POLYTECHNIC UNIVERSITY OF THE PHILIPPINES }
COLLEGE OF LAW
COMMERCIAL LAW
NO. 01
(NEGOTIABLE INSTRUMENTS LAW
AND INSURANCE CODE)
PUP BAR REVIEW CENTER
NON DESISTA, NON EXIERISVOLYTECHNIC UNIVERSITY OF THE I’HILIPPINES
i COLLEGE OF LAW ww
2019 Bar Exams
Updates in Commercial Law
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NEGOTIABLE INSTRUMENTS LAW
in Due Course
1. Can the drawee bank of a manager's check have the option of refusing payment by
interposing a personal defense of the purchaser of the managers check who
delivered the check to a third party?
Yes, if the holder is not a holder in due course.
As a general rule, the drawee bank is not liable until it accepts. Prior to a bills
acceptance, no contractual relation exists between the holder and the drawee.
Acceptance, therefore, creates a privity of contract between the holder and the
drawee so much so that the latter, once it accepts, becomes the party primarily liable
on the instrument.
‘A manager's check is accepted by the bank upon ifs issuance. As compared to
gn ordinary bill of exchange where acceptance occurs after the bill is presented to
the drawee, the distinct feature of a managers check Is that it is accepted in
advance. Notably, the mere issuance of a managers check creates a privity of
contract between the holder and the drawee bank, the latter primarily binding itself to
Pay according to the tenor of its acceptance.
The drowee bank, as a result, has the uncondiion@l obligation to.pey o
Manager's check to a holder in due course irespective Of any avaliable persona!
defenses. However, while a manager's check is automatically accepted, a holder
other than a holder in due course is sill subject to defenses. RCBC Savings Bank vs.
Odrada, October 19, 2016, J. Carpio
2, Lao entered into a transaction with Evariinkand issued two post-dated crossed checks
for it. He contagied!Everlink for the immediate delivery of the sanitary wares, but the
latter failed 0 perform its obligation. Later, ico learned that the checks were
Cleposited in 2 different bank accounts at Union Bank. He wos later informed that the 2
bank accounts ‘belonged to Wu and a company named New Wave Plastic
represented by d:certain Willy Antiporda. Consequently, Lao wos prompted to file a
complaint against Evertink and Wu for their failure to comply with their obligation ond
against BDO for allowing the encashment of the 2 checks.
In cases of unauthorized payment of checks to a person other than the payee
pamed therein, what are the rights and obligations of the drawee bank and collecting
bank?
The drawee bank may be held liable to the drawer. The drawee bank, in tun
May seek reimbursement from the collecting bank for the amount of the check.
The liablity of the drawee bank is based on its contract with the drawer and its
duty to charge to the laters accounts only those payables authorized by him. A
Grawee bank is under strict liability to pay the check only to the payee or to the
Payee's order. When the drawee bank pays a person other than the payee named in
‘The author of this material is a Senior Assistant City Prosecutor of the City of Manila. She is
also a Commercial Law Professor at San Sebastian College Recoletos-Manila, Polytechnic
University of the Philippines, Universidad de Manila and a Bar Reviewer at Academices
Review Center and Albano Review Center, Powerhaus Review Center, New Era Univesity
and Villasis Review Center. She also authored four books in Commercial Law with
Centralbooks and Rex, namely Handbook in Insurance Law, Negotiable Instruments ino
Nutshell intellectual Property Law Simplified and Reviewer in Special Commercial Laws. Hor
article “Disnevfication” vis-envie Canuriaht Arininal Cincine! =| aVOLYTECHNIC UNIVERSITY OF THE !’HILIPPINES
COLLEGE OF LAW 9
caution to ascertain whether the payee on the check hos authorized the holder to
deposit the same in a different account. since the banking business is impressea witn
Public interest, the highest degree of diligence is expected of the bank. Equitable
Banking Corp. vs. Special Steel Products, Inc., G.R. No. 175350, June 13, 2012, J. Del
Castillo
What is the nature of a manager's check?
‘A manager's check as a check drawn by the bank's manager upon the bank
itself ond accepted in advance by the bank by the act of its issuance. It is really the
bank's own check and may be treated as a promissory note with the bank as its
maker. Consequently, upon its purchase, the check becomes the primary obligation
of the bank and constitutes its written promise fo pay the holder upon demand. It is
similar to a cashier's check both as to effect and use in that the bank represents that
the check is drawn against sufficient funds. RCBC Savings Bank vs. Odrada, October
19, 2016, J. Carpio
What ore the liabilities of an acceptor?
Under Section 62 of the Negotiable Instruments Law, once he accepts, the
drawee admits the following: (a) existence of the drawer: [b) genuineness of the
drawers signature; (c) capacity and authority of the drawer to draw the instrument:
and (4) existence of the payee and his then capacity to endorse. RCBC Savings Bank
vs. Odrada, October 19, 2016, J. Carpio
How is c negotiable insirument discharged?
