NEGO Nego Reviewer

This
is exactly what I have indicated it to be: a reviewer, which I based from my personal notes and annotations as well as the discussions of Atty. Lipardo, and formatted
for easier memorization and recall. The words and phrases highlighted in orange and yellow are key points to remember. All for love.
–BB

NEGOTIABLE INSTRUMENTS

Lecture Notes and Annotations from the
Class of Atty. Maribeth Lipardo
Ateneo Law School
Rockwell Center, Makati City

SHORT TITLE This Act shall be known as the Negotiable Instruments Law.
(Section 190)
MUST KNOW THE DEFINITION OF TERMS "Acceptance" means an acceptance completed by delivery or notification;
MEANING OF (Section 191)
"Action" includes counterclaim and set-off;

"Bank" includes any person or association of persons carrying on the business of banking, whether
incorporated or not;

"Bearer" means the person in possession of a bill or note which is payable to bearer;

"Bill" means bill of exchange, and "note" means negotiable promissory note;

"Delivery" means transfer of possession, actual or constructive, from one person to another;

"Holder" means the payee or indorsee of a bill or note who is in possession of it, or the bearer
thereof;

"Indorsement" means an indorsement completed by delivery;

"Instrument" means negotiable instrument;

Billie Blanco (2E) | Ateneo Law 2022 | 1

"Issue" means the first delivery of the instrument, complete in form, to a person who takes it as a
holder;

"Person" includes a body of persons, whether incorporated or not;

"Value" means valuable consideration;

"Written" includes printed, and "writing" includes print.
PERSONS PRIMARILY The person "primarily" liable on an instrument is the person who, by the terms of the instrument, is
LIABLE / SECONDARILY absolutely required to pay the same. All other parties are "secondarily" liable.”
LIABLE
(Section 192)
WHAT CONSTITUTES In determining what is a "reasonable time" regard is to be had to the nature of the instrument, the

REASONABLE TIME usage of trade or business with respect to such instruments, and the facts of the particular case.
(Section 193)
HOW TO COMPUTE Where the day, or the last day for doing any act herein required or permitted to be done falls on a
TIME Sunday or on a holiday, the act may be done on the next succeeding secular or business day.
(Section 194)


GENERAL RULE EXCEPTION/S
INTRODUCTION Applicability of NIL Limited application. - The law applies only to those requirements that meet the requirements laid
down in Section 1 of the law.1

Supplementary application of other laws. - Any case not provided for by the act shall be governed
by the provisions of existing legislation or in default thereof (Sec. 196).
Function and Importance of 1. Although they do not constitute legal tender, negotiable instruments are used as substitute for

NIL money.
2. Negotiable instruments also serve as a medium of credit transactions. Without them, more
money either in coins or bills would be needed in circulation.
Characteristics of 1. Negotiability. - The quality or attribute of a bill or note whereby it may pass from one person

Negotiable Instruments to another similar to money, 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.
2. Accumulation of secondary contracts. - Once the document is issued, additional parties can
become involved.2

NEGOTIABLE NON-NEGOTIABLE
● Governed by the NIL ● NIL is not the applicable law

● Transferred by 1) negotiation; or 2) ● Transferred by assignment only
assignment
Examples: Postal money order, treasury
warrant, letter of credit, certificate of stock,
bill of lading, and warehouse receipt

1
If an instrument does not meet the requirements of Section 1 of the NIL, the instrument is NOT VOID. It simply means that NIL is not the applicable law.
2
Essentially, accumulation of secondary contracts is where you have a set of contracts and each one can be held liable depending on the capacity by which they signed,
under certain limitations.
NEGOTIABILITY ASSIGNMENT
● Pertains to special kinds of contracts, ● Pertains to all manner of contracts, in
particularly those involving negotiable general
instruments

● Holder in due course is free from personal ● Assignee is not immune from defenses
defenses between and among prior parties

● A general indorser warrants the solvency ● Assignor does not warrant the solvency of
of the principal debtor the principal debtor

● Holder may acquire a better right than the ● Acquisition of a better right by the
prior indorser assignee is precluded subrogation, the
assignee merely steps into the shoes of the
assignor

PERSONAL DEFENSE REAL DEFENSE
● Defense that can be raised only against ● Defense that can be raised against any
the holder, who is not a holder in due holder
course
● Examples: Fraud, inducement, lack or ● Examples: Forgery, material alteration
failure of consideration, etc.

Holder in due course. - A holder who has taken the instrument under the following conditions (Sec.
52)3:
(a) That is complete and regular upon its face;
(b) That he became a holder of it before it was overdue, and without notice that it has been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value; and
3
If any one of the requisites is absent, the holder CANNOT be a holder in due course. Every holder is generally deemed prima facie a holder in due course. He who claims
otherwise has the burden of proof.
(d) 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.
Primary Kinds of 1. Promissory Note4 - An unconditional promise in writing made by one person to another,
Negotiable Instruments signed by the maker, engaging to pay on demand or at a fixed 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. (Sec. 184).

Example 1.1:

I promise to pay A [PAYEE] or order P1,000,000.
Signed, X [MAKER]
5
A → B → C → D [INDORSERS, but D is the HOLDER ]

2. Bill of Exchange6 - 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 determinable future time, a sum certain in money to order or to bearer
(Sec. 126).

Example 1.2:

Pay to A [PAYEE] or order P1,000,000.
Signed, X [DRAWER]

4
Parties in a Promissory Note: 1) Maker: The one who makes the promise and signs the instrument; and 2) Payee: The party to whom the promise is made or the instrument
is payable.
5
A holder is the payee or indorsee who is in possession thereof, or the bearer (Sec. 191).
6
Parties in a Bills of Exchange:
1) Drawer: The one who issues and draws the order bill; Gives the order to pay money to a third person and thus, does not pay directly
2) Drawee: The party upon whom the bill is drawn; The person to whom the bill is addressed and who is ordered and expected to pay; Becomes an acceptor when he
indicates his willing to pay the bill.
3) Payee: The party in whose favor the bill is originally issued or is payable.

To: Y [DRAWEE/ACCEPTOR]

A → B → C → D [INDORSERS, but D is the HOLDER]

3. Check - A bill of exchange drawn on a bank, payable on demand (Sec. 185).
Stages of a Negotiable
Instrument7

CASE DOCTRINES

1) Roman Catholic Bishop of Malolos v. IAC - 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.

2) BPI Express Card Corporation v. CA - Settled is the doctrine that a check is only a substitute for money and not money, the delivery of such an instrument does not, by
itself operate as payment. This is especially true in the case of a postdated check.

3) Caltex v. CA - The negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. In the construction
of a bill or note, the intention of the parties is to control, if it can be legally ascertained. While the writing may be read in the light of surrounding circumstances in order to
more perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the only outward and visible expression of their meaning,
no other words are to be added to it or substituted in its stead. The duty of the court in such case is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the meaning of the words they have used. What the parties meant must be determined by what they said.

7
In a bearer instrument, delivery is sufficient and you don’t need to indorse. The distinction is important because the liability of an indorser is different from the liability of
a person negotiating by delivery. The other difference is that those who negotiates by delivery will only be liable to its immediate transferee, where as if it is order instrument and
it is via indorsement, the liability is only to those entitled to that indorsement.

Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee
the holder thereof, and a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.

4) Traders Royal Bank v. CA - The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for
money. Hence, freedom of negotiability is the touchstone relating to the protection of holders in due course, and the freedom of negotiability is the foundation for the
protection which the law throws around a holder in due course. 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.

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.

A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account consists only of a few hundred pesos or of millions of pesos.
The fact that the other withdrawal slips were honored and paid by the bank was no license for Citibank to presume that subsequent slips would be honored and paid
immediately. By doing so, it failed in its fiduciary duty to treat the accounts of its clients with the highest degree of care.

6) Sesbreno v. CA - The negotiation of a negotiable instrument must be distinguished from the assignment or transfer of an instrument whether that be negotiable or
non-negotiable. 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.

7) Serrano v. CA - The circumstance that the pawn ticket stated that the pawn was redeemable by the bearer, did not dissolve that duty. The pawn ticket was not a
negotiable instrument under the Negotiable Instruments Law nor a negotiable document of title under Articles 1507 of the Civil Code.


CHAPTER I - FORM AND INTERPRETATION

FORM OF (a) It must be in writing On writing: The instrument must be in writing, or reduced
NEGOTIABLE and signed by the maker to a tangible form.8 Writing includes not only that which
INSTRUMENTS or drawer; has been writing on paper and with a pen or pencil, but
(Section 1) also that which is in print.

On signature9:
Signature is placed at the lower right corner of the It may appear in any part of the
instrument. instrument as long as it appears that the
person intended to make the instrument as
his own.

Signature should be accompanied with the full name or at Initials and any mark will be sufficient,
least the surname. provided such signature is used as a
substitute and the maker/drawer intends to
be bound by it.
(b) Must contain an See Section 3.

unconditional order or
promise10 to pay a sum
certain in money;
(c) Must be payable on See Sections 4 and 7.

demand or at a fixed and
determinable future time;
8
There is no such thing as an oral negotiable instrument. The determination of liability of an “oral” negotiable instrument would be difficult and creates the danger of fraud.
9
Signature is prima facie evidence of the maker/drawer’s intention to be bound. The person who claims that it is the signature of the maker/drawer and that they intended to be
bound under the said signature.
10
There is a difference between primary and secondary liability. The maker is with unconditional promise to pay, while the drawer is with unconditional order to pay; thus,
the drawer is ordering someone else to pay and is not saying that “I’m going to pay!” at the onset. Because of this, the liability of the maker is primary and the drawer’s
liability is secondary. It is secondary because you have to comply with certain requirements under the law, such as presentment for payment and notice of dishonor.
(d) Must be payable to See Sections 8 and 9.
order or to bearer; and
(e) Where the instrument This applies only to bills of exchange and checks. The reason for this is to enable the payee or holder
is addressed to a drawee, to know upon whom he is to call for acceptance or payment.
he must be named or
otherwise indicated
therein with reasonable
certainty.
CERTAINTY AS TO (a) With interest12; Interest at fixed rate. - It does not make uncertain the sum payable because the principal sum is
SUM11 certain and the amount of interest due at any given time can easily be computed.
(Section 2)
Interest at increased or reduced rate. - Payment of interest on interests does not destroy negotiability.
b) By stated installments; Stated installments. - The following must be present: 1) the interest of each installment, and 2) the due

date of each installment.
c) By stated installments Acceleration13 dependent on maker.14 - It doesn't make an instrument payable upon contingency since
with a provision that, upon the time of payment will surely come.
default in payment of any
installment, or of the Acceleration dependent on holder. - It is non-negotiable.
interest, the whole shall
become due;
11
The basic test is whether the holder can determine by calculation or computation the amount payable where the instrument is due.
12
If there is no stipulation as to the interest, legal interest will apply - 6% per annum.
13
Acceleration clause is a promise that if any installment or interest is not paid as agreed, the whole shall become due. Such a clause requires full payment of an instrument
upon default of any installment.
14
The maker can avoid the acceleration by paying the installments on their due date. The payee or holder cannot accelerate the note unless the maker fails to pay an
installment.
(d) With exchange15, Every monetary obligation must be paid in Philippine Parties may stipulate that the obligation
whether at a fixed rate or currency, which is legal tender in the Philippines. or transaction be settled in any other
current rate; currency at the time of payment.

(e) With costs of collection On attorney’s fees: The stipulation for attorney’s fees may be reduced by the courts if found to be
or an attorney’s fee, in unconscionable or unreasonable. If the attorney’s fee is not specified, then it shall be in a reasonable
case payment shall not be sum.
made at maturity16

CASE DOCTRINE
Bachrach v. Golingco

A reasonable attorney's fee shall be paid by the debtor, in addition to the amount due for principal and interest. The legality of such a stipulation, when annexed to a
negotiate instrument is expressly recognized by the Negotiable Instruments Law. Inasmuch as the statutory allowance for attorney's fees, as costs, is notoriously less than
the amount which attorneys are entitled to receive from their clients, unless such a stipulation is made and enforced, it follows that a creditor may be compelled to pay,
out of the money due him, a considerable sum as the necessary cost of enforcing payment by the delinquent debtor.

Such a stipulation is not void as usurious, even when added to a contract for the payment of the highest rate of interest permissible. The purpose of such a stipulation is
not to increase in any respect the benefits ultimately to accrue to the creditor. It is true that such a stipulation may be made for the purpose of concealing usury; but that
is a matter of proof to be determined in each case upon the evidence.

Exchange refers to the charge for the expense of providing funds at the place where the instrument is payable to meet the instrument which is issued at another place.
15
Before maturity, it is still sum certain in money. BUT after maturity, a transferee acquiring the instrument when it is overdue would not be a holder or due course and would

16
hold the instrument subject to personal defenses. However, the fact that it is uncertain will have no effect because its effect is as if it is just an assignment.
WHEN AN ORDER17 (a) An indication of a

/ PROMISE18 IS particular fund out of which
INDICATION OF A PARTICULAR FUND OUT OF INDICATION OF A PARTICULAR FUND OUT OF
UNCONDITIONAL19 reimbursement is to be
WHICH REIMBURSEMENT IS MADE WHICH PAYMENT IS MADE
(Section 3) made to a particular account
to be debited with the Unconditional. Conditional.
amount; and
2 acts, where in the fund indicated is not the 1 act, where in the amount to be paid is
direct source of payment but only the source of dependent upon the adequacy or existence of
reimbursement, which is an act subsequent to the fund designated and is the direct source of
the payment. payment and the measure of liability.

The indication of a particular account to be debited with the amount is negotiable, as payment does
not depend upon the existence or the particular account to be debited. The instrument is to be paid
first after which the particular account indicated is to be debited.
(b) A statement of the Mere recital of consideration or origin of transaction. - It does not make it conditional, as long as it
transaction which gives rise only refers to a separate agreement and is descriptive.
to the instrument.
Terms and conditions contained in another paper. - It is conditional, because the transaction
becomes restrictive and requires an examination of said contract to determine the rights and
obligations under the instrument.

CASE DOCTRINES

1) Abubakar v. Auditor General - It is thus apparent that this is a treasury warrant issued in favor of a public officer or employee and held in possession by a private
individual. Such being the case, the Auditor General can hardly be blamed for not authorizing its redemption out of an appropriation specifically for "treasury warrants
issued in favor of and held in possession by private individuals." This warrant was not issued in favor of a private individual. It was issued in favor of a government employee.
17
Mere request, supplication, or authority to pay will be not be sufficient. An order is a command or imperative direction.
18
It is not essential that the word “promised” be used. Any words equivalent to promise or assumption of responsibility for the payment of the note, such as “payable”, “to be
paid”, “I agree to pay”, “I guaranty to pay”, “I oblige myself to pay”, “Good for”, “due on demand” shall constitute a promise to pay.
19
It is not enough that there be a promise or order to pay. It must be unconditional, that it must not be subject to any condition or contingency.
Treasury warrants are not within the scope of the negotiable instruments law. For one thing, the document bearing on its face the words "payable from the appropriation
for food administration," is actually an order for payment out of "a particular fund," and is not unconditional, and does not fulfill one of the essential requirements of a
negotiable instrument.

2) Metropolitan Bank v. CA - Treasury warrants are not negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal
significance, it is indicated that they are payable from a particular fund, to wit, Fund 501. 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.

WHAT (a) At a fixed period after Payable at a fixed time. - The future time specified is a fixed time.
CONSTITUTES date or sight22; e.g., “I promise to pay P or order the sum of P10k on October 10, 2013.”
DETERMINABLE
FUTURE TIME20 Payable at a fixed period after date. - The date of maturity may be determined beforehand by
(Section 4)21 counting from the date of its issuance.
e.g., “Sixty days after date, I promise to pay P or order the sum of P10k.”

Payable at a fixed period after sight. - The date of maturity may be determined by counting from the
date it is presented to drawee.
e.g., “Sixty days after sight, I promise to pay P or order the sum of P10k.”
(b) On or before a fixed or Payable on or before a fixed time.23
determinable future time e.g., “On or before October 10, 2013, I promise to pay P or order the sum of P10k.”
specified therein; or
Payable on or before a determinable future time.24
e.g., “On or before the start of the new semester, I promise to pay P or order the sum of P10k.”
(c) On or at a fixed period Payable on the occurrence of a specified event.
20
Payment upon contingency is NOT NEGOTIABLE because such is conditional. A contingency is an uncertain future event, or an event which may or may not happen.
21
The reason why time must be certain so that the holder will know when he may enforce the instrument, and the person liable when he may be required to pay, or the
secondary parties when his obligation will arise.
22
After sight means after the instrument is seen by the drawee upon presentment for acceptance or accepted by the drawee.
23
It is necessary that the year of maturity be stated, otherwise, the time of payment of the instrument, although payable at a certain time, is not determinable.
24
Determinable future time can be determined with certainty after the execution of the instrument.
after the occurrence of a e.g., “I promise to pay P or order the sum of P10k upon the death of his father.” - The instrument is
specified event which is negotiable because the specified event is absolutely certain to happen, although the time of
certain to happen, though happening or occurrence is not known or is uncertain.
the time of happening be
uncertain. Payable after25 the occurrence of a specified event.
e.g., “Thirty days after the death of his father, I promise to pay P or order the sum of P10k.”
ACTS IN ADDITION TO PAYMENT OF MONEY An instrument is not negotiable if it contains a promise (a) Sale of collateral securities;
(Section 5) or order to do any act in addition to payment of money. (b) Confession of judgement26;
(c) Waiver of benefit granted by law; and
(d) Election of holder27 to require some
other act in lieu of payment of money.

CASE DOCTRINE
National Bank v. Manila Oil Refining

Warrants of attorney to confess judgment are not authorized nor contemplated by our law. 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.

OMISSIONS (a) Not dated (or, date)28; or Omission of the date will not make the instrument 1. When the date is tied to the date of
(Section 6) non-negotiable.29 issue;
2. When the interest is stipulated for the
purpose of determining when the
interest to run; and
25
A bill or note payable several days before the occurrence of a specified event is NOT NEGOTIABLE, since the date of maturity of the instrument can only be ascertained
after it has become overdue and therefore, the time for payment is uncertain.
26
Confession of judgement is a written acknowledgement by the defendant of his indebtedness or liability to the plaintiff. It enables the holder to obtain judgement without
delay usually incident to a lawsuit, as it eliminates the necessity of a trial. Warrants of attorney to confess judgement are not authorized nor valid in our laws. But, a
confession of judgement after the action is brought to save expenses is valid.
27
“At the option of holder” must be expressly stated in the instrument.
28
If there is a date stated, but there is no such date in the calendar, the law will deem the nearest date of the month the date intended.
29
The instrument will be considered to be dated as of the date it was issued.
3. In cases of promissory note, date of
issue and in the bill of exchange, the
date of the last negotiation, for the
purpose of determining whether a
party acted within a reasonable time in
making presentment for payment.

Instruments may be ante-dated30 or
post-dated.31
(b) Does not specify the value It is not even necessary to state that value has been received for the instrument because the
given, or that any value has consideration is presumed.
been given therefor (or,
value)32; or
(c) Does not specify the place Section 1 does not require a negotiable instrument to Section 73 specifies where presentment for
where it is drawn or the specify the place where it is drawn or where it is payment should be made when the place of
place it is payable (or, place); payable. payment is not specified.
or
An instrument that does not specify the place is
presumed to be payable at the place of residence or
business of the maker or drawer.
(d) Bears a seal (or, seal); or In the Philippines, there is no distinction between sealed and unsealed instruments.
(e) Designates a particular The promise or order must call for the payment of money33, but the law does not require that the
kind of current money in payment shall be made in legal tender.
which payment is made.
WHEN PAYABLE (a) Where it is expressed to Payable not just as between immediate parties, BUT also to subsequent parties.
ON DEMAND be payable on demand, or at
30
Ante-dated means that the instrument contains a date earlier than the true date of its issuance.
31
Post-dated means the the instrument contains a date later than the true date of its issuance.
32
It refers to both the value given and any value given therefor.
33
Money includes any particular kind of current money or foreign money which has fixed value in relation to our money.
(Section 7) sight, or on presentation; or
(b) In which no time for Payable only to immediate parties.
payment is expressed.
Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepted, and indorsing it,
payable on demand.
WHEN PAYABLE It is payable to order where It may be drawn:
TO ORDER it is drawn payable to the (a) A payee who is not the maker, drawer, or drawee36;
(Section 8) order of a specified person34 (b) The drawer37 or maker38;
or to him or his order.35 (c) The drawee;
(d) Two or more payees jointl;
Where the instrument is (e) One or more of several payees; or
payable to order, the payee (f) The holder of an office for the time being.
must be named or otherwise
indicated therein with
reasonable certainty.

CASE DOCTRINES

1) Salas v. CA - For value received, I/We jointly and severally, promise to pay Violago Motor Sales Corporation or order, at its office in San Fernando, Pampanga, the sum of FIFTY
EIGHT THOUSAND ONE HUNDRED THIRTY EIGHT & 201/100 ONLY (P58,138.20) Philippine currency, which amount includes interest at 14% per annum based on the diminishing
balance, the said principal sum, to be payable, without need of notice or demand, in installments of the amounts following and at the dates hereinafter set forth xxx

Citing Consolidated Plywood v. IFC Leasing, it was laid down that the instrument in order to be considered negotiable must contain the so-called "words of negotiability —
i.e., must be payable to "order" or "bearer". Under Section 8 of the Negotiable Instruments Law, there are only two ways by which an instrument may be made payable to
34
An instrument payable to a specific person (“Pay to P”) is not an order instrument and is non-negotiable, as the promise or order is limited to paying one person.
35
It should be noted that in an order instrument a specified person must always be named therein either before or after the word “order”. If there is no payee, there is nobody
who would give the order or authority to collect. There is no one that could indorse the instrument, and therefore, there is no point in considering it negotiable.
36
Or, simply put a third party.
37
In this situation where the payee is the drawer, it is still valid because there is still a drawee, who once s/he accepts or pays, becomes liable - there is no confusion of the
rights of the creditor and debtor.
38
Note that when the payee becomes the maker, it is required that the maker indorses it because in such a situation under the Civil Code, there is confusion of the rights of
the creditor and debtor and the obligation is support to be extinguished.
order. There must always be a specified person named in the instrument and the bill or note is to be paid to the person designated in the instrument or to any person to
whom he has indorsed and delivered the same. Without the words "or order or "to the order of", the instrument is payable only to the person designated therein and is
therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument, but will merely "step into the
shoes" of the person designated in the instrument and will thus be open to all defenses available against the latter. In this case, the basis of First Finance and Leasing
Corporationt's claim against Juanita Salas is a promissory note which bears all the earmarks of negotiability. A careful study of the questioned promissory note shows that
it is a negotiable instrument, having complied with the requisites under the law. It 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. Under the circumstances, there appears to be no question that
Filinvest is a holder in due course.

2) Consolidated Plywood v. IFC Leasing - “FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of ONE
MILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P 1,093,789.71), Philippine Currency, the said principal sum, to be payable in 24
monthly installments starting July 15, 1978 and every 15th of the month thereafter until fully paid. “

Section 1 of the Negotiable Instruments Law requires that a promissory note "must be payable to order or bearer, " it cannot be denied that the promissory note in
question is not a negotiable instrument. Considering that the subject promissory note is not a negotiable instrument, it follows that the IFC Leasing can never be a
holder in due course but remains a mere assignee of the note in question.

3) PECO v. Soriano - The weight of authority in the United States is that postal money orders are not negotiable instruments, 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. It is to be noted in this connection that some of the restrictions imposed upon money orders by postal laws and regulations are inconsistent with the
character of negotiable instruments. For instance, such laws and regulations usually provide for not more than one endorsement; payment of money orders may be
withheld under a variety of circumstances.

Of particular application to the postal money order in question are the conditions laid down in the letter of the Director of Posts of October 26, 1948 to the Bank of
America for the redemption of postal money orders received by it from its depositors. Among others, the condition is imposed that "in cases of adverse claim, the money
order or money orders involved will be returned to you (the bank) and the, corresponding amount will have to be refunded to the Postmaster, Manila, who reserves the right to
deduct the value thereof from any amount due you if such step is deemed necessary." The conditions thus imposed in order to enable the bank to continue enjoying the
facilities theretofore enjoyed by its depositors, were accepted by the Bank of America. The latter is therefore bound by them.

4) Equitable Banking v. IAC - Check was equivocal and patently ambiguous. By making the check read: Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF
CASVILLE ENTERPRISES, INC., the payee ceased to be indicated with reasonable certainty in contravention of Section 8 of the Negotiable Instruments Law. As worded, it
could be accepted as deposit to the account of the party named after the symbols "A/C," or payable to the Bank as trustee, or as an agent, for Casville Enterprises, Inc.,
with the latter being the ultimate beneficiary. That ambiguity is to be taken contra proferentem that is, construed against NELL who caused the ambiguity and could have
also avoided it by the exercise of a little more care.

Contrary to the finding of the Appellate Court, the subject check was, initially, not non-negotiable. Neither was it a crossed check. The rubber-stamping transversall on
the face of the subject check of the words "Non-negotiable for Payee's Account Only" between two (2) parallel lines, and "Non-negotiable, Teller- No. 4, August 17, 1976,"
separately boxed, was made only by the Bank teller in accordance with customary bank practice, and not by NELL as the drawer of the check, and simply meant that
thereafter the same check could no longer be negotiated.

It was NELL's own acts, which put it into the power of Casals and Casville Enterprises to perpetuate the fraud against it and, consequently, it must bear the loss.

WHEN PAYABLE TO (a) When it is expressed to Bearer instrument (e.g., “Payable to bearer”)
BEARER39 be so payable; or
(Section 9)40
(b) When it is payable to a Bearer instrument (e.g., “Payable A or bearer”)
person named therein or
bearer;
(c) When it is payable to Order instrument on its face A showing of commercial bad faith43 on the
the order of a fictitious or part of the drawee bank, or any transferee
non-existing person, and Fictitious person is meant to be one who, though of the check for that matter, will work to
such fact was known to the named as payee in an instrument, has no right to it strip it of this defense. Drawee bank bears
person making it so because the maker or drawer so intended.41 the loss.
payable; or
FICTITIOUS PERSON RULE: As a rule, when the payee
is fictitious or not intended to be the true recipient of
the proceeds, the check is considered as a bearer
instrument.42

In a fictitious-payee situation, the drawee bank is
absolved from liability and the drawer bears the loss.
39
An instrument that fails to qualify as an order instrument is nonetheless negotiable if it is payable to the bearer.
40
Bearer instrument will always be a bearer instrument. An order instrument, on the other hand, can be converted to a bearer instrument. You determine how to negotiate
based on what will be the last type of negotiation. If the last type of negotiation was via indorsement, then the only way to transfer it is to get indorsement plus delivery.
But if the last indorsement would be indorsement to blank, that means it is converted to a bearer instrument. It is important to remember that a bearer instrument will
always be a bearer instrument in terms of how you negotiate it.
41
It matters not whether the name of the payee used by him be that one living or dead, or who never existed.
42
The underlying theory is that one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. And since the maker knew this limitation, he
must have intended for the instrument to be negotiated by mere delivery.
43
Commercial bad faith is present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme.
(d) When the name of the Order instrument on its face (e.g., “Payable to cash”)
payee does not purport to
be the name of any
person; or
(e) When the only or last Order instrument on its face44
indorsement is an
indorsement in blank.

CASE DOCTRINES

1) PNB v. Rodriguez and Rodriguez - A check is "a bill of exchange drawn on a bank payable on demand." It is either an order or a bearer instrument. The distinction
between bearer and order instruments lies in their manner of negotiation. Under Section 30 of the NIL, an order instrument requires an indorsement from the payee or
holder before it may be validly negotiated. A bearer instrument, on the other hand, does not require an indorsement to be validly negotiated. It is negotiable by mere
delivery. A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the NIL, a check payable to a specified payee may
nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person, and such fact is known to the person making it so
payable.

As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a bearer instrument. In a fictitious-payee
situation, the drawee bank is absolved from liability and the drawer bears the loss. However, there is a commercial bad faith exception to the fictitious-payee rule. A
showing of commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense. The exception will
cause it to bear the loss. Commercial bad faith is present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme.

Because of a failure to show that the payees were "fictitious" in its broader sense, the fictitious-payee rule does not apply. Thus, the checks are to be deemed payable to
order. Consequently, the drawee bank bears the loss. PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers accepted the 69
checks for deposit to the PEMSLA account even without any indorsement from the named payees. It bears stressing that order instruments can only be negotiated with a
valid indorsement.

A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by the payee is apparently grossly negligent in its operations. This
Court has recognized the unique public interest possessed by the banking industry and the need for the people to have full trust and confidence in their banks. For this
reason, banks are minded to treat their customer’s accounts with utmost care, confidence, and honesty.

2) 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.
44
The minimum of a bearer instrument is that there is delivery, BUT there is no stopping the holder to indorse. Recall: An instrument that is originally bearer will always be
a bearer instrument; however, the manner by which you negotiate it will affect the liability.
Of course, if the bank is not sure of the bearer's identity or financial solvency, it has the right to demand identification and /or assurance against possible complications,
— for instance, (a) forgery of drawer's signature, (b) loss of the check by the rightful owner, (c) raising of the amount payable, etc. The bank may therefore require, for its
protection, that the indorsement of the drawer — or of some other person known to it — be obtained. But where the Bank is satisfied of the identity and /or the economic
standing of the bearer who tenders the check for collection, it will pay the instrument without further question; and it would incur no liability to the drawer in thus
acting.

TERMS, WHEN The instrument need not Clear intention of the parties. - The substance of the transaction rather than the form is the criterion
SUFFICIENT follow the language of of negotiability. As long as the clear intention of the parties to make the instrument negotiable can be
(Section 1O) this Act, but any terms determined, the law will give it force and effect.
are sufficient which
indicate intention to Mere defect in language or grammatical errors. - This does not render an instrument non-negotiable.
conform to the
requirements hereof.

CASE DOCTRINE
Jimenez v. Bucoy

Received from Miss Pacifica Jimenez the total amount of P10,000) ten thousand pesos payable six months after the war, without interest.

This matter of payment of loans contracted during the Japanese occupation has received the Court’s attention in many litigations after the liberation. The gist of our
adjudications is that if the loan should be paid during the Japanese occupation, the Ballantyne schedule should apply with corresponding reduction of the amount.
However, if the loan was expressly agreed to be payable only after the war or after liberation, or became payable after those dates, no reduction could be effected, and
peso-for-peso payment shall be ordered in Philippine currency.

The administrator calls attention to the fact that the notes contained no express promise to pay a specified amount. An acknowledgment may become a promise by the
addition of words by which a promise of payment is naturally implied, such as, "payable," "payable" on a given day, "payable on demand," "paid . . . when called for.” xxx To
constitute a good promissory note, no precise words of contract are necessary, provided they amount, in legal effect, to a promise to pay. In other words, if over and
above the mere acknowledgment of the debt there may be collected from the words used a promise to pay it, the instrument may be regarded as a promissory note.


PRESUMPTION AS TO DATE Where the instrument or an acceptance or any indorsement thereon is dated, such date is deemed
(Section 11)45 prima facie to be the true date of the making, drawing, acceptance, or indorsement, as the case may
be.46
ANTE-DATED AND POST-DATED Ante-dating or post-dating an instrument does not If it is done for an illegal or fraudulent
(Section 12)47 render it by itself invalid or non-negotiable by the fact purpose, the instrument is invalid.
alone.
WHEN A DATE MAY BE INSERTED TWO CASES WHICH AUTHORIZES THE HOLDER TO PUT A DATE:
(Section 13) 1. Where an instrument is payable at a fixed period after date but is issued undated; and
2. Where an instrument is payable at a fixed period after sight but the acceptance is undated.

Any holder may insert the true date of issue or acceptance and the instrument shall be payable
accordingly.

EFFECTS OF INSERTION OF WRONG DATE:
As to holder with knowledge. - It will avoid the instrument as to him, but not as to a subsequent
holder in due course who may enforce the same notwithstanding the improper date.

As to the subsequent holder in due course. - The insertion of a wrong date constitutes material
alteration. The date inserted, even if wrong, is to be regarded as the true date.

45
He who claims that some other date is the true date has the burden to establish such claim.
46
The date of the issue or last negotiation is essential for the purpose of determining whether a party has acted within a reasonable time, but not to make the instrument
negotiable. What is a reasonable time is generally a question of fact depending upon the circumstances each case is to be considered.
47
The person to whom an instrument so dated is delivered acquires the right thereto as of the date of delivery.
CASE DOCTRINES
Pacheco v. CA

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. There cannot be deceit on the part of the obligor, because they agreed
with the obligee at the time of the issuance and postdating of the checks that the same shall not be encashed or presented to the banks. As per assurance of the lender,
the checks are nothing but evidence of the loan or security thereof in lieu of and for the same purpose as a promissory note. By their own covenant, therefore, the checks
became mere evidence of indebtedness. It has been ruled that a drawer who issues a check as security or evidence of investment is not liable for estafa.

Both courts below relied so much on the fact that Mrs. Vicencio's husband is a former Judge who knows the law. He should have known, then, that he need not even ask
them to place a date on the check, because as holder of the check, he could have inserted the date pursuant to Section 13 of the Negotiable Instruments Law (NIL).
Moreover, as stated in Section 14 thereof, complainant, as the person in possession of the check, has prima facie authority to complete it by filling up the blanks therein.
Besides, pursuant to Section 12 of the same law, a negotiable instrument is not rendered invalid by reason only that it is antedated or postdated. Thus, the allegation of
Mrs. Vicencio that the date to be placed by Virginia was necessary so as to make the check evidence of indebtedness is nothing but a ploy. The spouses openly disclosed
and never hid the fact that they no longer have funds in the bank as their bank account was already closed. Knowledge by the complainant that the drawer does not have
sufficient funds in the bank at the time it was issued to him does not give rise to a case for estafa through bouncing checks.

Moreover, a check must be presented within a reasonable time from issue. By current banking practice, a check becomes stale after more than 6 months. In fact a check
long overdue for more than two and one-half years is considered stale. In this case, the checks were issued more than three years prior to their presentment.

INCOMPLETE BUT DELIVERED48 1. Authority to fill up the blanks.50 - Where the instrument is wanting in any material particular51, the person in
(Section 14)49 possession thereof has prima facie authority to complete it by filling up the blanks.

2. Authority to put any amount. - A signature on a blank paper delivered by the person making the signature in
order that may be converted into a negotiable instrument operates as prima facie authority to fill it up with any
amount.

48
Delivery means transfer of possession, actual or constructive, from one person to another (Sec. 191). It may be made either by the maker or drawer himself or through a
duly authorized agent.
49
It is a personal defense.
50
The authority to complete is not an authority to alter.
51
Material particular is any particular proper to be inserted in a negotiable instrument to make it complete. This may refer to the required materials, i.e., date, due date,
name of the payee, amount, or rate of the interest. It may also include any details which affects the tenor and the rights of the parties.
RIGHTS AGAINST PARTY PRIOR TO COMPLETION RIGHT OF HOLDER IN DUE COURSE
● It must be filled up strictly in accordance with the ● This gives rise to a conclusive presumption that the
authority given and within reasonable time. instrument had been filled up strictly in accordance
with the authority given and within reasonable time.
It is valid and effectual for all purposes in his
hands.

Example 2.1:

I promise to pay A or order P1,000,000 [INSTEAD OF P100,000] on or before September 1, 2019.
Signed, X
A [FILLED IT UP] → B → C

Holder v. X
● IF C is HOLDER IN DUE COURSE: P1,000,000 because X is a party prior to the completion and he may raise
the personal defense that it was not filled up strictly in accordance with the authority given (Sec. 14).
● IF C is NOT A HOLDER IN DUE COURSE: P0 (Sec. 14).

If C is not a holder in due course, he goes against B and A.
C v. B - P1,000,000, because B is a party after the completion. As far as B is concerned, his warranty says the
instrument is genuine and whatever amount on the instrument is true (Sec. 66).

C v. A - P1,000,000, because A is the one that inserted it and in any case will indorsed it. His warranty says the
instrument is genuine and whatever amount on the instrument is true.

Example 2.2:

I promise to pay A or order P1,000,000 [INSTEAD OF P100,000] on or before September 1, 2019.
Signed, X
A → B [FILLED IT UP] → C


Holder v. X

If C is not a holder in due course, he goes against B and A.
C v. B - P1,000,000, because B is the one that inserted it and in any case will indorsed it. His warranty says the
instrument is genuine and whatever amount on the instrument is true.

C v. A - It would depend if C is a holder in due course or not. If he is a holder in due course: P1,000,000, because A
is a party prior to the completion. But if not a holder in due course, P0 (Sec. 14).

Example 2.3:

Pay to A or order P1,000,000 [INSTEAD OF P100,000].
Signed, X

To: Y

A [FILLED IT UP] → B → C

C v. Y (Drawee) - Drawee will pay.
Y v. X (Drawer) - X will raise the defense that the authority that he gave is only for P100,000. Drawee debits account
of X. X incurs the loss of P1,000,000.

X v. C

Remedy of X? He should go after A.

X v. A - P1,000,000, because A is the one that filled it up not in accordance with the authority given (Sec. 14).
X v. B - P1,000,000, because B is a party after the completion. As far as B is concerned, his warranty says the

instrument is genuine and whatever amount on the instrument is true (Sec. 66).
INCOMPLETE AND UNDELIVERED It will not be a valid contract in the hands of any holder, as against any person whose signature was placed before
(Section 15)52 delivery.53
COMPLETE BUT UNDELIVERED Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose

(Section 16)54 of giving it effect.

As between immediate parties55 and as regards a remote party56 other than a holder in due course, the delivery, in
order to be effectual, must be made by either by or under authority of the party making, drawing, accepting, or
indorsing.

1. In possession of party other than a holder in due course. - If a complete instrument is found in the possession of
an immediate party or remote party other than the holder in due course, there is a prima facie presumption of
delivery.

2. Delivered conditionally or for a special purpose. - If delivery is made or authorized, it may be shown to not be
with the intention to transfer ownership of the instrument.

3. In the hands of the holder in due course. - A valid delivery by all parties prior to him is conclusively presumed.

CASE DOCTRINES

1) Patrimonio v. Gutierrez - Under Section 14 of the Negotiable Instruments Law, if the maker or drawer delivers a pre-signed blank paper to another person for the
purpose of converting it into a negotiable instrument, that person is deemed to have prima facie authority to fill it up. It merely requires that the instrument be in the
possession of a person other than the drawer or maker and from such possession, together with the fact that the instrument is wanting in a material particular, the law
presumes agency to fill up the blanks.

In order however that one who is not a holder in due course can enforce the instrument against a party prior to the instrument’s completion, two requisites must exist: (1)
52
It is a real defense,
53
Parties after the completion can claim, because of the liabilities of an indorser.
54
55
Immediate parties refer to those who are “immediate” in the sense of having or being held to know the conditions or limitations placed upon the delivery of the
instruments. It contemplates privity, not proximity.
56
Remote parties are parties who are not in direct contractual relation to each other.
that the blank must be filled strictly in accordance with the authority given; and (2) it must be filled up within a reasonable time. If it was proven that the instrument had not
been filled up strictly in accordance with the authority given and within a reasonable time, the maker can set this up as a personal defense and avoid liability. However, if
the holder is a holder in due course, there is a conclusive presumption that authority to fill it up had been given and that the same was not in excess of authority.

In the present case, Patrimonio contends that there is no legal basis to hold him liable both under the contract and loan and under the check because: first, the subject
check was not completely filled out strictly under the authority he has given and second, Marasigan was not a holder in due course.

Section 52(c) of the NIL states that a holder in due course is one who takes the instrument "in good faith and for value." It also provides in Section 52(d) that in order that
one may be a holder in due course, it is necessary 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. Acquisition in good faith means taking without knowledge or notice of equities of any sort which could beset up against a prior holder of the
instrument. It means that he does not have any knowledge of fact which would render it dishonest for him to take a negotiable paper. The absence of the defense, when
the instrument was taken, is the essential element of good faith. In the present case, Marasigan’s knowledge that Patrimonio is not a party or a privy to the contract of
loan, and correspondingly had no obligation or liability to him, renders him dishonest, hence, in bad faith.

BUT, it does not follow that simply because he is not a holder in due course, Marasigan is already totally barred from recovery. The NIL does not provide that a holder
who is not a holder in due course may not in any case recover on the instrument. The only disadvantage of a holder who is not in due course is that the negotiable
instrument is subject to defenses as if it were non-negotiable. Among such defenses is the filling up blank not within the authority.

On this point, Patrimonio argues that the subject check was not filled up strictly on the basis of the authority he gave. He points to his instruction not to use the check
without his prior approval and argues that the check was filled up in violation of said instruction. While under the law, Gutierrez had a prima facie authority to complete
the check, such prima facie authority does not extend to its use (i.e., subsequent transfer or negotiation) once the check is completed. In other words, only the authority
to complete the check is presumed. Further, the law used the term "prima facie" to underscore the fact that the authority which the law accords to a holder is a
presumption juris tantumonly; hence, subject to subject to contrary proof. Thus, evidence that there was no authority or that the authority granted has been exceeded
may be presented by the maker in order to avoid liability under the instrument. In the present case, no evidence is on record that Gutierrez ever secured prior approval
from Patrimonio to fill up the blank or to use the check.

2) Lim v. Court of Appeals - In determining proper venue in these cases, the following acts material and essential to each crime and requisite to its consummation must
be considered: (a) the seven (7) checks were issued to LINTON at its place of business in Balut, Navotas; b) they were delivered to LINTON at the same place; (c) they
were dishonored in Kalookan City; and, (d) petitioners had knowledge of the insufficiency of their funds in SOLIDBANK at the time the checks were issued. Since there is
no dispute that the checks were dishonored in Kalookan City, it is no longer necessary to discuss where the checks were dishonored.
Under Sec. 191 of the Negotiable Instruments Law the term "issue" means the first delivery of the instrument complete in form to a person who takes it as a holder. On
the other hand, the term "holder" refers to the payee or indorsee of a bill or note who is in possession of it or the bearer thereof. In People v. Yabut this Court explained —
xxx The place where the bills were written, signed, or dated does not necessarily fix or determine the place where they were executed. What is of decisive importance is

the delivery thereof. The delivery of the instrument is the final act essential to its consummation as an obligation. An undelivered bill or note is inoperative. Until delivery,
the contract is revocable. And the issuance as well as the delivery of the check must be to a person who takes it as a holder, which means "(t)he payee or indorsee of a bill
or note, who is in possession of it, or the bearer thereof." Delivery of the check signifies transfer of possession, whether actual or constructive, from one person to another

with intent to transfer title thereto.
Although LINTON sent a collector who received the checks from petitioners at their place of business in Kalookan City, they were actually issued and delivered to LINTON
at its place of business in Balut, Navotas. The receipt of the checks by the collector of LINTON is not the issuance and delivery to the payee in contemplation of law. The
collector was not the person who could take the checks as a holder, i.e., as a payee or indorsee thereof, with the intent to transfer title thereto. Neither could the
collector be deemed an agent of LINTON with respect to the checks because he was a mere employee.
3) People v. Grospe - Estafa by postdating or issuing a bad check, may be a transitory or continuing offense. Its basic elements of deceit and damage may arise
independently in separate places. In this case, deceit took place in San Fernando, Pampanga, while the damage was inflicted in Bulacan where the cheek was dishonored
by the drawee bank in that place. Jurisdiction may, therefore, be entertained by either the Bulacan Court or the Pampanga Court.

For while the subject check was issued in Guiguinto, Bulacan, it was not completely drawn thereat, but in San Fernando, Pampanga, where it was uttered and delivered.
What is of decisive importance is the delivery thereat. The delivery of the instrument is the final act essential to its consummation as an obligation". For although the
check was received by the SMC Sales Supervisor at Guiguinto, Bulacan, that was not the delivery in contemplation of law to the payee, SMC. Said supervisor was not the
person who could take the check as a holder, that is, as a payee or indorsee thereof, with the intent to transfer title thereto. The rule is that the issuance as well as the
delivery of the check must be to a person who takes it as a holder, which means "the payee or indorsee of a bill or note, who is in possession of it, or the bearer, thereof"
(Sec. 190, Negotiable Instruments Law, cited in People vs. Yabut.) Thus, said representative had to forward the check to the SMC Regional Office in San Fernando,
Pampanga, which was delivered to the Finance Officer thereat who, in turn, deposited it at the SMC depository bank in San Fernando, Pampanga. The element of deceit,
therefore, took place in San Fernando, Pampanga, where the rubber check was legally issued and delivered so that jurisdiction could properly be laid upon the Court in
that locality.

An undelivered bill or note is inoperative. Until delivery, the contract is revocable. And the issuance as well as the delivery of the check must be to a person who takes it
as a holder, which means "(t)he payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof" (Sec. 190, Negotiable Instruments Law). Delivery of
the check signifies transfer of possession, whether actual or constructive, from one person to another with intent to transfer title thereto.

In respect of the Bouncing Checks Case, the offense also appears to be continuing in nature. It is true that the offense is committed by the very fact of its performance;
and that the Bouncing Checks Law penalizes not only the fact of dishonor of a check but also the act of making or drawing and issuance of a bouncing check. The case,
therefore, could have been filed also in Bulacan. As held in Que vs. People of the Philippines, "the determinative factor (in determining venue) is the place of the issuance
of the check". However, it is likewise true that knowledge on the part of the maker or drawer of the check of the insufficiency of his funds, which is an essential ingredient
of the offense is by itself a continuing eventuality, whether the accused be within one territory or another. Accordingly, jurisdiction to take cognizance of the offense also
lies in the Regional Trial Court of Pampanga.

4) Dela Victoria v. Burgos - Garnishment is considered as a species of attachment for reaching credits belonging to the judgment debtor owing to him from a stranger to
the litigation. Emphasis is laid on the phrase "belonging to the judgment debtor" since it is the focal point in resolving the issues raised.
As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He receives his compensation in the form of checks from the Department of Justice
through petitioner as City Fiscal of Mandaue City and head of office. Under Sec. 16 of the Negotiable Instruments Law, every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As ordinarily understood, 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.
According to the trial court, the checks of Mabanto, Jr., were already released by the Department of Justice duly signed by the officer concerned through Dela Victoria and

upon service of the writ of garnishment by the sheriff Dela Victoria was under obligation to hold them for the judgment creditor. It recognized the role of Dela Victoria as
custodian of the checks. At the same time however it considered the checks as no longer government funds and presumed delivered to the payee based on the last
sentence of Sec. 16 of the Negotiable Instruments Law which states: "And where the instrument is no longer in the possession of a party whose signature appears
thereon, a valid and intentional delivery by him is presumed." Yet, the presumption is not conclusive because the last portion of the provision says "until the contrary is
proved." However this phrase was deleted by the trial court for no apparent reason. Proof to the contrary is its own finding that the checks were in the custody of Dela
Victoria. Inasmuch as said checks had not yet been delivered to Mabanto, Jr., they did not belong to him and still had the character of public funds. As a necessary
consequence of being public fund, the checks may not be garnished to satisfy the judgment. The rationale behind this doctrine is obvious consideration of public policy.
5) Development Bank of Rizal v. Sima Wei - The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long recognized the business
custom of using printed checks where blanks are provided for the date of issuance, the name of the payee, the amount payable and the drawer's signature. All the drawer
has to do when he wishes to issue a check is to properly fill up the blanks and sign it. However, the mere fact that he has done these does not give rise to any liability on
his part, until and unless the check is delivered to the payee or his representative. A negotiable instrument, of which a check is, is not only a written evidence of a
contract right but is also a species of property. Just as a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable instrument
be delivered to the payee in order to evidence its existence as a binding contract.

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.
Delivery of an instrument means transfer of possession, actual or constructive, from one person to another. 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.

The allegations in the original complaint show that the 2 China Bank checks, numbered 384934 and 384935, were not delivered to the payee, the Development Bank of
Rizal herein. Without the delivery of said checks to Development Bank of Rizal, the former did not acquire any right or interest therein and cannot therefore assert any
cause of action, founded on said checks, whether against the drawer Sima Wei or against the Producers Bank or any of the other respondents.

Unless Sima Wei proves that she has been relieved from liability on the promissory note by some other cause, the Bank has a right of action against her for the balance
due thereon. However, insofar as the other respondents are concerned, Development Bank of Rizal has no privity with them. If at all, it is Sima Wei, the drawer, who
would have a cause of action against her co-respondents, if the allegations in the complaint are found to be true.

6) San Miguel Corporation v. Puzon, Jr. - [T]he essential elements of the crime of theft are the following: (1) that there be a taking of personal property; (2) that said
property belongs to another; (3) that the taking be done with intent to gain; (4) that the taking be done without the consent of the owner; and (5) that the taking be
accomplished without the use of violence or intimidation against persons or force upon things.
Considering that the second element is that the thing taken belongs to another, it is relevant to determine whether ownership of the subject check was transferred to San

Miguel Corporation. On this point, the Negotiable Instruments Law provides: Sec. 12. Antedated and postdated - The instrument is not invalid for the reason only that it is
antedated or postdated, 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. (Underscoring supplied.)

Note however that delivery as the term is used in the aforementioned provision means that the party delivering did so for the purpose of giving effect thereto. Otherwise,
it cannot be said that there has been delivery of the negotiable instrument. Once there is delivery, the person to whom the instrument is delivered gets the title to the
instrument completely and irrevocably.
If the subject check was given by Puzon to SMC in payment of the obligation, the purpose of giving effect to the instrument is evident thus title to or ownership of the
check was transferred upon delivery. However, if the check was not given as payment, there being no intent to give effect to the instrument, then ownership of the check
was not transferred to SMC. The evidence of SMC failed to establish that the check was given in payment of the obligation of Puzon. There was no provisional receipt or
official receipt issued for the amount of the check. What was issued was a receipt for the document, a "POSTDATED CHECK SLIP."
Furthermore, the demand letter sent to Puzon states "As per company policies on receivables, all issuances are to be covered by post-dated checks. However, you have
deviated from this policy by forcibly taking away the check you have issued to us to cover the December issuance." Notably, the term "payment" was not used instead the
terms "covered" and "cover" were used.
Although the petitioner's witness, Gregorio L. Joven III, states in paragraph 6 of his affidavit that the check was given in payment of the obligation of Puzon, the same is
contradicted by his statements in paragraph 4, where he states that "As a standard company operating procedure, all beer purchases by dealers on credit shall be covered
by postdated checks equivalent to the value of the beer products purchased"; in paragraph 9 where he states that "the transaction covered by the said check had not yet
been paid for," and in paragraph 8 which clearly shows that partial payment is expected to be made by the return of beer empties, and not by the deposit or encashment
of the check. Clearly the term "cover" was not meant to be used interchangeably with "payment."
When taken in conjunction with the counter-affidavit of Puzon - where he states that "As the [liquid beer] contents are paid for, SMC return[s] to me the corresponding
PDCs or request[s] me to replace them with whatever was the unpaid balance." - it becomes clear that both parties did not intend for the check to pay for the beer
products. The evidence proves that the check was accepted, not as payment, but in accordance with the long-standing policy of SMC to require its dealers to issue
postdated checks to cover its receivables. The check was only meant to cover the transaction and in the meantime Puzon was to pay for the transaction by some other
means other than the check. This being so, title to the check did not transfer to SMC; it remained with Puzon. The second element of the felony of theft was therefore not
established. Petitioner was not able to show that Puzon took a check that belonged to another. Hence, the prosecutor and the DOJ were correct in finding no probable
cause for theft.

RULES OF CONSTRUCTION, IN CASE If the terms are clear and Where the language of the instrument is ambiguous or there are omissions,
OF AMBIGUITY OR OMISSION unambiguous, the instrument must these rules apply:
(Section 17) be enforced as it reads.
1. Sums expressed in words and in figures different. - Words control.

2. Words ambiguous or uncertain. - Words outweigh figures, but reference
may be had to the figures to determine true amount.


3. Date when the stipulated interest to run not specified. - The interest runs
from the date of the instrument, or if undated, from the date of its issue.

4. Undated instrument. - It is considered dated from the date of issue.

5. Written and printed words in conflict. - Written words prevail.

6. In doubt whether instrument is bill or note. - The holder may treat either
at his election.

7. In doubt what capacity the person making the instrument intended to sign.
- S/he is deemed an indorser.

8. Instrument signed by two or more persons. - Their liability may either be
solidary or joint.

SOLIDARY57 JOINT58
● An instrument with the words “I ● An instrument with the words
promise to pay” signed by 2 or “We promise to pay” signed by
more persons two or more persons

CASE DOCTRINES

1) PNB v. Concepcion Mining - NINETY DAYS after date, for value received, I promise to pay to the order of the Philippine National Bank. In case it is necessary to collect this note
by or through an attorney-at-law, the makers and indorsers shall pay ten percent (10%) of the amount due on the note as attorney's fees, which in no case shall be less than
P100.00 exclusive of all costs and fees allowed by law as stipulated in the contract of real estate mortgage. xxx

CONCEPCION MINING COMPANY, INC.,

57
Any one of the signers may be held liable for the whole amount of the instrument.
58
There are as many debts as there are debtors; thus, each debt being considered distinct and separate from each other.
By:
(Sgd.) VICENTE LEGARDA
President

(Sgd.) VICENTE LEGARDA
(Sgd.) JOSE S SARTE

Section 17 (g) of the Negotiable Instruments Law provides as follows: Where the language of the instrument is ambiguous or there are omissions therein, the following rules
of construction apply: xxx (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable
thereon.

As the promissory note was executed jointly and severally by the same parties, namely, Concepcion Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the
payee of the promissory note had the right to hold any one or any two of the signers of the promissory note responsible for the payment of the amount of the note.

2) Republic Planters Bank v. Court of Appeals - ___________, after date, for value received, I/we, jointly and severaIly promise to pay to the ORDER of the REPUBLIC PLANTERS
BANK, at its office in Manila, Philippines, the sum of ___________ PESOS xxx

On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and Fermin Canlas above their printed names with the phrase "and (in)
his personal capacity" typewritten below. At the bottom of the promissory notes appeared: "Please credit proceeds of this note to:
________ Savings Account ______XX Current Account
No. 1372-00257-6
of WORLDWIDE GARMENT MFG. CORP.
Promissory notes are negotiable instruments and must be governed by the Negotiable Instruments Law. Under the Negotiable lnstruments Law, persons who write their
names on the face of promissory notes are makers and are liable as such. By signing the notes, the maker promises to pay to the order of the payee or any holder
according to the tenor thereof. Based on the above provisions of law, there is no denying that Fermin Canlas is one of the co-makers of the promissory notes. As such, he
cannot escape liability arising therefrom.

Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon. An instrument
which begins" with "I" , “We" , or "Either of us" promise to, pay, when signed by two or more persons, makes them solidarily liable. The fact that the singular pronoun is
used indicates that the promise is individual as to each other; meaning that each of the co-signers is deemed to have made an independent singular promise to pay the
notes in full.

In the case at bar, the solidary liability of Canlas is made clearer and certain, without reason for ambiguity, by the presence of the phrase "joint and several" as describing
the unconditional promise to pay to the order of Republic Planters Bank. A joint and several note is one in which the makers bind themselves both jointly and
individually to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of the suit. A joint and several

obligation in common law corresponds to a civil law solidary obligation; that is, one of several debtors bound in such wise that each is liable for the entire amount, and
not merely for his proportionate share. By making a joint and several promise to pay to the order of Republic Planters Bank, Canlas assumed the solidary liability of a
debtor and the payee may choose to enforce the notes against him alone or jointly with Yamaguchi and Pinch Manufacturing Corporation as solidary debtors.

As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of the makers in the notes will affect the liability of the makers, with
or without the presence of said phrase, Canlas is primarily liable as a co-maker of each of the notes and his liability is that of a solidary debtor.

3) People v. Romero - The accused relies on the fact that there was a discrepancy between the amount in words and the amount in figures in the check that was
dishonored. The amount in words was P1,000,200.00, while the amount in figures was P1,200,000.00. It is admitted that the corporation had in the bank P1,144,760.00
on September 28,1989, and P1,124,307.14 on April 2, 1990. The check was presented for payment on October 5, 1989. The rule in the Negotiable Instruments Law is that
when there is ambiguity in the amount in words and the amount in figures, it would be the amount in words that would prevail.

However, this rule of interpretation finds no application in the case. The agreement was perfectly clear that at the end of 21 days, the investment of P150,000.00 would
become P1,200,000.00. Even if the trial court admitted the stipulation of facts, it would not be favorable to accused.

SIGNING IN TRADE OR ASSUMED NAME Only persons whose signature appear on an instrument 1. Where a person signs in a trade or
(Section 18) are liable thereon. assumed name (Sec. 18, par. 2)59;
2. Principal is liable, if a duly authorized
agent signs on his behalf (Sec. 19);
3. In case of forgery, the forger is liable
even if his signature does not appear on
the instrument (Sec. 23);
4. Where the acceptor makes his
acceptance of a bill on a separate paper
(Sec. 134); and
5. Where a person makes a written
promise to accept a bill before it is
drawn (Sec. 135).
SIGNATURE BY AN AUTHORIZED AGENT60 See rules above.

