Section 122. Renunciation by holder.

31
NOTES ON NEGOTIABLE INSTRUMENTS Section 124. Alteration of instrument 31
Section 142. Right of parties as to qualified
Based on the lectures of Atty. Rene Villarente acceptance. 31
Section 144. When failure to present
First Exam releases drawer and indorser. 31
A.Y. 2020-2021 Section 152. In what cases protest is
necessary. 31
Transcribed and compiled by
Capistrano, Mesiona, and Madrazo Section 175. Effect on subsequent parties
2-Manresa where bill is paid for honor. 31
Section 176. Where holder refuses to
receive payment supra protest 32
TABLE OF CONTENTS
Section 183. Effect of discharging one of a
set 32
LECTURE W2- Y2 D1 4 Section 186. Within what time a check must
be presented 32
SECTION 1 AND ALLIED SECTIONS 4
Section 188. Effect where the holder of
Negotiable Instruments Law arise from Section 1 of check procures it to be certified 32
the NIL 4
Under the Civil Code 32
Historical background of our Negotiable Instruments
Performance 32
Law 4
By the loss of the thing due 33
Characteristics or features of Negotiable Instruments
5 Condonation or remission of the debt
33
Functions and importance of Negotiable Instruments
6 Confusion or merger of the rights of the
creditor or debtor 33
LECTURE W2- Y2 D2 28
Compensation 33
Liability on Negotiable Instrument is extinguished
(discharged): 28 Novation 33
How does the life or obligation in a negotiable LECTURE W2- Y2 D3 33
instrument end? 29 Types of Negotiable Instruments 33
(a) By payment in due course by or on Promissory Note vs. Bill of Exchange 34
behalf of the principal debtor 29 Form of Negotiable Instruments 35
(b) By payment in due course by the party Important Principles 37
accommodated, where the instrument is
1. The Negotiable Instruments Law
made or accepted for accommodation 29
applies only to Negotiable Instruments.
(c) By the intentional cancellation thereof 37
by the holder 30
2. In cases of instruments not covered
(d) By any other act which will discharge by the Negotiable Instruments Law, the
simple contract for the payment of money; rights and liabilities of the parties are
30 settled using other laws (Civil Code,
(e) When the principal debtor becomes the Code of Commerce, Special Laws). 37
holder of the instrument at or after the 3. In cases involving negotiable
maturity in his own right. 30 instruments but issues not covered by
B. Other provisions of the NIL other than Section the Negotiable Instruments Law
119 30 (Section 196, NIL) rights and liabilities
Section 89. To whom notice of dishonor of parties governed by the provisions of
must be given 30 existing legislation, or in default the
rules of law merchant. 37
Section 120. When persons secondarily
liable on the instrument are discharged 30

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 1

 4. Doubt is resolved in favor of When payable to order 52
negotiability. 38 LECTURE W4 D1 52
Negotiable Instruments 38 ORDER 53
Not Negotiable Instruments 38 BEARER 54
LECTURE W3 D1 39 LECTURE W4 D2 54
Permanency and Portability 39 Payable to bearer 54
Unconditional promise or order to pay a sum certain PNB vs ERLANDO T. RODRIGUEZ 55
in money 40
LECTURE W4 D3 58
“Unconditional,” defined 40
“Sum certain in money,” defined 41 SECTIONS 14, 15 AND 16 / INDORSEMENT 65
LECTURE W3 D2 42 LECTURE W5 D1 65
Republic Act No. 8183 42 DELIVERY OF A NEGOTIABLE INSTRUMENT 65
New Sampaguita vs. PNB 44 CONCEPT OF DELIVERY 65
New Sampaguita vs. PNB 44 San Lorenzo Development Corp. vs. CA 66
BPI vs. Norman and Angelina Yu 45 LECTURE W5 D2 68
LECTURE W3 D3 47 Mechanical act of writing 68
International Corporate Bank vs. Gueco 48 Possible situations in a defective negotiable
instrument: 69
International Corporate Bank vs Gueco. 48
LECTURE W5 D3 70
International Corporate Bank vs. Gueco
(G.R. No. 141968, February 12, 2001) 49 Blondeau Doctrine 74
What do you mean by demand LECTURE W6 D1 74
instruments? 49 LECTURE W6 D2 76
Determinable future time 49 January 22, 2021 76
(a) At a fixed period after date or sight LECTURE W6 D3 77
49 January 22, 2021 77
(b) On or before a fixed or Ching vs. Nicdao and Court of Appeals 78
determinable future time specified
Bank of America, vs. Philippine Racing Club
therein; or 50
78
(c) On or at fixed period after the
LECTURE W7 D1 80
occurrence of a specified event, which
is certain to happen, though the time of January 28, 2021 80
happening be uncertain. 50 Forgery (F) vs. Material Alternation (MA) 83
Additional provisions not affecting LECTURE W7 D2 84
negotiability 50 January 29, 2021 84
(a) authorizes the sale of collateral LECTURE W7 D3 86
securities in case the instrument be not
January 29, 2021 86
paid at maturity; 50
Osmeña vs. Citibank 86
(b) authorizes a confession of judgment
if the instrument be not paid at 2. Associated Bank vs. Court of Appeals id.
maturity; 51 Except: 87
(c) waives the benefit of any law LECTURE W8 D1 88
intended for the advantage or February 5, 2021 88
protection of the obligor 51 LECTURE W8 D2 91
(d) gives the holder an election to February 6, 2021 91
require something to be done in lieu of
CASE: ALLIED BANK VS LIM SIO WAN GR
payment of money 51
133197 March 27, 2008 91
Judgments by confession 51

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 2

 CASE: METROPOLITAN BANK VS JUNNEL’S
MARKETING GR 235511, June 20, 2018;
citing BDO Unibank vs Lao June 19, 2017 93
LECTURE W8 D3 95
February 6, 2021 95
Metropolitan Bank vs. Junnel's Marketing 95
PCI vs. Ong 96
Philippine Savings Bank vs. Maria Cecilia
Sakata 96

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 3


LECTURE W2- Y2 D1
December 10, 2020
PRELIMINARIES: We will start with our discussion on the
4-page paper that will more or less summarize the big
portion of the Negotiable Instruments Law.
We will attack the topic of Negotiable Instruments Law
on the basis of the groupings of the sections.
I. SECTION 1 AND ALLIED SECTIONS
Negotiable Instruments Law arise from Section 1
of the NIL
Negotiable Instruments arise from Section 1 of the
Negotiable Instruments Law (NIL)
Q: What is the NIL?
A: ACT No. 2031
Enacted: February 3, 1911
Published in the O.G.: March 4, 1911 and took effect on
June 2, 1911.
Recall earlier that we say, in 2011 it was the first time
when the questions in the bar exams overtook
Corporation Law as the massive source of questions.
ACT No. 2031 has not been amended, it stays as it is.
Historical background of our Negotiable
Instruments Law
NOTE: Refer to De Leon and De Leon Jr book
Q: What are the important concerns regarding the
historical background of the NIL?
1. Use of negotiable documents by merchants of Europe
- The use of commercial paper may be traced back to the
beginning of the Christian era. In fact, commercial paper
of some type has been present in nearly every society
that has developed a substantial commercial system.
During the medieval period, merchants of Italy were
already using negotiable documents on a broad scale
rather than transferring principal money owing to the
inconvenience and danger of transporting money itself.
Later, this practice was introduced into France and then
into England where it became part of the Law Merchant.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 4
2. English Bills of Exchange Act. - Litigations arising out
of transactions between merchants came under the
jurisdiction of common law courts when the Law
Merchant was absorbed by the Kings Court under the
direction of Lord Mansfield. Commercial paper had
become so persuasive by the late 19th century that the
English Parliament began to enact special statutes to
govern its use.
So what we have:
● The use of negotiable instruments by merchants
in Europe
● Having it codified in the English bill of exchange
In 1882, the Parliament passed the Bill of Exchange Act
which codified the law of NI as found in the court
decisions of England.
3. US Uniform Negotiable Instruments Act. - Following
the example of the English Parliament, the National
Conference of Commission on Uniform State Laws, which
was sponsored by the American Bar Association and the
American Bankers Association, drafted the Uniform NIL
for the United States in 1986.
The Conference was appointed in 1895 to revise and
codify the law merchant in the US as there was much
confusion and lack of uniformity then in the court
decisions on the subject resulting from the variety of
statutes pertaining to commercial paper enacted by
various state legislatures. This law, in turn, is based upon
and largely copied from the English Bills of Exchange Act
of 1882, a codification of the laws in England governing
bills of exchange, promissory notes and checks. Most
state legislatures adopted with varying modifications the
Act as the main law for regulating commercial paper.
4. US Uniform Commercial Code. - The Uniform
Negotiable Instruments Act has been replaced in part by
Article 3 and in part by other articles of the Uniform
Commercial Code (UCC) prepared under the auspices of
the National Conference of Commissioners in Uniform
State Law and the American Law Institute. Proposed for
adoption by the legislatures of the states and first draft of
the Code was finished in 1952 although the Code is
revised periodically. (see 11 Am. Jur. 2d 64)
Article 3 thereof makes clear that it covers only
negotiable instruments and not other types of negotiable
documents.
The Code was adopted to comply more readily with the
demands of the modern business world. It seeks to
simplify, clarify and standardize the rules of commercial
paper while retaining most of the traditional rules and
views on the subject. Each state has adopted part or all of
the Code.
5. Act. No. 2031 - Our NIL was enacted as Act No. 2031
on February 3, 1911. It took effect 90 days after the
publication on March 4, 1911 in the Official Gazette of
the Philippine Islands was completed. (Sec. 198) The Act
therefore, took effect on June 2, 1911. Since then, our
Congress has not seen fit to amend any of its provisions.
Our law is patterned with very slight modifications after
the Uniform Negotiable Instruments Act of the US of
1896 drafted by the National Conference of
Commissioners on Uniform State Laws. The evident
purpose of the Act is to facilitate transactions in
commercial paper and to promote free flow of credit.
Since then, our Congress has not seen fit to amend any of
its provisions.
6. Code of Commerce. - Prior to the passage of Act No.
2031, the law then existing and in force as to negotiable
instruments could be found in Book II of the Code of
Commerce, from Article 443 to 556. All these articles,
with the exception of those on crossed checks, have been
repealed (Sec. 197).
DISCUSSION: What is my prognosis on the NIL?
Well, it survived the test of time. However, I would say,
that the present new normal would radically disrupt the
use of NI. We have been predicting that because the use
of checks and other NI may already be considered
obsolete in the light of the present new normal where
there are other substitutes for money that are rather very
quick at conducting trade.
Ex: Gcash, automatic bank transfers which does not
require any more NI. My prognosis is that, while, to some
extent it is one of the few laws that survived the test of
time, without having any amendments, my prognosis is
really not that ripe for NIL in a decade or two because it
would be replaced by another means of human
exchange.
In fact, during the 2020 bar exam it is even suggested
that NIL is not anymore part of the coverage. However,
we will still study it.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 5
Characteristics or features of Negotiable
Instruments
Negotiable Instruments have 2 important features,
namely:
1. Negotiability
2. Accumulation of secondary contracts
● Negotiability - This is that quality or attribute of
a bill or note whereby it may pass from hand to
hand similar to money, so as to give the holder
in due course the right to hold the instrument
and collect the sum payable for himself free
from any infirmity in the instrument or defect in
the title of any of the prior parties, or defenses
available to them and among themselves.
(Sections 52, 57)
Ex: Money is dirty because it gets to be transferred from
one person to another. You buy goods and services, the
other person takes the money and provides you goods
and services, etc. The P1,000-bill is negotiable, capable of
being transferred from one person to another without
limit. We cannot limit. Otherwise, if there were just two
or three transfers then why would I allow to use it when I
might be a 4th transferee and the money cannot
anymore be used. It is used until it is returned to the
bank and demonetized. If it is not returned to the bank
then it is still a negotiable instrument.
Negotiable instruments like checks, promissory notes, are
exactly like that - capable of being transferred from one
person to another. That is a characteristic of a NI:
negotiability.
● Accumulation of secondary contracts. - the most
important feature of negotiable instruments is
the accumulation of secondary contracts as they
are transferred from one person to another.
Once an instrument is issued (Sec 191),
additional parties can become involved.
As we will discuss later, as you issue a check and it is
being endorsed everybody who comes into contact with
the check are bound on that instrument.
With the P1,000-bill, you have to check if it is fake or not
because if not you cannot anymore trace from whom you
got it: There is no accumulation of secondary contracts
here.
If it is a check, promissory note or a bill of exchange,
there are certain measures there, where you can hold,
prior parties responsible. While in both cases, they are
negotiable, in the case of a negotiable instrument there
is accumulation of secondary contracts.
Functions and importance of Negotiable
Instruments
NOTE: This is also available in our paper- outline of decided cases.
1. Substitute for money but not legal tender
2. Medium of commercial transactions
3. Medium of credit transactions
4. It is specie of property
5. Proof of payment
6. Evidence of indebtedness
7. Guarantee for the performance of a future
obligation
8. Proof in a criminal case
9. Proof in an administrative case
10. Proof in a civil case
11. Basis of finding probable cause in a preliminary
investigation
1. Substitute for Money but not legal
tender
If the party agrees that the business transaction will be
exchanged through Negotiable Instruments and not really
legal tender like P1,000-bill, then it is a substitute for
money. But it is not legal tender. In other words, you
cannot force somebody to accept it as payment for a
debt.
This P1,000-bill-you CAN force somebody to accept it as
payment of a debt. If you want to pay a debt but the
person refuses and you TENDER the P1,000-bill, the
person is under obligation to accept it because it is legal
tender for all debts - both private and public debt.
Q: What is the remedy if the person will not accept this?
Then there is consignation in court.
Are there instances where persons who are creditors
would not accept payment? Maybe because by not
accepting payment they can get the land used as
mortgage/collateral or he can charge a bigger interest.
There may be motives why he will not accept that. For
you to stop interest and to stop your property which you
used as collateral to be foreclosed, then you tender the
money in court. Is he under obligation to accept? YES.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 6
Since checks are substitutes for money, you can buy
goods and services using checks, can you tender a check
and force somebody to accept it as payment of a debt?
Our answer is no.
While negotiable instruments are substitute for money,
they are not legal tender.
Case: Papa vs Valencia
GR No. 105188
ISSUE: Myron Papa insists that he never cashed the
check; and, such being the case, its delivery never
produced the effect of payment. Petitioner, while
admitting that he had issued receipts for the
payments, asserts that said receipts do not prove
payment. He avers that there must be a showing that
said check had been encashed.
RULING: Granting that petitioner had never encashed
the check, his failure to do so for more than ten (10)
years undoubtedly resulted in the impairment of the
check through his unreasonable and unexplained
delay.
While it is true that the delivery of a check produces
the effect of payment only when it is cashed, pursuant
to Art. 1249 of the Civil Code, the rule is otherwise if
the debtor is prejudiced by the creditor's
unreasonable delay in presentment. The acceptance
of a check implies an undertaking of due diligence in
presenting it for payment, and if he from whom it is
received sustains loss by want of such diligence, it will
be held to operate as actual payment of the debt or
obligation for which it was given. It has, likewise,
been held that if no presentment is made at all, the
drawer cannot be held liable irrespective of loss or
injury unless presentment is otherwise excused. This
is in harmony with Article 1249 of the Civil Code under
which payment by way of check or other negotiable
instrument is conditioned on its being cashed, except
when through the fault of the creditor, the instrument
is impaired. The payee of a check would be a creditor
under this provision and if it's no-payment is caused by
his negligence, payment will be deemed effected and
the obligation for which the check was given as
conditional payment will be discharged.
Case: Cebu International Finance vs CA
GR 123031
ISSUE: What law governs the money market
transaction of CIFC with Alegre: Article 1249 of the Civil
Code or Section 137 of the NIL? Is a check a legal
tender? Was Alegre bound by the compromise
agreement of CICF and BPI? When the BPI deducted
the amount of the check from CIFC’s current account,
did this ipso facto operate as a discharge or payment
of the check?
ANSWER: In this case, Article 1249 of the New Civil
Code should be applied considering the money market
transaction between the petitioner and the private
respondent is in the nature of a loan.
A check is not a legal tender, and therefore cannot
constitute valid tender of payment.
The compromise agreement could not bind a party
who did not sign the compromise agreement nor avail
of its benefits, thus, the stipulations in the
compromise agreement are unenforceable against
Vicente Alegre, not a party thereto.
When the bank deducted the amount of the check
from CIFC’s current account, this did not ipso facto
operate as a discharge or payment of the instrument
because although the value of the check was deducted
from the funds of CIFC, it was not delivered to the
payee, Vicente Alegre.
RULING: 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. In the case of Philippine
Airlines, Inc. vs. Court of Appeals, 14 this Court held:
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. Mere
delivery of checks does not discharge the obligation
under a judgment. The obligation is not extinguished
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 7
and remains suspended until the payment by
commercial document is actually realized (Art. 1249,
Civil Code, par. 3.)
Case: Rueda vs Sandiganbayan
GR 129064
ISSUE: What does cash mean in auditing practice?
Are negotiable instruments “cash”?
ANSWER: It is a generally accepted auditing principle
that cash means "cash on hand or in bank." Standard
text in accounting defines "Cash" as consisting of those
items that serve as a medium of exchange and provide
a basis for accounting measurement. To be reported as
"cash," an item must be readily available and not
restricted for use in the payment of current
obligations. A general guideline is whether an item is
acceptable for deposit at face value by a bank or other
financial institution.
Items that are classified as cash include coin and
currency on hand, and unrestricted funds available on
deposit in a bank, which are often called demand
deposits since they can be withdrawn upon demand.
Petty cash funds or change funds and negotiable
instruments, such as personal checks, travelers'
checks, cashiers' checks, bank drafts, and money
orders are also items commonly reported as cash.
Case: Pio Barretto Realty vs CA
GR 132362
ISSUE: What is the effect of the delivery of the check?
Is it not that payment takes effect only when the check
is encashed?
RULING: The fact that the check paid to him by
Barretto Realty was never encashed should not be
invoked against the latter. As already stated, Moslares
never questioned the tender done three (3) years
earlier. Besides, while delivery of a check produces the
effect of payment only when it is encashed, the rule is
otherwise if the debtor was prejudiced by the
creditor's unreasonable delay in presentment.
Acceptance of a check implies an undertaking of due
diligence in presenting it for payment. If no such
presentment was made, the drawer cannot be held
liable irrespective of loss or injury sustained by the
payee. Payment will be deemed effected and the
obligation for which the check was given as conditional
payment will be discharged.
Case: BPI vs Spouses Royeca
GR No. 176664
The Spouses averred that they did not receive any
notice from the drawee banks or from FEBTC that the
checks were dishonored. They explained that,
considering this and the fact that the checks were
issued three years ago, they believed in good faith that
their obligation had already been fully paid.
ISSUE: Whether the tender of the check constitutes
payment.
ANSWER: No. Settled is the rule that payment must be
made in legal tender. A check is not legal tender and,
therefore, cannot constitute a valid tender of payment.
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.
Mere delivery of checks does not discharge the
obligation under a judgment. The obligation is not
extinguished and remains suspended until the
payment by commercial document is actually realized.
Case: Mitra vs People
GR No. 191404
ISSUE: What is the function and importance of a
negotiable instrument?
ANSWER: A check is a negotiable instrument that
serves as a substitute for money and as a convenient
form of payment in financial transactions and
obligations. The use of checks as payment allows
commercial and banking transactions to proceed
without the actual handling of money, thus, doing
away with the need to physically count bills and coins
whenever payment is made. It permits commercial
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 8
and banking transactions to be carried out quickly and
efficiently. But the convenience afforded by checks is
damaged by unfunded checks that adversely affect
confidence in our commercial and banking activities,
and ultimately injure public interest.
Case: Halley vs Printwell
GR No. 157549
ISSUE: Is check money? - NO.
RULING: The petitioner’s ORNo. 227,presented to
prove the payment of the balance of her subscription,
indicated that her supposed payment had been made
by means of a check. Thus, to discharge the burden to
prove payment of her subscription, she had to adduce
evidence satisfactorily proving that her payment by
check wasregardedas payment under the law.
Payment Is defined as the delivery of money. Yet,
because a check is not money and only substitutes for
money, the delivery of a check does not operate as
payment and does not discharge the obligation under
a judgment. The delivery of a bill of exchange only
produces the fact of payment when the bill has been
encashed.
In Bank of Philippine Islands v. Royeca, the Court held:
Settled is the rule that payment must be made in legal
tender. A check is not legal tender and, therefore,
cannot constitute a valid tender of payment. 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. Mere delivery
of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and
remains suspended until the payment by commercial
document is actually realized.
Case: Bognot vs RPI Lending
GR No. 180144
ISSUE: Is a check a legal tender? Can it constitute a
valid tender of payment?

ANSWER: A check is not legal tender and, therefore,
cannot constitute a valid tender of payment. 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. Mere delivery
of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and
remains suspended until the payment by commercial
document is actually realized.
ISSUE: What is the effect of Art. 1249, par. 2 of the Civil
Code?
Article 1249, paragraph 2 of the Civil Code provides:
The delivery of promissory notes payable to order, or
bills of exchange or other mercantile documents shall
produce the effect of payment only when they have
been cashed, or when through the fault of the creditor
they have been impaired.
Case: Manila Mining vs Amor
GR No. 182800
ISSUE: What is the effect of the dishonor of a check
used for payment of appeal fee with the NLRC?
ANSWER: There was no perfected appeal since the
posting of a provisional cash or surety bond was not
complied with. When the check was dishonored upon
presentment for payment, such rendered the tender
thereof ineffectual.
Case: GBMLT Manpower vs Malinao
GR No. 189262
ISSUE: What is the effect of the delivery of the check?
Is it not that payment takes effect only when the check
is encashed?
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 9
ANSWER: The posting of a bond for the perfection of
an appeal from a decision of the labor arbiter is
required under Article 228 of the Labor Code. The
requirement is fulfilled when the employer is able to
deposit with the NLRC an amount that is equivalent to
the monetary award adjudged by the labor arbiter in
the employee’s favor, and that shall subsist until the
final resolution of the appeal.
In this case, there is no question that the NLRC
accepted the appeal bond posted by GBMLT through a
current-dated check. That check was deposited to the
bank account of the NLRC without incident.
Furthermore, Malinao has never disputed the
sufficiency of the bond posted or GBMLT’s
manifestation before the SC that “up to the present,
the cash bond posted x x x is still in effect and remains
in the coffers of the x x x NLRC and is susceptible to
execution in the unfortunate event that this Petition
fails.”
According to SC, the appeal of GBMLT has been
perfected on time by virtue of its compliance with the
appeal bond requirement. SC noted that its payment
of the appeal bond through the issuance of a check
was not even an issue before the NLRC. The latter had
given due course to GBMLT’s appeal without any
indication of having found any defect in the appeal
bond posted.
Case: Federal Corp vs Antonio
GR No. 199455
ISSUE: Are checks legal tender so as to be covered by
FedEx’s International Air Waybill prohibition on
“transport of money”?
ANSWER: NO. It is settled in jurisprudence that
checks, being only negotiable instruments, are only
substitutes for money and are not legal tender; more
so when the check has a named payee and is not
payable to bearer. The debts paid in a money market
transaction through the use of a check is not a valid
tender of payment as a check is not legal tender in the
Philippines. A check, whether a manager’s check or
ordinary check, is not legal tender.
The Air Waybill’s prohibition mentions “negotiable
instruments” only in the course of making an example.
Thus, they are not prohibited items themselves.
Moreover, the illustrative example does not even
pertain to negotiable instruments per se but to
“negotiable instruments equivalent to cash.”
Case: Jorge vs Marcelo and the NLRC
GR No. 232989
ISSUE: Are checks considered as acceptable security
under Section 6 (c) of Rule VI of the NLRC Rules on
bonds?
ANSWER: No. Section 6 (c) of Rule VI of the NLRC
Rules on bonds specifically excludes checks as an
acceptable security, thus:
Section 6. Bond - In case the decision of the Labor
Arbiter or the Regional Director involves a monetary
award, an appeal by the employer may be perfected
only upon the posting of a bond, which shall either be
in the form of cash deposit or surety bond equivalent
in the amount to the monetary award, exclusive of
damages and attorney's fees.
In case of surety bond, the same shall be issued by a
reputable bonding company duly accredited by the
Commission and shall be accompanied by original or
certified true copies of the following:
(c) proof of security deposit or collateral securing the
bond: provided, that a check shall not be considered as
an acceptable security
Case: East West Banking vs Victorias Milling
GR No. 225181
ISSUE: Can a check still be considered a valid payment
if the creditor does not refuse it as such?
ANSWER: A check can still be considered a valid
payment if the creditor does not refuse it as such.
Jurisprudence holds that, in general, a check does not
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 10
constitute legal tender, and that the creditor may
validly refuse it as payment. Conversely, a check may
still be a valid payment if the creditor does not refuse
it as such.
In the case at bar, East West Bank did not refuse the
checks, rather, what was refused was the exercise of
VMC’s option to redeem. Hence, as East West Bank,
the creditor, did not refuse the checks as payment, the
checks are still considered as a valid payment.
2. Medium of commercial transactions
If the party agrees, you can use a check
to buy goods or services.
Case: People vs Tongko
GR No. 123567
ISSUE: What is the history of Article 315 (2) (d) of the
Revised Penal Code? Is a NI a medium of commercial
transaction?
ANSWER: Yes. a NI a medium of commercial
transaction. The history of the law will show that the
severe penalties were intended to stop the upsurge of
swindling by issuance of bouncing checks. It was felt
that unless aborted, this kind of estafa "...would erode
the people's confidence in the use of negotiable
instruments as a medium of commercial transaction
and consequently result in the retardation of trade and
commerce and the undermining of the banking system
of the country."
Case: Tenenggee vs People
GR No. 179448
ISSUE: Does a promissory note facilitate credit
transactions? Does a check used as a means of
payment in business in lieu of money for convenience
in business transactions? How about a cashier’s check?
ANSWER: Commercial documents are, in general,
documents or instruments which are “used by
merchants or businessmen to promote or facilitate
trade or credit transactions.”
Promissory notes facilitate credit transactions while;
A check is a means of payment used in business in lieu
of money for convenience in business transactions.
A cashier’s check necessarily facilitates bank
transactions for it allows the person whose name and
signature appear thereon to encash the check and
withdraw the amount indicated therein.
Case: GE Money Bank vs Spouses Dizon
GR No. 184301
ISSUE: Is a check a medium of payment in commercial
transaction?
ANSWER: As provided by the Supreme Court in the
case of Tolentino v. Court of Appeals, in which the
certificate of sale was registered with the Register of
Deeds on April 2, 1969. On March 31, 1970, the
mortgagor consigned to the city sheriff a crossed check
as payment for the redemption price. The following
day, however, the mortgagor issued a stop-payment
order against the crossed check purportedly to protect
her rights and to prevent the bank from encashing the
check without returning all the properties which it
foreclosed and purchased. We upheld the mortgagor’s
right to redeem, opining that when the action to
redeem was filed, a simultaneous deposit of the
redemption money was tendered to the sheriff, which
was allowed under the Rules of Court; that the check,
as a medium of payment in commercial transactions, is
too firmly established by usage; and that it was not
clearly shown that the stop-payment order was made
in bad faith
Case: Fuertes vs Senate
GR No. 208162
ISSUE: Why did PD 818 increase the penalty for estafa
for the issuance of bouncing particularly on the use of
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 11
negotiable instruments as medium of commercial
transactions?
ANSWER: If not checked at once, these criminal acts
would erode the people's confidence in the use of
negotiable instruments as a medium of commercial
transaction and consequently result in the retardation
of trade and commerce and the undermining of the
banking system of the country.
The increase in the penalty, far from being cruel and
degrading, was motivated by a laudable purpose,
namely, to effectuate the repression of an evil that
undermines the country's commercial and economic
growth, and to serve as a necessary precaution to
deter people from issuing bouncing checks.
3. Medium of credit transactions
If you want to buy goods or avail of a
service on credit, a negotiable
instrument can be used as a medium
for that particular credit transaction,
like the issuance of a promissory note.
1. Ernesto T. Pacheco and Virginia O. Pacheco vs.
Court of Appeals, and People of the
Philippines, G.R. No. 126670 December 2,
1999
ISSUE:What are the elements of the felony of estafa
under Article 315 (2) (d) of the Revised Penal Code?
ANSWER: 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 payment 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.
Can one waive the negotiable character of the
check and treat it simply as proof of an
obligation (evidence of indebtedness)?
By mutual agreement of the parties, the negotiable As stated in Section 14 thereof, complainant, as the
character of a check may be waived and the instrument person in possession of the check, has prima facie
may be treated simply as proof of an obligation. There authority to complete it by filling up the blanks therein.
cannot be deceit on the part of the obligor, petitioners
Section 14. Blanks, when may be filled. – Where the
herein, because they agreed with the obligee at the
instrument is wanting in any material particular, the
time of the issuance and postdating of the checks that
person in possession thereof has a prima facie authority
the same shall not be encashed or presented to the
to complete it by filling up the blanks therein. And a
banks. As per assurance of the lender, the checks are
signature on a blank paper delivered by the person
nothing but evidence of the loan or security thereof in
making the signature in order that the paper may be
lieu of and for the same purpose as a promissory note.
converted into a negotiable instrument operates as a
By their own covenant, therefore, the checks became
prima facie authority to fill it up as such for any amount.
mere evidence of indebtedness. It has been ruled that a
In order, however, that any such instrument when
drawer who issues a check as security or evidence of
completed may be enforced against any person who
investment is not liable for estafa. Mrs. Vicencio could
became a party thereto prior to its completion, it must
not have been deceived nor defrauded by petitioners in
be filled up strictly in accordance with the authority
order to obtain the loans because she was informed that
given and within a reasonable time. But if any such
they no longer have funds in their RCBC accounts. In
instrument, after completion, is negotiated to a holder in
1992, when the Vicencio family asked Virginia to place a
due course, it is valid and effectual for all purposes in his
date on the check, the latter again informed Mrs.
hands, and he may enforce it as if it had been filled up
Vicencio that their account with RCBC was already
strictly in accordance with the authority given and
closed as early as August 1989. With the assurance,
within a reasonable time.
however, that the check will only stand as firm evidence
of indebtedness, Virginia placed a date on the check. What is the effect of a stale check?
Under these circumstances, Mrs. Vicencio cannot claim
that she was deceived or defrauded by petitioners in A check must be presented within a reasonable time
obtaining the loan. In the absence of the essential from issue. By current banking practice, a check
element of deceit, no estafa was committed by becomes stale after more than six (6) months. In fact a
petitioners. check long overdue for more than two and one-half
years is considered stale.
How material is the fact that the check was
issued undated? 2. Benny Go vs. Eliodoro Bacaron, G.R. No.
159048, October 11, 2005
Both courts below relied so much on the fact that Mrs.
Vicencio's husband is a former Judge who knows the ISSUE: Are checks evidence of indebtedness?
law. He should have known, then, that he need not even
ANSWER: Checks have the character of negotiability. At
ask the petitioners to place a date on the check,
the same time, they may constitute evidence of
because as holder of the check, he could have inserted
indebtedness. Those presented by petitioner may
the date pursuant to Section 13 of the Negotiable
indeed evince respondent’s indebtedness to him in the
Instruments Law (NIL).
amounts stated on the faces of those instruments. He,
Section 13. When date may be inserted. Where an however, acknowledges (1) that respondent paid some
instrument expressed to be payable at a fixed period of the obligations through the coprax delivered to
after date is issued undated, or where the acceptance of petitioner’s father; and (2) that petitioner owed and
an instrument payable at a fixed period after sight is subsequently paid respondent ₱214,000.
undated, any holder may insert therein the true date of
3. Spouses Antonio and Lolita Tan vs. Carmelito
issue or acceptance, and the instrument shall be payable
Villapaz, G.R. No. 160892, November 22, 2005
accordingly. The insertion of a wrong date does not
avoid the instrument in the hands or a subsequent ISSUE: Can a check prove a loan transaction that was
holder in due course; but as to him, the date so inserted required to be in writing under Article 1358 of the Civil
is to be regarded as the true date. Code (All other contracts where the amount involved