A negotiable instrument like a check may be discharged by Gny other Sét
which will discharge a simple contract for the payment of money, fo wit:
9. By payment in due course by or on behalf of the principal deoter:
b. By payment in due course by the parly accommodated, where thélinsrument
is made or accepted for his accommodation:
¢. __ By the intentional cancellation thereof by the Rolder:
d. By any other act which will discharge.a simple contract for the o:
money:
. When the principal’ debtor becomes :the holder of the insirument at or after
maturity in his own ‘ight. Evangelista vs. Screenex, inc., G.R. No. 211564,
November 20, 2017, J. Sereno
3
Evangelista obtdined a t6an from Screenex in 1991 and issued two checks for it. The
checks were hidden in the safe until they were discovered in 2004. When demands to
Pay the loan were unheeded, a case for BP 22 was lodged in 2005. The checks w
alll undated. A case for violation of 8P 22 was then filed. What will happen to
case?
The complaint for BP 22 is dismissible on the ground of prescription.
A check therefore is subject to prescription of actions upon a written contract.
Article 1144 of the Civil Code provides that the action must be brought within ten years
from the time the right of action accrues.
The cause of action based on a check is reckoned from the date indicated on
the check.
If the check is undated the cause of action is reckoned from the date of the
issuance of the check. This is so because regardless of the omission of the date
indicated on the check, Section 17 that an undated check is presumed dated as of
the time of its issuance.
While the space for the date on a check may also be filled, it must, however,
be filled up strictly in accordance with the authority given and within a reasonable
time. Assuming that Yu had authority to insert the dates in the checks, the fact that he
did so after a lapse of more than 10 years from their issuance certainly cannot qualify
‘as changes made within a reasonable time.
The cause of action on the checks has become stale. hence, time-barred. No
written extrajudicial or judicial demand was shown to have been made within 10 vacre'OLYTECHNIC UNIVERSITY OF THE PHILIPPINES
7 COLLEGE OF LAW uw
the insurance company of the Insurance claim. Asian Terminals, Inc. vs. Malayan
Insurance Co., Inc., 647 SCRA 111, April 4, 2011, J. Del Caslillo
Incontestabilily Clause
5. What do you mean by incontestability clause?
Under Section 48, an insurer is given 2 years — from the effectivity of a life
insurance contract and while the insured is alive — to discover or prove that the policy
's void ab initio or is rescindible by reason of the fraudulent concealment or
misrepresentation of the insured or his agent. After the 2-year period lapses, or when
the insured dies within the period, the insurer must make good on the policy, even
though the policy was obtained by fraud, concealment, or misrepresentation. This is
not fo say that insurance fraud must be rewarded, but that insurers who recklessly and
indiscriminately solicit and obtain business must be penalized, for such recklessness and
lack of discrimination ultimately work to the detriment of bona fide takers of insurance
and the public in general. Manila Bankers Life Insurance vs, Aban, July 29, 2013, J. Del
Castillo
6 Can the policy be contested considering that the insured died 3 months afer issuance
of the policy?
No more. Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has
{wo years from its issuance, to investigate and verify whether the policy was obtained
by fraud, concealment, or misrepresentation. Upon the death of Atty. Jesus
however, on May 11, 2001, or a mere three months from the issuance of the policy, Sun
Life loses its right to rescind the policy. The death of the insured within’ the two-year
Period wil render the right of the insurer to rescind the:poliey nugatory. As Such. the
incontestability period will now set in. Sun Life of Canada (Phils.) Inc. vs. Sibya. June 8.
2016: J. Reyes
Tandaan nyo yung sinabi ko na isusulat paifihiyung Wsual answer topos dogdeg
Jang si Sibya case, @
Premium Payment
7. Explain the concept of risk-distibution,
In an insurance contract, both the insured and insurer undertake risks. On one
hand, there is the insured, 1a member of a group exposed to a particular perl. wee
Sontributes premiums Under the risk of receiving nothing in retum in case the
contingency does not happen; on the other, there is the insurer, who undenakes
Pay the entire sum agreed upon in case the contingency hoppens. This rsk-distibuting
Mechanism operates under a system where, by prompt payment cf the premiums, the
insurer is able to meet its legal obligation fo maintain a legal reserve fund needea to
meet its contingent obligations to the public. The premium, therefore, is the elbir vtos
Of source of life of the insurance business. Galsano vs. Development Insurance and
Surety Corp., G.R, No. 190702, February 27, 2017, J. Jardeleza
8. Noah's Ark immediately processed the insurance payments and issued a check dated
September 27, 1996 payable to Trans-Pacific on the same day. However, nobody from
Trans-Pacific picked up the check that day (September 27). Trans-Pactic inf
Noab's Ark that its messenger would get the check the next day, September 28. in the
svering of September 27, 1996, the vehicle was stolen. Oblivious of the incident,
Trans Pacific picked up the check the next day, September 28 and issued a receipt
On October 1. 1996, Pacquing informed petitioner of the vehicle's loss. Wos there
valid insurance policy oblained?
None. The general rule in insurance laws is that unless the premium is paid, the
insurance policy is not valid and binding. The check wos delivered to and wos
accepted by respondent's agent, Trans-Pacific, only on September 28. 1996. No
Payment of premium had thus been made at the time of the loss of the vehicle on
September 27, 1996. While petitioner claims that Trans-Pacific was informed that the