(Section 19)
59
This is a situation where a person’s business name serves the same purpose that would be served by his/hr signature.
60
The maker or drawer may sign the instrument personally or by another duly authorized by him.
WHEN AN AGENT MAY ESCAPE PERSONAL 1. The agent must be duly authorized;
LIABILITY 2. The agent must add words to his signature indicating that he signs as agent, that is, for or on
(Section 20) behalf of a principal, or in a representative capacity; and
3. The agent discloses his principal.

The mere addition of words describing him as agent, or as filling a representative character, without
disclosing his principal, does not exempt him from liability.

CASE DOCTRINES

1) Remo v. Court of Appeals - There is no cogent basis to pierce the corporate veil of Akron and hold Remo personally liable for its obligation to the corporation. While it
is true that in December 1977, Remo was still a member of the board of directors of Akron and that he participated in the adoption of a resolution authorizing the
purchase of 13 trucks for the use in the brokerage business of Akron to be paid out of a loan to be secured from a lending institution, it does not appear that said
resolution was intended to defraud anyone and more particularly the corporation. It was Coprada, President and Chairman of Akron, who negotiated with said respondent
for the purchase of 13 cargo trucks on January 25, 1978. It was Coprada who signed a promissory note to guarantee the payment of the unpaid balance of the purchase
price out of the proceeds of a loan he supposedly sought from the DBP. The word "WE' in the said promissory note must refer to the corporation which Coprada
represented in the execution of the note and not its stockholders or directors. Remo did not sign the said promissory note so he cannot be personally bound thereby.

Thus, if there was any fraud or misrepresentation, it was in that there was a forthcoming loan from the DBP when it fact there was none; thus, it is Coprada who should
account for the same and not Remo.

2) Insular Drug v. PNB - Not only did the bank permit Foerster to indorse checks and then place them to his personal account, but it went farther and permitted
Foerster's wife and clerk to indorse the checks. The right of an agent to indorse commercial paper is a very responsible power and will not be lightly inferred. A salesman
with authority to collect money belonging to his principal does not have the implied authority to indorse checks received in payment. Any person taking checks made
payable to a corporation, which can act only by agent does so at his peril, and must same by the consequences if the agent who indorses the same is without authority.
Further speaking to the errors specified by the bank, it is sufficient to state that no trust fund was involved; that the fact that bank acted in good faith does not relieve it
from responsibility; that no proof was adduced, admitting that Foerster had right to indorse the checks, indicative of right of his wife and clerk to do the same , and that
the checks drawn on the Bank of the Philippine Islands can not be differentiated from those drawn on the Philippine National Bank because of the indorsement by the
latter.

In brief, this is a case where 132 checks made out in the name of the Insular Drug Co., Inc., were brought to the branch office of the Philippine National Bank in Iloilo by
Foerster, a salesman of the drug company, Foerster's wife, and Foerster's clerk. The bank could tell by the checks themselves that the money belonged to the Insular Drug
Co., Inc., and not to Foerster or his wife or his clerk. When the bank credited those checks to the personal account of Foerster and permitted Foerster and his wife to
make withdrawals without there being made authority from the drug company to do so, the bank made itself responsible to the drug company for the amounts
represented by the checks. The bank could relieve itself from responsibility by pleading and proving that after the money was withdrawn from the bank it passed to the
drug company which thus suffered no loss, but the bank has not done so. Much more could be said about this case, but it suffices to state in conclusion that bank will
have to stand the loss occasioned by the negligence of its agents.

3) Philippine Bank of Commerce v. Aruego -The first defense of the defendant is that he signed the supposed bills of exchange as an agent of the Philippine Education
Foundation Company where he is president. 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.
The defendant also contends that he signed the drafts only as an accommodation party and as such, should be made liable only after a showing that the drawer is
incapable of paying. This contention is also without merit.
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.
The defendant also contends 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. This is also without merit. 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.
4) Francisco v. Court of Appeals - Francisco claims that she was, in any event, authorized to sign Ong's name on the checks by virtue of the Certification executed by Ong

in her favor giving her the authority to collect all the receivables of HCCC from the GSIS, including the questioned checks. This alternative defense must similarly fail.
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. 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. Even assuming that Francisco was authorized by HCCC to sign Ong's name, still, Francisco did not indorse the instrument in accordance
with law. Instead of signing Ong's 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.

5) Astro Electronics Corporation v. Phil. Export - These promissory notes are valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed twice:
first, as president of Astro and second, in his personal capacity. In signing his name aside from being the President of Asro, Roxas became a co-maker of the promissory
notes and cannot escape any liability arising from it. Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers,
promising that they will pay to the order of the payee or any holder according to its tenor. Thus, even without the phrase personal capacity, Roxas will still be primarily
liable as a joint and several debtor under the notes considering that his intention to be liable as such is manifested by the fact that he affixed his signature on each of

the promissory notes twice which necessarily would imply that he is undertaking the obligation in two different capacities, official and personal.

Unnoticed by both the trial court and the Court of Appeals, a closer examination of the signatures affixed by Roxas on the promissory notes, Exhibits A-4 and 3-A and B-4
and 4-A readily reveals that portions of his signatures covered portions of the typewritten words personal capacity indicating with certainty that the typewritten words
were already existing at the time Roxas affixed his signatures thus demolishing his claim that the typewritten words were just inserted after he signed the promissory
notes. If what he claims is true, then portions of the typewritten words would have covered portions of his signatures, and not vice versa. As to the third promissory note,
Exhibit C-4 and 5-A, the copy submitted is not clear so that this Court could not discern the same observations on the notes, Exhibits A-4 and 3-A and B-4 and 4-A.

The three promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly, severally and solidarily, promise to pay to PHILTRUST BANK or order. An instrument which
begins with I, We, or Either of us promise to pay, when signed by two or more persons, makes them solidarily liable. Also, the phrase joint and several binds the makers
jointly and individually to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of the suit. Having signed
under such terms, Roxas assumed the solidary liability of a debtor and Philtrust Bank may choose to enforce the notes against him alone or jointly with Astro.

Roxas claim that the phrases in his personal capacity and in his official capacity were inserted on the notes without his knowledge was correctly disregarded by the RTC
and the Court of Appeals. It is not disputed that Roxas does not deny that he signed the notes twice. Aside from his self-serving allegations, Roxas failed to prove the
truth of such allegations. Thus, said presumptions prevail over his claims. Bare allegations, when unsubstantiated by evidence, documentary or otherwise, are not
equivalent to proof under our Rules of Court.

Roxas is the President of Astro and reasonably, a businessman who is presumed to take ordinary care of his concerns. Absent any countervailing evidence, it cannot be
gainsaid that he will not sign document without first informing himself of its contents and consequences. Clearly, he knew the nature of the transactions and documents
involved as he not only executed these notes on two different dates but he also executed, and again, signed twice, a continuing Suretyship Agreement notarized on July
31, 1981, wherein he guaranteed, jointly and severally with Astro the repayment of P3,000,000.00 due to Philtrust. Such continuing suretyship agreement even
re-enforced his solidary liability Philtrust because as a surety, he bound himself jointly and severally with Astros obligation. Roxas cannot now avoid liability by hiding
under the convenient excuse that he merely signed the notes in blank and the phrases in personal capacity and in his official capacity were fraudulently inserted without
his knowledge.


SIGNATURE BY PROCURATION61 It operates as notice that agent has but limited authority to sign, and the principal is bound only in case

(Section 21) the agent in so signing acted within the limits of his authority.
EFFECTS62 OF Minors Contracts entered into by minors are A minor may be held bound by his signature in an
INDORSEMENT BY voidable. instrument where he is guilty of actual fraud stating
INCAPACITATED that he is of age when in fact, he is not.
PERSON/S63
(Section 22) Corporation This applies where the corporation has committed ultra vires act or acts beyond its powers
FORGERY64 (a) Where the signature Effect of the forged signature.65 - It is The party against whom it is sought to enforced such
(Section 23) on the instrument is wholly inoperative and 1) no right can be right is precluded from setting up the forgery or want of
affixed by one who does acquired through the forged signature, 2) authority.
not claim to act as an to give a discharge, or 3) to enforce
agent and who has no payment against any party can be acquired PERSONS PRECLUDED FROM SETTING UP THE DEFENSE
authority; and through or under such signature.66 OF FORGERY:
1. Those who by their acts, silence or negligence are
(b) Where the signature Forgery must be proven with clear and estopped from raising the defense; and
is affixed by one who convincing evidence. It is not presumed. A 2. Those who warrant or admit the genuineness of the
purports to be an agent person questioning the signature appearing signature/s in question, namely:
but who has no on the instrument has the burden of proving ○ Indorsers;
authority. the signature is a forgery. ○ Acceptors; and
○ Persons negotiating by delivery.
61
Procuration is the act by which a principal gives power to another to act in his place as s/he could himself/herself. It gives a warning that the agent has but a limited
authority, so that it is the duty of the person dealing with him/her to inquire into the extent of his/her authority. Note that, the principal is not bound if the agent has
exceeded the actual limited of his authority.
62
It is a real defense, but personal to minor or corporation. The rule is that, where indorsement or assignment of the instrument that passes the property, the corporation or
minor may incur no liability.
63
Other incapacitated perons include, insane or demented persons and deaf mutes who do not know how to read and write.
64
Forgery refers to the counterfeit-making or fraudulent alteration of any writing. It may consist in the signing of another’s name or the alteration of an instrument in the
name, amount, description of the person and the like with the intent thereby to defraud.
65
Recall, forgery is a real defense, and thus, it applies even against a holder in due course.
66
Section 23 does not purport to declare the ENTIRE INSTRUMENT void. It is only the forged or unauthorized signature that is declared to be inoperative. In other words,
rights may still exist and be enforced by virtue of such an instrument as to those whose signature are found to be genuine.

FORGED SIGNATURE OF A DRAWER/MAKER
PROMISSORY NOTE

1) Payable to Order
I promise to pay A or order P10k.
Signed, X [FORGED]
X → A [FORGER] → B → C → Holder

Holder v. X (Maker) - NOT LIABLE, because X is the maker and because his/her signature is forged, it is WHOLLY INOPERATIVE (Sec. 23).67
Holder v. A - LIABLE, because A is the forger (Sec. 23).
Holder v. B - LIABLE, because B is precluded from setting up the defense of forgery having warranted the genuineness of the instrument and by extension,
of the signature/s in question (Secs. 65/66).68
Holder v. C - LIABLE, because C is precluded from setting up the defense of forgery having warranted the genuineness of the instrument and by extension,
of the signature/s in question (Secs. 65/66).

2) Payable to Bearer
I promise to pay A or bearer P10k.
Signed, X [FORGED]

Holder v. X (Maker) - NOT LIABLE, because X is the maker and because his/her signature is forged, it is WHOLLY INOPERATIVE (Sec. 23).

67
Note that, the maker did not sign; it was forged. As a rule, anyone who does not sign the instrument will not incur liability in the same.
68
While generally they are the same in warranties, making a distinction between sections 65 and 66 is important in determining in whose favor that warranty extends. If it
is under sec. 65 and this is by delivery, the warranty of a person who negotiates by delivery extends only to his immediate transferee. However, if it is an indorsement of a
bearer instrument and you indorse it, the indorser would only be liable to those who are able to trace their title to such an indorsement.
ORDINARY BILL OF EXCHANGE

1) Payable to Order
Pay to A or order P10k.
Signed, X [FORGED]

To: Y

X → A [FORGER]→ B → C → Holder

Holder v. Y (Drawee/Acceptor)69
IF Y DISHONORS THE INSTRUMENT IF Y ACCEPTS THE INSTRUMENT
Holder v. X (Drawer) - NOT LIABLE, because X is the drawer and because Y v. X70 - NOT LIABLE, because X is the drawer and because his/her
his/her signature is forged, it is WHOLLY INOPERATIVE (Sec. 23). signature is forged, it is WHOLLY INOPERATIVE (Secs. 23/62).
Holder v. B - LIABLE, because B is precluded from setting up the defense Remedy of Y? He can go after A.
of forgery having warranted the genuineness of the signature/s in
question (Secs. 65/66). Y v. A - LIABLE, because A is the forger (Sec. 23).
Holder v. C - LIABLE, because C is precluded from setting up the defense
of forgery having warranted the genuineness of the signature/s in Note: Y cannot go against B or C, because in this situation, it is not by
question (Secs. 65/66). indorsement. It is presentment for payment. If Y pays, the instrument is
discharged.

Pay to A or bearer P10k.
Signed, X [FORGED]

69
Recall that, if Y accepts, he become the acceptor and is primarily liable. But if Y is considered to have dishonored the instrument, an immediate right of recourse against
parties secondarily liable arises, following certain procedures - the holder must send a notice to parties secondarily liable.
70
In this situation, Y paid because he was ordered to pay. The general rule is that in a bill of exchange where the drawer’s signature has been forged, as between the
acceptor and the drawer, it would be the acceptor who would be liable (Sec. 62).
To: Y


Holder v. Y (Drawee/Acceptor)
Holder v. X (Drawer) - NOT LIABLE, because X is the drawer and because Y v. X - NOT LIABLE, because X is the drawer and because his/her
his/her signature is forged, it is WHOLLY INOPERATIVE (Sec. 23). signature is forged, it is WHOLLY INOPERATIVE (Secs. 23/62).
Holder v. B - LIABLE, because B is precluded from setting up the defense Remedy of Y? He can go after A.
of forgery having warranted the genuineness of the signature/s in
question (Secs. 65/66). Y v. A - LIABLE, because A is the forger (Sec. 23).
Holder v. C - LIABLE, because C is precluded from setting up the defense
of forgery having warranted the genuineness of the signature/s in Note: Y cannot go against B or C, because in this situation, it is not by
question (Secs. 65/66). indorsement. It is presentment for payment. If Y pays, the instrument is
discharged.

CHECK71
Recall:
BLANK INDORSEMENT SPECIAL INDORSEMENT
Bearer instrument when the only and last indorsement is an indorsement in Order instrument, e.g., “To: C / Signed by, B”
blank, e.g., “Signed by, B”
To be negotiated further, requires indorsement and delivery.
To be negotiated further, requires delivery only.

71
A check is always payable on demand and generally, an order instrument. Recall, a bearer instrument is always a bearer instrument, but a person negotiating specially is
liable as an indorser to only such holders as to make title through his indorsement.
Situation 1
Signed, X [FORGED]
D I+D

Holder v. X - NOT LIABLE, because X is the maker and because his/her signature is forged, it is WHOLLY INOPERATIVE (Sec. 23).
Holder v. B - NOT LIABLE, because while there was a violation of the warranty that the instrument is genuine and in all respects what it purports to be, B
is not an immediate transferee (Sec. 65).
of the signature/s in question (Sec. 66).

Situation 2
Signed, X [FORGED]
I+D I+D I+D

of the signature/s in question and in this case, holder can trace title to indorsement of B (Secs. 66/40).
of the signature/s in question and in this case, holder can trace title to indorsement of C (Secs. 66/40).

Situation 3
Signed, X [FORGED]
I+D I+D D


Holder v. B - NOT LIABLE, because while B is precluded from setting up the defense of forgery having warranted the genuineness of the instrument and by
extension, of the signature/s in question and in this case, holder cannot trace title to indorsement of B (Secs. 66/40).
Holder v. C - LIABLE, because there was a violation of the warranty that the instrument is genuine and in all respects what it purports to be and C is an
immediate transferee (Sec. 66).

Signed, X [FORGED]

To: DB

X → A [FORGER] → B → C → Holder → CB → DB

Holder will deposit in the Collecting Bank. Collecting Bank will present it for payment in Drawee Bank.

Drawee Bank pays Collecting Bank.
Drawee Bank debits the account of X.72

DB v. X - NOT LIABLE, because X is the drawer and because his/her signature is forged, it is WHOLLY INOPERATIVE (Sec. 23).

GENERAL RULE: DB shoulders the loss, because DB is negligent.
EXCEPTION: Drawer bears the loss even if his/her signature is forged, if it is shown that s/he was negligent or was the proximate cause.

Remedy of DB? DB goes against A.

DB v. A - LIABLE, because A is the forger (Sec. 23).
DB v. CB - NOT LIABLE, because as between the DB and CB, it is the DB that is liable because DB should have known that it was a forgery (Sec. 23).

If the account of X has been debited:
X v. DB - LIABLE, because the DB is presumed to be negligent (Sec. 23).
X vs. CB - NOT LIABLE, because they have no privity - the privity of contracts is between the drawer and drawee bank.
72
This presupposes that X is a depositor of drawee bank; therefore, drawee bank is supposed to know all the signatures of the drawer.

CASE DOCTRINES

1) PNB v. Quimpo - GOZON → SANTOS → PNB

The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or the depositor on the check being encashed. It is expected to use reasonable
business prudence in accepting and cashing a check presented to it. PNB was negligent in encashing said forged check without carefully examining the signature which
shows marked variation from the genuine signature of Gozon.
In reference to the allegation of the PNB that it is the negligence of Gozon that is the cause of the loss which he suffered, the trial court held:
The act of plaintiff in leaving his checkbook in the car while he went out for a short while can not be considered negligence sufficient to excuse the defendant bank from its own
negligence. It should be home in mind that when defendant left his car, Ernesto Santos, a long time classmate and friend remained in the same. Defendant could not have been
expected to know that the said Ernesto Santos would remove a check from his checkbook. Defendant had trust in his classmate and friend. He had no reason to suspect that the
latter would breach that trust .
Gozon trusted Santos as a classmate and a friend. He brought him along in his car to the bank and he left his personal belongings in the car. Santos, however, removed
and stole a check from his cheek book without the knowledge and consent of Gozon. No doubt Gozon cannot be considered negligent under the circumstances of the
case.
2) PNB v. Court of Appeals - GSIS → PULIDO → GO → LIM → PCIB (stamped "All prior indorsements and/or Lack of Endorsement Guaranteed) → PNB

The question whether or not the indorsements have been falsified is immaterial to the PNB's liability as a drawee, or to its right to recover from the PCIB, for, as against
the drawee, the indorsement of an intermediate bank does not guarantee the signature of the drawer, since the forgery of the indorsement is not the cause of the loss.

With respect to the warranty on the back of the check, it should be noted that the PCIB thereby guaranteed "all prior indorsements," not the authenticity of the signatures
of the officers of the GSIS who signed on its behalf, because the GSIS is not an indorser of the check, but its drawer. Said warranty is irrelevant, therefore, to the PNB's
alleged right to recover from the PCIB. It could have been availed of by a subsequent indorsee or a holder in due course subsequent to the PCIB, but, the PNB is neither.
Indeed, upon payment by the PNB, as drawee, the check ceased to be a negotiable instrument, and became a mere voucher or proof of payment.

The PNB maintains that the lower court erred in not finding that the PCIB had been guilty of negligence in not discovering that the check was forged. Assuming that
there had been such negligence on the part of the PCIB, it is undeniable, however, that the PNB has, also, been negligent, with the particularity that the PNB had been
guilty of a greater degree of negligence, because it had a previous and formal notice from the GSIS that the check had been lost, with the request that payment thereof
be stopped. Just as important, if not more important and decisive, is the fact that the PNB's negligence was the main or proximate cause for the corresponding loss.

In this connection, it will be recalled that the PCIB did not cash the check upon its presentation by Augusto Lim; that the latter had merely deposited it in his current
account with the PCIB; that, on the same day, the PCIB sent it, through the Central Bank, to the PNB, for clearing; that the PNB did not return the check to the PCIB the
next day or at any other time; that said failure to return the check to the PCIB implied, under the current banking practice, that the PNB considered the check good and
would honor it; that, in fact, the PNB honored the check and paid its amount to the PCIB; and that only then did the PCIB allow Augusto Lim to draw said amount from

his aforementioned current account.

Thus, by not returning the check to the PCIB, by thereby indicating that the PNB had found nothing wrong with the check and would honor the same, and by actually
paying its amount to the PCIB, the PNB induced the latter, not only to believe that the check was genuine and good in every respect, but, also, to pay its amount to
Augusto Lim. In other words, the PNB was the primary or proximate cause of the loss, and, hence, may not recover from the PCIB.

3) MWSS v. Court of Appeals - NWSA/MWSS → DIZON, SISON, and MENDOZA (fictitious persons) → PCIB/PCB → PNB

There is no express and categorical finding in these documents that the 23 questioned checks were indeed signed by persons other than the authorized MWSS
signatories. On the contrary, the findings of the National Bureau of Investigation in its Report show that the MWSS fraud was an "inside job" and that the MWSS’ delay in
the reconciliation of bank statements and the laxity and loose records control in the printing of its personalized checks facilitated the fraud. Likewise, the questioned
Documents Report of the National Bureau of Investigation does not declare or prove that the signatures appearing on the questioned checks are forgeries. The report
merely mentions the alleged differences in the type face, checkwriting, and printing characteristics appearing in the standard or submitted models and the questioned
typewritings. The NBI Chemistry Report merely describes the inks and pens used in writing the alleged forged signatures.
It is clear that these 3 NBI Reports relied upon by the MWSS are inadequate to sustain its allegations of forgery. These reports did not touch on the inherent qualities of
the signatures which are indispensable in the determination of the existence of forgery. 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. Forgery cannot be presumed. It must be established by clear, positive, and
convincing evidence. This was not done in the present case.
Considering the absence of sufficient security in the printing of the checks coupled with the very close similarities between the genuine signatures and the alleged
forgeries, the 23 checks in question could have been presented to the MWSS’ signatories without their knowing that they were bogus checks. Indeed, the cashier of the
MWSS whose signatures were allegedly forged was unable to ten the difference between the allegedly forged signature and his own genuine signature. On the other
hand, the MWSS officials admitted that these checks could easily be passed on as genuine.
Moreover, the MWSS is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law because it was guilty of negligence not only
before the questioned checks were negotiated but even after the same had already been negotiated. The records show that at the time the 23 checks were prepared,
negotiated, and encashed, MWSS was using its own personalized checks, instead of the official PNB Commercial blank checks. In the exercise of this special privilege,
however, MWSS failed to provide the needed security measures. Another factor which facilitated the fraudulent encashment of the twenty-three (23) checks in question
was the failure of the MWSS to reconcile the bank statements with its own records.
The Courts cannot fault the drawee Bank for not having detected the fraudulent encashment of the checks because the printing of the MWSS’ personalized checks was
not done under the supervision and control of the Bank. There is no evidence on record indicating that because of this private printing MWSS furnished the respondent
Bank with samples of checks, pens, and inks or took other precautionary measures with the PNB to safeguard its interests. Under the circumstances, therefore, the MWSS
was in a better position to detect and prevent the fraudulent encashment of its checks.


4) Ilusorio v. Court of Appeals - ILUSORIO → EUGENIO → MANILA BANKING CORPORATION

Ilusorio has no cause of action against Manila Bank. To be entitled to damages, Ilusorio has the burden of proving negligence on the part of the bank for failure to detect
the discrepancy in the signatures on the checks. It is incumbent upon Ilusorio to establish the fact of forgery, i.e., by submitting his specimen signatures and comparing
them with those on the questioned checks. Curiously though, Ilusorio failed to submit additional specimen signatures as requested by the National Bureau of
Investigation from which to draw a conclusive finding regarding forgery. The Court of Appeals found that Ilusorio, by his own inaction, was precluded from setting up
forgery.

Manila Bank employees exercised due diligence in cashing the checks. The bank’s employees in the present case did not have a hint as to Eugenio’s modus operandi
because she was a regular customer of the bank, having been designated by petitioner himself to transact in his behalf. According to the appellate court, the employees
of the bank exercised due diligence in the performance of their duties. It found that: the evidence on both sides indicates that TMBC’s employees exercised due diligence
before encashing the checks. Its verifiers first verified the drawer’s signatures thereon as against his specimen signature cards, and when in doubt, the verifier went
further, such as by referring to a more experienced verifier for further verification. In some instances the verifier made a confirmation by calling the depositor by phone. It
is only after taking such precautionary measures that the subject checks were given to the teller for payment.

It was Ilusorio, not the bank, who was negligent. Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily
regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would do. In the present case, it appears that Ilusorio
accorded his secretary unusual degree of trust and unrestricted access to his credit cards, passbooks, check books, bank statements, including custody and possession of
cancelled checks and reconciliation of accounts.

Ilusorio’s failure to examine his bank statements appears as the proximate cause of his own damage. Proximate cause is that cause, which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. In the instant case, the bank was not
shown to be remiss in its duty of sending monthly bank statements to Ilusorio so that any error or discrepancy in the entries therein could be brought to the bank’s
attention at the earliest opportunity. But, Ilusorio failed to examine these bank statements not because he was prevented by some cause in not doing so, but because he
did not pay sufficient attention to the matter. Had he done so, he could have been alerted to any anomaly committed against him. In other words, Ilusorio had sufficient
opportunity to prevent or detect any misappropriation by his secretary had he only reviewed the status of his accounts based on the bank statements sent to him
regularly.

It is a rule that when a signature is forged or made without the authority of the person whose signature it purports to be, the check is wholly inoperative. No right to
retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party, can be acquired through or under such signature. However, the
rule does provide for an exception, namely: "unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of
authority." In the instant case, it is the exception that applies. In our view, Ilusoriois precluded from setting up the forgery, assuming there is forgery, due to his own
negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account.

5) BPI v. Casa Montessori Internationale - CASA MONTESSORI → SANTOS (fictitious name of YABUT) → BPI
Under this provision, a forged signature is a real or absolute defense, and a person whose signature on a negotiable instrument is forged is deemed to have never
become a party thereto and to have never consented to the contract that allegedly gave rise to it. The counterfeiting of any writing, consisting in the signing of another’s
name with intent to defraud, is forgery. In the present case, the Court held that there was forgery of the drawer’s signature on the check. Yabut himself had voluntarily

admitted, through an Affidavit, that he had forged the drawer’s signature and encashed the checks. He never refuted these findings. That he had been coerced into
admission was not corroborated by any evidence on record.
Forgery cannot be presumed. It must be established by clear, positive and convincing evidence. Under the best evidence rule as applied to documentary evidence like the

checks in question, no secondary or substitutionary evidence may inceptively be introduced, as the original writing itself must be produced in court. But when, without
bad faith on the part of the offeror, the original checks have already been destroyed or cannot be produced in court, secondary evidence may be produced. Without bad
faith on its part, CASA proved the loss or destruction of the original checks through the Affidavit of the one person who knew of that fact -- Yabut. He clearly admitted to
discarding the paid checks to cover up his misdeed.

Having established the forgery of the drawer’s signature, BPI -- the drawee -- erred in making payments by virtue thereof. The forged signatures are wholly inoperative,
and CASA -- the drawer whose authorized signatures do not appear on the negotiable instruments -- cannot be held liable thereon. Neither is the latter precluded from
setting up forgery as a real defense.

Since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the
highest degree of diligence is expected, and high standards of integrity and performance are even required, of it. By the nature of its functions, a bank is "under
obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship."

BPI contends that it has a signature verification procedure, in which checks are honored only when the signatures therein are verified to be the same with or similar to
the specimen signatures on the signature cards. Nonetheless, it still failed to detect the eight instances of forgery. Its negligence consisted in the omission of that degree
of diligence required of a bank. It cannot now feign ignorance, for very early on the Court has already ruled that a bank is "bound to know the signatures of its customers;
and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the
depositor whose name was forged." Without exercising the required prudence on its part, BPI accepted and encashed the eight checks presented to it. As a result, it
proximately contributed to the fraud and should be held primarily liable for the "negligence of its officers or agents when acting within the course and scope of their
employment." It must bear the loss.

In this jurisdiction, the negligence of the party invoking forgery is recognized as an exception to the general rule that a forged signature is wholly inoperative.Contrary to
BPI’s claim, however, CASA was not negligent in handling its financial affairs. CASA is not precluded from setting up forgery as a real defense. Yabut was an independent
auditor hired by CASA. He handled its monthly bank reconciliations and had access to all relevant documents and checkbooks. In him was reposed the client’s trust and
confidence that he would perform precisely those functions and apply the appropriate procedures in accordance with generally accepted auditing standards. Yet he did
not meet these expectations. Nothing could be more horrible to a client than to discover later on that the person tasked to detect fraud was the same one who
perpetrated it.

6) San Carlos Milling v. BPI - SAN CARLOS MILLING → BALDWIN (agent) → DOLORES → CHINA BANKING → BPI

As to the China Banking Corporation, it will be seen that it drew its check payable to the order of San Carlos Milling and delivered it to San Carlos Milling’s agent who
was authorized to receive it. A bank that cashes a check must know to whom it pays. In connection with the cashier’s check, this duty was therefore upon the Bank of the
Philippine Islands, and the China Banking Corporation was not bound to inspect and verify all endorsements of the check, even if some of them were also those of
depositors in the bank. It had a right to rely upon the endorsement of the Bank of the Philippine Islands when it gave the latter bank credit for its own cashier’s check.
Even if we would treat the China Banking Corporation’s cashier’s check the same as the check of a depositor and attempt to apply the doctrines of the Great Eastern Life

Insurance Co. v. Hongkong & Shanghai Banking Corporation and National Bank, and hold the China Banking Corporation indebted to plaintiff, the Court would at the same
time have to hold that the Bank of the Philippine Islands was indebted to the China Banking Corporation in the same amount. As, however, the money was in fact paid to
San Carlos Milling, it must hold that the China Banking Corporation is indebted neither to plaintiff not to the Bank of the Philippine Islands, and the judgment of the
lower court so far as it absolved the China Banking Corporation from responsibility is affirmed.

Returning to the relation between San Carlos Milling and the Bank of the Philippine Islands, the Court will now consider the effect of the deposit of P201,000. It must be
noted that this was not a presenting of the check for cash payment but for deposit only. It is a matter of general knowledge that most endorsements for deposit only, are
informal. Most are by means of a rubber stamp. The bank would have been justified in accepting the check for deposit even with only a typed endorsement. It accepted
the check and duly credited San Carlos Milling’s account with the amount on the face of the check. San Carlos Milling was not harmed by the transaction as the only
result was the removal of that sum of money from a bank from which Wilson could have drawn it out in his own name to a bank where Wilson would not have authority
to draw checks and where funds could only be drawn out by the check of Baldwin.

It is an elementary principle both of banking and of the Negotiable Instruments Law that — "A bank is bound to know the signatures of its customers; and if it pays a
forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose
name was forged." There is no act of the San Carlos Milling that led the Bank of the Philippine Islands astray. If it was in fact lulled into a false sense of security, it was by
the effrontery of Dolores, the messenger to whom it entrusted this large sum of money.

The bank paid out its money because it relied upon the genuineness of the purported signatures of Baldwin. These, they never questioned at the time its employees
should have used care. In fact, even today the bank represents that it has a belief that they are genuine signatures. The signatures to the checks being forged, under
section 23 of the Negotiable Instruments Law they are not a charge against San Carlos Milling nor are the checks of any value to the defendant. It must therefore be held
that the proximate cause of loss was due to the negligence of the Bank of the Philippine Islands in honoring and cashing the two forged checks.

7) Republic v. Equitable Bank - The clearing of the aforementioned twenty-eight (28) warrants thru the Clearing Office was made pursuant to the "24-hour clearing house
rule", which had been adopted by the Central Bank in a conference with representatives and officials of the different banking institutions in the Philippines. The rule
applies not only to banks, but, also, to the institutions and entities therein alluded to. Then too, the opposition of the Treasurer to the "24-hour clearing house rule" is not
sufficient to exempt the Treasury from the operation thereof. Upon the other hand, said opposition is predicated upon the allegation that it is physically impossible for
the Treasury to check and verify the genuineness of treasury warrants within 24 hours, because, during 1952 said office used to receive daily from 3,000 to 4,000
warrants which, considering its very limited personnel at that time, would have required 1 or 2 months clear. This claim is belied, however, by the statements the
Treasurer, Exhibits 38 and 38-A to 38-C, showing that on September 15, 23 and 24 and November 25, 1952, his office had cleared 1,618, 2,851, 1,742 and 2,360 warrant
respectively. Moreover, if the rule was unwise, the Treasurer could have secured the proper remedy through the President of the Philippines, since the Treasury and
Central Bank are both agencies of the Government.

At any rate, the aforementioned 28 warrants were cleared and paid by the Treasurer, in view which the PI Bank and the Equitable Bank credited the corresponding
amounts to the respective depositors of the warrants and then honored their checks for said amounts. Thus, the Treasury had not only been negligent in clearing its own
warrants, but had, also, thereby induced the PI Bank and the Equitable Bank to pay the amounts thereof to said depositors. The gross nature of the negligence of the
Treasury becomes more apparent when we consider that each one of the 24 warrants involve in G.R. No. L-15895 was for over P5,000, and, hence; beyond the authority
of the auditor of the Treasury — whose signature thereon had been forged — to approve. In other words, the irregularity of said warrants was apparent the face thereof,
from the viewpoint of the Treasury. Moreover, the same had not advertised the loss of genuine forms of its warrants. Neither had the PI Bank nor the Equitable Bank been
informed of any irregularity in connection with any of the warrants involved in these 2 cases, until after December 23, 1952, — or after the warrants had been cleared

and honored — when the Treasury gave notice of the forgeries adverted to above. As a consequence, the loss of the amounts thereof is mainly imputable to acts and
omissions of the Treasury, for which the PI Bank and the Equitable Bank should not and cannot be penalized.

Where a loss, which must be borne by one of two parties alike innocent of forgery, can be traced to the neglect or fault of either, it is reasonable that it would be borne
by him, even if innocent of any intentional fraud, through whose means it has succeeded.
8) PNB v. National City Bank of New York

A check is a bill of exchange payable on demand and only the rules governing bills of exchange payable on demand are applicable to it, according to section 185 of the
Negotiable Instruments Law. In view of the fact that acceptance is a step unnecessary in so far as bills of exchange payable on demand are concerned, it follows that the
provisions relative to "acceptance" are without application to checks. Acceptance implies, in effect, subsequent negotiation of the instrument, which is not true in case of
the payment of a check because from the moment a check is paid it is withdrawn from circulation. The warranty established by section 62, is in favor of holders of the
instrument after its acceptance. When the drawee bank cashes or pays a check, the cycle of negotiation is terminated, and it is illogical thereafter to speak of subsequent
holders who can invoke the warranty provided in section 62 against the drawee. Moreover, according to section 191, "acceptance" means "an acceptance completed by
delivery or notification" and this concept is entirely incompatible with payment, because when payment is made the check is retained by the bank, and there is no such
thing as delivery or notification to the party receiving the payment. There can be no such thing as "acceptance" in the ordinary sense of the term. A check being payable
immediately and on demand, the bank can fulfill its duty to the depositor only by paying the amount demanded. The holder has no right to demand from the bank
anything but payment of the check, and the bank has no right, as against the drawer, to do anything but pay it. A check is not an instrument which in the ordinary course
of business calls for acceptance. The holder can never claim acceptance as his legal right. He can present for payment, and only for payment.

There is nothing in the law or in business practice against the presentation of checks for acceptance, before they are paid, in which case there is a "certification"
equivalent to "acceptance" according to section 187, which provides that "where a check is certified by the bank on which it is drawn, the certification is equivalent to an
acceptance", and it is then that the warranty under section 62 exists. This certification or acceptance consists in the signification by the drawee of his assent to the order
of the drawer, which must not express that the drawee will perform his promise by any other means than the payment of money. When the holder of a check procures it
to be accepted or certified, the drawer will perform his promise by any other means than the payment of money. When the holder of a check procures it to be accepted or
certified, the drawer and all indorsers are discharged from liability thereon, and then the check operates as an assignment of a part of the funds to the credit of the
drawer with the bank. There is nothing in the nature of the check which intrinsically precludes its acceptance, in like manner and with like effect as a bill of exchange or
draft may be accepted. The bank may accept if it chooses; and it is frequently induced by convenience, by the exigencies of business, or by the desire to oblige customers,
voluntarily to incur the obligation. The act by which the bank places itself under obligation to pay to the holder the sum called for by a check must be the expressed
promise or undertaking of the bank signifying its intent to assume the obligation, or some act from which the law will imperatively imply such valid promise or
undertaking. The most ordinary form which such an act assumes is the acceptance by the bank of the check, or, as it is perhaps more often called, the certifying of the
check.

Check number 637023-D was dated 6 April 1933, whereas check number 637020-D and is dated 7 April 1933. Therefore, the later check, which is prior in number to the
former check, is however, issued on a later date. This circumstance must have aroused at least the curiosity of MSCI. MSCI further accepted the two checks from unknown
persons. Furthermore, check 637023-D was indorsed by a subagent of the agent of the payee, International Auto Repair Shop. MSCI made no inquiry whatsoever as to the
extent of the authority of these unknown persons. Check 637020-D, aside from having been indorsed by a supposed agent of the International Auto Repair Shop is
crossed generally. The existence of two parallel lines transversally drawn on the face of this check was a warning that the check could only be collected through a
banking institution. Yet MSCI accepted the check in payment for merchandise. The facts of case do not make it one between two equally innocent persons, the drawee

bank and the holder. Section 23 of the Negotiable Instruments Act provides that "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." It not appearing that PNB did not warrant to MCSI the genuineness of the checks in question, by its acceptance thereof, nor did it perform any act
which would have induced MSCI to believe in the genuineness of said instruments before MSCI purchased them for value, it can not be said that PNB is precluded from
setting up the forgery and, therefore, MSCI is not entitled to retain the amount of the forged check paid to it by PNB.

A drawee of a check, who is deceived by a forgery of the drawer's signature may recover the payment back, unless his mistake has placed an innocent holder of the paper
in a worse position than he would have been in if the discover of the forgery had been made on presentation. Forgeries often deceived the eye of the most cautions
experts; and when a bank has been so deceived, it is a harsh rule which compels it to suffer although no one has suffered by its being deceived. Herein, MSCI has lost
nothing by anything which the drawee has done. It had in its hands some forged worthless papers. It did not purchase or acquire these papers because of any
representation made to it by the drawee. It purchased them from unknown persons and under suspicious circumstances. It had no valid title to them, because the
persons from whom it received them did not have such title. MSCI could not have compelled the drawee to pay them, and the drawee could have refused payment had it
been able to detect the forgery. By making a refund, MSCI would only be returning what it had received without any title or right. And when MCSI pays back the money it
has received it will be entitled to have restored to it the forged papers it parted with. There is no good reason why the accidental payment made by PNB should inure to
the benefit of MSCI. If there were injury to MCSI said injury was caused not by the failure of PNB to detect the forgery but by the very negligence of MCSI in purchasing
commercial papers from unknown persons without making inquiry as to their genuineness.

The Court held that:
● That where a check is accepted or certified by the bank on which it is drawn, the bank is estopped to deny the genuineness of the drawer's signature and his capacity to
issue the instrument;
● That if a drawee bank pays a forged check which was previously accepted or certified by the said bank, it cannot recover from a holder who did not participate in the
forgery and did not have actual notice thereof;
● That the payment of a check does not include or imply its acceptance in the sense that this word is used in section 62 of the Negotiable Instruments Law;
● That in the case of the payment of a forged check, even without former acceptance, the drawee can not recover from a holder in due course not chargeable with any act of
negligence or disregard of duty;
● That to entitle the holder of a forged check to retain the money obtained thereon, there must be a showing that the duty to ascertain the genuineness of the signature
rested entirely upon the drawee, and that the constructive negligence of such drawee in failing to detect the forgery was not affected by any disregard of duty on the part
of the holder, or by failure of any precaution which, from his implied assertion in presenting the check as a sufficient voucher, the drawee had the right to believe he had
taken;
● That in the absence of actual fault on the part of the drawee, his constructive fault in not knowing the signature of the drawer and detecting the forgery will not preclude
his recovery from one who took the check under circumstances of suspicion and without proper precaution, or whose conduct has been such as to mislead the drawee or
induce him to pay the check without the usual scrutiny or other precautions against mistake or fraud;
● That on who purchases a check or draft is bound to satisfy himself that the paper is genuine, and that by indorsing it or presenting it for payment or putting it into
circulation before presentation he impliedly asserts that he performed his duty;
● That while the foregoing rule, chosen from a welter of decisions on the issue as the correct one, will not hinder the circulation of two recognized mediums of exchange by
which the great bulk of business is carried on, namely, drafts and checks, on the other hand, it will encourage and demand prudent business methods on the part of those
receiving such mediums of exchange;
● That it being a matter of record in the present case, that PNB is no more chargeable with the knowledge of the drawer's signature than MCSI is, as the drawer was as

much the customer of MSCI as of PNB, the presumption that a drawee bank is bound to know more than any indorser the signature nature of its depositor does not hold;
● That according to the undisputed facts of the case, MSCI in purchasing the papers in question from unknown persons without making any inquiry as to the identity and
authority of the said persons negotiating and indorsing them, acted negligently and contributed to PNB's constructive negligence in failing to detect the forgery; and
● That under the circumstances of the case, if the PNB is allowed to recover, there will be no change of position as to the injury or prejudice of the MCSI.

9) Samsung v. FEBTC - The general rule is to the effect that a forged signature is "wholly inoperative," and payment made "through or under such signature" is ineffectual
or does not discharge the instrument. If payment is made, the drawee cannot charge it to the drawer’s account. The traditional justification for the result is that the
drawee is in a superior position to detect a forgery because he has the maker’s signature and is expected to know and compare it. The rule has a healthy cautionary effect
on banks by encouraging care in the comparison of the signatures against those on the signature cards they have on file. Moreover, the very opportunity of the drawee to
insure and to distribute the cost among its customers who use checks makes the drawee an ideal party to spread the risk to insurance.

Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by the party whose signature is forged. On the premise that Jong’s signature
was indeed forged, FEBTC is liable for the loss since it authorized the discharge of the forged check. Such liability attaches even if the bank exerts due diligence and care
in preventing such faulty discharge. Forgeries often deceive the eye of the most cautious experts; and when a bank has been so deceived, it is a harsh rule which compels
it to suffer although no one has suffered by its being deceived. The forgery may be so near like the genuine as to defy detection by the depositor himself, and yet the
bank is liable to the depositor if it pays the check.
Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of forgery if it is guilty of negligence. Yet, the Court is unable to conclude that
Samsung Construction was guilty of negligence in this case. 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. The bare fact that the forgery was committed by an employee of the party whose signature was forged
cannot necessarily imply that such party’s negligence was the cause for the forgery. Employers do not possess the preternatural gift of cognition as to the evil that may
lurk within the hearts and minds of their employees.
Admittedly, the record does not clearly establish what measures Samsung Construction employed to safeguard its blank checks. Jong did testify that his accountant, Kyu,

kept the checks inside a "safety box," and no contrary version was presented by FEBTC. However, such testimony cannot prove that the checks were indeed kept in a
safety box, as Jong’s testimony on that point is hearsay, since Kyu, and not Jong, would have the personal knowledge as to how the checks were kept.
Still, in the absence of evidence to the contrary, the Court held that there was no negligence on Samsung Construction’s part. The presumption remains that every person

takes ordinary care of his concerns, and that the ordinary course of business has been followed. Negligence is not presumed, but must be proven by him who alleges it.
While the complaint was lodged at the instance of Samsung Construction, the matter it had to prove was the claim it had alleged - whether the check was forged. It
cannot be required as well to prove that it was not negligent, because the legal presumption remains that ordinary care was employed.
Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact that Samsung Construction was negligent. While the payee, as in this case, may not have the
personal knowledge as to the standard procedures observed by the drawer, it well has the means of disputing the presumption of regularity. Proving a negative fact may
be "a difficult office," but necessarily so, as it seeks to overcome a presumption in law. FEBTC was unable to dispute the presumption of ordinary care exercised by
Samsung Construction, hence we cannot agree with the Court of Appeals’ finding of negligence.
The assailed Decision replicated the extensive efforts which FEBTC devoted to establish that there was no negligence on the part of the bank in its acceptance and
payment of the forged check. However, the degree of diligence exercised by the bank would be irrelevant if the drawer is not precluded from setting up the defense of

forgery under Section 23 by his own negligence.
The general rule remains that the drawee who has paid upon the forged signature bears the loss. The exception to this rule arises only when negligence can be traced on
the part of the drawer whose signature was forged, and the need arises to weigh the comparative negligence between the drawer and the drawee to determine who
should bear the burden of loss. The Court finds no basis to conclude that Samsung Construction was negligent in the safekeeping of its checks. For one, the settled rule
is that the mere fact that the depositor leaves his check book lying around does not constitute such negligence as will free the bank from liability to him, where a clerk
of the depositor or other persons, taking advantage of the opportunity, abstract some of the check blanks, forges the depositor’s signature and collect on the checks from
the bank. And for another, in point of fact Samsung Construction was not negligent at all since it reported the forgery almost immediately upon discovery.
The general rule imputing liability on the drawee who paid out on the forgery holds in this case.
It might be so that the bank complied with its own internal rules prior to paying out on the questionable check. Yet, there are several troubling circumstances that lead
the Court to believe that the bank itself was remiss in its duty. The fact that the check was made out in the amount of nearly one million pesos is unusual enough to
require a higher degree of caution on the part of the bank. Indeed, FEBTC confirms this through its own internal procedures. Checks below twenty-five thousand pesos
require only the approval of the teller; those between twenty-five thousand to one hundred thousand pesos necessitate the approval of one bank officer; and should the
amount exceed one hundred thousand pesos, the concurrence of 2 bank officers is required.
In this case, not only did the amount in the check nearly total one million pesos, it was also payable to cash. That latter circumstance should have aroused the suspicion

of the bank, as it is not ordinary business practice for a check for such large amount to be made payable to cash or to bearer, instead of to the order of a specified person.

Even assuming that FEBTC had a standing habit of dealing with Sempio, acting in behalf of Samsung Construction, the irregular circumstances attending the
presentment of the forged check should have put the bank on the highest degree of alert. The Court recently emphasized that the highest degree of care and diligence is
required of banks. Given the circumstances, extraordinary diligence dictates that FEBTC should have ascertained from Jong personally that the signature in the
questionable check was his.
Still, even if the bank performed with utmost diligence, the drawer whose signature was forged may still recover from the bank as long as he or she is not precluded from
setting up the defense of forgery. After all, Section 23 of the Negotiable Instruments Law plainly states that no right to enforce the payment of a check can arise out of a
forged signature. Since the drawer, Samsung Construction, is not precluded by negligence from setting up the forgery, the general rule should apply. Consequently, if a
bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. A bank is liable,
irrespective of its good faith, in paying a forged check.
10) Citibank v. Cabamongan - Citibank, thru a new counsel, submitted a Supplemental Memorandum, wherein it posits that, assuming that it was negligent, the
Cabamongan spouses were guilty of contributory negligence since they failed to notify Citibank that they had migrated to the United States and were residents thereat
and after having been victims of a burglary, they should have immediately assessed their loss and informed Citibank of the disappearance of the bank certificate, their
passports and other identification cards, then the fraud would not have been perpetuated and the losses avoided. It further argues that since the Cabamongan spouses
are guilty of contributory negligence, the doctrine of last clear chance is inapplicable.

Citibank's assertion that the Cabamongan spouses are guilty of contributory negligence and non-application of the doctrine of last clear chance cannot pass muster since
these contentions were raised for the first time only in their Supplemental Memorandum. Indeed, the records show that said contention were neither pleaded in the

petition for review and the memorandum nor in Citibank's Answer to the complaint or in its appellant's brief filed with the CA. To consider the alleged facts and
arguments raised belatedly in a supplemental pleading to herein petition for review at this very late stage in the proceedings would amount to trampling on the basic
principles of fair play, justice and due process.

The Court has repeatedly emphasized that, since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of
the public in general. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required, of it. By the nature of
its functions, a bank is "under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship."

In this case, it has been sufficiently shown that the signatures of Carmelita in the forms for pretermination of deposits are forgeries. Citibank, with its signature
verification procedure, failed to detect the forgery. Its negligence consisted in the omission of that degree of diligence required of banks. The Court has held that a bank
is "bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily
charge the amount so paid to the account of the depositor whose name was forged." Such principle equally applies here.

Citibank cannot label its negligence as mere mistake or human error. Banks handle daily transactions involving millions of pesos. By the very nature of their works the
degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. Banks are expected
to exercise the highest degree of diligence in the selection and supervision of their employees.

FORGED SIGNATURE OF THE INDORSER
PROMISSORY NOTE

1) Payable to Order
I promise to pay A or order P10k.
Signed, X
X → A [FORGED] → B [FORGER] → C → Holder

Holder v. X (Maker) - NOT LIABLE, because X is a party prior to the forgery (Sec. 60).
Holder v. A - NOT LIABLE, because the instrument is wholly inoperative (Sec. 23).
Holder v. B - LIABLE, because B is the forger and s/he is precluded from setting up the defense of forgery having warranted the genuineness of the
instrument and by extension, of the signature/s in question (Secs. 23 and 65/66).


Signed, X

Holder v. X (Maker) - See Sec. 16. X is a party prior to the forgery.
● IF HOLDER IN DUE COURSE: LIABLE.
● IF NOT HOLDER IN DUE COURSE: NOT LIABLE.

GENERAL RULE: Parties at the time or after the forgery will not be able to raise any defenses because of their warrantors.
EXCEPTION: Parties prior to the forgery--

FORGERY IN THE DRAWER’S SIGNATURE FORGERY IN THE INDORSER’S SIGNATURE
Sec. 23. - The signature is wholly inoperative. Sec. 16. - The instrument is complete and undelivered.73

Indorsement is not necessary to pass title. The issue the becomes if there
was a valid delivery.

If X is required to pay, what is the remedy of X? X goes against forger.
● X cannot go after C, because the warranties of C do not extend to maker.

Holder v. A - NOT LIABLE, because A’s signature is forged and it is wholly inoperative (Sec. 23).
Holder v. B - LIABLE, because B is the forger and s/he is precluded from setting up the defense of forgery having warranted the genuineness of the
instrument and by extension, of the signature/s in question (Secs. 23 and 65/66).

73
The burden is on the maker. If the maker is able to prove that the holder is not a holder in due course, then not liable. Then, if s/he is not able to disprove that, s/he is
liable.
BILL OF EXCHANGE
1) Payable to Order
Signed, X

To: Y


The drawer is the one making the order. In terms of the nature of liability, drawer is secondarily liable. S/he will only be liable if the person who is
primarily liable dishonors the instrument, so presentment of the instrument will have to be made first.

IF Y DISHONORS THE INSTRUMENT74 IF Y ACCEPTS THE INSTRUMENT
Holder v. X (Drawer) - NOT LIABLE, because this is an order instrument, Y v. X75 - NOT LIABLE, because the instructions of X are not being followed
the signature of X is necessary (Secs. 23 and 30). - to pay to A or order (Secs. 23 and 30).
Holder v. A - NOT LIABLE, because his/her signature is forged, it is Y v. A - NOT LIABLE, because his/her signature is forged, it is WHOLLY
WHOLLY INOPERATIVE (Sec. 23). INOPERATIVE (Sec. 23).
Holder v. B - LIABLE, because A is the forger (Sec. 23). Y v. B - LIABLE, because A is the forger (Sec. 23).
Holder v. C - LIABLE, because C is precluded from setting up the defense Y v. C - NOT LIABLE, because Y is not a holder and cannot benefit and
of forgery having warranted the genuineness of the signature/s in when it is given to him, it is for payment, not for negotiation. The
question (Secs. 65/66). warranties under Secs. 65/66 are not applicable.

Y v. H - LIABLE, but not under the NIL and instead the Civil Code - unjust
enrichment.

Holder cannot compel the drawee to accept and even after a prior acceptance, s/he cannot compel the drawee to pay.
74
75
Signed, X [FORGED]

To: Y


IF Y DISHONORS THE INSTRUMENT76 IF Y ACCEPTS THE INSTRUMENT
Holder v. X (Drawer) - NOT LIABLE, because this is an order instrument, Y v. X77 - NOT LIABLE, because the instructions of X are not being followed
the signature of X is necessary (Secs. 23 and 30). - to pay to A or order (Secs. 23 and 30).
Holder v. A - NOT LIABLE, because his/her signature is forged, it is Y v. A - NOT LIABLE, because his/her signature is forged, it is WHOLLY
WHOLLY INOPERATIVE (Sec. 23). INOPERATIVE (Sec. 23).
Holder v. B - LIABLE, because A is the forger (Sec. 23). Y v. B - LIABLE, because A is the forger (Sec. 23).
of forgery having warranted the genuineness of the signature/s in when it is given to him, it is for payment, not for negotiation. The
question (Secs. 65/66). warranties under Secs. 65/66 are not applicable.

enrichment.

CHECK
Signed, X

To: DB

Holder cannot compel the drawee to accept and even after a prior acceptance, s/he cannot compel the drawee to pay.
76
77
X → A [FORGED] → B [FORGER] → C → Holder → CB → DB

Holder will deposit in the Collecting Bank. Collecting Bank will present it for payment in Drawee Bank.

Drawee Bank pays Collecting Bank.
Drawee Bank debits the account of X.

DB v. X - NOT LIABLE, because this is an order instrument, the signature of X is necessary (Sec. 23).

Remedy of DB? DB goes against CB.78

DB v. CB - LIABLE, because as between the DB and CB, it is CB that is liable because it guaranteed all prior and lack indorsements (Sec. 23).

Remedy of CB? CB goes against the forger.

CB v. B - LIABLE, because B is the forger (Sec. 23).

Can A go against the CB?
A v. CB - See Associated Bank v. CA. - Payee will generally not have a cause of action because it is not in possession of the instrument, s/he is not a holder.
But in the said case, there was a shortcut. It was allowed by the court. The problem with this is that 1) there is no privity; and 2) what is the basis of the claim
of the payee - it is not NIL.

Signed, X

To: Y

X → A [FORGED] → B [FORGER] → C → Holder → CB → DB

78
Why? Because all checks when they go for clearing are supposed to carry the stamp - “all prior and lack of indorsements guaranteed.” In a situation where it has no stamp,
the moment it goes for clearing, it is like it has been stamped.
Holder v. X (Drawer) - See Sec. 16. X is a party prior to the forgery. Y v. X79 - See Sec. 16. X is a party prior to the forgery.
● IF HOLDER IN DUE COURSE: LIABLE. ● IF HOLDER IN DUE COURSE: LIABLE.
● IF NOT HOLDER IN DUE COURSE: NOT LIABLE. ● IF NOT HOLDER IN DUE COURSE: NOT LIABLE.
Holder v. A - NOT LIABLE, because A’s signature is forged and it is wholly Y v. A - NOT LIABLE, because his/her signature is forged, it is WHOLLY
inoperative (Sec. 23). INOPERATIVE (Sec. 23).
Holder v. B - LIABLE, because B because B is the forger (Sec. 23). Y v. B - LIABLE, because B is the forger (Sec. 23).
of forgery having warranted the genuineness of the instrument and by when it is given to him, it is for payment, not for negotiation. The
extension, of the signature/s in question (Secs. 65/66). warranties under Secs. 65/66 are not applicable.

enrichment.

CASE DOCTRINES

1) Great Eastern Life v. HSBC - GREAT EASTERN → MELICOR → MAASIM → PNB → HSBC

Great Eastern's check was drawn on Shanghai Bank payable to the order of Melicor. In other words, Great Eastern authorized and directed the Shanghai Bank to pay
Melicor, or his order, P2,000. It did not authorize or direct the bank to pay the check to any other person than Melicor, or his order, and the testimony is undisputed that
Melicor never did part with his title or endorse the check, and never received any of its proceeds. Neither is Great Eastern estopped or bound by the banks statement,
which was made to it by the Shanghai Bank. This is not a case where the Great Eastern’s own signature was forged to one of it checks. In such a case, Great Easternwould
have known of the forgery, 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. That is not this case. Here, the forgery was that of Melicor, who was the payee of the check, and the legal presumption is that the bank would not
honor the check without the genuine endorsement of Melicor. In other words, when Great Eastern received it banks statement, it had a right to assume that Melicor had
personally endorsed the check, and that, otherwise, the bank would not have paid it.

Section 23 of Act No. 2031, known as the Negotiable Instruments Law, says: 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.
79
The money was on deposit in the Shanghai Bank, and it had no legal right to pay it out to anyone except Great Eastern or its order. Here, the Great Eastern ordered the
Shanghai Bank to pay the P2,000 to Melicor, and the money was actually paid to Maasim and was never paid to Melicor, and he never paid to Melicor, and he never
personally endorsed the check, or authorized any one to endorse it for him, and the alleged endorsement was a forgery. Hence, upon the undisputed facts, it must follow
that the Shanghai Bank has no defense to this action.

It is admitted that the Philippine National Bank cashed the check upon a forged signature, and placed the money to the credit of Maasim, who was a forger. That the
Philippine National Bank then endorsed the check and forwarded it to the Shanghai Bank by whom it was paid. The Philippine National Bank had no license or authority
to pay the money to Maasim or anyone else upon a forge signature. It was its legal duty to know that Melicor's endorsment was genuine before cashing the check. Its
remedy is against Maasim to whom it paid the money.

