoided
as against the party who did not
consent to the alteration
 said party is not liable because
he can set it up as personal
defense
 But if the ALTERED
NEGOTIABLE INSTRUMENT is in
the hands of a Holder in Due
Course, he may enforce it in
accordance with its original
tenor.
 Note: This rule in alteration does
not apply to the alteration of
serial number of a check (SC).
[jurisprudence]
Effect of Forgery:
Order Instrument
 Drawer’s signature forged
When a Negotiable Instrument is payable
to ORDER and signature of maker/drawer
is forged, the last holder/payee,
cannot enforce the negotiable
instrument against the maker/drawer
because that signature is wholly
inoperative or null/void against
maker/drawer.
 Payee’s signature forged
If the signature of maker/drawer is
genuine but the signature of the original
payee (if payable to order) was forged by
indorser and subsequently indorsed
further, the last holder/payee cannot
enforce the negotiable instrument
against the maker/drawer and the
original payee, as prior parties, even if
their signatures are genuine because
indorsement is necessary, applying the
CUT- OFF RULE.
That the last holder/payee did not have
the right to retain, enforce, discharge the
negotiable instrument and did not acquire
a valid title from the original payee
whose signature was forged because
indorsement is necessary. Also, it is
void/wholly inoperative as real defense
of any party prior to the forgery.
The remedy of the last holder/payee is to
proceed against his immediate
indorser/s or parties SUBSEQUENT
to the forged indorsement.
e.g.
M  A  B  C  D  E
1. Suppose M issued an order instrument
2. D is now the holder
3. C forged the signature of B
4. To whom should E enforce instrument?
Kanino mo i—p-present yan?
 TO M, the maker, the one principally
liable
 Present first to the MAKER ALWAYS so
that you can exercise your right of
recourse against parties secondarily liable
5. Next step. Notice of Dishonor to
persons secondarily liable.
6. Take note. B’s signature was forged by
C, so where is the CUT –OFF RULE?
 E can only enforce against C and D
M  A  B  C  D  E
 since this is an order instrument,
indorsement is required
 indorsement (in which signature was
forged) is WHOLLY INOPERATIVE against
parties (M. A, B) prior to forgery
 M, A, B are CUT OFF!!!
What if insolvent si C & D? Wala na? WALA
NA!
 Because E accepted the
instrument without inquiring
 Hence, you took the risk!!!
Pano pag si B ang nag-forge or si A?
 Ganon pa rin. CUT OFF parties
prior to forgery.
Would it be the same if bearer
instrument?
Bearer Instrument
 Payee’s signature forged
If the negotiable instrument is payable to
bearer, here, indorsement is not
necessary, unlike in order instrument. If
genuinely signed by the maker/drawer but
the signature of payee, as bearer, is
forged, the last holder/payee can
enforce the negotiable instrument
against the maker/drawer because
indorsement is not necessary in
bearer negotiable instrument.
 the mode of transfer here is MERE
DELIVERY
 once bearer instrument, it is bearer
instrument all throughout,
notwithstanding indorsement thereof
 hence, E, in the above example,
should it be bearer instrument, CAN
PROCEED AGAINST M regardless of
forgery dahil di naman kailangan ang
indorsement na may signature para mai-
transfer/negotiate ang isang bearer
instrument
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Bill of Exchange
What if BOE naman, the drawer is always
the bank!
First step: Tanong kung order or bearer
instrument.
 In case order instrument, alamin
kung sino ang nag-forge para
malaman sino ang kasama sa
CUT-OFF rule
EXN: if precluded from setting up the
defense of forgery e.g. pumayag ka later
on, “sige na nga bayaran ko na!”
Summary of Rules in Forgery:
1) Applies only to signatures.
Forgery is a real/absolute
defense of a person whose
signature is forged because he
did not give his consent
thereto. While alteration is the
change of material particulars of
negotiable instrument, amount,
date, interest but not for the
serial number of check.
2) CUT OFF RULE applies because
the last holder/payee did not
acquire a valid title from the
original payee because his
indorsement, which was forged,
is necessary to transfer the
instrument to the next payee.
Hence, parties prior to the
forgery are cut off from persons
to whom the last holder may
enforce the instrument.
3) When a negotiable instrument is
payable to bearer and the
signature of maker/drawer is
genuine not forged, but
signature of original payee is
forged, the last holder/payee
can enforce the negotiable
instrument against the
maker/drawer because
indorsement is not necessary in
a negotiable instrument payable
to bearer.