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 12

exceeds P500.00 must appear in writing, even private
one)?
ANSWER: In this case, the lower Court misplaced its
reliance on Article 1358 of the Civil Code providing that
to be enforceable, contracts where the amount involved
exceed five hundred pesos, must appear in writing since
such requirement, it has been held, is only for
convenience, not for validity.
4. Concepcion Chua Gaw vs. Suy Ben Chua and
Felisa Chua, G.R. No. 160855, April 16, 2008
ISSUE: Is the check evidence of indebtedness?
ANSWER: Yes, a check may be evidence of indebtedness
and may prove the existence of a loan transaction.
5. Land Bank of the Philippines vs. Monet's
Export and Manufacturing Corp., et al., G.R.
No. 184971, April 19, 2010
ISSUE: Is a promissory note evidence of indebtedness?-
YES
ANSWER: As ruled by the Supreme Court, the bank will
of course present the promissory note to establish the
scope of the debtor’s primary obligations and a
computation of interests, charges, and penalties based
on its terms. It must then show by the entries in its
record how much it had actually been paid. This will in
turn establish how much the borrower still owes.
However, the bank does not have to present all the
receipts of payment it issued to all its clients. The
original documents need not be presented in evidence
when it is numerous for it would be a great loss of time
and the fact sought to be established from them is only
the general result.
In the present case, Monet and the Tagles can dispute
the bank’s billing statements by proof that the bank had
exaggerated what was owed to it and that Monet had
made more payments than were reflected in those
statements. However, Monet and the Tagles have
consistently avoided stating in their letters to the bank
how much they still owed to it. But, ultimately, it is as
much their obligation to prove this disputed point if
they deny the bank’s statements of their loan accounts.
In reverting back to Exhibit 39, which covers just one of
many promissory notes that Monet and the Tagles
executed in favor of Land Bank, Monet still owed Land
Bank 2.5 million pesos. Noting this, the Court rejected
Exhibit 39 as basis for determining Monet's total
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 13
obligation, given that it undeniably took out more loans
as evidenced by the other promissory notes it executed
in favor of Land Bank.
6. Emilia Lim vs. Mindanao Wines & Liquor
GalleriaG.R. No. 175851, July 24, 2012
ISSUE: Can a check the entries of which are in writing
prove a loan transaction? - YES
ANSWER: The Court held that a check may be evidence
of indebtedness. A check, the entries of which are in
writing, could prove a loan transaction. While Emilia is
acquitted of violations of BP 22, she should nevertheless
pay the debt she owes. As the CA noted that Emilia had
never denied issuing the subject checks for value which,
in themselves constituted evidence of indebtedness.
If Emilia was acquitted of violations of BP 22
can she nevertheless be required to pay the
debt she owes? - YES
Emilia can be required to pay the debt she owes. As may
be recalled, the MTCC dismissed the criminal cases
because one essential element of BP 22 was missing,
i.e., the fact of the bank’s dishonor. The evidence was
insufficient to prove said element of the crime as no
proof of dishonor of the checks was presented by the
prosecution. This, however, only means that the trial
court cannot convict Emilia of the crime since the
prosecution failed to prove her guilt beyond reasonable
doubt, the quantum of evidence required in criminal
cases. Conversely, the lack of such proof of dishonor
does not mean that Emilia has no existing debt with
Mindanao Wines, a civil aspect which is proven by
another quantum of evidence, a mere preponderance of
evidence.
7. Ting Ting Pua vs. Spouses Benito Lo Bun Tiong
and Caroline Siok Ching Teng, G.R. No. 198660,
October 23, 2013
ISSUE: Can a check, the entries of which are in writing,
prove a loan transaction?
ANSWER: Yes, a check, the entries of which are in
writing, could prove a loan transaction.
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."
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."
Section 24 of the Negotiable Instruments Law (NIL):
Presumption of consideration. – Every negotiable
instrument is deemed prima facie to have been issued
for a valuable consideration; and every person whose
signature appears thereon to have become a party for
value.
8. Neil B. Aguilar and Ruben Calimbas vs.
Lightbringers Credit Cooperative, G.R. No.
209605, January 12, 2015
ISSUE: Was a check sufficient evidence of loan
transaction?
ANSWER: Yes, a check is sufficient evidence of a loan
transaction. It constitutes an evidence of indebtedness
and is a veritable proof of an obligation.
9. Bangko Sentral ng Pilipinas Vs. Agustin
Libo-On, G.R. No. 173864. November 23, 2015,
Third Division, J. Peralta
ISSUE: Does the promissory note suffice to show credit
transaction?
ANSWER: NO. XXX
Furthermore, a closer look at the promissory note with
trust receipt agreement does not show in any aspect
that the Rural Bank of Hinigaran intended to make an
absolute conveyance of title over the securities it had
deposited with BSP. What was given to BSP is lien for the
payment of the note pledged. There is nothing in the
promissory note with trust receipt agreement which
partakes the nature of an assignment of credit. In fact,
the provisions thereof was even categorical in its use of
terms, thus, suggesting that what the Rural Bank of
Hinigaran and BSP entered into was a contract of loan
where the promissory note and the TCT of the Spouses
Libo-on’s property were pledged as collateral.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 14
Equally telling is the provision on the said promissory
note with trust receipt agreement which is inconsistent
with the concept of assignment of credit.
Thus, in the absence of such absolute conveyance of
title to quality as an assignment of credit, the subject
promissory note with trust receipt agreement should be
interpreted as it is denominated. The contract being
that of a mere loan, and because there was no valid
assignment of credit, BSP’s authority to foreclose the
subject property has no leg to stand on.
10. Juvy Desmoparan Vs. People of the
Philippines, G.R. No. 233598, March 27, 2019 ,
ISSUE: Do promissory notes facilitate credit
transactions? Is a check a means of payment used in
business, in lieu of money, for convenience in business
transactions? Is a promissory note a commercial
document considering that, in general is "used by
merchants or businessmen to promote or facilitate trade
or credit transactions."? If falsified, is Article 172 (1) of
the RPC violated?
ANSWER: Yes, promissory notes facilitate credit
transactions.
Yes, a check is a means of payment used in business, in
lieu of money, for convenience in business transactions.
Yes, a promissory note is a commercial document. A
promissory note, being a commercial document, when
falsified constitutes a violation of Article 172(1) of the
RPC.
4. It is a specie of property
It can be subject to thievery.
1. Gemma T. Jacinto vs. People of the Philippines,
G.R. No. 162540, July 13, 2009
ISSUE: Are checks by itself personal property? - YES
May it be subject to theft even if it bounced? - NO
ANSWER: To be liable for theft, the RPC requires that the
personal property subject of the theft must have some
value, as the intention of the accused is to gain from the
thing stolen. In this case, Jacinto unlawfully took the
postdated check belonging to Mega Foam, but the same
was apparently without value, as it was subsequently
dishonored.
Jacinto is guilty only of an impossible crime because of
the factual impossibility of producing the crime.
In this case, Jacinto performed all the acts to
consummate the crime of qualified theft, which is a
crime against property. Were it not for the fact that the
check bounced, she would have received the face value
thereof, which was not rightfully hers. Therefore, it was
only due to the extraneous circumstance of the check
being unfunded, a fact unknown to Jacinto at the time,
that prevented the crime from being produced.
2. People of the Philippines vs. Bernard G. Mirto,
G.R. No. 193479, October 19, 2011
ISSUE: Are checks by itself personal property? May it be
subject to theft or qualified theft?
ANSWER: Yes, the checks are personal property which
may be subject to theft or qualified theft. The fund
collections through checks payments—all issued payable
to cash—are personal properties belonging to UCC.
These funds through checks were paid by UCC clients for
the deliveries of cement from UCC.
3. Anita L. Miranda vs. People of the Philippines,
G.R. No. 176298, January 25, 2012
ISSUE: Are checks by itself personal property? May it be
subject of qualified theft?
ANSWER: Yes on both. There was no doubt that the
personal property taken by petitioner does not belong to
her but to Jefferson Tan. The subject of the crime of theft
is any personal property belonging to another. Hence, as
long as the property taken does not belong to the
accused who has a valid claim thereover, it is immaterial
whether said offender stole it from the owner, a mere
possessor, or even a thief of the property
As for qualified theft, she was charged correctly as she
was able to perpetrate the crime due to her position in
VCCI which gave her access to the joint venture account
of VCCI and Jefferson Tan, both of whom reposed trust
and confidence in her.
4. Fernando M. Espino vs. People of the
Philippines, G.R. No. 188217, July 3, 2013
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 15
ISSUE: Is a check considered personal property for
purposes of the complying with the elements of estafa
under Article 315 1(b) of the Revised Penal Code?
ANSWER: A check is considered personal property for
purposes of the complying with the elements of estafa
under Article 315 1(b) of the Revised Penal Code
Paragraph 1(b) provides liability for estafa committed by
misappropriating or converting to the prejudice of
another money, goods, or any other personal property
received by the offender in trust or on commission, or
for administration, or under any other obligation
involving the duty to make delivery of or to return the
same, even though that obligation be totally or partially
guaranteed by a bond; or by denying having received
such money, goods, or other property.
In this case, the Court ruled that personal property in the
form of checks were received by the offender who
rediscounted the checks thus resulting to wrongful
encashment to the prejudice of KN Inc.
Thus, as checks may be deemed as a form of personal
property, the same constitutes an element for the
purposes of complying with the elements of estafa under
Article 315 1(b) of the Revised Penal Code
5. Supra Multi-Services, Inc., et al. Vs. Lanie M.
Labitigan, G.R. No. 192297, August 3, 2016
ISSUE: Is the leaving of unused bank checks unattended
on her desk even though she was provided a safe/vault in
which she was supposed to keep all pertinent bank
documents (among other infractions, ground for
dismissal?
ANSWER: Yes, the respondent in this case was validly
dismissed for willful breach of trust. She already had
administrative charges of previous acts of dishonesty or
negligence (including leaving unused bank checks
unattended on her desk even though she was provided a
safe/vault in which she was supposed to keep all
pertinent bank documents; leaving the safe/vault
unlocked), which form part of her employment record
and which the employer could also very well consider in
finally deciding to impose upon respondent the ultimate
penalty of dismissal for her latest infraction.
 6. People of the Philippines Vs. Joenil Pin Molde,
G.R. No. 228262, January 21, 2019
ISSUE: Was the element of taking of personal property
with intent to gain proven beyond reasonable doubt? If
the accused is not the payee of the check (since it was
the complainant who is the payee) could the accused
present the check to the drawee bank for encashment for
his own personal gain?
RULING: The elements of qualified theft are: “(a) taking
of personal property; (b) that the said property belongs
to ‘another; (c) that the said taking be done with intent
to gain; (d) that it be done without the owner’s consent;
(e) that it be accomplished without the use of violence
or intimidation against persons, nor of force upon things;
and (f) that it be done with grave abuse of confidence.
The prosecution miserably failed to establish the
elements of the crime of qualified theft. The prosecution
failed to prove the crucial elements of taking of personal
property and intent to gain on the part of Molde.
Subject checks were issued payable to Sun Pride; hence,
Molde could not have possibly presented said checks to
the drawee bank for encashment for his own personal
gain. This fact was confirmed by no other than Sun
Pride’s own internal auditor, Victorillo.
5. Proof of payment
6. Evidence of Indebtedness
These are two sides of the same coin: proof of payment
& evidence of indebtedness.
Suppose you issue a check and a check is encashed - the
check will go back to you, the money will be released to
the other party. Your money in the bank will be lessened
based on the check that you have issued. But the check,
definitely, the one that you have issued that was made
good, will go back to you. That is the standard practice.
Except now that, it may not go back to you but there is
photographic copy, that is another thing.
PROOF OF PAYMENT: Suppose the other party claims you
didn’t pay him. What is your proof that you have paid?
The check that was made good and that was returned to
you.
EVIDENCE OF INDEBTEDNESS: Suppose you parted with
your car because he paid P300K for it in check. You
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 16
deposited the check for encashment but it was
dishonored. You lost your car and you were not properly
paid. What is your evidence? The check this time was not
properly funded and therefor it goes back to the payee.
Earlier, when it is good, it goes back to the drawer, the
person who issued it. This time, it is returned to the
payee. Your best evidence that the other party is
indebted to you is the CHECK ITSELF.
Thus, one function of a NI is that it may be evidence of
indebtedness.
Cases under NI as proof of payment
1. Francisco Taquinod vs. Deputy Sheriff Rolando
Tomas, A.M. No. P-09-2660, November 29, 2011, En
Banc, Per Curiam
ISSUE: Are checks proof of payment and so proof of
violation of Section 2 (e), Canon III of the Code of
Conduct?
ANSWER: By accepting pay-offs from Taguinod,
respondent violated Section 2(e), Canon III of the Code
of Conduct, mandating that Court personnel shall not
–
Solicit or accept any gift, loan, gratuity, discount, favor,
hospitality or service under circumstances from which
it could reasonably be inferred that a major purpose of
the donor is to influence the court personnel in
performing official duties.
From March to November, 1996 when City Star
published judicial notices from Branch 21, for which
respondent accepted 10 checks from Taguinod,
respondent controlled the distribution of Branch 21’s
judicial notices among Santiago City’s publishers
because Madrid delegated this task to respondent (in
violation of Section 2 of PD 1079 requiring distribution
of notices by raffle). 9 It was in Taguinod’s interest,
therefore, to give “discounts” to respondent to
influence respondent to keep assigning judicial notices
to City Star. The 10 checks Taguinod issued and
respondent received speak volumes of this convenient,
albeit unethical, arrangement. Section 2 (e), Canon III
of the Code of Conduct was crafted precisely to punish
court personnel who engage in such practices.

2. Spouses Ricardo and Elena C. Golez vs. Meliton
Nemeño, G.R. No. 178317, September 23, 2015
ISSUE: What is the effect of the possession of the
respondent of the promissory note evidencing his debt
to the petitioner? Is it prima facie evidence of payment
as provided in Section 3 (h) of Rule 131 of the Rules of
Court?
ANSWER: The possession of respondent of the
promissory note evidencing his debt to petitioners is
prima facie evidence of the payment of the same as
provided in Section 3(h) of Rule 131 of the Rules of
Court which reads:
SEC. 3. Disputable presumptions. – The following
presumptions are satisfactory if uncontradicted, but
may be contradicted and overcome by other evidence:
(h) That an obligation delivered up to the
debtor has been paid;
3. Melanie E. De Ocampo Vs. RPN-9/Radio Philippines
Network, Inc., G.R. No. 192947
ISSUE: How was the check represent payment so as to
prevent her questioning the decision of the Labor
Arbiter?
ANSWER: The check representing payment of the
monetary award was deposited with the Cashier's
Office of the National Labor Relations Commission,
Ocampo lost no time in seeking to have the monetary
award in her hands: just a day after deposit was made,
Ocampo was quick to file a Motion to Release the
amount. Accordingly, Ocampo's willful acceptance of
the judgment rendered by Executive Labor Manansala
is not only something that may be implied from her
omission or inaction. Rather, it is something explicitly
affirmed by her own motions and submissions.
Whatever doubt there was, if any, as to her concession
to the monetary award given her was dispelled by the
positive assertions and pleas for relief that petitioner
herself made. Thus, no recourse, whether in law or
equity, leaves room for Ocampo to avail herself of the
modifications she seeks. The most basic legal
principles dictate that Executive Labor Arbiter
Manansala's Decision—in all its aspects—has long
attained finality and may no longer be revisited.
Principles of equity require that Ocampo be bound by
her own omissions and declarations.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 17
·
4. Estate of Honorio Poblador, Jr. represented by
Rafael A. Poblador Vs. Rosario L. Manzano G.R. No.
192391. June 19, 2017
ISSUE: How are the checks here used as proof of
payment and so overcame the disputable presumption
provided in Rule 131?
ANSWER: Rafael categorically admitted that he did not
even know who actually paid the taxes to the BIR, and
that Manzano's name did not appear in the documents
pertaining to the payment of the capital gains tax and
documentary stamp tax. Rafael further admitted that:
(a) Moreland directly paid Metroland the
P2,800,000.00 in check although it did not actually see
and was unaware to whom Moreland gave this check;
(b) it did not ask Moreland to issue the check for the
payment of the taxes directly in the name of the BIR;
(c) it would not have dealt with Manzano had she not
been Metroland' s employee; and
(d) it has several lawyers and an accountant at its
disposal, and its representative Rafael is, in fact, in the
real estate business and is familiar with brokerage
transactions. This admission clearly contradicts the
disputable presumption under Section 3 (q) of Rule
131 of the Rules of Court, i.e., that the ordinary course
of business has been followed, which petitioner
adamantly relies on to support its claim.
·
5. Jesus V. Coson Vs. People of the Philippines, G.R.
No. 218830. September 14, 2017
ISSUE: What is the purpose of the issuance of the
check?
ANSWER: The checks issued in this case were intended
for the payment of the loan obligation of petitioner to
private complainant and not merely to assure the
latter that he would not be holding an "empty bag" as
concluded by the RTC.
6. Maribelle Z. Neri Vs. Ryan Roy Yu, G.R. No. 230831,
September 5, 2018
ISSUE: How was the check used as proof of payment?
ANSWER: The check was used as proof of payment
when Neri deposited the same in her account and
issued a corresponding Acknowledgement Receipt
without qualification with regard to her authority to
receive the said amount, or in what capacity she was
receiving it, as agent or seller.

7. Metroheights Subdivision Homeowners
Association, Inc. Vs. CMS Construction and
Development Corporation, et al., G.R. No.
209359, October 17, 2018
ISSUE: How much was the amount that the check was
used to prove payment?
ANSWER: In the present case, Metroheights
Subdivision is entitled to award of actual damages.
Though it alleged that it spent ₱190,000 for the
transfer location of tapping/change size of the water
service connection, which CMS Construction cut-off
and disconnected with the knowledge and consent of
MWSS, only the amount of ₱161,541.85 was duly
proved by the checks that was paid by Metroheights
Subdivision to their contractor thus, this amount
should be awarded. Actual or compensatory damages
cannot be presumed, but must be duly proved, and
proved with a reasonable degree of certainty.
·
Cases under Evidence of Indebtedness
1. Westmont Investment Corporation vs. Amos
P. Francia, Jr., et. al., G.R. No. 194128,
December 7, 2011
ISSUE: Are promissory notes evidence of indebtedness
(borrowings)?
ANSWER: Yes. But in this case, there is no promissory
note validly and duly executed by Pearlbank which
would in any way serve as evidence of the said
borrowing.
The Confirmation Advices which bears the name of
Pearlbank as purported borrower do not bear the
signature or acknowledgment of Pearlbank or any of its
officers. This cannot prove the position of Wincorp that
it was Pearlbank which received and benefited from the
investments made by the Francias.
2. Spouses Deo Agner and Maricon Agner vs.
BPI Family Savings Bank, Inc., G.R. No.
182963, June 3, 2013
ISSUE: Does the possession of the promissory note with
chattel mortgage strongly buttresses the claim that the
obligation has not been extinguished?
ANSWER: Yes, Possession of the Promissory Note with
Chattel Mortgage strongly buttresses its claim that the
obligation has not been extinguished.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 18
One who pleads payment has the burden of proving it;
the burden rests on the defendant to prove payment,
rather than on the plaintiff to prove non-payment.
When the creditor is in possession of the document of
credit, proof of non-payment is not needed for it is
presumed.
The creditor's possession of the evidence of debt is
proof that the debt has not been discharged by
payment. A promissory note in the hands of the
creditor is a proof of indebtedness rather than proof of
payment. In an action for replevin by a mortgagee, it is
prima facie evidence that the promissory note has not
been paid. Likewise, an uncanceled mortgage in the
possession of the mortgagee gives rise to the
presumption that the mortgage debt is unpaid.
When the existence of a debt is fully established by the
evidence contained in the record, the burden of
proving that it has been extinguished by payment
devolves upon the debtor who offers such defense to
the claim of the creditor.
3. Equitable Savings Bank Vs. Rosalinda C.
Palces, G.R. No. 214752, March 9, 2016
ISSUE: How was the promissory note used to document
a loan transaction?
ANSWER: The promissory note was used wherein
Palces acknowledged her indebtedness to Equitable in
the amount of P1,196,100.00 and placed the subject
vehicle as a security for the loan.
4. Sps. Ramon Sy and Anita Ang, et al. Vs.
Westmont Bank, et al., G.R. No. 201074,
October 19, 2016
ISSUE: Why is it that the check and promissory note
were not considered as evidence of indebtedness?
ANSWER: Here, there were purported contracts of loan
entered between Westmont and petitioners for the
amounts of P2,429,500.00 and P4,000,000.00,
respectively. The promissory notes evidencing such
loans were denied by petitioners, thus, the
genuineness and due execution of such documents
were not admitted. Petitioners averred that they never
received such loans because their applications were
disapproved by the bank and they had to acquire loans
from other persons. They presented a cashier's check,
in the amount of P2,429,500.00, obtained from Chua,
which showed that the latter personally provided the
loan, and not the bank. As the proceeds of the loan
were not delivered by the bank, petitioners stressed
that there was no perfected contract of loan. In
addition, they doubt the reliability of the promissory
notes as their original copies were not presented
before the RTC.
Due to the doubtful circumstances surrounding the
loan transactions, Westmont cannot rely on the
disputable presumptions that private transactions
have been fair and regular and that the ordinary
course of business has been followed. The afore-stated
presumptions are disputable, meaning, they are
satisfactory if uncontradicted, but may be contradicted
and overcome by other evidence.[37]
At any rate, granting that they did execute the
promissory note and other actionable documents, still
it was incumbent on Westmont, as plaintiff, to establish
that the proceeds of the loans were delivered to
petitioners, resulting into a perfected contract of
loan.[38] Notably, these documents also did not state
that the loan proceeds had been delivered to
petitioners, and that they had acknowledged its
receipt.
5. Anita Capulong Vs. People of the Philippines,
G.R. No. 199907, February 27, 2017.
ISSUE: How are the promissory note and checks here
considered as evidence of indebtedness?
ANSWER: The promissory note was considered as
evidence of indebtedness since it stipulated the
principal amount, interest rate and the due date of the
loan obtained by the Spouses Capulong from De
Guzman. In return, De Guzman issued a check which
amounted to the value loaned by Spouses Capulong.
The receipt of the check signifies that a loan was
actually obtained by Spouses Capulong.
6. Bank of the Philippine Islands Vs. Amado M.
Mendoza and Maria Marcos Vda. De
Mendoza, G.R. No. 198799, March 20, 2017
ISSUE: How was the promissory note used as evidence
of indebtedness?
ANSWER: Records evince that BPI was able to
satisfactorily prove by preponderance of evidence the
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 19
existence of respondents’ obligation in its favor. Verily,
Amado acknowledged its existence and expressed his
conformity thereto when he voluntarily:
xxx (b) executed a Promissory Note dated September 8,
1997 wherein he undertook to pay BPI in installments
of P1,000.00 per month until the remaining balance of
his obligation is fully paid.
7. FGU Insurance Corporation Vs. Sps. Floro
Roxas and Eufemia Roxas G.R. No.
189526/G.R. No. 189656, August 9, 2017
ISSUE: How were the promissory notes used as evidence
of indebtedness?
ANSWER: In this case, the promissory notes were used
as evidence of indebtedness because Philtrust Bank
was able to release P1,557,200.00, covered by the
promissory notes, which Spouses Roxas were not able
to pay on their maturity dates. Under the terms of the
promissory notes, in case nonpayment at maturity, the
Spouses Roxas further bound themselves to pay:
1) 19% on the outstanding obligation until fully paid as
penalty for delinquency; and
2) 10% of the promissory note amount as attorney’s
fees and expenses of collection.
The Spouses Roxas do not dispute the validity of these
penalty charges and attorney’s fees. Therefore, these
stipula­tions in the promissory notes must be upheld as
the law between the parties, and are, thus, binding on
them.
8. Philippine National Bank Vs. James T. Cua,
G.R. No. 199161, April 18, 2018
ISSUE: What is the best evidence of the existence of the
loan?
ANSWER: The promissory note is the best evidence to
prove the existence of the loan.
A promissory note is a solemn acknowledgment of a
debt and a formal commitment to repay it on the date
and under the conditions agreed upon by the borrower
and the lender. A person who signs such an instrument
is bound to honor it as a legitimate obligation duly
assumed by him through the signature he affixes
thereto as a token of his good faith.
 9. Sps. Felix A. Chua Vs. United Coconut
Planter’s Bank, G.R. No. 215999, December
17, 2018
ISSUE: Is there something on record the existence or
exact amount of Jose Go’s indebtedness? What type of
instrument the Court was apparent looking for a
possible evidence of indebtedness?
ANSWER: There was nothing on record pertaining to
the existence nor the exact amount of Jose Go’s
indebtedness.
Apparently, the Court was looking for a form of
negotiable instrument to evidence the indebtedness.
10. Hun Hyung Park vs. Eung Won Choi, G.R. No.
220826, March 27, 2019, Second Division, J.
Caguioa
ISSUE: How was the subject check considered evidence
of indebtedness on the part of Choi as against Park?
ANSWER: The check was considered as evidence of
Choi’s indebtedness to Park in the principal amount of
P1,875,000.00. In Choi’s affidavit, he already made the
judicial admission that “the subject check was not
intended by us to be in payment of the loan but to
serve merely as an evidence of my indebtedness to the
complaint in lieu of a promissory note as I have duly
informed the complainant of the lack of sufficient funds
to cover the same check when I handed over to him
that check.”
11. Lara's Gifts & Decors, Inc., Vs. Midtown
Industrial Sales, Inc., G.R. No. 225433, August
28, 2019, En Banc, J. Carpio
ISSUE: What is the best evidence of the transaction
between petitioner and respondent?
ANSWER: The best evidence of the transaction
between petitioner and respondent are the sales
invoices and the checks issued by petitioner as
payments for the materials purchased. The sales
invoices show that petitioner, through its authorized
staff or employees, acknowledged receipt of the
deliveries without protest. The sales invoices clearly
stated that petitioner "RECEIVED MERCHANDISE IN
GOOD ORDER & CONDITION."1Furthermore, petitioner
admits issuing the postdated checks as payment for the
materials delivered. The postdated checks were
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 20
subsequently dishonored for being "drawn against
insufficient funds" or for "account closed." Petitioner
insists that the checks were issued without valuable
consideration since most of the materials delivered did
not comply with the required specifications. However,
other than its bare allegation that the materials
delivered were substandard and of poor quality,
petitioner failed to prove or substantiate its claims. As
found by the trial court, none of petitioner's witnesses
was able to present proof that the materials delivered
were substandard or of poor quality.
8. Guarantee for the Performance of a
Future Obligation
Case: San Miguel vs Kalalo
GR No.185522
ISSUE: Can checks be only for payment of a preexisting
obligation? May the checks be likewise issued as a
guarantee for the performance of a future obligation?
Is it possible that the dishonored checks were issued
merely to guarantee the performance of a future
obligation?
ANSWER: Checks are not issued merely for the
payment of a preexisting obligation. They may likewise
be issued as a guarantee for the performance of a
future obligation.
In this case, it was sufficiently established that the
dishonored checks were issued merely to guarantee
the performance of a future obligation; that is, the
payment of the net value of the goods after the value
of the empty bottles and beer cases returned to
petitioner were deducted from the gross value of the
goods delivered to respondent.
Case: Socorro Ongkingco vs Kazuhiro Sugiyama
GR No. 2170087, Sept. 18, 2009
ISSUE: What is the effect that the checks were
issued as a guarantee and upon the insistence of
the private complainant? Is it significant that the
accused had deliberately issued the checks in