2) Gempesaw v. Court of Appeals - GEMPESAW → GALANG → VARIOUS SUPPLIERS → BOON → PBC → ROMERO/LAM

This is not a suit by the party whose signature was forged on a check drawn against the drawee bank. The payees are not parties to the case. Rather, it is the drawer,
whose signature is genuine, who instituted this action to recover from the drawee bank the money value of 82 checks paid out by the drawee bank to holders of those
checks where the indorsements of the payees were forged. How and by whom the forgeries were committed are not established on the record, but the respective payees
admitted that they did not receive those checks and therefore never indorsed the same. The applicable law is the Negotiable Instruments Law.

Forgery is a real or absolute defense by the party whose signature is forged. A party whose signature to an instrument was forged was never a party and never gave his
consent to the contract which gave rise to the instrument. Since his signature does not appear in the instrument, he cannot be held liable thereon by anyone, not even by
a holder in due course. Thus, if a person's signature is forged as a maker of a promissory note, he cannot be made to pay because he never made the promise to pay. Or
where a person's signature as a drawer of a check is forged, the drawee bank cannot charge the amount thereof against the drawer's account because he never gave the
bank the order to pay. And said section does not refer only to the forged signature of the maker of a promissory note and of the drawer of a check. It covers also a forged
indorsement, i.e., the forged signature of the payee or indorsee of a note or check. Since under said provision a forged signature is "wholly inoperative", no one can gain
title to the instrument through such forged indorsement. Such an indorsement prevents any subsequent party from acquiring any right as against any party whose name
appears prior to the forgery. Although rights may exist between and among parties subsequent to the forged indorsement, not one of them can acquire rights against
parties prior to the forgery. Such forged indorsement cuts off the rights of all subsequent parties as against parties prior to the forgery. However, the law makes an
exception to these rules where a party is precluded from setting up forgery as a defense.

While there is no duty resting on the depositor to look for forged indorsements on his cancelled checks in contrast to a duty imposed upon him to look for forgeries of his
own name, a depositor is under a duty to set up an accounting system and a business procedure as are reasonably calculated to prevent or render difficult the forgery of
indorsements, particularly by the depositor's own employees. And if the drawer (depositor) learns that a check drawn by him has been paid under a forged indorsement,
the drawer is under duty promptly to report such fact to the drawee bank. For his negligence or failure either to discover or to report promptly the fact of such forgery to
the drawee, the drawer loses his right against the drawee who has debited his account under a forged indorsement. In other words, he is precluded from using forgery as
a basis for his claim for re-crediting of his account.
In the case at bar, Gempesaw admitted that the checks were filled up and completed by her trusted employee, Alicia Galang, and were given to her for her signature. Her

signing the checks made the negotiable instrument complete. Prior to signing the checks, there was no valid contract yet.

Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument to the payee for the purpose of giving effect thereto. The first
delivery of the instrument, complete in form, to the payee who takes it as a holder, is called issuance of the instrument. Without the initial delivery of the instrument
from the drawer of the check to the payee, there can be no valid and binding contract and no liability on the instrument.
Gempesaw completed the checks by signing them as drawer and thereafter authorized her employee Alicia Galang to deliver the 82 checks to their respective payees.
Instead of issuing the checks to the payees as named in the checks, Alicia Galang delivered them to the Chief Accountant of the Buendia branch of the respondent
drawee Bank, a certain Ernest L. Boon. It was established that the signatures of the payees as first indorsers were forged. The checks were then indorsed for the second
time with the names of Alfredo Y. Romero and Benito Lam, and were deposited in the latter's accounts as earlier noted. The second indorsements were all genuine
signatures of the alleged holders. All the 82 checks bearing the forged indorsements of the payees and the genuine second indorsements of Alfredo Y. Romero and
Benito Lam were accepted for deposit at the Buendia branch of respondent drawee Bank to the credit of their respective savings accounts in the Buendia, Ongpin and
Elcaño branches of the same bank.

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 this rule is where the drawer is guilty of such negligence which causes the bank to honor such a check or checks. If a check is stolen from the payee, it is quite obvious
that the drawer cannot possibly discover the forged indorsement by mere examination of his cancelled check. This accounts for the rule that although a depositor owes a
duty to his drawee bank to examine his cancelled checks for forgery of his own signature, he has no similar duty as to forged indorsements. A different situation arises
where the indorsement was forged by an employee or agent of the drawer, or done with the active participation of the latter. Most of the cases involving forgery by an
agent or employee deal with the payee's indorsement. The drawer and the payee often time shave business relations of long standing. The continued occurrence of
business transactions of the same nature provides the opportunity for the agent/employee to commit the fraud after having developed familiarity with the signatures of
the parties. However, sooner or later, some leak will show on the drawer's books. It will then be just a question of time until the fraud is discovered. This is specially true
when the agent perpetrates a series of forgeries as in the case at bar.

The negligence of a depositor which will prevent recovery of an unauthorized payment is based on failure of the depositor to act as a prudent businessman would under
the circumstances. In the case at bar, Gempesaw relied implicitly upon the honesty and loyalty of her bookkeeper, and did not even verify the accuracy of amounts of the
checks she signed against the invoices attached thereto. Furthermore, although she regularly received her bank statements, she apparently did not carefully examine the
same nor the check stubs and the returned checks, and did not compare them with the same invoices. Otherwise, she could have easily discovered the discrepancies
between the checks and the documents serving as bases for the checks. With such discovery, the subsequent forgeries would not have been accomplished. It was not
until two years after the bookkeeper commenced her fraudulent scheme that Gempesaw discovered that 82 checks were wrongfully charged to her account, at which she
notified the respondent drawee bank.

It is highly improbable that in a period of two years, not one of Gempesaw's suppliers complained of non-payment. Gempesaw’s failure to make such adequate inquiry
constituted negligence which resulted in the bank's honoring of the subsequent checks with forged indorsements. On the other hand, since the record mentions nothing
about such a complaint, the possibility exists that the checks in question covered inexistent sales. But even in such a case, considering the length of a period of 2 years,
it is hard to believe that Gempesaw knows or realizes that she was paying more than she should for the supplies she was actually getting. A depositor may not sit idly by,
after knowledge has come to her that her funds seem to be disappearing or that there may be a leak in her business, and refrain from taking the steps that a careful and
prudent businessman would take in such circumstances and if taken, would result in stopping the continuance of the fraudulent scheme. If she fails to take steps, the
facts may establish her negligence, and in that event, she would be estopped from recovering from the bank.
Since it was her negligence which caused the drawee Bank to honor the forged checks or prevented it from recovering the amount it had already paid on the checks,

Gempesaw cannot now complain should the bank refuse to recredit her account with the amount of such checks. Under Section 23 of the NIL, she is now precluded from
using the forgery to prevent the bank's debiting of her account.

Premises considered, respondent drawee Bank is adjudged liable to share the loss with the petitioner on a fifty-fifty ratio in accordance with Article 172. The decision to
hold the drawee bank liable is based on law and substantial justice and not on mere equity. And although the case was brought before the court not on breach of
contractual obligations, the courts are not precluded from applying to the circumstances of the case the laws pertinent thereto. Thus, the fact Gempesaw's negligence
was found to be the proximate cause of her loss does not preclude her from recovering damages.

3) Banco De Oro Savings v. Court of Appeals - BDO SAVINGS → VARIOUS MEMBERS OF BDO SAVINGS → EQUITABLE BANKING → TRENCIO

Equitable Banking is estopped from raising the defense of non-negotiability 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 BDO Savings that the proceeds were credited in its clearing account.
Equitable Banking by its own acts and representation can not now deny liability because it assumed the liabilities of an endorser by stamping its guarantee at the back
of the checks. Equitable Banking having stamped its guarantee of “all prior endorsements and/or lack of endorsements” is now estopped from claiming that the checks
under consideration are not negotiable instruments.

The checks were accepted for deposit by the Banco De Oro stamping thereon its guarantee, in order that it can clear the said checks with the Equitable Banking. By such
deliberate and positive attitude of BDO Savings it has for all legal intents and purposes treated the said checks 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.

This Court enunciated in Philippine National Bank vs. Court of Appeals, a point relevant to the issue when it stated—“the doctrine of estoppel is based upon the grounds of
public policy, fair dealing, good faith and justice and its purpose is to forbid one to speak against his own act, representations or commitments to the injury of one to
whom they were directed and who reasonably relied thereon.”

A commercial bank cannot escape the liability of an endorser of a check and which may turn out to be a forged endorsement. 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.

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. This is laid down in the case of PNB vs. National City Bank. In another case, 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, it can recover the amount paid from the collecting bank.

Thus, “where a check is accepted or certified by the bank on which it is drawn, the bank is estopped to deny the genuineness of the drawers signature and his capacity to
issue the instrument. If a drawee bank pays a forged check which “was previously accepted or certified by the said bank, it can not recover from a holder who did not
participate in the forgery and did not have actual notice thereof. The payment of a check does not include or imply its acceptance in the sense that this word is used in
Section 62 of the Negotiable Instruments Act.”

Very akin to the case at bar is one which involves a suit filed by the drawer of checks against the collecting bank and this came about in Farmers State Bank where it was
held: “A cause of action against the (collecting bank) in favor of the appellee (the drawer) accrued as a result of the bank breaching its implied warranty of the

genuineness of the indorsements of the name of the payee by bringing about the presentation of the checks (to the drawee bank) and collecting the amounts thereof, the
right to enforce that cause of action was not destroyed by the circumstance that another cause of action for the recovery of the amounts paid on the checks would have
accrued in favor of the appellee against another or to others than the bank if when the checks were paid they have been indorsed by the payee.”

Section 66 of the Negotiable Instruments ordains that: “Every indorser who indorses without qualification, warrants to all subsequent holders in due course” (a) that the
instrument is genuine and in all respects what it purports to be; (b) that he has good title to it; (c) that all prior parties have capacity to contract; and (d) that the
instrument is at the time of his indorsement valid and subsisting.” While the drawer generally owes no duty of diligence to the collecting bank, the law imposes a duty of
diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and regularity. The collecting bank being
primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high standard of conduct.

To countenance a repudiation by the Equitable Banking of its obligation would be contrary to equity and would deal a negative blow to the whole banking system of this
country.

In presenting the Checks for clearing and for payment, the defendant made an express guarantee on the validity of ‘all prior endorsements’. Thus, stamped at the bank of
the checks are the defendant’s clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, BDO Savings
would not have paid on the checks. The collecting bank has privity with the depositor who is the principal culprit in this case. Equitable Banking knows the depositor;
her address and her history, Depositor is Equitable Banking’s client. It has taken a risk on its depositor when it allowed her to collect on the crossed-checks. Having
accepted the crossed checks from persons other than the payees, Equitable Banking is guilty of negligence; the risk of wrongful payment has to be assumed by the
defendant.

4) BPI v. Court of Appeals - BPI → FERNANDO → “ROSE MARIE” → CHINA BANK

There are two (2) parts of the provision. The first part states the general rule while the second part states the exception to the general rule. The general rule is to the
effect that a forged signature is "wholly inoperative", and payment made "through or under such signature" is ineffectual or does not discharge the instrument. The
exception to this rule is when the party relying in the forgery is "precluded from setting up the forgery or want of authority. In this jurisdiction we recognize negligence of
the party invoking forgery as an exception to the general rule.
In the present petition, the payee's names in the 2 subject checks were forged. Following the general rule, the checks are "wholly inoperative" and of no effect. However,

the underlying circumstances of the case show that the general rule on forgery is not applicable. The issue as to who between the parties should bear the loss in the
payment of the forged checks necessities the determination of the rights and liabilities of the parties involved in the controversy in relation to the forged checks.
The records show that petitioner BPI as drawee bank and respondent CBC as representing or collecting bank were both negligent resulting in the encashment of the
forged checks. Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of responsibility, care and trustworthiness
expected of their employees and officials is far greater than those of ordinary clerks and employees. For obvious reasons, the banks are expected to exercise the highest
degree of diligence in the selection and supervision of their employees. In the present case, there is no question that the banks were negligent in the selection and
supervision of their employees.
BPI insists that the doctrine of last clear chance enunciated in the case of Picart v. Smith should have been applied considering the circumstances of the case. Applying
these principles, petitioner BPI's reliance on the doctrine of last clear chance to clear it from liability is not well-taken. CBC had no prior notice of the fraud perpetrated by

BPI's employees on the pretermination of Eligia G. Fernando's money market placement. Moreover, Fernando is not a depositor of CBC. Hence, a comparison of the
signature of Eligia G. Fernando with that of the impostor Eligia G. Fernando, which respondent CBC did, could not have resulted in the discovery of the fraud. Hence,
unlike in the Picart case herein the defendant, had he used reasonable care and caution, would have recognized the risk he was taking and would have foreseen harm to
the horse and the plaintiff but did not, respondent CBC had no way to discover the fraud at all. In fact the records fail to show that respondent CBC had knowledge,
actual or implied, of the fraud perpetrated by the impostor and the employees of BPI.
Both banks were not able to overcome the presumption of negligence in the selection and supervision of their employees. It was the gross negligence of the employees
of both banks which resulted in the fraud and the subsequent loss. While it is true that petitioner BPI's negligence may have been the proximate cause of the loss,
respondent CBC's negligence contributed equally to the success of the impostor in encashing the proceeds of the forged checks. Under these circumstances, we apply
Article 2179 of the Civil Code to the effect that while respondent CBC may recover its losses, such losses are subject to mitigation by the courts.
5) Jai Alai v. BPI - RAMIREZ → INTERGAS → JAI-ALAI → BPI

BPI acted within legal bounds when it debited the Jai Alai's account. When Jai Alai deposited the checks with the BPI, 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. It is true that the respondent had already collected the
proceeds of the checks when it debited the Jai Alai's account, so that following the rule in Gullas vs. Philippine National Bank, 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. It is the Court’s view nonetheless that no creditor-debtor relationship was created between the parties.

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, as found by the court a quo and by the appellate court, 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 Jai Alai and BPI 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." "It was its
duty to know," said the Court, "that [the payee's] endorsement was genuine before cashing the check." Jai Alai must in turn shoulder the loss of the amounts which the
BPI; as its collecting agent, had to reimburse to the drawee-banks.

The record shows that BPI had acted promptly after being informed that the indorsements on the checks were forged. Moreover, having received the checks merely for
collection and deposit, the respondent cannot he expected to know or ascertain the genuineness of all prior indorsements on the said checks. Indeed, having itself
indorsed them to BPI in accordance with the rules and practices of commercial banks, of which the Court takes due cognizance, Jai Alai ner is deemed to have given the
warranty prescribed in Section 66 of the Negotiable Instruments Law that every single one of those checks "is genuine and in all respects what it purports to be.".

Jai-Alai was, moreover, grossly recreant in accepting the checks in question from Ramirez. It could not have escaped the attention of Jai-Alai that the payee of all the
checks was a corporation — the Inter-Island Gas Service, Inc. Yet, Jai-Alai cashed these checks to a mere individual who was admittedly a habitue at its jai-alai games
without making any inquiry as to his authority to exchange checks belonging to the payee-corporation.

It must be noted further that three of the checks in question are crossed checks, which may only be deposited, but not encashed; yet, Jai-Alai negligently accepted them
for cash. That two of the crossed checks are bearer instruments would not, in our view, exculpate Jai Alai from liability with respect to them. The fact that they are bearer
checks and at the same time crossed checks should have aroused the Jai Alai's suspicion as to the title of Ramirez over them and his authority to cash them (apparently
to purchase jai-alai tickets from the petitioner), it appearing on their face that a corporate entity — the Inter Island Gas Service, Inc. — was the payee thereof and Ramirez
delivered the said checks to Jai Alai ostensibly on the strength of the payee's cashiers' indorsements.

At all events, under Section 67 of the Negotiable Instruments Law, "Where a person places his indorsement on an instrument negotiable by delivery he incurs all the
liability of an indorser," and under Section 66 of the same statute a general indorser warrants that the instrument "is genuine and in all respects what it purports to be."
Considering that Jai Alai indorsed the said checks when it deposited them with BPI, Jai Alai as an indorser guaranteed the genuineness of all prior indorsements thereon.
BPI which relied upon Jai Alai's warranty should not be held liable for the resulting loss. This conclusion applied similarly which is an uncrossed bearer instrument, for
under Section 65 of the Negotiable Instrument Law. "Every person negotiating an instrument by delivery . . . warrants (a) That the instrument is genuine and in all
respects what it purports to be." Under that same section this warranty "extends in favor of no holder other than the immediate transferee," which, in the case at bar,
would be BPI.

The provision in the deposit slip issued by BPI which stipulates that it "reserves to itself the right to charge back the item to the account of its depositor," at any time
before "current funds or solvent credits shall have been actually received by the Bank," would not materially affect the conclusion the Court has reached. That stipulation
prescribes that there must be an actual receipt by the bank of current funds or solvent credits; but as the Court has earlier indicated the transfer by the drawee-banks of
funds to BPI on account of the checks in question was ineffectual because made under the mistaken and valid assumption that the indorsements of the payee thereon
were genuine. Under article 2154 of the New Civil Code "If something is received when there is no right to demand it and it was unduly delivered through mistake, the
obligation to return it arises." There was, therefore, in contemplation of law, no valid payment of money made by the drawee-banks to the respondent on account of the
questioned checks.

6) Republic v. Ebrada - BUREAU OF TREASURY → MARTIN LORENZO → RAMON LORENZO → DOMINGUEZ → EBRADA

It is admitted that the check in question was delivered to Ebrada by Adelaida Dominguez for the purpose of encashment and that her signature was affixed on said check
when she cashed it with the plaintiff Bank. Likewise it is admitted that Ebrada was the last indorser of the said check. As such indorser, she was supposed to have
warranted that she has good title to said check.

It turned out, however, that the signature of the original payee of the check, Martin Lorenzo was a forgery because he was already dead 7 almost 11 years before the
check in question was issued by the Bureau of Treasury. It is clear from the provision that where the signature on a negotiable instrument if forged, the negotiation of the
check is without force or effect.

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. It can be
concluded that it is only the negotiation predicated on the forged indorsement that should be declared inoperative. This means that the negotiation of the check in
question from Martin Lorenzo, the original payee, to Ramon R. Lorenzo, the second indorser, should be declared of no affect, but the negotiation of the aforesaid check
from Ramon R. Lorenzo to Adelaida Dominguez, the third indorser, and from Adelaida Dominguez to the defendant-appellant who did not know of the forgery, should be
considered valid and enforceable, barring any claim of forgery.


The 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
genuine, warranty not extending only to holders in due course. One who purchases a check or draft is bound to satisfy himself that the paper is genuine and that by
indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts that he has performed his duty and the drawee who has
paid the forged check, without actual negligence on his part, may recover the money paid from such negligent purchasers. In such cases the recovery is permitted
because although the drawee was in a way negligent in failing to detect the forgery, yet if the encasher of the check had performed his duty, the forgery would in all
probability, have been detected and the fraud defeated.

The Bank should suffer the loss when it paid the amount of the check in question to Ebrada, but it has the remedy to recover from the latter the amount it paid to her.
Although Ebrada whom the 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 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. The fact that immediately
after receiving title cash proceeds of the check in question in the amount of P1,246.08 from the Bank, Ebada immediately turned over said amount to Adelaida
Dominguez who in turn handed the amount to Justina Tinio on the same date would not exempt her from liability because by doing so, she acted as an accommodation
party in the check for which she is also liable under Section 29 of the Negotiable Instruments Law (Act 2031), thus: 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.

7) Manila Lighter Trans. v. Court of Appeals - Since Manila Lighter Transportation was not a client of China Banking Corporation, i.e., did not maintain an account in said
Bank, the latter had no way of ascertaining the authenticity of its indorsements on the checks which were deposited in the accounts of the third-party defendants in said
Bank. China Banking Corporation was not negligent because, in accordance with banking practice, it caused the checks to pass through the clearing house before it
allowed their proceeds to be withdrawn by the depositors.

8) Associated Bank v. Court of Appeals - Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the left top portion of the
checks. The crossing is special where the name of a bank or a business institution is written between the two parallel lines, which means that the drawee should pay
only with the intervention of that company. The crossing is general where the words written between the two parallel lines are "and Co." or "for payee's account only," as
in the case at bar. This means that the drawee bank should not encash the check but merely accept it for deposit.
The effects therefore of crossing a check relate to the mode of its presentment for payment. Under Sec. 72 of the Negotiable Instruments Law, presentment for payment,

to be sufficient, must be made by the holder or by some person authorized to receive payment on his behalf. Who the holder or authorized person is depends on the
instruction stated on the face of the check.
The six checks in the case at bar had been crossed and issued "for payee's account only." This could only signify that the drawers had intended the same for deposit only
by the person indicated, to wit, Melissa's RTW. Associated Bank argue that the cause of action for violation of the common instruction found on the face of the checks
exclusively belongs to the issuers thereof and not to the payee. Moreover, having acted in good faith as they merely facilitated the encashment of the checks, they cannot
be made liable to Reyes.
The subject checks were accepted for deposit by the Bank for the account of Rafael Sayson although they were crossed checks and the payee was not Sayson but
Melissa's RTW. The Bank stamped thereon its guarantee that "all prior endorsements and/or lack of endorsements (were) guaranteed." By such deliberate and positive act,
the Bank had for all legal intents and purposes treated the said checks as negotiable instruments and, accordingly, assumed the warranty of the endorser.

The weight of authority is to the effect that "the possession of check on a forged or unauthorized indorsement is wrongful, and when the money is collected on the
check, the bank can be held 'for moneys had and received." The proceeds are held for the rightful owner of the payment and may be recovered by him. The position of the
bank taking the check on the forged or unauthorized indorsement is the same as if it had taken the check and collected without indorsement at all. The act of the bank
amounts to conversion of the check.

It is not disputed that the proceeds of the subject checks belonged to Reyes. As she had not at any time authorized Rafael Sayson to endorse or encash them, there was
conversion of the funds by the Bank. When the Bank paid the checks so endorsed notwithstanding that title had not passed to the endorser, it did so at its peril and
became liable to the payee for the value of the checks. This liability attached whether or not the Bank was aware of the unauthorized endorsement. Associated Bank
were negligent when they permitted the encashment of the checks by Sayson. The Bank should have first verified his right to endorse the crossed checks, of which he
was not the payee, and to deposit the proceeds of the checks to his own account. The Bank was by reason of the nature of the checks put upon notice that they were
issued for deposit only to Reyes' account. Its failure to inquire into Sayson's authority was a breach of a duty it owed to Reyes.

Assuming that Eddie Reyes did endorse the crossed checks, the Court held that the Bank would still be liable to Reyes because he was not authorized to make the
endorsements. And even if the endorsements were forged, as alleged, the Bank would still be liable to Reyes for not verifying the endorser's authority. There is no
substantial difference between an actual forging of a name to a check as an endorsement by a person not authorized to make the signature and the affixing of a name to
a check as an endorsement by a person not authorized to endorse it. The Bank does not deny collecting the money on the endorsement. It was its responsibility to
inquire as to the authority of Rafael Sayson to deposit crossed checks payable to Melissa's RTW upon a prior endorsement by Eddie Reyes. The failure of the Bank to
make this inquiry was a breach of duty that made it liable to Reyes for the amount of the checks.

9) Associated Bank v. Court of Appeals - Checks having forged indorsements should be differentiated from forged checks or checks bearing the forged signature of the
drawer. A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument through it. A person whose
signature to an instrument was forged was never a party and never consented to the contract which allegedly gave rise to such instrument. Section 23 does not avoid the
instrument but only the forged signature. Thus, a forged indorsement does not operate as the payee's indorsement.
The exception to the general rule in Section 23 is where "a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of
authority." Parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or negligence are estopped from setting up
the defense of forgery, are precluded from using this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness of the
signatures on the instrument.
In bearer instruments, 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 a holder in due course. The checks involved in this case are order instruments, hence, the following
discussion is made with reference to the effects of a forged indorsement on an instrument payable to order. Where the instrument is payable to order at the time of the
forgery, such as the checks in this case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the
holder's indorsement is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto.

A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on
the check deposited by the banks's client 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.

The general rule then is that the drawee bank may not debit the drawer's account and is not entitled to indemnification from the drawer. The risk of loss must perforce
fall on the drawee bank.

However, if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the forged signature,
the drawer is precluded from asserting the forgery. If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss, then
such loss from the forgery can be apportioned between the negligent drawer and the negligent bank.

In cases involving checks with forged indorsements, such as the present petition, the chain of liability does not 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, to the forger
himself, if available. In other words, the drawee bank can seek reimbursement or a return of the amount it paid from the presentor bank or person. Theoretically, the
latter can demand reimbursement from the person who indorsed the check to it and so on. The loss falls on the party who took the check from the forger, or on the
forger himself.
In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB). The former will necessarily be liable to the latter for the checks
bearing forged indorsements. If the forgery is that of the payee's or holder's indorsement, the collecting bank is held liable, without prejudice to the latter proceeding
against the forger.
The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness. of any indorsement. 32 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.

The collecting bank is made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history because he is a client. It
has taken a risk on his deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the indorsement. Hence, the drawee bank can recover the
amount paid on the check bearing a forged indorsement from the collecting bank. However, a drawee bank has the duty to promptly inform the presentor of the forgery
upon discovery. If the drawee bank delays in informing the presentor of the forgery, thereby depriving said presentor of the right to recover from the forger, the former is
deemed negligent and can no longer recover from the presentor.

The PNB, the drawee bank, cannot debit the current account of the Province of Tarlac because it paid checks which bore forged indorsements. However, if the Province of
Tarlac as drawer was negligent to the point of substantially contributing to the loss, then the drawee bank PNB can charge its account. If both drawee bank-PNB and
drawer-Province of Tarlac were negligent, the loss should be properly apportioned between them.
The Court finds as reasonable, the proportionate sharing of 50%-50%. Due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person
(Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital for a period close to three years and in not properly ascertaining
why the retired hospital cashier was collecting checks for the payee hospital in addition to the hospital's real cashier, respondent Province contributed to the loss
amounting to P203,300.00 and shall be liable to the PNB for 50% percent thereof. In effect, the Province of Tarlac can only recover 50% of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for 50% percent of P203,300.00. It is liable on its warranties as indorser of the checks which were deposited

by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank
was also remiss in its duty to ascertain the genuineness of the payee's indorsement.

10) Westmont Bank v. Ong - Since the signature of the payee, in the case at bar, was forged to make it appear that he had made an indorsement in favor of the forger,
such signature should be deemed as inoperative and ineffectual. Westmont, as the collecting bank, grossly erred in making payment by virtue of said forged signature.
The payee, herein Ong, should therefore be allowed to recover from the collecting bank.

The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that the payee’s endorsement was genuine before cashing the
check. As a general rule, a bank or corporation who has obtained possession of a check upon an unauthorized or forged indorsement of the payee’s signature and who
collects the amount of the check from the drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that the amount has been paid to the
person from whom the check was obtained.

Westmont Bank could not escape liability for its negligent acts. Admittedly, respondent Eugene Ong at the time the fraudulent transaction took place was a depositor of
the bank. Banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and depositors who transact business
with them. They have the obligation to treat their client’s account meticulously and with the highest degree of care, considering the fiduciary nature of their relationship.
The diligence required of banks, therefore, is more than that of a good father of a family. In the present case, Westmont Bank was held to be grossly negligent in
performing its duties.

Laches may be defined as the failure or neglect for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have
been done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled thereto has either abandoned
or declined to assert it. It concerns itself with whether or not by reason of long inaction or inexcusable neglect, a person claiming a right should be barred from asserting
the same, because to allow him to do so would be unjust to the person against whom such right is sought to be enforced.

In the case at bar, it cannot be said that Ong sat on his rights. He immediately acted after knowing of the forgery by proceeding to seek help from the Tanlimco family
and later the Central Bank, to remedy the situation and recover his money from the forger, Paciano Tanlimco. Only after he had exhausted possibilities of settling the
matter amicably with the family of Tanlimco and through the CB, about five months after the unlawful transaction took place, did he resort to making the demand upon
the petitioner and eventually before the court for recovery of the money value of the two checks. These acts cannot be construed as undue delay in or abandonment of
the assertion of his rights.

Moreover, the claim of Westmont Bank that Ong should be barred by laches is clearly a vain attempt to deflect responsibility for its negligent act. As explained by the
appellate court, it is Westmont Bank which had the last clear chance to stop the fraudulent encashment of the subject checks had it exercised due diligence and followed
the proper and regular banking procedures in clearing checks. The one who had the last clear opportunity to avoid the impending harm but failed to do so is chargeable
with the consequences thereof.

11) PCIB v. Court of Appeals

A. Citibank Check No. SN-04867

FORD
Ford, is guilty of the "imputed contributory negligence" that would defeat its claim for reimbursement, bearing in mind that its employees, Godofredo Rivera and Alexis
Marindo, were among the members of the syndicate. Although the employees of Ford initiated the transactions attributable to an organized syndicate, in the view of the

Court, their actions were not the proximate cause of encashing the checks payable to the CIR. The degree of Ford's negligence, if any, could not be characterized as the
proximate cause of the injury to the parties.

IBAA/PCIB
As agent of the BIR (the payee of the check), defendant IBAA should receive instructions only from its principal BIR and not from any other person especially so when
that person is not known to the defendant. It is very imprudent on the part of the defendant IBAA to just rely on the alleged telephone call of one (Godofredo Rivera and
in his signature to the authenticity of such signature considering that the plaintiff is not a client of the defendant IBAA." Even considering arguendo, that the diversion of
the amount of a check payable to the collecting bank in behalf of the designated payee may be allowed, still such diversion must be properly authorized by the payor.
Otherwise stated, the diversion can be justified only by proof of authority from the drawer, or that the drawer has clothed his agent with apparent authority to receive the
proceeds of such check.

The crossing of the check with the phrase "Payee's Account Only," is a warning that the check should be deposited only in the account of the CIR. Thus, it is the duty of
the collecting bank PCIBank to ascertain that the check be deposited in payee's account only. Therefore, it is the collecting bank (PCIBank) which is bound to scrutinize
the check and to know its depositors before it could make the clearing indorsement "all prior indorsements and/or lack of indorsement guaranteed". PCIBank is liable in
the amount corresponding to the proceeds of Citibank Check No. SN-04867.

Citibank - None.

B. Citibank Check Numbers SN-10597 and 16508

PCIBank. - Section 5 31 of Central Bank Circular No. 580, Series of 1977 provides that any theft affecting items in transit for clearing, shall be for the account of sending
bank, which in this case is PCIBank.

Citibank
Citibank is negligent in the performance of its duties. Citibank failed to establish that its payment of Ford's checks were made in due course and legally in order. In its
defense, Citibank claims the genuineness and due execution of said checks, considering that Citibank (1) has no knowledge of any infirmity in the issuance of the checks
in question (2) coupled by the fact that said checks were sufficiently funded and (3) the endorsement of the Payee or lack thereof was guaranteed by PCIBank (formerly
IBAA), thus, it has the obligation to honor and pay the same.

As the drawee bank breached its contractual obligation with Ford and such degree of culpability contributed to the damage caused to the latter. It failed to perform what
was incumbent upon it, which is to ensure that the amount of the checks should be paid only to its designated payee. Invoking the doctrine of comparative negligence,
the Court is of the view that both PCIBank and Citibank failed in their respective obligations and both were negligent in the selection and supervision of their employees
resulting in the encashment of Citibank Check Nos. SN 10597 and 16508. Thus, the Court is constrained to hold them equally liable for the loss of the proceeds of said
checks issued by Ford in favor of the CIR. Time and again, the Court has stressed that banking business is so impressed with public interest where the trust and
confidence of the public in general is of paramount importance such that the appropriate standard of diligence must be very high, if not the highest, degree of diligence.
A bank's liability as obligor is not merely vicarious but primary, wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no
moment. Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of responsibility, care and trustworthiness expected of
their employees and officials is far greater than those of ordinary clerks and employees. Banks are expected to exercise the highest degree of diligence in the selection
and supervision of their employees.

The relationship between a holder of a commercial paper and the bank to which it is sent for collection is that of a principal and an agent and the diversion of the
amount of the check is justified only by proof of authority from the drawer; that in crossed checks, the collecting bank is bound to scrutinize the check and know its
depositors before clearing indorsement; that as a general rule, banks are liable for wrongful or tortuous acts of its agents within the scope and in the course of their
employment; that failure of the drawee bank to seasonably discover irregularity in the checks constitutes negligence and renders the bank liable for loss of proceeds of
the checks; that an action upon a check prescribes in 10 years; and that the contributory negligence of the drawer shall reduce the damages he may recover against the
collecting bank.

Since a master may be held for his servant's wrongful act, the law imputes to the master the act of the servant, and if that act is negligent or wrongful and proximately
results in injury to a third person, the negligence or wrongful conduct is the negligence or wrongful conduct of the master, for which he is liable. The general rule is that
if the master is injured by the negligence of a third person and by the concurring contributory negligence of his own servant or agent, the latter's negligence is imputed
to his superior and will defeat the superior's action against the third person, assuming, of course that the contributory negligence was the proximate cause of the injury
of which complaint is made.

Given these circumstances, the mere fact that the forgery was committed by a drawer- payor's confidential employee or agent, who by virtue of his position had unusual
facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of some
circumstance raising estoppel against the drawer. This rule likewise applies to the checks fraudulently negotiated or diverted by the confidential employees who hold
them in their possession.

As a general rule, however, a banking corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their
employment. A bank will be held liable for the negligence of its officers or agents when acting within the course and scope of their employment. It may be liable for the
tortuous acts of its officers even as regards that species of tort of which malice is an essential element. A bank holding out its officers and agents as worthy of confidence
will not be permitted to profit by the frauds these officers or agents were enabled to perpetrate in the apparent course of their employment; nor will it be permitted to
shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom. For the general rule is that a bank is liable for the fraudulent acts or
representations of an officer or agent acting within the course and apparent scope of his employment or authority. And if an officer or employee of a bank, in his official
capacity, receives money to satisfy an evidence of indebtedness lodged with his bank for collection, the bank is liable for his misappropriation of such sum.

CONTRIBUTORY NEGLIGENCE OF PLAINTIFF SHALL REDUCE DAMAGES HE MAY RECOVER. — Finally, the Court also finds that Ford is not completely blameless in its failure
to detect the fraud. Failure on the part of the depositor to examine its passbook, statements of account, and cancelled checks and to give notice within a reasonable time
(or as required by statute) of any discrepancy which it may in the exercise of due care and diligence find therein, serves to mitigate the banks' liability by reducing the
award of interest from 12% to 6% per annum. As provided in Article 1172 of the Civil Code of the Philippines, responsibility arising from negligence in the performance
of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances. In quasi-delicts, the contributory
negligence of the plaintiff shall reduce the damages that he may recover.


CHAPTER II - CONSIDERATION

CONSIDERATION80 Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration,
(Section 24) and every person whose signature appears thereon to have become a party thereto for value.

CASE DOCTRINES

1) Travel-on v. Court of Appeals - It is important to stress that a check which is regular on its face is deemed prima facie to have been issued for a valuable consideration
and every person whose signature appears thereon is deemed to have become a party thereto for value. Thus, the mere introduction of the instrument sued on in
evidence prima facie entitles the plaintiff to recovery. Further, the rule is quite settled that a negotiable instrument is presumed to have been given or indorsed for a
sufficient consideration unless otherwise contradicted and overcome by other competent evidence.

In the case at bar, the Court of Appeals, contrary to these established rules, placed the burden of proving the existence of valuable consideration upon petitioner. This
cannot be countenanced; it was up to private respondent to show that he had indeed issued the checks without sufficient consideration. The Court considers that private
respondent was unable to rebut satisfactorily this legal presumption. It must also be noted that those checks were issued immediately after a letter demanding payment
had been sent to Miranda by Travel-On.

The Court is unable to accept the Court of Appeals' conclusion that the checks here involved were issued for "accommodation" and that accordingly Miranda maker of
those checks was not liable thereon to Travel-on payee of those checks. In the first place, while the Negotiable Instruments Law does refer to accommodation
transactions, no such transaction was here shown. In accommodation transactions recognized by the Negotiable Instruments Law, an accommodating party lends his
credit to the accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as a holder in due course, who gave full value therefor to the
accommodated party. The latter, in other words, receives or realizes full value which the accommodated party then must repay to the accommodating party, unless of
course the accommodating party intended to make a donation to the accommodated party. But the accommodating party is bound on the check to the holder in due
course who is necessarily a third party and is not the accommodated party. Having issued or indorsed the check, the accommodating party has warranted to the holder in
due course that he will pay the same according to its tenor.

In the case at bar, Travel-On was payee of all 6 checks; it presented these checks for payment at the drawee bank but the checks bounced. Travel-On obviously was not
an accommodated party; it realized no value on the checks which bounced. Travel-On was entitled to the benefit of the statutory presumption that it was a holder in due
course, that the checks were supported by valuable consideration. Miranda maker of the checks did not successfully rebut these presumptions. The only evidence aliunde
that Miranda offered was his own self-serving uncorroborated testimony. He claimed that he had issued the checks to Travel-On as payee to "accommodate" its General
Consideration is the immediate, direct, or essential reason which induces a party to enter into a contract. Like all contracts, a negotiable instrument must have a
80
consideration or cause. It is not necessary, however, that the consideration be expressly stated in the instrument.
Manager who allegedly wished to show those checks to the Board of Directors of Travel-On to "prove" the Travel-On's account receivable were somehow "still good." It
will be seen that this claim was in fact a claim that the checks were merely simulated, that Miranda did not intend to bind himself thereon. Only evidence of the clearest
and most convincing kind will suffice for that purpose; no such evidence was submitted by Miranda. The latter's explanation, was denied by Travel-On's General Manager;
that explanation in any case, appears merely contrived and quite hollow. Upon the other hand, the accommodation or assistance extended to Travel-On's passengers
abroad as testified by petitioner's General Manager involved, not the accommodation transactions recognized by the NIL, but rather the circumvention of them existing
foreign exchange regulations by passengers booked by Travel-On, which incidentally involved receipt of full consideration by Miranda. Thus, the Court held that that
Miranda must be held liable on the 6 checks here involved. Those checks in themselves constituted evidence of indebtedness of Miranda, evidence not successfully
overturned or rebutted by Miranda.

2) Pineda v. Dela Rama -The Court of Appeals' reliance on Section 24 of the Negotiable Instruments Law is misplaced. The presumption that a negotiable instrument is
issued for a valuable consideration is only prima facie. It can be rebutted by proof to the contrary.

According to Dela Rama, he loaned the P9,300.00 to Pineda in two installments on two occasions five days apart — first loan for P5,000.00 and second loan for
P4,300.00, both given in cash. He also alleged that previously he loaned P3,000.00 but Pineda paid this other loan two days afterward. These allegations of Dela Rama
are belied by the promissory note itself. The second sentence of the note reads — "This represents the cash advances made by him in connection with my case for which
he is my attorney-in-law."

The terms of the note sustain the version of Pineda that he signed the P9,300.00 promissory note because he believed Dela Rama's story that these amounts had already
been advanced by Dela Rama and given as gifts for NARIC officials.

The consideration for the promissory note — to influence public officers in the performance of their duties — is contrary to law and public policy. The promissory note is
void ab initio and no cause of action for the collection cases can arise from it.

3) Cayanan v. North Star - The Court held that upon issuance of a check, in the absence of evidence to the contrary, it is presumed that the same was issued for valuable
consideration which may consist either in some right, interest, profit, or benefit accruing to the party who makes the contract, or some forbearance, detriment, loss or
some responsibility, to act, or labor, or service given, suffered or undertaken by the other side. Under the Negotiable Instruments Law, it is presumed that every party to
an instrument acquires the same for a consideration or for value. As Cayanan alleged that there was no consideration for the issuance of the subject checks, it devolved
upon him to present convincing evidence to overthrow the presumption and prove that the checks were in fact issued without valuable consideration. Sadly, however,
Cayanan has not presented any credible evidence to rebut the presumption, as well as North Star's assertion, that the checks were issued as payment for the US$85,000
Cayanan owed.

Notably, Cayanan anchors his defense of lack of consideration on the fact that he did not personally receive the US$85,000 from Virginia. However, he never denied
having instructed Virginia to remit the US$85,000 to View Sea Ventures. Evidently, Virginia sent the money upon the agreement that Cayanan will give to North Star the
peso equivalent of the amount remitted plus interest. As testified to by Virginia, Check No. 246822 dated May 15, 1994 in the amount of P695,000.00 is equivalent to
US$25,000; Check No. 246823 dated May 15, 1994 in the amount of P278,000 is equivalent to US$10,000; Check No. 246824 in the amount of P22,703 represents the
one month interest for P695,000 and P278,000 at the rate of 28% percent per annum; Check No. 687803 dated April 14, 1994 in the amount of P1,500,000 is equivalent
to US$50,000 and Check No. 687804 dated 14 April 1994 in the amount of P35,000 represents the one month interest for P1,500,000 at the rate of 28% percent per
annum. Cayanan has not substantially refuted these averments. Concomitantly, Cayanan 's assertion that the dollars sent to Nigeria was for the account of Virginia
Balagtas and as her own investment with View Sea Ventures deserves no credence. Virginia has not been shown to have any business transactions with View Sea

Ventures and from all indications, she only remitted the money upon the request and in accordance with Cayanan 's instructions. The evidence shows that it was Cayanan
who had a contract with View Sea Ventures as he was sending contract workers to Nigeria; Virginia Balagtas's participation was merely to send the money through
telegraphic transfer in exchange for the checks issued by petitioner to North Star. Indeed, the transaction between Cayanan and North Star is actually in the nature of a
loan and the checks were issued as payment of the principal and the interest.
Cayanan claims that North Star did not give any valuable consideration for the checks since the US$85,000 was taken from the personal dollar account of Virginia and
not the corporate funds of North Star. The contention, however, deserves scant consideration. The subject checks, bearing Cayanan's signature, speak for themselves. The
fact that Cayanan himself speci:cally named North Star as the payee of the checks is an admission of his liability to North Star and not to Virginia Balagtas, who as
manager merely facilitated the transfer of funds. Indeed, it is highly inconceivable that an experienced businessman like Cayanan would issue various checks in sizeable
amounts to a payee if these are without consideration. Moreover, that Virginia Balagtas averred in her Affidavit that North Star caused the payment of the US$60,000 and
US$25,000 to View Sea Ventures to accommodate Cayanan, which statement Cayanan failed to refute. In addition, Cayanan did not question the Statement of Account
No. 8639 21 dated August 31, 1994 issued by North Star which contained itemized amounts including the US$60,000 and US$25,000 sent through telegraphic transfer to
View Sea Ventures per his instruction. Thus, the inevitable conclusion is that when Cayanan issued the subject checks to North Star as payee, he did so to settle his
obligation with North Star for the US$85,000. And since the only payment Cayanan made to North Star was in the amount of P220,000.00, which was applied to interest
due, his liability is not extinguished. Having failed to fully settle his obligation under the checks, the appellate court was correct in holding Cayanan liable to pay the
value of the five checks he issued in favor of North Star.

4) Pua v. Spouses Tiong and Teng - This Court has expressly recognized that a check "constitutes an evidence of indebtedness" and is a veritable "proof of an obligation."
Hence, it can be used "in lieu of and for the same purpose as a promissory note." In fact, in the seminal case of Lozano v. Martinez, the Court pointed out that a check
functions more than a promissory note since it not only contains an undertaking to pay an amount of money but is an "order addressed to a bank and partakes of a
representation that the drawer has funds on deposit against which the check is drawn, sufficient to ensure payment upon its presentation to the bank."

Consequently, the 17 original checks, completed and delivered to Pua, are sufficient by themselves to prove the existence of the loan obligation of Spouses Tiong and
Teng to Pua. Note that Caroline had not denied the genuineness of these checks. Instead, Spouses Tiong and Teng argue that they were given to various other persons
and Pua had simply collected all these 17 checks from them in order to damage Spouses Tiong and Teng's reputation. This account is not only incredible; it runs counter
to human experience, as enshrined in Sec. 16 of the NIL which provides that when an instrument is no longer in the possession of the person who signed it and it is
complete in its terms "a valid and intentional delivery by him is presumed until the contrary is proved."

The appellate court's justification in giving credit to Spouses Tiong and Teng's contention that the Spouses Tiong and Teng had delivered the 17 checks to persons other
than Pua lies on the supposed failure of Spouses Tiong and Teng "to establish for whose accounts [the checks] were deposited and subsequently dishonored." This is
clearly contrary to the evidence on record. It seems that the appellate court overlooked the original copies of the bank return slips offered by Pua in evidence. These
return slips show that the 1988 checks issued by respondent Caroline were dishonored by the drawee bank[s] because they were "drawn against insufficient funds."
Further, a close scrutiny of these return slips will reveal that the checks were deposited either in Pua's account or in the account of her brother, Ricardo Yulo — a fact she
had previously testified to explaining that Pua indorsed some checks to her brother to pay for a part of the capital she used in her financing business.

5) Ubas, Sr. v. Chan - It has also been long established that where the Ubas possesses and submits in evidence an instrument showing the indebtedness, a presumption
that the credit has not been satisfied arises in [his] favor. Thus, Chan is, in appropriate instances, required to overcome the said presumption and present evidence to
prove the fact of payment so that no judgment will be entered against him."

It is presumed that the subject checks were issued for a valid consideration, which therefore, dispensed with the necessity of any documentary evidence to support

petitioner's monetary claim. Unless otherwise rebutted, the legal presumption of consideration under Section 24 of the NIL stands. Verily, "the vital function of legal
presumption is to dispense with the need for proof."

Besides, Section 16 of the NIL provides that when an instrument is no longer in the possession of the person who signed it and it is complete in its terms, "a valid and
intentional delivery by him is presumed until the contrary is proved," as in this case. In Pacheco v. CA, the Court has expressly recognized that a check "constitutes an evidence
of indebtedness" and is a veritable "proof of an obligation." Hence, Ubas may rely on the same as proof of Chan's personal obligation to him.

Although the checks were under the account name of Unimasters, it should be emphasized that the manner or mode of payment does not alter the nature of the
obligation. The source of obligation, as claimed by Ubas in this case, stems from his contract with Chan. When they agreed upon the purchase of the construction
materials on credit for the amount of P1,500,000.00, the contract between them was perfected. Therefore, even if corporate checks were issued for the payment of the
obligation, the fact remains that the juridical tie between the 2 parties was already established during the contract's perfection stage and, thus, does not preclude the
creditor from proceeding against the debtor during the contract's consummation stage. That a privity of contract exists between Ubas and Chan is a conclusion amply
supported by the averments and evidence on record in this case.

VALUE Value is any consideration sufficient to support a simple contract.81 An antecedent or pre-existing debt constitutes
(Section 25) value and is deemed such whether the instrument is payable on demand or at a future time.
HOLDER FOR VALUE82 A holder for value is one who has given a valuable consideration for the instrument issued or negotiated to him. S/he
(Section 26) is deemed a holder for value in respect to all parties who become such prior to that time.
LIEN ON AN INSTRUMENT Where the holder has a lien on the instrument arising either from contract or by implication of law, he is deemed a
(Section 27) holder for value to the extent of his lien.83
EFFECT OF WANT OF Absence or failure of consideration is a matter of defense as against any person not a holder in due course84; and
CONSIDERATION partial failure of consideration is a defense pro tanto whether the failure is ascertained and liquidated amount or
(Section 28) otherwise.

81
A valuable consideration need not be adequate. It is sufficient if it is a valuable one. Note, the mere inadequacy of the consideration is not sufficient ground for relief
unless there is fraud, mistake, or undue influence.
82
A holder is presumed to be a holder for value until the contrary be shown by any party who claims otherwise.
83
If the amount of the instrument is more than the debt secured by such instrument, the pledgee is a holder for value to the extent of his lien. He can collect the full value
of the instrument, but must deliver surplus to pledgor. BUT, if the amount of the instrument is less than or the same as the debt secured, the pledgee is a holder for value
for the full amount and may recover all.
84
ABSENCE OF CONSIDERATION FAILURE OF CONSIDERATION
A total lack of any valid consideration for the contract, Refusal of one of the parties to do, perform, or comply

in consequence of which the contract must fail. with the consideration agreed upon or in other words,
consideration failed to materialize.

ACCOMMODATION PARTY Accommodation party. - One who has:

(Section 29)85 1) Signed the instrument as maker, drawer, or indorser;
2) without receiving value therefor86; and
3) [It is] for the purpose of lending his name to another party or credit.

Such person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking
the instrument knew him only to be an accommodation party.87

CASE DOCTRINES

1) Clark v. Sellner - The fact that a joint and several note has been signed by one or various of the makers thereof for the accommodation by one or more of his or their
comakers, does not render him or them an accommodation maker or makers with respect to the creditor who, upon the receipt of the note, pays the full value thereof. In
such a case the payment by the creditor of the value of the note upon the latter passing into his hands, renders all the signers of the note liable thereon; and it is of no
importance that one or more of the signers has or have not received absolutely any part of the consideration. The expression "without receiving value there or" used in
section 29 of the Negotiable Instruments Law, means that no value has been received for the negotiable instrument.

2) Caneda v. Court of Appeals - It is undisputed that Gueson executed a promissory note in favor of Caneda, secured by a chattel mortgage on a Toyota Jiffy jeep as
collateral; which promissory note and chattel mortgage were assigned by Caneda in favor of FNCB evidently to secure his obligation with said company, with the
knowledge and consent of Gueson. The records also show that when FNCB tried to collect from Gueson, Caneda consented and affixed his signature on an "undertaking"
thereby acknowledging indebtedness in favor of FNCB.

The principal question that arises is the effect of the assignment on the obligations of Gueson and Caneda to FNCB. As between Gueson and Caneda, it is obvious that
85
After making payment to the holder, the accommodation party may recover from the accommodated party for reimbursement. The relation between them is that of
principal debtor and surety.
86
Therefor refers to the instrument itself and not to the use of the name by way of accommodation. “Without receiving value therefor” only means that no value has been
received for the negotiable instrument and not “without receiving payment for lending his name.”
87
The absence of consideration between the accommodation party and the accommodated party does not of it itself constitute a valid defense against the holder for value,
even though he knew of it when he became a holder.
whether private agreement or understanding transpired between them is binding on them alone and not on FNCB whose only concern in the whole transaction is the
repayment of the loan it has extended.
There is no novation, whether express or implied. There is no express novation since the undertaking executed on October 2, 1980 does not state in clear terms that the
promissory note and chattel mortgage executed by Gueson is extinguished and in lieu thereof the undertaking will be substituted. Neither is there an implied novation
since the promissory note and chattel mortgage are not incompatible with the undertaking.

Neither is there substitution of debtors. Caneda in executing the undertaking assuming the liability with FNCB, merely confirmed that he is the real or principal debtor
while Gueson in signing the promissory note and the chattel mortgage accommodated Caneda in his obligation with FNCB. Otherwise stated, he became a surety. Thus,
this Court has ruled, that a person 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 is liable on the instrument to a holder for value, notwithstanding the fact that such holder at the time of taking the instrument knew him
to be only an accommodation party. Nonetheless, after paying the holder, such accommodation party has the right to obtain reimbursement from the party
accommodated, since the relation between them is in effect that of principal and surety, the accommodation party being the surety

It is no defense to state on the part of either Gueson or Caneda that they did not receive any value for the promissory note executed, both claiming to be only an
accommodation party. As held by this Court, a third person advances the face value of the note to the accommodated party at the time of the creation of the note, the
consideration for the note as regards its maker is the money advanced to the accommodated party, and it cannot be said that the note is lacking in consideration as to
the accommodating party just because he himself received none of the money. It is enough that value was given for the note at the time of its creation.

In resume, FNCB can go against both Caneda, the principal debtor and Gueson as the surety or either of them. But the lower court erred in dismissing the claim against
Gueson. FNCB did not however, appeal thereby rendering this case moot as against Gueson. It does not however, follow that FNCB cannot recover the full amount from
Caneda being the accommodated party. By not appealing the decision of the lower court, FNCB merely opted to recover its credit from Caneda and waived its right to
recover from Gueson.

3) Town Saving and Loan Bank v. Court of Appeals - In this case, there is no question that the private respondents signed the promissory note in order to enable Pilarita
H. Reyes, who is Miguel Hipolito's sister, to borrow the total sum of P1.4 million from TSLB. As observed by both the trial court and the appellate court, the actual
beneficiary of the loan was Pilarita H. Reyes and no other. The Hipolitos accommodated her by signing a promissory note for half of the loan that she applied for because
TSLB may not lend any single borrower more than the authorized limit of its loan portfolio. Under Section 29 of the Negotiable Instruments Law, the Hipolitos are liable
to the bank on the promissory note that they signed to accommodate Pilarita.

Respondent appellate court erred in giving credence to Hipolito's allegation that it was the bank's president who induced him to sign the promissory note so that the
bank would not violate the Central Bank's regulation limiting the amount that TSLB could lend out. Besides being self-serving, Hipolito's testimony was uncorroborated
by any other evidence on record, therefore, it should have been received with extreme caution. The Court is convinced that the intention of respondents Hipolitos in
signing the promissory note was not so much to enable the Bank to grant a loan to Pilarita but for the latter to be able to obtain the full amount of the loan that she
needed at the time. It is not credible that a Bank would want so much to lend money to a borrower that it would go out of its way to convince another person
(respondent Miguel Hipolito) to accommodate the borrower (Pilarita H. Reyes). In the ordinary course of things, the borrower, Pilarita, not the Bank, would have requested
her brother Miguel to accommodate her so she could have the P1.4 million that she wanted to borrow from the bank.

The case of Maulini vs. Serrano relied upon by the appellate court in reversing the decision of the trial court, is not applicable to this case. In that case, the evidence
showed that the indorser (the loan broker Serrano) in making the indorsement to the lender, Maulini, was acting as agent for the latter or, as a mere vehicle for the

transference of the naked title from the borrower or maker of the note (Moreno). Furthermore, his indorsement was wholly without consideration. We ruled that Serrano
was not an accommodation indorser; he was not liable on the note. ". . . Where, however, an indorsement is made as a favor to the indorsee, who requests it, not the
better to secure payment, but to relieve himself from a distasteful situation, and where the only consideration for such indorsement passes from the indorser to the
indorsee, the situation does not present one creating an accommodation indorsement, nor one where there is a consideration sufficient to sustain an action on the
indorsement." Unlike the Maulini case, there was no agreement here, written or verbal, that in signing the promissory note, Miguel and Alicia Hipolito were acting as
agents for the money lender, the Bank. The consideration of the note signed by the Hipolitos was received by them through Pilarita. They acted as agents of Pilarita, not
of the bank. They signed the promissory note as a favor to Pilarita, to help her raise the funds that she needed. It was Pilarita whom they accommodated, not the bank,
contrary to the erroneous finding of the appellate court.

4) PNB v. Maza and Macenas - The accommodation party can claim no benefit as such, but he is liable according to the face of his undertaking, the same as if he were
himself financially interested in the transaction. To fasten liability upon an accommodation maker, it is not necessary that any consideration should move to him.
Moreover, after making payment to the holder, the accommodation party may sue the accommodated party for reimbursement, since the relation between them is in
effect that of principal and surety, the accommodation party being the surety.

5) Sadaya v. Sevilla - A solidary accommodation maker who made payment — has the right to contribution, from his co-accommodation maker, in the absence of
agreement to the contrary between them, and subject to conditions imposed by law.
● A joint and several accommodation maker of a negotiable promissory note may demand from the principal debtor reimbursement for the amount that he paid to
the payee; and
● A joint and several accommodation maker who pays on the said promissory note may directly demand reimbursement from his co-accommodation maker
without directing his action against the principal debtor provided that (a) he made the payment by virtue of a judicial demand, or (b) the principal debtor is insolvent.

But, where a co-accommodation maker paid voluntarily the outstanding balance of the account of the principal debtor without previous judicial demand and when the
principal debtor is not insolvent, he cannot, as a matter of right, demand from his co- accommodation maker of the share which is proportionately owing him.

6) Crisologo-Jose v. Court of Appeals - To be considered an accommodation party, a person must (1) be a party to the instrument, signing as maker, drawer, acceptor, or
indorser, (2) not receive value therefor, and (3) sign for the purpose of lending his name for the credit of some other person. Based on the foregoing requisites, it is not a
valid defense that the accommodation party did not receive any valuable consideration when he executed the instrument.

From the standpoint of contract law, he differs from the ordinary concept of a debtor therein in the sense that he has not received any valuable consideration for the
instrument he signs. Nevertheless, he is liable to a holder for value as if the contract was not for accommodation, in whatever capacity such accommodation party signed
the instrument, whether primarily or secondarily.

Section 29 of the Negotiable Instruments Law which holds an accommodation party liable on the instrument to a holder for value, although such holder at the time of
taking the instrument knew him to be only an accommodation party, does not include nor apply to corporations which are accommodation parties. This is because the
issue or indorsement of negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires. Hence, 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. If the form of the
instrument, or the nature of the transaction, is such as to charge the indorsee with knowledge that the issue or indorsement of the instrument by the corporation is for
the accommodation of another, he cannot recover against the corporation thereon.


By way of exception, 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.

Corporate officers, such as the president and vice-president, 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. Since such accommodation paper cannot thus
be enforced against the corporation, especially since it is not involved in any aspect of the corporate business or operations, the inescapable conclusion in law and in
logic is that the signatories thereof shall be personally liable therefor, as well as the consequences arising from their acts in connection therewith.