(c) That he took it in good faith and for
value;
REAL DEFENSE
 Fraud in facto (d) That at the time it was negotiated to
 Forgery him, he had no notice of any infirmity in
 Incomplete and undelivered instrument the instrument or defect in the title of the
o Pwedeng ninakaw lang, person negotiating it.
pagkatapos finill-up-an
-in so far as the owner of the check is concerned,
he can set up the real defense against the whole BP 22, anti- money laundering checks
world, against the res (can be invoked against law- not unconstitutional because
ANY PARTY whether holder in due course what the law punishes is not the non-
or not.) payment of debts but the mere issuance of
-but in so far as the other parties are concerned, worthless/bad checks.
they may be held liable
-such defense is only as to one person BP 22 elements:
-another scenario is when the signature of the
drawer is genuine. However, it can likewise be
1) Check issued to apply on
account/for value;
wholly inoperative as to him as when he did not give
his full consent (vitiated). “Hoy, pirmahan mo to!” 2) Knowledge of insufficiency of
funds and check bounced for
 in order to set up real defense,
DAIF, closed account;
 go back to the elements of a contract
1. Consent 3) Stop payment without valid
2. Object reason
3. Consideration
4) Fails to maintain funds for 90days.
BP 22 requirements:
PERSONAL DEFENSE
 A personal defense (like lack of 1) That the check is issued to apply
consideration) can be interposed by the on account or for value;
party liable, like maker, if the holder is
not a holder in due course.
2) Written Notice of dishonour is
required in order to give the
drawer sufficient time to pay/
-- settle check within 5days,
otherwise, “knowledge of
General Rule: Holder of negotiable
insufficiency of funds” is
instrument is presumed as Holder in Due
established
Course (EXCEPTIONS,
estoppel/did not receive notice
Who is a Holder in Due Course?
of dishonour/ check was issued
to comply with warranty/
Sec. 52. What constitutes a holder in due guaranty requirement/ that
course. - A holder in due course is a
check was issued only to show
holder who has taken the instrument drawers commitment of
under the following conditions:
partners share in a partnership
agreement/ check was merely
(a) That it is complete and regular upon
issued to facilitate collection in a
its face;
consignment, business etc.)
In short, these checks were not issued for
(b) That he became the holder of it before
value or a/c. Here, the drawer of
it was overdue, and without notice that it
bounced check is not liable under BP 22
has been previously dishonored, if such
but is still civilly liable. Deceit is not an
was the fact;
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element in BP 22.
Estafa/Swindling in bouncing checks, PRC, Art.
315, 2d, elements:
Fraud/deceit, and damage by
postdating/issuing of check prior
or simultaneous with the false
pretence or fraudulent
knowledge of insufficient funds
to cover check. Failure to pay/
settle bounced check within
3days from notice of dishonour
establishes DECEIT/or
knowledge of insufficient funds.
Crime of Estafa under RPC, 315,2d, is
committed by the Drawer/Issuer who
deceives the offender party/payee into
parting with his property/cash by
flashing his check that the efficient
cause of the defraudation is the issuance
of the bad check that the
payee/offended party was induced to
part with his property/cash because of
the check, which bounced later. The
element of deceit to constitute estafa
must be the efficient cause of the
defraudation. There is no estafa if check
was issued in payment of a pre- existing
obligation. If a crime of estafa is
established. Offender can be prosecuted
also under BP 22= No jeopardy.
Venue:
Shall be instituted and tried in the
city/municipality where offense was in
part committed, a transitory or
continuing crime.
SOME IMPORTANT SC RULINGS TO REMEMBER:
Gonzales vs. PCIB, 644 scra:
Accommodation Party- is one who signs
the negotiable instrument as maker,
drawer, acceptor, indorser without
solidary liable.
Dinovs. Judal- Loot , 618 scra and PCIB vs.
Balmaceda, 658 scra:
Crossed Checks- are negotiable
instruments with 2 parallel lines across
its corner. Effects: it may not be
encashed but deposited, may be
negotiated once to one who has act? with
bank, it serves as warning to the
holder that the check is issued for a
definite purpose. Payee must inquire if
he received the check pursuant to that
purpose, otherwise, he is a holder not in
due course.
Mitra vs. People, 623 scra:
Check is a negotiable instrument that
serves as a substitute for money and as
a convenient form of payment in
financial transactions.
Equitable Bank vs. Tan, 628 scra:
The purpose for the issuance of check
has no legal connection with the date of
the check.
Cayanan, 658 scra:
In fact a check is presumed issued for a
valuable consideration (right, interest,
profit, benefit)
SMC vs. Puzon, 631 scra:
Delivery of a check to a party entitled to
it is for the purpose of giving effect
thereto and non- delivery does not
render the check as non- negotiable.
Pantaleon vs. American Express, 629 scra:
Credit cards are not negotiable
instruments because it is only a device
to obtain credit. It involves 3 contracts:
sales contract; loan agreement;
promise to pay to a specific person.
In Firaza vs. People, 518 scra:
SC said that in case of Estafa on
bounced checks,
payment/settlement/compromise on
the bounced check does not
acquit/obliterate the criminal liability
(6yrs. to 30yrs. imprisonment) but
merely extinguishes the civil liability.