question to cover accounts and those same checks
were dishonored upon presentment, regardless of the
purpose for such issuance?
ANSWER: It is of no moment that the subject checks
were issued as a guarantee and upon the insistence of
private complainant Sugiyama. What is significant is
that the accused had deliberately issued the checks in
question to cover accounts and those same checks
were dishonored upon presentment, regardless of the
purpose for such issuance. It is, therefore, clear that
the real intention of the framers of B.P. 22 is to make
the mere act of issuing a worthless check malum
prohibitum and, thus, punishable under such law.
HELD: Checks may also be a guarantee for the
performance of a future obligation, one of the functions
and importance of negotiable instruments.
NOTE: We will take it up when we reach Sections 24 and
25
9. Proof in a Criminal Case
Several convictions were already
anchored on the issuance of a check.
Proof in an administrative case. Several
employees have already been removed
from service because the evidence is a
check. It is proof in several cases. And
this is the basis of a finding of probable
cause in preliminary investigations.
1. Francisco T. Inocencio vs. People of the
Philippines, G.R. No. 205760, November 9, 2015
ISSUE: Why was the delivery of blank checks and failure to
inquire about the status of the checks help prove accused
guilt? If the checks presented are in microfilm is it proof
that the original checks were returned to the account
holder?
ANSWER: The delivery of blank checks and failure to
inquire about the status of the checks help prove the guilt
of the accused because he is a bank officer and it is
presumed that a person takes ordinary care of his
concerns and that the ordinary course of business has
been followed. He can be reasonably charged with
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 21
knowledge of banking procedures and the liabilities which
may attach to him by reason of maintaining current
accounts.
Yes, because in this case, the checks are microfilmed, and
thereafter, the originals are returned to the account
holder, and the bank statements are sent to the account
holders on or before every 15th day of the month.
2. Gloria Macapagal-Arroyo vs. People of the
Philippines and Sandiganbayan G.R. No.
220598/G.R. No. 220953. July 19, 2016, En Banc,
J. Bersamin
ISSUE: Were the checks issued and encashed by accused
evidence of an accumulation of P352,681,646.00 from the
CIF funds so as to convict them of plunder?
ANSWER: Although the checks issued and encashed
served as evidence of the accumulation P352,681,646.00
from the CIF funds, it was insufficient to convict them of
plunder because the prosecution failed to show that GMA
and Aguas personally benefited from the money and thus,
it failed to prove the predicate act of raids on the public
treasury beyond reasonable doubt.
3. Norma C. Gamaro and Josephine G. Umali Vs.
People of the Philippines, G.R. No. 211917,
February 27, 2017
ISSUE: How are the checks here used as proof in a criminal
case?
ANSWER: As to Josephine Umali’s civil liability despite her
acquittal, the Court finds the latter civilly liable to private
complainant Fineza. It has been held that an acquittal
based on reasonable doubt that the accused committed
the crime charged does not necessarily exempt her from
civil liability where a mere preponderance of evidence is
required. Umali is part of the business transaction
between Norma and Rowena Gamaro with Fineza, as she
too signed the Joint Solidary Account Agreement with
Banco Filipino purposely to enable them to open a
checking account, and it was against this account that
Norma and Rowena drew the checks that they issued to
guarantee the share of Fineza from the proceeds of the
sale of the jewelry. It follows then that Umali also knows
beforehand who owns the jewelry pledged with her M.
Lhuillier Pawnshop Branch.
4. Iluminada Batac Vs. People of the Philippines,
G.R. No. 191622. June 6, 2018
ISSUE: How are the checks used to prove estafa and
violation of BP 22?
ANSWER: Jurisprudence has consistently held that in
estafa under Article 315 2(d) the offender must be able to
obtain money or property from the offended party
because of the issuance of the check, whether postdated
or not. It must be shown that the person to whom the
check was delivered would not have parted with his
money or property were it not for the issuance of the
check by the other party. 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.
In this case, Batac induced Frias into buying the checks at
a rediscounted rate by representing to him that she had
enough funds in her account to cover them. In an effort to
support her misrepresentation and further persuade Frias
to believe her, Batac conveyed to him that she was a
school teacher, presumably as a guarantee of her good
reputation. Batac also signed the postdated checks in
Frias' presence, presumably as a measure of good faith
and an assurance that the signature therein was genuine.
All these induced Frias to part with his money.
Meanwhile, the mere issuance of a bouncing check is a
violation of B.P. Blg. 22. Here, the bank refused to encash
the checks because the account is already closed.
5. Luis T. Arriola, V. People of the Philippines, G.R.
No. 199975, February 24, 2020
ISSUE: How was the check used as proof of implied
admission of guilt under Section 27, Rule 130 of the Rules
of Court?
ANSWER: Section 27, Rule 130 of the Rules of Court
states that in criminal cases, except those involving
quasi-offenses or criminal negligence or those allowed by
law to be compromised, an offer of compromise by the
accused may be received in evidence as an implied
admission of guilt.
Initial attempts to reimburse through checks, coupled
with the actual return of money after the RTC issued its
judgment of conviction, may all be considered as
unequivocal gestures to compromise and which can be
measured as implied admission of guilt.
6. Janice Reside Y Tan, Vs. People of the
Philippines, G.R. No. 210318, July 28, 2020
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 22
ISSUE: How was the promissory note used as proof of the
element of “intent to gain” in a felony of qualified theft?
ANSWER: Intent to gain is presumed from the unlawful
taking of a thing. Reside admitted to taking the funds and
even agreed to pay the same by signing the promissory
note, revealing her intent to gain.
10. Proof in an Administrative Case
Several employees were already removed from
service because the evidence is the check.
1. Jovita S. Manalo Vs. Ateneo De Naga University,
et al., G.R. No. 185058, November 9, 2015
ISSUE: How does the issuance of 16 bouncing checks
considered work related and thus used as basis to justify
termination of employment?
ANSWER: These acts run afoul of the first and most
basic of the fundamental ethical principles of the
accountancy profession: integrity. Her having
sanctioned unauthorized advances demonstrates a
violation of the second fundamental ethical principle:
objectivity. Even assuming that these acts do not
evince a premeditated scheme, they nevertheless
manifest that petitioner failed to act diligently, that is,
competently and with due care. The totality of the
indiscretions imputed to petitioner reflects negatively
on the accountancy profession and indicates anything
but professional behavior.
Worse, these acts indicate that petitioner failed to
demonstrate to students and to live by her own
example the ideals of the accountancy profession. Even
if we were to assume that petitioner remained an
exemplar of technical proficiency, she failed to educate
in respect of the values that are integral to the training
that she was supposed to impart to future professional
accountants. We again emphasize that practicing a
profession and educating a profession are not only
technical or operational matters; they are as much a
matter of ethics.
2. Atty. John V. Aquino Vs. Elena S. Alcasid, A.M.
No. P-15-3361. February 23, 2016, En Banc, Per
Curiam
ISSUE: How were the checks became evidence in this
administrative case?
ANSWER: The missing checks were under the custody of
Alcasid. Thus, failure to account all of the checks in her
custody made her liable for the loss thereof and
administratively liable.
3. Alex Nulada Vs. Atty. Orlando S. Paulma, A.C.
No. 8172, April 12, 2016, En Banc
ISSUE: How were the checks used as basis to prove legal
malpractice?
ANSWER: His issuance of the unfunded check knowingly
violated BP 22, and exhibited his indifference towards the
pernicious effect of his illegal act to public interest and
public order.
Clearly, the issuance of worthless checks in violation of BP
Blg. 22 indicates a lawyer’s unfitness for the trust and
confidence reposed on him, shows such lack of personal
honesty and good moral character as to render him
unworthy of public confidence, and constitutes a ground
for disciplinary action.
In this case, Atty. Paulma’s conviction for violation of BP
22, a crime involving moral turpitude, had been
indubitably established. Such conviction has, in fact,
already become final. Consequently, Atty. Paulma violated
the lawyer’s oath, as well as Rule 1.01, Canon 1 of the
CPR, as aptly found by the IBP and, thus, must be
subjected to disciplinary action.
4. Buenaflor Car Services, Inc. Vs. Cezar Durumpili
David, Jr., G.R. No. 222730, November 7, 2016
ISSUE: How were the checks used a basis for a valid
dismissal of employee?
ANSWER: In this case, the respondent issued checks
which were later altered, which was the basis for his
dismissal. It is crucial to point out that the questioned
hecks would not have been issued if there weren’t any
spurious purchase orders.
It is only after the issuance of the approved purchase
orders that petitioner’s suppliers are directed to deliver
the ordered goods/supplies, and from there, requests for
payment and the issuance of checks (through Del Rosario)
would be made. Thus, being the approving authority of
these spurious purchase orders, respondent cannot
disclaim any culpability in the resultant issuance of the
questioned checks. Clearly, without the approved
purchase orders, there would be no delivery of
goods/supplies to petitioner, and consequently, the
payment procedure would not even begin.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 23
5. Juan B. Hernandez Vs. Crossworld Marines
Services, Inc., et al., G.R. No. 209098. November
14, 2016
ISSUE: Can checks be used as bait to tie the hands of
employees in signing documents that absolves employers
from liability?
HELD: No. The execution [of the documents] cannot be
tolerated as it amounts to a deceptive scheme to
unconditionally absolve employers from every liability.
Hidden behind these documents appears to be a
convenient ploy to deprive petitioner of all his rights to
claim indemnity from respondents under all possible
causes of action and in all available fora, and effectively
for nothing in return or exchange. Because in the even the
NLRC ruling is reversed, then petitioner must return what
he received, thus leaving him with the proverbial empty
bag. This is fundamentally unfair, and goes against public
policy.
Stated differently, the Court ruled against the employer
because the conditional satisfaction of judgment signed
by the parties was highly prejudicial to the employee. The
agreement stated that the payment of the monetary
award was without prejudice to the right of the employer
to file a Petition for certiorari and appeal, while the
employee agreed that she would no longer file any
complaint or prosecute any suit of [sic] action against the
employer after receiving the payment.
6. Lourdes C. Rodriguez Vs. Park N Ride Inc. G.R.
No. 222980, March 20, 2017
ISSUE: How were the two (2) checks deposited in
Rodriguez’ account used in this termination of
employment case?
ANSWER: In this case, the two checks deposited in
Rodriguez’ account were used to corroborate the affidavit
of Estelita which bolsters the fact that Rodriguez was not
constructively dismissed.
7. Luis S. Doble, Jr. Vs. ABB, Inc./Nitin Desal, G.R.
No. 215627, June 5, 2017
ISSUE: How was the check used as evidence that Doble
voluntarily resigned?
ANSWER: A photocopy of Bank of the Philippine Islands
manager's check in the amount of P2,009,822.72,
representing the separation benefit formed part of the
evidence that the complainant’s resignation was
voluntary. If, indeed, the resignation of the Complainant
was involuntary, he could have easily sought legal counsel
or advice right after he submitted his resignation letter
and left the company premises on 13 March 2012.
Instead, he went back after 10 days and waited for his
clearance to be processed and his check prepared. He
cannot claim that he was still under duress from March 14
to 22, 2012. The Complainant waited to be given his
benefits first, and three (3) days thereafter filed his
complaint before this Office. This is hardly the mindset of
a person who is not in control of his life.
8. Gene M. Domingo Vs. Atty. Anastacio E. Revilla,
Jr., A.C. No. 5473, January 23, 2018, En Banc, Per
Curiam
ISSUE: How were the checks used as basis to prove legal
malpractice?
RULING: Respondent claimed that he intended to return
the money to the complainant but the court found instead
that the respondent sent a stale check.
The above mentioned act, manifested respondent's
dishonesty and deceit towards the complainant, his client,
in patent violation of Rule of the Code of Professional
Responsibility.
9. Philippine Span Asia Carriers Corporation Vs.
Heidi Pelayo, G.R. No. 212003, February 28,
2018
ISSUE: How are the checks involved used to prove grounds
for the termination of employee?
ANSWER: The terminated employee altered check from its
original amount of ₱20,804.58 to ₱820,804.58. There
were also apparent two instances of double
disbursements. In which 2 checks were issued in favor of a
singles transaction. Another apparent anomaly was a
discrepancy in the amounts reflected in what should have
been a voucher and a check corresponding to each other
and covering the same transaction with ARR Vulcanizing.
Voucher no. 232550 dated October 30, 2008 indicated
only ₱l7,052.00, but the amount disbursed through check
no. 2051313 amounted to ₱29,306.00
Here, the recorded issued checks were used to portray the
anomaly done by the employee, hence, was used as an
evidence for the termination of the said employee.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 24
10. Nicanor F. Malcaba, et al. Vs. Prohealth Pharma
Philippines, et al., G.R. No. 209085. June 6, 2018
ISSUE: Can the check show that premium for the appeal
bond was duly paid and that there was willingness to post
it?
ANSWER: Yes, while the procedural rules strictly require
the employer to submit a genuine bond, an appeal could
still be perfected if there was substantial compliance with
the requirement.
In this instance, the National Labor Relations Commission
certified that respondents filed a security deposit in the
amount of P6,512,524.84 under Security Bank check no.
0000045245, showing that the premium for the appeal
bond was duly paid and that there was willingness to post
it. Respondents likewise attached documents proving that
Alpha Insurance was a legitimate and accredited bonding
company.
Despite their failure to collect on the appeal bond,
petitioners do not deny that they were eventually able to
garnish the amount from respondents' bank deposits.
11. Paulino Lim Vs. Atty. Socrates R. Rivera, A.C. No.
12156. June 20, 2018
ISSUE: What is the effect on a lawyer if he issued a
post-dated check that was eventually dishonored and if he
failed to settle his obligation despite repeated demands?
ANSWER: It has been consistently held that "[the]
deliberate failure to pay just debts and the issuance of
worthless checks constitute gross misconduct, for which a
lawyer may be sanctioned with suspension from the
practice of law. Lawyers are instruments for the
administration of justice and vanguards of our legal
system. They are expected to maintain not only legal
proficiency but also a high standard of morality, honesty,
integrity and fair dealing so that the peoples' faith and
confidence in the judicial system is ensured. They must at
all times faithfully perform their duties to society, to the
bar, the courts and to their clients, which include prompt
payment of financial obligations. They must conduct
themselves in a manner that reflects the values and
norms of the legal profession as embodied in the Code of
Professional Responsibility.
12. HDI Holdings Philippines, Inc. Vs. Atty.
Emmanuel N. Cruz, A.C. No. 11724. July 31,
2018, En Banc, Per Curiam
ISSUE: How were the checks used as basis to prove legal
malpractice?
ANSWER: The checks were photocopied and presented by
HDI Holdings and were used by the SC as secondary
evidence and was put together with Atty. Cruz’ written
confession and subsequent non-cooperation during the
proceedings before the IBP, giving a convincing conclusion
of Atty. Cruz’ legal malpractice.
13. Dandiberth Canillo Vs. Atty. Sergio F. Angeles
A.C. No. 9899/A.C. Nos. 9900, 9903-9905/A.C.
No. 9901/A.C. No. 9902. September 4, 2018, En
Banc, Per Curiam
ISSUE: How were the checks used as basis to prove legal
malpractice?
ANSWER: The checks proved legal malpractice because it
showed that the respondent failed to account his client’s
money by not rendering an accounting of the amounts he
received, thus, violating the Code of Professional
Responsibility.
14. Judge Ariel Florentino R. Dumlao, Jr. Vs. Atty.
Manuel N. Camacho, A.C. No. 10498, September
4, 2018, En Banc, J. Gesmundo
ISSUE: How were the checks used as a basis to prove legal
malpractice?
ANSWER: The checks were used as a basis to prove legal
malpractice based on the glaring difference of the highly
questionable and dubious amount (P18,690,000,643.00)
that Atty. Camacho sought based on his version of the
garnishment order that he drafted himself in comparison
to the actual amount of the judgment award based on
the RTC Order (P16,000,000.00 with 10% thereof as
attorney's fee).
15. Antonio K. Litonjua Vs. Jerry R. Marcelino, A.M.
No. P-18-3865, October 9, 2018, En Banc, Per
Curiam
ISSUE: How were the checks used as basis to prove
administrative complaint?
ANSWER: As to Exhibit 16, it was revealed that ₱934,000
was raised by Antonio in which he withdrew the sum of
₱250,000 from his savings account and the proceeds of 3
checks issued by Benedict from his IE Bank account.Since
the initial payment of ₱500,000 to Justice Enriquez would
not be due until his draft of the decision was finished, and
it was allegedly finished on August 1, 2001, there was no
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 25
sense in withdrawing all that cash of ₱934, 000 as early as
July 24 to July 27, 2001 thus, the money must have been
used for some other purpose – not to bribe Justice
Enriquez. For if that was part of the bribe money, Antonio
would, and should, not have withdrawn and encashed it
prematurely. He should have kept it in his savings account,
to be withdrawn only in the exact amounts and on the
exact dates of the scheduled pay-offs to Justice Enriquez.
Then, there would have been a "paper trail" or a "money
trail" to prove his alleged bribe payments but he did not
do that.
Antonio did not even report the criminal transaction to
the police or the NBI so that the extortionist could be
entrapped.Instead, he agreed to pay the bribe, which
made him an accomplice in the crime. It was only when
Justice Enriquez allegedly reneged on their agreement by
amending the decision which he had penned, that
Antonio exposed the alleged bribery almost a year later.
Here, the ground for the removal of a judicial officer
should be established beyond reasonable doubt.
Antonio’s evidence failed despite the serious nature of the
accusations and the attendant publicity. Therefore, the
administrative complaint against Justice Enriquez should
be dismissed.
11. Proof in a Civil Case
1. Multi-International Business Data System, Inc.
Vs. Ruel Martinez, G.R. No. 175378
ISSUE: How does the signature in a promissory note used
as proof to authenticate a signature?
ANSWER: It was examined and analyzed along with other
documents presented by Martinez including the two
letters and the chattel mortgage.
Citing its ruling in Jimenez v. Commission on Ecumenical
Mission and Relations of the United Presbyterian Church
in the USA, the Court held:
It is also hornbook doctrine that the opinions of
handwriting experts, even those from the NBI and the
PC, are not binding upon courts. This principle holds true
especially when the question involved is mere
handwriting similarity or dissimilarity, which can be
determined by a visual comparison of specimens of the
questioned signatures with those of the currently
existing ones.
Handwriting experts are usually helpful in the
examination of forged documents because of the
technical procedure involved in analyzing them. But
resort to these experts is not mandatory or
indispensable to the examination or the comparison of
handwriting. A finding of forgery does not depend
entirely on the testimonies of handwriting experts,
because the judge must conduct an independent
examination of the questioned signature in order to
arrive at a reasonable conclusion as to its authenticity, x
x x (Citations omitted)
Examining and analyzing the signatures in the
two letters, the promissory note, and the chattel
mortgage with company president Helen Dy's
signature in the certification, the Court found no
substantial reason to doubt the authenticity of
the certification. The testimonies also supported
the findings as Dy and the one familiar with her
signature said the signature looked like hers.
2. Fernando Medical Enterprises, Inc. Vs.
Wesleyan University Philippines, Inc., G.R. No.
207970, January 20, 2016
ISSUE: Paragraphs 7 and 8 of a complaint alleged the
issuance of 36 postdated checks but only 4 checks of
those issued were paid, must these allegations in the
complaint be specifically denied in the answer? Are
general denials done constitute ineffective or sham
denials?
ANSWER: YES, Paragraph no. 7 stated that the petitioner
had agreed with the respondent on February 11, 2009 to
reduce the balance to only P50,400,000.00, which the
respondent would pay in 36 months through 36
postdated checks of P1,400,000.00 each, which the
respondent then issued for the purpose. Paragraph no. 8
averred that after four of the checks totalling
P5,600,000.00 were paid the respondent stopped
payment of the rest, rendering the entire obligation due
and demandable pursuant to the February 11, 2009
agreement. Considering that paragraphs no. 6, 7 and 8 of
the complaint averred matters that the respondent ought
to know or could have easily known, the answer did not
specifically deny such material averments. It is settled
that denials based on lack of knowledge or information
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 26
of matters clearly known to the pleader, or ought to be
known to it, or could have easily been known by it are
insufficient, and constitute ineffective or sham denials.
3. Sps. Romeo Pajares and Ida T. Pajares Vs.
Remarkable Laundry and Dry Cleaning,
G.R. No. 212690. February 20, 2017
ISSUE: Where a complaint is based on a contract stating,
that if the cause of the default is due to issuance of a
bouncing check and the amount of such check shall earn
same penalty charge with additional 5%, make a
complaint arising thereto on capable of pecuniary
estimation?
ANSWER: Yes. Under Article 2226 of the Civil Code, the
amount stipulated to be paid in case of breach of
contract or the penalty agreed upon by the parties is
considered liquidated damages, which makes it capable
of pecuniary estimation.
4. William Anghian Siy Vs. Alvin Tomlin G.R. No.
205998. April 24, 2017
ISSUE: Is the issuance of two guarantee checks
worth P4.95 million proof of authority to act for and
in behalf of petitioner?
ANSWER: Yes. Siy constituted and appointed Ong as his
agent to sell the vehicle, surrendering to the latter the
vehicle, all documents of title pertaining thereto, and a
deed of sale signed in blank, with full understanding that
Ong would offer and sell the same to his clients or to the
public. In return, Ong accepted the agency by his receipt
of the vehicle, the blank deed of sale, and documents of
title, and when he gave bond in the form of two
guarantee checks worth ₱4.95 million. All these gave Ong
the authority to act for and in behalf of petitioner. Under
the Civil Code on agency, Art. 1869. Agency may be
express, or implied.
12. Basis of Finding Probable Cause in a
Preliminary Investigation
1. Jessica Lucila G. Reyes Vs. The Honorable
Ombudsman G.R. Nos. 212593-94/G.R. Nos.
213163-78/G.R. Nos. 213540-41/G.R. Nos.
 213542-43/G.R. Nos. 215880-94/G.R. Nos.
213475-76, March 15, 2016
ISSUE: Can the checks issued be basis for the finding of
probable cause for plunder?
ANSWER: Yes, it can. Probable cause, for the purpose of
filing a criminal information, has been defined as such
facts as are sufficient to engender a well-founded belief
that a crime has been committed and that respondent is
probably guilty thereof. It is enough that it is believed
that the act or omission complained of constitutes the
offense charged.
2. Jaime Dichaves Vs. Office of the Ombudsman,
G.R. Nos. 206310-11, December 7, 2016
ISSUE: Can the checks issued be basis for the finding of
probable cause for plunder? - YES
ANSWER: The executive finding of probable cause
requires only substantial evidence, not absolute
certainty of guilt. The Office of the Ombudsman
correctly found probable cause to charge Dichaves with
plunder in conspiracy with the former President Estrada.
The probable cause against Dichaves was grounded on
the following factual considerations, among others:
(1) the contents of the second envelope;
Jaime or Abby Dichavez (sic) – P20M check dated 8
September1999 from Far East Bank Cubao, Araneta
Branch and aP189.7M Check dated 8 November 1999 all
amounting to atotal of P210 Million
(2) the deposits in the “Jose Velarde” account;
XXX
Thus, the evidence indicates that the former President
exerted influence over Arellano and Pascual to push
through with the transactions, and that the transactions
pushed through under that condition that the
commission or profit would be given to the former
President; . . . that it was Dichaves who orchestrated the
consummation of the transactions and received from
Ocier the check representing the commission; and that
Dichaves deposited the check to the “JOSE VELARDE”
account which was shown to be that of the former
President.
3. Edward Thomas F. Joson Vs. The Office of the
Ombudsman, et al., G.R. Nos. 197433 and
197435, August 9, 2017
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 27
ISSUE: How were the checks used to prove probable
cause of violation of RA 3019?
ANSWER:
4. Ramon "Bong" B. Revilla, Jr. Vs. Sandiganbayan
and People G.R. No. 218232/G.R. No.
218235/G.R. No. 218266/G.R. No. 218903/G.R.
No. 219162, July 24, 2018, En Banc, J. Carpio
ISSUE: Can the checks issued be basis for the finding of
probable cause for plunder?
HELD: Yes. The Court is persuaded that the prosecution
has presented compelling evidence that accused
Revilla amassed, accumulated or acquired ill-gotten
wealth by repeatedly receiving from accused Napoles or
her representatives or agents, money, through accused
Cambe, and in those several occasions, accused Revilla
and/or Cambe made use of his or their official position,
authority, connections, and influence. This was
established by the testimonies of the witnesses and the
documents they testified to which, at this stage of the
proceedings, [have] remained unrebutted, and thus,
given full faith and credence by the Court.
5. Home Development Mutual Fund (HDMF)
Pag-Ibig Vs. Christina Sagun/Department of
Justice G.R. No. 205698/G.R. No.
205780/G.R. No. 208744/G.R. No. 209424/G.R.
No. 209446/G.R. No. 209489/G.R. No.
209852/G.R. No. 210095/G.R. No. 210143/G.R.
No. 228452/G.R. No. 228730/G.R. No. 230680.
July 31, 2018, En Banc, J. Bersamin
ISSUE: Can the checks and promissory notes be basis for
the finding of probable cause in criminal cases?
ANSWER: Yes, the checks and promissory notes can be a
basis for the finding of probable cause in criminal cases.
Particularly in this case, the act of notarizing the checks
and promissory notes essential to the purported
transaction was enough to establish participation in the
conspiracy. Their acts, taken collectively, would probably
support a charge of conspiracy, and suggest that they
participated in the transactions with a view to furthering
the common design and purpose.
6. Home Development Mutual Fund (HDMF)
Pag-Ibig Vs. Christina Sagun/Department of
Justice G.R. No. 205698/G.R. No.
205780/G.R. No. 208744/G.R. No. 209424/G.R.
No. 209446/G.R. No. 209489/G.R. No.
 209852/G.R. No. 210095/G.R. No. 210143/G.R.
No. 228452/G.R. No. 228730/G.R. No. 230680.
July 31, 2018
ISSUE: Can the checks issued be basis for the finding of
probable cause for plunder?
ANSWER: No. There was no probable cause for
syndicated estafa, but there was probable cause for
simple estafa. (Note: the criminal charge in this case was
syndicated estafa and simple estafa. There was no
mention of plunder.) Based on the Court’s three
standards by which a group of purported swindlers may
be considered as a syndicate under PO No. 1689, in this
case there was no probable cause for the filing of the
information for syndicated estafa because none of the
said standards for determining the existence of a
syndicate was present.
However, the respondents made false representations
that gave rise to probable cause for simple estafa against
them. Specifically, the respondents signed or co-signed
the checks or prepared the corresponding checks that
were used to further their acts of false representation.
Their acts, taken collectively, would probably support a
charge of conspiracy, and suggest that they participated
in the transactions with a view to furthering the
common design and purpose.
DOUBT RESOLVED IN FAVOR OF NEGOTIABILITY
Negotiable paper, representing as it does in almost all
civilized nations a very large proportion of the
commercial operations, and serving to a great extent
as the representative of money, is justly a favorite of
the law, and enjoys immunities and privilege which are
extended to no other species of contracts. (Winston vs
Westfeldt, 22 Ala. 760)
NOTE: Winston vs Westfeldt was cited here is because decisions
interpreting portions of our negotiable instruments law, being
patterned from the US identical law will have persuasive effect in our
jurisdiction. We too, will say, that doubts are resolved in favor of
negotiability.
Where the meaning is doubtful, the courts have thus
adopted the policy of resolving in favor of the
negotiability of the instrument. The purpose obviously is
to encourage the free circulation of the negotiable
papers because of the admittedly indispensable function
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 28
they perform in mercantile business transactions in any
given country and the world at large.
Q: If the NI starts with NIL, where and when will it end?
A: It will be born through Section 1 of the Negotiable
Instruments Law and it will end on the discussion of how
the liability on the Negotiable Instrument is extinguished.
Three ways of Extinguishing Liability on the NI
(discharged):
1. Section 119 Instruments; how discharged
2. Other provision of the NIL other than Section
119
3. Civil Code: Article 1231 Obligations are
extinguished
NOTE: The provision of Sec. 119 says that the provision
of any other act which will discharge a simple contract
for the payment of money will also discharge a
negotiable instrument.
Therefore, we must refer to the Civil Code, because Art.
1231, on how obligations are extinguished, will also
extinguish a negotiable instrument.
TIP: When you read the case, look at the facts of the case and
immediately go to the end - who wins. So that as you read the decision
of the SC, you will already have an idea on how the story will end. We
will start with Sec. 1 and end with Sec 119, other provisions than Sec
119, and Art. 1231 of the Civil Code.
LECTURE W2- Y2 D2
December 11, 2020
Liability on Negotiable Instrument is
extinguished (discharged):
1. Section 119 Instruments; how discharged
2. Other provisions of the Negotiable
Instruments Law other than Section 119
3. Civil Code: Article 1231 Obligations are
extinguished
Section 119 and other portions of the Negotiable
Instruments Law other than 119, and Article 1231 of the
Civil Code was already introduced to us in our previous
virtual class. These are instances where the Negotiable
Instrument is discharged because the life of the
Negotiable Instruments starts with Section 1 of the
Negotiable Instruments Law and we will go immediately
to its depth under Section 119, other provisions other
than 119 and 1231 of the Civil Code so we will
immediately see its entire life.
Section 1 will give you the requirements or forms of
negotiable instruments and it is on here that the life of
the Negotiable Instruments starts.
Section 1. Form of Negotiable Instruments. An
instrument to be negotiable must conform to the
following requirements:
(a) It must be in writing and signed by the maker or
drawer;
(b) Must contain an unconditional promise or order to
pay a sum certain in money
(c) Must be payable on demand, or at a fixed or
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he
must be named or otherwise indicated therein with
reasonable certainty.
* Section 1 must be memorized based on the memo I
have given that Negotiable Instruments Law sections
will be memorized and Section 1 is among them.
If an instrument complies with these requirements, then
we can say that here is a negotiable instrument that's
born, and the life of negotiable instruments start when a
particular paper complies with the requirements of
Section 1.
It is at this juncture when you know or not know whether
an instrument is negotiable not or not.
How does the life or obligation in a negotiable
instrument end?
Section 119. Instruments; how discharged — A
negotiable instrument is discharged—
(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 accommodation;
(c) By the intentional cancellation thereof by the
holder;
(d) By any other act which will discharge simple
contract for the payment of money;
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 29
(e) When the principal debtor becomes the holder of
the instrument at or after the maturity in his own
right.
(a) By payment in due course by or on behalf of
the principal debtor
They say that the obligation in a negotiable instrument
will end by payment in due course by or on behalf of the
principal debtor. For example, you issued a promissory
note, the promissory note is born. You are under
obligation to comply with the requirement of your
promise in the promissory note. And then you comply.
You paid the amount as you promised to pay in the
promissory note. What will happen? The negotiable
instrument is discharged. Meaning to say, you are done
with it.
(To summarize)
1. You issued a promissory note.
2. You paid the obligation.
3. The negotiable instrument is discharged.
(b) By payment in due course by the party
accommodated, where the instrument is made
or accepted for accommodation
* We will reach this later on when we will go to Section
29.
Suppose you cannot pay, or you are no longer trusted
the creditor. What did I do? I say, give him credit. I will be
the one who will accommodate him. Therefore, to some
extent, I, too, assume the liability as a co-maker of a
promissory note. For example, you wanted to borrow
P10,000 but they would not have allowed you to borrow
that amount if it were not for my good name. Then, you
paid the P10,000. It says under paragraph (b) of Section
119, "by payment in due course by the party
accommodated, where the instrument is made or
accepted for accommodation". In this case, you are the
party accommodated, and there was payment. The
negotiable instrument will then be discharged.
(To summarize)
1. A third person accommodates a debtor and
assumes his liability.
2. The debtor pays the third person the amount
accommodated.
3. The negotiable instrument is discharged.
(c) By the intentional cancellation thereof by
the holder
For example, you issued a check, and it is now in my
possession, let's say in the amount of P10,000. I say,
because it's Christmas, I will not encash it. I will cancel it
and return it to you. That is intentional cancellation
thereof by the holder.
If I say that I am no longer interested in collecting the
amount in the check, the liability on the negotiable
instrument (check) is discharged. The checks were
returned because we settled our difference. That is
cancellation of checks issued. Thus, your obligations on
the check is discharged.
(d) By any other act which will discharge simple
contract for the payment of money;
* We will put this off for later, for our discussion in the
Civil Code. The other acts which will discharge simple
contract for the payment of money are found in the Civil
Code.
(e) When the principal debtor becomes the
holder of the instrument at or after the maturity
in his own right.
In other words, there is a merger or consolidation of
rights of the debtor and creditor in one person. That is
the similarity in the Civil Code. When the principal debtor
becomes the holder of the instrument, the character of
the debtor and creditor is merged into one person. Under
the Civil Code and under Obligations and Contracts, the
obligation is extinguished. Your right hand cannot be
indebted to your left hand, and your left hand cannot be
the one to collect from your right hand.
What if someone says, I am really against myself. Who
will be the plaintiff in the case? You? Who will be the
defendant? You too? You will go to the barangay to file a
case against yourself? It doesn't make sense. You are
either crazy, or we must have the obligation extinguished.
(lol)
In all these cases, Section 119 says the liability on the
negotiable instrument is discharged.
B. Other provisions of the NIL other than Section
119
There are other provisions in the negotiable instruments
law other than Section 119 that in some instances or for
one reason or another will discharge a negotiable
instrument. What are they?
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 30
● Section 89. Notice of dishonor
● Section 120. Discharge of secondarily liable
● Section 122. Renunciation by holder
● Section 124. alternation of instrument
● Section 142. qualified acceptance
● Section 144. Failure to present
● Section 152. Failure to protest
● Section 175. Payment for honor
● Section 176. Refuse payment supra protest
● Section 183. Discharge of one set
● Section 186. Check's time of presentment
● Section 188. Check accepted/certified
Section 89. To whom notice of dishonor must be
given
Section 89. To whom notice of dishonor must be given.
— Except as herein otherwise provided, when a
negotiable instrument has been dishonored by
non-acceptance or non-payment, notice of dishonor
must be given to the drawer and to each indorser, and
any drawer to whom such notice is not given is
discharged.
This is a very good example of an instance where an
instrument is discharged. As we will discuss later, this is
the situation where a check, for example, is dishonored,
and you failed to give a demand letter to the person
secondarily liable (the drawer and the indorser). If you
failed to do that, as to them, the instrument is
discharged. 89, on the issue on failure to comply with the
giving of notice of dishonor, discharges the instrument
Section 120. When persons secondarily liable on
the instrument are discharged
Section 120. When persons secondarily liable on the
instrument are discharged. — A person secondarily
liable on the instrument is discharged:
(a) By any act which discharges the instrument;
(b) By the intentional cancellation of his signature by
the holder;
(c) By the discharge of a prior party;
(d) By a valid tender or payment made by a prior party;
(e) By a release of the principal debtor unless the
holder's right of recourse against the party secondarily
liable is expressly reserved;
 (f) By any agreement binding upon the holder to
extend the time of payment or to 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 reserved.
Section 120 is another mode of discharging the obligation
on the Negotiable Instrument on specific instances. 120 is
a mode to discharge the instrument other than those
provided for under Section 119.
Section 122. Renunciation by holder.
Section 122. Renunciation by holder. — The holder
may expressly renounce his rights against any party to
the instrument before, at, or after its maturity. An
absolute and unconditional renunciation of his rights
against the principal debtor made at or after the
maturity of the instrument discharges the instrument.
But a renunciation does not affect the rights of a
holder in due course without notice. A renunciation
must be in writing unless the instrument is delivered
up to the person primarily liable thereon.
The holder renounced, so the holder does not want to be
paid anymore. So what can you do? The instrument is
discharged.
Section 124. Alteration of instrument
Section 124. Alteration of instrument; effect of -
Where a negotiable instrument is materially altered
without the assent of all parties liable thereon, it is
avoided, except as against a party who has himself
made, authorized, or assented to the alteration and
subsequent indorsers.
But when an instrument has been materially altered
and is in the hands of a holder in due course not a
party to the alteration, he may enforce payment
thereof according to its original tenor.
Alteration discharges the instrument.
Section 142. Right of parties as to qualified
acceptance.
Section 142. Right of parties as to qualified
acceptance. - The holder may refuse to take a qualified
acceptance and if he does not obtain an unqualified
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 31
acceptance, he may treat the bill as dishonored by
non-acceptance. Where a qualified acceptance is
taken, the drawer and indorsers are discharged from
liability on the bill unless they have expressly or
impliedly authorized the holder to take a qualified
acceptance or subsequently assent thereto.
Qualified acceptance discharges the instrument. As to the
term acceptance and drawer, let's take that up later. But
for now, you know that in 142, if there is a qualified
acceptance that is done and allowed by the holder, then
persons secondarily liable is discharged.
Section 144. When failure to present releases
drawer and indorser.
Section 144. When failure to present releases drawer
and indorser. - Except as herein otherwise provided,
the holder of a bill which is required by the next
preceding section to be presented for acceptance must
either present it for acceptance or negotiate it within a
reasonable time. If he fails to do so, the drawer and all
indorsers are discharged.
Another mode of discharging an instrument
Section 152. In what cases protest is necessary.
Section 152. In what cases protest is necessary. -
Where a foreign bill appearing on its face to be such is
dishonored by nonacceptance, it must be duly
protested for nonacceptance, by nonacceptance is
dishonored and where such a bill which has not
previously been dishonored by nonpayment, it must
be duly 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.
It is a foreign bill which we will talk about later and then
you failed to do the requirement. I will jump the gun, you
do not give notice of dishonor, you follow the procedure
for protest and you did not, then the obligation and the
negotiable instrument as to those persons are
discharged. That will kill the negotiable instrument.
Section 175. Effect on subsequent parties where
bill is paid for honor.
Section 175. Effect on subsequent parties where bill is
paid for honor. - Where a bill has been paid for honor,
 all parties subsequent to the party for whose honor it
is paid are discharged but the payer for honor is
subrogated for, and succeeds to, both the rights and
duties of the holder as regards the party for whose
honor he pays and all parties liable to the latter.
Suppose the family name will be affected because my
brother or sister is engaged in the issuance of checks
again, I will pay it. It is already discharged, but I am
subrogated to the right of the holder to take it up against
my brother.
Section 176. Where holder refuses to receive
payment supra protest
Section 176. Where holder refuses to receive payment
supra protest. - Where the holder of a bill refuses to
receive payment supra protest, he loses his right of
recourse against any party who would have been
discharged by such payment.
* supra = after
(Provision discussed as is)
Section 183. Effect of discharging one of a set
Section 183. Effect of discharging one of a set. - Except
as herein otherwise provided, where any one part of a
bill drawn in a set is discharged by payment or
otherwise, the whole bill is discharged.
(Provision discussed as is)
Section 186. Within what time a check must be
presented
Section 186. Within what time a check must be
presented. - 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.
Imagine, you did not encash the check for 20 years. Is it
still a valid check? The answer is NO. It will discharge the
persons liable therein. The bank, and your drawer. Why?
The check becomes stale for a period of six months.
Section 188. Effect where the holder of check
procures it to be certified
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 32
Section 188. Effect where the holder of check procures
it to be certified. - Where the holder of a check
procures it to be accepted or certified, the drawer and
all indorsers are discharged from liability thereon.
This is because the drawee already certifies the check
and he will pay. If the drawee pays, as we will talk about
later, the instrument, the liability on the negotiable
instrument is discharged.
Under the Civil Code
We will take up Civil Code provisions because Section 119
says "by any other act which will discharge simple
contract for the payment of money".
What are those other acts which will discharge simple
contract for the payment of money? The answer is in the
Civil Code.
Article 1231. Obligations are extinguished:
(1) By payment or performance;
(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 rights of creditor
and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory
condition, and prescription, are governed elsewhere in
this Code.
This will also discharge the obligation of the negotiable
instruments.
Performance
Note that in our discussion of the Civil Code, there are
two important things to consider.
(1) If it is payment or money, it is discharged by
payment.
(2) If it is obligation to do something, it is
discharged by the performance.
In other words, this particular portion to some extent is
not included as to discharge a negotiable instrument
because negotiable instrument is the payment of money.
Can I just dance the tango instead of giving you
P10,000? That is not a negotiable instrument.
By the loss of the thing due
What is important is this, and this is the reason we put a
question mark there, "By the loss of the thing due". How
was it discussed? In order to emphasize that point and
ask the question whether or not, even if Section 119(d)
made reference to Article 1231 of the Civil Code, does it
mean that all of Article 1231 will apply? Will Article
1231(2) also apply if we are talking about negotiable
instruments?
EXAMPLE: Suppose you issued a promissory note to me,
in the amount of P10,000, and unfortunately, I lost the
promissory note or the check that you issued. Is your
obligation on the check extinguished?
ANSWER: Our answer lies in Section 119(d) and in our
concept of what a negotiable instrument is, and what is
the contract for the payment of money. If we say
payment of money, is it specific or is it generic? Our
answer is money is generic. If it is generic - genus non
quam perit. The generic cannot perish.
Even if you lose the money that you intend to pay, your
obligation subsists and therefore, you do not just swallow
the entire of Article 1231, because Section 119 says "by
any other act which will extinguish an obligation for the
payment of money", because not all of 1231 is to
extinguish the payment of money, and most especially
loss of the thing due means those that are only specific.
When it is so separated from the lot that you can identify
that this is the one that should be given. Then if it is lost,
your obligation is extinguished. If you are in delay, there
will be damages. But if you say, "I lost my money", you
are still under obligation to pay.
"I lost the promissory note. I lost the bill of exchange." Is
that generic, payment of money that is covered by a
negotiable instrument? The answer is yes. Therefore,
you will still be under obligation to pay. The obligation is
not extinguished by the loss of the check, or promissory
note, or the bill of exchange. That is why we will put a
question mark there and also apparently a question mark
here on the performance because we limit the
application of Article 1231 in relation to Section 119(d)
only on instances of extinguishment of an obligation that
is payment of money.
Condonation or remission of the debt
For example, "I am cancelling the check. I don't want you
to pay anymore". That is an example of an
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 33
extinguishment of an obligation on a negotiable
instrument based on Article 1231(3).
Confusion or merger of the rights of the creditor or
debtor
Exactly what we discussed earlier. That will also
extinguish the obligation.
Compensation
You issued a check to me. I issued a check to you. The
checks are of the same amount. Let us just compensate
them.
Novation
I issued a check to you. I cannot anymore pay. I take back
the check from you. I spread my obligation plus interest
into ten checks so it will be lighter for me to do. The
obligation on this big check that I took back is already
novated, extinguished, but in the process I have ten
checks. Novation will also extinguish an obligation.
Annulment, rescission, fulfillment of resolutory
condition, and prescription, that are governed
elsewhere in the Code
This will also extinguish the obligation on a negotiable
instrument.
Summary: Take note of the life of the negotiable
instrument.
It starts under Section 1.
It ends under:
(1) Section 119 - direct provision of law
(2) 12 other provisions of the negotiable
instruments law other than Section 119; and
(3) By reference, Article 1231 of the Civil Code, with
a strong warning on 1231(2) and 1231(1) on
performance, because we are not talking about
an obligation to do.
LECTURE W2- Y2 D3
December 11, 2020
RECAP:
Last time we finished our review of Art. 1231, Obligations
how extinguished in relation to Sec. 119 -d of the NIL.
Types of Negotiable Instruments
There are 3 types of Negotiable Instruments:
 1. Promissory Note NOTE: Let us distinguish between a promissory note and
2. Bill of Exchange a bill of exchange.
3. Check

Promissory Note
Promissory Note vs. Bill of Exchange
Definition:

Q: Why is the discussion limited to a bill of exchange

Section 184. Promissory note defined. A negotiable
promissory note within the meaning of this Act is an
unconditional promise in writing made by one person
to another, signed by the maker, engaging to pay on
demand, or at a fixed or determinable future time, a
sum certain in money to order or bearer. Where a note
is drawn to the maker’s own order, it is not complete
until indorsed by him.
NOTE: If it has the composition, the contents, as provided
for in Section 1, then this will be a promissory note, that
is considered to be a negotiable instrument.
Bill of Exchange
Definition:
and promissory note? Where is the check?
A: Remember that the definition of a check is that - it is a
bill of exchange drawn on a bank payable on demand. So,
a check is just a bill of exchange, only that it is drawn on a
bank payable on demand. So, actually, there are only two
types of Negotiable Instruments - a promissory note and
a bill of exchange. A check is just a kind of bill of
exchange, a bill of exchange that is drawn on a bank and
payable on demand.
However, as a standard practice, when you are asked:
give three types of negotiable instruments, you include
the check. But actually, there are just two. Promissory
note and bill of exchange. So if you will be asked, give
two types of negotiable instruments, your answer would
be a promissory note and bill of exchange. A check is only
a part of a bill of exchange.

Based on the definition of Section 1 and based on the

Section 126. Bill of exchange defined. A bill of provisions of Art. 184 (PN), Art. 126 (BE), and Art. 185
exchange is an unconditional order in writing (Ch), we now must have to distinguish between a
addressed by one person to another, signed by the promissory note from a bill of exchange.
person giving it, requiring the person to whom it is
addressed to pay on demand or at a fixed or MEMORIZE THIS TABLE
determinable future time a sum certain in money to
PROMISSORY BILL OF
order or to bearer.
NOTE EXCHANGE
Sec. 184 Sec. 126

An Promise Order
NOTE: Earlier, we said (some things to consider are): unconditional
promise, maker. Now, we have: order, unconditional
order in writing addressed by one person to another. Person who Maker Drawer
issues
Check
Definition: Person required Maker (one who Drawee
to pay made the (Sometimes
Section 185. Check defined. promise) referred to as
Drawee Bank if
A check is a bill of exchange drawn on a bank payable on it is the bank
demand. Except as herein otherwise provided, the that is required
provisions of this Act applicable to a bill of exchange to pay)
payable on demand apply to a check.
Portion of Section 1 (a to Section 1 (a to
Section 1 d) e)

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 34

Q: I issued a check in favor of the payee as a Christmas
gift drawn against my account at BDO, example, who will
pay the check? Will it be me? Or the bank?
A: For the BILL OF EXCHANGE: It is the bank. The person
who is required to pay is different from the person who
issues it.

PROMISSORY NOTE: The person who issues it is the one

who undertakes to pay.

Sec. 184 - gives the full definition of what a promissory

note is (Sec 1 to 6 and in relation to 1 - 6- 185, definition
of what a bill of exchange is. But Sec 1, lumps them
together into one definition of a Negotiable Instrument.
However, the law is very cunning. It will tell you which
one refers to a negotiable instrument, and which one
would more or less refers to a bill of exchange only.
These will give you the summary of the negotiable
instrument. Understand the table, understand the forms
Q: What portion of Section 1 refer to Promissory Note?
of negotiable instruments, memorize Section 1 and this
A: Section 1 a to d
figure.
Q: How about portions of Section 1 that define the Bill
Refer to Page 11 Syllabus OUtline Document
of Exchange?
PART 3- FORGERY AND MATERIAL ALTERATIONS
A: Section 1 a to e
NOTE: Understanding forgery and material alteration
NOTE: Section 1 defines both, but you should be careful
hinges on your understanding of the diagram on the
which one applies to a bill of exchange and which applies
relationship of the parties to a negotiable instrument.
to a promissory note. But specific provisions like 184 ,
126 and 185 will define promissory notes, bill of
Refer to Page 17
exchange, and check, respectively.
PART 7 - RIGHTS AND LIABILITIES OF PARTIES
The diagram above is likewise embedded in the
discussion on the rights and liabilities of the parties.
Form of Negotiable Instruments
As early as now, we should have committed to memory
The forms of negotiable instruments will be those the essence of this diagram because this diagram will
defined under Section 1. But specifically, what are they? help us understand the negotiable instruments law.

