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NEGOTIABLE INSTRUMENT

FEATURES OF NEGOTIABLE INSTRUMENT

TWO FEATURES OF NEGOTIABLE INSTRUMENTS NEGOTIABILITY ACCUMULATION OF SECONDARY CONTRACTS AS THEY ARE TRANSFERRED FROM ONE PERSON TO ANOTHER.
THE FUNCTIONS OF NEGOTIABLE INSTRUMENTS ARE 1.IT ACTS AS SUBSTITUTE FOR MONEY 2. IT INCREASES THE PURCHASING MEDIUM IN CIRCULATION 3. IT IS INTENDED, LIKE MONEY, TO HAVE A DEFINITE VALUE 4.IT SERVES AS AN EQUIVALENT OF MONEY 5. IT IS NOT LEGAL TENDER

REQUISITES OF NEGOTIABILITY

It must be in writing and signed by the maker or drawer It must contain an unconditional promise or order to pay a sum certain in money It must be payable on demand, or at a fixed or determinable future time It must be payable to order or to bearer Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty
Requisite for a negotiable note- 1 to 4 Requisite for a negotiable bill - 1 to 5

What constitute certainty as to sum?

The sum payable is a sum certain in money within the meaning the NIL, although it is paid- 1. With interest; or 2.By stated installments; or 3. By stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall become due; or 4.With exchange, whether at a fixed rate, or at the current rate; or 5.With cost of collection or an attorneys fee, in case payment shall not be made at maturity. Ex. 30 days from this date, I promise to pay B or order the sum of P1,000.00 with interest.(or at 6 monthly installment plus 25% attorneys fee, or in case of default of any of the installment due, the whole account becomes automatically due and payable.

When promise is unconditional?

An unqualified order or promise to pay is unconditional within the meaning of the NIL, though coupled with 1.An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount. Ex. Pay to B or order P100.00 and reimburse yourself out of my money in your hands. Signed (A) 2. A statement of the transaction which gives rise to the instrument. Ex.I promise to pay B or order P1000.00 In payment for a horse I bought from him the other day. Signed (B) But if the promise is subject to the terms of the transaction stated, then, the note is non-negotiable

But an order or promise to pay out of a particular fund is not unconditional. Ex. Pay B or order P100.00 out of my part of the estate (out of my salary or out of the proceeds of my loan) signed.A.

DETERMINABLE FUTURE TIME, WHAT CONSTITUTE?

An instrument is payable at a determinable future time, which is expressed to be payable 1. At a fixed period after date or sight Ex. 60 days after sight or after date 2.On or before a fixed or determinable future time specified therein 3.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. Ex.On the death of A or 10 days after death of A
An instrument payable upon a contingency is not negotiable, and the Happening of the event does not cure the defect. Ex.I promise to pay B or Order P100 after B passes the Bar examination.

Provisions Not Affecting Negotiability

General Rule-An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. Exceptions:
1.Authorizes the sale of collateral securities in case the instrument be not paid at maturity. 2.authorizes confession of judgment if the instrument be not paid at maturity -confession of judgment is void under Philippine jurisdiction but does not affect negotiability. It is void because bargains away a right to a day in court. 3.Waives the benefit of any law intended for the advantage or protection of the obligor. Ex.waiver of presentment or protest 4.Gives the holder an election to require something to be done in lieu of payment of money.Ex.Pay to B or order P100 or 10 cavans of palay, at the option of the holder. The test of negotiability is whether or not the promise would give rise to a cause of action for breach of contract if the additional act is not done.

OMISSION; SEAL; Particular Money

The validity and negotiable character of an instrument are not affected by the fact that 1.It is not dated 2.Does not specify the value give or that any value had been given therefor 3.Does not specify the place where it is drawn or the place where it is payable 4. Bears a seal 5.designates a particular kind of current money in which payment is to be made

When Instrument payable on demand, payable to Order, and payable to Bearer?

An instrument is payable on demand 1.when it so expressed to be payable on demand, or at sight, or presentation;2) In which no time for payment is expressed. -Where an instrument is issued, accepted, or endorsed when overdue, it is, as regards the person so issuing, accepting or endorsing it, payable on demand.
An instrument is payable to Order- The instrument is payable to order Where it is drawn payable to the order of a specified person or to him Or his order. It may be payable to the order of two or more payees;holder of an office;one or some of several payees;etc

Payable to Bearer

The instrument is payable to bearer when- it is expressed to be so payable or; when it is payable to person named therein or bearer; or when it is payable to a fictitious or non-existing person and such fact is known to the person making it so payable. When the name of the payee does not purport to be the named of any person. Ex. Pay to cash When the only or last endorsement is an endorsement in blank.
Fictitious person-mean to be a person who has no right to the instrument because the drawer or the maker of it so intended, and therefore, it does not matter whether the name of the payee used by the drawer or maker be that of one living or dead or one who never existed.