Metrobank vs. Cablizo, 510 scra:
This is a clear case of MATERIAL
ALTERATION. The Drawer, issued payable
to CASH, was deposited for payment to
Westmont Bank, as Collecting Bank. The
amount was altered to P91,000.00 and
date was altered to Nov. 24. Metrobank
cleared the amount of P91, 000. 00 and
deducted the amount of P90, 000. 00 buit
bank refused alleging that Westmont
Bank, the collecting bank- indorser
should bear the loss as indorser. SC
reiterated the duty of banks to exercise
the highest degree of fidelity/ UTMOST
DILIGENCE to its clients/depositor and
ordered Metrobank to credit the amount
of P90, 000. 00 without prejudice to an
action by Metrobank against Westmont
Bank, the collecting bank, as the last
indorser that when the instrument
materially altered and in hands of holder
in due course, it may enforce payment
according to ORIGINAL TENOR. That
payment made under a materially altered
instrument is not payment done in
accordance with the drawers order.
Gonzales vs. RCBC, 508 scra:
This is a case of IRREGULAR
INDORSEMENT of a check, wherein the
SC ruled that RCBC as irregular indorser
and collecting bank, by making
annotation as qualified indorsement
should bear the loss because RCBC by
indorsing the check to the US Bank
warrants all prior indorsement (sect.
66). Also, RCBC as indorser which
caused the defect cannot have a
recourse against prior
indorsers/Gonzales in god faith RCBC’s
recourse should be against the drawee
bank.
In Allied Bank vs. CA, 494 scra:
SC ruled that while indorsers are
secondarily liable, indorrser becomes
primarily liable in case Drawer fails to
pay/dishonors negotiable instrument.
In a similar case, Tuason vs. Heirs of
Ramos, 463 scra, the SC reiterated
that if a check issued by drawer was
indorsed by the original payee, Tuason,
as indorser to Ramos as indorsee, if
check is dishonoured, the
holder/indorsee can sue the indorser
Tuason even without impleading the
drawer Santos, as a prerequisite.
In Citibank vs. Sabeninno, 504 scra and in
Equitable PCI vs. Ong, 502 scra: The SC
emphasized that managers checks are
drawn by the bank Manager upon the
funds of the bank itself and regarded as
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cash. Also, a crossed check cannot be
presented to the drawee bank for
payment in cash because it is only
intended for deposit which in turn will be
paid by the drawee bank.
In Nuguid vs. Nicdao, 502 scra:
SC reiterated that the gravamen of BP
22 is the act of making, drawing, issuing
a worthless check or one dishonoured for
non- payment and drawer failed to satisfy
or make arrangements for its payment
within 5days from date of Notice of
Dishonor.
In International Corporation Bank vs. CA,
501 scra:
The SC reiterated an earlier ruling that
alteration in the serial number of various
checks issued by the DepEd in the total
amount of Php1, 447M, does not
constitute material alteration and
therefore drawee bank PNB had no right
to dishonour the checks or return them
to them to the collecting bank.
International Corp. Bank, which had
already paid the payees. Material
alteration alters the effect of the
instrument or an unauthorized change
which modifies the obligation of a party.
Also, CB circular 580, provides that
dishonoured checks must be returned by
the drawee bank to the collecting bank
within 24hrs. otherwise it is considered
as cleared.
In Miranda vs. PDIC, 501 scra:
Where 2 cashiers’ checks worth Php5.5M
were issued by an insolvent Bank to a
depositor, is in bad faith because the
bank is fully aware that it was already
insolvent. Therefore the 2 cashiers’
check of Php5.5M did not constitute an
assignment of funds on favor of the
payee because bank had no funds at the
time of its issue. If the bank was not
insolvent at that time the drawing of
the cashiers’ checks is equity to
assignment of funds of the bank in favor
of a payee/depositor.
In Tan vs. People, 500 scra:
The SC emphasized the elements of BP
22 and for the presumption to arise, the
prosecution must prove the following:
1) Check is presented within 90days
from date of check;
2) Drawer receives notice of
dishonour;
3) Drawer fails to pay/arrange
payment within 5 banking days
after receipt of notice of
dishonour.
However, the basic elements to prove that
there is a prima facie case, are:
1) A person makes/draws a check
to apply on account or for
value with knowledge of
insufficiency funds;
2) Check is dishonoured for
insufficient funds;
3) Ordered “stop payment” without
valid reason; or
4) Having sufficient funds or credit
but fails to maintain funds/credit
within 90days from date and
dishonoured by the bank.
Alferez vs. People, 641 scra:
SC emphasized the elements of BP 22 as
1) Making, drawing, issuance of a
check TO APPLY ON ACCOUNT or
FOR VALUE;
2) Knowledge of insufficiency of
funds;
3) Subsequent dishonour of check by
drawee for DAIF or for “stop
payment”.