Respondent Santos is an accommodation party and is, therefore, liable for the value of the check. The fact that he was only a co-signatory does not detract from his
personal liability. A co-maker or co-drawer under the circumstances in this case is as much an accommodation party as the other co-signatory or, for that matter, as a lone
signatory in an accommodation instrument. Under the doctrine in Philippine Bank of Commerce vs. Aruego, supra, he is in effect a co-surety for the accommodated party
with whom he and his co-signatory, as the other co-surety, assume solidary liability ex lege for the debt involved. With the dishonor of the check, there was created a
debtor-creditor relationship, as between Atty. Benares and respondent Santos, on the one hand, and petitioner, on the other. This circumstance enables respondent
Santos to resort to an action of consignation where his tender of payment had been refused by petitioner.

7) Maulini v. Serrano - Parol evidence is admissible to show that an indorsement was made wholly without consideration and, that in making it, the indorser acted as
agent for the indorsee and as a mere vehicle for the transfer of the naked title from the maker to the indorsee.

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. An accommodation note is one to which the accommodating party has put his name without consideration for the purpose of
accommodating some other party who is to use it and is expected to pay it.

The prohibition against the introduction of parol evidence contained in Section 285 of the Code of Civil Procedure was designed to prevent alteration, change,
modification, variation or contraction of the terms of a written instrument admittedly existing except in cases specifically named therein. The prohibition does not apply
where the purpose of the parol evidence is to show that no written contract ever existed, that the minds of the parties never met on the terms of such a contract, that
they never mutually agreed to enter into such a contract, and that there never existed any consideration upon which such an agreement could be founded.

8) Prudencio v. Court of Appeals - In the case of Philippine Bank of Commerce v. Aruego, the Court held that ". . . in lending his name to the accommodated party, the
accommodation party is in effect a surety. . . ." However, unlike in a contract of suretyship, the liability of the accommodation party remains not only primary but also
unconditional to a holder for value such that even if the accommodated party receives an extension of the period for payment without the consent of the accommodation
party, the latter is still liable for the whole obligation and such extension does not release him because as far as a holder for value is concerned, he is a solidary
co-debtor.

There is, therefore, no question that as accommodation makers, Prudencio would be primarily and unconditionally liable on the promissory note to a holder for value,
regardless of whether they stand as sureties or solidary co-debtors since such distinction would be entirely immaterial and inconsequential as far as a holder for value is
concerned. Consequently, Prudencio cannot claim to have been released from their obligation simply because the time of payment of such obligation was temporarily
deferred by PNB without their knowledge and consent. There has to be another basis for their claim of having been freed from their obligation. The question which
should be resolved in this instant petition, therefore, is whether or not PNB can be considered a holder for value under Section 29 of the Negotiable Instruments Law
such that Prudencio must be necessarily barred from setting up the defense of want of consideration or some other personal defenses which may be set up against a

party who is not a holder in due course.

A holder for value under Section 29 of the Negotiable Instruments Law is one who must meet all the requirements of a holder in due course under Section 52 of the
same law except notice of want of consideration. If he does not qualify as a holder in due course then he holds the instrument subject to the same defenses as if it were
non-negotiable (Section 58, Negotiable Instruments Law).

Although as a general rule, a payee may be considered a holder in due course we think that such a rule cannot apply with respect to the respondent PNB. Not only was
PNB an immediate party or in privy to the promissory note, that is, it had dealt directly with the petitioners knowing fully well that the latter only signed as
accommodation makers but more important, it was the Deed of Assignment executed by the Construction Company in favor of PNB which principally moved the
petitioners to sign the promissory note also in favor of PNB. Prudencio was made to believe and on that belief entered into the agreement that no other conditions would
alter the terms thereof and yet, PNB altered the same. The Deed of Assignment specifically provided that Jose F. Toribio, on behalf of the Company, "have assigned,
transferred and conveyed and by these presents, do assign, transfer and convey unto the said Philippine National Bank, its successors and assigns all payments to be
received from the Bureau of Public Works on account of contract for the construction of the Puerto Princesa Municipal Building in Palawan, involving the total amount of
P36,000.00" and that "This assignment shall be irrevocable and subject to the terms and conditions of the promissory note and or any other kind of documents which the
Philippine National Bank have required or may require the assignor to execute to evidence the above-mentioned obligation."

PNB is not a holder in due course. Thus, Prudencio can validly set up their personal defense of release from the real estate mortgage against PNB. The latter, in
authorizing the third payment to the Company after the promissory note became due, in effect, extended the term of the payment of the note without the consent of the
accommodation makers who stand as sureties to the accommodated party and to all other parties who are not holders in due course or who do not derive their right
from the same, including PNB.

9) Agro Conglomerates v. Soriano - In the instant case, the original plan was that the initial payments would be paid in cash. Subsequently, the parties (with the
participation of respondent bank) executed an addendum providing instead, that Agro Conglomerates would secure a loan in the name of Agro Conglomerates Inc. for the
total amount of the initial payments, while the settlement of said loan would be assumed by Wonderland. Thereafter, Soriano signed several promissory notes and
received the proceeds in behalf of the company. By this time, the Court notes a subsidiary contract of suretyship had taken effect since they signed the promissory notes
as maker and accommodation party for the benefitt of Wonderland. They then became liable as accommodation party.

Suretyship is defined as the relation which exists where one person has undertaken an obligation and another person is also under the obligation or other duty to the
obligee, who is entitled to but one performance, and as between the two who are bound, one rather than the other should perform. The surety's liability to the creditor or
promise of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal. And the creditor may proceed
against any one of the solidary debtors.

As it turned out, the contract of surety between Wonderland and the petitioners was extinguished by the rescission of the contract of sale of the farmland. With the
rescission, there was confusion or merger in the persons of the principal obligor and the surety, namely the petitioners herein. The addendum which was dependent
thereon likewise lost its efficacy.

An accommodation party is a person who has signed the instrument as maker, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his
name to some other person and is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew (the signatory)
to be an accommodation party. He has the right, after paying the holder, to obtain reimbursement from the party accommodated, since the relation between them has in

effect become one of principal and surety, the accommodation party being the surety.

10) Ang v. Associated Bank - This Court can not, at present, readily subscribe to Ang’s insistence that the case must be dismissed. Signficantly, it stands without refute,
both in the pleadings as well as in the evidence presented during the trial and up to the time this case reached the Court, that the issue had been rendered moot with
the occurrence of a supervening event — the "buy-back" of the bank by its former owner, Leonardo Ty, sometime in October 1993. By such re-acquisition from the Asset
Privatization Trust when the case was still pending in the lower court, the bank reclaimed its real and actual interest over the unpaid promissory notes; hence, it could
rightfully qualify as a "holder" thereof under the NIL.

Notably, Section 29 of the NIL defines an accommodation party as a person "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." As gleaned from the text, an accommodation party is one who meets all the three
requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for
the purpose of lending his name or credit to some other person. An accommodation party 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 party/ies thereto. The accommodation party is liable on the
instrument to a holder for value even though the holder, at the time of taking the instrument, knew him or her to be merely an accommodation party, as if the contract
was not for accommodation.

As Ang acknowledged it to be, the relation between an accommodation party and the accommodated party is one of principal and surety — the accommodation party
being the surety. As such, he is deemed an original promisor and debtor from the beginning; he is considered in law as the same party as the debtor in relation to
whatever is adjudged touching the obligation of the latter since their liabilities are interwoven as to be inseparable. Although a contract of suretyship is in essence
accessory or collateral to a valid principal obligation, the surety's liability to the creditor is immediate, primary and absolute; he is directly and equally bound with the
principal. As an equivalent of a regular party to the undertaking, a surety becomes liable to the debt and duty of the principal obligor even without possessing a direct or
personal interest in the obligations nor does he receive any benefit therefrom.

In the instant case, Ang agreed to be "jointly and severally" liable under the two promissory notes that he co-signed with Antonio Ang Eng Liong as the principal debtor.
This being so, it is completely immaterial if the bank would opt to proceed only against petitioner or Antonio Ang Eng Liong or both of them since the law confers upon
the creditor the prerogative to choose whether to enforce the entire obligation against any one, some or all of the debtors. Nonetheless, Ang, as an accommodation
party, may seek reimbursement from Antonio Ang Eng Liong, being the party accommodated.

In issuing the two promissory notes, Ang as accommodating party warranted to the holder in due course that he would pay the same according to its tenor. It is no
defense to state on his part that he did not receive any value therefor because the phrase "without receiving value therefor" used in Sec. 29 of the NIL means "without
receiving value by virtue of the instrument" and not as it is apparently supposed to mean, "without receiving payment for lending his name." Stated differently, when a
third person advances the face value of the note to the accommodated party at the time of its creation, the consideration for the note as regards its maker is the money
advanced to the accommodated party. It is enough that value was given for the note at the time of its creation. As in the instant case, a sum of money was received by
virtue of the notes, hence, it is immaterial so far as the bank is concerned whether one of the signers, particularly Ang, has or has not received anything in payment of
the use of his name.

Under the law, upon the maturity of the note, a surety may pay the debt, demand the collateral security, if there be any, and dispose of it to his benefit, or, if applicable,
subrogate himself in the place of the creditor with the right to enforce the guaranty against the other signers of the note for the reimbursement of what he is entitled to
recover from them. Regrettably, none of these were prudently done by Ang. When he was first nofied by the bank sometime in 1982 regarding his accountabilities under

the promissory notes, he lackadaisically relied on Antonio Ang Eng Liong, who represented that he would take care of the matter, instead of directly communicating with
the bank for its settlement Thus, Ang cannot now claim that he was prejudiced by the supposed "extension of time" given by the bank to his co-debtor.
Furthermore, since the liability of an accommodation party remains not only primary but also unconditional to a holder for value, even if the accommodated party
receives an extension of the period for payment without the consent of the accommodation party, the latter is still liable for the whole obligation and such extension
does not release him because as far as a holder for value is concerned, he is a solidary co-debtor.

Neither can Ang benefit from the alleged "insolvency" of Antonio Ang Eng Liong for want of clear and convincing evidence proving the same. Assuming it to be true, he
also did not exercise diligence in demanding security to protect himself from the danger thereof in the event that hewould eventually be sued by the bank. Further,
whether Ang may or may not obtain security from Antonio Ang Eng Liong cannot in any manner affect his liability to the bank; the said remedy is a matter of concern
exclusively between themselves as accommodation party and accommodated party. The fact that Ang stands only as a surety in relation to Antonio Ang Eng Liong is
immaterial to the claim of the bank and does not a whit diminish nor defeat the rights of the latter as a holder for value. To sanction his theory is to give unwarranted
legal recognition to the patent absurdity of a situation where a co-maker, when sued on an instrument by a holder in due course and for value, can escape liability by the
convenient expedient of interposing the defense that he is a merely an accommodation party.

11) Aglibot v. Santia - Section 185 of the Negotiable Instruments Law defines a check as "a bill of exchange drawn on a bank payable on demand," while Section 126 of
the said law defines a bill of exchange as "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."

The appellate court ruled that by issuing her own post-dated checks, Aglibot thereby bound herself personally and solidarily to pay Santia, and dismissed her claim that
she issued her said checks in her official capacity as PLCC's manager merely to guarantee the investment of Santia. It noted that she could have issued PLCC's checks, but
instead she chose to issue her own checks, drawn against her personal account with Metrobank. It concluded that Aglibot intended to personally assume the repayment
of the loan, pointing out that in her Counter-Affidavit, she even admitted that she was personally indebted to Santia, and only raised payment as her defense, a clear
admission of her liability for the said loan.

The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety — the accommodation party being the surety. It is a
settled rule that a surety is bound equally and absolutely with the principal and is deemed an original promisor and debtor from the beginning. The liability is immediate
and direct. It is not a valid defense that the accommodation party did not receive any valuable consideration when he executed the instrument; nor is it correct to say
that the holder for value is not a holder in due course merely because at the time he acquired the instrument, he knew that the indorser was only an accommodation
party.

Moreover, it was held in Aruego that unlike in a contract of suretyship, the liability of the accommodation party remains not only primary but also unconditional to a
holder for value, such that even if the accommodated party receives an extension of the period for payment without the consent of the accommodation party, the latter is
still liable for the whole obligation and such extension does not release him because as far as a holder for value is concerned, he is a solidary co-debtor.

The mere fact, then, that Aglibot issued her own checks to Santia made her personally liable to the latter on her checks without the need for Santia to first go after PLCC
for the payment of its loan. It would have been otherwise had it been shown that Aglibot was a mere guarantor, except that since checks were issued ostensibly in
payment for the loan, the provisions of the Negotiable Instruments Law must take primacy in application.


CHAPTER III - NEGOTIATION

WHAT CONSTITUTES An instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the
NEGOTIATION transferee thereof.
(Section 30)88
INSTRUMENT PAYABLE TO ORDER INSTRUMENT PAYABLE TO BEARER
To be negotiated, requires indorsement and delivery. To be negotiated, requires delivery.

CASE DOCTRINES

1) Caltex v. Court of Appeals (supra.) - The CTDs in question undoubtedly meet the requirements of the law for negotiability under Section 1 of the Negotiable
Instruments Law. The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument
itself. In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. Here, if it was really the intention of respondent bank
to pay the amount to Angel de la Cruz only, it could have with facility so expressed that fact in clear and categorical terms in the documents, instead of having the word
“BEARER” stamped on the space provided for the name of the depositor in each CTD.

While the writing may be read in the light of surrounding circumstances in order to more perfectly understand the intent and meaning of the parties, yet as they have
constituted the writing to be the only outward and visible expression of their meaning, no other words are to be added to it or substituted in its stead.

Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee
the holder thereof, and a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.

In the present case, however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of Cruz in which situation, for obvious reasons,
mere delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz could at the most constitute
petitioner only 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,
necessarily, 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.

2) Lim v. Court of Appeals (supra.) - It is settled that venue in criminal cases is a vital ingredient of jurisdiction. It shall be where the crime or offense was
88
There is no negotiation if the transfer does not make the transferee the holder of the instrument.
committed or any one of the essential ingredients thereof took place. In determining the proper venue for these cases, the following are material facts—the checks
were issued at the place of business of Linton; they were delivered to Linton at the same place; they were dishonored in Kalookan City; Lim had knowledge of the
insufficiency of funds in their account.

Under Section 191 of the Negotiable Instruments Law, issue means the first delivery of the instrument complete in its form to a person who takes it as holder.
The term holder on the other hand refers to the payee or indorsee of a bill or note who is in possession of it or the bearer thereof. The important place to consider in
the consummation of a negotiable instrument is the place of delivery. Delivery is the final act essential to its consummation as an obligation. An undelivered bill
is unoperative. The issuance and delivery of the check must be to a person who takes it as a holder.

Although Linton sent a collector who received the checks, he was not authorized. The collector is not a holder or an agent, he was just an employee.The checks were
actually issued and delivered to Linton in Navotas.

INDORSEMENT Indorsement. - Must be written on the instrument itself, or on a paper attached thereto.90
(Section 31)89
The signature of the indorser, without additional words, is a sufficient indorsement.
INDORSEMENT MUST BE OF It must be an indorsement of the entire
THE ENTIRE INSTRUMENT instrument.
(Section 32)
An instrument purporting to transfer the If part of the amount has already been paid, the unpaid balance may
instrument to 2 or more persons severally DOES be indorsed as expressly authorized by law.
NOT operate as a negotiation. Said in another way,
a person who takes a partial indorsement becomes
an assignor. It is no longer negotiable.

The payee by indorsing the instrument and delivering it to another person becomes an indorser. The person who receives it becomes the indorsee.
89
The indorsement is not only a mode of transfer. It involves a new contract and obligation on the part of the indorser – an implied guaranty that the instrument will be
90
duly paid according to the terms thereof.

CASE DOCTRINE
Montinola v. PNB

The Court held that, it was not negotiated according to the Negotiable Instruments Law (NIL); hence it is not a negotiable instrument. There was only a partial
indorsement and not a negotiation contemplated under the NIL. Only P30k of the P100k amount of the check was indorsed. This merely make Montinola a mere assignee
– and this is the clear intent of Ramos. Ramos was merely assigning P30k to Montinola. Montinola may therefore not be regarded as an indorsee and PNB has all the
right to dishonor the check. As mere assignee, he is subject to all defenses available to the drawer Provincial Treasurer of Misamis Oriental and against Ramos.

Anent the issue of alteration, the apparent purpose of which is to make the drawee (PNB) the drawer against which Montinola can recover from directly. The insertion of
the words “Agent, Phil. National Bank” which converts the bank from a mere drawee to a drawer and therefore changes its liability, constitutes a material alteration of the
instrument without the consent of the parties liable thereon, and so discharges the instrument. (Section 124 of the Negotiable Instruments Law).

The check was not legally negotiated within the meaning of the Negotiable Instruments Law. Section 32 of the same law provides that “the indorsement must be an
indorsement of the entire instrument. 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.” Montinola may therefore not be regarded as an indorsee. At most he may be regarded as a mere assignee of the P30,000 sold to him
by Ramos, in which case, as such assignee, he is subject to all defenses available to the drawer Provincial Treasurer of Misamis Oriental and against Ramos. Neither can
Montinola be considered as a holder in due course because section 52 of said law defines a holder in due course as a holder who has taken the instrument under certain
conditions, one of which is that he became the holder before it was overdue. When Montinola received the check, it was long overdue. And, Montinola is not even a
holder because section 191 of the same law defines holder as the payee or indorsee of a bill or note and Montinola is not a payee. Neither is he an indorsee for as
already stated, at most he can be considered only as assignee. Neither could it be said that he took it in good faith. As already stated, he has not paid the full amount of
P90,000 for which Ramos sold him P30,000 of the value of the check. In the second place, as was stated by the trial court in its decision, Montinola speculated on the
check and took a chance on its being paid after the war.

At any rate, even assuming that there is proper negotiation, Montinola can no longer encash said check because when he sought to have it encashed in January 1945, it
is already stale there being two and half years passing since its time of issuance.

KINDS OF INDORSEMENT An indorsement may either be special or in blank; and it may also be either restrictive or qualified or conditional.
(Sections 33 -39)

SPECIAL INDORSEMENT (Sec. 34) BLANK INDORSEMENT (Sec. 34/35)
● Specifies the person to whom, or to whose order the ● Specifies no particular indorsee and consists only the
instrument is to be payable (e.g., “Pay to A” or “Pay to the signature of the payee or indorser.
order of A)
● To be further negotiated, requires indorsement and ● To be further negotiated, requires delivery.

delivery.
Conversion of blank indorsement to special indorsement. -
An instrument made payable to bearer by an indorsement in
blank may be converted into an order instrument by writing
over the signature of the indorser in blank any contract
consistent with the character of the indorsement.

RESTRICTIVE INDORSEMENT91 (Sec. QUALIFIED INDORSEMENT (Sec. 38) CONDITIONAL INDORSEMENT (Sec. 39)
36/37)92
(a) Prohibits the further negotiation of Qualified indorsement. - One which Conditional indorsement.- One by
the instrument; constitutes the indorser a mere which the indorser imposes some other
(e.g., “Pay to A only” or “Pay to A and to assignor of the title to the condition to his liability, or on the
no other person”) instrument.94 indorsee’s right to collect the proceeds
● It may be made by adding to of the instrument.95
(b) Constitutes the indorsee the agent of the indorser’s signature the
the indorser; or words “without recourse” or
(e.g., “Pay to A for collection” or “Pay to A any words of similar import
for deposit”) (e.g., “sans recourse” or “at
indorsee’s own risk” or
(c) Vests the title in the indorsee in trust “indorser not holder”).
or to the use of some other person.
(e.g., “Pay to A in trust for B” or “Pay to A
for use of C”)

RIGHTS OF INDORSEE IN RESTRICTIVE
91
It either restricts or prohibits entirely the further negotiation of an instrument, or modifies the rights of the holder or the liabilities of the indorser. An indorser then
notifies all prospective holders that the indorsee has only the authority to deal with the instrument as thereby directed and that the indorsee has a restrictive title thereto.
92
The mere absence of negotiability does not make an instrument restrictive. It continues to be negotiable in spite of the absence of such words in an indorsement.
94
The purpose is to transfer title without guaranteeing payment. It does not mean that the qualified indorser incurs no liability. He is secondarily liable for the breach of his
warranties as an indorser under Sec. 65.
95
Recall, while a condition on indorsement does not destroy negotiability, a condition appearing on the face of the instrument renders the instrument non-negotiable.
INDORSEMENT93
1. Receive payment on the instrument;
and
2. Bring any action thereon that the
indorser could bring.

*It may only transfer his rights such as
indorsee, where the form of the
instrument authorizes him to (not there
is a restrictive indorsement under Sec.
36[a] where there is a prohibition.)

CASE DOCTRINE
Metropol v. Sambok Motors Co.

A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser’s signature the words “without
recourse” or any words of similar import. Such indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability
arising from warranties on the instrument as provided by section 65 of NIL. However, Sambok indorsed the note “with recourse” and even waived the notice of demand,
dishonor, protest and presentment.

Recourse means resort to a person who is secondarily liable after the default of the person who is primarily liable. Sambok by indorsing the note “with recourse” does not
make itself a qualified indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Villaruel fails to pay the not the holder
can go after it. The effect of such indorsement is that the note was indorsed without qualification. A person who indorses without qualification engages that on due
presentment, the note shall be accepted or paid, or both as the case maybe, and that if it be dishonored, he will pay the amount thereof to the holder. The words added
by Sambok do not limit his liability, but rather confirm his obligation as general indorser.

93
The rights of the indorsees subsequent to the first indorsee are subject to the terms of the restrictive indorsement.
INDORSEMENT OF An instrument payable to bearer is not converted into an instrument payable to order by being indorsed specially. It may
INSTRUMENT PAYABLE further be negotiated by mere delivery.
TO BEARER
(Section 40)96 The person indorsing specially is liable only to those who can trace their title to the instrument by a series of unbroken
indorsements from such a special indorser.
INDORSEMENT OF If they are not partners, all must indorse. One can indorse only when s/he has authority to indorse for the others.
INSTRUMENT PAYABLE
TO THE ORDER OF TWO
OR MORE PAYEES OR
INDORSEES (Section 41)

CASE DOCTRINE
Metrobank v. BA Finance Corp.

Section 41 of the Negotiable Instruments Law provides: Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse
unless the one indorsing has authority to indorse for the others.

Bitanga alone endorsed the crossed check, and Metrobank allowed the deposit and release of the proceeds thereof, despite the absence of authority of Bitangas co-payee
BA Finance to endorse it on its behalf. Metrobank’s argument that since there was neither forgery, nor unauthorized indorsement because Bitanga was a co-payee in the
subject check, the dictum in Associated Bank v. CA does not apply in the present case fails. The payment of an instrument over a missing indorsement is the equivalent of
payment on a forged indorsement or an unauthorized indorsement in itself in the case of joint payees.

Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is liable in conversion to the non-indorsing payee for the entire amount of the
check.

Moreover, Section 68 of the Negotiable Instruments Law instructs that joint payees who indorse are deemed to indorse jointly and severally. When the maker dishonors the
instrument, the holder thereof can turn to those secondarily liable the indorser for recovery.

A collecting bank, Asianbank in this case, where a check is deposited and which indorses the check upon presentment with the drawee bank, is an indorser. his is because
in indorsing a check to the drawee bank, a collecting bank stamps the back of the check with the phrase all prior endorsements and/or lack of endorsement guaranteed
and, for all intents and purposes, treats the check as a negotiable instrument, hence, assumes the warranty of an indorser.

96
This applies only to instruments originally payable to bearer. It cannot apply where the paper is originally made payable to order and indorsed in blank.
Metrobank, as the last indorser, generally suffers the loss because it has 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 prior
indorsements.

EFFECT OF INSTRUMENT Where an instrument is drawn or indorsed to a person as “cashier” or other fiscal officer of a bank or corporation, it is deemed

DRAWN OR INDORSED prima facie to be payable to the bank or corporation of which he is an officer.
TO A PERSON AS
CASHIER It may be negotiated by indorsement of the bank or corporation or the indorsement of the officer.
(Section 42)

INDORSEMENT WHERE If wrongly designated or misspelled, s/he may indorse the instrument as therein described by adding, if he thinks fit, his/her
NAME MISSPELLED proper signature.
(Section 43)
INDORSEMENT IN Where any person is under obligation to indorse in a representative capacity, s/he may indorse in such terms as to negative
REPRESENTATIVE personal liability.
CAPACITY
(Section 44)
TIME OF INDORSEMENT Every negotiation is deemed prima facie to have been Where an indorsement bears date after maturity.
(Section 45)97 effected before the instrument is due.
PLACE OF INDORSEMENT Every indorsement is presumed prima facie to have been Where the contrary appears.
(Section 46) made at the place where the instrument is dated.
CONTINUATION OF As a general rule, an instrument negotiable in origin is 1. When the instrument has been restrictively indorsed;98 and
NEGOTIABLE CHARACTER always negotiable. 2. When it has been discharged by payment or otherwise.
OF ORIGINALLY
NEGOTIABLE
INSTRUMENT
97
This is important because in order to constitute one a holder in due course, he must have taken the instrument before it was overdue.
98
This refers ONLY to such restrictive indorsement as prohibits further negotiation of the instrument.
(Section 47)
STRIKING OUT The holder may at any time strike out any indorsement which is not necessary to his title.
INDORSEMENTS
(Section 48) The indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability on the
instrument.
TRANSFER WITHOUT Where the holder of an instrument payable to his order transfer it for value without indorsing it, the transfer vests in the
INDORSEMENT transferee such title as the transferor had therein, and the transferee acquires the right to have the indorsement of the
(Section 49) transferor.

The negotiation takes effect as of the time when the indorsement is actually made for the purpose of determining whether or
not the transferee is a holder in due course.

CASE DOCTRINE
BPI v. Court of Appeals

In the present case, the records do not support the finding made by the CA and the trial court that a prior arrangement existed between Salazar and Templonuevo
regarding the transfer of ownership of the checks. This fact is crucial as Salazar’s entitlement to the value of the instruments is based on the assumption that she is a
transferee within the contemplation of Section 49 of the Negotiable Instruments Law.

Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor indorsees of such instruments. The
weight of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to receive
payment, or of the right of one who has made payment to be discharged from liability. Thus, something more than mere possession by persons who are not payees
or indorsers of the instrument is necessary to authorize payment to them in the absence of any other facts from which the authority to receive payment
may be inferred.

Even if the delay in the demand for reimbursement is taken in conjunction with Salazar’s possession of the checks, it cannot be said that the presumption of
ownership in Templonuevo’s favor as the designated payee therein was sufficiently overcome. This is consistent with the principle that if instruments payable to named
payees or to their order have not been indorsed in blank, only such payees or their indorsees can be holders and entitled to receive payment in their own right.

The presumption that a negotiable instrument was given for a sufficient consideration will not inure to the benefit of Salazar because the term “given” does
not pertain merely to a transfer of physical possession of the instrument. The phrase “given or indorsed” in the context of a negotiable instrument refers to the manner
in which such instrument may be negotiated.

It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. Precisely because the situation is
abnormal, it is but fair to the maker and to prior holders to require possessors to prove without the aid of an initial presumption in their favor, that they

came into possession by virtue of a legitimate transaction with the last holder. Salazar failed to discharge this burden, and the return of the check
proceeds to Templonuevo was therefore warranted under the circumstances despite the fact that Templonuevo may not have clearly demonstrated that he never
authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the fact that BPI stamped on the back of the checks the words: "All prior
endorsements and/or lack of endorsements guaranteed," thereby making the assurance that it had ascertained the genuineness of all prior endorsements.
Having assumed the liability of a general indorser, petitioner’s liability to the designated payee cannot be denied.

Consequently, BPI, as the collecting bank, had the right to debit Salazar’s account for the value of the checks it previously credited in her favor. However, the
issue of whether it acted judiciously is an entirely different matter. As businesses affected with public interest, and because of the nature of their functions,
banks are under obligation to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship.
In this regard, BPI was clearly remiss in its duty to private respondent Salazar as its depositor.

To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement thereon, BPI permitted the encashment of these
checks three times on three separate occasions. This negates its claim that it merely made a mistake in crediting the value of the checks to Salazar’s account and
instead bolsters the conclusion of the CA that petitioner recognized Salazar’s claim of ownership of checks and acted deliberately in paying the same, contrary to
ordinary banking policy and practice. It must be emphasized that the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for
the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on
this field, and the law thus holds it to a high standard of conduct. The taking and collection of a check without the proper indorsement amount to a
conversion of the check by the bank.

More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge of the brewing dispute between Salazar and Templonuevo,
BPI debited the account held in the name of the sole proprietorship of Salazar without even serving due notice upon her. This ran contrary to BPI’s assurances to
Salazar that the account would remain untouched, pending the resolution of the controversy between her and Templonuevo. For the above reasons, the Court finds
no reason to disturb the award of damages granted by the CA against BPI. This whole incident would have been avoided had BPI adhered to the standard of
diligence expected of one engaged in the banking business. A depositor has the right to recover reasonable moral damages even if the bank’s negligence may not
have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment, and humiliation.

RIGHT OF PRIOR PARTY TO If a prior party reacquires an instrument before maturity, s/he may negotiate the same further.
NEGOTIATE
(Section 50) BUT, s/he is NOT entitled to enforce payment against any intervening party to whom he was personally liable.

CHAPTER IV - RIGHTS OF A HOLDER

RIGHT OF HOLDER99 TO 1) He may sue on the instrument in his own name;
SUE 2) He may receive payment and if payment is in due course, the instrument is discharged.
(Section 51)
WHAT CONSTITUTES A A holder who has taken the instrument under the following conditions (Sec. 52)102:
100
HOLDER IN DUE COURSE (1) That is complete103 and regular upon its face104;
(Section 52)101 (2) That he became a holder of it before it was overdue105, and without notice that it has been previously dishonored, if
99
Recall: The holder of a negotiable instrument means the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof (Sec. 191). The terms includes
not only persons possessing bearer instruments, but also payees and indorsees possessing order instrument.
100
The holder of a non-negotiable instrument cannot attain the status of a holder in due course. He is a mere assignee subject to defenses, acquiring no better rights under the
contract than those possessed by the assignor.
101
HOW TO ANALYZE PROBLEMS:
1. What is the instrument?
2. Is the instrument negotiable? Is it a promissory note? Is it a bill of exchange or a check? Is it an order instrument or bearer instrument?
a. If it is a promissory note, then who is the maker? The payee?
b. If it is a bill of exchange, then who is the drawer? The payee? The drawee bank?
3. Is the holder a holder in due course?
4. What are the defenses available?
102
If any one of the requisites is absent, the holder CANNOT be a holder in due course. Every holder is generally deemed prima facie a holder in due course. He who claims
otherwise has the burden of proof. He who claims otherwise has the burden of proof.
103
Recall: An instrument is incomplete when it is wanting in any material particular or particular proper to be inserted in a negotiable instrument without which the same
will not be complete (Sec. 14).
104
The most common type of irregularity is an alteration in the instrument. To render the instrument irregular, the alternation must be visible or apparent on the face of the
instrument for if it is not apparent, the matter is governed solely by Section 124 which renders the instrument void.
105
An instrument is overdue after the date of maturity.
such was the fact106;
(3) That he took it in good faith107 and for value108; and
(4) 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.109
WHEN PERSON NOT Where an instrument payable on demand is negotiated an unreasonable length of time110, after its issue, the holder is not
DEEMED A HOLDER IN DUE deemed a holder in due course.
COURSE
(Section 53)
NOTICE BEFORE FULL No amount has yet been paid. - Where an instrument has been taken but the purchaser has not yet paid anything, and he
AMOUNT PAID receives notice of infirmity in the instrument or defect in the title of the holder, he is relieved from the obligation to make
(Section 54) payment. He is not entitled to the same protection as a holder in due course.

Amount has been paid. - Where an instrument has been transferred to him in consideration of his promise to make future
payments to his transferor, he is under no legal obligation to pay the balance of the amount he has agreed to pay on
discovering the infirmity or defect. If he does, he can be considered a holder in due course only to the extent of the amount
theretofor paid by him.
WHEN TITLE IS DEFECTIVE The title of a person who negotiates an instrument is defective in two ways:
(Section 55) (1) In the acquisition; or
(2) In the negotiation.

106
This refers to a holder without notice of dishonor. An instrument may be dishonored either by non-acceptance (Sec. 149) or by non-payment (Sec. 83). An overdue or
dishonored instrument may still be negotiated either by indorsement or delivery to the same extent as before maturity, but in the case of the former, the holder cannot be a
holder in due course, while in the case of the latter, the holder without notice can be a holder in due course.
107
It means “honesty in fact in the transaction concerned.” Bad faith, on the other hand, means he must have knowledge of facts which renders it dishonest for him to take a
particular piece of negotiable paper. To show knowledge of such facts that the taking would amount to bad faith, it is not necessary to show knowledge of the exact truth. It is
sufficient that such knowledge tends to show that there was something wrong with the transaction.
108
Recall: Any consideration sufficient to support a simple contract is value, as in Sec. 25, NIL. It is not necessary that the consideration should be adequate.
109
In other to constitute notice, the holder must have had actual or chargeable knowledge of the infirmity or refer or must have had acted in bad faith.
110
As to what constitutes a reasonable time, the law provides that: “regard is to be had to the nature of the instrument, the usage of trade or business with respect to such
instruments, and the facts of the particular case.” (Sec. 193).
ACQUISITION NEGOTIATION
He obtained the instrument or any signature by fraud, He negotiated the instrument in breach of faith, and under
duress, or force, and fear or other unlawful means, or for such circumstances as amount to fraud.
illegal consideration.

WHAT CONSTITUTES The person to whom it is negotiated must have had:

NOTICE OF DEFECT111 (1) actual knowledge of the infirmity or defect112; or
(Section 56) (2) knowledge of such facts113 that his action in taking the instrument amounted to bad faith.
RIGHTS OF HOLDER IN RIGHTS OF A HOLDER IN DUE COURSE114:

DUE COURSE (1) Sue on the instrument in his own name (Sec. 51);
(Section 57) (2) Receive payment and if payment is in due course, the instrument is discharged (Sec. 51);
(3) Holds the instrument free from any defect of title of prior parties;
(4) Holds the instrument free from defenses available to prior parties among themselves; and
(5) Enforce payment of the instrument for the full amount against all parties liable.
WHEN SUBJECT TO In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it

ORIGINAL DEFENSES were non-negotiable.
(Section 58)
But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality
affecting the instrument, has all the rights of such holder in respect of all parties prior to the latter.

X → A → B [HOLDER IN DUE COURSE] → C [HOLDER]
111
Negligence in itself is not sufficient to constitute notice, since it is not the equivalent of actual knowledge or bad faith. Note that, the question of bad faith or good faith
is mostly a question of fact. Mere suspicious circumstances are not enough.
112
Actual knowledge is important, but not of actual facts but of facts that an ordinary person exercising due diligence will recognize that something is wrong.
113
This refers to that which do not appear on the face of the instrument.
114
The defenses are those that are personal defenses. They are cut off by negotiation of the instrument to a holder in due course. As distinguished from real defenses, these
defenses are those that would be available against all persons even against a holder in due course.

X v. C115
For X to be able to raise a personal defense, it must be determined if such is a holder in due course.
● IF HOLDER IN DUE COURSE: LIABLE.
● IF NOT A HOLDER IN DUE COURSE: NOT LIABLE.

At this point, B is no longer a holder; thus, the presumption that every holder is a holder in due course cannot apply to
this case. Thus, C, as a matter of fact, has to prove that B is a holder in due course.

WHEN HOLDER PRESUMED Every holder is deemed prima facie to a holder in
A HOLDER IN DUE COURSE due course.
(Section 59)116
When it is shown that the title of any person who The holder has no burden of proving that he is a holder in due course
has negotiated the instrument was defective, then in favor of a party who became bound on the instrument prior to the
the burden of proof shifts to the holder who must acquisition of such defective title.117
show that he is a holder in due course or that he
acquired his title from a holder in due course,
although he himself is not a holder in due course.

CASE DOCTRINES

1) Chan Wan v. Tan Kim - The Negotiable Instruments law does not provide that a holder who is not a holder in due course, may not in any case, recover on the
instrument. The only disadvantage of a holder who is not a holder in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable.

2) Stelco Marketing v. CA - A holder in due course is a holder who has taken the instrument under the following conditions:
115
What does this mean?
1) C is presumed to be a holder in due course. Recall: Every holder is presumed to be a holder in due course. Who has the burden to prove that he is not a holder in due course?
X.
2) X proves that C has notice of the infirmity/defect, but is not a party thereto. C becomes not a holder in due course.
3) The remedy of C then, because C cannot recover as a holder in due course, is to prove as a matter of fact that B is a holder in due course.
116
This arises only in favor of a person who is a holder in the sense as defined in Section 191, that is a payee or indorsee, who is in possession of the instrument, or bearer
thereof.
117
Simply put, it goes back to the presumption that a holder is a holder in due course.
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value; and
(d) 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 persons negotiating it.

Now, STELCO theorizes that it should be deemed a "holder for value" of STEELWELD's Check because the record shows it to have been in "actual possession" thereof;
otherwise, it "could not have presented, marked and introduced (said check) in evidence before the court a quo." "Besides," it adds, the check in question was presented by
STELCO to the drawee bank for payment through Armstrong Industries, the manufacturing arm of STELCO and its sister company." The trouble is, there is no evidence
whatever that STELCO's possession of Check ever dated back to any time before the instrument's presentment and dishonor. There is no evidence whatsoever that the
check was ever given to it, or indorsed to it in any manner or form in payment of an obligation or as security for an obligation, or for any other purpose before it was
presented for payment. On the contrary, the factual Ending of the Court of Appeals, which by traditional precept is normally conclusive on this Court, is that STELCO
never became a holder for value and that "(n)owhere in the check itself does the name of Stelco Marketing appear as payee, indorsee or depositor thereof."

3) Bataan Cigar v. CA - The Negotiable Instruments Law states what constitutes a holder in due course. Section 59 of the NIL further states that every holder is deemed
prima facie a holder in due course. However, when it is shown that the title of any person who has negotiated the instrument was defective, 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.

It is then settled that crossing of 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. Failing in this respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the Negotiable
Instruments Law, and as such the consensus of authority is to the effect that the holder of the check is not a holder in due course.

In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is to George King. Because, really, the checks were issued with the intention that George
King would supply BCCFI with the bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to
pay the checks. The foregoing does not mean, however, that respondent could not recover from the checks. The only disadvantage of a holder who is not a holder in due
course is that the instrument is subject to defenses as if it were non-negotiable. Hence, respondent can collect from the immediate indorser, in this case, George King.

4) State Investment House v. IAC - Section 52(c) of the Negotiable Instruments Law defines a holder in due course as one who takes the instrument "in good faith and for
value". On the other hand, Section 52(d) provides 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 . . . defect in the title of the person negotiating it." However, under Section 59, every holder is deemed prima facie to be a holder in due course.
Admittedly, the Negotiable Instruments Law regulating the issuance of negotiable checks as well as the rights and liabilities arising therefrom, does not mention "crossed
checks". But this Court has taken cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and
may not be converted into cash. Consequently, such circumstance should put the payee on inquiry and upon him devolves the duty to ascertain the holder's title to the
check or the nature of his possession. Failing in this respect, the payee is declared guilty of gross negligence amounting to legal absence of good faith and as such the
consensus of authority is to the effect that the holder of the check is not a holder in good faith.

The three subject checks in the case at bar had been crossed generally and issued payable to New Sikatuna Wood Industries, Inc. which could only mean that the drawer
had intended the same for deposit only by the rightful person, i.e., the payee named therein. Apparently, it was not the payee who presented the same for payment and
therefore, there was no proper presentment, and the liability did not attach to the drawer. Thus, in the absence of due presentment, the drawer did not become liable.
Consequently, no right of recourse is available to petitioner against the drawer of the subject checks, private respondent wife, considering that petitioner is not the

proper party authorized to make presentment of the checks in question.

Yet it does not follow as a legal proposition that simply because petitioner was not a holder in due course as found by the appellate court for having taken the
instruments in question with notice that the same is for deposit only to the account of payee named in the subject checks, petitioner could not recover on the checks.
The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not in any case recover on the instrument for in the case at bar,
petitioner may recover from the New Sikatuna Wood Industries, Inc. if the latter has no valid excuse for refusing payment. The only disadvantage of a holder who is not
in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable.

That the subject checks had been issued subject to the condition that private respondents on due date would make the back up deposit for said checks but which
condition apparently was not made, thus resulting in the non-consummation of the loan intended to be granted by private respondents to New Sikatuna Wood Industries,
Inc., constitutes a good defense against petitioner who is not a holder in due course.

5) Dino v. Judal-Loot - Section 52 of the Negotiable Instruments Law defines a holder in due course.

In the case of a crossed check, as in this case, the following principles must additionally be considered:
(a) may not be encashed but only deposited in the bank;
(b) may be negotiated only once — to one who has an account with a bank; and
(c) warns the holder that it has been issued for a definite purpose so that the holder thereof must inquire if he has received the check pursuant to that purpose; otherwise, he is
not a holder in due course.

Based on the foregoing, respondents had the duty to ascertain the indorser's, in this case Lobitana's, title to the check or the nature of her possession. This respondents
failed to do. Respondents' verification from Metrobank on the funding of the check does not amount to determination of Lobitana's title to the check. Failing in this
respect, respondents are guilty of gross negligence amounting to legal absence of good faith, contrary to Section 52 (c) of the Negotiable Instruments Law. Hence,
respondents are not deemed holders in due course of the subject check.

However, the fact that respondents are not holders in due course does not automatically mean that they cannot recover on the check. The Negotiable Instruments Law
does not provide that a holder who is not a holder in due course may not in any case recover on the instrument. The only disadvantage of a holder who is not in due
course is that the negotiable instrument is subject to defenses as if it were non-negotiable. Among such defenses is the absence or failure of consideration, which
petitioner sufficiently established in this case. Petitioner issued the subject check supposedly for a loan in favor of Consing's group, who turned out to be a syndicate
defrauding gullible individuals. Since there is in fact no valid loan to speak of, there is no consideration for the issuance of the check. Consequently, petitioner cannot be
obliged to pay the face value of the check. Respondents can collect from the immediate indorser, in this case Lobitana. Significantly, Lobitana did not appeal the trial
court's decision, finding her solidarily liable to pay, among others, the face value of the subject check. Therefore, the trial court's judgment has long become final and
executory as to Lobitana.

6) Hi-Cement Corporation v. IBAA -The Negotiable Instruments Law (NIL), specifically Section 191, provides: "Holder" means the payee or indorsee of a bill or a note, or
the person who is in possession of it, or the bearer thereof.

Absent any of the elements set forth in Section 52, the holder is not a holder in due course. In the case at bar, the last two requirements were not met. Respondent's
claim that it acted in good faith when it accepted and discounted Hi-Cement's postdated crossed checks from E.T. Henry (as payee therein) fails to convince us. Good faith

becomes inconsequential amidst proof of respondent's grossly negligent conduct in dealing with the subject checks. Respondent was all too aware that subject checks
were crossed and bore restrictions that they were for deposit to payee's account only; hence, they could not be further negotiated to it. The records likewise reveal that
respondent completely disregarded a telling sign of irregularity in the re-discounting of the checks when the general manager did not acquiesce to it as only the
treasurer's signature appeared on the deed of assignment. As a banking institution, it behooved respondent to act with extraordinary diligence in every transaction. Its
business is impressed with public interest, thus, it was not expected to be careless and negligent, specially so where the checks it dealt with were crossed.

It must be said that the drawer of the postdated crossed checks was not liable to the holder who was deemed not a holder in due course. The NIL does not absolutely bar
a holder who is not a holder in due course from recovering on the checks. It may then recover from the party who indorsed/encashed the checks "if the latter has no valid
excuse for refusing payment." Here, there was no doubt that it was E.T. Henry that re-discounted Hi-Cement's checks and received their value from respondent. Since E.T.
Henry had no justification to refuse payment, it should pay respondent.

7) State Investment House v. CA - A prima facie presumption exists that the holder of a negotiable instrument is a holder in due course. Consequently, the burden of
proving that STATE is not a holder in due course lies in the person who disputes the presumption. In this regard, MOULIC failed. The evidence clearly shows that: (a) on
their faces the post-dated checks were complete and regular; (b) petitioner bought these checks from the payee, Corazon Victoriano, before their due dates; (c) petitioner
took these checks in good faith and for value, albeit at a discounted price; and, (d) petitioner was never informed nor made aware that these checks were merely issued
to payee as security and not for value.

Consequently, STATE is indeed a holder in due course. As such, it holds the instruments free from any defect of title of prior parties, and from defenses available to prior
parties among themselves; STATE may, therefore, enforce full payment of the checks. MOULIC cannot set up against STATE the defense that there was failure or absence
of consideration. MOULIC can only invoke this defense against STATE if it was privy to the purpose for which they were issued and therefore is not a holder in due course.

8) Banco Atlantico v. Auditor General - The fact that the payee of a check payable on demand requested the encashing bank to defer the presentment for collection of the
same to the drawee bank to a later date, is an indication of an infirmity in the instrument or defect in the title of the person negotiating it, so that the encashing bank
cannot be considered a holder in due course.

9) Salas v. CA - Under the circumstances, there appears to be no question that Filinvest is a holder in due course, having taken the instrument under the following
conditions: [a] it is complete and regular upon its face; [b] it became the holder thereof before it was overdue, and without notice that it had previously been dishonored;
[c] it took the same in good faith and for value; and [d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the instrument or defect in the
title of VMS Corporation.

Accordingly, respondent corporation holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among
themselves, and may enforce payment of the instrument for the full amount thereof. This being so, petitioner cannot set up against respondent the defense of nullity of
the contract of sale between her and VMS.

10) Consolidated Plywood v. IFC Leasing - Considering that the subject promissory note is not a negotiable instrument, it follows that the respondent can never be a
holder in due course but remains a mere assignee of the note in question. Thus, the petitioner may raise against the respondent all defenses available to it as against the
seller-assignor, Industrial Products Marketing.

This being so, there was no need for the petitioner to implead the seller-assignor when it was sued by the respondent-assignee because the petitioner's defenses apply

to both or either of them. Actually, the records show that even the respondent itself admitted to being a mere assignee of the promissory note in question.

Even conceding for purposes of discussion that the promissory note in question is a negotiable instrument, the respondent cannot be a holder in due course for a more
significant reason. The evidence presented in the instant case shows that prior to the sale on installment of the tractors, there was an arrangement between the
seller-assignor, Industrial Products Marketing, and the respondent whereby the latter would pay the seller-assignor the entire purchase price and the seller-assignor, in
turn, would assign its rights to the respondent which acquired the right to collect the price from the buyer, herein petitioner Consolidated Plywood Industries, Inc.

A mere perusal of the Deed of Sale with Chattel Mortgage with Promissory Note, the Deed of Assignment and the Disclosure of Loan/Credit Transaction shows that said
documents evidencing the sale on installment of the tractors were all executed on the same day by and among the buyer, which is herein petitioner Consolidated
Plywood Industries, Inc.; the seller-assignor which is the Industrial Products Marketing; and the assignee-financing company, which is the respondent. Therefore, the
respondent had actual knowledge of the fact that the seller-assignor's right to collect the purchase price was not unconditional, and that it was subject to the condition
that the tractors sold were not defective. The respondent knew that when the tractors turned out to be defective, it would be subject to the defense of failure of
consideration and cannot recover the purchase price from the petitioners. Even assuming for the sake of argument that the promissory note is negotiable, the
respondent, which took the same with actual knowledge of the foregoing facts so that its action in taking the instrument amounted to bad faith, is not a holder in due
course. As such, the respondent is subject to all defenses which the petitioners may raise against the seller-assignor. Any other interpretation would be most inequitous
to the unfortunate buyer who is not only saddled with two useless tractors but must also face a lawsuit from the assignee for the entire purchase price and all its
incidents without being able to raise valid defenses available as against the assignor.

Lastly, the respondent failed to present any evidence to prove that it had no knowledge of any fact, which would justify its act of taking the promissory note as not
amounting to bad faith.

11) Sps. Violago v. BA Finance Corporation - In addressing the threshold issue of whether BA Finance is a holder in due course of the promissory note, it must be
determined whether the note is a negotiable instrument and, hence, covered by the NIL. In their appeal to the CA, petitioners argued that the promissory note is a
negotiable instrument and that the provisions of the NIL, not the Civil Code, should be applied. In the present petition, however, petitioners claim that Article 1318 of
the Civil Code should be applied since their consent was vitiated by fraud, and, thus, the promissory note does not carry any legal effect despite its negotiation. Either
way, the petitioners' arguments deserve no merit. The promissory note is clearly negotiable.

The promissory note clearly satisfies the requirements of a negotiable instrument under the NIL. It is in writing; signed by the Violago spouses; has an unconditional
promise to pay a certain amount, i.e., PhP209,601, on specific dates in the future which could be determined from the terms of the note; made payable to the order of
VMSC; and names the drawees with certainty. The indorsement by VMSC to BA Finance appears likewise to be valid and regular.

The more important issue now is whether or not BA Finance is a holder in due course. The resolution of this issue will determine whether petitioners' defense of fraud
and nullity of the sale could validly be raised against respondent corporation. The law presumes that a holder of a negotiable instrument is a holder thereof in due
course. In the present recourse, on its face, (a) the "Promissory Note" , Exhibit "A", is complete and regular; (b) the "Promissory Note" was endorsed by the VMSC in favor of
the Appellee; (c) the Appellee, when it accepted the Note, acted in good faith and for value; (d) the Appellee was never informed, before and at the time the "Promissory
Note" was endorsed to the Appellee, that the vehicle sold to the Defendants-Appellants was not delivered to the latter and that VMSC had already previously sold the
vehicle to Esmeraldo Violago. Although Jose Olvido mortgaged the vehicle to Generoso Lopez, who assigned his rights to the BA Finance Corporation (Cebu Branch), the
same occurred only on May 8, 1987, much later than August 4, 1983, when VMSC assigned its rights over the "Chattel Mortgage" by the Defendants-Appellants to the
Appellee. Hence, Appellee was a holder in due course.

In the hands of one other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. A holder in due course,
however, holds the instrument free from any defect of title of prior parties and from defenses available to prior parties among themselves, and may enforce payment of
the instrument for the full amount thereof. Since BA Finance is a holder in due course, petitioners cannot raise the defense of non-delivery of the object and nullity of the
sale against the corporation. The NIL considers every negotiable instrument prima facie to have been issued for a valuable consideration. In Salas, we held that a party
holding an instrument may enforce payment of the instrument for the full amount thereof. As such, the maker cannot set up the defense of nullity of the contract of sale.
Thus, petitioners are liable to respondent corporation for the payment of the amount stated in the instrument.

12) BPI v. Roxas - As a general rule, every holder is presumed prima facie to be a holder in due course. One who claims otherwise has the onus probandi to prove that one
or more of the conditions required to constitute a holder in due course are lacking. In this case, petitioner contends that the element of "value" is not present, therefore,
respondent could not be a holder in due course.

In Walker Rubber Corp. v. Nederlandsch Indische & Handelsbank, N.V. and South Sea Surety & Insurance Co., Inc., 2 this Court ruled that value "in general terms may be some
right, interest, profit or benefit to the party who makes the contract or some forbearance, detriment, loan, responsibility, etc. on the other side." Here, there is no dispute
that respondent received Rodrigo Cawili's cashier's check as payment for the former's vegetable oil. The fact that it was Rodrigo who purchased the cashier's check from
petitioner will not affect respondent's status as a holder for value since the check was delivered to him as payment for the vegetable oil he sold to spouses Cawili. Verily,
the Court of Appeals did not err in concluding that respondent is a holder in due course of the cashier's check.

Furthermore, it bears emphasis that the disputed check is a cashier's check. In International Corporate Bank v. Spouses Gueco, this Court held that a cashier's check is really
the bank's own check and may be treated as a promissory note with the bank as the maker. The check becomes the primary obligation of the bank which issues it and
constitutes a written promise to pay upon demand. In New Pacifiic Timber & Supply Co. Inc. v. Señeris, this Court took judicial notice of the "well-known and accepted
practice in the business sector that a cashier's check is deemed as cash." This is because the mere issuance of a cashier's check is considered acceptance thereof. In view
of the above pronouncements, petitioner bank became liable to respondent from the moment it issued the cashier's check. Having been accepted by respondent, subject
to no condition whatsoever, petitioner should have paid the same upon presentment by the former.

13) De Ocampo v. Gatchalian - Section 52, Negotiable Instruments Law, defines holder in due course.

The stipulation of facts expressly states that plaintiff-appellee was not aware of the circumstances under which the check was delivered to Manuel Gonzales, but it is
forwarded that the defendants-appellants that the circumstances indicated by them in their briefs, such as the fact that appellants had no obligation or liability to the
Ocampo Clinic; that the amount of the check did not correspond exactly with the obligation of Matilde Gonzales to Dr. V. R. de Ocampo; and that the check had two
parallel lines in the upper left hand corner, which practice means that the check could only be deposited but may not be converted into cash — all these circumstances
should have put the plaintiff-appellee to inquiry as to the why and wherefore of the possession of the check by Manuel Gonzales, and why he used it to pay Matilde's
account. 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. Having
failed in this respect, plaintiff-appellee was guilty of gross neglect in not finding out the nature of the title and possession of Manuel Gonzales, amounting to legal
absence of good faith, and it may not be considered as a holder of the check in good faith, to such effect is the consensus of authority.

Section 52 (c) provides that a holder in due course is one who takes the instrument "in good faith and for value;" Section 59, "that every holder is deemed prima facie to
be a holder in due course;" and Section 52 (d), 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 . . . defect in the title of the person negotiating it;" and lastly Section 59, that every holder is deemed prima facie to be a holder in due course.
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), because the instrument is not payable to him or to bearer. On the other hand, the stipulation of facts indicated by the appellants in their brief, like
the fact that the drawer had no account with the payee; that the holder did not show or tell the payee why he had the 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, to say the least. As holder's title was defective or suspicious, it cannot
be stated that the payee acquired the check without knowledge of said defect in holder's title, 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. And having presented no evidence that it acquired the check in good faith, it (payee) cannot be considered as a
holder in due course.

In other words, under the circumstances of the case, instead of the presumption that payee was a holder in good faith, 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. The burden was, therefore, placed upon it
to show that notwithstanding the suspicious circumstances, it acquired the check in actual good faith.

As the payee acquired the check under circumstances which should have put it to inquiry, why the holder had the check and used it to pay his own personal account, the
duty devolved upon it, plaintiff-appellee, to prove that it actually acquired said check in good faith. The stipulation of facts contains no statement of such good faith,
hence plaintiff payee has not proved that it acquired the check in good faith and may not be deemed a holder in due course thereof.

14) Yang v. CA - Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this presumption arises only in favor of a person who is a
holder as defined in Section 191 of the Negotiable Instruments Law, meaning a "payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof."

In the present case, it is not disputed that David was the payee of the checks in question. The weight of authority sustains the view that a payee may be a holder in due
course. Hence, the presumption that he is a prima facie holder in due course applies in his favor. However, said presumption may be rebutted. Hence, what is vital to the
resolution of this issue is whether David took possession of the checks under the conditions provided for in Section 52 of the Negotiable Instruments Law. All the
requisites provided for in Section 52 must concur in David's case, otherwise he cannot be deemed a holder in due course.

The petitioner's challenge to David's status as a holder in due course hinges on two arguments: (1) the lack of proof to show that David tendered any valuable consideration
for the disputed checks; and (2) David's failure to inquire from Chandiramani as to how the latter acquired possession of the checks, thus resulting in David's intentional ignorance
tantamount to bad faith. In sum, petitioner posits that the last two requisites of Section 52 are missing, thereby preventing David from being considered a holder in due
course. Unfortunately for the petitioner, her arguments on this score are less than meritorious and far from persuasive.

First, with respect to consideration, Section 24 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the same for a
consideration or for value. Thus, the law itself creates a presumption in David's favor that he gave valuable consideration for the checks in question. In alleging
otherwise, the petitioner has the onus to prove that David got hold of the checks absent said consideration. In other words, the petitioner must present convincing
evidence to overthrow the presumption. Our scrutiny of the records, however, shows that the petitioner failed to discharge her burden of proof. The petitioner's averment
that David did not give valuable consideration when he took possession of the checks is unsupported, devoid of any concrete proof to sustain it. Note that both the trial
court and the appellate court found that David did not receive the checks gratis, but instead gave Chandiramani US$360,000.00 as consideration for the said instruments.
Factual Andings of the Court of Appeals are conclusive on the parties and not reviewable by this Court; they carry great weight when the factual findings of the trial
court are affirmed by the appellate court.