LIFE OF A NEGOTIABLE INSTRUMENT

The incidents in the life of the Negotiable Instrument are:


1. Issue 2.Negotiation 3. Presentment for acceptance in certain kinds of bill of exchange 4. Acceptance/dishonor by non-acceptance 5.Presentment for payment/dishonor by non-payment 6.Notice of dishonor/Protest in certain cases 7.Discharge

Example: A-issue a note in favor of B. B negotiates the note to C, then, C presents it for payment to A( may either accept and pays or dishonor it, it he pays, the note is discharge.

Negotiation

What constitute negotiation? An instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof. -If payable to bearer, it is negotiated by delivery -if payable to order, it is negotiated by the endorsement of the holder completed by delivery.
Assignment is the method of transferring a non-negotiable instrument whereby the assignee is merely placed in the position of the assignor and acquires the instrument subject to all defenses that might have been set up against the original payee.

ENDORSEMENT

The endorsement must be written on the instrument itself or upon a paper attached thereto. The signature of the endorser, without additional words, is a sufficient endorsement. The endorsement must be of the entire instrument. An endorsement which purports to transfer to the endorsee a part of the amount payable, or which purports to transfer the instrument to two or more endorsees severally, does not operate as a negotiation of the instrument. But where the instrument has been paid in part, it may be endorsed as to the residue. Kinds of endorsement:
1. A Special endorsement- specifies the person to whom or to whose order the instrument is to be payable and the endorsement of such endorsee is necessary to the further endorsement. 2.An endorsement in blank-specifies no endorsee and an instrument is payable to bearer and may be negotiated by delivery. A blank endorsement may be converted into a special endorsement by writing over the signature of the endorser in blank any contract consistent with the character of the endorsement.

Restrictive Endorsement

An endorsement is restrictive which either-prohibits the further negotiation of the instrument. Ex. Pay to C only.; constitute the endorsee the agent of the endorser.Ex. Pay to C for deposit only or for collection only; Vest the title in the endorsee in trust for or to the use of some other persons. Ex. Pay to C in trust for B. Effect of restrictive endorsement- a restrictive endorsement confers upon the endorsee the right-a) to receive payment of the instrument; b) to bring an action thereon that the endorser could bring; c) to transfer his rights as such endorsee, where the form of the endorsement authorizes him to do so; But all subsequent endorsees acquire only the title of the first endorsee under the restrictive endorsement. Ex- A is the maker of the note payable to B or his order for P1000. It is endorsed by B- Pay to C for deposit sgd,B. The endorsement passes the legal title over the note to C so as to enable C to demand payment for P1,000.00 and receive payment of the value of the note from A, the maker.

QUALIFIED ENDORSEMENT

A qualified endorsement constitute the endorser a mere assignor of the title to the instrument. It may be made by adding to the endorsers signature the words without recourse or any words of similar import. Such endorsement does not impair the negotiable character of the instrument. Ex. Pay to C, at endorsees risk. Without recourse means without resort to a person who is secondarily liable after the default of the person who is primarily liable. The qualified endorser is not entirely free from secondary liability. He is secondarily liable on his warranties as an endorser under section 65, that is, he is liable if the instrument is dishonored by non-acceptance or non-payment due to forgery, lack of good title on the part of the endorser, lack of capacity to endorse on the part of prior parties. Ex. A makes a note payable to B or his order. B endorses the note to C sans recourse. If C cannot compel A to pay the note because As signature is forged, then, C. can recover from B.

CONDITIONAL ENDORSEMENT

Where an endorsement is conditional, the party required to pay the instrument may disregard the condition and make payment to the endorsee or his transferee whether the condition has been fulfilled or not. But any person to whom an instrument so endorsed is negotiated will hold the same, or the proceeds thereof, subject to the rights of the person endorsing conditionally. A Conditional endorsement does not render an instrument non-negotiable. But if the condition is on the face of the instrument, making the order or promise to pay conditional, the condition renders it non-negotiable as the promise or order therein would not be unconditional. Ex. Suppose a note of P100 with A, maker and B, payee. It is endorsed as follows>Pay to C, if he passes the bar. A, maker, can disregard the condition and pay C. Such payment will discharge the note. But A may also refuse to pay on the ground of non-fulfillment of the condition. But if A pays, C will hold the proceeds subject to the condition or rights of B as endorser. C, in this case, does not immediately acquires ownership over the sum.