A: Promissory note under Sec. 184, Bill of exchange under In fact, three of the four papers of our presentation of
Sec. 126, and Check under Sec. 185. the negotiable instruments law hinge on the
understanding of this diagram.
Applying our knowledge of the forms of Negotiable
Instrument and the table that goes with it, let us
introduce the figure of relationship of the parties.

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 35


WHAT IS THAT DIAGRAM - it gives us the relationship of
the two types of negotiable instruments in relation to the
other parties in that negotiable instrument.
The first figure is the diagram of the PROMISSORY NOTE
because we have a MAKER here.
The second figure is the diagram for a BILL OF
EXCHANGE.
So, in case of a promissory note: We have the:
1. Maker- who issues the promissory note by way
of a promise to the PAYEE
In case of a bill of exchange: We have the
1. Drawer - who orders the DRAWEE to pay the
PAYEE if the DRAWEE is a bank and this is
payable on demand then this is a check.
NOTE: Earlier we said that the promissory note is a
promise of the maker to the payee who will pay? The
MAKER. Who makes the promise? The MAKER.
On the other hand, the BILL OF EXCHANGE is an order of
the drawer to the drawee to pay the PAYEE.
Who orders? The DRAWER. Who will pay? The DRAWEE.
Who is to be paid? The PAYEE.
SCENARIO: You are a client of the bank with 300 million.
The bank is using your money for your transaction. You
have a checking account. You issued a check to pay an
obligation to another person. You issued a check.
Q: What is the essence of that?
A: You order your bank to pay the payee.
So, MAKER is a promise to pay the payee. Bill of Exchange
is the order of the drawer to the drawee to pay the
payee.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 36
Since this is a negotiable instrument, the payee can then
negotiate the instrument to A. A can negotiate the
instrument to B, B can negotiate the instrument to
Holder. And since it is money, it can be transferred from
one person to another, ad infinitum.
If you are a mathematical wonk, it will be x1, x2, x3 ... x
sub and as many as those who are entangled with
negotiable instruments. That is why there is
accumulation of secondary contracts.
Does that mean there is infinity? It will not end? It will
end. How? Section 119, other provisions, 12 of them
other than Section 119, and Article 1231 of the Civil
Code. By just looking at this diagram, this is already the
summary of the negotiable instruments law.
What is another important use of this diagram other
than your understanding? Suppose during the quiz or
exam, I will give you a word problem, meaning,
situational. How will you attack that problem? My
suggestion is, deconstruct the problem and plug in the
parties. Here is a ____ who was the drawer or the
drawee of the check etc. and then you will say "That is
not a promissory note the teacher is asking". That will be
a bill of exchange. " Since the __ is the drawee, then this
is the diagram. You will find for the drawer. You will find
the drawee, payee, A, B, Holder, and then in one look,
you are able to immediately deconstruct the word
problem.
That is the importance of this. The summary of Section 1,
a to e, the summary of Section 1, a to d, the summary of
Section 1-6, the summary of Section 185, and the
summary of Section 1-6, is already incorporated in this
particular diagram.
Promissory Note
Maker > Payee > A > B > Holder
Bill of Exchange
Drawer > Drawee > Payee > A > B > Holder
That's why this is a very, very important diagram.
When you are confused about the Negotiable
Instruments Law, or confused about what we are talking
about, just go to that particular diagram. Go to the
diagram that already encapsulates the entire discussion
of this paper (diagram upper right corner).
Let's look at some important matters in relation to
Section 1 and the three forms of negotiable instruments.
What are the important principles in relation to
negotiable instruments in relation to promissory note,
bill of exchange, and check? Focus on this particular
diagram and these three types of negotiable instruments.
Important Principles
1. The Negotiable Instruments Law applies only
to Negotiable Instruments.
2. In cases of instruments not covered by the
Negotiable Instruments Law, the rights and
liabilities of the parties are settled using other
laws (Civil Code, Code of Commerce, Special
Laws).
3. In cases involving negotiable instruments but
issues not covered by the Negotiable
Instruments Law (Section 196, NIL) rights and
liabilities of parties governed by the
provisions of existing legislation, or in default
the rules of law merchant.
Section 196. Cases not provided for
in Act - 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.
4. Doubt is resolved in favor negotiability.
1. The Negotiable Instruments Law applies only to
Negotiable Instruments.
(No additional discussion.)
2. In cases of instruments not covered by the Negotiable
Instruments Law, the rights and liabilities of the parties
are settled using other laws (Civil Code, Code of
Commerce, Special Laws).
Therefore, Section 1, and your commitment to memorize
Section 1 is a crossroad because of this principle. The
Negotiable Instruments Law apply only to Negotiable
Instruments.
How do you know whether it is a negotiable instrument
or not?
Answer: Test first the instrument that is confronted of
you, the paper that is confronted of you if it conforms to
the provisions of Section 1. The only way for you to do
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 37
that without aid of any material is to memorize Sections
1, 184, 126, and 185, and to understand this diagram by
committing it to memory.
Once you have that, what is your test criteria? On the
basis of Section 1 and so on, this particular document is
not a negotiable instrument. What would be the
remedy?
Answer:(next item)
3. In cases involving negotiable instruments but issues
not covered by the Negotiable Instruments Law (Section
196, NIL) rights and liabilities of parties governed by the
provisions of existing legislation, or in default the rules
of law merchant.
In cases involving negotiable instruments but issues not
covered by the Negotiable Instruments Law, still settle
the rights and liabilities of the parties in accordance with
other laws, like the Civil Code, Code of Commerce (if
applicable), and special laws.
But the moment you run through the test of negotiable
instruments under Section 1, and maybe 184, 185, and
126, and that diagram, and you will say, "This is a
negotiable instrument", then apply the provisions of the
Negotiable Instruments Law.
Crossroad: Section 1 - If yes, apply the Negotiable
Instruments Law. If no, do not apply the Negotiable
Instruments Law. Apply other provisions of the law.
Suppose this is a negotiable instrument, but there are
issues that are not covered by the negotiable
instruments. What should we do? That is another
scenario.
It is covered by the negotiable instruments law, but the
controversy involving parties is not covered by the
negotiable instruments law. What do you do in cases
involving negotiable instruments, but issues not covered
by the negotiable instruments law?
Section 196. Cases not provided for in Act - 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.
Section 196 says existing legislation (Civil Code, Code of
Commerce, or special laws) will be applied in settling the
rights and liabilities of the parties, or in default thereof,
the laws on merchants.

4. Doubt is resolved in favor of negotiability.
Suppose there is doubt, "is this a negotiable instrument
or is this not?" To which side shall we tilt the balance in
case there is doubt?
Answer: Doubt is resolved in favor of negotiability.
It's a very important principle. That is why you should
memorize Section 1.
Here is a review of some of the documents that the
Supreme Court itself had the occasion to determine
whether it is negotiable or not. No need for us to
reinvent the will, the Supreme Court, in one case or
another, have already made a pronouncement. All you
have to do is to understand, be familiar with this
particular type of instrument, and there is already
jurisprudence which says go to the right. Apply the
Negotiable Instruments Law, because this is a negotiable
instrument.
Negotiable Instruments
1. Draft drawn from a letter of credit (Transfield
vs. Luzon Hydro, G.R. 146717, November 22,
2004)
2. Negotiable Order of Withdrawal (NOW)
(People vs. Reyes, G.R. No. 154159, March 31,
2005)
3. Telegraphic Transfer (discussed in the context
of Section 126 of the NIL is held to be similar
to a bill of exchange [?] and subject to
documentary stamp tax) (BPI vs. CIR, G.R.
137002, July 27, 2006).
4. Fix Savings Deposit (FSD) is a certificate of
deposit which may or may not be negotiable
(International Exchange Bank vs. CIR, G.R.
171266, April 4, 2007)
(Slide discussed as is except for the added comments
below)
● The use of the word "negotiable" does not
necessarily mean that it is a negotiable
instrument under the Negotiable Instruments
Law. You have to run these through the test
under the provisions of Section 1.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 38
● Fix Savings Deposit — I included it here because
the Supreme Court said "may or may not". How
do you know that it is a negotiable instrument?
The answer is run it through the test under
Section 1. If it complies with the provisions of
Section 1, then that is a negotiable instrument.
As a consequence, apply the NIL. If does not
comply with Section 1, apply the provisions on
other laws in settling the rights of the parties. If
there is doubt, resolve in favor of negotiability.
The Supreme Court, on several occasions, also ruled that
the following documents are not negotiable. They are not
negotiable. What are they?
Not Negotiable Instruments
1. Document of title (bill of lading, dock warrant,
"quedan" or warehouse receipt), letter of
credit, Trust Receipt, Certificate of stock,
Pawn Ticket, Treasury Warrant, and Postal
Money Order (De Leon, 2016)
2. Central Bank Certificate of Indebtedness
(CBCI) (Traders Royal Bank vs. CA, G.R. 93397,
March 3, 1997)
3. Special Withdrawal Slips (Firestone vs. CA,
G.R. 113236, March 5, 2001)
4. Check drawn against a closed account [?]
(Ilano vs. Español, G.R. 161756, December 16,
2005)
5. Disbursement vouchers (Andaya vs. People,
G.R. 168486, June 27, 2006)
6. Cash vouchers (Batulanon vs. People, G.R.
139857, September 15, 2006)
7. Fix Savings Deposit (FSD) is a certificate of
deposit which may or may not be negotiable
(International Exchange Bank vs. CIR, G.R.
171266, April 4, 2007)
(Slide discussed as is except for the added comments
below)
● Bill of lading - will be discussed in your
Transportation Law.
● Quedan, a document showing that you have so
much sugar cane in that particular sugar mill.
 ● Warehouse receipt, a document that shows you
have some equipment or grain in a warehouse.
● I have yet to see a postal money order because
it is already a check drawn against BPI or
Unionbank.
● Check drawn against a closed account [?] — I
placed a question mark there because the check
in this case in settling the rights of the parties
uses provisions of the NIL, but in the process,
the Court says it is not a negotiable instrument.
How is it resolved there? Read the full case of
Ilano vs. Español.
Summary:
A. Section 1 is the key to understanding the
Negotiable Instruments Law.
B. There are three types of negotiable instruments:
promissory note, bill of exchange, and check,
except if you are conservative about it, there are
only two: promissory note and bill of exchange,
because a check is just a bill of exchange drawn
on a bank, payable on demand.
C. The figure of relationship of the parties (upper
right hand corner of our first paper)
D. Rules of engagement:
1. The Negotiable Instruments Law
applies only to Negotiable Instruments.
2. In cases of instruments not covered by
the Negotiable Instruments Law, the
rights and liabilities of the parties are
settled using other laws (Civil Code,
Code of Commerce, Special Laws).
3. In cases involving negotiable
instruments but issues not covered by
the Negotiable Instruments Law
(Section 196, NIL) rights and liabilities
of parties governed by the provisions of
existing legislation, or in default the
rules of law merchant.
4. Doubt is resolved in favor negotiability.
E. Do not reinvent the will of the Supreme Court in
decisions on types of negotiable instruments
and non-negotiable instruments.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 39
LECTURE W3 D1
December 17, 2020
In the list above, we can evaluate the kinds of
commercial paper and answer the question whether they
are negotiable or not. The basis of the evaluation is
obviously Section 1 of the Negotiable Instruments Law
and the jurisprudence we cited earlier. If it is negotiable,
then it complies with the provision of Section 1. If it is not
negotiable, then perhaps it does not comply with the
provision of Section 1, but still we need to settle the
rights and liabilities of parties using some other laws.
Permanency and Portability
QUESTION: You are handed a promissory note that is, in
its content, compliant with the provision of Section 1
(written, signed, etc.). However, it is carved in marble and
attached to the wall. Is it a negotiable instrument
assuming it is compliant with the provision of Section 1?
This is a trick question. It may be compliant with the
provision of Section 1. However, in international
jurisdictions where our Negotiable Instruments Law is
patterned, there is the requirement of Portability.
“5. Permanency and Portability. Permanency
requirement is a requirement of negotiable instruments
that says they must be in a permanent state, such as
written on ordinary paper. Portability requirement is a
requirement of negotiable instruments that says they
must be able to be easily transported between areas.”
If a negotiable instrument is to be a substitute for money,
it must be capable of being used at the very least as a
medium of exchange. And how can it be used as a
medium of exchange if it is attached to a wall and carved
into marble that is very heavy. This question requires an
understanding of the meaning of permanency and
portability.
 Unconditional promise or order to pay a sum
certain in money
Section 1. Form of negotiable instruments. - An
instrument to be negotiable must conform to the
following requirements:
xxx
(b) Must contain an unconditional promise or order to
pay a sum certain in money;
xxx
Section 1(b) must be read in relation to Section 3, which
says “when promise is unconditional” and thus gives us
an idea explaining what “unconditional” means.
Sec. 3. When promise is unconditional. - An
unqualified order or promise to pay is unconditional
within the meaning of this Act though coupled with:
(a) An indication of a particular fund out of which
reimbursement is to be made or a particular account
to be debited with the amount; or
(b) A statement of the transaction which gives rise to
the instrument.
But an order or promise to pay out of a particular fund
is not unconditional.
Recall the distinction between a promissory note under
Section 184 and a Bill of Exchange under Section 126 as
shown in the table below:
In both cases, a promissory note and a bill of exchange
require an unconditional promise (promissory note)
made by the maker or an unconditional order (bill of
exchange) made by the drawer to pay a sum certain in
money.
Sir’s anecdote on Section 3: If you look at the title of
Section 3 (Where promise is unconditional), it merely
refers to a promissory note. So the proper title should be
“Where promise or order is unconditional.” However, the
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 40
law recovered by saying in its content, “An unqualified
order or promise to pay is unconditional within the
meaning of this Act…” Understanding the distinction
between a promissory note promise and a bill of
exchange order prompts you to the apparent mistake of
the opening sentence of Section 3. Nonetheless, the law
recovered in its contents.
“Unconditional,” defined
The key is understanding the term “unconditional”
because the promise to pay in the promissory note and
the order to pay in the bill of exchange is unconditional.
Review on the meaning of condition: A condition is a
future uncertain event. For distinction purposes, let us
review the Civil Code provisions (Articles 1924 and 1946)
on condition and term/period:
In general: A condition refers to an event, while
a term or period refers to an interval of time.
As to requisites: A condition has for its requisites
futurity and uncertainty, while a term or period
has for its requisites futurity and certainty.
As to fulfillment: A condition may or may not
happen while a term or period will surely come
to pass, although it may not be known when.
Condition Term/Period
In general Refers to an Refers to an
event interval of time
As to requisites Futurity and Futurity and
uncertainty certainty
As to fulfillment May or may not Will surely come
happen to pass,
although it may
not be known
when
Thus, it is required that whether it is a promissory note
promise or a bill of exchange order, the promise or order
to pay a sum certain in money must not be subject to a
future uncertain event. If it is subject to a future
uncertain event, then that is a conditional promise or
conditional order to pay a sum certain in money, and thus
makes the instrument NOT negotiable for it lacks the
requirement of Section 1(b).
“I promise to pay the payee P the sum of P10,000 if it will
rain tomorrow.” – Not a negotiable instrument. The
promise to pay is subject to a future uncertain event.
“To the drawee, pay to payee P the sum of P10,000 if it
will rain on December 31, 2020.” – Not a negotiable
instrument. It violates the provision of Section 1(b)
because the order to pay is made subject to a future
uncertain event.
Therefore, by “unconditional,” it must be a promise or
order that is a PURE OBLIGATION and not subject to a
condition or a future uncertain event.
Thus, the proper phrase to use in relation to Section 3 is
“When promise (or order) is unconditional.”
“Sum certain in money,” defined
Section 1(b) also mentions “sum certain in money.” This
must be read in relation to Section 2 (Certainty as to sum,
what constitutes), which gives a hint on what constitutes
certainty as to sum.
Sec. 2. What constitutes certainty as to sum. - The
sum payable is a sum certain within the meaning of
this Act, although it is to be paid:
(a) with interest; or
(b) by stated installments; or
(c) by stated installments, with a provision that, upon
default in payment of any installment or of interest,
the whole shall become due; or
(d) with exchange, whether at a fixed rate or at the
current rate; or
(e) with costs of collection or an attorney's fee, in case
payment shall not be made at maturity.
Section 2 does not really define “sum certain in money”
The problem with Section 2 is that it does not really tell
us what sum certain in money is, except that it is “a sum
certain within the meaning of this Act.” It does not really
define what sum certain in money is. We just know that it
is a sum certain within the meaning of this Act, although
it is to be paid with the accompanying requirements as
listed Section 2 (interest, installment, etc.).
Sir’s anecdote: I call Section 2 the Bahay Kubo provision.
In Bahay Kubo, the song does not really talk about the
bahay kubo but is about the vegetables surrounding the
house.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 41
Looking at Jurisprudence and the entire gamut of
available material on negotiable instruments, “sum
certain in money” is a fixed amount of money that is
legal tender.
Thus, according to Section 1(b), a negotiable instrument
must contain an unconditional promise or order to pay a
fixed sum of money that is legal tender. It cannot be a
promise or order to pay in terms of goods or services
(e.g. cavans of rice , sack of corn, playing the piano, or
dancing the tango).
e.g. “I promise to pay P or order the sum of P10,000.” -
What is the promise? To pay a fixed amount of money
that is legal tender in the amount of P10,000.
“I promise to pay P or order by playing the piano or
delivering to him 10 sacks of rice.” - This is not a
negotiable instrument.
Going into our list of terms, you will find:
“20. Fixed Amount of Money Requirement – A holder of
a negotiable instrument must know how much money is
to be received when the instrument is paid. The amount is
commonly specified exactly, which makes the
determination simple, but this is not necessary to satisfy
the fixed amount money requirement. (6)
Sum Certain in Money. Negotiable instruments
must promise or order that payment be made in
a national currency. For example, US Dollars,
English pounds, euros, and Japanese yen all
satisfy the currency requirement. Bushels of
apples, gold, shares of stock, diamonds and rare
gems, and the like, are not currencies. While
promise to pay in apples or stock may form a
perfectly enforceable contract, the resulting
instrument is not a negotiable instrument. (7)”
“Legal tender,” defined
RA 7653 (The New Central Bank Act), Section 52.
Legal Tender Power. – All notes and coins issued by
the Bangko Sentral shall be fully guaranteed by the
Government of the Republic of the Philippines and
shall be legal tender in the Philippines for all debts,
both public and private: Provided, however, That,
unless otherwise fixed by the Monetary Board, coins
shall be legal tender in amounts not exceeding Fifty
pesos (P50) for denominations of twenty-five centavos
and above, and in amounts not exceeding Twenty
 pesos (P20) for denominations of ten centavos or less.
Legal tender is that amount which you can forcibly
require a creditor to accept as payment of a debt.
If you owe someone P10 million, and if you do not pay he
can foreclose tomorrow on your land that was used as
collateral. And you opt to pay today even partially to
avoid foreclosure tomorrow, tendering P200,000 to him,
but he says he will not accept your payment, saying
“Better to foreclose on the 10-hectare land worth P10
million than accepting your payment of only P200,000.”
What is your remedy? Consignation in court, according to
the provisions of the Civil Code and the Rules of Court. As
legal tender, the P200,000 can be forced upon the
creditor to accept.
However, while notes are always legal tender, coins are
legal tender in the following rules:
“…unless otherwise fixed by the Monetary Board, coins
shall be legal tender in amounts not exceeding Fifty pesos
(P50) for denominations of twenty-five centavos and
above, and in amounts not exceeding Twenty pesos (P20)
for denominations of ten centavos or less.”
Suppose you owe me P20,000 and you pay in 25-centavo
denominations. That is a very cumbersome payment! You
will need a barrelful of coins. I am not obligated to accept
that as legal tender. My basis is Section 52 of RA 7653
(The New Central Bank Act), which says the limit for
25-centavo denominations is P50. So you cannot force
me to accept because your debt is P20,000, which
exceeds the limit.
But if I owe you P49 or P50, and I pay in 5-, 10- or
25-centavo coins, and you do not accept, I have the right
to consign it in court.
Take note of the changes in Circular No. 537 of the
Monetary Board.
CIRCULAR NO. 537
Series of 2006
Pursuant to Section 52 of Republic Act No. 7653 and
Monetary Board Resolution No. 862 dated 6 July 2006,
the maximum amount of coins to be considered as
legal tender is adjusted as follows:
1. One thousand pesos (P1,000.00) for
denominations of 1-Piso, 5-Piso and 10-Piso
coins; and
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 42
2. One hundred pesos (P100.00) for
denominations of 1-sentimo, 5-sentimo,
10-sentimo, and 25-sentimo coins.
This Circular shall take effect after fifteen (15) days
following its publication in the Official Gazette or in a
newspaper of general circulation.
In sum, if the payment is not in legal tender, it is not a
negotiable instrument. Specifically, if you promise to pay
P or order the sum of P10,000 in denomination of
10-peso coins or using the paper bills during the 1960s,
that is not a negotiable instrument. You must relate “sum
certain in money” with a fixed amount of money that is
legal tender in accordance to Section 52 of RA 7653.
You may be paying in coins or paper bills, but if the coin
denomination exceeds the limit to be considered as legal
tender or if the bills are no longer in circulation, then it is
not legal tender; it is not an amount of money that is
legal tender; thus, it is not sum certain in money.
LECTURE W3 D2
December 18, 2020
Review: We defined sum certain in money, which we said
is a fixed amount in money that is legal tender. We were
introduced also to Section 52 for the meaning of legal
tender power and also Monetary Board 862 (July 6,
2006), which has already altered the maximum amount
of debt the coins can be used as legal tender.
Republic Act No. 8183
Sum certain in money – fixed amount of money in legal
tender. It means legal tender in the Philippines.
QUESTION: Is it legal tender in the Philippines only?
Are the following compliant with the requirement of legal
tender in the Philippines?
● “I promise to pay P or order the sum of 10,000
in Philippine Peso.”
– Yes, this is compliant, at least in our discussion on legal
tender.
● “I promise to pay P or order the sum of 10
million in German francs or 1 million un US
dollars or 25,000 in euros.”

– This can be answered by RA No. 8183, Section 1.
RA No. 8183, Section 1. All monetary obligations shall
be settled in the Philippine currency which is legal
tender in the Philippines. However, the parties may
agree that the obligation or transaction shall be settled
in any other currency at the time of payment.
Sec. 3. This Act shall take effect fifteen (15) days after
its publication in the Official Gazette or in two (2)
national newspapers of general circulation. The
Bangko Sentral ng Pilipinas and the Department of
Finance shall conduct an intensive information
campaign on the effect of this Act.
Approved: June 11, 1996

So, what is now the meaning in our jurisdiction of “sum

Union Bank vs. Sps. Rodolfo and Victoria Tiu certain in money”? It is not defined only by Section 2,
GR. No. 1733090-91, September 7, 2011 jurisprudence and text, it must have to incorporate RA
The particular issue on agreement to settle in another 8183 and the provision of the New Central Bank Act.
currency was settled in this case.
Hence:
As per RA 529 (June 16, 1950), any agreement to pay an Sum certain in money – Fixed amount of money that is
obligation in a currency other than the Philippine legal tender in the Philippines but now parties may
currency is void. RA 8183 (July 5, 1996) repealed RA 529. agree that obligation of transaction shall be settled in a
Now parties may agree that the obligation or transaction currency other than Philippine currency at the time of
shall be settled in a currency other than Philippine payment (incorporating RA 8183).
currency at the time of payment.
Recap:
RA 529 (June 16, 1950) was enacted during the
protectionist time while RA 8183 (July 5, 1996) was
enacted during the time of President Ramos when
economists and international trade relation experts had
gained traction in the government.

Republic Act No. 8183

June 11, 1996 Repealing RA 529

AN ACT REPEALING REPUBLIC ACT NUMBERED FIVE

HUNDRED TWENTY-NINE AS AMENDED, ENTITLED
"AN ACT TO ASSURE THE UNIFORM VALUE OF
PHILIPPINE COIN AND CURRENCY."

Be it enacted by the Senate and House of

That is the meaning of “fixed amount of money in legal
Representatives of the Philippines in Congress
tender” and “sum certain in money.” That is why in the
assembled:
diagram above, we have Section 2 on “Certainty as to
Sum, What Constitutes,” which we understand to be a
Section 1. All monetary obligations shall be settled in
Bahay Kubo provision. We move to the international
the Philippine currency which is legal tender in the
document for the meaning of sum certain in money. We
Philippines. However, the parties may agree that the
went to the issue regarding legal tender and ultimately
obligation or transaction shall be settled in any other
we needed up with RA 8183. Sum certain in money is not
currency at the time of payment.
limited to legal tender in the Philippines because parties
may agree that payment shall be made in some other
Sec. 2. Republic Act Numbered Five Hundred
currency.
Twenty-Nine (R.A. No. 529), as amended entitled "An
Act to Assume the Uniform Value of Philippine Coin
Section 2(a) “with interest”
and Currency," is hereby repealed.

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 43

 Sec. 2. What constitutes certainty as to sum. - The
sum payable is a sum certain within the meaning of
this Act, although it is to be paid:
(a) with interest; or
xxx
● “I promise to pay P or order a sum of P10,000
with agreed interest of 15% per annum.”
– Yes, this is still a negotiable instrument and it is still sum
certain in money. It is sum certain in money even if
accompanied by the requirement of payment of interest.
New Sampaguita vs. PNB
GR. No. 148753. July 30, 2004
While there is no ceiling to the interest rate that may be
stipulated because the Usury Law is now legally
“non-existent,” this principle is tempered by RA 3765 or
the “Truth in Lending Act” (June 2, 1963).
New Sampaguita vs. PNB
GR 129064
ISSUE: Can banks unilaterally increase interest rates?
What is the effect of the repeal of the Usury Law?
What is the use of the Truth in Lending Act? Can
attorney’s fees mentioned in the PN’s be reduced?
ANSWER:
● Can banks unilaterally increase interest
rates? No. The “unilateral determination and
imposition” of increased rates is “violative of
the principle of mutuality of contracts
ordained in Article 1308 of the Civil Code.”
One-sided impositions do not have the force
of law between the parties, because such
impositions are not based on the parties’
essential equality.
● What is the effect of the repeal of the Usury
Law? “While the Usury Law ceiling on interest
rates was lifted by [Central Bank] Circular No.
905, nothing in the said Circular grants
lenders carte blanche authority to raise
interest rates to levels which will either
enslave their borrowers or lead to a
hemorrhaging of their assets.” In fact, we
have declared nearly ten years ago that
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 44
neither this Circular nor PD 1684, which
further amended the Usury Law, “authorized
either party to unilaterally raise the interest
rate without the other’s consent.”
● What is the use of the Truth in Lending Act?
According to Republic Act No.3765, Sec. 2, “it
is hereby declared to be the policy of the State
to protect its citizens from a lack of awareness
of the true cost of credit to the user by
assuring a full disclosure of such cost with a
view of preventing the uninformed use of
credit to the detriment of the national
economy.” In this case, Justice Panganiban
states that “excessive interests, penalties and
other charges not revealed in disclosure
statements issued by banks, even if stipulated
in the promissory notes, cannot be given
effect under the Truth in Lending Act.” In this
case, it was held that while a standard
penalty charge of 6 percent per annum has
been imposed on the amounts stated in all
three Promissory Notes still remaining unpaid
or unrenewed when they fell due,there is no
stipulation therein that would justify any
increase in that charges. The effect, therefore,
when the borrower is not clearly informed of
the Disclosure Statements—prior to the
consummation of the availment or
drawdown—is that the lender will have no
right to collect upon such charge or increases
thereof, even if stipulated in the Notes.
● Can attorney’s fees mentioned in the PN’s be
reduced? The Court affirmed the equitable
reduction in attorney’s fees. These are not an
integral part of the cost of borrowing, but
arise only when collecting upon the Notes
becomes necessary. The purpose of these fees
is not to give respondent a larger
compensation for the loan than the law
already allows, but to protect it against any
future loss or damage by being compelled to
retain counsel—in-house or not—to institute
judicial proceedings for the collection of its
credit. Courts have has the power to
determine their reasonableness based on
quantum meruit and to reduce the amount
thereof if excessive.

The interest agreed upon can be stricken down if it is not
compliant with the Truth in Lending Act, meaning there
must be full disclosure of how the interest rate is
computed. If it is not compliant, then it shall be set at 6%
per annum and at 12% (based on jurisprudence a few
years ago). [Maybe Sir is pertaining to the legal interest,
which was 12% per annum prior to July 1, 2013 and 6%
starting July 1, 2013.]
The parties may agree on the interest rate to be used
since the Usury Law is legally non-existent. However, it
cannot be unilateral, or based only on the part of the
bank or the moneylender. There must be full disclosure
requirement otherwise the legal interest rate based on
Supreme Court decisions will be the one imposed.
According to the Supreme Court, “The time is now ripe to
give teeth to the often ignored forty-one-year old “Truth
in Lending Act” and thus transform it from a sniveling
paper tiger to a growling financial watchdog of hapless
borrowers.” In other words, the Supreme Court can take
down the interest rate, not because of the Usury Law, but
because of the failure to apply the Truth in Lending Act.
However, the case of New Sampaguita vs. PNB must be
read together with the subsequent case of BPI vs. Normal
and Angelina Yu.
BPI vs. Norman and Angelina Yu
GR No. 184122. January 20, 2010
ISSUE: The question is whether or not the reference to
the penalty charges in the promissory note constitutes
substantial compliance with the disclosure requirement
of the Truth in Lending Act?
ANSWER: The penalty charges that were stipulated in
the promissory notes were valid. Financial charges are
amply disclosed if stated in the promissory note. What
the Court disallows was the collection of a handling
charge that the promissory notes did not contain.
Reference to the penalty charges on the promissory note
constitutes substantial compliance wit the disclosure
requirement of the Truth in Lending Act.
Here, sps. Yu questioned BPI’s recomputation of the
interest rate of their loan, citing the case of New
Sampaguita vs. PNB, where there was no compliance
with the Truth in Lending Act. However, in this case, the
bank pointed to those finely printed provisions at the
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 45
back of the promissory note, saying the exact disclosure
was contained there regarding how they computed the
interest rate once you default on one or two payments.
Issue: Is this in compliance with the Truth in Lending Act?
YES.
Decision: Reference to the penalty charges on the
promissory note constitutes substantial compliance with
the disclosure requirement of the Truth in Lending Act.
Ours is the Truth in Lending Act. But in the US, that is
called the Truth-in-Savings Act. It is just a mirror image of
our Truth in Lending Act.
“23. Truth-in-Savings Act. An effort to allow consumers
to be better infirmed, Congress (US) passed the
Truth-in-Savings Act (TISA) in 1991. TISA requires that
depositary institutions disclose, in great detail, the terms
and conditions of their accounts. Depositary institutions
include commercial banks, savings banks, credit unions
and savings and loan associations. (7)”
Section 2(b) “by stated installments”
Sec. 2. What constitutes certainty as to sum. - The
sum payable is a sum certain within the meaning of
this Act, although it is to be paid:
xxx
(b) by stated installments; or
(c) by stated installments, with a provision that, upon
default in payment of any installment or of interest,
the whole shall become due; or
xxx
● “I promise to pay P or order the sum of P10,000
on 10 equal monthly installments of P1,000.”
– Is it violative of Section 1(b) requirement of sum certain
in money? No, because the payment of a sum certain in
money is still sum certain in money. However, the mode
of payment (through installment, rather than in full) is
the one that is required.
Section 2(b) and (c) says that is still sum certain within
the meaning of this Act, although it is to be paid by
installment or installment with acceleration clause.
Acceleration clause
 - with a provision that upon default of payment of
any installment or of interest, the rest of the
whole shall become due
- There is also an opposite of the acceleration
clause, called extension clause.
“1. Extension Clauses. The reverse of an acceleration
clause is an extension clause, which allows the date of
maturity to be extended into the future. To keep the
instrument negotiable, the interval of the extension must
be specified if the right to extend is given to the maker of
the instrument. If, on the other hand, the holder of the
instrument can extend it, the maturity date does not have
to be specified. (1)
Extension Clauses. The reverse of an
acceleration clause is an extension clause, which
allows the date of maturity to be extended into
the future. To keep the instrument negotiable,
the interval of the extension must be specified if
maker or drawer of the instrument is given the
right to extend it. If, however, the holder of the
instrument can extend it, the maturity date does
not have to be specified. (4)”
Take note of this. If it is an extension clause, if it is the
person liable (creditor, maker or indorser, etc.) has the
right to make an extension, it must be specified on the
instrument itself.
Section 2(d) and (e): “with exchange…”
Sec. 2. What constitutes certainty as to sum. - The
sum payable is a sum certain within the meaning of
this Act, although it is to be paid:
xxx
(d) with exchange, whether at a fixed rate or at the
current rate; or
(e) with costs of collection or an attorney's fee, in
case payment shall not be made at maturity.
Section 2(d) with exchange, whether at a fixed rate or at
the current rate
This provision is already FULLY LEGAL because exchange
rate refers to payment in foreign currency; or foreign
currency denomination check but payment is in
Philippine currency.
What does this mean? Even if payment in foreign
currency denomination is allowed, you cannot use
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 46
German francs or US dollars in the Philippines because it
is not legal tender. You must convert it.
What is the basis of conversion? The bank rate. And the
bank rate fluctuates; hence we need to monitor it almost
daily.
The exchange rate can either be (1) the exchange rate at
the time of payment or (2) a fixed exchange rate:
● EXCHANGE RATE AT TIME OF PAYMENT: You can
predetermine the exchange rate of the peso to
whatever foreign currency at the time of
payment (current rate). Say, it is payable in June
2030, the exchange rate at that time is allowed,
or
● FIXED: You may say the fixed exchange rate of
1-dollar is to 50-pesos at the time of payment,
whenever that payment shall be.
Does the use of an exchange rate affect the negotiable
character of the instrument, insofar as it is a sum certain
in money? NO. If it is sum certain in money, it is allowed
to have an exchange rate whether at a fixed rate or at a
current rate.
Section 2(e) with costs of collection or an attorney's fee,
in case payment shall not be made at maturity.
● “I promise to pay P or order the sum of P10,000
on or before January 1, 2021 with agreed costs
of collection of P10,000 and attorney’s fees of
25%, in case payment shall not be made upon
maturity.”
– Is this allowed? YES. Does not affect the negotiable
character of the instrument on the issue of sum certain in
money? NO. Because it is still sum certain in money
though accompanied with matters of exchange rate and
matters of pre-agreed attorney’s fees, costs of collection,
and other provisions like damages and so on, in case
payment is not made at maturity.