Second, 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.
David was not privy to the transaction between petitioner and Chandiramani. Instead, Chandiramani and David had a separate dealing in which it was precisely

Chandiramani's duty to deliver the checks to David as payee. The evidence shows that Chandiramani performed said task to the letter. 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. At that time, David was not aware of any "stop payment" order. Under these circumstances, David thus had no obligation to
ascertain from Chandiramani what the nature of the latter's title to the checks was, if any, or the nature of his possession. Thus, the Court cannot hold him guilty of gross
neglect amounting to legal absence of good faith, absent any showing that there was something amiss about Chandiramani's acquisition or possession of the checks.
David did not close his eyes deliberately to the nature or the particulars of a fraud allegedly committed by Chandiramani upon the petitioner, absent any knowledge on
his part that the action in taking the instruments amounted to bad faith.

The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of Commerce makes reference to such instruments. Nonetheless, this Court
has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and not converted
into cash. The effects of crossing a check, thus, relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person,
i.e., the payee named therein. In Bataan Cigar, the rediscounting of the check by the payee knowingly violated the avowed intention of crossing the check. Thus, in
accepting the cross checks and paying cash for them, despite the warning of the crossing, the subsequent holder could not be considered in good faith and thus, not a
holder in due course. The ruling in Bataan Cigar reiterates that in De Ocampo & Co. v. Gatchalian. The factual circumstances in De Ocampo and in Bataan Cigar are not
present in this case. For here, there is no dispute that the crossed checks were delivered and duly deposited by David, the payee named therein, in his bank account. In
other words, the purpose behind the crossing of the checks was satisfied by the payee.

15) Patrimonio v. Gutierrez -Section 52 (c) of the NIL states that a holder in due course is one who takes the instrument "in good faith and for value." It also provides in
Section 52 (d) that in order that one may be a holder in due course, it is necessary 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. Acquisition in good faith means taking without knowledge or notice of equities of any sort which could be
set up against a prior holder of the instrument. It means that he does not have any knowledge of fact which would render it dishonest for him to take a negotiable
paper. The absence of the defense, when the instrument was taken, is the essential element of good faith.

In the present case, Marasigan's knowledge that the petitioner is not a party or a privy to the contract of loan, and correspondingly had no obligation or liability to him,
renders him dishonest, hence, in bad faith.

Since he knew that the underlying obligation was not actually for the petitioner, the rule that a possessor of the instrument is prima facie a holder in due course is
inapplicable. As correctly noted by the CA, his inaction and failure to verify, despite knowledge of that the petitioner was not a party to the loan, may be construed as
gross negligence amounting to bad faith.

Yet, it does not follow that simply because he is not a holder in due course, Marasigan is already totally barred from recovery. The NIL does not provide that a holder who
is not a holder in due course may not in any case recover on the instrument. The only disadvantage of a holder who is not in due course is that the negotiable instrument
is subject to defenses as if it were non-negotiable. Among such defenses is the filling up blank not within the authority.

Gutierrez has exceeded the authority to fill up the blanks and use the check. To repeat, petitioner gave Gutierrez pre-signed checks to be used in their business provided
that he could only use them upon his approval. His instruction could not be any clearer as Gutierrez' authority was limited to the use of the checks for the operation of
their business, and on the condition that the petitioner's prior approval be first secured. While under the law, Gutierrez had a prima facie authority to complete the check,
such prima facie authority does not extend to its use (i.e., subsequent transfer or negotiation) once the check is completed. In other words, only the authority to complete
the check is presumed. Further, the law used the term "prima facie" to underscore the fact that the authority which the law accords to a holder is a presumption juris

tantum only; hence, subject to subject to contrary proof. Thus, evidence that there was no authority or that the authority granted has been exceeded may be presented by
the maker in order to avoid liability under the instrument. In the present case, no evidence is on record that Gutierrez ever secured prior approval from the petitioner to
fill up the blank or to use the check.

Notably, Gutierrez was only authorized to use the check for business expenses; thus, he exceeded the authority when he used the check to pay the loan he supposedly
contracted for the construction of petitioner's house. This is a clear violation of the petitioner's instruction to use the checks for the expenses of Slam Dunk. It cannot
therefore be validly concluded that the check was completed strictly in accordance with the authority given by the petitioner.

Considering that Marasigan is not a holder in due course, the petitioner can validly set up the personal defense that the blanks were not filled up in accordance with the
authority he gave. Consequently, Marasigan has no right to enforce payment against the petitioner and the latter cannot be obliged to pay the face value of the check.

16) Mesina v. IAC - Theories and examples advanced by petitioner on causes and effects of a cashier's check such as 1) it cannot be countermanded in the hands of a holder
in due course and 2) a cashier's check is a bill of exchange drawn by the bank against itself — are general principles which cannot be aptly applied to the case at bar, without
considering other things. 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. Admittedly, petitioner became the holder of the cashier's check as endorsed by Alexander Lim who stole the check. He refused to say how and why it was
passed to him. He had therefore notice of the defect of his title over the check from the start. 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.

If a payee of a cashier's check obtained it from the issuing bank by fraud, or if there is some other reason why the payee is not entitled to collect the check, the
respondent bank would, of course, have the right to refuse payment of the check when presented by the payee, since respondent bank was aware of the facts
surrounding the loss of the check in question. Moreover, there is no similarity in the cases cited by petitioner since respondent bank did not issue the cashier's check in
payment of its obligation. Jose Go bought it from respondent bank for purposes of transferring his funds from respondent bank to another bank near his establishment
realizing that carrying money in this form is safer than if it wherein cash. The check was Jose Go's property when it was misplaced or stolen hence he stopped its
payment. At the outset, respondent bank knew it was Jose Go's check and no one else since Go had not paid or indorsed it to anyone. The bank was therefore liable to
nobody on the check but Jose Go. The bank had no intention to issue it to petitioner but only to buyer Jose Go. When payment on it was therefore stopped, respondent
bank was not the one who did it but Jose Go, the owner of the check. Respondent bank could not be drawer and drawee for clearly, Jose Go owns the money it represents
and he is therefore the drawer and the drawee in the same manner as if he has a current account and he issued a check against it; and from the moment said cashier's
check was lost and or stolen no one outside of Jose Go can be termed a holder in due course because Jose Go had not indorsed it in due course. The check in question
suffers from the infirmity of not having been properly negotiated and for value by respondent Jose Go who as already been said is the real owner of said instrument.

17) Asia Banking Corporation v. Ten Sen Guan - Plaintiff alleges that it is the holder of the draft for value and in due course of business. The testimony upon that point is
not clear or convincing, and is entitled to but little weight. If it be a fact, as the plaintiff claims, that it was in good faith the purchaser of the draft, it would have been a
very easy matter to establish that fact by competent evidence, showing the nature of the transaction in its New York office, when and how it acquired the draft and when
and to whom it paid the money and how much it paid the money and how much it paid and by whom it was actually paid. In other words, to give an authentic account of
the whole transactions. There is no such evidence in the record. Upon that point the plaintiff was content to call a local employee of the bank who testified as to the
alleged meaning of certain entries made in the bank records. Standing alone that is not sufficient or competent to show that standing alone that is not sufficient or
competent to show that the bank in New York was the purchaser and holder for value. If it be a fact, as the evidence tends to show, that the plaintiff is not a bona fide
holder of the draft, and that it was held for collection only, it follows that the defendants would have a right to make any defense to the draft which would have a right
to make against "Snow's Ltd."

The trial court found and the evidence sustains the finding that the acceptance of the draft by the defendants was conditional, and that oral evidence was admissible to
explain the terms and conditions of the acceptance. That would specially be true where the plaintiff held the draft for collection. It also found, in legal effect, that the
plaintiff released and discharged the defendants from any liability upon the draft, and the evidence sustains that finding. It will be noted that the original draft was
dated May 12, 1920, payable ninety days after sight, and that it was accepted by the defendants on June 28, 1920, and that the complaint was filed on August 4, 1921,
more than fourteen months after it was accepted and almost one year after it became due.

The Court is not impressed with plaintiff's case on the merits. The record indicates that in truth and in fact the plaintiff held the draft for collection; that relying upon the
statements and representations of the plaintiff, the defendants conditionally accepted the draft; that immediately upon discovery of the fraud the defendants promptly
notified the bank. Its then officials recognized the fraud and the conditional acceptance of the draft, and accepted the return of the papers and the "burlap," and agreed to
release the defendants from all liability. There is no merit in plaintiffs claim that it is an innocent holder for value.

18) RCBC Savings Bank v. Odrada - As can be gleaned in a long line of cases decided by this Court, a manager's check is accepted by the bank upon its issuance. As
compared to an ordinary bill of exchange where acceptance occurs after the bill is presented to the drawee, the distinct feature of a manager's check is that it is accepted
in advance. Notably, the mere issuance of a manager's 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 drawee bank, as a result, has the unconditional obligation to pay a manager's check to a holder in due course
irrespective of any available personal defenses. However, while this Court has consistently held that a manager's check is automatically accepted, a holder other than a
holder in due course is still subject to defenses.

In International Corporate Bank, this Court considered whether the holder presented the manager's check within a reasonable time after its issuance — a circumstance
required for holding the instrument in due course. Similarly, in Rizal Commercial Banking Corporation v. Hi-Tri Development Corporation, the Court observed that the mere
issuance of a manager's check does not ipso facto work as an automatic transfer of funds to the account of the payee. In order for the holder to acquire title to the
instrument, there still must have been effective delivery. Accordingly, the Court, taking exception to the manager's check automatic transfer of funds to the payee,
declared that: "the doctrine that the deposit represented by a manager's check automatically passes to the payee is inapplicable, because the instrument — although
accepted in advance remains undelivered." This Court ruled that the holder did not acquire the instrument in due course since title had not passed for lack of delivery.

The question now becomes: if the holder of a manager's check is not a holder in due course, can the drawee bank interpose a personal defense of the purchaser?

In Mesina, Jose Go purchased a manager's check from Associated Bank. As he left the bank, Go inadvertently left the check on top of the desk of the bank manager. The
bank manager entrusted the check for safekeeping to another bank official who at the time was attending to a customer named Alexander Lim. After the bank official
answered the telephone and returned from the men's room, the manager's check could no longer be found. After learning that his manager's check was missing, Go
immediately returned to the bank to give a stop payment order on the check. A third party named Marcelo Mesina deposited the manager's check with Prudential Bank
but the drawee bank sent back the manager's check to the collecting bank with the words "payment stopped." When asked how he obtained the manager's check, Mesina
claimed it was paid to him by Lim in a "certain transaction." While this Court acknowledged the general causes and effects of a manager's check, it noted that other
factors were needed to be considered, namely the manner by which Mesina acquired the instrument.

Ultimately, the notice of defect affected Mesina's claim as a holder of the manager's check. This Court ruled that the issuing bank could validly refuse payment because
Mesina was not a holder in due course. Unequivocally, the Court declared: "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."

[T]he drawee bank of a manager's check then may interpose personal defenses of the purchaser of the manager's check if the holder is not a holder in due course. In
short, the purchaser of a manager's check may validly countermand payment to a holder who is not a holder in due course. Accordingly, the drawee bank may refuse to
pay the manager's check by interposing a personal defense of the purchaser. Hence, the resolution of the present case requires a determination of the status of Odrada as
holder of the manager's checks.

In this case, the Court of Appeals gravely erred when it considered Odrada as a holder in due course. To be a holder in due course, the law requires that a party must
have acquired the instrument in good faith and for value.

Good faith means that the person taking the instrument has acted with due honesty with regard to the rights of the parties liable on the instrument and that at the time
he took the instrument, the holder has no knowledge of any defect or infirmity of the instrument. To constitute notice of an infirmity in the instrument or defect in the
title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that
his action in taking the instrument would amount to bad faith.

Value, on the other hand, is defined as any consideration sufficient to support a simple contract.

In the present case, Odrada attempted to deposit the manager's checks on 16 April 2002, a day after Lim had informed him that there was a serious problem with the
Montero. Instead of addressing the issue, Odrada decided to deposit the manager's checks. Odrada's actions do not amount to good faith. Clearly, Odrada failed to make
an inquiry even when the circumstances strongly indicated that there arose, at the very least, a partial failure of consideration due to the hidden defects of the Montero.
Odrada's action in depositing the manager's checks despite knowledge of the Montero's defects amounted to bad faith. Moreover, when Odrada redeposited the
manager's checks on 19 April 2002, he was already formally notified by RCBC the previous day of the cancellation of Lim's auto loan transaction. Following UCPB, RCBC
may refuse payment by interposing a personal defense of Lim — that the title of Odrada had become defective when there arose a partial failure or lack of consideration.
RCBC acted in good faith in following the instructions of Lim. The records show that Lim notified RCBC of the defective condition of the Montero before Odrada
presented the manager's checks. Lim informed RCBC of the hidden defects of the Montero including a misaligned engine, smashed condenser, crippled bumper support,
and defective transmission. RCBC also received a formal notice of cancellation of the auto loan from Lim and this prompted RCBC to cancel the manager's checks since
the auto loan was the consideration for issuing the manager's checks. RCBC acted in good faith in stopping the payment of the manager's checks.

Section 58 of the Negotiable Instruments Law provides: "In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same
defenses as if it were non-negotiable. . . . ." Since Odrada was not a holder in due course, the instrument becomes subject to personal defenses under the Negotiable
Instruments Law. Hence, RCBC may legally act on a countermand by Lim, the purchaser of the manager's checks.


CHAPTER V - LIABILITIES OF PARTIES

LIABILITIES118 OF
MAKER, DRAWER, &
LIABILITY OF A MAKER119 LIABILITY OF A DRAWER120 LIABILITY OF A DRAWEE/ACCEPTOR
ACCEPTOR
(Sec. 60) (Sec. 61) (Sec. 62)
(Sections 60 - 62)
(1) Engages that he will pay it (1) Admits the existence of the payee Before acceptance, a drawee is NOT
according to its tenor121; and and his then capacity to indorse123; liable.125
(2) Admits the existence of the payee (2) Engages124:
and his then capacity122 to indorse. (a) On due presentment, the After acceptance, the acceptor is primarily
instrument will be paid or bound for he:
accepted, or both, according to (1) Engages that he will pay it according
its tenor; to the tenor of his acceptance; and
(b) That if dishonored, and the (2) Admits:
necessary proceedings on (a) The (1) existence of the drawer,
dishonor be duly taken, he will (2) the genuineness of his
118
Liability refers to, the obligation of a party to a negotiable instrument to pay the same according to its terms. Recall: There is a difference between primary and
secondary liability. The maker is with unconditional promise to pay, while the drawer is with unconditional order to pay; thus, the drawer is ordering someone else to pay
and is not saying that “I’m going to pay!” at the onset. Because of this, the liability of the maker is primary and the drawer’s liability is secondary. (Indorsers are also
secondarily liable.)
119
This applies only to the promissory note. It includes an accommodation maker and a surety who signs as a maker.
120
The drawer is secondarily liable, because under Sec. 61, before you can go to the drawer, it states that if it be dishonored and the necessary proceedings on dishonor be
duly taken, so you cannot go directly to the drawer; it has to be dishonored first, either by non-acceptance or non-payment, and the necessary proceedings for dishor must
be gone through.
121
The maker is a party primarily liable as he is the one to whom the holder will look first for payment and the one who is expected to pay. By engaging to pay the note
according to its tenor, subject to no condition whatsoever, he promises to pay not only to the payee but to any subsequent holder who is legally entitled to the instrument at its
maturity, even if the holder does not demand payment.
122
Refers to, capacity at the time of signing the note.
123
Same as a maker.
124
The drawer does not promise to pay the bill absolutely. He makes no warranty, but engages to pay after certain conditions are complied with.
125
What is the nature of the liability of the drawee? NONE. Unless the drawee accepts, he owes no duty to either the payee or other holder; his only obligation is to the
drawer to pay in accordance with the latter’s orders.
pay the amount to the holder, or signature, and (3) his capacity
to any subsequent indorser who and authority to draw the
may be compelled to pay it. instrument; and
(b) The existence of the payee and
The drawer may insert in the his then capacity to indorse.
instrument an express stipulation
negativing or limiting his own liability.
(e.g., “I shall not be liable in case of
non-payment or non-acceptance”)

DISTINCTION BETWEEN MAKER AND DRAWER
MAKER DRAWER
Issues a promissory note. Issues a bill of exchange.

Primarily liable. Only secondarily liable.

Cannot negative or limit his liability.126 Can negative or limit his liability.

CASE DOCTRINES (Sec. 60)

1) PNB v. Maza & Mecenas - From the pleadings and the stipulation of facts, it is deduced that the defendants admit the genuineness and due execution of the
instruments sued on. Neither do the appellants point out any mistake in regard to the amount and interest that the lower court sentenced them to pay to the plaintiff
bank. Predicated on these premises, from whatever point of view we look at the case, the defendants are liable.

On the first assumption that Maza and Mecenas were the principals and Echaus the agent, as argued by counsel for the appellee, the principals must fulfill their
obligations. On another assumption, which is a fact, that the defendants are exactly what they appear to be, the makers of the negotiable instruments, then they must
keep their engagement and must pay as promised. Their liability on the instruments is primary and unconditional. (Negotiable Instruments Law, Act No. 2031, sec. 60.)

The most plausible and reasonable stand for the defendants is that they are accommodation parties. But as accommodation parties, the defendants having signed the
instruments without receiving value therefor and for the purpose of lending their names to some other person, are still liable on the instruments. The law now is that the
126
This makes sense, because there is an unconditional promise to pay.
accommodation party can claim no benefit as such, but he is liable according to the face of his undertaking, the same as if he were himself financially interested in the
transaction. (Negotiable Instruments Law, Act No. 2031, sec 29; First Nat. Bank of Elgin vs. Bach [1920], 98 Ore., 332.)

The defense is made to the action that the defendants never received the value of the promissory notes. It is, of course, fundamental that an instrument given without
consideration does not create any obligation at law or in equity in favor of the payee. However, to fasten liability upon an accommodation maker, it is not necessary that
any consideration should move to him. 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. While perhaps unnecessary to this decision, it may properly be remarked that when the accommodation parties make payment to
the holder of the notes, they have the right to sue the accommodated party for reimbursement, since the relation between them is in effect that of principal and sureties,
the accommodation parties being the sureties.

2) Araneta v. Perez - The promissory note signed by appellant clearly states that he agreed to pay Araneta or order the sum of P3,700 on October 13, 1961 and if the
same is not paid on said date to pay 9% interest thereon per annum until fully paid, plus the sum of P370 as attorney's fees, in addition to the costs and other
disbursements taxable under the Rules of Court. Under these terms, it is clear that appellant bound himself to pay personally said promissory note which he cannot shift
to another without the consent of the payee. Such is the undertaking of the maker. Indeed, Section 60 of the Negotiable Instruments Law provides that "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," so that
appellant cannot now escape liability as maker by alleging that he spent the money for the medical treatment of his daughter since it is not the payee's concern to know
how said proceeds should be spent. That is the sole concern of the maker. Payee's interest is merely to see that the note be paid according to its terms.

Neither can appellant escape liability by resorting to the expedient that appellee, by moving for judgment on the pleadings, is deemed to have admitted the material
allegations of his answer, for the reason that said allegations are irrelevant and have no bearing whatsoever on appellant's personal liability. In this connection, it is meet
to recall that appellant, after admitting the execution of the promissory note and his failure to pay it despite demand thereof, made averments which in substance had
the effect of a recoupment of what he had spent against any share in the trust fund that may come to the minor for whose benefit he claims to have spent the money.
Thus, he made the following affirmative defenses: that Doña Angela Tuason died in 1948 leaving estate worth P5 million pesos 2/9 of which she left in trust for the benefit of
the children of said Angela Tuason under the administration of appellee Araneta; that the will was prepared by Araneta; that the estate is now worth one million pesos and
despite thereof Araneta professed inability to pay the allowance of P18,000.00 a year due the beneficiaries; that Araneta sold some income - producing properties of the trust and
speculated with trust funds in the stock market; that appellant had to advance certain expenses for the minors and secure for them properties worth at least a quarter of a million
pesos; that the two bene?ciaries are for unknown reasons short of funds so that appellant had to borrow the sum of P3,700.00 for the medical treatment of minor Angela Perez y
Tuason; that appellant asked the trustee to advance said amount with the concurrence of the bene?ciaries but the trustee refused though he offered to lend the money out of his
own pocket, and so appellant executed the promissory note in question.

It is clear that insofar as the personal liability of appellant Perez on the promissory note is concerned, which he admittedly executed for value in favor of appellee
Araneta, all the above recited allegations are irrelevant and immaterial and cannot tender any issue that will affect his personal liability under the note. And this is so
because the allegation regarding the existence of the trust and its mismanagement on the part of appellee Araneta as trustee, certainly, has nothing to do with the
money lent by him to appellant. Neither has the allegation that the proceeds of the note was spent by appellant for the medical treatment of minor Angela anything to
do with his personal obligation because the destination of the proceeds of said note is certainly not the concern of Araneta.

3) Tan Tua Sia v. Yu Biao - There is no question regarding the genuineness of the signature on the note. The appellant testified in court that the signature appearing
thereon was his own; that Yu Biao Sontua asked him to sign the note in favor of the widow of Sebastian Yu Sittian, in connection with the interest of Tan Tua Sia in Yu
Biao Sontua Hermanos y Cia.; and that the period of the note was for 5 years.

The Court agrees with the trial court that the appellant's testimony is not competent to show that he was deceived by Yu Biao Sontua at the time he signed the
promissory note. He had the note in his possession, and he knew, because Yu Biao Sontua had told him so, that the note he was about to sign concerned Tan Tua Sia's
interest in the partnership Yu Biao Sontua Hermanos y Cia., and this was stated in the document Exhibit B, mentioned in said note; and he cannot now validly allege that
he did not read the first page or did not know the contents of the document he signed. Inasmuch as he is of age and a businessman at that, he is presumed to have acted
with due care, and to have signed the document in question with full knowledge of its contents. And this presumption of law is not overcome by the evidence adduced by
the appellant, which consists of his own testimony, as held by the trial court.

There being no evidence of the alleged fraud, and the appellant having recognized the genuineness of his signature on the promissory note in question, the same must
have the desired legal effect. (Hill vs. Veloso, 31 Phil., 160.) The appellant stated under cross-examination that he himself made no payment on account of the note in
question by way of interest or otherwise, although he added that Yu Biao Sontua had paid the interest. The court found that the defendants did not make payment of the
interest within the period stipulated in the contract, and this Anding has not been assailed by the appellant in his assignments of error. Therefore, the appellant cannot
avoid the performance of the obligation he contracted by signing the note in question.


1) Banco Atlantico v. Auditor General - The record shows that the check dated October 31, 1968 and payable to Azucena Pace was intended to be issued for the sum of
US$109.10 for the payment of said payee's salary as consular clerk in the Philippine Embassy in Madrid for the second half of October, 1968 as shown in the Embassy's
General Payroll. It also appears that the check dated November 2, 1968 was to be issued for the amount of US$75 in reimbursement of Virginia Boncan's living quarters
allowance for November 1968 as shown in Cash Voucher No. MA-132/69. There is also a showing that on November 8, 1968, Virginia Boncan cashed with the petitioner a
check for US$90,000 dated November 5, 1968 drawn on the Philippine National Bank branch at New York City, and although said check was payable on demand, Virginia
Boncan asked that the same be not presented for collection until a later date.

The petitioner paid the amounts of the 3 checks question to Virginia Boncan without previously clearing the said checks with the drawee bank, Philippine National Bank,
New York. This is contrary to normal or ordinary banking practice specially so where the drawee bank is a foreign bank and the amounts involved were large. The drawer
of the aforementioned checks was not even a client of the petitioner.

There is a showing that Virginia Boncan enjoyed special treatment from the employees and chiefs of the petitioner's foreign department. It was probably because of this
special relationship that the petitioner, in disregard of the elementary principles that should attend banking transactions, cashed the 3 checks in question without prior
clearances from the drawee bank. In view of the foregoing, the Philippine Embassy in Madrid, as drawer of the checks in question, cannot be held liable. It is apparent
that the said checks were fraudulently altered by Virginia Boncan as to their amounts and, therefore, wholly inoperative. No right of payment thereof against any party
thereto could have been acquired the petitioner.

2) PNB v. Picornell - The question whether or not the tobacco was worth the value of the bill, does not concern the plaintiff bank. Such partial want of consideration, if it
was, does not exist with respect to the bank which paid to Picornell the full value of said bill of exchange. The bank was a holder in due course, and was such for value
full and complete. The Hyndman, Tavera & Ventura company cannot escape liability in view of section 28 of the Negotiable Instruments Law.


xxx The drawee by acceptance becomes liable to the payee or his indorsee, and also to the drawer himself. But the drawer and acceptor are the immediate parties to the
consideration, and if the acceptance be without consideration, the drawer cannot recover of the acceptor. The payee holds a different relation; he is a stranger to the transaction
between the drawer and the acceptor, and is, therefore, in a legal sense a remote party. In a suit by him against the acceptor, the question as to the consideration between the
drawer and the acceptor cannot be inquired into. The payee or holder gives value to the drawer, and if he is ignorant of the equities between the drawer and the acceptor, he is in
the position on a bona fide indorsee. Hence, it is no defense to a suit against the acceptor of a draft which has been discounted, and upon which money has been advance by the
plaintiff, that the draft was accepted or the accommodation of the drawer. . . .”

As to Bartolome Picornell, he warranted, as drawer of the bill, that it would be accepted upon proper presentment and paid in due course, and as it was not paid, he
became liable to the payment of its value to the holder thereof, which is the plaintiff bank. (Sec. 61, Negotiable Instruments Law.) The fact that Picornell was a
commission agent of Hyndman, Tavera & Ventura, in the purchase of the tobacco, does not necessarily make him an agent of the company in its obligations arising from
the drawing of the bill by him. His acts in negotiating the bill constitute a different contract from that made by his having purchased the tobacco on behalf of Hyndman,
Tavera & Ventura. Furthermore, he cannot exempt himself from responsibility by the fact of his having been a mere agent of this company, because nothing to this effect
was indicated or added to his signature on signing the bill. (Sec. 20, Negotiable Instruments Law.)

The fact that the tobacco was or was not of inferior quality does not affect the responsibility of Picornell, because while it may an effect upon the contract between him
and the firm of Hyndman, Tavera & Ventura, yet it cannot have upon the responsibility of both to the bank, upon the bill drawn and accepted as above stated.

As to the instruction "D/P" appearing on the instrument, it was not violated by the bank, which, as above stated, kept possession of the invoice and the bill of lading of
the tobacco. By virtue of this circumstance, the bank had the right to deal with that tobacco as a security in case of non-payment of the bill, and this was admitted by
Hyndman, Tavera & Ventura when, upon their refusal to pay the bill, they placed the tobacco at the disposal of the bank.

Neither does the fact of Hyndman, Tavera & Ventura having been given possession of the tobacco before the payment of the bill affect the liability of the defendants to
the bank thereon. Upon the non-payment of the bill by the drawee-acceptor, the bank had the right of recourse, which it exercised, against the drawer. (Sec. 84,
Negotiable Instruments Law.). The drawee, the Hyndman, Tavera & Ventura company, or its successors, J. Pardo de Tavera, accepted the bill and is primarily liable for the
value of the negotiable instrument, while the drawer, Bartolome Picornell, is secondarily liable. (3. R. C. L., pp. 1144, 1145.) However, no question has been raised about
this aspect of the responsibility of the defendants.


1) PNB v. CA - [T]he PNB argues that, since the signatures of the drawer are forged, so must the signatures of the supposed indorsers be; but this conclusion does not
necessarily follow from said premise. Besides, there is absolutely no evidence, and the PNB has not even tried to prove that the aforementioned indorsements are
spurious. Again, the PNB refunded the amount of the check to the GSIS, on account of the forgery in the signatures, not of the indorsers or supposed indorsers, but of the
officers of the GSIS as drawer of the instrument. In other words, the question whether or not the indorsements have been falsified is immaterial to the PNB's liability as a
drawee, or to its right to recover from the PCIB, for, as against the drawee, the indorsement of an intermediate bank does not guarantee the signature of the drawer, since
the forgery of the indorsement is not the cause of the loss.

With respect to the warranty on the back of the check, to which the third assignment of error refers, it should be noted that the PCIB thereby guaranteed "all prior
indorsements", not the authenticity of the signatures of the officers of the GSIS who signed on its behalf, because the GSIS is not an indorser of the check, but its drawer.

Said warranty is irrelevant, therefore, to the PNB's alleged right to recover from the PCIB. It could have been availed of by a subsequent indorsee or a holder in due
course subsequent to the PCIB, but, the PNB is neither. Indeed, upon payment by the PNB, as drawee, the, check ceased to be a negotiable instrument, and became a
mere voucher or proof of payment.

Referring to the fourth and fifth assignments of error, we must bear in mind that, in general, "acceptance", in the sense in which this term is used in the Negotiable
Instruments Law is not required for checks, for the same are payable on demand. Indeed, "acceptance" and "payment" are, within the purview of said Law, essentially
different things, for the former is "a promise to perform an act," whereas the latter is the "actual performance" thereof. In the words of the law, "the acceptance of a bill is
the signification by the drawee of his assent to the order of the drawer," which, in the case of checks, is the payment, on demand, of a given sum of money. Upon the
other hand, actual payment of the amount of a check implies not only an assent to said order of the drawer and a recognition of the drawee's obligation to pay the
aforementioned sum, but, also, a compliance with such obligation.

The PNB maintains that the lower court erred in not finding that the PCIB had been guilty of negligence in not discovering that the check was forged. Assuming that
there had been such negligence on the part of the PCIB, it is undeniable, however, that the PNB has, also, been negligent, with the particularity that the PNB had been
guilty of a greater degree of negligence, because it had a previous and formal notice from the GSIS that the check had been lost, with the request that payment thereof
be stopped. Just as important, if not more important and decisive, is the fact that the PNB's negligence was the main or proximate cause for the corresponding loss. In
this connection, it will be recalled that the PCIB did not cash the check upon its presentation by Augusto Lim; that the latter had merely deposited it in his current
account with the PCIB; that, on the same day, the PCIB sent it, through the Central Bank, to the PNB, for clearing; that the PNB did not return the check to the PCIB the
next day or at any other time; that said failure to return the check to the PCIB implied, under the current banking practice, that the PNB considered the check good and
would honor it; that, in fact, the PNB honored the check and paid its amount to the PCIB; and that only then did the PCIB allow Augusto Lim to draw said amount from
his aforementioned current account.

Thus, by not returning the check to the PCIB, by thereby indicating that the PNB had found nothing wrong with the check and would honor the same, and by actually
paying its amount to the PCIB, the PNB induced the latter, not only to believe that the check was genuine and good in every respect, but, also, to pay its amount to
Augusto Lim. In other words, the PNB was the primary or proximate cause of the loss, and, hence, may not recover from the PCIB. It is a well-settled maxim of law and
equity that when one of 2 innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the
loss or who put it into the power of the third person to perpetrate the wrong. Then, again, it has, likewise, been held that, where the collecting (PCIB) and the drawee (PNB)
banks are equally at fault, the court will leave the parties where it finds them.

Lastly, Section 62 of Act No. 2031 provides: "The acceptor by accepting the instrument engages that he will pay it according to 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." The prevailing view is that the same rule applies in the case of a drawee who pays a bill without having previously accepted it.

2) PNB v. National City Bank of NY - It is contended, first of all, that the payment of the checks in question made by the drawee bank constitutes an "acceptance", and,
consequently, the case should be governed by the provisions of section 62 of the Negotiable Instruments Law. This contention is without merit. A check is a bill of
exchange payable on demand and only the rules governing bills of exchange payable on demand are applicable to it, according to section 185 of the Negotiable Instruments Law.
In view of the fact that acceptance is a step unnecessary in so far as bills of exchange payable on demand are concerned (sec. 143), it follows that the provisions relative
to "acceptance" are without application to checks. Acceptance implies, in effect, subsequent negotiation of the instrument, which is not true in case of the payment of a
check because from the moment a check is paid it is withdrawn from circulation. The warranty established by section 62, is in favor of holders of the instrument after its
acceptance. When the drawee bank cashes or pays a check, the cycle of negotiation is terminated, and it is illogical thereafter to speak of subsequent holders who can

invoke the warranty provided in section 62 against the drawee. Moreover, according to section 191, "acceptance" means "an acceptance completed by delivery or
notification" and this concept is entirely incompatible with payment, because when payment is made the check is retained by the bank, and there is no such thing as
delivery or notification to the party receiving the payment. There can be no such thing as "acceptance" in the ordinary sense of the term. A check being payable

There is, however, nothing in the law or in business practice against the presentation of checks for acceptance, before they are paid, in which case we have a
"certification" equivalent to "acceptance" according to section 187, which provides that "where a check is certified by the bank on which it is drawn, the certification is
equivalent to an acceptance", and it is then that the warranty under section 62 exists.

This certification or acceptance consists in the signification by the drawee of his assent to the order of the drawer, which must not express that the drawee will perform
his promise by any other means than the payment of money. (Sec. 132.) When the holder of a check procures it to be accepted or certified, the drawer will perform his
promise by any other means than the payment of money. (Sec. 132.) When the holder of a check procedures it to be accepted or certified, the drawer and all indorsers are
discharged from liability thereon (sec. 188), and then the check operates as an assignment of a part of the funds to the credit of the drawer with the bank. (Sec. 189.)

There is nothing in the nature of the check which intrinsically precludes its acceptance, in like manner and with like effect as a bill of exchange or draft may be accepted.
The bank may accept if it chooses; and it is frequently induced by convenience, by the exigencies of business, or by the desire to oblige customers, voluntarily to incur
the obligation. The act by which the bank places itself under obligation to pay to the holder the sum called for by a check must be the expressed promise or undertaking
of the bank signifying its intent to assume the obligation, or some act from which the law will imperatively imply such valid promise or undertaking. The most ordinary
form which such an act assumes is the acceptance by the bank of the check, or, as it is perhaps more often called, the certifying of the check.

No doubt a bank may by an unequivocal promise in writing make itself liable in any event to pay the check upon demand, but this is not an "acceptance" of the check in
the true sense of that term. Although a check does not call for acceptance, and the holder can present it only for payment, the certification of checks is a means in
constant and extensive use in the business of banking, and its effects and consequences are regulated by the law merchant. Checks drawn upon banks or bankers, thus
marked and certified, enter largely into the commercial and financial transactions of the country; they pass from hand to hand, in the payment of debts, the purchase of
property, and in the transfer of balances from one house and one bank to another. In the great commercial centers, they make up no inconsiderable portion of the
circulation, and thus perform a useful, valuable, and an almost indispensable office. The purpose of procuring a check to be certified is to impart strength and credit to
the paper by obtaining an acknowledgment from the certifying bank that the drawer has funds therein sufficient to cover the check, and securing the engagement of the
bank that the check will be paid upon presentation. A certified check has a distinctive character as a species of commercial paper, and performs important functions in
banking and commercial business. When a check is certified, it ceases to possess the character, or to perform the functions, of a check, and represents so much money on
deposit, payable to the holder on demand. The check becomes a basis of credit — an easy mode of passing money from hand to hand, and answers the purposes of
money.

The theory of the appellant and of the decisions on which it relies to support its view is vitiated by the fact that they take the word "acceptance" in its ordinary meaning
and not in the technical sense in which it is used in the Negotiable Instruments Law. Appellant says that when payment is made, such payment amounts to an
acceptance, because he who pays accepts. This is true in common parlance, but it is not "acceptance" in legal contemplation. The word "acceptance" has a peculiar
meaning in the Negotiable Instruments Law, and, as has been above stated, in the instant case there was payment but no acceptance, or what is equivalent to
acceptance, certification. With few exceptions, the weight of authority is to the effect that "payment" neither includes nor implies "acceptance".

The rule supported by the majority of the cases, that payment of a check on a forged or unauthorized indorsement of the payee's name, and charging the same to the
drawer's account, do not amount to an acceptance so as to make the bank liable to the payee, is supported by all of the recent cases in which the question is considered.
Merely stamping a check "Paid" upon its payment on a forged or unauthorized indorsement is not an acceptance thereof so as to render the drawee bank liable to the
true payee.

Before drawee's acceptance of check there is no privity of contract between drawee and payee. Drawee's payment of check on unauthorized indorsement does not
constitute "acceptance" of check. The great weight of authority is to the effect that the payment of a check upon a forged or unauthorized indorsement and the stamping
of it "paid" does not constitute an acceptance. Payment of the check, cashing it on presentment is not acceptance.

3) FEBTC v. Gold Palace Jewelry Co. - Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that the acceptor, by accepting the instrument, engages
that he will pay it according to the tenor of his acceptance. This provision applies with equal force in case the drawee pays a bill without having previously accepted it.
His actual payment of the amount in the check implies not only his assent to the order of the drawer and a recognition of his corresponding obligation to pay the
aforementioned sum, but also, his clear compliance with that obligation. Actual payment by the drawee is greater than his acceptance, which is merely a promise in
writing to pay. The payment of a check includes its acceptance.

Unmistakable herein is the fact that the drawee bank cleared and paid the subject foreign draft and forwarded the amount thereof to the collecting bank. The latter then
credited to Gold Palace's account the payment it received. Following the plain language of the law, the drawee, by the said payment, recognized and complied with its
obligation to pay in accordance with the tenor of his acceptance. The tenor of the acceptance is determined by the terms of the bill as it is when the drawee accepts.
Stated simply, LBP was liable on its payment of the check according to the tenor of the check at the time of payment, which was the raised amount.

Because of that engagement, LBP could no longer repudiate the payment it erroneously made to a due course holder. The Court noted at this point that Gold Palace was
not a participant in the alteration of the draft, was not negligent, and was a holder in due course — it received the draft complete and regular on its face, before it
became overdue and without notice of any dishonor, in good faith and for value, and absent any knowledge of any infirmity in the instrument or defect in the title of the
person negotiating it. Having relied on the drawee bank's clearance and payment of the draft and not being negligent (it delivered the purchased jewelry only when the
draft was cleared and paid), respondent is amply protected by the said Section 62. Commercial policy favors the protection of any one who, in due course, changes his
position on the faith of the drawee bank's clearance and payment of a check or draft.

[I]n this case, Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far East, should not have debited the money paid by the drawee bank from
respondent company's account. When Gold Palace deposited the check with Far East, the latter, under the terms of the deposit and the provisions of the NIL, became an
agent of the former for the collection of the amount in the draft. The subsequent payment by the drawee bank and the collection of the amount by the collecting bank
closed the transaction insofar as the drawee and the holder of the check or his agent are concerned, converted the check into a mere voucher, and, as already discussed,
foreclosed the recovery by the drawee of the amount paid. This closure of the transaction is a matter of course; otherwise, uncertainty in commercial transactions, delay
and annoyance will arise if a bank at some future time will call on the payee for the return of the money paid to him on the check. As the transaction in this case had
been closed and the principal-agent relationship between the payee and the collecting bank had already ceased, the latter in returning the amount to the drawee bank
was already acting on its own and should now be responsible for its own actions. Neither can petitioner be considered to have acted as the representative of the drawee
bank when it debited respondent's account, because, as already explained, the drawee bank had no right to recover what it paid.

Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument for collection to shift the burden it brought upon itself. This is

precisely because the said indorsement is only for purposes of collection which, under Section 36 of the NIL, is a restrictive indorsement. It did not in any way transfer
the title of the instrument to the collecting bank. Far East did not own the draft, it merely presented it for payment. Considering that the warranties of a general indorser
as provided in Section 66 of the NIL are based upon a transfer of title and are available only to holders in due course, 48 these warranties did not attach to the
indorsement for deposit and collection made by Gold Palace to Far East. Without any legal right to do so, the collecting bank, therefore, could not debit respondent's
account for the amount it refunded to the drawee bank.

4) Areza v. Express Saving Bank - The fact that material alteration caused the eventual dishonor of the checks issued by PVAO is undisputed. In this case, before the
alteration was discovered, the checks were already cleared by the drawee bank, the Philippine Veterans Bank. 3 months had lapsed before the drawee dishonored the
checks and returned them to Equitable-PCI Bank, the respondents' depositary bank. And it was not until 10 months later when petitioners' accounts were debited. A
question thus arises: What are the liabilities of the drawee, the intermediary banks, and the petitioners for the altered checks?

Section 63 of Act No. 2031 or the Negotiable Instruments Law provides that the acceptor, by accepting the instrument, engages that he will pay it according to the tenor
of his acceptance. The acceptor is a drawee who accepts the bill. In Philippine National Bank v. Court of Appeals, the payment of the amount of a check implies not only
acceptance but also compliance with the drawee's obligation. In case the negotiable instrument is altered before acceptance, is the drawee liable for the original or the
altered tenor of acceptance? There are two divergent interpretations proffered by legal analysts. The first view is supported by the leading case of National City Bank of
Chicago v. Bank of the Republic. In said case, a certain Andrew Manning stole a draft and substituted his name for that of the original payee. He offered it as payment to a
jeweler in exchange for certain jewelry. The jeweler deposited the draft to the defendant bank which collected the equivalent amount from the drawee. Upon learning of
the alteration, the drawee sought to recover from the defendant bank the amount of the draft, as money paid by mistake. The court denied recovery on the ground that
the drawee by accepting admitted the existence of the payee and his capacity to endorse. Still, in Wells Fargo Bank & Union Trust Co. v. Bank of Italy, the court echoed the
court's interpretation in National City Bank of Chicago, in this wise: "The court must take the act as it is written and should give to the words their natural and common meaning
. . . if the language of the act conflicts with statutes or decisions in force before its enactment the courts should not give the act a strained construction in order to make it
harmonize with earlier statutes or decisions." The wording of the act suggests that a change in the common law was intended. A careful reading thereof, independent of
any common-law influence, requires that the words "according to the tenor of his acceptance" be construed as referring to the instrument as it was at the time it came
into the hands of the acceptor for acceptance, for he accepts no other instrument than the one presented to him — the altered form — and it alone he engages to pay.
This conclusion is in harmony with the law of England and the continental countries. It makes for the usefulness and currency of negotiable paper without seriously
endangering accepted banking practices, for banking institutions can readily protect themselves against liability on altered instruments either by qualifying their
acceptance or certification or by relying on forgery insurance and special paper which will make alterations obvious. All of the arguments advanced against the
conclusion herein announced seem highly technical in the face of the practical facts that the drawee bank has authenticated an instrument in a certain form, and that
commercial policy favors the protection of anyone who, in due course, changes his position on the faith of that authentication.

The second view is that the acceptor/drawee despite the tenor of his acceptance is liable only to the extent of the bill prior to alteration. This view appears to be in
consonance with Section 124 of the Negotiable Instruments Law which states that a material alteration avoids an instrument except as against an assenting party and
subsequent indorsers, but a holder in due course may enforce payment according to its original tenor. Thus, when the drawee bank pays a materially altered check, it violates
the terms of the check, as well as its duty to charge its client's account only for bona fide disbursements he had made. If the drawee did not pay according to the original
tenor of the instrument, as directed by the drawer, then it has no right to claim reimbursement from the drawer, much less, the right to deduct the erroneous payment it
made from the drawer's account which it was expected to treat with utmost fidelity. The drawee, however, still has recourse to recover its loss. It may pass the liability
back to the collecting bank which is what the drawee bank exactly did in this case. It debited the account of Equitable-PCI Bank for the altered amount of the checks.

On the liability of the drawee bank and collecting bank, [a] depositary bank is the first bank to take an item even though it is also the payor bank, unless the item is

presented for immediate payment over the counter. It is also the bank to which a check is transferred for deposit in an account at such bank, even if the check is
physically received and indorsed first by another bank. A collecting bank is defined as any bank handling an item for collection except the bank on which the check is
drawn. When petitioners deposited the check with the Bank, they were designating the latter as the collecting bank. This is in consonance with the rule that a negotiable
instrument, such as a check, whether a manager's check or ordinary check, is not legal tender. As such, after receiving the deposit, under its own rules, the Bank shall
credit the amount in petitioners' account or infuse value thereon only after the drawee bank shall have paid the amount of the check or the check has been cleared for
deposit. The Bank and Equitable-PCI Bank are both depositary and collecting banks. A depositary/collecting bank where a check is deposited, and which endorses the
check upon presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants "that the instrument is genuine
and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement
valid and subsisting." It has been repeatedly held that in check transactions, the depositary/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. If any of the warranties made by the depositary/collecting bank turns out
to be false, then the drawee bank may recover from it up to the amount of the check.

The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and regularity. The
collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high standard of conduct. As collecting banks, the
Bank and Equitable-PCI Bank are both liable for the amount of the materially altered checks. Since Equitable-PCI Bank is not a party to this case and the Bank allowed its
account with Equitable-PCI Bank to be debited, it has the option to seek recourse against the latter in another forum.

A depositary/collecting bank may resist or defend against a claim for breach of warranty if the drawer, the payee, or either the drawee bank or depositary bank was
negligent and such negligence substantially contributed to the loss from alteration. In the instant case, no negligence can be attributed to petitioners. The Court lends
credence to their claim that at the time of the sales transaction, the Bank's branch manager was present and even offered the Bank's services for the processing and
eventual crediting of the checks. True to the branch manager's words, the checks were cleared three days later when deposited by petitioners and the entire amount of
the checks was credited to their savings account.

WHEN A PERSON A person placing his signature upon an Unless he clearly indicates by appropriate words his intention to be bound in
DEEMED AN INDORSER instrument otherwise than as maker, drawer, some other capacity.
(Section 63) or acceptor is deemed to be an indorser.

CASE DOCTRINES

1) Ang Tiong v. Ting - Petitioners argue that the lower courts erred in not allowing Evangeline Santos to be impleaded as an indispensable party. They insist that
respondents' [c]omplaint against them is based on the bouncing checks she issued; hence, they point to her as the person primarily liable for the obligation.


The Court held that respondents' cause of action is clearly founded on petitioners' failure to pay the purchase price of the rice. The trial court held that petitioner Maria
Tuazon had indorsed the questioned checks in favor of respondents, in accordance with Sections 31 and 63 of the Negotiable Instruments Law. That Santos was the
drawer of the checks is thus immaterial to the respondents' cause of action.

As indorser, Tuazon warranted that upon due presentment, the checks were to be accepted or paid, or both, according to their tenor; and that in case they were
dishonored, she would pay the corresponding amount. After an instrument is dishonored by non-payment, indorsers cease to be merely secondarily liable; they become
principal debtors whose liability becomes identical to that of the original obligor. The holder of a negotiable instrument need not even proceed against the maker before
suing the indorser.

Clearly, Evangeline Santos — as the drawer of the checks — is not an indispensable party in an action against Maria Tuazon, the indorser of the checks. Indispensable
parties are defined as "parties in interest without whom no final determination can be had." The instant case was originally one for the collection of the purchase price of
the rice bought by Maria Tuazon from respondents' predecessor. In this case, it is clear that there is no privity of contract between respondents and Santos. Hence, a final
determination of the rights and interest of the parties may be made without any need to implead her.

2) Tuazon, et.al v. Heirs of Bartolome Ramos - A bank check is indisputably a negotiable instrument and should be governed solely by the Negotiable Instruments Law
(see secs. 1 and 15). Section 63 of the Negotiable Instruments Law makes "a person placing his signature upon an instrument otherwise than as maker, drawer or
acceptor" a general indorser "unless he clearly indicates by appropriate words his intention to be bound in some other capacity." Section 66 of the same law ordains that
"every indorser who indorses without qualification, warrants to all subsequent holders in due course" (a) that the instrument is genuine and in all respects what it
purports to be; (b) that he has a good title to it; (c) that all prior parties have capacity to contract; and (d) that the instrument is at the time of his indorsement valid and
subsisting. In addition "he engages that on due presentment, it shall be accepted or paid or both, as the case may be, and if it be dishonored, he will pay the amount
thereof to the holder."

Even on the assumption that the appellant is a mere accommodation party, as he professes to be, he is nevertheless, by the clear mandate of section 29 of the
Negotiable Instruments Law, yet "liable on the instrument to a holder for value, notwithstanding that such holder at the time of taking the instrument knew him to be
only an accommodation party." To paraphrase, the accommodation party is liable to a holder for value as if the contract was not for accommodation. It is not a valid
defense that the accommodation party did not receive any valuable consideration when he executed the instrument. Nor is it correct to say that the holder for value is
not a holder in due course merely because at the time he acquired the instrument he knew that the indorser was only an accommodation party.

That the appellant, again assuming him to be an accommodation indorser, may obtain security from the maker to protect himself against the danger of insolvency of the
latter, cannot in any manner affect his liability to the appellee, as the said remedy is a matter of concern exclusively between accommodation indorser and
accommodated party. So that the fact that the appellant stands only as a surety in relation to the maker, granting this to be true for the sake of argument, is immaterial
to the claim of the appellee, and does not a whit diminish nor defeat the rights of the latter who is a holder for value. The liability of the appellant remains primary and
unconditional. To sanction the appellant's theory is to give unwarranted legal recognition to the patent absurdity of a situation where an indorser, when sued on an
instrument by a holder in due course and for value, can escape liability on his indorsement by the convenient expedient of interposing the defense that he is a mere
accommodation indorser.


LIABILITY OF IRREGULAR Where a person, not a party to an instrument127, places his signature in blank before delivery; he is liable as an indorser,
INDORSER provided:
(Section 64) (1) If the instrument is payable to the order of a third person, he is liable to the payee and subsequent parties;
(2) If the instrument is payable to the order of the maker or drawer, or payable to bearer, he is liable to all parties
subsequent to maker or drawer; and
(3) If he signs for the accommodation party of the payee, he is liable all parties subsequent to the payee.
LIABILITIES OF
INDORSERS
LIABILITY OF A PERSON NEGOTIATING BY DELIVERY OR LIABILITY OF A GENERAL INDORSER (Sec. 66)
(Sections 65-66)
BY QUALIFIED INDORSEMENT128 (Sec. 65)
(1) That the instrument is genuine and in all respects what (1) That the instrument is genuine and in all respects what it
it purports to be; purports to be;
(2) That he has a good title to it; (2) That he has a good title to it;
(3) That all prior parties had capacity to contract129; and (3) That all prior parties had capacity to contract; and
(4) That he has no knowledge of any fact which would (4) That the instrument is, at the time of his indorsement, valid
impair the validity of the instrument or render it valueless. and subsisting.
130

He also engages that, on due presentment, it shall be
BUT, when the negotiation is by delivery, only the accepted and paid, or both, as the case may be, according to
warranty extends in favor of no holder other than the its tenor. If it be dishonored and the necessary proceedings
immediate transferee.131 on dishonor be duly taken, he will pay the amount thereof to
the holder or to any subsequent indorser, who may be
127
The irregular indorser is not a maker, drawer, acceptor, or regular indorser. His warranties are the same are those of a general indorser, inasmuch as his indorsement is in
blank which in itself, is an indorsement without qualification.
128
Recall: Qualified indorsement is made by adding to the indorser’s signature the words “without recourse” or any words of similar import (See Sec. 38).
129
This does not apply to persons negotiating public or corporate securities, other than bills and notes.
130
Knowledge is important. While the general indorser guarantees that the instrument is valid and subsisting (Sec. 66), whether or not he has knowledge of that fact, the
qualified indorser warrants merely that he has no knowledge of any fact which would invalidate the instrument or render it useless. So, if the instrument indorsed turns out ot
be invalid, the general indorser is liable because of the fourth warranty, but the qualified indorser is not liable unless he was aware of the cause of the invaliddity.
131
This means that while the liability of the one who negotiates by mere delivery extends in favor only of his immediate transferee, the qualified indorser is liable to all
subsequent holders who make title through his indorsement for a breach of any of his warranties.
compelled to pay it.


1) Metropol v. Sambotok Motors Co. - A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the
indorser’s signature the words “without recourse” or any words of similar import. Such indorsement relieves the indorser of the general obligation to pay if the
instrument is dishonored but not of the liability arising from warranties on the instrument as provided by section 65 of NIL. However, Sambok indorsed the note “with
recourse” and even waived the notice of demand, dishonor, protest and presentment.

Recourse means resort to a person who is secondarily liable after the default of the person who is primarily liable. Sambok by indorsing the note “with recourse” does not
make itself a qualified indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Villaruel fails to pay the not the holder
can go after it. The effect of such indorsement is that the note was indorsed without qualification. A person who indorses without qualification engages that on due
presentment, the note shall be accepted or paid, or both as the case maybe, and that if it be dishonored, he will pay the amount thereof to the holder. The words added
by Sambok do not limit his liability, but rather confirm his obligation as general indorser.

Lastly, the lower court did not err in not declaring appellant as only secondarily liable because after an instrument is dishonored by non-payment, the person secondarily
liable thereon ceases to be such and becomes a principal debtor. His liability becomes the same as that of the original obligor. Consequently, the holder need not even
proceed against the maker before suing the indorser.


1) People v. Maniego - Appellant's contention that a mere indorser, she may not be made liable on account of the dishonor of the checks indorsed by her, is likewise
untenable. Under the law, the holder or last indorsee of a negotiable instrument for the full amount thereof against all parties liable thereon." Among the "parties liable
thereon" is an indorser of the instrument i.e., "a person placing his signature upon an instrument otherwise than a maker, drawer, or acceptor” unless he clearly indicates
by appropriate words his intention to be bound in some other capacity." Such an indorser "who indorses without qualification," inter alia "engages that on due
presentment,” (the instrument) shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the necessary proceedings
on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it."

Maniego may also be deemed an "accommodation party" in the light of the facts, i.e., a person "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." As such, she is under the law "liable on the instrument to a holder for
value, notwithstanding such holder at the time of taking the instrument knew . . . (her) to be only an accommodation party," although she has the right, after paying the
holder, to obtain reimbursement from the party accommodated, "since the relation between them is in effect that of principal and surety, the accommodation party being
the surety."


2) Metropolitan Bank v. CA - Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were "genuine and in all respects
what they purport to be," in accordance with Section 66 of the Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-negotiable
treasury warrants. 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. It was in fact Metrobank that made the guarantee when it stamped on the back of the warrants: "All prior indorsement and/or lack of
endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, but this case is inapplicable to the present controversy. That case involved checks
whereas this case involves treasury warrants. Golden Savings never represented that the warrants were negotiable but signed them only for the purpose of depositing
them for clearance. Also, the fact of forgery was proved in that case but not in the case before us. Finally, the Court found the Jai Alai Corporation negligent in accepting
the checks without question from one 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. No similar negligence can be imputed to Golden Savings.

The Court finds the challenged decision to be basically correct. However, it is to be amended it insofar as it directs the petitioner to credit Golden Savings with the full
amount of the treasury checks deposited to its account. The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was allowed to
withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount he has withdrawn must be charged not to Golden Savings but to Metrobank,
which must bear the consequences of its own negligence. But the balance of P586,589 should be debited to Golden Savings, as obviously Gomez can no longer be
permitted to withdraw this amount from his deposit because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance to Golden Savings
would unduly enrich it at the expense of Metrobank, let alone the fact that it has already been informed of the dishonor of the treasury warrants.

3) Gullas v. PNB - The Negotiable Instruments Law contains provisions establishing the liability of a general indorser and giving the procedure for notice of dishonor. The
general indorser of a negotiable instrument engages that if it be dishonored and the necessary proceedings of dishonor be duly taken, he will pay the amount thereof to
the holder. (Negotiable Instruments Law, sec. 66.) In this connection, it has been held by a long line of authorities that notice of dishonor is necessary in order to charge
an indorser and that the right of action against him does not accrue until the notice is given.

As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any indebtedness to it on the part of a depositor. In Louisiana, however, a
civil law jurisdiction, the rule is denied, and it is held that a bank has no right, without an order from or special assent of the depositor to retain out of his deposit an
amount sufficient to meet his indebtedness. The basis of the Louisiana doctrine is the theory of confidential contracts arising from irregular deposits, e. g., the deposit of
money with a banker. With freedom of selection and after full consideration, we have decided to adopt the general rule in preference to the minority rule as more in
harmony with modern banking practice.

Starting, therefore, from the premise that the Philippine National Bank had with respect to the deposit of Gullas a right of set off, the Court considers if that remedy was
enforced properly. The fact Court believes is undeniable that prior to the mailing of notice of dishonor, and without waiting for any action by Gullas, the bank made use
of the money standing in his account to make good for the treasury warrant. At his point recall that Gullas was merely an indorser and had issued checks in good faith.

As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor of a third party, it has been held that he has a right of action against the
bank for its refusal to pay such a check in the absence of notice to him that the bank has applied the funds so deposited in extinguishment of past due claims held
against him. The decision cited represents the minority doctrine, for on principle it would seem that notice is not necessary to a maker because the right is based on the
doctrine that the relationship is that of creditor and debtor. However this may be, as to an indorser the situation is different, and notice should actually have been given
him in order that he might protect his interests.

4) Associated Bank v. Tan - A bank generally has a right of set-off over the deposits therein for the payment of any withdrawals on the part of a depositor. The right of a
collecting bank to debit a client's account for the value of a dishonored check that has previously been credited has fairly been established by jurisprudence. To begin
with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan."

Hence, the relationship between banks and depositors has been held to be that of creditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code
may take place "when all the requisites mentioned in Article 1279 are present.” Nonetheless, the real issue here is not so much the right of petitioner to debit
respondent's account but, rather, the manner in which it exercised such right. The Court has held that even while the right of set-off is conceded, separate is the question
of whether that remedy has properly been exercised. The liability of petitioner in this case ultimately revolves around the issue of whether it properly exercised its right
of set-off. The determination thereof hinges, in turn, on the bank's role and obligations, first, as respondent's depositary bank; and second, as collecting agent for the
check in question.

