Negotiable Instrument as a substitute for money

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.12 (Firestone Tire & Rubber Company of the
Philippines vs. Court of Appeals and Luzon Development Bank, G.R. No. 113236, March 5, 2011,
[Quisumbing, J.])

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 (See. 189, Act 2031 on Neg. Inst..; Art. 1249, Civil Code;
Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Suncor v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check,
whether a manager’s check or ordinary cheek, 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).13

Characteristics of a check

A check has the character of negotiability and at the same time it constitutes an evidence of indebtedness.
By mutual agreement of the parties, the negotiable character of a check may be waived and the
instrument may be treated simply as proof of an obligation. (Sps. Pacheco vs. Court of Appeals, G.R. No.
126670, December 2, 1999, [Ynares-Santiago, J.])

A check is a negotiable instrument that serves as a substitute for money and as a convenient form of
payment in financial transactions and negotiations. The use of checks as payment allows commercial and
banking transactions to proceed without the actual handling of money, thus, doing away with the need
to physically count bills and coins whenever payment is made. It permits commercial and banking
transactions to be carried out quickly and efficiently. But the convenience afforded by checks is damaged
by unfunded checks that adversely affect confidence in our commercial and banking activities, and
ultimately injure public interest. (Mitra vs. People of the Philippines, G.R. No. 191404, July 5, 2010)

As a general rule, checks and other papers deposited in a bank for collection remain the property of the
depositor, and the bank performs the service of collection as his agent, even though it is authorized to
apply the proceeds on a debt of the owner.” (7 C. J., sec. 245, pp. 597, 598; Richardson vs. New Orleans
Coffee Co., 102 Fed., 785; Philadelphia vs. Eckles, 98 Fed., 485; Commercial Nat. Bank vs. Armstrong, 148
U. S., 50; St. Louis, etc. R. Co. vs. Johnston, 133 U. S., 566; Ward vs. Smith, 19 Law ed., 207; Carpenter vs.
National Shawmut Bank, 187 Fed., 1.)72

Effect of Notice of Dishonor; required only to preserve the right of the payee to recover on the check

A notice of dishonor is required only to preserve the right of the payee to recover on the check. It
preserves the liability of the drawer and the indorsers on the check. Otherwise, if the payee fails to give
notice to them, they are discharged from their liability thereon, and the payee is precluded from enforcing
payment on the check. (Bank of the Philippine Islands vs. Spouses Royeca, G.R. No. 176664, July 21, 2008,
bold supplied)
Is Check considered a ‘legal tender’?

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.
(Tibajia vs. CA, G.R. No. 100290, June 4, 1993, [Padilla, J.]) However, in the case of Fortunado vs. Court of
Appeals73 the Supreme Court stressed that, “We are not, by this decision, sanctioning the use of a check
for the payment of obligations over the objections of the creditor.”

In Cebu International Finance Corporation vs. Courts of Appeals, Vicente Alegre74, the High Court ruled
that: “[i]n a loan transaction, the obligation to pay a sum certain in money may be paid in money, which
is the legal tender or, by the use of a check. A check is not a legal tender, and therefore cannot constitute
valid tender of payment. In Philippine Airlines, Inc. vs. Court of Appeals75, this Court held that: “[s]ince 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 (citation omitted).”

Meaning of term “bona fide holder;” presumption

Culled from the foregoing, a prima facie presumption exists that the holder of a negotiable instrument is
a holder in due course. Consequently, the burden of proving that [the holder] is not a holder in due course
lies in the person who disputes the presumption. (State Investment House vs. Court of Appeals and Nora
B. Moulic, G.R. No. 101163, January 11, 1993, [Bellosillo, J:], bold supplied)

Purpose of the enactment of the Negotiable Instruments Law

The Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or hampering
transactions in commercial paper. Thus, the said statute should not be tampered with haphazardly or
lightly. Nor should it be brushed aside in order to meet the necessities in a single case. (State Investment
House, Inc. v. Court of Appeals, 217 SCRA 32 (1993), cited in Osmeña vs. Citibank, March 23, 2004)

Postal Money Orders; not a Negotiable Instrument.

It is not disputed that our postal statues were patterned after statutes in force in the United States. For
this reason, ours are generally construed in accordance with the construction given in the United States
to their own postal statutes, in the absence of any special reason justifying a departure from this policy
or practice. The weight of authority in the United States is that postal money orders are not negotiable
instruments (Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912), the
reason behind this rule being 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. (Philippine Education Co., Inc., vs. Soriano, G.R. No. L-22405, June 30, 1971, [Dizon, J.])
Pawn Ticket; not a Negotiable Instrument

Pawn ticket. — It is not a negotiable instrument under the Negotiable Instruments Law nor a negotiable
document of title under Articles 1507, et seq. of the Civil Code. (Part II-A.)

A pawn ticket is not a document of title much less a negotiable instrument, even if it states that the pawn
is redeemable by the bearer. (Serrano vs. Court of Appeals, 196 SCRA 107 [1991]; see Introduction.)