That Notice of Dishonor is important to
establish “knowledge” receipts for
registered letters and return receipts
do not by themselves prove receipt of
Notice of Dishonor, they must be
authenticated to serve as proof of
receipt of Notice of Dishonor. If
acquitted, drawer still civilly liable.
People vs. Moutaner, 656 scra:
Whereas, in ESTAFA for bouncing checks
under art. 315, 2d of the RPC, elements
are:
1) Postdating/issuance of check in
payment of obligation
contracted at the time check
was issued;
2)
Insufficiency of funds to cover
check;
3) Damage to the payee.
Failure to settle bounced check within
3days from receipt of Notice of Dishonor
gives rise to a prima facie evidence of
deceit, which is an element of estafa
constituting false pretense or fraudulent
act.
In Oriel Magno vs. CA, 210 scra:
It was proven that the check was merely
issued as a WARRANTY DEPOSIT for the
lease of EQUIPMENTS- therefore, the BP
22 case was dismissed for lack of an
important element of
To apply on account or for value. Also, in
the case of IDOS vs. CA,, 296 scra,
where check was issued as an assurance
for a share in the partnership business
which failed, the SC said that the check
was not issued for value or for an account
but as an assurance for a share or interest
in the partnership agreement= drawer
acquitted.
Villanueva vs. Nite, 496 scra:
A payee- holder of a check cannot sue
the drawee bank if it dishonours a
check. No privity. Instead the payee
should sue the drawer- maker of the
check.
In Arceo vs. People, 495 scra and in Wong
vs. CA, 351:
SC said that the 90days period is not a
necessary element of BP22, if it was
proven that at the time that the check
was drawn there was no sufficient funds
of the drawer in the bank. Also, the
notice of the lawyer to make good the
check within 3days (instead of 5days) is
not fatal because the drawer was given
more than sufficient time (drawer asked
the payee, 7 times, not to deposit the
check) to settle/arrange payment. Also
SC said that loss of the check is not
material. Refer also to Ting vs. CA, 344
scra.
In Saguigit vs. People, 494 scra and in
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Domagsang vs. CA, 347 scra:
SC said that the BP 22 requires that for
the act to be punished, the accused be
notified in writing of the fact of
dishonour of the check in order to give
him time to pay/settle the check within
5days from notice of dishonour.
Chua vs. People, 484 scra and also in
People vs. Hernando, 317 scra:
There is ESTAFA, art. 315, 2d, in this
case. The SC said that the defense of
accused that said checks were merely
issued as collateral and for
accommodation was not considered
because the following elements of estafa
are present –
1) the offender postdated or issued
a check in payment of an
obligation contracted at the
time of issuance meaning the
efficient cause of defraudation
should be PRIOR OR
SIMULTANEOUS with the act of
fraud;
2) That at the time of issuance of
the check, offender had no
funds/insufficient funds/closed
accounts;
3) Payee was defrauded.
The facts show that the case issued by
accused were intended as payments for
items obtained from complainant- that
complainant could not have parted with
her goods in exchange for bum checks.
In another case, Ongson vs. People, 466
scra:
The SC reiterated the elements of BP 22
and the presumption of consideration in
the issuance of checks. That there is
prima facie presumption of knowledge
of insufficiency of funds if notice of
dishonour was given and the drawer did
not pay or arrange payment within 5
days from notice of dishonour. Further,
the SC said courts are vested with the
discretion to impose the penalty.
In Villaluz vs. Ligon, 468 scra:
The SC said that what is punished under
BP 22 is not the failure to pay an
obligation but the issuance of bum
checks or checks dishonoured for
insufficiency of funds.
Roco vs. Contreras, 462 scra:
That the gravamen of the offense under
BP 22 is the act of issuing a worthless
check that is dishonoured and is
payment within 5days from date of
dishonour, is a valid defense.
In the case of Maregomen vs. People, 459
scra:
The SC said that a written Notice of
Dishonor should be given to the drawer,
Maregomen, who was authorized by the
corporation to issue and isgn checks in
the name of the corporation. When the
checks bounced, Maregomen was charged
for violation of BP 22. Her defense was,
she did not receive a notice of dishonour
and that she is a mere employee of the
corporation and did not have sufficient
knowledge on funds of the corporation.
SC said that a mere oral notice of
dishonour is insufficient for conviction
under the law. The law provides that
where there are no sufficient funds with
drawee bank, such fact shall always be
explicitly stated in the notice of dishonour
that the drawer should be notified in
writing of the fact of dishonour. Willy Sia
vs. People, 426 scra. Also the SC
reiterated the importance of notice of
dishonour. Even if a notice of dishonour
was ssent by registered mail if it was not
proven that the drawer recorded the
registered notice of dishonour the
returned registered receipts do not prove
by itself.
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