In BPI v. Casa Montessori, the Court has emphasized that the banking business is impressed with public interest. "Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are even required of it. By the nature of its functions, a bank is under obligation to treat the accounts of its
depositors with meticulous care." Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court of Appeals has held that "the degree of diligence
required of banks is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned." Indeed, the banking
business is vested with the trust and confidence of the public; hence the "appropriate standard of diligence must be very high, if not the highest, degree of diligence."
The standard applies, regardless of whether the account consists of only a few hundred pesos or of millions. The fiduciary nature of banking, previously imposed by case
law, is now enshrined in Republic Act No. 8791 or the General Banking Law of 2000. Section 2 of the law specifically says that the State recognizes the "fiduciary nature
of banking that requires high standards of integrity and performance."

Did petitioner treat respondent's account with the highest degree of care? From all indications, it did not. It is undisputed — nay, even admitted — that purportedly as an
act of accommodation to a valued client, petitioner allowed the withdrawal of the face value of the deposited check prior to its clearing. That act certainly disregarded
the clearance requirement of the banking system. Such a practice is unusual, because a check is not legal tender or money; and its value can properly be transferred to a
depositor's account only after the check has been cleared by the drawee bank.

Under ordinary banking practice, after receiving a check deposit, a bank either immediately credit the amount to a depositor's account; or infuse value to that account
only after the drawee bank shall have paid such amount. Before the check shall have been cleared for deposit, the collecting bank can only "assume" at its own risk — as
herein petitioner did — that the check would be cleared and paid out. Reasonable business practice and prudence, moreover, dictated that petitioner should not have
authorized the withdrawal by respondent of P240,000 on October 1, 1990, as this amount was over and above his outstanding cleared balance of P196,793.45.

Reservation is not enough to insulate the bank from any liability. In the past, the Court has expressed doubt about the binding force of such conditions unilaterally
imposed by a bank without the consent of the depositor. It is indeed arguable that "in signing the deposit slip, the depositor does so only to identify himself and not to
agree to the conditions set forth at the back of the deposit slip." Further, by the express terms of the stipulation, petitioner took upon itself certain obligations as
respondent's agent, consonant with the well-settled rule that the relationship between the payee or holder of a commercial paper and the collecting bank is that of
principal and agent. Under Article 1909 of the Civil Code, such bank could be held liable not only for fraud, but also for negligence.

As a general rule, a bank is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment. Due to the
very nature of their business, banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. Jurisprudence has

established that the lack of diligence of a servant is imputed to the negligence of the employer, when the negligent or wrongful act of the former proximately results in
an injury to a third person; in this case, the depositor. The manager of the bank's Cabanatuan branch, Consorcia Santiago, categorically admitted that she and the
employees under her control had breached bank policies. They admittedly breached those policies when, without clearance from the drawee bank in Baguio, they
allowed respondent to withdraw on October 1, 1990, the amount of the check deposited. Santiago testified that respondent "was not officially informed about the
debiting of the P101,000 from his existing balance of P170,000 on October 2, 1990 . . . " Being the branch manager, Santiago clearly acted within the scope of her
authority in authorizing the withdrawal and the subsequent debiting without notice. Accordingly, what remains to be determined is whether her actions proximately
caused respondent's injury. Proximate cause is that which — in a natural and continuous sequence, unbroken by any efficient intervening cause — produces the injury,
and without which the result would not have occurred.

In this case, the Court noted that: First, notice was proper and ought to be expected. By the bank manager's account, respondent was considered a "valued client" whose
checks had always been sufficiently funded from 1987 to 1990, until the October imbroglio. Thus, he deserved nothing less than an official notice of the precarious
condition of his account. Second, under the provisions of the Negotiable Instruments Law regarding the liability of a general indorser and the procedure for a notice of
dishonor, it was incumbent on the bank to give proper notice to respondent. Third, regarding the deposit of P50,000 made by respondent on October 2, 1990, the Court
fully subscribed to the CA's observations that it was not unusual for a well-reputed businessman like him, who "ordinarily takes note of the amount of money he takes
and releases," to immediately deposit money in his current account to answer for the postdated checks he had issued.

5) Jai Alai v. BPI - In the Court’s opinion, the respondent 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. It is true that the respondent had already collected the proceeds of the checks when it debited the petitioner's account, so that following the
rule in Gullas vs. Philippine National Bank 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. It is the view of the Court nonetheless that no creditor-debtor relationship
was created between the parties.

It must be noted further that three of the checks in question are crossed checks, which may only be deposited, but not encashed; yet, the petitioner negligently accepted
them for cash. That two of the crossed checks are bearer instruments would not exculpate the petitioner from liability with respect to them. The fact that they are bearer
checks and at the same time crossed checks should have aroused the petitioner's suspicion as to the title of Ramirez over them and his authority to cash them
(apparently to purchase jai-alai tickets from the petitioner), it appearing on their face that a corporate entity — the Inter Island Gas Service, Inc. — was the payee thereof
and Ramirez delivered the said checks to the petitioner ostensibly on the strength of the payee's cashiers' indorsements.

At all events, under Section 67 of the Negotiable Instruments Law, "[w]here a person places his indorsement on an instrument negotiable by delivery he incurs all the
liability of an indorser," and under Section 66 of the same statute a general indorser warrants that the instrument "is genuine and in all respects what it purports to be."
Considering that the petitioner indorsed the said checks when it deposited them with the respondent, the petitioner as an indorser guaranteed the genuineness of all
prior indorsements thereon. The respondent which relied upon the petitioner's warranty should not be held liable for the resulting loss. This conclusion applied similarly
to which is an uncrossed bearer instrument, for under Section 65 of the Negotiable Instrument Law. "Every person negotiating an instrument by delivery . . . warrants (a)
That the instrument is genuine and in all respects what it purports to be." Under that same section, this warranty "extends in favor of no holder other than the immediate
transferee," which, in the case at bar, would be the respondent. The provision in the deposit slip issued by the respondent which stipulates that it "reserves to itself the
right to charge back the item to the account of its depositor," at any time before "current funds or solvent credits shall have been actually received by the Bank," would
not materially affect the conclusion. That stipulation prescribes that there must be an actual receipt by the bank of current funds or solvent credits; but as we have
earlier indicated the transfer by the drawee-banks of funds to the respondent on account of the checks in question was ineffectual because made under the mistaken and

valid assumption that the indorsements of the payee thereon were genuine. Under article 2154 of the New Civil Code "If something is received when there is no right to
demand it and it was unduly delivered through mistake, the obligation to return it arises." There was, therefore, in contemplation of law, no valid payment of money
made by the drawee-banks to the respondent on account of the questioned checks.

6) Gonzales v. RCBC - The dollar-check in question in the amount of $7,500.00 drawn by Don Zapanta of Ade Medical Group (USA) against a Los Angeles, California bank,
Wilshire Center Bank N.A., was dishonored because of "End. Irregular," i.e., an irregular endorsement.

While the foreign drawee bank did not specifIcally state which among the four signatures found on the dorsal portion of the check made the check irregularly endorsed,
it is absolutely undeniable that only the signature of Olivia Gomez, an RCBC employee, was a qualified endorsement because of the phrase "up to P17,500.00 only." There
can be no other acceptable explanation for the dishonor of the foreign check than this signature of Olivia Gomez with the phrase "up to P17,500.00 only" accompanying
it. This Court defInitely agrees with the petitioner that the foreign drawee bank would not have dishonored the check had it not been for this signature of Gomez with
the same phrase written by her. The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the bearer of this dollar-check drawn by Don Zapanta because of the
defect introduced by RCBC,through its employee, Olivia Gomez. It is, therefore, a useless piece of paper if returned in that state to its original payee, Eva Alviar. There is
no doubt in the mind of the Court that a subsequent party which caused the defect in the instrument cannot have any recourse against any of the prior endorsers in good
faith. Eva Alviar's and the petitioner's liability to subsequent holders of the foreign check is governed by the Negotiable Instruments Law.

Under Section 66, the warranties for which Alviar and Gonzales are liable as general endorsers in favor of subsequent endorsers extend only to the state of the
instrument at the time of their endorsements, specifically, that the instrument is genuine and in all respects what it purports to be; that they have good title thereto; that all
prior parties had capacity to contract; and that the instrument, at the time of their endorsements, is valid and subsisting. This provision, however, cannot be used by the party
which introduced a defect on the instrument, such as respondent RCBC in this case, which qualifiedly endorsed the same, to hold prior endorsers liable on the instrument
because it results in the absurd situation whereby a subsequent party may render an instrument useless and inutile and let innocent parties bear the loss while he
himself gets away scot-free. It cannot be over-stressed that had it not been for the qualified endorsement ("up to P17,500.00 only") of Olivia Gomez, who is the employee
of RCBC, there would have been no reason for the dishonor of the check, and full payment by drawee bank therefor would have taken place as a matter of course.

Section 66 of the Negotiable Instruments Law which further states that the general endorser additionally engages that, on due presentment, the instrument shall be
accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the
amount thereof to the holder, or to any subsequent endorser who may be compelled to pay it, must be read in the light of the rule in equity requiring that those who
come to court should come with clean hands. The holder or subsequent endorser who tries to claim under the instrument which had been dishonored for "irregular
endorsement" must not be the irregular endorser himself who gave cause for the dishonor. Otherwise, a clear injustice results when any subsequent party to the
instrument may simply make the instrument defective and later claim from prior endorsers who have no knowledge or participation in causing or introducing said defect
to the instrument, which thereby caused its dishonor.

RCBC, which caused the dishonor of the check upon presentment to the drawee bank, through the qualified endorsement of its employee, Olivia Gomez, cannot hold
prior endorsers, Alviar and Gonzales in this case, liable on the instrument. Moreover, it is a well-established principle in law that as between two parties, he who, by his
acts, caused the loss shall bear the same. RCBC, in this instance, should therefore bear the loss.

7) Bank of America v. Associated Citizens Bank - A collecting bank where a check is deposited, and which endorses the check upon presentment with the drawee bank, is
an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants "that the instrument is genuine and in all respects what it purports to be; that he has
good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting". This Court has repeatedly held that

in check transactions, 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. When Associated Bank stamped the back of the four checks with the phrase "all prior endorsements and/or lack of endorsement
guaranteed", that bank had for all intents and purposes treated the checks as negotiable instruments and, accordingly, assumed the warranty of an endorser. Being so,
Associated Bank cannot deny liability on the checks.

Associated Bank was also clearly negligent in disregarding established banking rules and regulations by allowing the four checks to be presented by, and deposited in
the personal bank account of, a person who was not the payee named in the checks. The checks were issued to the "Order of Miller Offset Press, Inc.," but were deposited,
and paid by Associated Bank, to the personal joint account of Ching Uy Seng (a.k.a. Robert Ching) and Uy Chung Guan Seng. It could not have escaped Associated Bank's
attention that the payee of the checks is a corporation while the person who deposited the checks in his own account is an individual. Verily, when the bank allowed its
client to collect on crossed checks issued in the name of another, the bank is guilty of negligence. As ruled by this Court in Jai-Alai Corporation of the Philippines v. Bank of
the Philippine Islands, one who accepts and encashes a check from an individual knowing that the payee is a corporation does so at his peril. Accordingly, the Court held
that Associated Bank is liable for the amount of the four checks and should reimburse the amount of the checks to Bank of America.

8) BDO Unibank, Inc. v. Lao - The Court agrees with the appellate court that in cases of unauthorized payment of checks to a person other than the payee named therein,
the drawee bank may be held liable to the drawer. The drawee bank, in turn, may seek reimbursement from the collecting bank for the amount of the check. This rule on
the sequence of recovery in case of unauthorized check transactions had already been deeply embedded in jurisprudence. The liability of the drawee bank is based on its
contract with the drawer and its duty to charge to the latter's accounts only those payables authorized by him. A drawee 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 check, it does not comply with the terms of the check
and violates its duty to charge the drawer's account only for properly payable items.

On the other hand, the liability of the collecting bank is anchored on its guarantees as the last endorser of the check. Under Section 66 of the Negotiable Instruments
Law, an endorser warrants "that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity to contract;
and that the instrument is at the time of his endorsement valid and subsisting." It has been repeatedly held that in check transactions, 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 endorsements. If any of the warranties made by the collecting
bank turns out to be false, then the drawee bank may recover from it up to the amount of the check. In the present case, BDO paid the value of Check No. 0127-242250
to Union Bank, which, in turn, credited the amount to New Wave's account. The payment by BDO was in violation of Lao's instruction because the same was not issued in
favor of Everlink, the payee named in the check. It must be pointed out that the subject check was not even endorsed by Everlink to New Wave. Clearly, BDO violated its
duty to charge to Lao's account only those payables authorized by him.

Nevertheless, even with such clear violation by BDO of its duty, the loss would have ultimately pertained to Union Bank. By stamping at the back of the subject check the
phrase "all prior endorsements and/or lack of it guaranteed," Union Bank had, for all intents and purposes treated the check as a negotiable instrument and, accordingly,
assumed the warranty of an endorser. Without such warranty, BDO would not have paid the proceeds of the check. Thus, Union Bank cannot now deny liability after the
aforesaid warranty turned out to be false. Union Bank was clearly negligent when it allowed the check to be presented by, and deposited in the account of New Wave,
despite knowledge that it was not the payee named therein. Further, it could not have escaped its attention that the subject checks were crossed checks.

It is undisputed that Check No. 0127-242250 had been crossed generally as nothing was written between the parallel lines appearing on the face of the instrument. This
indicated that Lao, the drawer, had intended the same for deposit only to the account of Everlink, the payee named therein. Despite this clear intention, however, Union

Bank negligently allowed the deposit of the proceeds of the said check in the account of New Wave. Generally, BDO must be ordered to pay Lao the value of the subject
check; whereas, Union Bank would be ordered to reimburse BDO the amount of the check.

LIABILITY OF INDORSER Where a person places his indorsement on an instrument negotiable by delivery132, he incurs all liabilities of an indorser.
OF BEARER INSTRUMENT
(Section 67)
ORDER IN WHICH Among themselves. - Indorsers are liable But, may be rebutted by evidence that “as between or among themselves
INDORSERS ARE LIABLE prima facie in the order in which they they have agreed otherwise.”
(Section 68) indorse.133

Joint payees or indorsees. - Joint indorsers
are deemed to indorse jointly and severally.
LIABILITY OF AGENT OR Personal liability. - The agent or broker who Unless he discloses the name of his principal and the fact that he is acting
BROKER negotiates by mere delivery incurs the only as agent.
(Section 69) liabilities prescribed in Section 65.

132
It is not necessary for the holder to indorse the instrument if his purpose is just to negotiate the same. If he does so, his liability will be governed by Section 65 or
Section 66, whether the indorsement is qualified or unqualified.
133
With respect to the holder, the holder is not bound to follow the said order.
CHAPTER VI - PRESENTMENT FOR PAYMENT

EFFECT OF WANT OF Presentment for payment134 is not necessary Where instrument is payable at a special place, and he is able and willing to
DEMAND ON PRINCIPAL in order to charge the person primarily liable pay it at maturity, such ability and willing necessary are equivalent to a tender
DEBTOR on the instrument.135 But presentment for of payment.
(Section 70) payment is necessary in order to charge parties
secondarily liable, such as the drawer and e.g., “Payable at PNB.” - It is not necessary to make the presentment for
indorsers.136 payment to the maker to make him liable, as he is primarily liable.
PRESENTMENT WHERE Payable at a fixed or determinable future time. - Presentment must be made on the day it falls due, i.e., on the date of
INSTRUMENT IS NOT maturity.
PAYABLE ON DEMAND
(Section 71) Payable on demand. - Depending if it is a promissory note or bill of exchange, presentment must be made:

PROMISSORY NOTE BILL OF EXCHANGE
Within a reasonable time after its issue137 Within a reasonable time after its last negotiation

134
Presentment refers to, the act of the holder of a negotiable instrument of exhibiting a note to the maker and demanding payment, or showing a bill to the drawee and
requesting it for acceptance or payment.
135
The holder can sue the maker or acceptor, although no demand has been made on him, as soon as the date for payment has passed without the instrument being paid.
136
If the instrument is not presented to the person primarily liable, the drawer and the indorsers are discharged from their secondary liability unless such presentment is
excused or dispensed with.
137
This rule applies also for checks. Recall: A check is always payable on demand. It must be presented for payment within a reasonable time from its issue, and reasonable
time, is six months.
CASE DOCTRINES

1) Republic v. PNB - A demand draft is a bill of exchange payable on demand. Considered as a bill of exchange, a draft is said to be, like the former, an open letter of
request from, and an order by, one person on another to pay a sum of money therein mentioned to a third person, on demand or at a future time therein specified. As a
matter of fact, the term "draft" is often used, and is the common term, for all bills of exchange. And the words "draft" and "bill of exchange" are used indiscriminately.

[A] bill of exchange within the meaning of our Negotiable Instrument Law (Act No. 2031) 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. This is the clear import of Section 127. It says: "A bill of exchange of itself does not operate as an assignment of the funds in
the hands of the drawee available for the payment thereon and the drawee is not liable on the bill unless and until he accepts the same." In other words, in order that a drawee
may be liable on the draft and then become obligated to the payee it is necessary that he first accepts the same. In fact, our law requires that with regard to drafts or
bills of exchange there is need that they be presented either for acceptance or for payment within a reasonable time after their issuance or after their last negotiation
thereof as the case may be (Section 71, Act 2031). Failure to make such presentment will discharge the drawer from liability or to the extent of the loss caused by the
delay (Section 186, Ibid.).

Since it is admitted that the demand drafts herein involved have not been presented either for acceptance or for payment, the inevitable consequence is that the
appellee bank never had any chance of accepting or rejecting them. Verily, appellee bank never became a debtor of the payee concerned and as such the aforesaid drafts
cannot be considered as credits subject to escheat within the meaning of the law. But a demand draft is very different from a cashier's or manager's check, contrary to
appellant's pretense, 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.

A demand draft is not therefore of the same category as a cashier's check which should come within the purview of the law. The case, however, is different with regard to
a telegraphic payment order. It is said that as the transaction is for the establishment of a telegraphic or cable transfer, the agreement to remit creates a contractual
obligation and has been termed a purchase and sale transaction. The purchaser of a telegraphic transfer upon making payment completes the transaction insofar as he is
concerned, though insofar as the remitting bank is concerned the contract is executory until the credit is established.The Court agrees with the following comment of the
Solicitor General: "This is so because the drawer bank was already paid the value of the telegraphic transfer payment order. In the particular cases under consideration it appears
in the books of the defendant bank that the amounts represented by the telegraphic payment orders appear in the names of the respective payees. If the latter choose to demand
payment of their telegraphic transfers at the time the same was (were) received by the defendant bank, there could be no question that this bank would have to pay them.” Now,
the question is, if the payees decide to have their money remain for sometime in the defendant bank, can the latter maintain that the ownership of said telegraphic
payment orders is now with the drawer bank? The latter was already paid the value of the telegraphic payment orders otherwise it would not have transmitted the same
to the defendant bank. Hence, it is absurd to say that the drawer banks are still the owners of said telegraphic payment orders."

2) International Corporate Bank v. Spouses Gueco - Respondents would make us hold that petitioner should return the car or its value and that the latter, because of its
own negligence, should suffer the loss occasioned by the fact that the check had become stale. It is their position that delivery of the manager's check produced the
effect of payment and, thus, petitioner was negligent in opting not to deposit or use said check. Rudimentary sense of justice and fair play would not countenance
respondents' position.

A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and, therefore, should not be paid. Under the
negotiable instruments law, an instrument not payable on demand must be presented for payment on the day it falls due. When the instrument is payable on demand,
presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the
last negotiation thereof.

A check must be presented for payment within a reasonable time after its issue, and in determining what is a "reasonable time," regard is to be had to the nature of the
instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case. The test is whether the payee employed such diligence
as a prudent man exercises in his own affairs. This is because the nature and theory behind the use of a check points to its immediate use and payability. In a case, a
check payable on demand which was long overdue by about 2-1/2 years was considered a stale check. Failure of a payee to encash a check for more than 10 years
undoubtedly resulted in the check becoming stale. Thus, even a delay of 1 week or 2 days, under the specific circumstances of the cited cases constituted unreasonable
time as a matter of law.

In the case at bar, however, the check involved is not an ordinary bill of exchange but a manager's check. A manager's check is one drawn by the bank's manager upon the
bank itself. It is similar to a cashier's check both as to effect and use. A cashier's check is a check of the bank's cashier on his own or another check. In effect, it is a bill of
exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance 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 a maker. The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon
demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need
not prove presentment for payment or present the bill to the drawee for acceptance.

Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the discharge of the drawer only to the extent of the
loss caused by the delay. Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability in
the sum stated in the check. In this case, the Gueco spouses have not alleged, much less shown that they or the bank which issued the manager's check has suffered
damage or loss caused by the delay or non-presentment. Definitely, the original obligation to pay certainly has not been erased. It has been held that, if the check had
become stale, it becomes imperative that the circumstances that caused its non-presentment be determined. In the case at bar, there is no doubt that the petitioner bank
held on the check and refused to encash the same because of the controversy surrounding the signing of the joint motion to dismiss. The Court sees no bad faith or
negligence in this position taken by the Bank.

3) Far East Realty Investment v. CA - Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it is payable on demand,
presentment must be made within a reasonable time after issue, except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a
reasonable time after the last negotiation hereof (Section 71, Negotiable Instruments Law). Notice may be given as soon as the instrument is dishonored; and unless
delay is excused must be given within the time fixed by the law (Section 102, Negotiable Instruments Law). No hard and fast demarcation line can be drawn between
what may be considered as a reasonable or an unreasonable time, because "reasonable time" depends upon the peculiar facts and circumstances in each case.

It is obvious in this case that presentment and notice of dishonor were not made within a reasonable time. "Reasonable time" has been defined as so much time as is
necessary under the circumstances for a reasonable prudent and diligent man to do, conveniently, what the contract or duty requires should be done, having a regard for
the rights and possibility of loss, if any, to the other party. In the instant case, the check in question was issued on September 13, 1960, but was presented to the drawee
bank only on March 5, 1964, and dishonored on the same date. After dishonor by the drawee bank, a formal notice of dishonor was made by the petitioner through a
letter dated April 27, 1968. Under these circumstances, the petitioner undoubtedly failed to exercise prudence and diligence on what he ought to do as required by law.
The petitioner likewise failed to show any justification for the unreasonable delay.


WHAT CONSTITUTES A (1) By the holder, or by some person authorized to receive payment on his behalf;
SUFFICIENT PRESENTMENT138 (2) At a reasonable hour on a business day;
(Section 72) (3) At a proper place139; and
(4) To the person primarily liable on the instrument, or if he is absent or inaccessible, to any person found at the place
presentment is made.

CASE DOCTRINE
State Investment House v. IAC

Under usual practice, crossing a check is done by placing two parallel lines diagonally on the left top portion of the check. The crossing may be special wherein between
the two parallel lines is written the name of a bank or a business institution, in which case the drawee should pay only with the intervention of that bank or company, or
crossing may be general wherein between two parallel diagonal lines are written the words "and Co." or none at all as in the case at bar, in which case the drawee should
not encash the same but merely accept the same for deposit.

The effect therefore of crossing a check relates to the mode of its presentment for payment. Under Section 72 of the Negotiable Instruments Law, presentment for
payment to be sufficient must be made by the holder, or by some person authorized to receive payment on his behalf . . . As to who the holder or authorized person will be
depends on the instructions stated on the face of the check. The three subject checks in the case at bar had been crossed generally and issued payable to New Sikatuna
Wood Industries, Inc. which could only mean that the drawer had intended the same for deposit only by the rightful person, i.e., the payee named therein. Apparently, it
was not the payee who presented the same for ayment and therefore, there was no proper presentment, and the liability did not attach to the drawer. Thus, in the
absence of due presentment, the drawer did not become liable. Consequently, no right of recourse is available to petitioner against the drawer of the subject checks,
private respondent wife, considering that petitioner is not the proper party authorized to make presentment of the checks in question.

Yet it does not follow as a legal proposition that simply because petitioner was not a holder in due course as found by the appellate court for having taken the
instruments in question with notice that the same is for deposit only to the account of payee named in the subject checks, petitioner could not recover on the checks.
The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not in any case recover on the instrument for in the case at bar,
petitioner may recover from the New Sikatuna Wood Industries, Inc. if the latter has no valid excuse for refusing payment. The only disadvantage of a holder who is not
in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable.

That the subject checks had been issued subject to the condition that private respondents on due date would make the back up deposit for said checks but which
condition apparently was not made, thus resulting in the non-consummation of the loan intended to be granted by private respondents to New Sikatuna Wood Industries,
138
If the presentment for payment does not comply with any of the requisites, the effect is the same as if no presentment is made and consequently, the parties secondarily
liable are discharged.
139
In reference to Section 73,
Inc., constitutes a good defense against petitioner who is not a holder in due course.

PLACE OF PRESENTMENT If the place for the presentment for If not specified:
(Section 73) payment is specified, it is there (1) But the address of person to make payment is given in the instrument,
presented. it is there presented; or
(2) But the no address is given, but the instrument is to be presented at
the usual place of business or residence; or
(3) In any other place if presented to the person to make payment
wherever he can be found, or if presented at his last known place of
business or residence.
MANNER OF PRESENTMENT140 It must be exhibited to the person from whom payment is demanded141, and when it is paid, must be delivered up to the
(Section 74) person paying it.142
PRESENTMENT WHERE It must be made during banking hours. Unless the person has no funds in the bank to meet the payment any time
INSTRUMENT PAYABLE AT THE during the day, it can be made any hour before the bank is closed on that day.
BANK
(Section 75)
PRESENTMENT WHERE It must be made to his personal representative, if such there be, and if with reasonable diligence, he can be found.
PRINCIPAL DEBTOR IS DEAD
(Section 76)143
PRESENTMENT TO PERSONS It must be made to any one of them, even though there has been a dissolution of the firm.145
LIABLE AS PARTNERS
140
A valid presentment consists of something more than a mere demand. It requires personal or face to face demand at the proper place, exhibiting the instrument to the
maker or acceptor from whom payment is made.
141
If the instrument is not exhibited, the presentment would be ineffectual as the debtor is entitled to see the instrument and demand its surrender upon payment, unless
the maker or drawee does not require its exhibition but refuses to pay it on some other ground.
142
Why must I, as the maker, require that it be delivered and surrender to me? Because it might be renegotiated!
143
Applies only if no place of payment is specified.
(Section 77)144
PRESENTMENT TO JOINT146 It must be made to them all.

DEBTORS
(Section 78)147
WHERE PRESENTMENT NOT It is not required in order to charge the drawer where he had no right to expect or require that the drawee or acceptor
REQUIRED TO CHARGE THE will pay the instrument.148
DRAWER
(Section 79)
WHERE PRESENTMENT NOT It is not required in order to charge the indorser where the instrument was made or accepted for his accommodation
REQUIRED TO CHARGE THE and he has no reason to expect that the instrument will be paid if presented.149
INDORSER
(Section 80)

CASE DOCTRINE
Velasco v. Tan Liuan

If it was not its purpose or intent to assume and agree to pay the notes, it should have indorsed them "without recourse," or in such manner as to disclaim any personal
liability. When a person makes an unqualified indorsement of a promissory note, the Negotiable Instruments Law specifies and defines his liability, and parol testimony is
not admissible to explain or defeat such liability. Here, the bill of exchange was drawn by the defendant, Aw Yong Chiow Soo, and it was the bill of exchange which was
indorsed by the plaintiff, and the testimony is conclusive that plaintiff's indorsement was required by the bank as one of the conditions upon which it would cash the
draft.

Three of the notes had matured at the time they were indorsed and the written instruments signed. Although the draft was drawn by Aw Yong Chiow Soo, it was
dishonored, and the plaintiff was required by the bank to execute his note for its amount. At the time of the execution of the notes, Aw Yong Chiow Soo was a creditor of
145
Each partner is an agent of the partnership, or his co-partners. Hence, presentment may be made to any of them.
144
Id.
146
Recall: In a joint obligation, there are as many debts as there are debtors, each debt being considered distinct and separate from each other. Thus, presentment must be
made to all of them to holder the drawer and indorsers on their secondary liability.
147
Applies only if no place of payment is specified.
148
This refers to instances where he has no funds with the drawee, unless an arrangement has been made for payment of the bill; or where the drawer of a check has
stopped payment thereof; or where the drawer of a check has withdrawn funds from the drawee bank leaving nothing with which to pay the check.
149
In this case, the reason is that the accommodation payee-indorser is the real debtor and not the maker or acceptor. He is not discharged even if no presentment for payment
is made to the maker or acceptor who is a surety for the debt.
Tan Liuan & Co. for the amount of the notes. The action here is not based upon the draft. It is founded upon the promissory notes. the plaintiff did not receive any part of
the proceeds of the draft, but has been required by the bank to make his promissory note for the amount of the draft. As collateral and to indemnity and protect plaintiff
from any liability, Aw Yong Chiow Soo indorsed the promissory notes, which it held against Tan Liuan & Co. to the plaintiff, and did not in any manner qualify its
indorsement, and the Negotiable Instruments Act says that — "Every indorser who indorses without qualification, warrants to all subsequent holders in due course, etc.,
engages that on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it."

Section 80 of the Act says: "Presentment for payment 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." And subdivision (d), of section 114, says: "Where the drawer has no right to except or require that the
drawee or acceptor will honor the instrument."

The draft was drawn on March 18, 1919, payable thirty days after sight, and it was dishonored. Three of the notes were past at the time written agreements were made,
and the testimony is conclusive that Tan Liuan & co. was insolvent, and that Aw Yong Chiow Soo knew it, and that none of the notes would be paid if presented, and the
evidence shows that, before they were indorsed the first two had been duly presented and dishonored. In other words, at the time the unqualified indorsement was
made, two of the notes had been protested, and Aw Yong Chiow Soo knew that Tan Liuan & Co. was insolvent, and had no reason to expect that the notes would be paid
if presented. There is no claim or pretense that its claim was prejudiced or that it lost any legal right, because the last two notes were not protected, the first of which
was past due when it was indorsed.

The purpose and intent of the August written statements was to explain the transactions between the parties, to whom the proceed from the draft were paid, and that
the notes were indorsed by Aw Yong Chiow Soo to plaintiff, as collateral, to protect and hold him harmless in his indorsement of the draft, and to specify that Aw Yong
Chiow Soo should have any proceeds from the notes after the draft had been fully paid therefrom and the plaintiff released from his liability as an indorser. The
statements do not make any reference to the legal liability of Aw Yong Chiow Soo as an indorser of the notes, do not and were never contended to fully discharge and
release that firm from its liability as an indorser.

WHERE DELAY IN MAKING THE Delay is excused when such is caused by circumstances beyond the control of the holder152 and not imputable to his
PRESENTMENT IS EXCUSED150 default, misconduct, or negligence. When the cause of delay ceases to operate, presentment must be made with
(Section 81)151 reasonable diligence.
150
Only the delay in making of presentment is excused and not the making of the presentment itself.
151
The difference between Section 81 and 82 is that in the former, it is only delay that is excused; thus, there still needs to be a presentment; and in the later, the
presentment itself is excused and can be dispensed with.
152
Circumstances beyond the control of holder are events which would not be foreseen, or which though unseen are inevitable, i.e., force majeure or fortuitous event.
WHERE PRESENTMENT MAY BE (1) Where reasonable diligence has been exercised153;
DISPENSED WITH (2) Where the drawee is a fictitious person154; or
(Section 82) (3 By waiver of presentment, express or implied.

SUMMARY OF RULES AS TO PRESENTMENT FOR PAYMENT
GENERAL RULE: Presentment for payment is not necessary to charge persons primarily liable, but is necessary to charge persons secondarily liable (Sec. 70).
EXCEPTIONS: Presentment for payment is not necessary to charge secondarily liable when:
(1) As to drawer, under Sec. 79 (who had no right to expect or require that the drawee or acceptor will pay the instrument);
(2) As to indorser, under Sec. 80 (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);
(3) When presentment is dispensed with, under Sec. 82 (either 1) where reasonable diligence has been exercised, 2) where the drawee is a fictitious
person; or 3) by waiver of presentment, express or implied); and
(4) When a bill has been dishonored by non-acceptance, under Sec. 151.155

WHERE INSTRUMENT Non-payment upon due presentation. - That the instrument is duly presented for payment to the party primarily liable;
DISHONORED BY and that the payment is either: (1) refused; or (2) cannot be obtained.
NON-PAYMENT
(Section 83) Non-payment without presentation. - That presentment is excused, that the instrument is overdue, and that it is
unpaid.
EFFECT OF DISHONOR BY When the instrument is dishonored by non-payment, an immediate right of recourse to all parties secondarily liable
NON-PAYMENT thereon accrues to the holder.156
(Section 84)

CASE DOCTRINE
153
Reasonable diligence implies an active search. If practicable, the holder shoulder make inquiries of the payee when neither the maker nor his residence could be found.
154
If the drawee is fictitious, there is no one to whom presentment is made. Therefore, it is dispensed with.
155
This is more for practical purposes. Since there has already been non-acceptance, then, it is only practical that you can send a notice of dishonor.
156
What this implies is that, as to the holder, after an instrument is dishonored by non-payment, the persons secondarily liable become the principal debtors and he need
not proceed against the person primarily liable before suing them.
PNB v. Seeto

The silence of Section 186 as to the indorser is due to the fact that his discharge is already expressly covered by the provision of Section 84, the indorser being a person
secondarily liable on the instrument. The reason for the difference between the liability of the indorser and that of the drawer in case of dishonor is that the drawer is
not probably or necessarily prejudiced thereby, while an indorser is, actually or by legal presumption.

Innumerable decisions have already been rendered in the state courts of the United States to the effect that although the drawer of a check is discharged only to the
extent of loss caused by unreasonable delay in presentment, an indorser is wholly discharged thereby irrespective of any question of loss or injury. The Court has been
unable to find any authority sustaining the proposition that an indorser of a check is not discharged from liability for an unreasonable delay in presentation for payment.
This is contrary to the essential nature and character of negotiable instruments - their negotiability. They are supposed to be passed on with promptness in the ordinary
course of business transactions; not to be retained or kept for such time as the holder may want, otherwise the smooth flow of commercial transactions would be
hindered.

There seems to be an intimation in the decision appealed from that inasmuch as the check was drawn payable elsewhere than at the place of business of the drawer, it
must be presented for acceptance or negotiation within a reasonable time, and upon failure to do so the drawer and all indorsers thereof are discharged pursuant to
Section 144 of the law. Against this insinuation the petitioner argues that the application of sections 143 and 144 is not proper, and that it may not be presumed that the
check in question was not drawn and executed in Cebu, the residence or place of business of the drawer. There is no evidence at all as to the place where the check was
drawn. However, neither Section 143 nor Section 144 is applicable. But our ruling that respondent was discharged upon the dishonor of the check is based on Sections
84 and 186, the latter expressly requiring that a check must be presented for payment within a reasonable time after issue. It is not claimed by the petitioner on this
appeal that the conclusion of the Court of Appeals that there was unreasonable delay in the presentation of the check for payment at the drawee bank is erroneous. The
petitioner concedes the correctness of this conclusion, although for purposes of argument merely. The Court finds that the conclusion is correct. The fact, admitted by the
witnesses for the petitioner, that checks of the drawer issued subsequent to March 13, 1948, drawn against the same bank and cashed at the same Surigao agency, were
not dishonored positively shows that the drawer had enough funds when he issued the check in question, and that had it not been for the unreasonable delay in its
presentation for payment, the petitioner herein would have been able to receive payment therefor. The check is dated March 10 and was cashed by the petitioner's
agency on March 13, 1948. It was not mailed until seven days thereafter, i.e., on March 20, 1948, or ten days after issue. No excuse was given for this delay. Assuming
that it took one week, or say ten days, or until March 30, for the check to reach Cebu, neither can there be any excuse for not presenting it for payment at the drawee
bank until April 9, 1948, or 10 days after it reached Cebu. The Court, therefore, find no reason for disturbing the conclusion of the Court of Appeals that there was
unreasonable delay in the presentation of the check for payment at the drawee bank, and that as a consequence thereof, the indorser, respondent herein, was thereby
discharged.

With respect to the second assignment of error, petitioner argues that the verbal assurances given by the respondent to the employees of the bank that he was ready to
refund the amount if the check should be dishonored by the drawee bank is a collateral agreement, separate and distinct from the indorsement, by virtue of which
petitioner herein was induced to cash the check, and, therefore, admissible as an exception to the parol evidence rule. Petitioner's contention in this respect is not
entirely unfounded. In the case of Tan Machan vs. De La Trinidad, et al, this court held that parol evidence is admissible to show that parties signing as principals merely
did so as sureties. In the case of Robles vs. Lizarraga Hermanos, it was also held by this court that parol evidence is admissible to prove "an independent or collateral
agreement which constituted an inducement to the making of the sale or part of the consideration therefor." In Philips vs. Preston, the Supreme Court of the United States
held that any prior or contemporaneous conversation in connection with a note or its indorsement, may be proved by parol evidence. And Wigmore states that "an
extrinsic agreement between indorser and indorsee which can not be embodied in the instrument without impairing its credit is provable by parol." If, therefore, the
supposed assurances that the drawer had funds and that the respondent herein would refund the amount of the check if the drawer had no funds, were the

considerations or reasons that induced the branch agency of the petitioner to go out of its ordinary practice of not cashing out of town checks and accept the check and
to pay its face value, the same should be provable by parol, provided, of course, that the assurances or inducements offered would not vary, alter, or destroy the
obligations attached by law to the indorsement.

The Court held, however, that the supposed assurances of refund in case of dishonor of the check are precisely the ordinary obligations of an indorser, and these
obligations are, under the law, considered discharged by an unreasonable delay in the presentation of the check for payment. There was no express obligation assumed
by the respondent herein that the drawer would always have funds, or that he (the indorser) would refund the amount of the check even if there was delay in its
presentation, so that while the Court of Appeals may have committed an error in disregarding the evidence submitted by petitioner at the trial of the assurances made by
respondent herein at the time of the negotiation of the check, such error was without prejudice, because the supposed assurances given were part of his obligations as
an indorser, which were discharged by the unreasonable delay in the presentation of the check for payment.

after GENERAL RULE EXCEPTION/S
TIME OF MATURITY Every negotiable instrument is payable at the time fixed therein without grace.
(Section 85) (e.g., An instrument payable on April 19, 2020 must be presented for payment on April 19, 2020. And it is considered
dishonored if it is not paid on that day. If a grace of of 5 days is provided in the instrument, then presentment must be made
on April 24, the last day of grace.)

If on a Sunday or a holiday. - Presentment for payment cannot be made on a Sunday or a holiday, so it will have to be
presented on the next succeeding business day.
(e.g., If April 19, 2020 or April 24, 2020, as the case may be, is a Sunday or a holiday, the holder must present the
instrument on the next succeeding business day.)

If instrument is falling due or becoming payable on a Saturday. - In either case, presentment should also be made, not
on Saturday, but on the next business day succeeding day.
FALLING DUE ON A SATURDAY BECOMING PAYABLE ON A SATURDAY
If it is payable on a Saturday. If it falls due on another day, like a Friday which happens

to be a holiday, and therefore, the instrument shall
instead be payable on Saturday, which is the next day.
(e.g., If April 20, 2020 is a Friday, which is a holiday, the instrument becomes payable on a Saturday. In either case, it
should be presented for payment on the next succeeding business day, in the same manner as if April 20,2020 is a Sunday or
a holiday.)


If on demand. - It may be presented for payment before 12:00 noon on Saturday when that day is not a holiday, at the
option of the holder.157
COMPUTATION OF TIME OF The time for payment is determined by excluding the day from which time is to begin to run, and by including the date
MATURITY of payment.
(Section 86) (e.g., If an instrument is payable 10 days after October 11, 2019, the date of maturity is October 21, 2019. By counting
or adding 10 days from October 12, 2019, the last 10 days is October 21, 2019.)
RULE WHERE INSTRUMENT IS Where the instrument is payable at a bank, it is equivalent to an order to the bank to pay the same for the account of the
PAYABLE AT THE BANK principal debtor.
(Section 87)
WHAT CONSTITUTES PAYMENT (1) Made at or after the date of maturity158;

IN DUE COURSE (2) Made to the holder; and
(Section 88) (3) Made in good faith and without notice that the holder’s title is defective.

CHAPTER VII - NOTICE OF DISHONOR

TO WHOM NOTICE OF When an instrument is to be considered dishonored:

DISHONOR159 MUST BE GIVEN (1) If it is not accepted when presented for acceptance; or
(Section 89) (2) If it is not paid when presented for payment at maturity.

Notice of such dishonor must be given to parties secondarily liable - namely, a drawer if it be a bill, or each of the
indorsers, whether a bill or note. Any person to whom such notice is not given is discharged.
157
The reason for the rule is that the instrument being payable on demand, the presumption is that the party primarily liable has the money ready any time for payment.
158
Payment before maturity does not discharge the instrument, because it would constitute a negotiation back to the primary party. If an instrument is renegotiated to a
holder in due course, the latter may recover on the instrument.
159
Notice of dishonor is bringing, either verbally or by writing, to knowledge of the drawer or indorser of instrument, the fact that a specified negotiable instrument, upon
proper proceedings taken, has not been accepted or has not been paid and that the party notified is expected to pay it.
BY WHOM NOTICE OF Notice is given:
DISHONOR IS GIVEN (1) By the holder; or
(Section 90) (2) By another on behalf of the holder; or
(3) By a party to the instrument who might be compelled to pay it to the holder, and, who upon taking it up, would have
a right to reimbursement from the party to whom notice is given; or
(4) By another person in behalf of such party.
NOTICE GIVEN BY AGENT160 Any person can be an agent of any party entitled to give notice. The notice may be given:
(Section 91) (1) In name of the agent; or
(2) The party entitled to give notice, whether that party be his principal or not.
EFFECT OF NOTICE ON BEHALF Notice of dishonor given by or on behalf of the holder inures to the benefit of:
OF HOLDER (1) All holders subsequent to the holder who has given notice; and
(Section 92) (2) All parties prior to the holder but subsequent to the party to whom notice has been given and against whom they have a
right of recourse.161

M → P → A → B → C → D [HOLDER] → E [SUBSEQUENT HOLDER]

It is dishonored in the hands of D, who notifies P, A, B, and C. - The notice given by D to P operates to the benefit of
A, B, and C, parties subsequent to P, and E, a subsequent holder, although they themselves have not notified P. The
notice to A inures to the benefit of B, C, and E; the notice to B, to the benefit of C and E; and the notice of C, to the benefit
of E.
● Should B pay C, B may go against P or A on the basis of the notice given to P or A although B has not himself
given notice of dishonor. BUT, the notice to A does not operate in favor of P, because P has no right of
recourse against A. It is A who can hold P liable.

EFFECT WHERE NOTICE IS Notice of dishonor given by or on behalf of the party entitled to give notice inures to the benefit of:
GIVEN BY PARTY ENTITLED (1) The holder; and
This is where it becomes important to weigh: benefit vs. liability. You construe it strictly against the part receiving the notice of dishonor.
160
A party can charge a prior party who has received notice of dishonor although he himself has not given said prior party any notice. The reason for this is that, a party
161
entitled to a notice of dishonor need to be notified only once.

THERETO (2) All parties subsequent to the party to whom notice is given, including partes subsequent to the holder who gave notice.
(Section 93)


If D notifies only C → P, A, and B are discharged from their liability for the lack of notice. - The notice to C makes him
“a party entitled to give notice” as he “might be compelled to pay it to the holder, and who, upon taking it up, would have a
right to reimbursement from th party to whom notice is given.
● If C, however, gives due notice to P, A, and B, such notice inures to the benefit of D, the holder and also of E
as he is a party subsequent to the party to whom notice was given. C’s notice to P inures to the benefit of A,
B, D, and E - parties subsequent to P. For the same reason, C’s notice to A inures to the benefit of B, D, and E;
thus, A is not discharged by failure of D to give him notice if A is notified properly by a person entitled to give
notice, like C.

WHEN AGENT MAY GIVE The agent, in case the instrument is dishonored in the hands, may give notice either to his principal, or directly to the
NOTICE parties secondarily liable thereon without notifying his principal.162
(Section 94)
Notice to parties secondarily liable. - He must do so within the time fixed in accordance with this Law; otherwise, they
are discharged for lack of notice, unless the principal notifies them within the same time.

Notice to principal. - He must notify the principal within the same time as if he were a holder. The principal, upon
receiving such notice, has also the same time for giving notice to the parties secondarily liable, as if the instrument was
dishonored on the day that he received the notice.
EFFECT OF DEFECT IN NOTICE Lack of signature or insufficiency. - The fact that a written notice is not signed or insufficient would not invalidate it.
(Section 95) Any such insufficiency may be supplemented and validated by oral communication.
What this means is that, [a] note indorsed by P, A, and B is dishonored in the hands of X, agent of C, the present holder. X may give notice either to P, A, and B directly or

162
to C, his principal, and let the latter notify P, A, and B.


Misdescription of instrument.163 - It does not vitiate the notice, unless the party to whom the notice is given is in fact
misled.
FORM OF NOTICE (1) May be in writing or merely oral;

(Section 96) (2) May be given in any terms, which sufficiently identify the instrument and indicate that it has been dishonored by
non-acceptance or non-payment; and
(3) May in all cases be given by delivering it personally or through the mails.
TO WHOM NOTICE MAY BE The notice of dishonor may be given:

GIVEN (1) to the party himself; or
(Section 97) (2) to his agent in that behalf.
NOTICE WHERE PARTY IS DEAD Where the party sought to be charged is dead, the Notice may be sent to the last residence; or last place of
(Section 98) notice must be given to his personal representative, business of the decreased.
provided that:
(1) His death is known to the party giving notice;
(2) There is a personal representative; and
(3) If with reasonable diligence, the said personal
representative could be found.
NOTICE TO PARTNERS Notice to any one partner is notice to the firm, even though there has been a dissolution.164
(Section 99)
NOTICE TO PERSONS JOINTLY It must be given to each of them, unless one of them has authority to receive such notice for others.165
LIABLE
(Section 100)
NOTICE TO BANKRUPT It may be given to the party himself, or to his trustee or assignee, where 1) the party secondarily liable has been declared

(Section 101) a bankrupt or an insolvent; and 2) the party secondarily liable has made an assignment of his properties for the benefit of
163
Misdescription may either be of, the amount, its date, the name of the parties, or the date of maturity, or other defect. The purpose of the notice is to appraise the party
entitled thereto of dishonor of the instrument. So that when he is in fact not misled by the instrument, the notice is efficient.
164
Each partner is an agent of the partnership. Hence, notice to the partners is notice to the partnership.
165
See Section 68. - Joint payees or joint indorsees who indorse an instrument are deemed to indorse jointly and severally. Their liability is solidary, not joint; so that if one
of them is notified, that one is not discharged by reason of failure to give notice to the other joint indorsees.
creditors.
TIME WITHIN WHICH NOTICE Notice may be given:

MUST BE GIVEN (1) As soon as the instrument is dishonored; and
(Section 102) (2) Unless delay is excused, within the times fixed by this Act.

CASE DOCTRINES

1) Far East Realty Investment v. CA - Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it is payable on demand,
presentment must be made within a reasonable time after issue, except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a
reasonable time after the last negotiation hereof (Section 71, Negotiable Instruments Law). Notice may be given as soon as the instrument is dishonored; and unless
delay is excused must be given within the time fixed by the law (Section 102, Negotiable Instruments Law). No hard and fast demarcation line can be drawn between
what may be considered as a reasonable or an unreasonable time, because "reasonable time" depends upon the peculiar facts and circumstances in each case.

It is obvious in this case that presentment and notice of dishonor were not made within a reasonable time. "Reasonable time" has been defined as so much time as is
necessary under the circumstances for a reasonable prudent and diligent man to do, conveniently, what the contract or duty requires should be done, having a regard for
the rights and possibility of loss, if any, to the other party. In the instant case, the check in question was issued on September 13, 1960, but was presented to the drawee
bank only on March 5, 1964, and dishonored on the same date. After dishonor by the drawee bank, a formal notice of dishonor was made by the petitioner through a
letter dated April 27, 1968. Under these circumstances, the petitioner undoubtedly failed to exercise prudence and diligence on what he ought to do as required by law.
The petitioner likewise failed to show any justification for the unreasonable delay.

2) Lao v. CA - Knowledge of insufficiency of funds or credit in the drawee bank for the payment of a check upon its presentment is an essential element of the offense.
There is a prima facie presumption of the existence of this element from the fact of drawing, issuing or making a check, the payment of which was subsequently refused
for insufficiency of funds. It is important to stress, however, that this is not a conclusive presumption that forecloses or precludes the. presentation of evidence to the
contrary. In the present case, the fact alone that petitioner was a signatory to the checks that were subsequently dishonored merely engenders the prima facie
presumption that she knew of the insufficiency of funds, but it does not render her automatically guilty under B.P. 22. The prosecution has a duty to prove all the
elements of the crime, including the acts that give rise to the prima facie presumption; petitioner, on the other hand, has a right to rebut the prima facie presumption.
Therefore, if such knowledge of insufficiency of funds is proven to be actually absent or non-existent, the accused should not be held liable for the offense defined under
the first paragraph of Section 1 of B .P. 22. Although the offense charged is a malum prohibitum, the prosecution is not thereby excused from its responsibility of proving
beyond reasonable doubt all the elements of the offense, one of which is knowledge of the insufficiency of funds.

There is another equally cogent reason for the acquittal of the accused. There can be no prima facie evidence of knowledge of insufficiency of funds in the instant case
because no notice of dishonor was actually sent to or received by the petitioner. The notice of dishonor may be sent by the offended party or the drawee bank. The trial
court itself found absent a personal notice of dishonor to Petitioner Lina Lim Lao by the drawee bank based on the unrebutted testimony of Ocampo "(t)hat the checks
bounced when presented with the drawee bank but she did not inform anymore the Binondo branch and Lina Lim Lao as there was no need to inform them as the
corporation was in distress." The Court of Appeals affirmed this factual finding. Pursuant to prevailing jurisprudence, this finding is binding on this Court. Indeed, this
factual matter is borne by the records. The records show that the notice of dishonor was addressed to Premiere Financing Corporation and sent to its main office in
Cubao, Quezon City. Furthermore, the same had not been transmitted to Premier's Binondo Office where petitioner had been holding office. Likewise, no notice of

dishonor from the offended party was actually sent to or received by Petitioner Lao.

Because no notice of dishonor was actually sent to and received by the petitioner, the prima facie presumption that she knew about the insufficiency of funds cannot
apply. Section 2 of B.P. 22 clearly provides that this presumption arises not from the mere fact of drawing, making and issuing a bum check; there must also be a
showing that, within five banking days from receipt of the notice of dishonor, such maker or drawer failed to pay the holder of the check the amount due thereon or to
make arrangement for its payment in full by the drawee of such check.

It has been observed that the State, under this statute, actually offers the violator "a compromise by allowing him to perform some act which operates to preempt the
criminal action, and if he opts to perform it the action is abated." This was also compared "to certain laws allowing illegal possessors of firearms a certain period of time
to surrender the illegally possessed firearms to the Government, without incurring any criminal liability." In this light, the full payment of the amount appearing in the
check within five banking days from notice of dishonor is a "complete defense." The absence of a notice of dishonor necessarily deprives an accused an opportunity to
preclude criminal prosecution. Accordingly, procedural due process clearly enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a right to
demand — and the basic postulates of fairness require — that the notice of dishonor be actually sent to and received by her to afford her the opportunity to avert
prosecution under B.P. 22. In this light, the postulate of Respondent Court of Appeals that "(d)emand on the Corporation constitutes demand on appellant (herein
petitioner), is erroneous. Premiere has no obligation to forward the notice addressed to it to the employee concerned, especially because the corporation itself incurs no
criminal liability under B.P. 22 for the issuance of a bouncing check. Responsibility under B.P. 22 is personal to the accused; hence, personal knowledge of the notice of
dishonor is necessary. Consequently, constructive notice to the corporation is not enough to satisfy due process. Moreover, it is petitioner, as an officer of the corporation,
who is the latter's agent for purposes of receiving notices and other documents, and not the other way around. It is but axiomatic that notice to the corporation, which
has a personality distinct and separate from the petitioner, does not constitute notice to the latter.

3) King v. CA - To hold a person liable under BP 22, it is not enough to establish that a check issued was subsequently dishonored. It must be shown further that the
person who issued the check knew "at the time of issue that that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full
upon its presentment." Because this element involves a state of mind which is difficult to establish, Section 2 of the law creates a prima facie presumption of such
knowledge.

In other words, the prima facie presumption arises when a check is issued. But the law also provides that the presumption does not arise when the issuer pays the
amount of the check or makes arrangement for its payment "within five banking days after receiving notice that such check has not been paid by the drawee." Verily, BP
22 gives the accused an opportunity to satisfy the amount indicated in the check and thus avert prosecution. As the Court held in Lozano v. Martinez, the aforecited
provision serves to "mitigate the harshness of the law in its application." This opportunity, however, can be used only upon receipt by the accused of a notice of dishonor.
This point was underscored by the Court in Lina Lim Lao v. Court of Appeals. Thus, in order to create the prima facie presumption that the issuer knew of the insufficiency
of funds, it must be shown that he or she received a notice of dishonor and, within five banking days thereafter, failed to satisfy the amount of the check or make
arrangements for its payment.

To prove that petitioner knew of the insufficiency of her funds, the prosecution presented Exhibits "Q" to "T." Based on these documents, the Court of Appeals concluded
that "[p]rivate complainant sent a demand letter to appellant to make good said checks xxx. Appellant failed to pay the face value of the eleven checks or make
arrangement for the full payment thereof within 90 days after receiving the notice." Upon closer examination of these documents, the Court finds no evidentiary basis for
the holding of the trial court and the Court of Appeals that petitioner received a notice that the checks had been dishonored. True, complainant sent petitioner a
registered mail, as shown in Exhibit "Q" informing the latter that the checks had been dishonored. But the records show that petitioner did not receive it. In fact,
Postmaster Wilfredo Ulibarri's letter addressed to complainant's counsel certified that the "subject registered mail was returned to sender on September 22, 1992 xxx."

Notwithstanding the clear import of the postmaster's certification, the prosecution failed to adduce any other proof that petitioner received the post office notice but
unjustifiably refused to claim the registered mail. It is possible that the drawee bank sent petitioner a notice of dishonor, but the prosecution did not present evidence
that the bank did send it, or that petitioner actually received it. It was also possible that she was trying to Lee from complainant by staying in different addresses.
Speculations and possibilities, however, cannot take the place of proof. Conviction must rest on proof beyond reasonable doubt. Clearly, the evidence on hand
demonstrates the indelible fact that petitioner did not receive notice that the checks had been dishonored. Necessarily, the presumption that she knew of the
insufficiency of funds cannot arise.

*WHERE PARTIES RESIDE IN THE SAME Where the person giving and the person receiving notice reside in the same place, it must be given: personally;
PLACE or by mail.
(Section 103)
Personally. - Either 1) at the place of business of the person to receive notice; or 2) at his residence.
AT THE PLACE OF BUSINESS OF PERSON TO RECEIVE AT HIS RESIDENCE
NOTICE
Given before the close of business hours on the day Given before the usual hours of rest on the day
following. following.

*WHERE PARTIES RESIDE IN DIFFERENT Where the person giving and the person receiving notice reside in different places, it must be given: by mail; or
PLACES166 otherwise by mail.
(Section 104)
*WHEN SENDER DEEMED TO HAVE Notice by mail is deemed to have been properly made where:
GIVEN DUE NOTICE (Section 105) (1) the notice of dishonor is duly addressed; and
(2) deposited in the post-office.

As long as the sender has done everything which the law requires him to do, the notice would still be considered on
time although it does not reach the addressee due to miscarriage in the mails. The notice must be properly
addressed, stamped, and mailed.
166
Places here refer to different municipalities, cities, or regions apart.
*WHEN NOTICE DEEMED TO HAVE The notice may be deposited in:
BEEN DEPOSITED (1) the post-office;
(Section 106) (2) any branch office; or
(3) any letter box under the control of the post-office.
TIME OF NOTICE TO SUBSEQUENT The instrument is considered dishonored in the hands of a party who receives a notice of dishonor from the holder

PARTY on the date he receives such notice, not on the date the instrument is dishonored in the hands of the holder. He
(Section 107) has the same time for giving notice to antecedent parties that the holder has after the dishonor.


If E gave a notice of dishonor only to B, C, and E, missing A, what is B supposed to do? - B is supposed to give
a notice to A, because if B will not give a notice to A, A will be discharged; thus, B will only be limited to 1
party - which is the maker. B, now, upon getting a notice of dishonor, must check with E, whether he gave a
notice of dishonor. If he gave a notice of dishonor to A, then he is happy, BUT if he did not give a notice of
dishonor, then B will have the same period to turn around and give the notice to A; thereby, making A liable, once
complied with.