LECTURE W3 D3
December 18, 2020
RECAP:
Last time we more or less finished evaluating Sec. 2 -
meaning of sum certain in money, fixed amount of
money that is legal tender with the understanding that it
can now be in any other currency at the time of payment
and we evaluate the interest rate, acceleration clause, as
well as, fixed rate or at current rate of exchange and cost
of collection, damages in case payment shall not be made
at maturity date.
Let’s move to Section 1(c) - MUST BE PAYABLE.
Q: When is the sum certain in money payable?
A: There are two things:
1. Must be payable on demand
2. Or at a fixed or determinable future time.
Therefore, it can be:
1. Payable on demand,
2. Payable on a fixed or determinable future time.
You must be able to understand and explain PAYABLE ON
DEMAND. Where can we find that?
Sec. 7 . When payable on demand. So, Section 1(c) must
be payable on demand as its explanation in Sec. 7.
Section 7. When payable on demand. -
(a) Where it is expressed to be payable on demand, or
at sight, or on presentation; or
(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed
when overdue, it is as regards, the person so issuing,
accepting, or indorsing it, payable on demand.
There are two initial two ways to determine whether it is
payable on demand:
1. Sec. 7(a) Where it is expressed to be
payable on demand, or at sight, or on
presentation
EXAMPLE: Supposed there is a
promissory note. I, the maker, I am the
one saying: I promise to pay payee the
sum of P10,000. When will I pay? A: I
will include it there. Because I will make
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 47
a promissory note that is expressly
payable on demand.
So, I will say: I promise to pay P or order
the sum of P10,000 when P or the
holder demands from me to pay. OR I
promise to pay P or order the sum of
P10,000 on demand. Signed by the
maker.
What is that? It is expressed to be paid
on demand of the holder, on demand
of the payee. OR I promise to pay P or
order the sum of P10,000 upon sight of
the negotiable instrument. OR “upon
presentation to me of the negotiable
instrument.”
What is that now? It is payable ON
DEMAND. Why? It is expressed to be
payable on demand of at sight or on
presentation. The instrument itself
embedded there is an expression that it
is payable on demand, or at sight or
upon presentation.”
Suppose, I say: “I promise to pay P or
order, the sum of P10,000 signed
maker. And then it ends there. When
you asked: When will I get paid? I will
say: “I don’t know, I did not say when. I
just said I will pay. So, technically, I
don’t know when I will pay you.”
Q: If the instrument itself does not
provide the date of payment, does it
mean that the instrument will not be
paid forever because it did not provide
the date?
A: No. It is payable on demand.
Sec. 7. An instrument is payable on
demand -
(b) In which no time for payment is
expressed.
Meaning the instrument is payable on
demand.
LAST SENTENCE: “Where an instrument is issued,
accepted, or indorsed when overdue, it is as regards, the
person so issuing, accepting, or indorsing it, payable on
demand.”
DISCUSSION: “When overdue” is the key.
SCENARIO: Suppose there was a fixed date when the
instrument is to be paid. “I promise to pay P or order the
sum of P10,000 on November 1, 2018.”
Suppose it is September 1, 2018, the instrument is not
due yet but it is not payable on demand because it is not
covered by Sec. 7(a) and Sec. 7(b). It is payable at a future
determined time: November 1. It is not yet beyond the
expected date.
SUPPOSE: The date has already lapsed and yet the
instrument is still accepted, indorsed, even if it is already
overdue.
Q: On the part of the holder, when will it be paid?
Is it expressed to be payable on demand to apply Sec. 7
(a)? - NO. It was expressly payable upon a future time.
Yet you missed the date.
Does Sec. 7(b) apply? - NO. There was time of payment
expressed. Only that you did not ask for payment at that
time. You still indorsed, accepted it, even if it was
overdue. You cannot use Sec. 4 and 7(a) and b.
You can use, Sec. 7 last sentence: When an instrument is
issued, accepted or indorsed, when it is overdue, it is as
regards the person so issuing, accepting, or indorsing it,
payable on demand.
Let’s say from August, Sept, until Nov. 1, it is payable at a
determinable future time. Nov. 2, onwards, it is now
overdue. From that time on it is not anymore payable at a
determinable future time. It is now payable on demand.
Q: Why is it not Sec. 7(c)?
A: Because 7 (a) and (b) are originally payable on
demand. The last sentence is originally payable at a
determinable future time. But since the future time has
come to pass it is now payable on demand. It cannot be
7(c) because it is payable originally at a determinable
future time.
That is why, the last sentence is referred to as the NEW
BILL DOCTRINE. The old bill is that it is payable at a
determinable future time. The new bill is that since it is
overdue, it is now payable on demand.
Q: Who will demand for payment?
A: It is the holder or the payee. The creditor is just in the
waiting game. Must I wait forever? Is there a remedy
there? Can I get my promissory note because I want to
pay already?
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 48
This is now the reverse, the person who you want to pay
does not want to be paid yet. Maybe he does not want to
be paid yet. Is there a deadline when it is payable on
demand especially so that it can transform itself into a
new bill doctrine? The answer is in the case of
International Corporate Bank vs. Gueco
G.R. No. 141968, February 12, 2001
ISSUE: What is a stale check? What is meant by
reasonable time after issue that a check must be
presented for payment? What is the nature of a
manager’s check?
ANSWER: 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.
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.
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 a 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.
International Corporate Bank vs Gueco.
 HELD: 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 behind the use of a check points to
its immediate use and payability.
International Corporate Bank vs. Gueco (G.R.
No. 141968, February 12, 2001)
In a case, a check payable on demand which was long
overdue by about two and a half (2-1/2) years was
considered stale check. Failure of a payee to encash a
check for more than ten (10) years undoubtedly
resulted in the check becoming stale. Thus, even a
delay of one (1) week or two (2) days, under specific
circumstances of the cited cases constituted
unreasonable time as a matter of law.
Even assuming that the presentment is needed, failure
to present for payment within 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 does not totally wipe out all liability.
Stale Check. A check that is presented more than six
months after its date is commonly called stale check. A
bank acts in good faith may pay it. However, unless the
check is certified, the bank is not required to pay it. (3)
Stale Check. If a check is presented to a bank within six
months of its date, the check is considered a stale
check.
Based on our banking practices and also patterned in
international rules, a check that is presented more than
six months after its date is commonly called stale. So
you do not sit on your laurel because you're the one
asking or demanding that you will be paid because it is
payable on demand. There is International Corporate
Bank vs. Gueco and the rule on stale checks. Six months
as of the date of its issuance is the deadline even if it is
payable on demand.
What do you mean by demand instruments?
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 49
21. Demand Instruments. The payee (or subsequent
holder) can demand actual payment at any time. The
UCC defines an instrument "payable on demand: as
one that
(i) states that it is payable on demand or at sight, or
otherwise indicates that it is payable at the will of the
holder or
(ii) does not state any time of payment.'
With a time instrument, payment can be made only at
a specific time designated in the future. The UCC
requires that an 'instrument payable at a definite time'
have a time easily determined from the document
itself./
*UCC - U.S. Uniform Commercial Code
This is how it is worded in other jurisdictions "it is
payable on demand or at sight, or otherwise indicates
that it is payable at the will of the holder or, when it does
not require payment". But here, we have the new bill
doctrine. If it is issued or indorsed even when overdue, it
is deemed to be payable on demand.
But Section 1(c) goes on to say "payable on demand or at
a determinable future time".
Determinable future time
Section 4. Determinable future time; what constitutes.
- An instrument is payable at a determinable future
time, within the meaning of this Act, which is
expressed to be payable -
(a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time
specified therein; or
(c) On or at a fixed period after the occurrence of a
specified event, which is certain to happen, though the
time of happening be uncertain.
An instrument payable upon a contingency is not
negotiable and the happening of the event does not
cure the defect.
(a) At a fixed period after date or sight
Let's say "30 days after date, I promise to pay to fee or
order the sum of P10,000". That is fixed, determinable
future time, a fixed period provided for in the instrument.
That's an example of Section 4(a).
(b) On or before a fixed or determinable future time
specified therein; or
Can you say "fixed time specified therein"? Yes. "30 days
after November 5, 2026". That's an example of an on or
before a fixed date.
How about determinable future time which does not
provide for a fixed date? Let us say, "to the drawee, pay
to fee or order 30 days after Valentines Day of so and so
year". That's an example.
(c) On or at fixed period after the occurrence of a
specified event, which is certain to happen, though the
time of happening be uncertain.
Example: Death of a party. "30 days after the death of so
and so my enemy, pay to fee or order the sum of
P100,000."
However, this is the counterpart. Earlier, we say
"condition" as distinguished from term or period. Now
this is term or period. What is the similarity? Both are in
the future. But when we say "condition", it may or may
not happen. A period is sure to happen even if it is not
known when. That is why for (c) is sure to happen even if
it is not known when, like the death of a party.
However, Section 4 is very cautious because it may
affect Section 1(b). What is the caution? An instrument
payable upon a contingency (meaning future uncertain,
like if it will rain tomorrow) is not negotiable and the
happening of the event does not cure the defect. This
emphasizes the fact that if it is condition, it will not really
cure the defect. It is not a negotiable instrument. What if
it rains tomorrow? Never mind. It does not cure the
defect.
ANECDOTE: For us, especially in our school, I stopped
using this example for whether or not the instrument is
negotiable, because one of my examples before is like
this: "To the drawee. pay to fee or order the sum of
P10,000 if Juan Dela Cruz, a student of our university
passed the bar". You know what's the problem there? I
thought it was a condition and therefore the instrument
is not negotiable, but others argued to my heart's
content: "This is not a condition. This is a determinable
future time under (c)". I said, "What do you mean?". They
said, "I am sure that I will pass the bar. It's just that I
don't know when. Therefore, that instrument is not
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 50
subject to a condition. That instrument just calls for
payment at a determinable future time under Section
4(c)". That's why I stopped using that example "if s/he
passes the bar" because it should happen, although we
are not certain when. In order to forgo with the debate, I
forwent with the example.
Additional provisions not affecting negotiability
Here are additional provisions not affecting negotiability.
Just read through that.
Section 5. Additional provisions not affecting
negotiability. - An instrument which contains an order
or promise to do any act in addition to the payment of
money is not negotiable. But the negotiable character
of an instrument otherwise negotiable is not affected
by a provision which:
(a) authorizes the sale of collateral securities in case
the instrument be not paid at maturity; or
(b) authorizes a confession of judgment if the
instrument be not paid at maturity; or
(c) waives the benefit of any law intended for the
advantage or protection of the obligor or
(d) gives the holder an election to require something
to be done in lieu of payment of money.
But nothing in this section shall validate any provision
or stipulation otherwise illegal.
An instrument which contains an order or promise "to do
an act" is not negotiable because the requirements is to
pay a sum certain in money. If you do an act plus
payment of sum certain in money, it's not negotiable.
If your negotiable instrument is fully compliant with
Section 1 and has an addendum, it is still negotiable.
How?
(a) authorizes the sale of collateral securities in case the
instrument be not paid at maturity;
More of less of the same character as Section 2. There
are addendums there.
(b) authorizes a confession of judgment if the
instrument be not paid at maturity;
We will talk about that because the Supreme Court struck
this out. Section 5(a) allowed. Section 5(b) strike that out,
that is no longer applicable because of a very old case.
(c) waives the benefit of any law intended for the
advantage or protection of the obligor
Example: I promise to pay fee or order the sum of
P10,000 but notice of dishonor be waived in case it is
dishonored.
(d) gives the holder an election to require something to
be done in lieu of payment of money
What is the difference between this and the opening
statement? The opening statement, "I promise to pay fee
or order the sum of P10,000 plus I will pay the piano".
Under the opening sentence of Section 5, that is not
negotiable—an instrument which contains an order or
promise to do any act in addition to the payment of
money.
In Section 5(d), it gives the holder an election to require
something to be done in lieu of payment of money. "I
promise to pay fee or order the sum of P10,000 or I will
play the piano instead of paying P10,000". This time it is
allowed because the conjunction here is "in lieu of"
(instead of). It is "or". P10,000 or play the piano. If it is
"and play the piano", it is not negotiable. If it is "or play
the piano", it may be negotiable, provided it is the holder
or payee chooses.
But nothing in this section shall validate any provision
or stipulation otherwise illegal.
This is why we need to discuss "confession of judgment".
Judgments by confession
Judgments by confession as appeared at common law
were considered an amicable, easy, and cheap way to
settle and secure debts. They are a quick remedy and
serve to save the court's time. They also save the time
and money of the litigants and the government the
expenses that a long litigation entails. In one sense,
instruments of this character may be considered as
special agreements with power to enter up judgments
on them, binding the parties to the result as they
themselves viewed it.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 51
On the other hand, are disadvantages to the
commercial world which outweigh the considerations
just mentioned. Such warrants of attorney are void as
against public policy, because they enlarge the field
for fraud, because under these instruments the
promissor bargains away his right to a day in court,
and because the effect of the instrument is to strike
down the right of appeal accorded by statute. The
recognition of such a form of obligation would bring
about a complete reorganization of commercial
customs and practices, with reference to short-term
obligations. It can readily be seen that judgment notes,
instead of resulting to the advantage of commercial life
in the Philippines might be the source of abuse and
oppression, and make the courts involuntary parties
thereto. If the bank has a meritorious case, the
judgment is ultimately certain in the courts.
We are of the opinion that warrants of attorney to
confess judgment are not authorized nor
contemplated by our law. We are further of the
opinion that 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. (Philippine
National Bank vs. Manila Oil Refining & By-Products
Company. Inc., Defendant, G.R. No. 18103, June 08,
1992, J Malcolm)
This is not part of your case load because this is an old
case but after this case, there is nothing more that you
can say about confession of judgment in relation to
negotiable instruments law. That is why you have to read
the original in the Supreme Court website. Read the facts
and review the meaning of confession of judgment.
Confession of judgment is not allowed. That is why, going
back, I said this is already taken out (Section 5b). Under
Section 5, it is only paragraphs (a), (c), and (d) which are
applicable. Section 5(b) also does not affect the
negotiable character of the instrument but we not
understand that this is stricken off because of the old
case of Manila Oil.
Was the negotiable instrument there rendered
non-negotiable because confession of judgment is
stricken off? No. Why? The negotiable character of the
instrument otherwise negotiable is not affected by a
stricken off confession of judgment.
That is why if you will read this case, the Supreme Court
remanded the case for presentation of evidence. Just
taking out confession of judgment, but the negotiable
Where the instrument is payable to order the payee
character of the instrument is still considered as valid.
must be named or otherwise indicated therein with
reasonable certainty.
Additional requirement of Section 1.

What is the meaning of the term "payable to order"?

Section 6. Omissions; seal; particular money. - The
Section 8 is not just "bahay-kubo" provision to me. It
validity and negotiable character of an instrument are
does not really help us. It is a very complicated way of
not affected by the fact that:
explaining the meaning of payable to order. We will
(a) it is not dated; or tackle that in our next virtual class.
(b) does not specify the value given, or that any value
had been given therefore; or
(c) does not specify the place where it is drawn or the
LECTURE W4 D1
place where it is payable; or
January 7, 2021
(d) bears a seal; or
(e) designates a particular kind of current money in Recap; We started to evaluate Section 8.
which payment is to be made.
But nothing in this section shall alter or repeal any Section 8. When payable to order. - The instrument is
statute requiring in certain cases the nature of the payable to order where it is drawn payable to the
consideration to be stated in the instrument. order of a specified person or to him or his order. It
may be drawn payable to the order of —
Just read that. Those are just omissions that do not (a) A payee who is not maker, drawer or drawee; or
destroy the negotiable character of the instrument.
(b) The drawer or maker; or
That takes care of Section 7 in relation to sum certain in (c) The drawee; or
money and those hanging provisions, like Section 5 and 6,
(d) Two or more payees jointly; or
because it says here Section 1 and we have 2, 3, though
not discussed in order, 4, and 5, 6, then 7. (e) One or more several payees; or
(f) The holder of an office for the time being.
Let us go to Section 8, when payable to order. Why are
we going to Section 8? Because we are going through Where the instrument is payable to order the payee
Section 1. In Section 1, in letter (d), it says "may be must be named or otherwise indicated therein with
payable to order or to bearer". Studying payable to order reasonable certainty.
points us to Section 8.

When payable to order We were required to look at Section 8 by Section 1(d):

Section 8. When payable to order. - The instrument is

Section 1. Form of negotiable instruments. - An
payable to order where it is drawn payable to the
instrument to be negotiable must conform to the
order of a specified person or to him or his order. It
following requirements:
may be drawn payable to the order of —
(a) A payee who is not maker, drawer or drawee; or
(a) It must be in writing and signed by the maker
(b) The drawer or maker; or
or drawer;
(c) The drawee; or
(d) Two or more payees jointly; or
(b) Must contain an unconditional promise or
(e) One or more several payees; or order to pay a sum certain in money;
(f) The holder of an office for the time being.

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 52

 (c) Must be payable on demand, or at a fixed or not primarily liable on
determinable future time; followed the instrument

(d) Must be payable to order or to bearer; and

Section 1(b)
This pertains to the order of the drawer to the drawee to
pay the payee – the “order” mentioned in this provision
(e) Where the instrument is addressed to a
applies to a Bill of Exchange because the provision also
drawee, he must be named or otherwise
says “promise,” which is the counterpart of order in a
indicated therein with reasonable certainty.
promissory note where there is a promise to pay. Again,
only a bill of exchange involves a drawer that orders a
drawee.
But Section 8 does not really define what “order” or
“payable to order” is.
The drawee may or may not be liable (acceptor) – this
will be discussed much later.
ORDER
Section 1(d)
How many times does the word order appear in Section
This also pertains to Section 8. In understanding Section
1? Twice, under Section 1(b) and Section 1(d) [Section
1(d), you will understand Section 8. Here, the
1(d) is Section 8].
Payee/Holder is the one who gives the order. He orders
the Person primarily liable to pay a person other than the
In slide: “ORDER” -- Section 1(b) vs. Section 1(d)
payee or holder who gave the order. If not followed, the
Payee or Holder will become primarily liable on the
1. Section 1(b) means “order” of drawer to drawee
instrument.
to pay while Section 1(d) means “order” of
payee or holder to the person primarily liable for
Where will the “order” of Section 1(d) come into play? It
the latter to pay;
is the order by the Payee/Holder to the person primarily
liable (which could be the Maker of a Promissory Note or
2. Section 1(b) “order” refers to a bill of exchange
the Drawee of a Bill of Exchange) to pay to a person other
as “promise” is the term for a promissory note
than him.
while Section 1(d) “order” is referred to as a
word of negotiability like the word “bearer” and
Look at this from the point of the view of the PAYEE. The
applies to both bill of exchange and promissory
Payee can order the Maker to pay to another person
note.
instead. For example:

Section 1(b) Section 1(d)

Who Drawer Payee or Holder In a promissory note, Payee can say to Maker to pay to A
ordered instead of him.

Who was Drawee Person primarily

ordered liable [P/N (Maker),
B/E (Drawee)]

What was Pay the Payee or Pay a person other

the order Holder than the Payee or
In a Bill of Exchange, the Payee can say to the Drawee to
all about Holder who gave the
pay to A instead of him.
order

What The drawee may The Payee or Holder In both cases, A can tell the Drawee to pay to B instead of
happens if or may not be will become him. Then, B can tell the Drawee to pay to C instead of
order is liable (acceptor) him. And so on and so forth, ad infinitum.

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 53

Hence, the “order” in Section 1(d) is referred to as one of Sir explains his bet challenge to leave P1000 in front of
the WORDS OF NEGOTIABILITY. The capability is San Pedro Church. This is supposed to help us understand
transferred from one person to another (Payee → A → B the meaning of “Bearer.”
→ C → ad infinitum). There is movement from one
person to another. Why? Because the Payee/Holder is
capable and allowed to have the Person Primarily Liable
to pay somebody else OTHER THAN HIM
LECTURE W4 D2
January 8, 2021
So, where is the “order” under Section 1(b)? It is order
that applies only from DRAWER → DRAWEE. It is only
available to Bill of Exchange. Why? Because the provision
also mentions “promise,” which can only refer to
Promissory Note Payable to bearer

The 1,000-peso bill is payable to bearer, meaning, the

person in possession of it is the one who will get the
equivalent goods and services.

When you earn the money, you are the bearer and you
may use it to transact.

SUPPOSE:You lose the 1,000-peso bill or was taken by a

Where does the “order” in Section 1(d) apply? It applies
from Payee → A, A → B, B → C, and so on. And it applies
to both Promissory Note and Bill of Exchange. And the
counterpart of Section 1(d) “order” is BEARER.
“Payable to Order” and “Bearer” are words of
negotiability.
thief. If the thief uses it to buy something, he will not be
asked by the cashier to prove that he or she owns the bill.
The money is payable to bearer even if he does not have
a right over the money.
Bearer - the person who is carrying; the one in
possession of the instrument.

BEARER When you lose your wallet, the IDs are specific to you but
Section 1(d) also directs us to Section 9. the money is already payable to bearer.

On checks, promissory notes, and bills of exchange

Sec. 9. When payable to bearer. - The instrument is
payable to bearer:
I included here a check because a PN, check or BE, that
complies with the requirements of Sec. 1d (bearer) and
(a) When it is expressed to be so payable; or
therefore, Sec. 9, has the same power as cash.But it can
carry (amount) more than that.
(b) When it is payable to a person named therein or
bearer; or
So this “payable to cash” is “payable to bearer” - once
lost, the person who is able to possess it and ask for
(c) When it is payable to the order of a fictitious or
payment, the payment to him will discharge the
non-existing person, and such fact was known to the
instrument. That’s the meaning of “bearer.”
person making it so payable; or
Bearer, technical definition
(d) When the name of the payee does not purport to
be the name of any
person; or
Sec. 191. Definition and meaning of terms. - In this
(e) When the only or last indorsement is an Act, unless the contract otherwise requires:
indorsement in blank.
“Bearer” means the person in possession of a bill or

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 54


note which is payable to bearer:
“Holder” means the payee or indorsee of a bill or note
who is in possession of it, or the bearer thereof;
Sec. 9. When payable to bearer. - The instrument is
payable to bearer -
a. When it is expressed to be so payable; or
b. When it is payable to a person named therein
or bearer; or
c. When it is payable to the order of a fictitious
or non-existing person, and such fact was
Fictitious Payee Rule
known to the person making it so payable; or
d. When the name of the payee does not
purport to be the name of any person; or
e. When the only or last indorsement is an
indorsement in blank.
When it is expressed to be so payable;
● Ex: it says “I promise to pay payee the
sum of P1,000.” Or it says “To
Metrobank - pay to bearer the sum of
P1,000”
● Suppose I give you a 10,000 peso
bearer instrument and then you lose it
or it is taken away from you. Then
somebody else claims it from the bank.
Will you recover from me or the bank? -
NO. Payment to the guy who took the
check expressly payable to the bearer
was able to discharge the instrument.
When it is payable to a person named therein or
bearer
● “I promise to pay Pedro or bearer the
sum of P10,000”
● It is payable to Pedro or the bearer
● It can be negotiated by just transferring
the instrument.
When it is payable to the order of a fictitious or
non-existing person, and such fact was known to
the person making it so payable
● NOTE: Order of a fictitious or
non-existing person and such fact was
known to the person making it so
payable.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 55
● Ex: I made a check like this: I promise
to pay the Fourth Hokage Minato or
order of Minato the sum of P10,000.
Signed: Maker. I know that Minato is
just a fictitious person and I issued it to
you. Is it covered under Section 8? -
NO. It is to the order of a fictitious or
non-existing person and the fact that it
is fictitious or non-existing is known to
me therefore, I really have no intention
to issue to this guy to issue the Pay to
Bearer the order under Section 1d. If
that is the case, though it is payable to
order, actually, it is payable to bearer
under Sec. 9c - fictitious payee.
PNB vs ERLANDO T. RODRIGUEZ
G.R. No. 170325 September 26, 2008
FACTS
The Spouses Rodriguez were engaged in the informal
lending business. In line with their business, they had a
discounting arrangement with the Philnabank
Employees Savings and Loan Association (PEMSLA), an
association of PNB employees. Naturally, PEMSLA was
likewise a client of PNB Amelia Avenue Branch. The
association maintained current and savings accounts
with PNB.
It was PEMSLA’s policy not to approve applications for
loans of members with outstanding debts. To subvert
this policy, some PEMSLA officers took out loans in the
names of unknowing members, without the
knowledge or consent of the latter. The PEMSLA
checks issued for these loans were then given to the
spouses for rediscounting. The officers carried this out
by forging the indorsement of the named payees in the
checks.
In return, the spouses issued their personal checks
(Rodriguez checks) in the name of the members and
delivered the checks to an officer of PEMSLA. The
PEMSLA checks, on the other hand, were deposited by
the spouses to their account.
Meanwhile, the Rodriguez checks were deposited
directly by PEMSLA to its savings account without any
indorsement from the named payees. This was an
irregular procedure made possible through the
facilitation of Edmundo Palermo, Jr., treasurer of faith on the part of the drawee bank, or any transferee
PEMSLA and bank teller in the PNB Branch. of the check for that matter, will work to strip it of this
defense. The exception will cause it to bear the loss.
PNB eventually found out about these fraudulent acts
and closed the current account of PEMSLA. As a result, Commercial bad faith is present if the transferee of
the PEMSLA checks deposited by the spouses were the check acts dishonestly, and is a party to the
returned or dishonored for the reason "Account fraudulent scheme.
Closed." The corresponding Rodriguez checks,
however, were deposited as usual to the PEMSLA
savings account. The amounts were duly debited from
the Rodriguez account. Thus, because the PEMSLA
checks given as payment were returned, spouses Instrument Appearanc Knowledge Resulting
Rodriguez incurred losses from the rediscounting is payable e of the of the instrument
transactions. to the payee of maker or
order of a the drawer
PNB argues anew that when the spouses Rodriguez fictitious or instrument
issued the disputed checks, they did not intend for the non-existin
named payees to receive the proceeds. Thus, they are g person
bearer instruments that could be validly negotiated by
mere delivery. Further, testimonial and documentary 1st Fictitious Known to Payable to
evidence presented during trial amply proved that scenario or the person bearer
spouses Rodriguez and the officers of PEMSLA non-existin making it (Sec.9c)
conspired with each other to defraud the bank. g payable

2nd Fictitious Unknown Payable to

Q: What is the fictitious payee rule? scenario or to the order PNB
non-existin person vs
RULING g making it Rodriguez
so payable GR 170325
The US Supreme Court held in Mueller that when the
person making the check so payable did not intend for 3rd Real Maker or Payable to
the specified payee to have any part in the scenario person drawer bearer
transactions, the payee is considered as a fictitious “did not Fictitious
payee. The check is then considered as a bearer intend for Payee Rule
instrument to be validly negotiated by mere delivery. the GR 170325
Thus, the US Supreme Court held that Liberty specified
Insurance Bank, as drawee, was authorized to make payee to
payment to the bearer of the check, regardless of have any
whether prior indorsements were genuine or not. part”

The more recent Getty Petroleum Corp. v. American 4th Real Maker or Payable to
Express Travel Related Services Company, Inc. upheld scenario person drawer order
the fictitious-payee rule. The rule protects the intends the “indorsem
depositary bank and assigns the loss to the drawer of specified ent
the check who was in a better position to prevent the payee to necessary
loss in the first place. Due care is not even required have part to the
from the drawee or depositary bank in accepting and further
paying the checks. The effect is that a showing of negotiation
negligence on the part of the depositary bank will not ” Sec.30
defeat the protection that is derived from this rule.
TABLE SUMMARY OF SEC.9C and the Fictitious Payee Rule
However, there is a commercial bad faith exception to
the fictitious-payee rule. A showing of commercial bad First column - Instrument is payable to the order of a
fictitious or non-existing person, we have four scenarios.

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 56

First scenario - The appearance of the payee of the
instrument is really fictitious or non-existing. EX: Naruto
or Superman.
Does the maker know it? Yes. It is known to the person
making it payable that the person as appearing in the
instrument is really fictitious or non-existing
What is the result? It is payable to bearer. That is Sec. 9c.
The maker or drawer did not really expect the person
who is fictitious or non-existing can give the order. That is
the order of first scenario protected by Sec. 9c.
What is the key in Sec. 9c: what is the knowledge? What
is the intent of the drawer or maker.
If the intent of the drawer or maker is that he really
knows that the person is fictitious or even if real, he does
not intend him to sign - bearer; or that he has no
knowledge, or that the maker or drawer intende him to
sign - order.
Focus on what is the position of the maker or drawer of
that instrument.
Be very careful with Sec. 9(c).

Second scenario - as appearing in the instrument, he is d. When the name of the payee does not purport to be
really a fictitious or non-existing person but such fact is the name of any person; or
UNKNOWN to the person making it so payable.

What is the situation? Maybe the maker or payer is really

Sec 9c Sec 9d
in belief that he is dealing with Superman because the
person he transacted with has a cape.
Both cases they are beare
Is he fictitious? Is he required to make the order pay to At least fictitious or Does not purport to be
B? Yes. That is payable to order. Even if that guy is non-existing person the name of any person
fictitious it is unknown to the guy making it payable.
Order of a fictitious or Does not mention
Read PNB vs Rodriguez. non-existing person whether it is the order or
bearer, just simply says
Third scenario - as appearing in the instrument, the “does not purport to be
person is real and existing. The maker or drawer knows the name” of any person”
that he is really an existing person.
Requires all important The knowledge of the
However, the maker or drawer do not really intend for knowledge of the person person making it so
the specified payee to have any part in the instrument. making it so payable: payable is irrelevant
maker or drawer because it does not
What is that now? It is payable to bearer because the purport to be the name of
maker or drawer did not really intend for the specified any person, definitely he
real person to have any part in the instrument. knows that this person
does not exist. Either way
That is what we call the FICTITIOUS PAYEE RULE. the instrument is payable
to bearer
Fourth scenario - the appearance of the payee of the
instrument is he is really a real person. Ex: Pay to cash, pay to xxx, pay to --- are examples of an
instrument payable to bearer; it does not purport to be
How about the knowledge on the part of the maker or the name of any person.
drawer? The maker or drawer intends the specified payee
to have part in the instrument. Sec.9 e. When the only or last indorsement is an
indorsement in blank.
What is that now? Payable to order “indorsement
necessary to the further negotiation” Sec.30 1. Sec9(e) is an instrument originally payable to
“order” (Sec 8) but now payable to “bearer”
Order of that person is necessary for further negotiation since the only or last indorsement is in blank.
of the instrument.
- That is the order of the payee, that is saying Pay

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 57

 to A. when you say “....last indorsement is an
indorsement in blank” it is payable to bearer.
- This is not originally payable to bearer, this is
originally payable to order. But the order to pay
somebody else other than him - maker or
drawer as the case may be, it left blank
indorsement.
- What will happen? Then in that case the
instrument is payable to bearer.
Ex: Suppose it reads like this, show me an order
instrument: I promise to pay P or order the sum of
P10,000. That instrument is payable to order. P is allowed
to give me the order that somebody else will be paid
other than him.
Show an example that P really ordered me to pay
somebody else other than him: P said pay to A, Signed:
payee.
Suppose in that example P said: Pay to ____. Signed: P.
What will happen to the instrument?
The order, the indorsement is in blank and does not
specify a person to be paid. It is now payable to bearer
because the order, the indorsement is in blank
2. Sec.30, An “order” instrument is negotiated by
the indorsement of the holder completed by
delivery. A “bearer” instrument is negotiated
by delivery only.
Pag order instrument negotiated by the indorsement of
the holder, the order of the holder : completed by
delivery.
But if it is bearer, all you have to do is to deliver.
3. Sections 31 and 34, an indorsement may be
special or in blank. An indorsement in blank
specifies no indorsee, and an instrument so
indorsed is payable to bearer, and may be
negotiated by delivery.
So the P in the example says: Pay to ______. Signed:
Payee.
Who will I pay? Any person in possession of it qualifies.
Even if it was an order instrument it gets transformed to
a bearer instrument that requires only delivery because
the last endorsement was in blank.
4. Thus, by direct provision of Section 9(e) and
Section 34 where an instrument payable to
order is indorsed in blank, the instrument
becomes payable to bearer and may be
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 58
negotiated by delivery.
5. Also since the instrument was indorsed without
specifying the indorsee (special indorsement) it
now only lacks “delivery” for it to be
negotiated (Sec. 30). Such “order” instrument is
now like a “bearer” one - only “delivery” is
required to negotiate.
NOTE: So dalawa ang reasons: By direct provision of law
sabi dun pag order instrument na-indorse mo in blank,
Sec 9e and Sec 34 says bearer na yan. The second
analysis is that when you indorse it in blank, you have
already indorsed it - what is lacking? Delivery na lang.
What do you call the instrument that requires delivery?
Bearer instrument. So an order instrument indorsed in
blank that requires only delivery becomes a bearer
instrument.
6. Section 9 (a-d): originally payable to bearer,
Section 9(e): payable to “order” but now
payable to “bearer”
NOTE: From the very inception of the negotiable
instrument, Sec 9 a-d are originally payable to bearer. The
maker or drawer intends it to be like the P1,000 bill -
payable to bearer.
Sec 9e is originally payable to ORDER, but now payable to
BEARER because the only or last indorsement is an
indorsement in blank.
Sec 9a to 9e is the entire gamut of an instrument payable
to bearer.
REMEMBER: Understand it well because Atty said in a
week or two we will discuss Diagram on Sections 14, 15,
16. Refer to W4H2 Diagram.
Again: Section 9 (a-d): originally payable to bearer,
Section 9(e): payable to “order” but now payable to
“bearer”
(End of lecture)
LECTURE W4 D3
January 8, 2021
Last time, we parted ways when we emphasized that
Section 9 should be understood in three context:
 1. Section 9 (a-d) originally payable to bearer
2. Section 9(e), originally payable to order but now
payable to bearer, because the only or last
indorsement is an indorsement in blank.
3. Section 9 (a-e), the entire gamut of an
instrument payable to bearer
These quadrants are taken over by bearer instrument.
Obviously what is left is an order instrument.
Understanding the very foundation of what we are
talking about now is very crucial. The moment we reach
this particular portion of our discussion.
There are two words of negotiability. Order under Section
1(d) and also Bearer under Section 1(d) that will apply to
both promissory note and bill of exchange.
Words of ORDER BEARER
negotiability Section 1(d) Section 1(d)
Provision that Section 8 Section 9
covers it
Requirements Indorsement Delivery only
for negotiation plus delivery
under Section
30
What provision of law explains Section 1(d) Order and
Section 1(d) Bearer?
● Section 1(d) Order - Section 8
Our discussion of the word "order"; who
ordered, who was ordered, what was the order
all about, and you understand what that is.
Order of the pay or holder to the person
primarily liable that somebody else will be paid
other than him.
● Section 1(d) Bearer - Section 9
Our explanation here is the Lord of the Rings
explanation of the two little boys shall bear the
instrument, or the fact that nobody is taking the
bet on the P1,000 bill that we will leave in one of
the benches at the San Pedro St. Why? Because
the person who is in possession of it or the
bearer thereof, the one who is carrying it, once
it is paid, the instrument is discharged.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 59
Question: If you want to negotiate the instrument, if you
want to move it from one person to another, anyway,
bearer and order are words of negotiability. Is there a
requirement for indorsement? Is there a requirement for
delivery?
Answer: In both cases, delivery is required. However, in
order instrument, the person must indorse. In other
words, these A or B called the indorsers must give the
order under Section 1(d) to the person primarily liable.
e.g. "Pay to A, signed B" or "Pay to B, signed A". They
must give the indorsement or in other words, the order.
They must give the order under Section 8 and Section
1(d), and then deliver. Because if both instrument require
only to be delivered because Section 8 has a blank
indorsement, it will become a bearer instrument.
That's why this diagram 2 is very crucial (tabular form) in
your understanding of the words of the negotiability
under Section 1(d) Order and Section 1(d) bearer, and
Section 9 and 8.
Section 1(e). Where the instrument is addressed to a
drawee, he must be named or otherwise indicated
therein with reasonable certainty.
Question: We have gone through almost all of our
diagram, and we will ask, what type of an instrument is
addressed to a drawee?
Answer: Nothing more than that of a bill of exchange
because maker is addressed itself. Bill of exchange or a
check is addressed to a drawee.
What is the rule?
Where the instrument is addressed to a drawee, meaning
bill of exchange or promissory note, he, meaning the
drawee, must be named or otherwise indicated therein
with reasonable certainty, otherwise, the bill of exchange
or a check will not be a negotiable instrument. The
reasoning is simple. Who will pay if the drawee, the one
you ordered to pay, drawer, is not indicated with
reasonable certainty. This applies only to instruments
payable to or instruments that are bills of exchange.
This has reference to Section 128.
Section 128. Bill addressed to more than one drawee. -
A bill may be addressed to two or more drawees
jointly, whether they are partners or not; but not to
two or more drawees in the alternative or in
succession.

Like "to A or next B", not allowed, because it says "but
not to two or more drawees in the alternative or in
succession". "Drawee A and B" is allowed. "Drawee A or
B in the order of the alphabet" = not allowed. Why?
Section 128 provides for it. That is why Section 1(e) must
be read in relation to Section 128. That is why Section
128 is an allied section to Section 1.
It came out during the 1997 Bar Exam.
Bar Question (1997) Question No. 10: Can a bill of
exchange or a promissory note qualify as a negotiable
instrument if xxx (d) it names two alternative drawees?
Answer: NO. Section 128 of NIL. A bill may be
addressed to two or more drawees jointly, whether
they are partners or not; but not to two or more
drawees in the alternative or in succession.
Let us review important terms that are to some extent
related because we bypassed it.
Sec. 10. Terms, when sufficient. - The instrument need
not follow the language of this Act, but any terms are
sufficient which clearly indicate an intention to
conform to the requirements hereof.
It may not be the word "order" or "promise", but you can
say, "I undertake to pay" (promise) or "I direct you to
pay" (order), those are related terms. It's not necessary
that you follow the word "order" or "bearer" because
Section 10 says that the instrument need not follow the
language of the Act but any terms are sufficient which
clearly indicate the intention to conform to the
requirements thereof.
Sec. 11. Date, presumption as to. - Where the
instrument or an acceptance or any indorsement
thereon is dated, such date is deemed prima facie to
be the true date of the making, drawing, acceptance,
or indorsement, as the case may be.
(Discussed as is.)
Sec. 12. Ante-dated and post-dated. - The instrument
is not invalid for the reason only that it is ante-dated or
post-dated, provided this is not done for an illegal or
fraudulent purpose. The person to whom an
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 60
instrument so dated is delivered acquires the title
thereto as of the date of delivery.
(Discussed as is.)
Sec. 13. When date may be inserted. - Where an
instrument expressed to be payable at a fixed period
after date is issued undated, or where the acceptance
of an instrument payable at a fixed period after sight is
undated, any holder may insert therein the true date
of issue or acceptance, and the instrument shall be
payable accordingly. The insertion of a wrong date
does not avoid the instrument in the hands of a
subsequent holder in due course; but as to him, the
date so inserted is to be regarded as the true date.
Why is this? Because the date is not a requirement under
Section 1. Not even a requirement of portability and
permanency.
Just read these ancillary sections that are to some extent
allied with Section 1 but are not really directly pointed to
in Section 1.
Sec. 17. Construction where instrument is ambiguous. -
Where the language of the instrument is ambiguous or
there are omissions therein, the following rules of
construction apply:
(a) Where the sum payable is expressed in words and
also in figures and there is a discrepancy between the
two, the sum denoted by the words is the sum
payable; but if the words are ambiguous or uncertain,
reference may be had to the figures to fix the amount;
(b) Where the instrument provides for the payment of
interest, without specifying the date from which
interest is to run, the interest runs from the date of the
instrument, and if the instrument is undated, from the
issue thereof;
(c) Where the instrument is not dated, it will be
considered to be dated as of the time it was issued;
(d) Where there is a conflict between the written and
printed provisions of the instrument, the written
provisions prevail;
(e) Where the instrument is so ambiguous that there is
doubt whether it is a bill or note, the holder may treat
it as either at his election;

(f) Where a signature is so placed upon the instrument
that it is not clear in what capacity the person making
the same intended to sign, he is to be deemed an
indorser;
(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.
This is also statutory construction pertaining to
negotiable instruments only.
(a) Where the sum payable is expressed in words and
also in figures and there is a discrepancy between the
two, the sum denoted by the words is the sum payable;
but if the words are ambiguous or uncertain, reference
may be had to the figures to fix the amount;
For example: "Ten thousand pesos (10,000.00)" which
one will prevail? The words or the number in case there
is a conflict? Answer: The words. Why? Because it is more
difficult to alter.
However, if the words are ambiguous or uncertain,
reference may be had to the figures to fix the amount.
For example, "Two one thousand pesos". Very easy
because after 900 pesos, you will really say 1,000 pesos.
But what if you will say "Fifteen hundred pesos
(1,500.00). What is fifteen hundred? Because there is
confusion as to what "Fifteen hundred pesos" is or
"Twenty hundred pesos" is, you refer to the figure. If the
word is confusing, reference may be had to the figures to
fix them.
(b) Where the instrument provides for the payment of
interest, without specifying the date from which
interest is to run, the interest runs from the date of the
instrument, and if the instrument is undated, from the
issue thereof;
This is because there is an equation "blah blah blah raise
to the T". Time is important when it runs. What us the
rule? The interest runs from the date of the instrument,
and if the instrument is not dated, then it shall be from
the date of issue thereof.
(c) Where the instrument is not dated, it will be
considered to be dated as of the time it was issued;
(Discussed as is.)
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 61
(d) Where there is a conflict between the written and
printed provisions of the instrument, the written
provisions prevail;
Why? Because it is more difficult.
What do you mean by printed? There is a prepared
statement with blanks where you just fill it up.
It is the handwritten will prevail over the printed words
on the instrument.
(e) Where the instrument is so ambiguous that there is
doubt whether it is a bill or note, the holder may treat it
as either at his election;
Doubt whether it is a bill or note e.g. "To the drawee, I
promise to pay fee or order the sum of ten thousand
pesos, to the drawee, I order you to pay to fee". Is it a bill
of exchange or a promissory note? Section 17(e) will take
care of that. Where the instrument is so ambiguous that
there is doubt whether it is a bill or note, the holder may
treat it as either at his election.
(f) Where a signature is so placed upon the instrument
that it is not clear in what capacity the person making
the same intended to sign, he is to be deemed an
indorser;
Is the person a maker, a drawer or an acceptor? Answer:
He shall be deemed an indorser. (We will look at this
again Section 17(f) when we will reach rights and
liabilities of the parties.)
(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.
What's the conflict there? "I promise" but there are two
or more persons. It should be plural. "We promise." But
unfortunately the instrument says "I promise to pay" but
signed by two or more persons. Who will be liable as
maker? The two or more persons are deemed to be
jointly and severally liable.
The terms "jointly and severally" are from Obligations
and Contract, that's why you are not allowed to take
Negotiable Instruments Law until you successfully hurdle
Obligations and Contracts. "Jointly and severally" means
you can sue either one of them.
(We bypassed Sections 14, 15, and 16 because it is raised
to the level of another discussion.)
 Sec. 18. Liability of person signing in trade or assumed
Careful of the word "infant". You may imagine a child that
name. - No person is liable on the instrument whose
if you will kill, you will be liable for infanticide. That's not
signature does not appear thereon, except as herein
it. How can the infant indorse? He cannot even carry his
otherwise expressly provided. But one who signs in a
own head.
trade or assumed name will be liable to the same
extent as if he had signed in his own name
Infant here means minor. That is a better term, in order
to take care of the physical capacity of that minor to sign,
For example, you have a trade or assumed name. You are even if he does not have full command of his civil and
"Ramon Revilla" but actually you are Jose Bautista. You political rights, because he is still a minor covered by
sign as Ramon Revilla then you say "you cannot claim it some sort of guardianship.
from me because I'm actually Jose Bautista." No, Section
18 will take care of you. A minor or a corporation not authorized to do so through
them or the representative may indorse. What about
their capacity to indorse if it is questioned?
Sec. 19. Signature by agent; authority; how shown. -
The signature of any party may be made by a duly
Answer: It is only the minor or the corporation who can
authorized agent. No particular form of appointment is
raise that as a defense. However, it does not destroy the
necessary for this purpose; and the authority of the
negotiable character of the instrument.
agent may be established as in other cases of agency.
(Section 23 is raised at a higher level of discussion.)
The agent can sign and he is not liable for as long as he is
an agent, authorized to do so, and he discloses his Review some of the terms mentioned here:
principal.
(There was no number 1. It only showed number 2 and
onwards.)
Sec. 20. Liability of person signing as agent, and so
forth. - Where the instrument contains or a person
2. Drafts. A draft, which is a three-party instrument, is an
adds to his signature words indicating that he signs for
unconditional written order by one party (the drawer)
or on behalf of a principal or in a representative
that orders a second party (the drawee) to pay money to
capacity, he is not liable on the instrument if he was
a third party (the payee). A draft can be either a time
duly authorized; but the mere addition of words
draft or a sight draft. A time draft is payable to a
describing him as an agent, or as filling a
designated future date. A sight draft is payable on sight. A
representative character, without disclosing his
sight draft is also called a demand draft.
principal, does not exempt him from personal liability.
Bank Drafts. A bank draft is a check drawn by one
(Discussed as is.) bank on another bank. Banks customarily keep a
portion of their funds on deposit with other banks. A
bank, then, may draw a check on these funds as
Sec. 21. Signature by procuration; effect of. - A
freely as any corporation may draw checks.
signature by "procuration" operates as notice that the
agent has but a limited authority to sign, and the
Draft Usage. Businesses often use drafts to pay for
principal is bound only in case the agent in so signing
merchandise ordered, especially when the buyer and
acted within the actual limits of his authority.
the seller are in different states. Drafts may be
payable "at sight" (i.e., on demand), or they may be
(Discussed as is.) "time drafts" (i.e., they are payable at a future date).

3. Trade acceptance. A trade acceptance is a sight draft

Sec. 22. Effect of indorsement by infant or
that arises when credit is extended with the sale of
corporation.- The indorsement or assignment of the
goods. In this type of draft, the seller is both the drawer
instrument by a corporation or by an infant passes the
and payee. The buyer to whom credit is extended is the
property therein, notwithstanding that from want of
drawee. Even though only two actual parties are
capacity, the corporation or infant may incur no
involved, it is considered a three-party instrument
liability thereon.
because three legal positions are involved.

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 62


Trade Acceptances. A trade acceptance is a type of
draft that is frequently used in the sale of goods. In a
trade acceptance, the seller of the goods is both the
drawer and the payee.
Often, a seller of goods will send a draft to the buyer
for acceptance. If the buyer accepts, he or she has
agreed to pay any holder who makes proper
presentation. Such a draft is called a trade
acceptance.
4. Certificates of Deposit. A certificate of deposit is a
special form of note that is created when a depositor
deposits money at a financial institution in exchange for
the institution's promise to pay back the amount of the
deposit plus an agreed-upon rate of interest upon the
expiration of a set time period agreed upon by the
parties.
The UCC defines a certificate of deposit as an
"acknowledgement by a bank that a sum of money
has been received by the bank and a promise by the
bank to repay the sum of money". Normally the
money is repaid with interest. The UCC classifies a
certificate of deposit as a note even though it does
not contain the word promise. A CD is to a draft
because it does not contain an order to pay.
A certificate of deposit is an instrument used by a
bank evidencing a debt owed to a depositor. These
instruments commonly call for the bank to pay to a
proper presenter the amount deposited plus interest
at a stated future date. Although regularly thought of
as a type of special savings account, certificates of
deposit are really credit instruments. They recognize
money "borrowed" by the bank from its depositor.
A certificate of deposit is a promise made by a bank
to pay a payee a certain amount of money at a future
time. The UCC defines a certificate of deposit as 'an
instrument containing an acknowledgement by the
bank to repay the sum of money. A certificate of
deposit is a note of the bank.
5. Permanency and portable. Permanency requirement is
a requirement of negotiable instruments that says they
must be in a permanent state, such as written on
ordinary paper. Portability requirement is a requirement
of negotiable instruments that says they must be able to
be easily transported between areas.
8. Bond. A bond is a written contractual obligation,
usually under seal, generally issued by a corporation, a
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 63
municipality, or a government, that contains a promise to
pay a sum certain at a fixed or determinable future time.
In addition to the promise to pay, it will generally contain
certain other conditions and stipulations. A bond issued
by a corporation is generally secured by a deed of trust
on the property of the corporation. A bond may be a
coupon bond or a registered bond.
9. Coupon Bond. A coupon bond is so called because the
interest payments that will become due on the bond are
represented by detachable individual coupons to be
presented for payment when due. Coupon bonds and the
individual coupons are usually payable to the bearer, as a
result, they can be negotiated by delivery. There is no
registration of the original purchaser or any subsequent
holder of the bond.
10. Registered bond. A registered bond is a bond payable
to a named person. The bond is recorded under that
name by the organization issuing it to guard against its
loss or destruction. When a registered bond is sold, a
record of the transfer to the new bondholder must be
made under the name of the new holder of the bond.
We now reach the final slide, which is actually the first
slide. We now come to the loop where we have started.
Has this diagram changed? Has this, which I suppose you
have at hand, printed because we uploaded in in our
classroom, substantially changed? Is this still static? Or is
this already dynamic, meaning you understand the
components of it?
If your answer is "this is still static and I do not
understand it even" then do more, double time, review
the tapes, because you are in danger of being left behind.
But if you will say that "this is dynamic, I can see it
moving, I can remember the color of these" then wow,
you have successfully hurdled the first page of the
four-page paper on Negotiable Instruments.

Reminder of this diagram that I presented during our

synchronous orientation. Section 1 and Allied Sections
are 36% of the questions asked in the bar, if there is a
question on Negotiable Instruments, from 1983 to 2019.

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 64

 II. SECTIONS 14, 15 AND 16 /
INDORSEMENT
LECTURE W5 D1
January 14, 2021
Now we tackle Sections 14, 15 and 16.
In Section 1 of the Negotiable Instruments Law, we were
told that, whether it is a Promissory Note or a Bill of
Exchange or a check, the requirement is it must be in
writing. We have established that there is oral or parole
negotiable instrument; it must be in writing. All
negotiable instruments must be in writing.
The second requirement for it to be a substitute for
money, it must be capable of being transferred from one
person to another. So there is a need to DELIVER the
instrument. Whatever type of the instrument it may be –
whether P/N or B/E or note or check – it must have to be
delivered. In fact, the requirement of Portability
(capability of being transported from one place to
another) is a requirement for negotiability. Permanency
and Portability may be not under Section 1 but under
international jurisprudence.
DELIVERY OF A NEGOTIABLE INSTRUMENT
When a negotiable instrument is required to be
delivered, two things can happen:
1. The instrument was undelivered yet finds its way
in circulation, or
2. The instrument was delivered.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 65
What does “undelivered yet finds its way in circulation”
mean?
It simply means that while the instrument may not have
been authorized by the person to be transferred from
one person to another, the instrument happens to be
transferred from one person to another with the proper
authority. So it means the instrument was undelivered
and yet finds its way into circulation.
How about where the instrument is delivered? There is
no problem when the instrument is delivered because
that [complies with the requirement].
At this point, we must review the concept of Delivery or
Tradition as provided for in the Civil Code.
Take note of the mechanical act of writing (see figure
above) and also the act of delivery. In the act of delivery,
the instrument can either be delivered or was
undelivered but finds its way in circulation.
Sir’s explanation: The analogy here is either guilty or not
guilty. Must the accused go to jail? In our case, we need
to answer the question as to whether or not the
instrument is delivered properly or undelivered.
CONCEPT OF DELIVERY
Kinds of delivery
Review the kinds of delivery required by the Civil Code.
This is the only way to know the concept of Delivery, or
the transferring of the instrument from one person to
another.
NOTE: If the instrument is like money, it must be capable
of being transferred from one person to another.
Refer to the case of San Lorenzo Development
Corporation vs. Court of Appeals, GR. No. 124242,
January 21, 2005, Second Division, J. Tinga to review on
the concept of Delivery/Traditio.
Again, in all types of negotiable instruments, if you want
to transact with negotiable instruments, two things must
happen:
1) the mechanical act of writing, and
2) delivery.
San Lorenzo Development Corp. vs. CA
G.R. No. 124242, Jan. 21, 2005
Facts: In this case, the spouses Lu executed successive
transactions involving the same two parcels of land.
Originally, Pacita Lu obtained a loan of P50,000 from
Paolo Babasanta. Instead of paying back the loan in
money, the spouses Lu purportedly sold their two
parcels of land to Babasanta, treating the P50,000 as
partial payment, as evidenced by a receipt. Eventually
Babasanta made additional partial payments
amounted to P200,000. In a letter, the spouses Lu also
indicated that they agreed to sell the property to
Babasanta at P15 per sqm. Upon demand of the
balance of P260,000, Babasanta asked for the price to
be reduced to P12 per sqm, but the spouses Lu did not
agree, So Babasanta allegedly rescinded the contract.
Pacita Lu requested for a manager’s check at the bank
to pay back the P200,000 that was given to them.
By February 1989, the spouses Lu received more than
P300,000 from San Lorenzo Development Corp (SLDC)
as option money in relation to buying the same
property. By May 1989, SLDC was able to pay more
than P600,000 in initial payment and the spouses Lu
executed a Deed of Absolute Sale with Mortgage. The
price for the property was P1.2 million. The clean titles
were also delivered to SLDC. SLDC took possession of
the property.
A month later, June 1989, upon hearing of the sale to
SLDC, Babasanta filed a complaint in court to compel
specific performance on the part of the Spouses Lu,
wanting to have the final deed of sale executed in his
favor. By 1990, finding out about the pending case
involving the property, SLDC filed a motion to
intervene, alleging that the property had already been
sold to them. It was Babasanta’s contention that he
was already the owner of the property because the
spouses Lu had conveyed the property to him in a
contract of sale, as evidenced by the receipt of
P50,000.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 66
ISSUE
Whether or not the properties were delivered to
Babasanta, thus enabling him to acquire ownership
thereof despite SLDC claiming the same. NO.
DECISION
No, Babasanta did not acquire ownership over the
property (the SC even categorized their transaction as
a contract to sell). But even if it had been a contract of
sale, it was SLDC that acquired ownership of the
property because it was clear that the spouses Lu
intended to transfer ownership to SLDC. Upon
payment of the P600,000 initial balance, the spouses
Lu executed a Deed of Absolute Sale with Mortgage
and surrendered the titles of the property of the land.
According to SLDC, it also immediately took possession
of the property.
A contract of sale is only a title that constitutes a right
to have the ownership transferred. But it is MODE that
constitutes the acquisition or transfer of ownership.
“The perfection of a contract of sale should not,
however, be confused with its consummation. In
relation to the acquisition and transfer of ownership, it
should be noted that sale is not a mode, but merely a
title. A mode is the legal means by which dominion or
ownership is created, transferred or destroyed, but
title is only the legal basis by which to affect dominion
or ownership. Under Article 712 of the Civil Code,
"ownership and other real rights over property are
acquired and transmitted by law, by donation, by
testate and intestate succession, and in consequence
of certain contracts, by tradition." Contracts only
constitute titles or rights to the transfer or acquisition
of ownership, while delivery or tradition is the mode of
accomplishing the same. Therefore, sale by itself does
not transfer or affect ownership; the most that sale
does is to create the obligation to transfer ownership.
It is tradition or delivery, as a consequence of sale,
that actually transfers ownership.
Explicitly, the law provides that the ownership of the
thing sold is acquired by the vendee from the moment
it is delivered to him in any of the ways specified in
Article 1497 to 1501. The word "delivered" should not
be taken restrictively to mean transfer of actual
physical possession of the property. The law
recognizes two principal modes of delivery, to wit: (1)
actual delivery; and (2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in
the control and possession of the vendee. Legal or
constructive delivery, on the other hand, may be had
through any of the following ways: the execution of a
public instrument evidencing the sale; symbolical
tradition such as the delivery of the keys of the place
where the movable sold is being kept; traditio longa
manu or by mere consent or agreement if the
movable sold cannot yet be transferred to the
possession of the buyer at the time of the sale;
traditio brevi manu if the buyer already had
possession of the object even before the sale; and
traditio constitutum possessorium, where the seller
remains in possession of the property in a different
capacity.

Following the above disquisition, respondent

Babasanta did not acquire ownership by the mere
execution of the receipt by Pacita Lu acknowledging
receipt of partial payment for the property. For one,
the agreement between Babasanta and the Spouses
Lu, though valid, was not embodied in a public
instrument. Hence, no constructive delivery of the
lands could have been effected. For another,
Babasanta had not taken possession of the property at
any time after the perfection of the sale in his favor or
exercised acts of dominion over it despite his
assertions that he was the rightful owner of the lands.
Simply stated, there was no delivery to Babasanta,
whether actual or constructive, which is essential to
transfer ownership of the property. Thus, even on the
assumption that the perfected contract between the
parties was a sale, ownership could not have passed to
Babasanta in the absence of delivery, since in a
contract of sale ownership is transferred to the vendee
only upon the delivery of the thing sold.”

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 67


LECTURE W5 D2
January 15, 2021
CONCEPT OF DELIVERY
In San Lorenzo Dev’t Corporation vs Court of Appeals
January 21, 2005, the Supreme Court said:
Explicitly, the law provides that the ownership of the
thing sold is acquired by the vendee from the moment
it is delivered to him in any of the ways specified in
Article 1497 to 1501. The word "delivered" should not
be taken restrictively to mean transfer of actual
physical possession of the property. The law
recognizes two principal modes of delivery, to wit: (1)
actual delivery; and (2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in
the control and possession of the vendee. Legal or
constructive delivery, on the other hand, may be had
through any of the following ways: the execution of a
public instrument evidencing the sale; symbolical
tradition such as the delivery of the keys of the place
where the movable sold is being kept; traditio longa
manu or by mere consent or agreement if the
movable sold cannot yet be transferred to the
possession of the buyer at the time of the sale;
traditio brevi manu if the buyer already had
possession of the object even before the sale; and
traditio constitutum possessorium, where the seller
remains in possession of the property in a different
capacity.
REMEMBER: The law recognizes two principal modes of
delivery, to wit:
(1) actual delivery; and
(2) legal or constructive delivery.
Think of it from the concept of sale, we are talking
about the same concept of delivery in our discussion.
ILLUSTRATION: A check is delivered from one person to
another. The concept of delivery under the Civil Code is
the one that we will follow. It could be actual delivery of
the check or legal or constructive delivery of the check.
Actual delivery - consists in placing the check in control
and possession of the vendee.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 68
Suppose I issue a check and give it to you - in your control
and possession. The check has already been delivered.
Legal and constructive delivery - when we execute a
document saying you already received the check.
Traditio longa manu (long hand) - example, by pointing
to the check to be there on the table
Traditio brevi manu - by handing over the check
Traditio constitutum possessorium - you may be in
possession of the check merely as my secretary, but I say
get one of the checks. I did not do anything because it is
already with you.
Traditio symbolica - giving big replica keys to condo
owners, or giving big checks in ceremonies for purposes
of presentation that the check is already delivered to the
payee.
In any of these deliveries, will be the concept of delivery
that we are talking about in our discussion.
Delivery can either be:
● Undelivered - not delivered but found its way in
circulation
● Delivered - properly delivered and now in
circulation.
Mechanical act of writing
Two things can happen:
● Complete - It can be complete in its content. All
the requirements for the issuance of the
negotiable instrument are there.
● Incomplete - when not all the requirements of
the negotiable instrument are present.
Q: Where can we find the guidelines that show that a
negotiable instrument is complete as to the mechanical
act of writing?
A: It is found in Section 1. From section 1 a to d for
promissory notes and a to e for bill of exchange.
Q: What is our template to determine whether the
instrument is completely written?
A: The contents in Sec 1. That is why this section and its
allied sections are important. You will see there what
should be written in the instrument to make it complete.
 a) It must be in writing and signed by the maker or its way in in circulation
drawer; circulation

(b) Must contain an unconditional promise or order to

pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or

determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he

must be named or otherwise indicated therein with
reasonable certainty.

If all the contents are there, then the instrument is

complete.

However, it can also be incomplete. Meaning, portions
of Section 1 are not there yet it finds its way in circulation
in some other form. That is also defective because it is
not fully in accord with Sec. 1. Sec
Q: Is it possible for a negotiable instrument to be
incomplete and finds its way in circulation?
Airport situation: Rene was in the airport but forgot to
bring cash with him. His friend Juan lent him P20,000.
Pedro was an innocent bystander.
Rene signed on a blank sheet of paper and allowed Juan
to fill it up for him as his promissory note. They agreed
that Juan will write P20,000 owing to him.

A: Yes. This is an example of an incomplete instrument yet

delivered.
The same is true with delivery:
● Delivered Rene signed the document but he directed Juan to make
● Undelivered it into a promissory note in the amount of P20,000. Only
section 1a was complied with. And then delivers it brevi
Mechanical act of writing: manu (shorthand) to Juan with the instructions for Juan
● Completely written to complete it.
● Incomplete - some requirements are there, but
not all the requirements are there OK: No problem since there is delivery and the
negotiable instrument is complete.
Possible situations in a defective negotiable
instrument: Secretary: The lawyer boss asked his officemates to
prepare for a Christmas party. Before he left, he wrote
D ACT OF WRITING several checks as an undeclared bonus to them. He
E placed it on top of his office table and went home.
L COMPLETE INCOMPLETE
I The Secretary found the checks on the table and
V Delivered Complete in Incomplete in delivered it to the payees. That is a situation where an
E writing and was writing but instrument is completely written, but the maker did not
R properly delivered deliver it yet. It was the secretary who took it and gave it
Y delivered to the other staff. It was undelivered but it found its way
to circulation.
Undelivered It is complete The instrument
but is incomplete as
undelivered, yet to writing yet Prodigal Son: The son asked his father for half a million
even so, finds still finds its way pesos for cock derby. The father refused and told him to

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 69

help his brother instead in managing the store business. Having sealed that in our minds, let us now evaluate how
the law will settle the rights of the parties.
The son waited for the father to commit a mistake in
signing a check and throwing it to the trash bin. He took
the checks from the trash and wrote the amount on the
checks.

This is a situation that shows that the instrument is

incomplete. He only signed it and because of a mistake
threw it away. It was also undelivered because the father
did not authorize the son even to take out the trash but
the son gained possession of it and it found its way in
circulation.

Oftentimes, it can happen that a negotiable instrument is

incomplete. Also, it can be delivered or undelivered.
These are the problems that we will encounter. Hopefully,
as we go on specific provisions of the Negotiable
instruments law can help us.
Maybe 14,15, and 16 can be used as remedies.
The second quadrant is "O.K." because there is not much
we can do there. That is already fully in accord with the
NIL, and even the Civil Code. The instrument is complete
as to the requirements of Section 1 of the NIL, and
properly delivered under the terms.
Let us move to the first quadrant:

LECTURE W5 D3
January 15, 2021

D ACT OF WRITING
E
L COMPLETE INCOMPLETE
I
V Delivered O.K. AIRPORT
E
R Undelivered SECRETARY PRODIGAL SON
Y

Recall that in our diagram, the first quadrant is the

● Where the instrument is incomplete and
delivered, that's our airport example, handed on
a blank paper already signed.
● Complete delivered, it is fully in accord with the
Negotiable Instruments Law.
airport example. The instrument is incomplete as to
writing because there was just a signature there, and
finds its way in circulation. Then we say that the section
appropriate to settle the rights of the parties there will
be Section 14.

● Complete and undelivered, Secretary during the
Christmas Party, the boss prepared a check,
everything is complete, and the Secretary just
took it, and the instrument finds its way in
circulation.
● Incomplete and undelivered - We have the
prodigal son example, where the father signed
it, did not deliver it, and the son took it.
Sec. 14. Blanks; when may be filled. - Where the
instrument is wanting in any material particular, the
person in possession thereof has a prima facie
authority to complete it by filling up the blanks
therein. And a signature on a blank paper delivered by
the person making the signature in order that the
paper may be converted into a negotiable instrument
operates as a prima facie authority to fill it up as such
for any amount. In order, however, that any such
instrument when completed may be enforced against

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 70

 any person who became a party thereto prior to its
completion, it must be filled up strictly in accordance
with the authority given and within a reasonable time.
But if any such instrument, after completion, is
negotiated to a holder in due course, it is valid and
effectual for all purposes in his hands, and he may
enforce it as if it had been filled up strictly in
accordance with the authority given and within a
reasonable time.
This is how you read Section 14:
Sec. 14. Blanks; when may be filled. -
(1) Where the instrument is wanting in any material
particular, the person in possession thereof has a
prima facie authority to complete it by filling up the
blanks therein.
(2) And a signature on a blank paper delivered by the
person making the signature in order that the paper
may be converted into a negotiable instrument
operates as a prima facie authority to fill it up as such
for any amount.
(3) In order, however, that any such instrument when
completed may be enforced against any person who
became a party thereto prior to its completion, it must
be filled up strictly in accordance with the authority
given and within a reasonable time.
(4) But if any such instrument, after completion, is
negotiated to a holder in due course, it is valid and
effectual for all purposes in his hands, and he may
enforce it as if it had been filled up strictly in
accordance with the authority given and within a
reasonable time.
If you are to read Section 14 in your NIL codal, it is not
really divided into paragraphs (1), (2), (3), and (4). Section
14 is just lumped in one singular paragraph. However,
this presentation already divided it into specific biteable
principles or thought that are necessary in order to settle
the rights of the parties, when we talk about situations
like the airport example.
Let us juxtapose this with our hypothetical problem of
the airport example:
(1) Where the instrument is wanting in any material
particular, the person in possession thereof has a
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 71
prima facie authority to complete it by filling up the
blanks therein.
Go back to the friends Rene, Juan, and Pedro. Rene, after
receiving the money worth P20,000, gave a blank paper
which he signed to Juan directing Juan to complete it in
the amount of P22,000 (interest of P2,000). Who will fill
it up? Must Juan fill it up or must he wait for Rene to
come home from Manila to fill it up? If Juan will fill it up,
can Rene say that he was the one supposed to fill it up?
Can Juan tell Rene to come home already so that he can
have evidence that he has indebtedness to him? Who
has authority to fill it up? Because this is an instrument
wanting in material particular.
● The person in possession thereof has prima
facie authority to complete it by filling up the
blanks therein.
● In our example, who has prima facie authority
to complete it? Juan. There is no need for Juan
to wait for Rene. It is Juan who has prima facie
authority to complete it by filling up the blanks
therein because he is the one in possession of
the instrument.
Suppose Rene said "just sign, make my debt P22,000
without specifying there anything". Who has prima facie
authority to complete it?
● It is Juan. The fact that he is in possession of the
blank paper is prima facie authority to complete
it by filling up the blanks therein.
What does "wanting" mean?
● It means that there is an absence of the material
particular. If the material has absence of
material particular, what can you do? The
person in possession has prima facie authority
to incorporate there the material particular.
How do you know that something is a material
particular?
● Consult Section 1, because it will tell you the
material particular that will make an instrument
negotiable.
Who has authority to complete it and make it a
promissory note in our example?
● It is Juan. The instrument is wanting in material
particulars, practically all of them except
signature as provided for in Section 1, signature
of the maker.