PLACE WHERE NOTICE MUST BE SENT If the party has added an address to his If no address is indicated:
(Section 108) signature, it is there the notice must be sent. (1) Either to the post-office nearest to his place of residence;
or to the post-office where he is accustomed to receive his
letters;
(2) Either in place he lives in; or his place of business; or
(3) If sojourning, the place where he is sojourning.

But where notice is actually received by the party within the
time specified, it will be sufficient though not sent in accordance
with the requirements in this section.

WAIVER OF NOTICE167 It may be made:
(Section 109) (1) Before the time of giving notice; or
(2) After the omission to give notice.

Waiver may be express168 or implied169.
PERSONS AFFECTED BY WAIVER (1) If the waiver is embodied in the instrument itself. - It binds all parties.
(Section 110) (2) If it is written above the signature of the indorser. - It binds him [the indorser] only.
WAIVER OF PROTEST170 Where protest is waived, presentment and notice of dishonor are also deemed waived.171
(Section 111)
WHEN NOTICE IS DISPENSED WITH It is dispensed when, after exercise of reasonable diligence, it cannot be given to or does not reach the parties
(Section 112) sought to be charged.
WHEN DELAY IN GIVING NOTICE Delay is excused when such is when it is caused by circumstances beyond the control of the holder, and not
(Section 113) imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate, notice must be
made with reasonable diligence.
WHEN NOTICE (1) Where the Holder has option to treat bill as promissory note. - In this situation, the drawer will be regarded as a maker
TO DRAWER drawer and drawee and a primary party. Furthermore, since the drawer is the same place who dishonored the instrument, he
NOT REQUIRED are the same person; already knows of the dishonor and obviously notice to him is superfluous.
(Section 114)
(2) Where the

drawee is a fictitious
person, or a person
167
The burden of proof is on the holder to show waiver of notice. It must be proved by clear and convincing evidence.
168
It is express when it is made orally or in writing, at when “notice of dishonor waived” appears above the signature of an indorser.
169
It is implied where it is inferred from the act or language. It usually takes place after there has been omission to give notice.
170
Protest is the formal instrument executed usually by a notary public certifying that the legal steps necessary to fix the liability of the drawee and the indorsers have been
taken.
171
This is because “protest” means all the steps accompanying dishonor necessary to charge a party secondarily liable.
not having capacity
to contract;
(3) Where the Drawer has knowledge of dishonor. - The reason for not requiring notice is that the drawer has knowledge of
drawer is the person the dishonor since he is the one who dishonored the instrument. The presentment itself constitutes notice of
to whom the dishonor of the instrument.
instrument is
presented for
payment;
(4) Where the Drawer knew the bill would be dishonored. - In this situation, the drawer of the check is not entitled to notice
drawer has no right of dishonor when he has no account with the drawee bank, or has no founds with the drawee bank to meet it.172
to expect or require
that the drawee or
acceptor will honor
the instrument; and
(5) Where the Drawer countermanded payment. - The drawer knows that the instrument will be dishonored. When the drawer

drawer has countermands payment, he orders the drawee not to pay.
countermanded
payment.

CASE DOCTRINE
Great Asian Sales v. CA

The exercise by Bancasia of its option to sue for breach of contract under the Civil Code will not leave Great Asian holding an empty bag. Great Asian, after paying
Bancasia, is subrogated back as creditor of the receivables. Great Asian can then proceed against the drawers who issued the checks. Even if Bancasia failed to give
timely notice of dishonor, still there would be no prejudice whatever to Great Asian. Under the Negotiable Instruments Law, notice of dishonor is not required if the
drawer has no right to expect or require the bank to honor the check, or if the drawer has countermanded payment. In the instant case, all the checks were dishonored
for any of the following reasons: "account closed," "account under garnishment," "insufficiency of funds," or "payment stopped." In the first three instances, the drawers had
no right to expect or require the bank to honor the checks, and in the last instance, the drawers had countermanded payment.

But, the simple fact that the drawer has no funds with the drawee does not always operate to excuse the holder to give notice to the drawer. The drawee may have
172
agreed to advance the amount for the drawer who has a reason, therefore, to “expect” the drawee to accept or pay.
WHEN NOTICE TO INDORSER NOT (1) Where the drawee is a fictitious person, or a person not having capacity to contract, and the indorser was not
REQUIRED173 aware of that fact at the time he indorsed the instrument;
(Section 115) (2) Where the indorser is the person to whom the instrument is presented for payment; and
(3) Where the instrument was made or accepted for his accommodation.
NOTICE OF NON-PAYMENT WHERE When a bill is dishonored by non-acceptance, an immediate right of recourse against all secondary parties
ACCEPTANCE REFUSED accrues to the holder, and no presentment for payment is necessary.174
(Section 116)
But, if the instrument is accepted after it has been dishonored by non-acceptance, it is necessary for the holder
to present the instrument for payment upon maturity.
EFFECT OF OMISSION TO GIVE NOTICE It does not prejudice the rights of a holder in due course subsequent to the omission.
OF NON-ACCEPTANCE
(Section 117)
WHEN PROTEST REQUIRED AND NOT Foreign bills of exchange. - Protest is necessary only in foreign bills of exchange which have been dishonored by
REQUIRED non-acceptance or non-payment.
(Section 118)
Other negotiable instrument. - Protest is optional, except in cases in Sections 158, 161, and 171.

SUMMARY OF RULES AS TO NOTICE OF DISHONOR
GENERAL RULE: Notice of dishonor is not necessary to charge persons primarily liable, but is necessary to charge persons secondarily liable.
EXCEPTIONS: Notice of dishonor is not necessary to charge secondarily liable when:
(1) When notice is waived, under Sec. 109 (made before the time of giving notice, or after the omission to give notice);
(2) When protest is waived, under Sec. 111 (whether in a case of foreign bill of exchange or other negotiable instrument, and is also deemed a waiver
of presentment and notice of dishonor);
(3) When notice is dispensed with, under Sec. 112 (after exercise of reasonable diligence, it cannot be given to or does not reach the parties sought to be
charged);
(4) As to the drawer, under Sec. 114 (Where 1) the drawer and drawee are the same person; 2) where the drawee is a fictitious person, or a person not
173
This applies only to the indorser concerned. Failure to give due notice of dishonor to all other secondary parties will relieve them of their liability.
174
If nevertheless the holder presents the bill for payment on maturity and it is dishonored, he need not notify again the secondary parties.
having capacity to contract; 3) where the drawer is the person to whom the instrument is presented for payment; 4) where the drawer has no right to
expect or require that the drawee or acceptor will honor the instrument; and 5) Where the drawer has countermanded payment.);
(5) As to the indorser, under Sec. 115 (Where 1) the drawee is a fictitious person, or a person not having capacity to contract, and the indorser was not
aware of that fact at the time he indorsed the instrument; (2) where the indorser is the person to whom the instrument is presented for payment; and (3)
where the instrument was made or accepted for his accommodation.);
(6) Where due notice of dishonor by non-acceptance has been given, under Sec. 116 (when an immediate right of recourse against all secondary parties
accrues to the holder, and no presentment for payment is necessary.); and
(7) As to holder in due course, without notice of dishonor, subsequent to the omission to give notice under Sec. 117 (where it does not prejudice the
rights of such holder in due course.)

CHAPTER VIII - DISCHARGE OF NEGOTIABLE INSTRUMENT

DISCHARGE OF (1) By payment in In order that payment may produce the effect of discharging the instrument, it must be (See Sec. 88) :
INSTRUMENT175 due course by or on (1) By or on behalf of the principal debtor176;
(Section 119) behalf of the (2) At or after its maturity;
principal debtor; (3) To the holder; and
(4) In good faith and without notice to the holder that the title is defective.
(2) By payment in Payment by accommodated party. - As between the accommodation party and the accommodated party, the
due course by the accommodated party is the real debtor. Hence, payment by the accommodation party is actually payment by the
party accommodated, principal debtor and this is true whether he appears as party to the instrument or not.
where the instrument
is made or accepted
for accommodation;
175
Discharge of an instrument means a release of all parties, whether primary or secondary, from obligations arising under the instrument rendering it without force or
effect and consequently, no longer negotiable. Note, that the methods of discharge under this provision are exclusive.
176
Who is ultimately liable to pay the instrument? In a promissory note, the maker is the principal debtor, while in a bill of exchange, it is the acceptor, but if the drawee
refuses, then the drawer.
(3) By intentional This must be: 1) intentionally done; and 2) by the holder thereof.
cancellation177 by
the holder;
(4) By any other act As to other acts of discharging contracts in general, the law on obligations and contracts will apply.
which will discharge
a simple contract for Art. 1231 of the Civil Code. - Obligations are extinguished:
the payment of (1) By payment or performance;
money; and (2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the right of creditor and debtor;
(5) By compensation; and
(6) By novation.

Other causes are: annulment, rescission, fulfilment of a resolutory condition, and prescription are governed
elsewhere in this Code.
(5) When the Reacquisition by principal debtor in his own right. - It must be 1) by the principal; 2) in his own right; and 3) at or
principal debtor after the date of maturity. In this situation, the instrument is discharged because of the merger in his person of
becomes the holder the characters of debtor and creditor.
of the instrument at
or after maturity in
his own right.

CASE DOCTRINES

1) State Investment House v. CA - The post-dated checks were merely issued as security is not a ground for the discharge of the instrument as against a holder in due
course. For, the only grounds are those outlined in Sec. 119 of the Negotiable Instrument Law.

Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge of the instrument. But, the intentional cancellation contemplated under
paragraph (c) is that cancellation effected by destroying the instrument either by tearing it up, burning it, or writing the word "cancelled" on the instrument. The act of
destroying the instrument must also be made by the holder of the instrument intentionally. Since MOULIC failed to get back possession of the post-dated checks, the
intentional cancellation of the said checks is altogether impossible.
Cancellation may be done by writing the word “cancelled” or “paid” on the face of the instrument. There is also cancellation when the instrument is torn up, burned, or
177
mutilated. The presumption is that the cancelation is intentional.


On the other hand, the acts which will discharge a simple contract for the payment of money under paragraph (d) are determined by other existing legislations since Sec.
119 does not specify what these acts are, e.g., Art. 1231 of the Civil Code which enumerates the modes of extinguishing obligations. Again, none of the modes outlined
therein is applicable in the instant case as Sec. 119 contemplates of a situation where the holder of the instrument is the creditor while its drawer is the debtor. In the
present action, the payee, Corazon Victoriano, was no longer MOULIC's creditor at the time the jewelry was returned.

Correspondingly, MOULIC may not unilaterally discharge herself from her liability by the mere expediency of withdrawing her funds from the drawee bank. She is thus
liable as she has no legal basis to excuse herself from liability on her checks to a holder in due course.

2) Salazar v. J.Y. Brothers Marketing - Section 119 of the Negotiable Instrument Law provides that [a] negotiable instrument is discharged when: (a) By payment in due
course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; (c) By
the intentional cancellation thereof by the holder; (d) By any other act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes
the holder of the instrument at or after maturity in his own right.)

And, under Article 1231 of the Civil Code, obligations are extinguished: xxx xxx xxx (6) By novation.

Petitioner's claim that respondent's acceptance of the Solid Bank check which replaced the dishonored Prudential bank check resulted to novation which discharged the
latter check is unmeritorious.

In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. and Stronghold Insurance Co., Inc., the Court stated the concept of novation, thus: “xxx Novation is done by the
substitution or change of the obligation by a subsequent one which extinguishes the first, either by changing the object or principal conditions, or by substituting the
person of the debtor, or by subrogating a third person in the rights of the creditor. Novation may: [E]ither be extinctive or modificatory, much being dependent on the
nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied,
the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one. Implied
novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old obligation is completely superceded by the
new one. The test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconcilable, the subsequent
obligation would also extinguish the first.

An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in its stead. This kind of novation
presupposes a concurrence of four essential requisites: (1) a previous valid obligation, (2) an agreement of all parties concerned to a new contract, (3) the extinguishment of the
old obligation, and (4) the birth of a valid new obligation. Novation is merely modificatory where the change brought about by any subsequent agreement is merely
incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay; in this instance, the new agreement will not have the effect of
extinguishing the Hrst but would merely supplement it or supplant some but not all of its provisions.)

The obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not
incompatible with the old ones or the new contract merely supplements the old one. In Nyco Sales Corporation v. BA Finance Corporation, the Court held untenable
petitioner Nyco's claim that novation took place when the dishonored BPI check it endorsed to BA Finance Corporation was subsequently replaced by a Security Bank
check, 15 and said: “There are only two ways which indicate the presence of novation and thereby produce the effect of extinguishing an obligation by another which
substitutes the same. First, novation must be explicitly stated and declared in unequivocal terms as novation is never presumed. Secondly, the old and the new

obligations must be incompatible on every point. The test of incompatibility is whether or not the two obligations can stand together, each one having its independent
existence. If they cannot, they are incompatible and the latter obligation novates the first. In the instant case, there was no express agreement that BA Finance's
acceptance of the SBTC check will discharge Nyco from liability. Neither is there incompatibility because both checks were given precisely to terminate a single
obligation arising from Nyco's sale of credit to BA Finance.”

As novation speaks of two distinct obligations, such is inapplicable to this case. In this case, respondent's acceptance of the Solid Bank check, which replaced the
dishonored Prudential Bank check, did not result to novation as there was no express agreement to establish that petitioner was already discharged from his liability to
pay respondent the amount of P214,000.00 as payment for the 300 bags of rice. Novation is never presumed, there must be an express intention to novate. In fact, when
the Solid Bank check was delivered to respondent, the same was also indorsed by petitioner which shows petitioner's recognition of the existing obligation to
respondent to pay P214,000.00 subject of the replaced Prudential Bank check.

Moreover, respondent's acceptance of the Solid Bank check did not result to any incompatibility, since the two checks — Prudential and Solid Bank checks — were
precisely for the purpose of paying the amount of P214,000.00, i.e., the credit obtained from the purchase of the 300 bags of rice from respondent. Indeed, there was no
substantial change in the object or principal condition of the obligation of petitioner as the indorser of the check to pay the amount of P214,000.00. It would appear that
respondent accepted the Solid Bank check to give petitioner the chance to pay her obligation.

DISCHARGE OF (1) By any which Once discharged, the instrument ceases to have force and effect. All parties, whether primarily or secondarily
SECONDARY discharges the liable, will also be discharged.
PARTIES instrument;
(Section 120) But a discharge of a secondary party does not effect a discharge of the instrument itself.
(2) By the This must be: 1) intentionally done; and 2) by the holder thereof.
intentional
cancellation of his The effect is to discharge him from liability on the instrument as if he has never been a party to the same. But,
signature by the such right of the holder is subject to limitation that the indorsement is not necessary to the holder’s title (See
holder; Sec. 48).
(3) By the discharge The discharge of a party as by intentional cancellation of his signature178 also operates as a discharge of parties
of a prior party; subsequent to the party discharged.179
178
This applies only to discharge by the act of the holder, not to the discharges by operation of law. It does not include a discharge by bankruptcy or insolvency, or a discharge
by the statute of limitations or prescription, or a discharge of a party for failure of the holder to give him the notice of dishonor.
179
The reason for the rule is that, the discharge deprives a subsequent party of a right of recourse against the party discharged by the holder.
(4) By a valid tender It would result in the discharge of said party and necessarily, of all parties subsequent to him.
of payment made by
a prior party;
(5) By a release of It would also result in the discharge of said party and necessarily, of all parties subsequent to him. Moreover,
the principal debtor, with the release of the principal debtor, subsequent parties lose their right of recourse against him.
unless the holder’s
right of recourse
against the party
secondarily liable is

expressly reserved;
and M → P → A → B → C → D [HOLDER] → E [SUBSEQUENT HOLDER]

If D releases M, the maker, P, A, and B, the persons secondarily liable, are likewise discharged. But if C, in
releasing M, expressly reserved his right against the persons secondarily liable, then they are not discharged.
By such reservation, it is understood that the right of recourse of P, A, and B against M are also reserved.

(6) By any An extension granted to the debtor without It does not discharge parties secondarily liable when:
agreement binding consent extinguishes the obligation. It thus (1) Where the extension of time is consented to by such party;
upon the holder180 discharges the party secondarily liable. and
to extend the time (2) Where the holder expressly reserves his right to recourse
of payment, or to against such party.
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
180
“Agreement binding on the holder” means agreement binding on the holder made with the principal debtor.
reserved.
RIGHT OF PARTY WHO DISCHARGES Where the instrument is paid to the party (1) Where it is payable to the order of third person and has been
THE INSTRUMENT secondarily liable, it is not discharged. But the paid by the drawer; and
(Section 121) party paying it so is reminder to his former rights (2) Where it was made or accepted for accommodation and has
as regards all prior parties, and he may strike been paid by the party accomodated.
out his own and all subsequent indorsements,
and again negotiate the instrument.
RENUNCIATION OF HOLDER Renunciation must be made in writing. Unless the instrument is delivered up to the person primarily
(Section 122) liable.
In favor of secondary party. -It may be made by the holder before or after maturity of the instrument. It
discharges only such secondary party only, and all parties subsequent to him.

In favor of principal .- It may be made by the holder at, or after maturity of the instrument. It discharges the
instrument and all parties thereto, absolutely and unconditionally.

It does not affect the rights of the holder in due course, without notice.
CANCELLATION If it is made: (1) Unintentionally; or (2) By mistake or fraud; or (3) Without authority. - It is inoperative.
(Section 123)
Cancellation is presumed to be intentional. The burden is on the holder claiming its effectiveness to overcome the
presumption by contrary evidence.
MATERIAL ALTERATION181 Alternation by a party..- It discharges the instrument, and all prior parties thereto who did not give their consent to

(Section 124) such alteration.

But, it does not discharge the instrument against:
1) the party who made the alteration;
2) a party who authorized or assented to the alteration; and
3) indorsers who indorsed subsequent to the alternation.
Material alternation refers to, any change in the instrument which affects the liability of the parties in anyway, as specified in Section 125, or changes the contract of
181
parties in any respect.


Rights of a holder in due course. .- He may enforce payment thereof according to its original tenor, regardless of
whether the alteration was fraudulent or innocent.
WHAT CONSTITUTES A MATERIAL An alternation, which changes:

ALTERATION (1) the date;
(Section 125) (2) the sum payable, either for the principal or interest;
(3) the time or place of payment;
(4) the number or relations of the parties; and
(5) the medium or currency in which payment is to be made; or which adds a place of payment where no place of
payment is specified.

Also, any other change or addition which alters the effect of the instrument in any effect.

CASE DOCTRINES

1) Republic Bank v. CA - Every bank that issues checks for the use of its customers should know whether or not the drawer's signature thereon is genuine, whether there
are sufficient funds in the drawer's account to cover checks issued, and it should be able to detect alterations, erasures, superimpositions or intercalations thereon, for
these instruments are prepared, printed and issued by itself, it has control of the drawer's account, and it is supposed to be familiar with the drawer's signature. It should
possess appropriate detecting devices for uncovering forgeries and/or alterations on these instruments.

Unless an alteration is attributable to the fault or negligence of the drawer himself, such as when he leaves spaces on the check 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 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 if the latter made payment after proper clearance from the drawee.

2) International Corporate Bank v. CA - The alterations in the checks were made on their serial numbers. The question on whether an alteration of the serial number of a
check is a material alteration under the Negotiable Instruments Law is already a settled matter.

In Philippine National Bank v. Court of Appeals, this Court ruled that the alteration on the serial number of a check is not a material alteration. Thus: An alteration is said to
be material if it alters the effect of the instrument. 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, a material alteration is one which
changes the items which are required to be stated under Section 1 of the Negotiable Instrument[s] Law. The case at the bench is unique in the sense that what was altered is the
serial number of the check in question, an item which, it can readily be observed, is not an essential requisite for negotiability under Section 1 of the Negotiable Instruments Law.
The aforementioned alteration did not change the relations between the parties. The name of the drawer and the drawee were not altered. The intended payee was the same. The
sum of money due to the payee remained the same. [Moreover] [t]he check's serial number is not the sole indication of its origin. As succinctly found by the Court of Appeals, the
name of the government agency which issued the subject check was prominently printed therein. The check's issuer was therefore suIciently identi:ed, rendering the referral to the

serial number redundant and inconsequential.

Likewise, in the present case the alterations of the serial numbers do not constitute material alterations on the checks.

3) PNB v. CA - An alteration is said to be material if it alters the effect of the instrument. 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 changes to an incomplete instrument relating to the obligation of a party.
In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instruments Law.

The case at bench is unique in the sense that what was altered is the serial number of the check in question, an item which, it can readily be observed, is not an essential
requisite for negotiability under Section 1 of the Negotiable Instruments Law. The aforementioned alteration did not change the relations between the parties. The name
of the drawer and the drawee were not altered. The intended payee was the same. The sum of money due to the payee remained the same. The check's serial number is
not the sole indication of its origin. As succinctly found by the Court of Appeals, the name of the government agency which issued the subject check was prominently
printed therein. The check's issuer was therefore sufficiently identified, rendering the referral to the serial number redundant and inconsequential. Petitioner, thus cannot
refuse to accept the check in question on the ground that the serial number was altered, the same being an immaterial or innocent one.

4) Metropolitan Bank v. Cabilzo - In the case at bar, the check was altered so that the amount was increased from P1,000.00 to P91,000.00 and the date was changed
from 24 November 1994 to 14 November 1994. Apparently, since the entries altered were among those enumerated under Section 1 and 125, namely, the sum of money
payable and the date of the check, the instant controversy therefore squarely falls within the purview of material alteration.

Now, having laid the premise that the present petition is a case of material alteration, it is now necessary for us to determine the effect of a materially altered
instrument, as well as the rights and obligations of the parties thereunder. Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did he
assent to the alteration by his express or implied acts. There is no showing that he failed to exercise such reasonable degree of diligence required of a prudent man
which could have otherwise prevented the loss. As correctly ruled by the appellate court, Cabilzo was never remiss in the preparation and issuance of the check, and
there were no indicia of evidence that would prove otherwise. Indeed, Cabilzo placed asterisks before and after the amount in words and figures in order to forewarn the
subsequent holders that nothing follows before and after the amount indicated other than the one specified between the asterisks.

The degree of diligence required of a reasonable man in the exercise of his tasks and the performance of his duties has been faithfully complied with by Cabilzo. In fact,
he was wary enough that he filled with asterisks the spaces between and after the amounts, not only those stated in words, but also those in numerical figures, in order
to prevent any fraudulent insertion, but unfortunately, the check was still successfully altered, indorsed by the collecting bank, and cleared by the drawee bank, and
encashed by the perpetrator of the fraud, to the damage and prejudice of Cabilzo. Undoubtedly, Cabilzo was an innocent party in this instant controversy. He was just an
ordinary businessman who, in order to facilitate his business transactions, entrusted his money with a bank, not knowing that the latter would yield a substantial amount
of his deposit to fraud, for which Cabilzo can never be faulted.

5) Bank of America v. PH Racing Club - There is no dispute that the signatures appearing on the subject checks were genuine signatures of the respondent's authorized
joint signatories; namely, Antonia Reyes and Gregorio Reyes who were respondent's President and Vice-President for Finance, respectively. Both pre-signed the said
checks since they were both scheduled to go abroad and it was apparently their practice to leave with the company accountant checks signed in black to answer for
company obligations that might fall due during the signatories' absence. It is likewise admitted that neither of the subject checks contains any material alteration or
erasure.

Although not in the strict sense "material alterations", the misplacement of the typewritten entries for the payee and the amount on the same blank and the repetition of
the amount using a check writer were glaringly obvious irregularities on the face of the check. Clearly, someone made a mistake in filling up the checks and the
repetition of the entries was possibly an attempt to rectify the mistake. Also, if the check had been filled up by the person who customarily accomplishes the checks of
respondent, it should have occurred to petitioner's employees that it would be unlikely such mistakes would be made. All these circumstances should have alerted the
bank to the possibility that the holder or the person who is attempting to encash the checks did not have proper title to the checks or did not have authority to fill up
and encash the same. As noted by the CA, petitioner could have made a simple phone call to its client to clarify the irregularities and the loss to respondent due to the
encashment of the stolen checks would have been prevented.

In the case at bar, extraordinary diligence demands that petitioner should have ascertained from respondent the authenticity of the subject checks or the accuracy of the
entries therein not only because of the presence of highly irregular entries on the face of the checks but also of the decidedly unusual circumstances surrounding their
encashment. Respondent's witness testified that for checks in amounts greater than Twenty Thousand Pesos (P20,000.00) it is the company's practice to ensure that the
payee is indicated by name in the check. This was not rebutted by petitioner. Indeed, it is highly uncommon for a corporation to make out checks payable to "CASH" for
substantial amounts such as in this case. If each irregular circumstance in this case were taken singly or isolated, the bank's employees might have been justified in
ignoring them. However, the concurrence of the irregularities on the face of the checks and circumstances that depart from the usual banking practice of respondent
should have put petitioner's employees on guard that the checks were possibly not issued by the respondent in due course of its business. Petitioner's subtle sophistry
cannot exculpate it from behavior that fell extremely short of the highest degree of care and diligence required of it as a banking institution.

CHAPTER IX - BILLS OF EXCHANGE

BILL OF EXCHANGE It is:

(Section 126) (1) An unconditional order in writing;
(2) Addressed by one person to another;
(3) Signed by the person giving it;
(4) Requiring the person to whom it is addressed to pay on demand or at a fixed determinable future time, a sum
certain in money to order or to bearer.

DISTINCTION BETWEEN A BILL OF EXCHANGE AND PROMISSORY NOTE
BILL OF EXCHANGE PROMISSORY NOTE
● An unconditional order addressed by one person ● An unconditional promise made by one person to

another, requiring the latter to pay the another to pay it.
instrument.

● 3 parties: the drawer; the drawee; and the payee ● 2 parties: the maker; and the payee or bearer.
or bearer.

● The drawer, who issues the instrument is only ● The maker, who issues the instrument is only
secondarily liable. primarily liable.
● When drawn to the drawer’s own order, it is ● When drawn payable to the maker’s own order, it
complete without indorsement, provided that it is incomplete until indorsed by him.
has been accepted.

● It must be presented for acceptance. ● There is no need to be presented for acceptance.

CASE DOCTRINE
PH Bank of Commerce v. Aruego

The defendant also contends 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. This is also without merit. 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.

STATUS OF DRAWEE, PRIOR TO Drawee, a mere stranger to the bill.. - A drawee is a stranger and thus, is not liable until and unless he accepts
ACCEPTANCE OR PAYMENT the same (See also Sec. 62).
(Section 127)
Drawee, not liable to holder in due course.- The mere issuance of a bill does not operate as an assignment of
funds in the hands of a drawee. A holder in due course then would have no cause of action against the drawee, but
only against the drawer and the indorsers.

BILL ADDRESSED TO MORE THAN 1 A bill may be addressed to two or more A bill cannot be addressed to two or more drawees in the
DRAWEE drawees jointly, whether they are partners or alternative; or in the succession.
(Section 128) not. (e.g., “To A or B”; or “To A, and in his absence, to B”)
(e.g., “To A and B”; or “To A, B, and C”)
INLAND AND FOREIGN BILLS OF Inland bill of exchange. - A bill which or on its face purports to be, both drawn and payable within the
EXCHANGE Philippines.
(Section 129)
Any other bill is a foreign bill. Unless the contrary appears on the face of the bill, the holder may treat it as na
inland bill.
WHEN A BILL MAY BE TREATED AS A A holder may treat an instrument at his option, either as a bill of exchange or promissory note when:
PROMISSORY NOTE (1) The drawer and drawee are the same person;
(Section 130) (2) The drawee is a fictitious person; and
(3) The drawee has no capacity to contract.
REFEREE IN CASE OF NEED Referee in case of need. - The person named by the drawer or indorser, as the one to whom the holder may
(Section 131) resort to in case of need, that is, in case the bill is dishonored by non-acceptance or non-payment.

It is not obligatory upon the holder to apply to the referee in case of dishonor. The referee is not bound to pay
the holder, but he may be liable to the party who named him.

CHAPTER X - ACCEPTANCE

ACCEPTANCE Acceptance. - The signification by the drawee of his assent to the order of the drawer. It must be in writing and
(Section 132) signed by the the drawee. Also, it must contain an express or implied promise to pay money. It is important that
acceptance be delivered or made known to the holder.

It must not express that the drawee will perform his promise by any other means than the payment of money.


CASE DOCTRINES

1) Sumacad v. Province of Samar - The request by the appellant bank as drawee, from the Bureau of Posts for photostatic copies of the check and the subsequent
requirement by it for its presentation to the provincial treasurer and the provincial auditor for certification, amounted to an implied acceptance of the bank which thereby
assumed the obligation of paying the check and holding sufficient deposit of the drawer for the purpose. However, said obligation is merely subsidiary, the drawer of the
check being primarily liable to pay the same.

2) PNB v. CA - The acceptance of a bill is the signifcation by the drawee of his assent to the order of the drawer, which in the case of checks, is the payment on demand,
of a given sum of money. Upon the other hand, actual payment of the amount of a check implies not only an assent to said order of the drawer and a recognition of the
drawee's obligation to pay the aforementioned sum, but, also, a compliance with such obligation.

3) HSBC v. CIR - Under the law, therefore, what is accepted is a bill of exchange, and the acceptance of a bill of exchange is both the manifestation of the drawee's
consent to the drawer's order to pay money and the expression of the drawee's promise to pay. It is "the act by which the drawee manifests his consent to comply with
the request contained in the bill of exchange directed to him and it contemplates an engagement or promise to pay." Once the drawee accepts, he becomes an acceptor.
As acceptor, he engages to pay the bill of exchange according to the tenor of his acceptance.

Acceptance is made upon presentment of the bill of exchange, or within 24 hours after such presentment. Presentment for acceptance is the production or exhibition of
the bill of exchange to the drawee for the purpose of obtaining his acceptance.

Presentment for acceptance is necessary only in the instances where the law requires it. In the instances where presentment for acceptance is not necessary, the holder
of the bill of exchange can proceed directly to presentment for payment.

Presentment for payment is the presentation of the instrument to the person primarily liable for the purpose of demanding and obtaining payment thereof. Thus,
whether it be presentment for acceptance or presentment for payment, the negotiable instrument has to be produced and shown to the drawee for acceptance or to the
acceptor for payment.

Revenue Regulations No. 26 recognizes that the acceptance or payment (of bills of exchange or orders for the payment of money that have been drawn abroad but
payable in the Philippines) that is subjected to DST under Section 181 of the 1997 Tax Code is done after presentment for acceptance or presentment for payment,
respectively. In other words, the acceptance or payment of the subject bill of exchange or order for the payment of money is done when there is presentment either for
acceptance or for payment of the bill of exchange or order for the payment of money.

Applying the above concepts to the matter subjected to DST in these cases, the electronic messages received by HSBC from its investor-clients abroad instructing the
former to debit the latter's local and foreign currency accounts and to pay the purchase price of shares of stock or investment in securities do not properly qualify as
either presentment for acceptance or presentment for payment. There being neither presentment for acceptance nor presentment for payment, then there was no
acceptance or payment that could have been subjected to DST to speak of.

Indeed, there had been no acceptance of a bill of exchange or order for the payment of money on the part of HSBC. To reiterate, there was no bill of exchange or order
for the payment drawn abroad and made payable here in the Philippines. Thus, there was no acceptance as the electronic messages did not constitute the written and
signed manifestation of HSBC to a drawer's order to pay money. As HSBC could not have been an acceptor, then it could not have made any payment of a bill of exchange

or order for the payment of money drawn abroad but payable here in the Philippines. In other words, HSBC could not have been held liable for DST under Section 230 of
the 1977 Tax Code, as amended, and Section 181 of the 1997 Tax Code as it is not "a person making, signing, issuing, accepting, or, transferring" the taxable instruments
under the said provision. Thus, HSBC erroneously paid DST on the said electronic messages for which it is entitled to a tax refund.

RIGHT OF HOLDER TO The holder has the right to require that the acceptance be made on the bill itself.
ACCEPTANCE ON THE FACE OF
THE BILL But, if the drawee refuses, the holder has the option to treat the bill as dishonored and go against the persons
(Section 133) secondarily liable after giving the notice of dishonor.
ACCEPTANCE BY SEPARATE When an acceptance is written on paper In order to bind requires:
INSTRUMENT other than the bill itself, it does not bind the (1) the acceptance be shown to the person to whom the instrument is
(Section 134) acceptor. negotiated; and
(2) such person must take the bill for value on the faith of such acceptance.
WHEN PROMISE TO ACCEPT A promise to accept is good to any person who upon faith thereof receives the bill for value. The promise to accept a
EQUIVALENT TO ACCEPTANCE future non-existing bill must be unconditional and in writing.
(Section 135)
TIME ALLOWED DRAWEE TO The drawee is allowed 24 hours, after presentment in which to decide whether or not he will accept the bill. But, the
ACCEPT acceptance, if given, dates as of the day of presentation.
(Section 136)
CONSTRUCTIVE ACCEPTANCE There is constructive acceptance:

(Section 137) (1) Where the drawee to whom a bill is delivered for acceptance destroys it; or
(2) Where the drawee refuses, within 24 hours after delivery or within such period as given to him, to return the bill
accepted or non-accepted.

CASE DOCTRINE
Cebu International Finance Corp. v. CA

Petitioner cites Section 137 of the Negotiable Instruments Law. Petitioner asserts that since BPI accepted the instrument, the bank became primarily liable for the
payment of the CHECK. Consequently, when BPI offset the value of CHECK against the losses from the forged checks allegedly committed by the private respondent, the
check was deemed paid.

Article 1249 of the New Civil Code deals with a mode of extinction of an obligation and expressly provides for the medium in the "payment of debts." Considering the
nature of a money market transaction, the above-quoted provision should be applied in the present controversy. As held in Perez vs. Court of Appeals, a "money market is a
market dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through a
middle man or dealer in open market. In a money market transaction, the investor is a lender who loans his money to a borrower through a middleman or dealer.

In the case at bar, the money market transaction between the petitioner and the private respondent is in the nature of a loan. The private respondent accepted the
CHECK, instead of requiring payment in money. Yet, when he presented it to RCBC for encashment, as early as June 17, 1991, the same was dishonored by
non-acceptance, with BPI's annotation: "Check (is) subject of an investigation." These facts were testi ed to by BPI's manager. Under these circumstances, and after the
notice of dishonor, the holder has an immediate right of recourse against the drawer, 13 and consequently could immediately file an action for the recovery of the value
of the check. In 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.

ACCEPTANCE OF INCOMPLETE Acceptance may be made before the bill has been signed by the drawer; or, while otherwise incomplete, even after it is
BILL overdue and even after it has been dishonored by non-acceptance or non-payment.
(Section 138)
But, when a bill payable after sight is dishonored by non-acceptance, and the drawee subsequently accepts it, the holder
is entitled to have the bill accepted as of the date of presentment.
KINDS OF ACCEPTANCE An acceptance is either general or qualified.

(Sections 139 - 142)
GENERAL ACCEPTANCE (Secs. 139/140) QUALIFIED ACCEPTANCE (Secs. 141/142)
General acceptance. - One where there is assent without Qualified indorsement. - One which is:
qualification to the order of the drawer. (a) Conditional - Which makes payment by the acceptor
dependent on the fulfillment of a condition;
An acceptance to pay at a particular place is a general (b) Partial - Which makes an acceptance to pay part only
acceptance, unless it expressly states that the bill is to be of the amount for which the bill is drawn;
paid there only and not elsewhere. (c) Local - Which makes an acceptance to pay only at a
particular place;
(d) Qualified - Which makes qualification as to the time;
and
(e) The acceptance of some one or more of the drawees,

but not all.

RIGHTS OF A HOLDER AS TO QUALIFIED ACCEPTANCE. -
(a) Refuse it and treat the bill as dishonored by
non-acceptance. - He must also notify the drawer and
the indorsers of the dishonor.
(b) Agrees to it. - He must give notice to drawer and
indorsers, and they are not discharge from liability if they
expressly or implied give their consent.

There is implied assent if the drawer or an indorser, after
receiving notice of a qualified acceptance, does not
express his dissent without a reasonable time to the holder.

CHAPTER XI - PRESENTMENT FOR ACCEPTANCE

WHEN PRESENTMENT FOR (a) When it is essential to fix the maturity date of the instrument, in bill payable after sight or in any other case;
ACCEPTANCE IS NECESSARY (b) When it is by express stipulation of the parties in the bill itself; and
(Section 143) (c) When the necessary to inform the drawee of the existence of the bill so he can make agreements for its payment on
the date of maturity at the place designated, bill is payable is elsewhere, than at the residence or place of business of
the drawee.

CASE DOCTRINE
Prudential Bank v. Intermediate Appellate Court

The transaction in the case at bar stemmed from Philippine Rayon's application for a commercial letter of credit with the petitioner in the amount of $128,548.78 to
cover the former's contract to purchase and import loom and textile machinery from Nissho Company, Ltd. of Japan under a five-year deferred payment plan. Petitioner
approved the application. The drawee was necessarily the herein petitioner. It was to the latter that the drafts were presented for payment. There was no need for

acceptance as the issued drafts are sight drafts. They are, pursuant to Section 7 of the Negotiable Instruments Law (NIL), payable on demand. Presentment for acceptance
is defined as the production of a bill of exchange to a drawee for acceptance. Contrary to both courts' pronouncements, Philippine Rayon immediately became liable
thereon upon petitioner's payment thereof. Such is the essence of the letter of credit issued by the petitioner. A different conclusion would violate the principle upon
which commercial letters of credit are founded because in such a case, both the beneficiary and the issuer, Nissho Company Ltd. and the petitioner, respectively, would
be placed at the mercy of Philippine Rayon even if the latter had already received the imported machinery and the petitioner had fully paid for it. Presentment for
acceptance is necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL).

FAILURE TO PRESENT The holder of a bill that is required to be presented for acceptance 1) must either presentment it for acceptance; or 2)
RELEASES DRAWER AND negotiate it within a reasonable time.
INDORSER
(Section 144) If he fails to do so, the drawer and all indorsers are discharged.
HOW PRESENTMENT FOR In order that the presentment for Bill is addressed to 2 or more drawees, not partners. - Made to them all,
ACCEPTANCE MADE acceptance may be proper, it is necessary unless one has authority to accept or to refuse acceptance for all;
(Section 145) that:
(1) Must be made by or on behalf of Drawee is dead. - Made to his personal representative; and
the holder;
(2) At a reasonable hour; Drawee has been adjudged bankrupt or an insolvent or has made an
(3) On a business day; assignment to the benefit of creditors. - Made to him or to his trustee or
(4) Before the bill is overdue; and assignee.
(5) To the drawee or some person
authorized to accept or refuse
acceptance on his behalf.
DAYS WHEN PRESENTMENT See Sections 72 and 85.

FOR ACCEPTANCE MAY BE
MADE BUT, when Saturday is not a holiday, presentment for acceptance may be made before 12:00 noon on that day.
(Section 146)
WHERE DELAY IN Where the holder of a bill drawn payable elsewhere than at the place of business or the residence of the drawee has no
PRESENTMENT FOR PAYMENT time, with the exercise of reasonable diligence, to present the bill for acceptance before presenting it for payment on
CAUSED BY PRESENTING THE the day that it falls due, the delay caused by presenting the bill for acceptance before presenting it for payment is
BILL OF ACCEPTANCE IS excused and does not discharge the drawers and indorsers.

EXCUSED
(Section 147)
WHERE PRESENTMENT FOR (1) Where the drawee is dead, or has absconded, or is a fictitious person; or a person not having the capacity to contract
ACCEPTANCE IS EXCUSED by bill;
(Section 148) (2) Where after reasonable diligence has been exercised and presentment cannot be made; or
(3 By although presentment has been irregular, acceptance has been refused on some other ground.
WHEN DISHONORED BY (1) When it is duly presented for acceptance, and such acceptance is refused or cannot be obtained; or
NON-ACCEPTANCE (2) When the presentment for acceptance is excused and the bill cannot be accepted.182
(Section 149)
DUTY OF HOLDER IN CASE OF Where a bill is duly presented for acceptance and is not accepted within the prescribed time, the person presenting it
NON-ACCEPTANCE must treat the bill as dishonored by non-acceptance183 or he loses the right of recourse against the drawer and indorsers.
(Section 150)
RIGHTS OF A HOLDER WHERE When a bill is dishonored by non-acceptance, an immediate right of recourse against the drawer and indorsers accrues to

BILL NOT ACCEPTED the holder and no presentment for payment is necessary.184
(Section 151)

182
This refers to Section 148 of the NIL. Note that, it is not sufficient that presentment for acceptance is excused, as it it also necessary that the bill remains not accepted.
183
This means that the holder must take the necessary proceedings against the drawer and each indorser, that is, to have the bill protested in those cases when required
and give notice of dishonored in other cases (See Secs. 152 and 89).
184
Since payment cannot be expected after acceptance has been refused, there is no point in waiting for the date of maturity to present the bill for payment.
CHAPTER XII - PROTEST

IN WHAT CASES PROTEST185 Where a foreign bill appearing on its face to be such is dishonored by non-acceptance, it must be duly protested for
NECESSARY non-acceptance, and where such a bill which has not previously been dishonored by non-payment, it must be duly
(Section 152) protested for nonpayment.

If it is not so protested, the drawer and indorsers are discharged.

Where a bill does not appear on its face to be a foreign bill, protest thereof in case of dishonor is unnecessary.

CASE DOCTRINES

1) Allied Bank Corporation v. CA - Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied on by respondents, is not pertinent to this case. There
are well-defined distinctions between the contract of an indorser and that of a guarantor/surety of a commercial paper, which is what is involved in this case. The
contract of indorsement is primarily that of transfer, while the contract of guaranty is that of personal security. The liability of a guarantor/surety is broader than that of
an indorser. Unless the bill is promptly presented for payment at maturity and due notice of dishonor given to the indorser within a reasonable time, he will be
discharged from liability thereon. On the other hand, except where required by the provisions of the contract of suretyship, a demand or notice of default is not required
to fix the surety's liability. He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract of suretyship.
Therefore, no protest on the export bill is necessary to charge all the respondents jointly and severally liable with G.G. Sportswear since the respondents held themselves
liable upon demand in case the instrument was dishonored and on the surety, they even waived notice of dishonor as stipulated in their Letters of Guarantee.

2) Velasquez v. Solid Banking Corp. - Petitioner's liability under the letter of undertaking is independent from his liability under the sight draft. He may be held liable
under either the sight draft or the letter of undertaking or both.

Admittedly, petitioner was discharged from liability under the sight draft when respondent failed to protest it for non-acceptance by the Bank of Seoul. A sight draft
made payable outside the Philippines is a foreign bill of exchange. When a foreign bill is dishonored by non-acceptance or non-payment, protest is necessary to hold the
drawer and indorsers liable. Verily, respondent's failure to protest the non-acceptance of the sight draft resulted in the discharge of petitioner from liability under the
instrument.

Petitioner, however, can still be made liable under the letter of undertaking. It bears stressing that it is a separate contract from the sight draft. The liability of petitioner
under the letter of undertaking is direct and primary. It is independent from his liability under the sight draft. Liability subsists on it even if the sight draft was
Recall: Protest refers to, the formal instrument executed by the notary public or other competent person certifying that the facts necessary to the dishonor of the
185
instrument by non-acceptance or non-payment have taken place.

dishonored for non-acceptance or non-payment.

HOW PROTEST IS MADE The protest must:

(Section 153) (1) Must be annexed to the bill or must contain a copy thereof;
(2) Must be under the hand and seal of the notary making it186; and
(3) Must specify 1) time and place of presentment; 2) the fact that presentment was made and the manner thereof; 3) the
cause or reason for protesting the bill; and the demand made and the answer given, if any or the fact that the drawee and
acceptor could not be found.
BY WHOM PROTEST IS MADE (a) A notary public; or

(Section 154) (b) By any respectable resident of the place where the bill is dishonored, in the presence of two or more credible
witnesses.
WHEN PROTEST TO BE MADE When a bill is protested, such protest must Unless delay is excused, as provided.
(Section 155) be made on the day of its dishonor.

When a bill has been duly noted, the
protest may be subsequently extended as
of the date of the noting.
WHERE PROTEST TO BE MADE A bill must be protested at the place where A bill dishonored by non-acceptance must be protested for non-payment
(Section 156) it has been dishonored. at the place where it is expressed to be payable, if that place is the place of
business or residence of some person other than the drawee and no further
presentment for payment to, or demand on, the drawee is necessary.
PROTEST BOTH FOR A bill which has been protested for non-acceptance may be subsequently protested for non-payment.
NON-ACCEPTANCE AND
NON-PAYMENT
(Section 157)
186
Without the authentication of the notary public, the certificate of protest of a foreign bill is no proof of the drawee’s refusal to accept or pay the bill.
PROTEST BEFORE MATURITY Protest for better security. - One made by the holder of the bill after it has been accepted, but before it matures against
WHERE ACCEPTOR IS the drawer and indorsers, where the acceptor has been adjudged a bankrupt and an insolvent, or has made an
INSOLVENT assignment for the benefit of creditors.
(Section 158)
It is optional and its omission will not affect the holder’s remedy against the drawer and indorsers.
WHEN PROTEST DISPENSED It is dispensed with by circumstances which would dispense with the notice of dishonor (See Sections 109-118).
WITH
(Section 159) DISTINCTION BETWEEN PROTEST AND NOTICE OF DISHONOR
PROTEST NOTICE OF DISHONOR
● Required only in case dishonor of a foreign bill ● Required in any other negotiable instrument, other
appearing on its face to be such than a foreign bill

● Always written ● May be oral or written

● Includes presentment, notice of dishonor, and all ● Limited only to such notice
steps accompanything dishonor

● Made either by a notary public, or by any respectable ● Made by a party or his agent
resident in the presence of witnesses

● Made at the place where the bill is dishonored ● The place of dishonor is not essential

● Made on the day of the dishonor ● Giving of notice is made within the times prescribed

PROTEST WHERE THE BILL IS When a bill is lost or destroyed or is wrongly detained from the person entitled to hold it, protest may be made on a
LOST, ETC. copy or written particulars thereof.
(Section 160)


CHAPTER XIII - ACCEPTANCE FOR HONOR

WHEN A BILL MAY BE (1) The bill must have been protested for dishonor by non-acceptance or for better security;
ACCEPTED FOR HONOR187 (2) The acceptor must be a person not a party already liable, that is a stranger to the bill;
(Section 161) (3) The bill must not be overdue at the time of the acceptance for honor; and
(4) The acceptance for honor must be with the consent of the holder of the instrument.

The acceptance for honor may be for part only of the sum; and where there has been an acceptance for honor of one party,
there may be a further acceptance by a different person for the honor of another party.
FORMAL REQUISITES OF (1) The acceptance for honor must be in writing;
ACCEPTANCE FOR HONOR (2) It must indicate that it is an acceptance for honor;
(Section 162) (3) It must be signed by the acceptor for honor;
(4) It must contain an express or implied promise to pay for money; and
(5) The accepted bill of honor must be delivered to the holder.
WHEN DEEMED TO BE AN Where an acceptance for honor does not expressly state for whose honor it is made, it is deemed to be an acceptance for
ACCEPTANCE FOR HONOR OF the honor of the drawer.
THE DRAWER
(Section 163)
LIABILITY OF THE ACCEPTOR As the acceptor for honor takes the place of the person for whose honor he accepts, he is liable to the holder and all
FOR HONOR subsequent parties who have a right of recourse against the person for whose honor he accepts.
(Section 164)
AGREEMENT OF ACCEPTOR It is not an absolute engagement to pay at all events, but only a collateral and conditional engagement to pay, if the
FOR HONOR drawee does not. The acceptor for honor is liable secondarily, not primarily in that he binds himself to pay according to
(Section 165) the tenor of his acceptance, provided:
(1) The bill shall have been duly presented for payment;
187
Acceptance for honor refers to, an undertaking by a stranger to a bill after protest for the benefit of any party liable, or for honor of the person for whose account the vill
is drawn which acceptance inures also the benefit of all parties subsequent to the person for whose honor it is accepted, and conditioned to pay the bill for when it
becomes due if the original drawee does not pay it.
(2) It shall not have been paid by the drawer;
(3) It shall have been protested for non-payment; and
(4) Notice of dishonor is given to him supra protest.
MATURITY OF BILL PAYABLE Where a bill payable after sight is accepted for honor, its maturity is calculated from the date of the noting for
AFTER SIGHT ACCEPTED FOR non-acceptance and not from the date of the acceptance for honor.
HONOR
(Section 166)
PROTEST FOR NON-PAYMENT Where a dishonored bill has been accepted for honor supra protest or contains a referee in case of need, it must be
OF BILL ACCEPTED FOR protested for non-payment before it is presented for payment to the acceptor for honor or referee in case of need.
HONOR
(Section 167)
WHEN PRESENTMENT FOR See Sections 103 and 104.

PAYMENT TO ACCEPTOR FOR
HONOR
(Section 168)
WHEN DELAY IN MAKING See Section 81.

PRESENTMENT EXCUSED
(Section 169)
DISHONOR OF BILL BY When the bill is dishonored by the acceptor for honor, it must be protested for non-payment by him.
ACCEPTOR FOR HONOR
(Section 170) DISTINCTION BETWEEN ACCEPTANCE FOR HONOR AND ORDINARY ACCEPTANCE
ACCEPTANCE FOR HONOR ORDINARY ACCEPTANCE
● There must be previous protest ● Protest is not required

● Acceptor must be a stranger to the bill ● Acceptor is the drawee

● Consent of the holder is required ● Consent is not required

● Acceptor is secondarily liable ● Acceptor is primarily liable

● There may be several acceptors for honor for different ● There can be no acceptors in the alternative or in
parties in the bill succession

● Bill is not discharged upon payment by the acceptor ● It is discharged upon payment by acceptor
for honor

CHAPTER XIV - PAYMENT FOR HONOR

WHO MAY MAKE PAYMENT Payment for honor may be made by a party to the bill or stranger. Any person may intervene and pay supra protest for the
FOR HONOR188 honor of any person liable or for the honor of the person on whose account it was drawn.
(Section 171)
REQUISITES FOR A VALID (1) The bill has been dishonored by non-payment;
PAYMENT OF HONOR (2) It has been protested for non-payment;
(Sections 172-173)189 (3) Payment supra protest is made by any person, even a party thereto;
(4) The payment is attested by a notarial act of dishonor, which must be appended to the protest or form an extension of
it (Sec. 172); and
(5) The notarial act must be based on the declaration made by the payer for honor or his agent of his intention to pay
the bill for honor and for whose honor he pays (Sec. 173).
PREFERENCE OF PARTIES Where two or more persons offer to pay a bill for the honor of different parties, the person whose payment will
OFFERING TO PAY FOR HONOR discharge most parties to the bill is to be given the preference.
(Section 174)
188
Payment for honor is payment made by a person, whether party to the bill or not, after it has been protested for the non-payment, for the benefit of the person for whose
account it was drawn.
189
If the above formalities are not followed, the payment will operate as mere voluntary payment and the payer acquires thereby has no right to full reimbursement against
the party for whose honor he pays.
EFFECT WHERE BILL IS PAID (1) All parties subsequent to the party for whose honor it is paid are discharged; and
FOR HONOR (2) The payer for honor is subrogated for, and succeed to, both the rights and duties of the holder as regards the party
(Section 175) whose honor he pays and all parties liable to the latter.
EFFECT OF HOLDER’S He loses his right of recourse against any party who would have been discharged by such payment. He then cannot
REFUSAL TO RECEIVE recover from parties who would have been discharged had he accepted the same.
PAYMENT
(Section 176)
RIGHTS OF PAYER FOR HONOR The payer for honor, on paying to the holder the amount of the bill and the notarial expenses incidental to its dishonor,
(Section 177) is entitled to receive both the bill itself and the protest.

DISTINCTION BETWEEN PAYMENT FOR HONOR AND ACCEPTANCE FOR HONOR
PAYMENT FOR HONOR ACCEPTANCE FOR HONOR
● The protest must be for non-payment ● The protest must be for non-acceptance or for better
security

● The bill is overdue ● It must not be overdue

● Consent of the holder is nor required, nor can the ● Consent is required
holder refuse

● There can only be one payer for honor ● There may be several acceptors for honor


CHAPTER XV - BILLS IN SET

BILL IN A SET Bill in a set. - One composed of several parts, each part of the set being numbered and containing a reference to the
(Section 178) other parts, the whole of the parts constituting one bill.
RIGHTS OF HOLDERS WHERE As between holders in due course, the owner of the bill is the holder whose title first accrues, that is the holder to whom
DIFFERENT PARTS ARE a part is first negotiated.
NEGOTIATED
(Section 179) If the drawee in good faith accepts or pays the part first presented to him, he is protected and he can rightfully refuse to
accept or to pay the bill presented by the holder in due course who first became the owner.
LIABILITY OF INDORSERS OF The holder of a bill drawn in a set is liable to each and every person to whom he has endorsed a part of the bill; and
DIFFERENT PARTS OF A SET should the indorsees, in turn, indorse their respective parts, each would be liable on the part he has himself indorsed, such
(Section 180) part being considered as a separate bill by itself.
LIABILITY OF ACCEPTOR OF The acceptance may be written on any part and it must be written on one part only. If the drawee accepts more than one
DIFFERENT PARTS OF A SET part and such accepted parts negotiated to different holders in due course, he is liable on every such part as if it were a
(Section 181) separate bill.
LIABILITY OF ACCEPTOR WHO When the acceptor of a bill drawn in a set pays it without requiring the part bearing his acceptance to be delivered up to
PAYS PART OF A SET him, and the part at maturity is outstanding in the hands of a holder in due course, he is liable to the holder thereon.
(Section 182)
EFFECT OF DISCHARGING A Any part of a bill drawn in a set may be negotiated. As far as the drawer is concerned, the entire bill is discharged when

PART OF A SET any one part is discharged by payment or otherwise, because a bill in a set constitutes only one bill.
(Section 183)


CHAPTER XVI - PROMISSORY NOTES AND CHECKS

PROMISSORY NOTE It is:

(Section 184) (1) An unconditional promise in writing;
(2) Made by one person to another;
(3) Signed by the maker;
(4) Engaging to pay on demand or at a fixed 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.
CHECK It is a bill of exchange drawn on a bank, payable on demand.

(Section 185)
DISTINCTION BETWEEN CHECK AND ORDINARY BILL OF EXCHANGE
CHECK ORDINARY BILL OF EXCHANGE
● Always drawn on a bank or banker ● May or may not be drawn on a bank

● Always payable on demand ● Either payable on demand or at a fixed determinable
future time

● Drawn against previous deposit of funds ● Need not be drawn against a deposit

● Need not be presented for acceptance ● Required to be presented for acceptance in certain
cases

● Ordinarily intended for immediate payment ● As only for circulation, is an instrument of credit

● Death of the drawer of a check with the knowledge of ● Death of the drawer of an ordinary bill does not
the bank revokes the authority of the bank to pay expire the authority of the drawee to pay

● Must be presented for payment within a reasonable ● Must be presented for payment within a reasonable

time after its issue time after its last negotiation

● The drawer of a check not presented within a ● The drawer of an ordinary bill is totally discharged
reasonable time after is discharged from liability to
the extent of the loss caused by the delay

CASE DOCTRINES

1) Moran v. CA - A check is a bill of exchange drawn on a bank payable on demand. Thus, a check is a written order addressed to a bank or persons carrying on the
business of banking, by a party having money in their hands, requesting them to pay on presentment, to a person named therein or to bearer or order, a named sum of
money.

Fixed savings and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. In other words, the
relationship between the bank and the depositor is that of a debtor and creditor. By virtue of the contract of deposit between the banker and its depositor, the banker
agrees to pay checks drawn by the depositor provided that said depositor has money in the hands of the bank.

Hence, where the bank possesses funds of a depositor, it is bound to honor his checks to the extent of the amount of his deposits. The failure of a bank to pay the check
of a merchant or a trader, when the deposit is sufficient, entitles the drawer to substantial damages without any proof of actual damages. Conversely, a bank is not liable
for its refusal to pay a check on account of insufficient funds, notwithstanding the fact that a deposit may be made later in the day. Before a bank depositor may
maintain a suit to recover a specific amount from his bank, he must first show that he had on deposit sufficient funds to meet his demand.

In the absence of a contrary showing, it is presumed that the acts in question were in conformity with the usual conduct of business. In the case at bar, petitioners failed
to present countervailing evidence to rebut the presumption that the checks involved underwent the same regular process for clearing of checks followed by the bank
since 1983.

Petitioner had no reason to complain, for they alone were at fault. A drawer must remember his responsibilities every time he issues a check. He must personally keep
track of his available balance in the bank and not rely on the bank to notify him of the necessity to fund certain checks he previously issued. A check, as distinguished
from an ordinary bill of exchange, is supposed to be drawn against a previous deposit of funds for it is ordinarily intended for immediate payment.

If ever petitioners on previous occasions were given notices every time a check was presented for clearing and payment and there were no adequate funds in their
accounts, these were, at most, mere accommodations on the part of respondent bank. It was not a requirement or a general banking practice, hence non-compliance
therewith could not lay the bank open to blame or rebuke. Legally, the bank had all the right to dishonor the checks because there were no sufficient funds to speak of in
the first place. If the demand is by check, a drawer must have to his credit enough to cover the demand. If his credit with the bank is less than the amount on the face of
the check, the bank may lawfully refuse payment.


Pursuing this matter further, the bank could also not be faulted for not accepting either of the two checks. The first check issued was in the amount of P50,576.00, while
the second one was for P56,090.00. Savings Account No. 1037001372 then had a balance of only P26,104.30. This being the case, Citytrust could not be expected to
accept for payment either one of the two checks nor partially honor one check.

A bank is under no obligation to make part payment on a check, up to only the amount of the drawer's funds, where the check is drawn for an amount larger than what
the drawer has on deposit. Such a practice of paying checks in part has never existed. Upon partial payment, the check holder could not be called upon to surrender the
check, and the bank would be without a voucher affording a certain means of showing the payment. The rule is based on commercial convenience, and any rule that
would work such manifest inconvenience should not be recognized. A check is intended not only to transfer a right to the amount named in it, but to serve the further
purpose of affording evidence for the bank of the payment of such amount when the check is taken up.

2) Firestone Tire v. Ines Chavez - [W]here a person issues a post dated check without funds to cover it and informs the payee of this fact, he cannot be held guilty of
estafa because there is no deceit.

But here there is nothing in the record to show that appellee knew that there were no funds in the bank when it accepted the check from the appellants, much less that
appellee "agreed" to take the check with knowledge of the lack of funds. There is nothing to show that appellants even hinted to the appellee at the lack of funds when
the check was issued. On the contrary, by issuing the check, appellants in effect represented to the appellee that there were funds in the bank for its payment. We think
the lower court correctly found appellants' conduct wanting in good faith. The award of attorney's fees is warranted.

3) Bataan Cigar v. CA - Crossed check is one where two parallel lines are drawn across its face or across a corner thereof. It may crossed generally or specially. A check is
crossed specially when the name of a particular banker or a company is written between the parallel lines drawn. It is crossed generally when only the words "and
company" are written or nothing is written at all between the parallel lines. It may be issued so that presentment can be made only by a bank. Veritably the Negotiable
Instruments Law (NIL) does not mention "crossed checks," although Article 541 of the Code of Commerce refers to such instruments.

According to commentators, the negotiability of a check is not affected by its being crossed, whether specially or generally. 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, or if it is especially crossed, by the bank mentioned between the parallel
lines. This is specially true in England where the Negotiable Instrument Law originated.

Crossing of a check should have the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once — to one
who has an account with a bank; (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, otherwise, he is not a holder in due course.

It is then settled that crossing of 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. Failing in this respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the Negotiable
Instruments Law, and as such the consensus of authority is to the effect that the holder of the check is not a holder in due course.

In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is to George King. Because, really, the checks were issued with the intention that George
King would supply BCCFI with the bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to
pay the checks. The foregoing does not mean, however, that respondent could not recover from the checks. The only disadvantage of a holder who is not a holder in due
course is that the instrument is subject to defenses as if it were non-negotiable. Hence, respondent can collect from the immediate indorser, in this case, George King.

4) Metropolitan Bank v. PBCom - A check is defined by law as a bill of exchange drawn on a bank payable on demand. The Negotiable Instruments Law is silent with
respect to crossed checks. Nonetheless, this Court has taken judicial cognizance of the practice that a check with two parallel lines on the upper left hand corner means
that it could only be deposited and not converted into cash. The crossing of a check with the phrase "Payee's Account Only" is a warning that the check should be
deposited in the account of the payee. It is the collecting bank which is bound to scrutinize the check and to know its depositors before it can make the clearing
indorsement, "all prior indorsements and/or lack of indorsement guaranteed."

Here, petitioner banks have the obligation to ensure that the PBCom checks were deposited in accordance with the instructions stated in the checks. The four PBCom
checks in question had been crossed and issued "for payee's account only." This could only mean that the drawer, Filipinas Orient, intended the same for deposit only by
the payee, Pipe Master. The effect of crossing a check means that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein
— Pipe Master.

As what transpired in this case, petitioner banks accommodated Yu Kio, being a valued client and the president of Pipe Master, and accepted the crossed checks. They
stamped at the back thereof that "all prior indorsements and/or lack of indorsements are guaranteed." In so doing, they became general endorsers. Under Section 66 of
the Negotiable Instruments Law, an endorser warrants "that the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all
prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid and subsisting." Clearly, petitioner banks, being endorsers, cannot
deny liability. In Associated Bank v. Court of Appeals, we held that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior indorsements and is privy to the depositor who negotiated the check. PBCom, as the drawee bank, cannot be held liable since it mainly relied on
the express guarantee made by petitioners, the collecting banks, of all prior indorsements. Evidently, petitioner banks disregarded established banking rules and
procedures. They were negligent in accepting the checks and allowing the transaction to push through. In Jai-Alai Corp. of the Phil. v. Bank of the Phil. Islands, we ruled
that one who accepts and encashes a check from an individual knowing that the payee is a corporation does so at his peril. Therefore, petitioner banks are liable to
respondent Filipinas Orient. In fine, it must be emphasized that the law imposes on the collecting bank the duty to diligently scrutinize the checks deposited with it for
the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this
held, and the law thus holds it to a high standard of conduct. Since petitioner banks' negligence was the direct cause of the misappropriation of the checks, they should
bear and answer for respondent Filipinas Orient's loss, without prejudice to their Hling of an appropriate action against Yu Kio.

5) Republic v. PNB - But a demand draft is very different from a cashier's or manager's check, contrary to appellant's pretense, 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. A cashier's check issued by a bank, however, is not an ordinary
draft. The latter is a bill of exchange payable on demand. It is an order upon a third party purporting to be drawn upon a deposit of funds.

A demand draft is not therefore of the same category as a cashier's check which should come within the purview of the law.

6) Mesina v. IAC - Theories and examples advanced by petitioner on causes and effects of a cashier's check such as 1) it cannot be countermanded in the hands of a holder in
due course and 2) a cashier's check is a bill of exchange drawn by the bank against itself — are general principles which cannot be aptly applied to the case at bar, without
considering other things. 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. Admittedly, petitioner became the holder of the cashier's check as endorsed by Alexander Lim who stole the check. He refused to say how and why it was
passed to him. He had therefore notice of the defect of his title over the check from the start. 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.

If a payee of a cashier's check obtained it from the issuing bank by fraud, or if there is some other reason why the payee is not entitled to collect the check, the

respondent bank would, of course, have the right to refuse payment of the check when presented by the payee, since respondent bank was aware of the facts
surrounding the loss of the check in question. Moreover, there is no similarity in the cases cited by petitioner since respondent bank did not issue the cashier's check in
payment of its obligation. Jose Go bought it from respondent bank for purposes of transferring his funds from respondent bank to another bank near his establishment
realizing that carrying money in this form is safer than if it wherein cash. The check was Jose Go's property when it was misplaced or stolen hence he stopped its
payment. At the outset, respondent bank knew it was Jose Go's check and no one else since Go had not paid or indorsed it to anyone. The bank was therefore liable to
nobody on the check but Jose Go. The bank had no intention to issue it to petitioner but only to buyer Jose Go. When payment on it was therefore stopped, respondent
bank was not the one who did it but Jose Go, the owner of the check. Respondent bank could not be drawer and drawee for clearly, Jose Go owns the money it represents
and he is therefore the drawer and the drawee in the same manner as if he has a current account and he issued a check against it; and from the moment said cashier's
check was lost and or stolen no one outside of Jose Go can be termed a holder in due course because Jose Go had not indorsed it in due course. The check in question
suffers from the infirmity of not having been properly negotiated and for value by respondent Jose Go who as already been said is the real owner of said instrument.

7) RCBC Saving Bank v. Odrada - As can be gleaned in a long line of cases decided by this Court, a manager's check is accepted by the bank upon its issuance. As
compared to an ordinary bill of exchange where acceptance occurs after the bill is presented to the drawee, the distinct feature of a manager's check is that it is accepted
in advance. Notably, the mere issuance of a manager's 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 drawee bank, as a result, has the unconditional obligation to pay a manager's check to a holder in due course
irrespective of any available personal defenses. However, while this Court has consistently held that a manager's check is automatically accepted, a holder other than a
holder in due course is still subject to defenses.

In International Corporate Bank, this Court considered whether the holder presented the manager's check within a reasonable time after its issuance — a circumstance
required for holding the instrument in due course. Similarly, in Rizal Commercial Banking Corporation v. Hi-Tri Development Corporation, the Court observed that the mere
issuance of a manager's check does not ipso facto work as an automatic transfer of funds to the account of the payee. In order for the holder to acquire title to the
instrument, there still must have been effective delivery. Accordingly, the Court, taking exception to the manager's check automatic transfer of funds to the payee,
declared that: "the doctrine that the deposit represented by a manager's check automatically passes to the payee is inapplicable, because the instrument — although
accepted in advance remains undelivered." This Court ruled that the holder did not acquire the instrument in due course since title had not passed for lack of delivery.

The question now becomes: if the holder of a manager's check is not a holder in due course, can the drawee bank interpose a personal defense of the purchaser?

In Mesina, Jose Go purchased a manager's check from Associated Bank. As he left the bank, Go inadvertently left the check on top of the desk of the bank manager. The
bank manager entrusted the check for safekeeping to another bank official who at the time was attending to a customer named Alexander Lim. After the bank official
answered the telephone and returned from the men's room, the manager's check could no longer be found. After learning that his manager's check was missing, Go
immediately returned to the bank to give a stop payment order on the check. A third party named Marcelo Mesina deposited the manager's check with Prudential Bank
but the drawee bank sent back the manager's check to the collecting bank with the words "payment stopped." When asked how he obtained the manager's check, Mesina
claimed it was paid to him by Lim in a "certain transaction." While this Court acknowledged the general causes and effects of a manager's check, it noted that other
factors were needed to be considered, namely the manner by which Mesina acquired the instrument.

Ultimately, the notice of defect affected Mesina's claim as a holder of the manager's check. This Court ruled that the issuing bank could validly refuse payment because
Mesina was not a holder in due course. Unequivocally, the Court declared: "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."


[T]he drawee bank of a manager's check then may interpose personal defenses of the purchaser of the manager's check if the holder is not a holder in due course. In
short, the purchaser of a manager's check may validly countermand payment to a holder who is not a holder in due course. Accordingly, the drawee bank may refuse to
pay the manager's check by interposing a personal defense of the purchaser. Hence, the resolution of the present case requires a determination of the status of Odrada as
holder of the manager's checks.

In this case, the Court of Appeals gravely erred when it considered Odrada as a holder in due course. To be a holder in due course, the law requires that a party must have
acquired the instrument in good faith and for value.

Good faith means that the person taking the instrument has acted with due honesty with regard to the rights of the parties liable on the instrument and that at the time
he took the instrument, the holder has no knowledge of any defect or infirmity of the instrument. To constitute notice of an infirmity in the instrument or defect in the
title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that
his action in taking the instrument would amount to bad faith.

Value, on the other hand, is defined as any consideration sufficient to support a simple contract.

In the present case, Odrada attempted to deposit the manager's checks on 16 April 2002, a day after Lim had informed him that there was a serious problem with the
Montero. Instead of addressing the issue, Odrada decided to deposit the manager's checks. Odrada's actions do not amount to good faith. Clearly, Odrada failed to make
an inquiry even when the circumstances strongly indicated that there arose, at the very least, a partial failure of consideration due to the hidden defects of the Montero.
Odrada's action in depositing the manager's checks despite knowledge of the Montero's defects amounted to bad faith. Moreover, when Odrada redeposited the
manager's checks on 19 April 2002, he was already formally notified by RCBC the previous day of the cancellation of Lim's auto loan transaction. Following UCPB, RCBC
may refuse payment by interposing a personal defense of Lim — that the title of Odrada had become defective when there arose a partial failure or lack of consideration.
RCBC acted in good faith in following the instructions of Lim. The records show that Lim notified RCBC of the defective condition of the Montero before Odrada
presented the manager's checks. Lim informed RCBC of the hidden defects of the Montero including a misaligned engine, smashed condenser, crippled bumper support,
and defective transmission. RCBC also received a formal notice of cancellation of the auto loan from Lim and this prompted RCBC to cancel the manager's checks since
the auto loan was the consideration for issuing the manager's checks. RCBC acted in good faith in stopping the payment of the manager's checks.

Section 58 of the Negotiable Instruments Law provides: "In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same
defenses as if it were non-negotiable. . . . ." Since Odrada was not a holder in due course, the instrument becomes subject to personal defenses under the Negotiable
Instruments Law. Hence, RCBC may legally act on a countermand by Lim, the purchaser of the manager's checks.

8) Metropolitan Bank v. Chiok - The legal effects of a manager's check and a cashier's check are the same. A manager's check, like a cashier's check, is an order of the
bank to pay, drawn upon itself, committing in effect its total resources, integrity, and honor behind its issuance. By its peculiar character and general use in commerce, a
manager's check or a cashier's check is regarded substantially to be as good as the money it represents. Thus, the succeeding discussions and jurisprudence on manager's
checks, unless stated otherwise, are applicable to cashier's checks, and vice versa.

The RTC effectively ruled that payment of manager's and cashier's checks are subject to the condition that the payee thereof complies with his obligations to the
purchaser of the checks.

While indeed, it cannot be said that manager's and cashier's checks are pre-cleared, clearing should not be confused with acceptance. Manager's and cashier's checks are

still the subject of clearing to ensure that the same have not been materially altered or otherwise completely counterfeited. However, manager's and cashier's checks are
pre-accepted by the mere issuance thereof by the bank, which is both its drawer and drawee. Thus, while manager's and cashier's checks are still subject to clearing, they
cannot be countermanded for being drawn against a closed account, for being drawn against insufficient funds, or for similar reasons such as a condition not appearing
on the face of the check. Long standing and accepted banking practices do not countenance the countermanding of manager's and cashier's checks on the basis of a mere
allegation of failure of the payee to comply with its obligations towards the purchaser. On the contrary, the accepted banking practice is that such checks are as good as
cash.

A manager's check is one drawn by a bank's manager upon the bank itself. It stands on the same footing as a certified check, which is deemed to have been accepted by
the bank that certiKed it. As the bank's own check, a manager's check becomes the primary obligation of the bank and is accepted in advance by the act of its issuance. As
in SBTC, BPI in the case at bar relied on the integrity and honor of the manager's and cashier's checks as they are regarded in commercial transactions when it
immediately credited their amounts to Nuguid's account.

Nuguid has admitted that FEBTC (now BPI) has paid him the value of the subject checks. This statement by Nuguid is certainly against his own interest as he can be held
liable for said amounts. Unfortunately, Nuguid allowed his appeal with the Court of Appeals to lapse, without taking steps to have it reinstated. This course of action,
which is highly unlikely if Nuguid had not withdrawn the value of the manager's and cashier's checks deposited into his account, likewise prevents us from ordering
Nuguid to deliver the amounts of the checks to Chiok. Parties who did not appeal will not be affected by the decision of an appellate court rendered to appealing parties.

As an equitable assignee, BPI acquires the instrument subject to defenses and equities available among prior parties and, in addition, the right to have the indorsement
of Nuguid. Since the checks in question are manager's checks, the drawer and the drawee thereof are both Global Bank. Respondent Chiok cannot be considered a prior
party as he is not the check's drawer, drawee, indorser, payee or indorsee. Global Bank is consequently primarily liable upon the instrument, and cannot hide behind
respondent Chiok's defenses. As discussed above, manager's checks are pre-accepted. By issuing the manager's check, therefore, Global Bank committed in effect its total
resources, integrity and honor towards its payment.

[R]espondent Chiok is not left without recourse. Respondent Chiok's cause of action to recover the value of the checks is against Nuguid. Unfortunately, Nuguid allowed
his appeal with the Court of Appeals to lapse, without taking steps to have it reinstated. As stated above, parties who did not appeal will not be affected by the decision
of the appellate court rendered to appealing parties. Moreover, since Nuguid was not impleaded as a party to the present consolidated cases, he cannot be bound by
our judgment herein. Respondent Chiok should therefore pursue his remedy against Nuguid in a separate action to recover the amounts of the checks.

9) BPI v. Roxas - It bears emphasis that the disputed check is a cashier's check. In International Corporate Bank v. Spouses Gueco, this Court held that a cashier's check is
really the bank's own check and may be treated as a promissory note with the bank as the maker. The check becomes the primary obligation of the bank which issues it
and constitutes a written promise to pay upon demand. In New Pacific Timber & Supply Co. Inc. v. Seneris, this Court took judicial notice of the "well-known and accepted
practice in the business sector that a cashier's check is deemed as cash." This is because the mere issuance of a cashier's check is considered acceptance thereof.

In view of the above pronouncements, petitioner bank became liable to respondent from the moment it issued the cashier's check. Having been accepted by respondent,
subject to no condition whatsoever, petitioner should have paid the same upon presentment by the former.

10) Go v. Metrobank - A check is a bill of exchange drawn on a bank payable on demand. There are different kinds of checks. In this case, crossed checks are the subject
of the controversy. A crossed check is one where two parallel lines are drawn across its face or across the corner thereof. It may be crossed generally or specially.

A check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn. It is crossed generally when only the words
"and company" are written or nothing is written at all between the parallel lines, as in this case. It may be issued so that presentment can be made only by a bank.

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check has the following effects: (a) the check may not be encashed but
only deposited in the bank; (b) the check may be negotiated only once - to one who has an account with a bank; 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, otherwise, he is not a holder in due
course.

The Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and not
converted into cash. The effect of crossing a check, thus, relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful
person, i.e., the payee named therein. The crossing of a check is a warning that the check should be deposited only in the account of the payee. Thus, it is the duty of the
collecting bank to ascertain that the check be deposited to the payee's account only.

In the instant case, there is no dispute that the subject 32 checks with the total amount of P1,492,595.06 were crossed checks with petitioner as the named payee. It is
the submission of petitioner that respondent bank should be held accountable for the entire amount of the checks because it accepted the checks for deposit under
Chua's account despite the fact that the checks were crossed and that the payee named therein was not Chua. In its defense, respondent bank countered that petitioner is
not entitled to reimbursement of the total sum of P1,492,595.06 from either Maria Teresa Chua or respondent bank because petitioner was not damaged thereby.

Respondent bank's contention is meritorious. Respondent bank should not be held liable for the entire amount of the checks considering that, as found by the RTC and
affirmed by the CA, the checks were actually given to Chua as payments by petitioner for loans obtained from the parents of Chua. Furthermore, petitioner's
non-inclusion of Chua and Tabañag in the petition before this Court is, in effect, an admission by the petitioner that Chua, in representation of her parents, had rightful
claim to the proceeds of the checks, as payments by petitioner for money he borrowed from the parents of Chua. Therefore, petitioner suffered no pecuniary loss in the
deposit of the checks to the account of Chua.

However, we affirm the finding of the RTC that respondent bank was negligent in permitting the deposit and encashment of the crossed checks without the proper
indorsement. An indorsement is necessary for the proper negotiation of checks specially if the payee named therein or holder thereof is not the one depositing or
encashing it. Knowing fully well that the subject checks were crossed, that the payee was not the holder and that the checks contained no indorsement, respondent bank
should have taken reasonable steps in order to determine the validity of the representations made by Chua. Respondent bank was amiss in its duty as an agent of the
payee. Prudence dictates that respondent bank should not have merely relied on the assurances given by Chua.

WHEN DRAWER DISCHARGED In order that the drawer may be discharged from liability, the following must concur:
FROM LIABILITY (1) The check is not presented within a reasonable time after its issue;
(Section 186) (2) The drawer suffers loss; and
(3) The loss suffered by the drawer is attributable to the delay.


Only to the extent of the loss caused by the delay in case of drawer. - The only loss that would be sustained would be
caused by the insolvency of the bank subsequent to the delivery and prior to the presentment of the check. The drawer
will be discharged from liability to the extent of the loss, and the burden of proving loss is on the drawer. Where no loss
is shown, the drawer is not discharged.

Wholly discharged in case of indorser. - An indorser is wholly discharged, irrespective of any question of loss or injury by
delay in presentment, unless presentment is excused or dispensed with. The reason for the difference between the liability
of the drawer and that of the indorser in case of dishonor is that the drawer is not probably or necessarily prejudiced, while an
indorser is actually or by legal presumption.

CASE DOCTRINES

1) PNB v. Seeto - Although the drawer of a check is discharged from liability only to the extent of the loss caused by unreasonable delay in presenting the check for
payment, an indorser is wholly discharged thereby irrespective of any question of loss or inquiry.

Section 186 of the Negotiable Instruments Law expressly requires that a check must be presented for payment within a reasonable time after issue. A delay of 27 days
from the date of indorsement to that of the presentation of the check for payment at the drawee bank, is unreasonable, and consequently, discharges completely the
indorser from liability.

2) Crystal v. CA - The dishonoring of a check upon presentment, and its being stale for not being presented at all time, are incompatible developments that naturally
have variant legal consequences. Thus, if indeed the check in question had been dishonored then there can be no doubt that petitioner's redemption was null and void.
On the other hand, if it had only be come stale, then it becomes imperative that the circumstances that caused its non-presentment be determined, for if this was not
due to the fault of the petitioner, then it would be unfair to deprive him of the rights he had acquired as redemptioner, particularly, if, after all, the value of the check has
otherwise been received or realized by the party concerned.

3) Pacheco v. CA - The essential elements in order to sustain a conviction under the above paragraph are: 1. that the offender postdated or issued a check in payment of an
obligation contracted at the time the check was issued; 2. That such postdating or issuing a check was done when the offender had no funds in the bank, or his funds deposited
therein were not sufficient to cover the amount of the check; 3. Deceit or damage to the payee thereof.

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.

There cannot be deceit on the part of the obligor, petitioners herein, because they agreed with the obligee at the time of the issuance and postdating of the checks that
the same shall not be encashed or presented to the banks. As per assurance of the lender, the checks are nothing but evidence of the loan or security thereof in lieu of
and for the same purpose as a promissory note. By their own covenant, therefore, the checks became mere evidence of indebtedness. It has been ruled that a drawer who
issues a check as security or evidence of investment is not liable for estafa.

Following complainant's theory that he would not have sold the jewelries had not petitioners issued "postdated" checks, still no estafa can be imputed to petitioners. It is
clear that the checks were not intended for encashment with the bank, but were delivered as mere security for the payment of the loan and under an agreement that the
checks would be redeemed with cash as they fell due. Hence, the checks were not intended by the parties to be modes of payment but only as promissory notes. Since
complainant and his wife were well aware of the fact, they cannot now complain there was deception on the part of petitioners. Awareness by the complainant of the
fictitious nature of the pretense cannot give rise to estafa by means of deceit. When the payee was informed by the drawer that the checks are not covered by adequate
funds it does not give rise to bad faith or estafa.

Mrs. Vicencio could not have been deceived nor defrauded by petitioners in order to obtain the loans because she was informed that they no longer have funds in their
RCBC accounts. In 1992, when the Vicencio family asked Virginia to place a date on the check, the latter again informed Mrs. Vicencio that their account with RCBC was
already closed as early as August 1989. With the assurance, however, that the check will only stand as a firm evidence of indebtedness, Virginia placed a date on the
check. Under these circumstances, Mrs. Vicencio cannot claim that she was deceived or defrauded by petitioners in obtaining the loan. In the absence of the essential
element of deceit, no estafa was committed by petitioners.

Petitioners openly disclosed and never hid the fact that they no longer have funds in the bank as their bank account was already closed. Knowledge by the complainant
that the drawer does not have suFFIcient funds in the bank at the time it was issued to him does not give rise to a case for estafa through bouncing checks.

Moreover, [a] check must be presented within a reasonable time from issue. By current banking practice, a check becomes stale after more than six (6) months. In fact a
check long overdue for more than two and one-half years is considered stale.

4) International Corporate Bank v. Spouses Gueco - Respondents would make us hold that petitioner should return the car or its value and that the latter, because of its
own negligence, should suffer the loss occasioned by the fact that the check had become stale. It is their position that delivery of the manager's check produced the
effect of payment and, thus, petitioner was negligent in opting not to deposit or use said check. Rudimentary sense of justice and fair play would not countenance
respondents' position.

A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and, therefore, should not be paid. Under the
negotiable instruments law, an instrument not payable on demand must be presented for payment on the day it falls due. When the instrument is payable on demand,
presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the
last negotiation thereof.

A check must be presented for payment within a reasonable time after its issue, and in determining what is a "reasonable time," regard is to be had to the nature of the
instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case. The test is whether the payee employed such diligence
as a prudent man exercises in his own affairs. This is because the nature and theory behind the use of a check points to its immediate use and payability. In a case, a
check payable on demand which was long overdue by about 2-1/2 years was considered a stale check. Failure of a payee to encash a check for more than 10 years
undoubtedly resulted in the check becoming stale. Thus, even a delay of 1 week or 2 days, under the specific circumstances of the cited cases constituted unreasonable
time as a matter of law.

In the case at bar, however, the check involved is not an ordinary bill of exchange but a manager's check. A manager's check is one drawn by the bank's manager upon the
bank itself. It is similar to a cashier's check both as to effect and use. A cashier's check is a check of the bank's cashier on his own or another check. In effect, it is a bill of
exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance 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 a maker. The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon
demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need
not prove presentment for payment or present the bill to the drawee for acceptance.

Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the discharge of the drawer only to the extent of the
loss caused by the delay. Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability in
the sum stated in the check. In this case, the Gueco spouses have not alleged, much less shown that they or the bank which issued the manager's check has suffered
damage or loss caused by the delay or non-presentment. Definitely, the original obligation to pay certainly has not been erased. It has been held that, if the check had
become stale, it becomes imperative that the circumstances that caused its non-presentment be determined. In the case at bar, there is no doubt that the petitioner bank
held on the check and refused to encash the same because of the controversy surrounding the signing of the joint motion to dismiss. The Court sees no bad faith or
negligence in this position taken by the Bank.

5) Wong v. CA - There are 2 ways of violating B.P. Blg. 22: (1) by making or drawing and issuing a check to apply on account or for value knowing at the time of issue that the
check is not sufficiently funded; and (2) by having sufficient funds in or credit with the drawee bank at the time of issue but failing to keep sufficient funds therein or credit with
said bank to cover the full amount of the check when presented to the drawee bank within a period of 90 days.

The elements of B.P. Blg. 22 under the first situation, pertinent to the present case, are:
(1) The making, drawing and issuance of any check to apply for account or for value;
(2) The knowledge of the maker, drawer, 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; and
(3) 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, without any valid cause,
ordered the bank to stop payment.

Petitioner contends that the first element does not exist because the checks were not issued to apply for account or for value. He attempts to distinguish his situation
from the usual "cut-and-dried" B.P. 22 case by claiming that the checks were issued as guarantee and the obligations they were supposed to guarantee were already paid.
This flawed argument has no factual basis, the RTC and CA having both ruled that the checks were in payment for unremitted collections, and not as guarantee. Likewise,
the argument has no legal basis, for what B.P. Blg. 22 punishes is the issuance of a bouncing check and not the purpose for which it was issued nor the terms and
conditions relating to its issuance.

As to the second element, B.P. Blg. 22 creates a presumption juris tantum that the second element prima facie exists when the first and third elements of the offense are
present. Thus, the maker’s knowledge is presumed from the dishonor of the check for insufficiency of funds.
Petitioner avers that since the complainant deposited the checks on June 5, 1986, or 157 days after the December 30, 1985 maturity date, the presumption of knowledge
of lack of funds under Section 2 of B.P. Blg. 22 should not apply to him. He further claims that he should not be expected to keep his bank account active and funded
beyond the ninety-day period.

Section 2 of B.P. Blg. 22 provides: Evidence of knowledge of insufficient funds. – The making, drawing and issuance of a check payment of which is refused by the drawee
because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such
insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such
check within five (5) banking days after receiving notice that such check has not been paid by the drawee.

An essential element of the offense is "knowledge" on the part of the maker or drawer of the check of the insufficiency of his funds in or credit with the bank to cover the
check upon its presentment. Since this involves a state of mind difficult to establish, the statute itself creates a prima facie presumption of such knowledge where
payment of the check "is refused by the drawee because of insufficient funds in or credit with such bank when presented within 90 days from the date of the check." To
mitigate the harshness of the law in its application, the statute provides that such presumption shall not arise if within 5 banking days from receipt of the notice of
dishonor, the maker or drawer makes arrangements for payment of the check by the bank or pays the holder the amount of the check.

Contrary to petitioner’s assertions, nowhere in said provision does the law require a maker to maintain funds in his bank account for only 90 days. Rather, the clear
import of the law is to establish a prima facie presumption of knowledge of such insufficiency of funds under the following conditions: (1) presentment within 90 days from
date of the check, and (2) the dishonor of the check and failure of the maker to make arrangements for payment in full within 5 banking days after notice thereof. That the check
must be deposited within 90 days is simply one of the conditions for the prima facie presumption of knowledge of lack of funds to arise. It is not an element of the
offense. Neither does it discharge petitioner from his duty to maintain sufficient funds in the account within a reasonable time thereof.

Under Section 186 of the Negotiable Instruments Law, "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." By current banking practice, a check becomes stale after more than 6 months, or 180 days. Private respondent
herein deposited the checks 157 days after the date of the check. Hence said checks cannot be considered stale. Only the presumption of knowledge of insufficiency of
funds was lost, but such knowledge could still be proven by direct or circumstantial evidence. As found by the trial court, private respondent did not deposit the checks
because of the reassurance of petitioner that he would issue new checks. Upon his failure to do so, LPI was constrained to deposit the said checks. After the checks were
dishonored, petitioner was duly notified of such fact but failed to make arrangements for full payment within 5 banking days thereof. There is, on record, 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. And despite petitioner’s
insistent plea of innocence, we find no error in the respondent court’s affirmance of his conviction by the trial court for violations of the Bouncing Checks Law.

6) Nagrampa v. People - Two distinct acts are punished under Section 1 of B.P. Blg. 22: (1) The making or drawing and issuance of any check to apply on account or for value,
knowing at the time of issue that the drawer does not have sufficient funds in, or credit with, the drawee bank; and (2) The failure to keep sufficient funds or to maintain a credit
to cover the full amount of the check if presented within a period of ninety days from the date appearing thereon, for which reason it is dishonored by the drawee bank. In the
first situation, the drawer knows of the insufficiency of funds to cover the check at the time cover the check at the time of its issuance; while in the second situation, the
drawer but fails to keep sufficient funds or maintain credit within ninety days from the date appearing on the check. The check involved in the first offense is worthless
at the time of issuance, since the drawer has neither sufficient funds in, nor credit with, the drawee bank at the time; while that involved in the second offense is good
when issued, as the drawer has sufficient funds in, or credit with, the drawee bank when issued. In both instances, the offense is consummated by the dishonor
of the check for insufficiency of funds or credit.

The elements of the first type of offense are as follows: (1) The making, drawing and issuance of any check to apply for account or for value; (2) The knowledge of the maker,
drawer, 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; and (3)
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, without any valid cause, ordered
the bank to stop payment.

The fact that the checks were presented beyond the 90-day period provided in Section 2 of B.P. Blg. 22 is of no moment. We held that the 90-day period is not an
element of the offense but merely a condition for the prima facie presumption of knowledge of the insufficiency of funds; thus: That the check must be deposited within
90 days is simply one of the conditions for the prima facie presumption of knowledge of lack of funds to arise. It is not an element of the offense. Neither does it

discharge petitioner from his duty to maintain sufficient funds in the account within a reasonable time thereof. Under Section 186 of the Negotiable Instruments Law, "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."
By current banking practice, a check becomes stale after more than 6 months, or 180 days.” In Bautista v. Court of Appeals, we ruled that such prima facie presumption is
intended to facilitate proof of knowledge, and not to foreclose admissibility of other evidence that may also prove such knowledge; thus, the only consequence of the
failure to present the check for payment within the 90-day period is that there arises no prima facie presumption of knowledge of insufficiency of funds. The prosecution
may still prove such knowledge through other evidence.

The crime of estafa under paragraph 2(d) of Article 315 of the Revised Penal Code, as amended, has the following elements: (1) postdating or issuance of a check in
payment of an obligation contracted at the time the check was issued; (2) lack or insufficiency of funds to cover the check; and (3) damage to the payee thereof. Settled is the
rule that, to constitute estafa, the act of postdating or issuing a check in payment of an obligation must be the efficient cause of defraudation and, as such, it should be
either prior to, or simultaneous with, the act of fraud. The offender must be able to obtain money or property from the offended party because of the issuance of the
check, or the person to whom the check was delivered would not have parted with his money or property had there been no check issued to him. Stated otherwise, the
check should have been issued as an inducement for the surrender by the party deceived of his money or property, and not in payment of a pre-existing obligation.

Damage as an element of estafa may consist in (1) the offended party being deprived of his money or property as a result of the defraudation; (2) disturbance in property
right; or (3) temporary prejudice. In this case, the deprivation of the property of FEDCOR is apparent. Undoubtedly, the reason why FEDCOR delivered the backhoe to
petitioner was that the latter paid the P50,000 down payment and issued two postdated checks in the amount of P75,000 each.

7) Dy v. People - Before an accused can be held liable for estafa under Article 315, paragraph 2 (d) of the Revised Penal Code, as amended by Republic Act No. 4885, 12
the following elements must concur: (1) postdating or issuance of a check in payment of an obligation contracted at the time the check was issued; (2) insufficiency of funds to
cover the check; and (3) damage to the payee thereof. These elements are present in the instant case.

Section 191 of the Negotiable Instruments Law 14 defines "issue" as the first delivery of an instrument, complete in form, to a person who takes it as a holder.
Significantly, delivery is the final act essential to the negotiability of an instrument. Delivery denotes physical transfer of the instrument by the maker or drawer coupled
with an intention to convey title to the payee and recognize him as a holder. It means more than handing over to another; it imports such transfer of the instrument to
another as to enable the latter to hold it for himself. In this case, even if the checks were given to W.L. Foods in blank, this alone did not make its issuance invalid. When
the checks were delivered to Lim, through his employee, he became a holder with prima facie authority to fill the blanks. This was, in fact, accomplished by Lim's
accountant.

[T]he law merely requires that the instrument be in the possession of a person other than the drawer or maker. From such possession, together with the fact that the
instrument is wanting in a material particular, the law presumes agency to fill up the blanks. Because of this, the burden of proving want of authority or that the
authority granted was exceeded, is placed on the person questioning such authority. Petitioner failed to fulfill this requirement.

Next, petitioner claims failure of consideration. Nevertheless, in a letter dated November 10, 1992, he expressed willingness to pay W.L. Foods, or to replace the
dishonored checks. This was a clear acknowledgment of receipt of the goods, which gave rise to his duty to maintain or deposit sufficient funds to cover the amount of
the checks.

More significantly, we are not swayed by petitioner's arguments that the single incident of dishonor and his absence when the checks were delivered belie fraud. Indeed
damage and deceit are essential elements of the offense and must be established with satisfactory proof to warrant conviction. Deceit as an element of estafa is a specie

of fraud. It is actual fraud which consists in any misrepresentation or contrivance where a person deludes another, to his hurt. There is deceit when one is misled — by
guile, trickery or by other means — to believe as true what is really false.

Prima facie evidence of deceit was established against petitioner with regard to FEBTC Check No. 553615 which was dishonored for insufficiency of funds. The letter of
petitioner's counsel dated November 10, 1992 shows beyond reasonable doubt that petitioner received notice of the dishonor of the said check for insufficiency of funds.
Petitioner, however, failed to deposit the amounts necessary to cover his check within three banking days from receipt of the notice of dishonor. Hence, as provided for by
law, the presence of deceit was sufficiently proven. Petitioner failed to overcome the said proof of deceit. The trial court found no pre-existing obligation between the
parties. The existence of prior transactions between Lim and Dy alone did not rule out deceit because each transaction was separate, and had a different consideration
from the others. Even as petitioner was absent when the goods were delivered, by the principle of agency, delivery of the checks by his driver was deemed as his act as
the employer. The evidence shows that as a matter of course, Dy, or his employee, would pay W.L. Foods in either cash or check upon pick up of the stocks of snack foods
at the latter's branch or main office. Despite their two-year standing business relations prior to the issuance of the subject check, W.L Foods employees would not have
parted with the stocks were it not for the simultaneous delivery of the check issued by petitioner. Aside from the existing business relations between petitioner and W.L.
Foods, the primary inducement for the latter to part with its stocks of snack foods was the issuance of the check in payment of the value of the said stocks.

In a number of cases, the Court has considered good faith as a defense to a charge of estafa by postdating a check. This good faith may be manifested by making
arrangements for payment with the creditor and exerting best efforts to make good the value of the checks. In the instant case petitioner presented no proof of good
faith. Noticeably absent from the records is sufficient proof of sincere and best efforts on the part of petitioner for the payment of the value of the check that would
constitute good faith and negate deceit.

With the foregoing circumstances established, we find petitioner guilty of estafa with regard to FEBTC Check No. 553615 for P226,794.36. The same, however, does not
hold true with respect to FEBTC Check No. 553602 for P106,579.60. This check was dishonored for the reason that it was drawn against uncollected deposit. Petitioner
had P160,659.39 in his savings deposit account ledger as of July 22, 1992. We disagree with the conclusion of the RTC that since the balance included a regional clearing
check worth P55,000 deposited on July 20, 1992, which cleared only 5 days later, then petitioner had inadequate funds in this instance. Since petitioner technically and
retroactively had sufficient funds at the time Check No. 553602 was presented for payment then the second element (insufficiency of funds to cover the check) of the
crime is absent. Also there is no prima facie evidence of deceit in this instance because the check was not dishonored for lack or insufficiency of funds. Uncollected
deposits are not the same as insufficient funds. The prima facie presumption of deceit arises only when a check has been dishonored for lack or insufficiency of funds.
Notably, the law speaks of insufficiency of funds but not of uncollected deposits. Jurisprudence teaches that criminal laws are strictly construed against the Government
and liberally in favor of the accused. Hence, in the instant case, the law cannot be interpreted or applied in such a way as to expand its provision to encompass the
situation of uncollected deposits because it would make the law more onerous on the part of the accused.

Clearly, the estafa punished under Article 315, paragraph 2 (d) of the Revised Penal Code is committed when a check is dishonored for being drawn against insuffcient
funds or closed account, and not against uncollected deposit. Corollarily, the issuer of the check is not liable for estafa if the remaining balance and the uncollected
deposit, which was duly collected, could satisfy the amount of the check when presented for payment.

The elements of the offense penalized under B.P. Blg. 22 are as follows: (1) the making, drawing and issuance of any check to apply to account or for value; (2) the knowledge
of the maker, drawer 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; and (3) 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, without any
valid cause, ordered the bank to stop payment. The case at bar satisfies all these elements.


During the joint pre-trial conference of this case, Dy admitted that he issued the checks, and that the signatures appearing on them were his. The facts reveal that the
checks were issued in blank because of the uncertainty of the volume of products to be retrieved, the discount that can be availed of, and the deduction for bad orders.
Nevertheless, we must stress that what the law punishes is simply the issuance of a bouncing check and not the purpose for which it was issued nor the terms and
conditions relating thereto. If inquiry into the reason for which the checks are issued, or the terms and conditions of their issuance is required, the public's faith in the
stability and commercial value of checks as currency substitutes will certainly erode.

Moreover, the gravamen of the offense under B.P. Blg. 22 is the act of making or issuing a worthless check or a check that is dishonored upon presentment for payment.
The act effectively declares the offense to be one of malum prohibitum. The only valid query, then, is whether the law has been breached, i.e., by the mere act of issuing
a bad check, without so much regard as to the criminal intent of the issuer. Indeed, non-fulfillment of the obligation is immaterial. Thus, petitioner's defense of failure of
consideration must likewise fall. This is especially so since as stated above, Dy has acknowledged receipt of the goods.

Significantly, under Section 2 of B.P. Blg. 22, petitioner was prima facie presumed to know of the inadequacy of his funds with the bank when he did not pay the value of
the goods or make arrangements for their payment in full within 5 banking days upon notice. His letter dated November 10, 1992 to Lim fortified such presumption.
Undoubtedly, Dy violated B.P. Blg. 22 for issuing FEBTC Check No. 553615. When said check was dishonored for insufficient funds and stop payment order, petitioner
did not pay or make arrangements with the bank for its payment in full within 5 banking days.

Petitioner should be exonerated, however, for issuing FEBTC Check No. 553602, which was dishonored for the reason DAUD or drawn against uncollected deposit. When
the check was presented for payment, it was dishonored by the bank because the check deposit made by petitioner, which would make petitioner's bank account balance
more than enough to cover the face value of the subject check, had not been collected by the bank. In Tan v. People, this Court acquitted the petitioner therein who was
indicted under B.P. Blg. 22, upon a check which was dishonored for the reason DAUD, among others. We observed that: In the second place, even without relying on the
credit line, petitioner's bank account covered the check she issued because even though there were some deposits that were still uncollected the deposits became "good"
and the bank certified that the check was "funded".

To be liable under Section 1 of B.P. Blg. 22, the check must be dishonored by the drawee bank for insufficiency of funds or credit or dishonored for the same reason had
not the drawer, without any valid cause, ordered the bank to stop payment. In the instant case, even though the check which petitioner deposited on July 20, 1992
became good only 5 days later, he was considered by the bank to retroactively have had P160,659.39 in his account on July 22, 1992. This was more than enough to
cover the check he issued to respondent in the amount of P106,579.60. Under the circumstance obtaining in this case, we find the petitioner had issued the check, with
full ability to abide by his commitment to pay his purchases. Significantly, like Article 315 of the Revised Penal Code, B.P. Blg. 22 also speaks only of insufficiency of funds
and does not treat of uncollected deposits. To repeat, we cannot interpret the law in such a way as to expand its provision to encompass the situation of uncollected
deposits because it would make the law more onerous on the part of the accused. Again, criminal statutes are strictly construed against the Government and liberally in
favor of the accused.
8) Great Asian Sales v. CA - [U]nder common law, delay in notice of dishonor, where such notice is required, discharges the drawer only to the extent of the loss caused by
the delay. This rule finds application in this jurisdiction pursuant to Section 196 of the Negotiable Instruments Law which states, "Any case not provided for in this Act
shall be governed by the provisions of existing legislation, or in default thereof, by the rules of the Law Merchant." Under Section 186 of the Negotiable Instruments Law,
delay in the presentment of checks discharges the drawer. However, Section 186 refers only to delay in presentment of checks but is silent on delay in giving notice of
dishonor. Consequently, the common law or Law Merchant can supply this gap in accordance with Section 196 of the Negotiable Instruments Law.

9) Evangelista v. Screenex, Inc. - By definition, a check is a bill of exchange drawn on a bank payable on demand. It is a negotiable instrument — written and signed by a
drawer containing an unconditional order to pay on demand a sum certain in money. It is an undertaking that the drawer will pay the amount indicated thereon. Section

119 of the NIL, however, states that a negotiable instrument like a check may be discharged by any other act which will discharge a simple contract for the payment of
money.

A check therefore is subject to prescription of actions upon a written contract. Barring any extrajudicial or judicial demand that may toll the 10-year prescription period
and any evidence which may indicate any other time when the obligation to pay is due, the cause of action based on a check is reckoned from the date indicated on the
check.

If the check is undated, however, as in the present petition, 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 of the Negotiable Instruments Law instructs 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.

Given the foregoing, 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 years which could have tolled the period. Prescription has indeed set in.

It is a settled rule that the creditor's possession of the evidence of debt is proof that the debt has not been discharged by payment. It is likewise an established tenet that
a negotiable instrument is only a substitute for money and not money, and the delivery of such an instrument does not, by itself, operate as payment. Thus, in BPI v.
Spouses Royeca, we ruled that despite the lapse of three years from the time the checks were issued, the obligation still subsisted and was merely suspended until the
payment by commercial document could actually be realized. However, payment is deemed effected and the obligation for which the check was given as conditional
payment is treated discharged, if a period of 10 years or more has elapsed from the date indicated on the check until the date of encashment or presentment for
payment. The failure to encash the checks within a reasonable time after issue, or more than 10 years in this instance, not only results in the check becoming stale but
also in the obligation to pay being deemed fulfilled by operation of law.

Similarly in this case, we find that the delivery of the checks, despite the subsequent failure to encash them within a period of 10 years or more, had the effect of
payment. Petitioner is considered discharged from his obligation to pay and can no longer be pronounced civilly liable for the amounts indicated thereon.

CERTIFICATION OF CHECK Where a check is certified by the bank on which it is drawn, the certification is equivalent to an acceptance.
(Section 187)

CASE DOCTRINES

1) New Pacific Timber v. Seneris - It is a well-known and accepted practice in the business sector that a Cashier's Check is deemed as cash. Moreover, since the said check
had been certified by the drawee bank, by the certification, the funds represented by the check are transferred from the credit of the maker to that of the payee or holder,
and for all intents and purposes, the latter becomes the depositor of the drawee bank, with rights and duties of one in such situation. Where a check is certified by the
bank on which it is drawn, the certification is equivalent to acceptance. Said certification"implies that the check is drawn upon sufficient funds in the hands of the
drawee, that they have been set apart for its satisfaction, and that they shall be so applied whenever the check is presented for payment. It is an understanding that the
check is good then, and shall continue to be good, and this agreement is as binding on the bank as its notes in circulation, a certificate of deposit payable to the order of
the depositor, or any other obligation it can assume.

The object of certifying a check, as regards both parties, is to enable the holder to use it as money. When the holder procures the check to be certiFIed, "the check
operates as an assignment of a part of the funds to the creditors".Hence, 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.

2) PNB v. National City Bank of NY - It is contended, first of all, that the payment of the checks in question made by the drawee bank constitutes an "acceptance", and,
consequently, the case should be governed by the provisions of section 62 of the Negotiable Instruments Law. This contention is without merit. A check is a bill of
exchange payable on demand and only the rules governing bills of exchange payable on demand are applicable to it, according to section 185 of the Negotiable Instruments Law.
In view of the fact that acceptance is a step unnecessary in so far as bills of exchange payable on demand are concerned (sec. 143), it follows that the provisions relative
to "acceptance" are without application to checks. Acceptance implies, in effect, subsequent negotiation of the instrument, which is not true in case of the payment of a
check because from the moment a check is paid it is withdrawn from circulation. The warranty established by section 62, is in favor of holders of the instrument after its
acceptance. When the drawee bank cashes or pays a check, the cycle of negotiation is terminated, and it is illogical thereafter to speak of subsequent holders who can
invoke the warranty provided in section 62 against the drawee. Moreover, according to section 191, "acceptance" means "an acceptance completed by delivery or
notification" and this concept is entirely incompatible with payment, because when payment is made the check is retained by the bank, and there is no such thing as
delivery or notification to the party receiving the payment. There can be no such thing as "acceptance" in the ordinary sense of the term. A check being payable

There is, however, nothing in the law or in business practice against the presentation of checks for acceptance, before they are paid, in which case we have a
"certification" equivalent to "acceptance" according to section 187, which provides that "where a check is certified by the bank on which it is drawn, the certification is
equivalent to an acceptance", and it is then that the warranty under section 62 exists.

This certification or acceptance consists in the signification by the drawee of his assent to the order of the drawer, which must not express that the drawee will perform
his promise by any other means than the payment of money. (Sec. 132.) When the holder of a check procures it to be accepted or certified, the drawer will perform his
promise by any other means than the payment of money. (Sec. 132.) When the holder of a check procedures it to be accepted or certified, the drawer and all indorsers are
discharged from liability thereon (sec. 188), and then the check operates as an assignment of a part of the funds to the credit of the drawer with the bank. (Sec. 189.)

There is nothing in the nature of the check which intrinsically precludes its acceptance, in like manner and with like effect as a bill of exchange or draft may be accepted.

The bank may accept if it chooses; and it is frequently induced by convenience, by the exigencies of business, or by the desire to oblige customers, voluntarily to incur
the obligation. The act by which the bank places itself under obligation to pay to the holder the sum called for by a check must be the expressed promise or undertaking
of the bank signifying its intent to assume the obligation, or some act from which the law will imperatively imply such valid promise or undertaking. The most ordinary
form which such an act assumes is the acceptance by the bank of the check, or, as it is perhaps more often called, the certifying of the check.

No doubt a bank may by an unequivocal promise in writing make itself liable in any event to pay the check upon demand, but this is not an "acceptance" of the check in
the true sense of that term. Although a check does not call for acceptance, and the holder can present it only for payment, the certification of checks is a means in
constant and extensive use in the business of banking, and its effects and consequences are regulated by the law merchant. Checks drawn upon banks or bankers, thus
marked and certified, enter largely into the commercial and financial transactions of the country; they pass from hand to hand, in the payment of debts, the purchase of
property, and in the transfer of balances from one house and one bank to another. In the great commercial centers, they make up no inconsiderable portion of the
circulation, and thus perform a useful, valuable, and an almost indispensable office. The purpose of procuring a check to be certified is to impart strength and credit to
the paper by obtaining an acknowledgment from the certifying bank that the drawer has funds therein sufficient to cover the check, and securing the engagement of the
bank that the check will be paid upon presentation. A certified check has a distinctive character as a species of commercial paper, and performs important functions in
banking and commercial business. When a check is certified, it ceases to possess the character, or to perform the functions, of a check, and represents so much money on
deposit, payable to the holder on demand. The check becomes a basis of credit — an easy mode of passing money from hand to hand, and answers the purposes of
money.

The theory of the appellant and of the decisions on which it relies to support its view is vitiated by the fact that they take the word "acceptance" in its ordinary meaning
and not in the technical sense in which it is used in the Negotiable Instruments Law. Appellant says that when payment is made, such payment amounts to an
acceptance, because he who pays accepts. This is true in common parlance, but it is not "acceptance" in legal contemplation. The word "acceptance" has a peculiar
meaning in the Negotiable Instruments Law, and, as has been above stated, in the instant case there was payment but no acceptance, or what is equivalent to
acceptance, certification. With few exceptions, the weight of authority is to the effect that "payment" neither includes nor implies "acceptance".

The rule supported by the majority of the cases, that payment of a check on a forged or unauthorized indorsement of the payee's name, and charging the same to the
drawer's account, do not amount to an acceptance so as to make the bank liable to the payee, is supported by all of the recent cases in which the question is considered.
Merely stamping a check "Paid" upon its payment on a forged or unauthorized indorsement is not an acceptance thereof so as to render the drawee bank liable to the
true payee.

Before drawee's acceptance of check there is no privity of contract between drawee and payee. Drawee's payment of check on unauthorized indorsement does not
constitute "acceptance" of check. The great weight of authority is to the effect that the payment of a check upon a forged or unauthorized indorsement and the stamping
of it "paid" does not constitute an acceptance. Payment of the check, cashing it on presentment is not acceptance.
3) Equitable PCI Bank v. Ong - Easily discernible is that what Ong obtained from PCI Bank was not just any ordinary check but a manager's check. A manager's check is an
order of the bank to pay, drawn upon itself, committing in effect its total resources, integrity and honor behind its issuance. By its peculiar character and general use in
commerce, a manager's check is regarded substantially to be as good as the money it represents. A manager's check stands on the same footing as a certified check. The
effect of certification is found in Section 187, Negotiable Instruments Law.

Simply put, [a] manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a cashier's check both as to effect and use. A cashier's check is a
check of the bank's cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance 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 a maker. The check becomes the primary obligation of

the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof.

By accepting PCI Bank Check No. 073661 issued by Sarande to Ong and issuing in turn a manager's check in exchange thereof, PCI Bank assumed the liabilities of an
acceptor under Section 62 of the Negotiable Instruments Law.

4) SBTC v. RCBC - At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary check but a manager's check. A manager's check is one
drawn by a bank's manager upon the bank itself. It stands on the same footing as a certified check, which is deemed to have been accepted by the bank that certified it.
As the bank's own check, a manager's check becomes the primary obligation of the bank and is accepted in advance by the act of its issuance.

In this case, RCBC, in immediately crediting the amount of P8 million to CMC's account, relied on the integrity and honor of the check as it is regarded in commercial
transactions. Where the questioned check, which was payable to "Cash", appeared regular on its face, and the bank found nothing unusual in the transaction, as the
drawer usually issued checks in big amounts made payable to cash, RCBC cannot be faulted in paying the value of the questioned check.

5) Panlilio v. David - The letters “O.K.” with the initials of the cashier of a bank written upon the face of a check drawn on that bank is not under modern banking practice
a sufficient certification of the check.

But, while the Director of Lands had the right to reject the bids, it does not necessarily follow that, if he accepted one of them, a merely formal defect in the accepted bid
would vitiate the award. Regulations as well as statutes must be given a reasonable construction and it seems clear that the provision here in question is merely
directory and not mandatory. When David's bid was accepted and the amount of the bid was paid and covered into the Insular Treasury, the Government could hardly be
heard to say that the award was invalid because the amount paid was originally represented in part by an uncertified check. There would be no substantial reason for so
holding and it cannot have been the intention of the framers of said provision that it should be so interpreted. We, therefore, hold that though the original bid of David
was not made in the manner and form prescribed by the regulations, the acceptance of it together withthe payment of its amount cured the defect complained of and
that, consequently, the award to David was valid.

EFFECT WHERE HOLDER Where the holder of a check procures it to be accepted or certified, the drawer and all indorsers are discharged from
PROCURES CERTIFICATION OF liability thereon.
CHECK
(Section 188)
WHEN CHECK OPERATES AS 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,
ASSIGNMENT and the bank is not liable to the holder unless and until it accepts or certifies the check.
(Section 189)


CASE DOCTRINES

1) RCBC v. Hi-Tri Development Corp. - An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank (drawee), requesting the latter to pay a
person named therein (payee) or to the order of the payee or to the bearer, a named sum of money. The issuance of the check does not of itself operate as an assignment
of any part of the funds in the bank to the credit of the drawer. Here, the bank becomes liable only after it accepts or certifies the check. After the check is accepted for
payment, the bank would then debit the amount to be paid to the holder of the check from the account of the depositor-drawer.

There are checks of a special type called manager's or cashier's checks. These are bills of exchange drawn by the bank's manager or cashier, in the name of the bank,
against the bank itself. Typically, a manager's or a cashier's check is procured from the bank by allocating a particular amount of funds to be debited from the depositor's
account or by directly paying or depositing to the bank the value of the check to be drawn. Since the bank issues the check in its name, with itself as the drawee, the
check is deemed accepted in advance. Ordinarily, the check becomes the primary obligation of the issuing bank and constitutes its written promise to pay upon demand.
Nevertheless, the mere issuance of a manager's check does not ipso facto work as an automatic transfer of funds to the account of the payee.

2) Tan v. CA - An ordinary check is not a mere undertaking to pay an amount of money. There is an element of certainty or assurance that it will be paid upon
presentation that is why it is perceived as a convenient substitute for currency in commercial and financial transactions. The basis of the perception being confidence.
Any practice that destroys that conEdence will impair the usefulness of the check as a currency substitute and create havoc in trade circles and the banking community.
Now, what was presented for deposit in the instant cases was not just an ordinary check but a cashier's check payable to the account of the depositor himself.

A cashier's check is a primary obligation of the issuing bank and accepted in advance by its mere issuance. By its very nature, a cashier's check is the bank's order to pay
drawn upon itself, committing in effect its total resources, integrity and honor behind the check. A cashier's check by its peculiar character and general use in the
commercial world is regarded substantially to be as good as the money which it represents. In this case, therefore, PCIB by issuing the check created an unconditional
credit in favor of any collecting bank. All these considered, petitioner's reliance on the layman's perception that a cashier's check is as good as cash is not entirely
misplaced, as it is rooted in practice, tradition, and principle. We see no reason thus why this so-called discretion was not exercised in favor of petitioner, specially since
PCIB and RCBC are members of the same clearing house group relying on each other's solvency. RCBC could surely rely on the solvency of PCIB when the latter issued its
cashier's check.

3) Villanueva v. Nite - If a bank refuses to pay a check (notwithstanding the sufficiency of funds), the payee-holder cannot, in view of the cited sections, sue the bank. The
payee should instead sue the drawer who might in turn sue the bank. Section 189 is sound law based on logic and established legal principles: no privity of contract
exists between the drawee-bank and the payee. Indeed, in this case, there was no such privity of contract between ABC and petitioner.

Petitioner should not have sued ABC. Contracts take effect only between the parties, their assigns and heirs, except in cases where the rights and obligations arising from
the contract are not transmissible by their nature, or by stipulation or by provision of law. None of the foregoing exceptions to the relativity of contracts applies in this
case. The contract of loan was between petitioner and respondent. No collection suit could prosper without respondent who was an indispensable party.

4) Miranda v. PDIC, BSP, and Prime - [T]he two cashier's checks issued by Prime Savings Bank do not constitute an assignment of funds in the hands of the petitioner as
there were no funds to speak of in the first place. The bank was financially insolvent for sometime, even before the issuance of the checks on June 3, 1999. As the Court
of Appeals correctly ruled, the issuance of the cashier's checks to petitioner did not constitute an assignment of funds, of which there was practically none at the time
these were issued, as the bank was in dire financial straits for some time.


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