(2) And a signature on a blank paper delivered by the
person making the signature in order that the paper
may be converted into a negotiable instrument
operates as a prima facie authority to fill it up as such
for any amount.
First thing that you should remember is that a negotiable
instrument, even if lacking in material particular under
Section 1, can still be resurrected into a fully compliant
negotiable instrument. In other words, there may be
portions of Section 1 that are taken out, but if it will be
Principle No. 2 of Section 14 that is triggered, it can still
be resurrected into a negotiable instrument.
What is the material particular in Section 1 that cannot
be compromised?
It is now that we will answer the question: complete is
the left extreme, and we have incomplete. then total
absence of writing. That is no longer negotiable.
In other words, complete is negotiable, and here are a
range of situations e.g. take out maybe the amount, the
word order or bearer, payable at a time whatever, you
can take that out but there is a component of writing
under Section 1 that cannot be compromised. What is
that? The signature of the maker or drawer. In other
words, if the signature is there and the other
requirements of Principle No. 2 of Section 14 will also be
there that incomplete instrument can be resurrected into
a negotiable instrument. In fact, it is so important that if
you will take that out, it can no longer be resurrected into
a negotiable instrument. Everything is there, no
signature, not a negotiable instrument.
How about if I will copy? No. That will be covered by
another section we will tackle later (Section 23).
But if there is a signature there, there is still a possibility
that it will be converted into a negotiable instrument.
That is the explanation of the first few phrases of
Principle No. 2 under Section 14.
Three important things:
(1) A signature on a blank paper (it lacks a material
particular);
(2) It was delivered by the person making the
signature;
(3) in order that it may be converted by a
negotiable instrument.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 72
If you have that, then the signature in the blank paper
can still be transformed into a negotiable instrument.
In our example, can it be transformed into a negotiable
instrument?
● Yes. Why? It was a signature on a blank paper,
delivered by Rene (the person making the
signature) to Juan, in order that Juan will
convert it into a negotiable instrument. Make
this a negotiable instrument, you are the one
who will complete it.
Therefore, when you use our airport example, parallel to
this possible problems and the solution that is provided
under Section 14, it is easier for us to analyze.
Here is the problem that is brought about by Section 14,
but also the realities of life: "prima facie authority to fill it
up as such for any amount" — that is the concern. The
amount authorized was P22,000. That is covered by the
term "any amount". Obviously, lower that 22k is still any
amount. But if you are Rene, you will not fill it up in an
amount lower than at the very least P20,000 because
that is the amount that you parted with. But, "any
amount" may be any amount, exactly 22k, lower than
22k, and greater than 22k.
If I am Juan, what if I place there P220,000? That is the
problem. Am I covered by paragraph 2, Section 14?
● Yes. Because there is a signature on a blank
paper delivered by the person making the
signature in order that the paper may be
converted into a negotiable instrument.
You can sense the problem now. Of course, Rene will not
give in to the amount of P220,000.
ANOTHER EXAMPLE: Before we leave this portion, here is
a situation that I will interject. Suppose there is an actor,
let's say Ed Sheeran, and you are a fan. You passed by him
somewhere in London or New York. You introduce
yourself as his biggest fan and you asked for his
autograph, to sign a paper, putting your name there
"Rene". Ed Sheeran obliged. That's a signature on a blank
paper, lacking in material particular. Can I complete it to
make it a negotiable instrument, making Ed Sheeran
liable to me as such for any amount?
● No. Why? What is the difference between my
example of Ed Sheeran and the airport? The
component of "in order that the paper may be
converted into a negotiable instrument".
● In our airport example, it is express, delivered in
order that the paper may be converted into a
 negotiable instrument. But in Ed Sheeran's
example, it was delivered for purposes of
pleasing a very loyal fan. These are totally
different examples.
To summarize Principle No. 2:
● How far can you go in removing portions of
Section 1 that you can still resurrect it into a
negotiable instrument? Everything, except
Section 1(a). "Signed by the maker or drawer".
● How can you resurrect a mere signature into a
negotiable instrument? It must be delivered by
the person making the signature in order that
the paper may be converted into a negotiable
instrument.
● What is the presumed value that you can put
there? Less, equal, or more than that, because
the law simply says "prima facie authority to fill
it up as such for any amount".
(3) In order, however, that any such instrument when
completed may be enforced against any person who
became a party thereto prior to its completion, it
must be filled up strictly in accordance with the
authority given and within a reasonable time.
For example, I am Juan, and I fill it up in the amount of
P220,000. "I promise to pay Juan the sum of P220,000,
Juan or order the sum of P220,000" and I will just type it
in below the signature of Rene so I completed it. The
instrument is now complete because I am able to
resurrect in in accordance with paragraph 2, "as such for
any amount". I put there P220,000. Now, I went to Rene.
He came back from Manila, waiting for the result of the
bar exam. I said, "I completed it. I did not place there the
date due, so it is payable on demand. Can you now give
me the amount of P220,000?" What will Rene say? Will
he pay?
● Obviously not. There will be an insult. "That is
the reason why you didn't pass Negotiable
Instruments Law, because you only memorized
Section 14 up until Principle No. 2".
MEMORIZE SECTION 14 UP UNTIL PRINCIPLE NO. 3.
Why is Rene obliged only to pay P22,000 and not
P220,000?
● Because of Principle No. 3. In order, however,
that any such instrument when completed may
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 73
be enforced against any person who became a
party thereto prior to its completion, it must be
filled up strictly in accordance with the
authority given and within a reasonable time.
Did Juan fill it up strictly in accordance with the
authority given and within a reasonable time? No.
Let's assume reasonable time is there. What was the
authority given by Rene, the person who delivered it in
order for Juan to convert it into a negotiable
instrument?
● The answer is: only to the extent of P22,000.
How much will Juan actually recover? P22,000,
not the entire amount of P220,000, because of
Principle No. 3 of Section 14.
● If Juan goes to Rene for payment, it will not be
the entire amount of P220,000 because it is not
in accordance with the authority given, even if
we assume that it was done within reasonable
time.
(4) But if any such instrument, after completion, is
negotiated to a holder in due course, it is valid and
effectual for all purposes in his hands, and he may
enforce it as if it had been filled up strictly in
accordance with the authority given and within a
reasonable time.
But actually, Juan did not do that. He did not go
immediately to Rene in order for Juan to claim the
amount of P220,000. While Rene was still in Manila, this
is what Juan did. He went to Mario, a common high
school classmate somewhere in the province. Juan went
to Mario. Complete it in the amount of "P220,000" and
Juan went to Mario.
Let's say Mario is an innocent person called "holder in
due course" (which we will discuss later in Section 52).
● Juan: “Do you know Rene? Our valedictorian
who is now taking the bar?"
● Mario: "Why, what about it?"
● Juan: "He owes me P220,000. Look. That's his
signature."
● Mario: "Why are you here?"
● Juan: "I cannot wait for him to come back from
Manila. I will just say it here, 'Pay to Mario,
signed Juan'. I will give this promissory note to
you. Give me P110,000. Palugit na sa'yo. You
wait for Rene, and you will be the one to claim."
Looking at the four corners of the document, it appears
to be alright. Let us assume that Mario parted with
P110,000 and took the indorsed completed promissory
note. Let's assume that Mario is a holder in due course.
Juan is now out of the picture and went somewhere else.
It is now Mario who went to Rene and demanded the
amount of P220,000. For how much will Rene be liable?
Not just P22,000, but he will be liable for the full
amount of P220,000. Why?
● Because of Principle No. 4. If any such
instrument, after completion, is negotiated to a
holder in due course, it is valid and effectual for
all purposes in his hands, and he may enforce it
as if it had been filled up strictly in accordance
with the authority given and within a reasonable
time.
It is Mario that will prevail, and Mario will pay the entire
P220,000. Is it not unfair? That is what the law says. That
is why you have to commit that principle into memory.
Blondeau Doctrine
The rule: where one of two persons must suffer by the
bad faith of another, the loss must fall upon the one
who first reposed confidence and made it possible for
the loss to occur.
As between two persons, Rene and Mario, who will be
made to suffer for the bad faith of Juan? The one who
first reposed confidence and made it possible for the loss
to occur. It was Rene. He was the first to give confidence.
He signed a blank paper and delivered it. He was the one
who first reposed confidence. Who was the subsequent
person? Mario. But Rene was the one who first reposed
confidence, and made it possible for the loss to occur,
therefore he will have to suffer the loss.
More often than not, the Blondeau Doctrine is used to
settle the conflict between two banks. Who among the
banks first reposed confidence and made it possible for
the loss to occur because of the bad faith of a third
person? In our example, that is Rene.
Let us now juxtapose Section 14 to our example:
(1) Where the instrument is wanting in any material
particular, the person in possession thereof
(Juan) has a prima facie authority to complete it
by filling up the blanks therein.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 74
(2) Resurrection of a negotiable instrument: And a
signature on a blank paper delivered by the
person making the signature in order that the
paper may be converted into a negotiable
instrument operates as a prima facie authority
to fill it up as such for any amount. - It was Juan
who asked for payment.
(3) In order, however, that any such instrument
when completed may be enforced against any
person who became a party thereto prior to its
completion, it must be filled up strictly in
accordance with the authority given and within
a reasonable time.
(4) Here comes Mario, the holder in due course -
But if any such instrument, after completion, is
negotiated to a holder in due course, it is valid
and effectual for all purposes in his hands, and
he may enforce it as if it had been filled up
strictly in accordance with the authority given
and within a reasonable time.
What is the reason the holder in due course is included?
● The Blondeau Doctrine: Where one of two
persons must suffer by the bad faith of another,
the loss must fall upon the one who first
reposed confidence and made it possible for the
loss to occur.
We are done with Section 14. Remember the Blondeau
Doctrine, highlighted in the presentation. We have
completed 1/4 of what is needed in the discussion.
LECTURE W6 D1
January 21, 2021
REVIEW: We are done with Section 14 on the airport
example. Memorize Section 14 so you can settle the
rights of the parties. Remember if it is a party in due
course, there is such a thing called the Blondeau
Doctrine.
Section 16
Section 16* is one big paragraph, but for discussion
purposes, we will break it down into five parts.
Sec. 16. Delivery; when effectual; when presumed. -
Every contract on a negotiable instrument is
incomplete and revocable until delivery of the

instrument for the purpose of giving effect thereto. As
between immediate parties and as regards a remote
party other than a holder in due course, the delivery,
in order to be effectual, must be made either by or
under the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and, in
such case, the delivery may be shown to have been
conditional, or for a special purpose only, and not for
the purpose of transferring the property in the
instrument. But where the instrument is in the hands
of a holder in due course, a valid delivery thereof by all
parties prior to him so as to make them liable to him is
conclusively presumed. 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 until the contrary is proved.
Let’s break it into consumable parts to explain principle
by principle.
Sec. 16. Delivery; when effectual; when presumed. –
1) Every contract on a negotiable instrument is
incomplete and revocable until delivery of the
instrument for the purpose of giving effect
thereto.
2) As between immediate parties and as regards a
remote party other than a holder in due course,
the delivery, in order to be effectual, must be
made either by or under the authority of the
party making, drawing, accepting, or indorsing,
as the case may be;
3) and, in such case, the delivery may be shown to
have been conditional, or for a special purpose
only, and not for the purpose of transferring the
property in the instrument.
4) But where the instrument is in the hands of a
holder in due course, a valid delivery thereof by
all parties prior to him so as to make them liable
to him is conclusively presumed.
5) 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 until the contrary is proved.
DISCUSSION:
Principle 1: Every contract on a negotiable instrument is
incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto.
The same is, more or less, in contracts --- crucial is
traditio; crucial is the delivery of the instrument. Here in
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 75
the NI, every agreement, every meeting of the minds on
the negotiable instrument is incomplete and revocable.
Not the instrument but the contract (the vinculum) on
the negotiable instrument. The contract is incomplete
and still revocable until delivery of the instrument for the
purpose of giving effect thereto. This means that, until I
deliver those checks, they are still revocable. I can still
take them back.
What if I found out that the secretary failed to file a
pleading? And so, I must have to file a reconsideration
before the court. Or there is some mistake or another.
Can I still take that back? Answer: Every contract on a
negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect
thereto.
In fact, read the next sentence:
Principle 2: As between immediate parties and as
regards a remote party other than a holder in due
course, the delivery, in order to be effectual, must be
made either by or under the authority of the party
making, drawing, accepting, or indorsing, as the case
may be;
This means we must follow the rules on delivery in the
Civil Code – actual/constructive, traditio symbolica,
traditio brevi manu, traditio longa manu, and
constitutum possessorium – as between immediate
parties and as regards a remote party other than a holder
in due course, the delivery, in order to be effectual, must
be made either by or under the authority of the party
making, drawing, accepting, or indorsing, as the case may
be.
And if it is not through that, then that is proof that there
is no delivery. And we go back to Principle 1.
Suppose it was delivered:
Principle 3: and, in such case, the delivery may be
shown to have been conditional, or for a special
purpose only, and not for the purpose of transferring
the property in the instrument.
Suppose I tell the Dean of the Law School to issue a check
for P1 million to me and I tell him that it is merely for
exhibition purposes during class. So he issues it and gives
it to me.
Q: Can I now encash it because it was delivered by the
drawer himself, the Dean?
A: Obviously not because of Principle 3. Why? In such
case, it can even be shown that the delivery was
conditional, or that it was only for classroom visual aid
purposes -- for a special purpose only. Not for the
purpose of transferring the 1 million to me. It is clear that
the instrument must be made by the party making,
drawing, or accepting. Delivery must be made by the
party making, drawing, or accepting the instrument.
Next, even if it is delivered, it can be shown by the
immediate parties that it is conditional, for a special
purpose and not really for the purpose of transferring the
property in the instrument.
thereon, a valid and intentional delivery by him is
presumed until the contrary is proved.
At least here, it is a disputable presumption. But who will
have to prove that it was not delivered? The Boss (the
one who made the check). Why? Because he is the one
no longer in possession of the particular instrument.
What is that? It is still *Blondeau Doctrine – “The rule:
where one of two persons must suffer by the bad faith
of another, the loss must fall upon the one who first
reposed confidence and made it possible for the loss to
occur.”

If I go to the Dean, he can reject me and tell me I am not

even entitled to the shadow of the contents of the check.
LECTURE W6 D2
January 22, 2021
Principle 4: But where the instrument is in the hands of
a holder in due course, a valid delivery thereof by all
parties prior to him so as to make them liable to him is
conclusively presumed. D ACT OF WRITING
E
It is not even a disputable presumption. Conclusive L COMPLETE INCOMPLETE
presumption is very strong. It is not subject to evidence. I
V Delivered O.K. SECTION 14
Suppose I endorse it to another person, and we assume E
that the person (Mario) is a holder in due course. Is the R Complete in Incomplete in
Dean now liable? YES. Y writing and was writing but
properly delivered
Why? Because that is what Principle 4 provides. delivered

This links back to the Blondeau Doctrine. Undelivered SECTION 16 SECTION 15

Q: Who first reposed confidence and made possible for

this problem of Mario and the Dean to happen? It is complete The instrument
but is incomplete as
A: The Dean. He first reposed confidence and made undelivered, yet to writing yet
possible for the loss to occur. even so, finds still finds its way
its way in in circulation
In summary, among immediate parties there is still a circulation
strong defense. But against a holder in due course, that is
where you distinguish negotiable instruments from other
documents of title and other commercial documents. Section 15 - you will see this if you relate it with the
prodigal son example. What if the Prodigal Son lost the
Under Sections 14 and 16, in our example, the holder in money in the derby and he starts to pay the other
due course acquires a better right than that of the gamblers using the check purportedly issued by the
immediate transferee. father? Can the father fully deny the liability on the
instrument in accordance with Sec.15?
And then Section 16 gives a presumption when you are
no long in possession of the instrument and another It is really difficult to have a jurisprudence like that where
person is in possession: you pre-sign a blank check and it finds its way in
circulation despite the lack of authority given. But at least
Principle 5: And where the instrument is no longer in we would know how to settle the rights of the parties.
the possession of a party whose signature appears

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 76

 Sec. 15. Incomplete instrument, not delivered -
Where an incomplete instrument has not been
delivered it will not, if completed and negotiated,
without authority, be a valid contract in the hands of
any holder, as against any person whose signature was
placed thereon before delivery.
In other words: Where an incomplete instrument has not
been delivered it will not be a valid contract in the hands
of any holder, as against any person whose signature was
placed thereon before delivery, if completed and
negotiated, without authority.
NOTE: So an incomplete instrument not delivered will not
be a valid contract in the hands of any holder as against
any person whose signature was placed thereon before
delivery.
This incomplete, undelivered instrument is a real defense
because it is available even as against any holder.
SCENARIO:
1. Let’s assume that the son comes to his father
and asks for P2 million. For how much will the
father owe him? None.
“As against any holder” - all the more does the prodigal
son will not receive anything.
2. Assuming it was not a cockfight. The son
negotiates it with another person and the bank
dishonors it and the person in possession of the
check will now come to the father for payment.
We assume that he is a holder in due course.
How much will the father owe the person?
None.
Incomplete undelivered instrument words on both sides
of the parameter will not be valid contract in the hands
of any holder, including holder in due course, as against
any person whose signature was placed thereon before
delivery.
So the Blondeau Doctrine will not apply. The holder in
due course cannot save itself from the fact that the
instrument is incomplete and undelivered. That is why
Section 14 and 16 applies to all other persons, except
holder in due course and Blondeau Doctrine applies. But
Section 15, it applies even as against a holder in due
course. That is why it is called a real defense.
This case emphasizes Sec. 14
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 77
SPOUSES OJEDA VS ORBETA
GR. 132074 July 10, 2006
ISSUE: What is the effect of a blank check that was
delivered?
ANSWER: It operates as a prima facie authority to fill it
up as such for any amount.
The law merely requires that the instrument be in
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
agency to fill up blanks. The burden of proving absence of
authority is on the person questioning it.
Q: Who gets to fill it up? Was it Rene or Juan? Must Juan
wait for Rene or Juan can just fill it up?
A: Juan can just fill it up because Sec. 14 say.
Q: What is the relationship of Rene and Juan in regard to
filling up the blanks?
A: Agency to fill up the blanks. Juan is the agent of Rene.
that is the strength of the authority to fill it up.
Q: Who has the burden of proving the absence of
authority of Juan to fill it up?
A: It is Rene who questions it.
So there is jurisprudence for Sec. 14 and Sec. 14 is
incomplete instrument not delivered. Agency fills it up.
Read the cases.
LECTURE W6 D3
January 22, 2021
We will look at some jurisprudence regarding Section 15.
It is difficult to find jurisprudence about this and to prove
that this is a real defense. Just imagine the instrument is
incomplete and delivered. The requirement is at least
there is a signature there that is valid. It was not
delivered and it finds its way in circulation, but we know
that it can happen. We have been telling anyone who is
concerned about knowing that that is a real defense
available given as against a holder in due course.

Ching vs. Nicdao and Court of Appeals
G.R. No. 141181 April 27, 2007
ISSUE: What is the effect of Sections 15 and 16 of the
NIL? Is the check here an evidence of indebtedness?
ANSWER: An incomplete instrument not delivered to
the person in possession, subsequently completed by
him alone without authority, he did not acquire any
right or interest therein and cannot, therefore, assert
any cause of action founded on said instrument (in this
case a stolen check).
No. Generally, checks may constitute evidence of
indebtedness. However, in view of the findings that
the ₱20,000,000.00 was a stolen check and the
obligations secured by the other ten (10) checks had
already been fully paid - they can no longer be given
credence to establish civil liability. Such civil liability,
therefore, must be established by preponderant
evidence other than the discredited checks.
Section 15: Ching vs. Nicdao and Court of Appeals,
G.R. No. 141181 April 27, 2007
In as much as the check was incomplete and
undelivered in the hands of complainant Ching, he did
not acquire any right or interest therein and cannot,
therefore, assert any cause of action founded on said
stolen check. Nicdao has no obligation to make good
the stolen check and is not therefore liable of BP Blg.
22.
Here is a businessman, Nicdao, who has a business
somewhere in Luzon. He usually leaves pre-signed checks
in his several stores so if there will be a need, all that the
staff would do is to fill it up and give to the suppliers. The
staff there has authority to fill it up. Ching got one check,
filled it up, and tried to encash it.
Nicdao wouldn't allow it to happen, so a case for B.P. 22
was filed. Nicdao was acquitted but Ching was relentless
and went all the way to the Supreme Court trying to
claim the amount as reflected in the check, but the check
was incomplete and undelivered.
Ching is not even a holder in due course. Ching is even a
direct party to the completion of an incomplete
instrument that was not delivered.
Read the original, don't trust my summary of it. This is a
very important case.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 78
In a battle for payment in the contents of the check
between that of complainant Ching and Nicdao, whose
check was incomplete and undelivered? Who will
prevail, especially because a case for B.P. 22 has already
been filed?
● In as much as the check was incomplete and
undelivered in the hands of complainant Ching,
he did not acquire any right or interest therein
and cannot, therefore, assert any cause of action
founded on said stolen check. Nicdao has no
obligation to make good the stolen check and is
not therefore liable of BP Blg. 22
It will not be a valid contract. In the hands of any holder
as against any person whose signature was placed
thereon before delivery and without authority. Very nice
paraphrasing.
The Supreme Court paraphrased the provision of Section
15. The words of the Supreme Court is as strong as
Section 15 because it is also the law, under Article 8 of
the Civil Code.
He did not acquire any right or interest therein and
cannot therefore assert any cause of action founded on
said stolen check.
Nicdao, according to the Supreme Court, has no
obligation to make good the stolen check and is not
therefore liable for violation of B.P. 22. So it's not true
that there is no such case. Incomplete instrument that
was not delivered is a real defense. He did not acquire
any right or interest therein and cannot therefore assert
any cause of action founded on said stolen check.
Bank of America, vs. Philippine Racing Club
G.R. No. 150228, January 30, 2009
ISSUE: What are the effects of Article 14 and 16? What
is the effect of Article 15? What is material alteration?
What is meant by obvious irregularities? What is
material alteration?
ANSWER: In defense of its cashier/teller's
questionable action, Bank of America insists that
pursuant to Sections 14 and 16 of the NIL, it could
validly presume, upon presentation of the checks, that
the party who filled up the blanks had authority and
that a valid and intentional delivery to the party
presenting the checks had taken place.
 Bank of America’s contention would have been correct
if the subject checks were correctly and properly filled
out by the thief and presented to the bank in good
order. However, the facts show that there were
circumstances that should have alerted the bank to the
likelihood that the checks were not properly delivered
to the person who encashed the same. Thus the Court
held Section 15 of the NIL is applicable in this case,
which provides that where an incomplete instrument
has not been delivered it will not, if completed and
negotiated, without authority, be a valid contract in
the hands of any holder, as against any person whose
signature was placed thereon before delivery.
A material alteration is defined in Section 125 of the
NIL to be one which changes the date, the sum
payable, the time or place of payment, the number or
relations of the parties, the currency in which payment
is to be made or one which adds a place of payment
where no place of payment is specified, or any other
change or addition which alters the effect of the
instrument in any respect.
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.
Bank of America NT & SA vs. Philippine Racing Club,
G.R. No. 150228, July 30, 2009, First Division, J.
Leonardo-De Castro
Issue: What are the effects of Article 14 and 16? What
is the effect of Article 15? What is material alteration?
What is meant by obvious irregularities? What is
material alteration?
Two years after, there was a repeat, and we can say that
this is a standard presentation of the Supreme Court.
More interesting is this case of Bank of America, vs.
Philippine Racing Club. Read the original case, because
the Supreme Court had the occasion to look at the effects
of Article 14 and 16, the effect of Article 15, and some
discussion on material alteration on material
irregularities and material particular.
Read the original case, I will leave it to you to determine
the facts.
Q: What are the effects of Article 14 and 16?
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 79
In defense of its cashier/teller's questionable action,
petitioner insists that pursuant to Sections 14 and 16
of the NIL, it could validly presume, upon presentation
of the checks, that the party who filled up the blanks
had authority and that a valid and intentional delivery
to the party presenting the checks had taken place.
Thus, in petitioner's view, the sole blame for this
debacle should be shifted to respondent for having its
signatories pre-sign and deliver the subject checks.
Petitioner argues that there was indeed delivery in this
case because, following American jurisprudence, the
gross negligence of respondent's accountant in
safekeeping the subject checks which resulted in their
theft should be treated as a voluntary delivery by the
maker who is estopped from claiming non-delivery of
the instrument.
They were alleging bad faith. They were trying to get the
other guy, the one who first reposed confidence and
made it possible for the loss to occur, under Section 14
and 16. However, the Supreme Court said, that is not 14
and 16. This is 15. Incomplete and delivered.
Petitioner's contention would have been correct if the
subject checks were correctly and properly filled out
by the thief and presented to the bank in good order.
In that instance, there would be nothing to give notice
to the bank of any infirmity in the title of the holder of
the checks and it could validly presume that there was
proper delivery to the holder. There bank could not be
faulted if it encashed the checks under those
circumstances. However, the undisputed facts plainly
show that there were circumstances that should have
alerted the bank to the likelihood that the checks were
not properly delivered to the person who encashed
the same. In all, we see no reason to depart from the
finding in the assailed CA Decision that the subject
checks are properly characterized as incomplete and
undelivered instruments thus making Section 15 of the
NIL applicable in this case.
However, we do agree with petitioner that
respondent's officers' practice of pre-signing of blank
checks should be deemed seriously negligent behavior
and a highly risky means of purportedly ensuring the
efficient operation of businesses. It should have
occurred to respondent's officers and managers that
the pre-signed blank checks could fall into the wrong
hands as they did in this case where the said checks
 were stolen from the company accountant to whom
That takes up half of paper no. 2.
the checks were entrusted.

Look here, very careful though about the interpretation

of Section 15. Our interpretation is for as long as it is
incomplete and delivered, it is a real defense even as
against a holder in due course. The Supreme Court is not
trying to have a little twist: prove negligence on the part
of the person who made the pre-signed check, and then
there may be no application of Section 15. That is why we
are waiting, this is a penultimate case.

We are waiting for another case to determine whether

negligence is crucial, because Section 15 is silent about
negligence. It simply says it will not be a valid contract in
the hands of any holder without taking about negligence
there for as long as the instrument is incomplete and
undelivered.

In Ching vs. Nicdao, there is no such tilt towards

negligence. But here, in the case of Philippine Racing
Club, there is a tilt on the possible inclusion or play when
there is negligence on the part of the person who made
the pre-signed checks who signed the document.
Why half? Because 14, 15 and 16 is an independent topic
Just read here what are material alterations, and what is
compared to that of indorsement. These are independent
obvious irregularity as it will be taken up more once we
topics. We will end in 14, 15, and 16, and we will just wait
reach Section 23.
for the next chapter of our discussion, when we reach the
appropriate time to discuss the other half.
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 LECTURE W7 D1
repetition of the amount using a check writer were January 28, 2021
glaringly obvious irregularities on he face of the check.
Clearly, someone made a mistake in filling up the
checks and the repetition of the entries was possibly Now, we proceed to our fourth paper on Forgery and
an attempt to rectify the mistake. Also, if the check Material Alteration. The key section here is Section 23.
had been filled up by the person who customarily
accomplishes the checks of respondent, it should have
occurred to petitoner'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.

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 80


In discussing forgery and material alternation in Section
23, the landmark case is Associated Bank vs. Court of
Appeals, Province of Tarlac and Philippine National
Bank, G.R. No. 107382, January 31, 1996. This is a
required reading.
Associated Bank vs. Court of Appeals
G.R. No. 107382, January 31, 1996.
FACTS: Province of Tarlac maintains a current account
with PNB where the provincial funds are deposited. A
portion of the funds of the province is allocated to the
Concepcion Emergency Hospital. The checks, where
the Hospital was the payee, were released by the
Office of the Provincial Treasurer and received for the
hospital by its administrative officer and cashier.
Upon a post-audit, it was discovered that the hospital
did not receive several allotment checks drawn by the
Province. The Provincial Treasurer learned that 30
checks amounting to P203,300.00 were encashed by
one Fausto Pangilinan, with the Associated Bank acting
as collecting bank.
It turned out that Fausto Panogilinan, who was the
administrative officer and cashier of payee hospital
until his retirement on February 28, 1978, collected
the questioned checks from the office of the Provincial
Treasurer. He claimed to be assisting or helping the
hospital follow up the release of the checks and had
official receipts.
ISSUE: Who shoulders the loss brought by the forged
indorsement? The collecting bank (Associated Bank)
HELD:
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 (Section 23 of the
Negotiable Instruments Law). 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.
An indorser of an order instrument 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
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 81
subsisting.” He cannot interpose the defense that
signatures prior to him are forged.
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 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.
Since a forged indorsement is inoperative, the
collecting bank had no right to be paid by the drawee
bank. The former must necessarily return the money
paid by the latter because it was paid wrongfully.
The Court has consistently ruled that "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."
Hence, the drawee bank can recover the amount paid
on the check bearing a forged indorsement from the
collecting bank.
[But, in this case, the drawee bank was ordered to
shoulder one half of the loss and the Province was also
to shoulder the other half for its negligence in releasing
the checks to Pangilinan who was already retired and
no longer working for the Hospital at that time he
collected the checks. And PNB had the right to collect
from Association Bank.]

Also, on the issue of forgery, the base section that should
be committed to memory is Section 23.
Let us review what we have discussed so far on defective
instruments. We can say there are three types of
defective instruments. By defective instruments,
meaning, they are not in accord with Section 1 and with
some other important provisions having to do with the
instrument being transferred from one person to
another. What are these? See table below.
in Section 1, which states that the instrument
must be in writing and signed. So if it is the
signature that is invalid, forged or altered
regardless of status of the material particular,
then it will be considered Forgery. And it is
covered by Section 23.
Through this diagram, you should have a fair idea now of
what is a particular situation you would find yourself in
and what particular provision of the Negotiable
Instruments Law would apply.

So what is Section 124?

DEFECTIVE INSTRUMENTS

Signature is Signature is Signature is Sec. 124. Alteration of instrument; effect of. - Where a
valid but valid but the invalid, forged negotiable instrument is materially altered without the
wanting in material or made assent of all parties liable thereon, it is avoided, except
material particular is without as against a party who has himself made, authorized,
particular altered authority or assented to the alteration and subsequent
(regardless of indorsers.
status of the
material But when an instrument has been materially altered
particular) and is in the hands of a holder in due course not a
party to the alteration, he may enforce payment
Section 14 (if Section 124 Section 23 thereof according to its original tenor.
delivered)

Section 15 (if Section 124 is also required to be committed to memory.

not delivered)
What constitutes material particular? The provision that
directly answers this is Section 125.
Three types of defective instrument:

1. When the signature is valid but wanting in
material particular – if that is the situation, you
need to distinguish. If the instrument is
delivered, apply Section 14. If the instrument is
not delivered and wanting in material particular,
you apply Section 15. We encountered these
provisions when we looked at the first half of
our Paper #2.
2. When the signature is valid but the material
particular is altered – So the material particular
is there; it is not wanting; but it is altered. There
is an alteration of the material particular. So this
would not be covered under the first column
(because in the first, there is really absence of
material particular. Here, material particular is
there but it is altered. And the applicable section
is Section 124.
3. When the signature is invalid, forged or made
without authority - This signature refers to that
Sec. 125. What constitutes a material alteration. -
Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment:
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be
made;
(f) Or which adds a place of payment where no place
of payment is specified, or any other change or
addition which alters the effect of the instrument in
any respect, is a material alteration.
However, you might ask what will fall under the term “or
any other change or addition which alters the effect of
the instrument in any respect, is a material alteration.”
Our guide is Section 1.

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 82


Section 1. Form of negotiable instruments. - An
instrument to be negotiable must conform to the
following requirements:
(a) It must be in writing and signed by the maker or
drawer;
(b) Must contain an unconditional promise or order to
pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he
must be named or otherwise indicated therein with
reasonable certainty.
The contents of Section 1 are actually the material
particulars that must be in the instrument itself.
We already encountered Sections 14 (airport example)
and 15 (prodigal son). Now we will differentiate Section
23 and Section 124 by discussing them simultaneously to
have a better view on all these three columns (in the
table on Defective Instruments).
The following are the main distinctions between Forgery
and Material Alteration.
Forgery (F) vs. Material Alternation (MA)
1. F (Section 23) refers to the signature of maker
or drawer (Sec 1 [a]) or indorser (Sec. 31) while
MA refers to those mentioned in Sec. 125.
Forgery under Section 23 refers to the signature of maker
or drawer (Sec 1[a]) or indorsement under Sec. 31 while
Material Alteration refers to those mentioned in Sec. 125
or in Section 1.
2. F of indorsement is immaterial to a bearer
instrument (Section 48) while MA is always
material regardless as to whether the
instrument is payable to order or bearer.
Forgery of indorsement is immaterial to a bearer
instrument (Section 48). Why? Because if it is a bearer
instrument, there is no need for us to indorse
3. F: done by a stranger (forger) or person without
authority while MA: may be made by a party or
stranger (spoliation).
Forgery can be done by a stranger (forger) or person
without authority. While material alternation may be
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 83
made by a party or stranger.
Question: Can you forge your own signature? NO. The
moment you put your handwriting there on your own
volition, that is already your mark. That is already your
signature. So the forgery here should be done by a
stranger or some person without authority (e.g. a person
who just puts my initials there without my authority). So
it cannot be done by the party whose signature is forged.
Forgery can only be done by a stranger or person without
authority because once you make your own signature,
that is already your signature. So it is IMPOSSIBLE for the
person owning the signature to forge his own signature.
However, material alternation may be made by a party or
stranger. For example, so and so is the content of a
negotiable instrument, and then you alter it. If this is
done by a party, it is called material alteration. If it is
made by a stranger, it is called spoliation.
4. F: signature is wholly inoperative (even against
holder in due course) and no right to retain the
instrument, give discharge or enforce payment
can be acquired through such signature while
MA: instrument is avoided but holder in due
course may enforce payment thereof according
to its original tenor.
In Forgery, signature is wholly inoperative (even against
holder in due course) and no right to retain the
instrument, give discharge, or enforce payment can be
acquired through or under such signature. Meaning,
Forgery is a REAL DEFENSE just like Section 15 because it
is available even against a holder in due course.
While in Material Alteration, instrument is avoided but
holder in due course may enforce payment thereof
according to its original tenor. So Material Alteration is
only a PERSONAL DEFENSE. It cannot be used against a
holder in due course according to its original tenor.
5. F: except those precluded by estoppel or
warranty while MA: except party who has
himself made, authorized or assented to the
alteration and subsequent indorsers.
In Forgery, the exceptions are estoppel or warranty. In
Material Alteration, the exception is a party who has
himself made, authorized or assented to the alteration
and subsequent indorsers. Meaning, the rules of Forgery
and Material Alteration will not apply to these persons.
But as to who these persons are (whom the rules of
Forgery and Material Alteration will not apply), they are
different. For Forgery, those precluded are those who are
precluded because of estoppel or warranty restrictions,
while in Material Alteration, those precluded are those
parties who has himself made, authorized or assented to
the alteration and the subsequent indorsers.
Therefore, now you know what Sections 14 and 15 are
and you know what Material Alteration is, which we have
distinguished against Forgery. These are preliminary
matters that will prepare us for Section 23.
LECTURE W7 D2
January 29, 2021
Q: What are the other issues regarding Forgery and
Material Alteration in our outline?
III. FORGERY AND MATERIAL ALTERATION
1. Unauthorized signatures. People are not
normally liable to pay on negotiable
instruments unless their signatures appear on
the instrument. Hence, an unauthorized
signature is wholly inoperative and will not
bind the person whose name is forged. There
are exceptions to this rule. If the person
whose unauthorized signature was used
ratifies that signature, or is in some way
precluded from denying it, then the
unauthorized signature is operative.
An unauthorized signature is one made without any
authority, expressed or implied, and it includes a
forgery. An unauthorized signature is wholly
inoperative against the person whose name was
signed unless that person later ratifies the signing.
The principles of estoppel and warranty.
4. Material Alteration. The UCC defines a material
alteration as “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.” (UCC
3-407)
● If it is a signature that is forged - forgery;
● If it is the other content in the negotiable
instrument other than signature - material
alteration.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 84
Since we are talking about forgery or material alteration,
let us see our diagram to know in what particular portion
of the transaction did the forgery of the signature
happened.
INSTRUCTION: As we progressed, we will see that Sec. 23
is a key section that should be memorized because it will
tell us the effect of the forgery. Look at the case of
Associated Bank vs CA, it is our landmark case on forgery
and material alteration and supplement that with our
paper which predicts all possible situations, parties and
their liabilities; and the relationship between the holder
and drawee where the holder wants the NI encashed
PRELIMINARY ON Collecting bank: We will talk about the
COLLECTING BANK. - a bank handling an item for
collection except the payor bank (Section 4-105[5]) US
Uniform Commercial Code. www.law.cornell.edu
Illustration:
MAKER → PAYEE → A → B → HOLDER
(Collecting bank)
DRAWER → PAYEE → → → HOLDER
↓
DRAWEE
The Drawer draws a check from the drawee bank and
issues the proceeds to the Payee. The Payee, instead of
going directly to the Drawee Bank, deposits” to his bank.
Now, there are two banks: The bank of the Drawer where
the check was drawn, the bank of the Payee where the
check was deposited. The bank of the payee is now called
the Collecting Bank.
MAKER → PAYEE → A → B → HOLDER
↑ ↑__↑ ↑
a d ↑
↑
e
(Collecting bank)
DRAWER → PAYEE → (A) → (B) → HOLDER
↓ ↑ ↑ ↑__↑ ↑
g b C d ↑
DRAWEE -------------------------------⬏ f
EIGHT PRINCIPLES ON HOW FORGERY AFFECTS THE
RIGHTS AND LIABILITIES OF PARTIES:
● a - If Maker’s signature is forged. Letter “a” will
point out what will happen if Maker’s signature
is forged.
● b - If Drawer’s signature which is forged
● c - If Payee’s signature is forged
● d - If the Endorser’s signature is forged
● e - Issue of Collecting Bank in Forgery
● f - Issue between Drawee Bank and Collecting
Bank because there was forgery (Also the
question in Associated Banks vs CA because
there were two banks that were involved:
Associated Bank and Phil National Bank; one is
the drawer, the other is the collecting bank.)
● g - If at issue is the relationship between the
drawer and drawee because there was forgery.
In other words, maybe the bank allowed the
check to be encashed even if the signature of
the drawer was forged. That is exactly what
happened in Associated Bank vs. Court of
Appeals.

NOTE: Section 23 is a strong indicator on how the parties

will resolve issues regarding forgery. But the better
document that you should study is the case of Associated
Bank vs CA, Province of Tarlac and PNB.

The diagram will show how Section 23 will affect the

rights and liabilities of parties. As we go on our discussion
later, there is even a gap that theoretically cannot be
predicted by Sec.23 and the landmark case of Associated
Bank vs CA, but theoretically, we can anticipate and
predict because of the diagram.

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 85


LECTURE W7 D3
January 29, 2021
Now, we will talk about the individual principles that will
chop off and give us bite-sized analysis of forgery. We
start with Section 23, which should be committed to
memory.
Section 23. Forged signature; effect of. - When a
signature is forged or made without the authority of
the person whose signature it purports to be, it is
wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto,
can be acquired through or under such signature,
unless the party against whom it is sought to enforce
such right is precluded from setting up the forgery or
want of authority.
What is "wholly inoperative"? Is it the entire instrument
or is it the signature only?
That is already settled in several cases presented in the
case list. How did we attack the problem? That is the
question we have in our case load, which is more or less
in page 21.
Osmeña vs. Citibank
Michael A. Osmeña vs. Citibank, N.A., Associated
Bank and Frank Tan, G.R. No. 141278, March 23,
2004, Second Division, J. Callejo, Sr.
Issue: Was there negligence on the part of the banks in
paying the amount of the check without the
indorsement of Frank Tan? Is the ruling in the
Associated Bank case (1996) on the liability of a
collecting bank applicable in this case?
Q: What is "wholly inoperative" referred to by the
pronoun "it" arising out of forgery? Is "it" the
instrument or the signature?
● Westmont (1/30/02) - signature;
● Ilusorio (11/27/02) - check or instrument;
● BPI vs. Casa (5/28/04) - signature
A: "It" refers to the signature not the instrument to be
wholly inoperative due to forgery, Associated Bank vs.
CA (1/31/96), for if "it" refers to the instrument then
the exceptions to Section 23 will be of no more use as
the instrument becomes wholly inoperative.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 86
"It" refers to the signature not the instrument to be
wholly inoperative due to forgery, Associated Bank vs. CA
is the landmark case. For if "it" refers to the instrument
then the exceptions to Section 23 will be of no more use
as the instrument becomes wholly inoperative.
In initial explaining what becomes solely inoperative, "it"
is the signature, not the instrument itself.
Let us now go to the principles in relation to our
discussion of Section 23.
Notice that B and C lights up, so as we discuss principle
no. 1 in our eight-principle diagram, principle no. 1 has
reference to the signature of the drawer that is forged
and that of the indorsement of the pay. Let us evaluate
the first principle.
1. Associated Bank vs. Court of Appeals id. A forged
signature, whether it be that of the drawer (b) or
payee (c), is wholly inoperative and no one can gain
title to the instrument through it. A person whose
signature to the instrument was forged was never a
party and never consented to the contract which
allegedly gave rise to such instrument.
This first principle must be committed to memory.
A forged signature, whether it be that of the drawer
(Section 1a) or payee (indorsement of the payee under
Section 31), is wholly inoperative and no one can gain
title to the instrument through it. This also explains the
fact that it is the signature that is wholly inoperative
because the Supreme Court said that a forge signature is
wholly inoperative, not the instrument itself. And no one
can gain title to the instrument through the forged
signature.
A person whose signature to the instrument was forged
was never a party and never consented to the contract
which allegedly gave rise to such instrument.
You can also find it under Section 23 because practically,
Section 23 is just paraphrased by the principle, the same
discussion in Associated Bank vs. Court of Appeals. The
way that Section 23 states that is that when a signature is
forged or made without authority of the person whose
signature it purports to be, the signature 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.
The way that Associated Bank vs. Court of Appeals stated
it is practically the same. Wholly inoperative, no one can
gain title to the instrument through it. A person whose
signature to the instrument was forged, (b) and (c), was
never a party, and never consented to the contract which
allegedly gives rise to the instrument.
But Section 23 says "unless", meaning it admits to some
exception, "unless the party against whom it is sought to
enforce such right is precluded from setting up the
forgery or want of authority."
Who are those "precluded from setting up the forgery
or want of authority"? Section 23 is silent.
Our answer is:
2. Associated Bank vs. Court of Appeals id. Except:
(1) parties who warrant or admit the genuineness of
the signature (indorsers, persons negotiating by
delivery and acceptors)
(2) those who by their acts, silence, or negligence are
estopped from setting up the defense of forgery
Warranty exception — (1) If you give warranty, if you
admit the genuineness of the signature of the indorser or
persons negotiating by delivery and acceptors, you
cannot set up the defense of forgery or want of authority,
because you already warrant it. You give a warranty that
the signature is genuine. We call this the "
Exception by estoppel — (2) Those who by their acts,
silence, or negligence, are estopped from setting up the
defense of forgery.
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 87
Moving on to Principle No. 3:
3. Associated vs. Court of Appeals id. 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.
This is a very important principle.
First, we are talking about the signature of the indorser.
We are not talking about the signature of the drawer or
the maker. We are talking about indorsement signature
under Section 31. Why? Because if it is a bearer
instrument, you need not indorse in order to negotiate
the instrument.
Reminder under Section 9 when we discussed this, all
that you have to do is to deliver it because it is a bearer
instrument. If it is a bearer instrument, no need for you
to indorse it if you want to negotiate. What if your
signature is forged? That is irrelevant to the discussion.
Why? Because you need not affix your indorsement since
this is a bearer instrument.
TAKE NOTE: However, this will apply only to
indorsements signature of a bearer instrument.
What if it is a bearer instrument, but we are talking about
forgery of the signature of the maker or drawer? That's a
different thing, because the signature of the maker or
drawer, whether it is bearer or order instrument, is really
material under Section 1.
What is important a distinction, and therefore is covered
by principle no. 3 is that if it is a bearer instrument, and
we are talking about forgery of an indorsement, the
principle there is that the signature of the payee or
holder is unnecessary to pass title to the instrument
because there is no need to indorse.
All you have to do is to deliver. 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.
SUMMARY:
Principle 1 - General Rule
● A forged signature, whether it be that of the
drawer (b) or payee (c), is wholly inoperative
 and no one can gain title to the instrument
through it. A person whose signature to the
instrument was forged was never a party and
never consented to the contract which allegedly
gave rise to such instrument.
Principle 2 - Exceptions to the General Rule
(1) parties who warrant or admit the genuineness
of the signature (indorsers, persons negotiating
by delivery and acceptors)
(2) (those who by their acts, silence, or negligence
are estopped from setting up the defense of
forgery
Principle 3 - What if the instrument is a bearer
instrument and it is the unnecessary indorsement
signature that is forged
● 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.
LECTURE W8 D1
February 5, 2021
Last time, we talked about the 3rd principle:
3. Associated vs. CA id. 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.
Again, in a bearer instrument, all you have to do is to
deliver, under Section 30.
To emphasize, see the figure below. What is that broken
line?
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 88
That is the line where we say the signature of the Payee
is forged (for example purposes). And here we are talking
about a bearer instrument. In bearer instruments, the
signature of the payee or holder is unnecessary to pass
title to the instrument. Meaning to say, kahit iforge mo
pa yan, it is not necessary to pass title to A or B or C.
Why? Because all you have to do is deliver. There is no
effect if you will forge a signature. It is not necessary to
pass title.
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. So, if the holder is
a holder in due course, and he wants to claim, ALL
(except one) cannot raise the defense of forgery. Why?
Because the indorsement is unnecessary to transfer title.
Who can raise the defense of forgery? Only the person
whose signature is forged; only the Payee whose
signature is the one forged.
Q: If the holder claims it from B, can B say “I will not pay
because the signature is forged’? NO, because the
indorsement here is valid.
Q: If the holder claims it from A, can he claim? YES. Again,
because the indorsements are all valid.
Q: How about if the holder claims from the Maker, or
Drawer? YES, he can claim, because it is a bearer
instrument and so the signature of the bearer or holder is
not necessary to transfer title.
Q: Can the holder though claim from the Payee? NO. The
Supreme Court says the person whose signature is forged
can raise the defense of forgery against a holder in due
course.
That is why the better analysis here, if there is forgery of
an indorsement in a bearer instrument, is a broken line.
This means to say that ONLY THE PAYEE CAN RAISE THE
DEFENSE OF FORGERY (the person whose signature is
forged). In a bearer instrument, the holder gets full title
even if there was a forged indorsement because this is a
bearer instrument. However, the payee whose signature
was forged can very well raise the defense of forgery
against that holder in due course.
Now, what if it is not a bearer instrument? What if it is an
order instrument where, under Section 30 says, you need
to indorse. Indorsement is necessary to transfer title. This
time, the signature that is necessary to transfer title is
the one forged. Therefore, this will not be covered by
Principle #3. It will be covered by Principle #4. Look also
at the figure below for the letters that light up:
4. Associated Bank vs. CA id. In order instruments, the
signature of its holder is essential to transfer title. If the
holder’s (c) (d) indorsement is forged all parties prior to
the forger may raise the real defense of forgery against
all parties subsequent thereto. An indorser (Sec. 65/66)
cannot allege that prior signatures are forged.
In order instruments – meaning to say, the payee can
order the person primarily liable [Maker in P/N or Draw in
B/E] that somebody else will be paid other than him (this
is the “order” under Section 1[d] as one of the two words
of negotiability) – the signature of its holder is ESSENTIAL
to transfer title. Therefore, if a holder indorses it (where
the signature is forged), all the parties prior to the forger
may raise the real defense of forgery against all parties
subsequent thereto. An indorser cannot allege that prior
signatures are forged.
Why? Because this time, it is an order instrument; and
the indorsement of the holder is necessary to transfer
title. Therefore, if you will forge that, the full effect of
Section 23 will apply (unless there is an applicable
exception under Principle #2).
So, looking at the diagram below, this time the line is a
solid line:
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 89
The solid line means to say that it is not only Payee P that
can raise the defense of forgery. It will now include the
Maker (if P/N) and the Drawee and Drawee (if B/E). Why?
Since this is an order instrument, where indorsement is
necessary to transfer title, you need the valid
indorsement, the valid order of the payee. And if his
signature is forged, that means he did not give that valid
order.
In order instruments, the signature of its holder is
essential to transfer title. If the holder’s (c) (d)
indorsement is forged ALL PARTIES PRIOR to the forger
may raise the real defense of forgery against ALL PARTIES
SUBSEQUENT thereto. An indorser (Sec. 65/66) cannot
allege that prior signatures are forged.
Q: Can the holder claim for B? Yes.
Q: How about A? Yes.
Q: Can he claim for the Payee? No. Why not? Two
reasons: 1) His signature is the one forged, and 2) He did
not order, meaning to say, as to him the instrument did
not pass title because his signature is forged.
Q: How about if the Holder claims for the Maker or
Drawer or Drawee? NO. Why? Because this is an order
instrument; and in order to pass title, the indorsement is
necessary and the indorsement here is forged.
That is what it means to say ALL PARTIES PRIOR to the
forger may raise the real defense of forgery against ALL
PARTIES SUBSEQUENT thereto.
So while we have a broken line in Principle #3, here we
have an unbroken line. I call this the iron wall that divides
those parties to the instrument after forgery and those
parties to the instrument BEFORE forgery. While they can
claim against each other, they cannot cross the solid line.
Why? Because signature is necessary to transfer title
since this is an order instrument, and it is the signature
that is forged.
If you say, it is the indorser’s signature that was forged,
what will happen? It depends.
If it is a bearer instrument, then Principle #3 applies
(broken line: only the payee can raise the defense of
forgery). However, if it is an order instrument, then
Principle #4 applies (solid line, iron curtain: all parties
prior to the forged signature can validly raise the defense
of forgery against subsequent parties).
Let’s go to the case of Association Bank vs. CA, as
emphasized in the case of BA Finance (December 27,
2009). This is the first time we will encounter the role of a
Collecting Bank.
A collecting bank, is where, instead of you going to the
drawee bank for encashment, you would rather have
the check deposited to your own bank. And that bank
where you deposit that check is called a collecting bank.
What will happen if there is a forged signature? It is now
a fight between the drawee bank and the collecting bank.
Obviously, the drawer will say, “I did not draw the check.
Why did you pay it?” So the drawee bank will be forced
to credit back the money to the account of its client, the
drawer. What will happen to the drawee bank? It will
have an imbalance because it had already given the
balance to the collecting bank. So now it becomes a
battle between the two banks.
If it is a battle between a drawee bank and a collecting
bank because of a forged signature, who will prevail?
This is answered by letter e (see image below) and
Principle #5. Actually, Section 23 is really very silent here.
5. Associated Bank vs. CA id.; MBTC vs. BA Finance
GR179952, December 27, 2009. A collecting (e) 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 bank’s client is forged, the collecting
bank is bound by his warranties as an indorser and
cannot set up the defense of forgery against the drawee
bank (PCHC rule Section 17).
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 90
Suppose the signature of the Payee is forged. A took it
and deposited it to A’s bank (collecting bank). Because of
the Philippine Clearing House Corporation (PCHC) rule
(Section 17), the collecting bank stamps “all prior
indorsements or lack of it guaranteed.” And it starts to
encash the check in favor of the forger. What will the
collecting bank do? It will go to the drawee bank, asking
that the drawee bank will forward it a substantial amount
equal to the check that he gave to the forger. Remember
the collecting bank stamps the check with “all prior
indorsements or lack of it guaranteed.”
Now, the drawee bank must now debit debit the account
of the drawer. Had the signature been valid, that would
have been okay because the payee must have had a
transaction with drawer and then payee must have had a
transaction with A. However, it is the indorsement of the
payee that was forged. What will happen now? The
payee will be forced to reimburse the drawer. The drawer
will ask the money to be re-credited by the drawee bank,
and then the drawee bank will now fight against the
collecting bank.
Who will win? The drawee bank will win because of
what the Supreme Court said in Principle #5. The
collecting bank is bound by his warranties as an indorser
and cannot set up the defense of forgery against the
drawee bank.
So, in instances of forgery where there is a battle
between a drawee bank and a collecting bank, who will
prevail? It will be the drawee bank that will prevail
because it is such an indorser. Philippine Clearing House
Corporation (PCHC) rule (Section 17) requires that the
check be stamped with all prior indorsements or lack of it
guaranteed.”
So, in the above image, the Drawee Bank wins against
the Collecting Bank.
Therefore, we can even say that the collecting bank
cannot raise the defense of forgery. Why not? Because it
will fall under the 2nd exception (the warranty exception)
under Principle #2. Because, again, there is a stamp, so
the collecting bank says, “I warrant” or “I guarantee.”
Therefore, the moment you say that, the drawee bank
can go, “Okay, you are a bank that warrants ‘all prior
indorsements or lack of it guaranteed,’ thus I give the
money to you.” But then the drawee bank finds out
about the forgery. “The signature is actually forged, so I
will not get back the money.” Then the collecting bank
says, “I raise the defense of forgery.” Drawee bank: “But
you gave me your warranty and since you did that, you
cannot raise the defense of forgery.”
Next principle is letter (g). We will now be discussing the
battle between a Drawer and Drawee:
The order of the Drawer to the Drawee (under Section
1[b]), but there is no signature because the signature of
the Drawer was forged. What is the principle? This next
principle is provided in Association Bank vs. CA. In fact,
we can add Illlusorio vs. CA, November 27, 2022.
6. Association Bank vs. CA id.; Illlusorio vs. CA MBC, GR
139130, November 27, 2022. If the drawee proves
customer drawer (g) contributed to the forgery, the
drawer is precluded from asserting forgery. If the
drawee was also negligent then such loss can be
apportioned between the negligent bank and the
drawee bank. Else drawee (acceptor) is solely liable
(Section 62.
So, it is more like the estoppel principle; contributory
negligence principle, as an exception under Principle #2.
If the drawee bank was also negligent, like in the case of
Associated Bank vs. CA, then such loss can be
apportioned between the negligent drawer and the
negligent drawee. Meaning to say, they share in the
liability. Only 50% will be given back to the drawer,
not the entire amount.
What if both are not liable? The drawee acceptor is the
only one liable. Why? Because of Section 1(b) principle.
The drawer did not give an order and so he is not liable
by the estoppel and warranty exceptions. Drawer to
Drawee Bank: “Why did you encash the check when my
signature was forged? You have my signature cards. You
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 91
have everything. Why did you encash the check?!” So the
entire amount is borne by the drawee acceptor and it
must reimburse the entire amount to the drawer.
LECTURE W8 D2
February 6, 2021
RECAP: We talked about Principle No. 6 on the
relationship between the drawer and the drawee bank or
the drawee when there is forgery.
If both are negligent, you split the lot.
If the drawer is negligent: the drawee is not liable,
however, if the drawer is not negligent; or whether the
drawee is negligent or not, the drawee will be liable
because of the principle under Section 1(b) order of the
drawer to the drawee.
NOTE: We said that collecting bank vs drawee bank; it
should always be that the collecting bank will lose. Why?
Because it stamps all prior indorsements or lack of it
guaranteed.
But, in Associated Bank vs CA and Illusorio, it gives
situation where both are negligent and they split the lot.
Q: What if the collecting bank and the drawee bank are
both negligent, can they split the lot or it is always the
case that the collecting bank will lose to the drawee
bank regardless of negligence on both sides?
- Actually, it is not answered anymore by Sec. 23,
it is not answered by Associated Bank vs CA
because it is not covered there; what was
negligent there was both the drawer and the
drawee. There was no issue there whether
collecting bank and the drawee bankare
simultaneously negligent.
When both are negligent what will happen?
- That is covered under Principle No. 7
and it is letter f that lights up.
CASE: ALLIED BANK VS LIM SIO WAN GR 133197
March 27, 2008
FACTS
On November 14, 1983, Lim Sio Wan deposited with
Allied Banking Corporation (Allied)a money market
placement of P1,152,597.35 for a term of 31 days to
mature on December 15, 1983.
On December 5, 1983, a person claiming to be Lim Sio
Wan called up Cristina So, an officer of Allied, and
instructed the latter to pre-terminate Lim Sio Wan's
money market placement, to issue a manager's check
representing the proceeds of the placement, and to
give the check to one Deborah Dee Santos who would
pick up the check. Lim Sio Wan described the
appearance of Santos so that So could easily identify
her.
The bank issued the Manager's Check for
P1,158,648.49, representing the proceeds of Lim Sio
Wan's money market placement in the name of Lim
Sio Wan, as payee. The check was cross-checked "For
Payee's Account Only" and given to Santos.9
Thereafter, the manager's check was deposited in the
account of Filipinas Cement Corporation (FCC) at
respondent Metropolitan Bank and Trust Co.
(Metrobank), with the forged signature of Lim Sio Wan
as indorser.
Earlier, on September 21, 1983, FCC had deposited a
money market placement for P2 million with
respondent Producers Bank. Santos was the money
market trader assigned to handle FCC's account. The
placement matured on October 25, 1983 and was
rolled-over until December 5, 1983 as evidenced by a
Letter dated October 25, 1983.
When the placement matured, FCC demanded the
payment of the proceeds of the placement. On
December 5, 1983, the same date that So received the
phone call instructing her to pre-terminate Lim Sio
Wan's placement, the manager's check in the name of
Lim Sio Wan was deposited in the account of FCC,
purportedly representing the proceeds of FCC's money
market placement with Producers Bank. In other
words, the Allied check was deposited with Metrobank
in the account of FCC as Producers Bank's payment of
its obligation to FCC.
To clear the check and in compliance with the
requirements of the Philippine Clearing House
Corporation (PCHC) Rules and Regulations,
Metrobank stamped a guaranty on the check, which
reads: "All prior endorsements and/or lack of
endorsement guaranteed."
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 92
The check was sent to Allied through the PCHC. Upon
the presentment of the check, Allied funded the check
even without checking the authenticity of Lim Sio
Wan's purported indorsement. Thus, the amount on
the face of the check was credited to the account of
FCC.
Subsequently, Lim Sio Wan found out that her first
placement was pre-terminated without her knowledge
and she demanded payment. Allied refused to pay Lim
Sio Wan, claiming that she had authorized the
pre-termination of the placement. Lim Sio Wan filed
with the RTC a Complaint to recover the proceeds of
her first money market placement.
Allied avers that even if it had not issued the check
payment, the money represented by the check
would still be lost because of Metrobank's
negligence in indorsing the check without verifying
the genuineness of the indorsement thereon.
ISSUE
What will be the liabilities of Allied Bank and
Metrobank?
RULING:
The Court held that Allied is 60% liable and Metrobank
is 40% liable for the amount.
Section 66 in relation to Sec. 65 of the Negotiable
Instruments Law provides:
Section 66. Liability of general indorser. Every
indorser who indorses without qualification, warrants
to all subsequent holders in due course;
a) The matters and things mentioned in subdivisions
(a), (b) and (c) of the next preceding section; and
b) That the instrument is at the time of his
indorsement valid and subsisting;
And in addition, he 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 65. Warranty where negotiation by delivery,
so forth. Every person negotiating an instrument by
delivery or by a qualified indorsement, warrants:
a) That the instrument is genuine and in all respects
what it purports to be;
 The liability of Allied Bank (a) (b) is concurrent with
b) That he has a good title of it;
Metrobank (f) so the 60:40 ratio of liability was imposed.
c) That all prior parties had capacity to contract;
The collecting bank still loses but at least not to the tune
d) That he has no knowledge of any fact which would
of 100% but only up to 60% - it has to reimburse 60
impair the validity of the instrument or render it
percent to the drawee bank.
valueless.
The ratio is 50:50 if both are negligent. Here, the ratio is
But when the negotiation is by delivery only, the
60:40 in favor of the drawee bank. Because the drawee
warranty extends in favor of no holder other than the
bank gives full trust and confidence to the Philippine
immediate transferee.
Clearing House Corporation Rules where it says that all
prior indorsements or lack of it guaranteed; but the
The provisions of subdivision (c) of this section do not
catch in Allied vs Sio Wan is that BOTH ARE NEGLIGENT.
apply to persons negotiating public or corporation
securities, other than bills and notes. ###
REMEMBER: If both are negligent, 60:40 ratio in favor of
the drawee bank.
The trial court correctly found Allied negligent in
issuing the manager's check and in transmitting it to
This is not anymore covered by Sec. 23 - which is silent
Santos without even a written authorization. In fact,
on what a collecting bank is. This is not anymore covered
Allied did not even ask for the certificate evidencing
by Associated Bank vs CA.
the money market placement or call up Lim Sio Wan at
her residence or office to confirm her instructions.
This is covered in our discussion because we are able to
Both actions could have prevented the whole
predict it.
fraudulent transaction from unfolding. Allied's
negligence must be considered as the proximate cause
of the resulting loss.
CASE: METROPOLITAN BANK VS JUNNEL’S
To reiterate, had Allied exercised the diligence due MARKETING GR 235511, June 20, 2018; citing BDO
Unibank vs Lao June 19, 2017
from a financial institution, the check would not have
been issued and no loss of funds would have
resulted. In fact, there would have been no issuance
FACTS
of indorsement had there been no check in the first
place.
Junnel's Marketing Corporation (JMC) is a domestic
corporation engaged in the business of selling wines
The liability of Allied, however, is concurrent with that
and liquors. It has a current account with Metrobank4
of Metrobank as the last indorser of the check. When
from which it draws checks to pay its different
Metrobank indorsed the check in compliance with the
suppliers. Among JMC's suppliers are Jardine Wines
PCHC Rules and Regulations without verifying the
and Spirits (Jardine) and Premiere Wines (Premiere).
authenticity of Lim Sio Wan's indorsement and when it
accepted the check despite the fact that it was
In 2000, during an audit of its financial records, JMC
cross-checked payable to payee's account only, its
discovered an anomaly involving 11 checks it had
negligent and cavalier indorsement contributed to the
issued to the orders of Jardine and Premiere on
easier release of Lim Sio Wan's money and
various dates between October 1998 to May 1999. As
perpetuation of the fraud. Given the relative
it was, the subject checks had already been charged
participation of Allied and Metrobank to the instant
against JMC's current account but were, for some
case, both banks cannot be adjudged as equally liable.
reason, not covered by any official receipt from
Jardine or Premiere. The subject checks, which are all
Hence, the 60:40 ratio of the liabilities of Allied and
crossed checks and amounting to P1,481,292.00 in
Metrobank, as ruled by the CA, must be upheld.
total
FCC, having no participation in the negotiation of the
check and in the forgery of Lim Sio Wan's indorsement,
They found out that all checks had been deposited
can raise the real defense of forgery as against both
with Bankcom, Dau branch, under a certain account.
banks.
Upon inquiring with Jardine and Premiere, however,
JMC was able to confirm that neither of the said
suppliers owns the said account.

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 93


On 30 April 2000, respondent Purificacion Delizo
(Delizo), a former accountant of JMC, executed a
handwritten letter addressed to one Nelvia Yusi,
President of JMC. In the said letter, Delizo confessed
that, during her time as an accountant for JMC, she
stole several company checks drawn against JMC's
current account. She professed that the said checks
were never given to the named payees but were
forwarded by her to one Lita Bituin (Bituin). Delizo
further admitted that she, Bituin and an unknown
bank manager colluded to cause the deposit and
encashing of the stolen checks and shared in the
proceeds thereof.
JMC filed before the RTC a complaint for sum of money
against Delizo, Bankcom and Metrobank. The
complaint was raffled to Branch 115 and was docketed
as Civil Case No. 02-0193.
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. (Citations omitted).

In its complaint, JMC alleged that the wrongful

conversion of the subject checks was caused by a
combination of the "tortious and felonious" scheme of DRAWER BANK COLLECTING BANK
Delizo and the "negligent and unlawful acts" of
Bankcom (collecting bank) and Metrobank (drawee A drawee bank is under The liability of the
bank). strict liability to pay the collecting bank is
check only to the payee anchored on its
ISSUE or to the payee's order. guarantees as the last
When the drawee bank endorser of the check.
What are the liabilities of the drawee bank and the pays a person other than
collecting bank? the payee named in the Section 66 of the
check, it does not comply Negotiable Instruments
RULING with the terms of the Law, an endorser
check and violates its warrants "that the
duty to charge the instrument is genuine and
(1) Metrobank liable to return to JMC the entire drawer's account only for in all respects what it
amount of the subject checks plus interest and properly payable items. purports to be; that he
(2) Bankcom liable to reimburse Metrobank the same has good title to it; that
amount plus interest. all prior parties had
capacity to contract; and
As the recent case of BDO Unibank v. Lao explains: that the instrument is at
the time of his
The liability of the drawee bank is based on its contract endorsement valid and
with the drawer and its duty to charge to the latter's subsisting."
accounts only those payables authorized by him. A
drawee bank is under strict liability to pay the check
This makes a substantial discussion and distinction of the
only to the payee or to the payee's order. When the
relationship between the drawer and the drawee bank
drawee bank pays a person other than the payee
and make a comparison of the relationship between the
named in the check, it does not comply with the terms
collecting bank and the drawee bank.
of the check and violates its duty to charge the
drawer's account only for properly payable items.
This case is a required reading because while our paper
makes a prediction of that concept, this case emphasizes
On the other hand, the liability of the collecting bank is
this point.
anchored on its guarantees as the last endorser of the

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 94

 ● Relationship between the collecting bank and
the drawee bank - Clearing House Corporation
DISCUSSION POINTS: Rules; Sec. 66 - 60:40 in favor of the drawee
bank in case both are negligent.
● The liability of the drawee bank is based on its
contract with the drawer - We are looking at What is the relationship?
Letter g: the client-bank-client relationship. It is client-bank; relationship: both banks but the
collecting bank made warranties.
● and its duty to charge to the latter’s accounts
only those payable authorized by him (drawee).
LECTURE W8 D3
- So the principle under Section 1(b): order of February 6, 2021
the drawer to the drawee --> order of the client
account holder to the bank.
Recall that last time, we emphasized the relationship
● A drawee bank is under strict liability to pay the between collecting bank and the drawee bank, as well as
check only to the payee or the payee’s order. the drawer and the drawee bank in the case of —
When the drawee bank pays a person other than
the payee named in the check, it does not Metropolitan Bank vs. Junnel's Marketing
comply with the terms of the check and violates
its duty to charge the drawer’s account only for Metropolitan Bank vs. Junnel's Marketing, G.R.
properly payable items. What more can we 235511, June 20, 2018, citing BDO Unibank vs. Lao
expect from the discussion of the SC that (June 19, 2017):
reinforced the theoretical framework of our
diagram since the inception under Paper No. 1? out to be false, then the drawee bank may recover
from it up the amount of the check.
● On the other hand, the liability of the collecting
bank is anchored on its guarantees as the last
indorser of the check. - Because the moment you
deposit it, BOOM, all prior endorsements or
lack of it guaranteed and then starts to collect it
with the drawee bank.

● Under Section 66 of the NIL, 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
Letter A here is to some extent, very crucial. In fact, you
is an assertion that the party making the
might not notice that it seldom lights up in our
presentment has done its duty to ascertain the
discussion. Why is that?
genuineness of the of the endorsements. If any
of the warranties made by the collecting bank
Because if you really analyze it, forgery of the signature
turns out to be false, then the drawee bank may
of the maker, the maker of a promissory note, signature
recover from it up to the amount of the check. -
was forged, it is impossible for it to happen, and that is
why we say all these examples here, Principle No. 1 to
This reinforces what we already predicted in our diagram:
Principle No. 7, talks about checks, and maybe the
● The relationship between the drawer and the
bite-sized principles that you are emphasizing, will apply
drawee - 50:50 if they are both negligent.
only to checks or bills of exchanges, because after all, a

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 95

check is a bill of exchange. But will it apply to a
promissory note? That is the issue. Can you imagine a
situation where a person's signature in a promissory note
is forged? I cannot imagine that. In fact, there is yet no
Supreme Court decision about that.
Therefore, you will say, "I will doubt the diagram. It will
apply maybe to just bill of exchange, but not the
promissory note, because there is no example of a
promissory note that was forged. will the bearer or
drawer issue the material? It is very difficult to come up
with a promissory note that is payable to bearer or to
order in reality. Much impossible for it to have been the
center of a legal controversy that goes up to the Supreme
Court so that one day we will have a case involving
forgery of a promissory note.
Therefore, we can say that this diagram predicts that in
the future, it may happen, that there is a forgery of a
promissory note. But now, there is no such example
because there is no Supreme Court decision that talks
about forgery of a promissory note, all the more whether
it is payable to order or bearer.
There is one example that most probably, it can happen,
if this conflict starts. When you have property mortgage,
usually, the spouses are co-makers, and maybe the
husband did not want it, or vice versa, the wife did not
want it, and the husband forged the signature of the
husband, and had the property mortgaged, and the bank
required a promissory note. There is a possible situation
where a conflict will arise, but usually it will not prosper,
because just imagine, it will now be a triad battle
between Spouse A, Spouse B, and the Bank.
Usually, they come together and start to negotiate,
instead of you questioning the forgery that is done by the
spouse. This is not an exception under Criminal Law. You
can be held liable if you forged the signature of your
spouse. We are saying that this diagram is entirely weak
for signature of maker, because I have yet to see a purist
negotiable promissory note from the purist standpoint
that is forged. We can also say that our diagram predicted
it, that it may come in the future, all the more if it is no
longer covered by Associated Bank vs. Court of Appeals.
In the meantime, we have a stopgap measure. This
diagram may apply to a promissory note too. What is
that? The case of PCI vs. Ong.
PCI vs. Ong
8E - PCI vs. Ong, G.R. 156207, September 15, 2006
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 96
A manager's check may be treated as a promissory
note with the bank as maker.
What happens in a manager's check?
For example, this is a Metrobank manager who draws a
manager's check against Metrobank and issues it to the
payee. Usually, what happens is if you don't want to bring
cash, you go to a particular bank, you pay off the bank in
such amount and with a certain rate, you purchase a
manager's check from the bank. For example, you have
Metrobank manager's check or let us say, Equitable PCI
manager's check issued to you.
So the manager draws it from Equitable PCI. For example,
the manager of Equitable PCI draws it from Equitable PCI
and pays it to you. So that is a manager's check. In the
eyes of the law, since the character of the drawer and the
drawee are fused, and issues it to the payee, that is
maker and payee already. That is the meaning of a
manager's check maybe treated as a promissory note
with bank as maker.
What are we trying to point out? We have a check that is
now a promissory note, because it is a manager's check,
forge that and the entire principle will now apply.
Let us look at the latest case that we have on forgery.
Philippine Savings Bank vs. Maria Cecilia Sakata
19. Philippine Savings Bank vs. Maria Cecilia Sakata,
June 17, 2020, G.R. No. 229450, Third Division, J.
Leonen
Issue: What is the meaning of forgery? Is forgery
presumed and if it is not, what is the quantum of proof
required and who has the burden of proving it? What
is the effect of a forged signature under Section 23?
What type of defense is forgery? Is the bank still liable
on a forged check that it pays even when the forgery
may be so near like the genuine as to defy detection by
the depositor himself? If the drawer is also negligent,
what is the doctrine of shared responsibility?
Q: What is the meaning of forgery? Is forgery
presumed and if it is not, what is the quantum of
proof required and who has the burden of proving it?
Forgery is the "counterfeiting of any writing, consisting
in the signing of another's name with intent to
defraud". Since it is no presumed, forgery must be
 proved with clear, positive and convincing evidence"
by the party alleging it. Whether forgery exists on the
checks is a question of fact, which requires
reevaluation of evidence best left to the lower courts.
Q: What is the effect of a forged signature under
Section 23? What type of defense is forgery? Is the
bank still liable on a forged check that it pays even
when the forgery may be so near like the genuine as
to defy detection by the depositor himself?
Thus, "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." As payment
made under a forged signature is ineffectual, the
drawee bank cannot charge it to the drawer's account
because it is in a superior position to detect forgery.
"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."
Q: If the drawer is also negligent, what is the doctrine
of shared responsibility? (REMEMBER THIS)
"The doctrine of shared responsibility between the
drawee bank and the negligent drawer": xxx Having
established the forgery of respondent's signatures and
petitioner's negligence in failing to detect the forgery
on the checks, the checks are wholly inoperative. Thus,
only petitioner is liable for making payments on the
forged checks.
Like in our letter (g) example earlier.
NOTE: You must relate this to Article 166 of the Revised
Penal Code. The penalty has already been increased
because of RA 10951. REMEMBER THIS:
The Law
Art. 166. Forging treasury or bank notes or other
documents payable to bearer; Importing, and uttering
such false or forged notes and documents - The forging
or falsification of treasury or bank notes or certificates
or other obligations and securities payable to bearer
and the importation and uttering in connivance with
forgers or importers of such false or forced obligation
or notes shall be punished as follows:
NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 97
1. By reclusion temporal in its minimum period and a
fine not to exceed two million pesos (₱2,000,000), if
the document which has been falsified, counterfeited,
or altered is an obligation or security of the
Philippines.
The words ‘obligation or security of the Philippines’
shall mean all bonds, certificates of indebtedness,
national bank notes, coupons, Philippine notes,
treasury notes, fractional notes, certificates of deposit,
bills, checks, or drafts for money, drawn by or upon
authorized officers of the Philippines, and other
representatives of value, of whatever denomination,
which have been or may be issued under any act of
Congress.
2. By prisión mayor in its maximum period and a fine
not to exceed one million pesos (₱1,000,000), if the
falsified or altered documents is a circulating note
issued by any banking association duly authorized by
law to issue the same.
3. By arresto mayor in its medium period and a fine
not to exceed one million pesos (₱1,000,000), if the
falsified or counterfeited document was issued by a
foreign government.
4. By prisión mayor in its minimum period and a fine
not to exceed Four hundred thousand pesos
(₱400,000), when the forged or altered document is a
circulating note or bill issued by a foreign bank duly
authorized therefor. (RA 10951)
And of course, Article 167:
Art. 167. Counterfeiting, importing and uttering
instruments not payable to bearer. - Any person who
shall forge, import or utter, in connivance with the
forgers or importers, any instrument payable to order
or other document of credit not payable to bearer,
shall suffer the penalties of prisión correccional in its
medium and maximum periods and a fine not
exceeding one million two hundred thousand pesos
(₱1,200,000)." (Article 10951)
Which one will carry a bigger imprisonment? This is not
covered by our discussion, but one is reclusion temporal
under certain circumstances, or prision mayor. Maximum
prision mayor medium. But here, it is prisión correccional
in its medium and maximum periods. Is it payable to
order or payable to bearer which the RPC gives more
premium? I will hold you responsible for that.

Also:

Art. 171. Falsification by public officer, employee or

notary or ecclesiastic minister. - The penalty of prisión
mayor and a fine not to exceed One million pesos
(₱1,000,000) shall be imposed upon any public officer,
employee, or notary who, taking advantage of his of
position shall falsify a document by committing any of
the following acts:

1. Counterfeiting or using any handwriting, signature

or rubric;

2. Causing it to appear that persons have participated

in any act or proceeding when they did not in fact so
participate;

3. Attributing to persons who have participated in an

act or proceeding statements other than those in fact
made by them;

4. Making untruthful statements in a narration of facts;

5. Altering true dates;

6. Making any alteration or intercalation in a genuine

document which changes its meaning;

7 issuing in an authenticated form a document

purporting to be a copy of an original document when
no such original exists, or including in such a copy a
statement contrary to, or different from, that of the
genuine original; or

8. Intercalating any instrument or note relative to the

issuance thereof in a protocol, registry, or official book.

The same penalty shall be imposed upon any

ecclesiastical minister who shall commit any of the
offenses enumerated in the preceding paragraphs of
this article, with respect to any record or document of
such character that its falsification may affect the civil
status of persons.

We are already done with Section 1 and Allied Sections,

and Forgery and Material Alterations.

Nothing follows.

NOTES ON NEGOTIABLE INSTRUMENTS LAW A.Y. 2020-2021 PAGE 98