Endorsement-Notes

Where an instrument, payable to bearer is endorsed specially, it may nevertheless be further negotiated by delivery; but the person endorsing specially is liable as endorser to only such holders as making title through his endorsement. Where an instrument is payable to the order of two or more payees or endorsees who are not partners, all must endorse unless the one endorsing has authority to endorse for the others. Where an instrument is drawn or endorsed to a person as cashier or other fiscal officer of a bank or corporation, it is deemed prima facie to be payable to the bank or corporation of which he is such officer, and may be negotiated by either the endorsement of the bank or corporation or the endorsement of the officer. Where the name of a payee or endorsee is wrongly designated or misspelled, he may endorse the instrument as therein described adding, if he thinks fit his proper signature. An instrument negotiable in its origin continues to be negotiable until it has been restrictively endorsed or discharged by payment of otherwise. The holder may at any time strike out endorsement which is not necessary to his title. The endorser whose endorsement is struck out, and all endorsers subsequent to him, are thereby relieved from liability on the instrument. Where an instrument is negotiated back to a prior party, such party may, subject to the provisions of this act reissue and further negotiates the same. But he is not entitled to enforce payment thereof against any intervening party whom he was personally liable.

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 thereto for value. Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitute value. One who gives valuable consideration for an instrument issued or negotiated to him is a holder for value. Where the holder has a lien on the instrument arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien.
Ex. A makes a note payable to B for P1,000.00. B owes C P600.00. B endorses the note to C to secure the payment of his debt of P600.00 to C. C is said to have a lien on the note to the extent of P600.00 and to that extent, he is a holder for value. Can C collect from A the whole amount of P1,000.00?

Continuation

Absence or failure of consideration is a matter of defense as against any holder not a holder in due course; partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise. Absence of consideration- Ex. Where A issues a check to B in payment of forged certificates of stock, which are therefore valueless. Failure of consideration- Ex. In the illustration above, if the certificate of stocks are not forged but B fails to deliver the stocks. Want or absence of consideration embraces transactions where no consideration was intended to pass, while failure of consideration implies that the giving of valuable consideration was contemplated but that it failed to pass. Absence or failure of consideration is a matter of defense against persons not a holder in due course. These defenses are personal. Partial failure of consideration:Ex. A issues a note to B for P1,000.00. Suppose there is want or failure of consideration to the extent of P600.00 only. The note was endorse to C. How much can C collect from A?

Accommodation Party

An accommodation party is one who signed the instrument as maker, drawer, acceptor, or endorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party. Ex. A, a broker facilitated a loan in favor of B. A delivered the money to B, borrower, and took the note in his own name, that is, B issued the note in favor of A, as payee. A delivered the note to C, lender, and endorsed the note upon the request of C because he does not want his name to appear in the books of the borrower as a lender. Is A an accommodation party or not? (SEE CASE OF MAULINI VS SERRANO, 28 PHIL 640) -the phrase without receiving value therefor, as used in sec. 29, means without receiving value by virtue of the instrument, and not, as it apparently is supposed to mean without receiving payment for lending his name. ( Clark vs Sellner, 42 Phil 384) The accommodation party acts as surety.

RIGHTS OF A HOLDER

The Holder of a negotiable instrument may sue thereon in his own name; and payment to him in due course, discharges the instrument. What constitute a Holder in due course? A holder in due course is a holder who has taken the instrument under the following conditions: 1) that it is complete and regular on its face; 2) that he became a holder of it before it was overdue and without notice that it had been previously dishonored, if such was the fact; 3) that he took it in good faith and for value; 4) that at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.
Where an instrument payable on demand is negotiated for an unreasonable length of time after its issue, the holder is not deemed a holder in due course. Where the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he has been paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount theretofore paid by him.

Continuation-Holder

When title defective? The title of a person who negotiates an instrument is defective when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach o faith, or under such circumstances as amount to a fraud. What constitute notice of defect?-To constitute notice of defect or an infirmity in the instrument, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith. A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon. In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder who derives his title thru a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter. Every holder is deemed prima facie to be a holder in due course.

LIABILITIES OF PARTIES

The Maker of a negotiable instrument by making it engages that he will pay it according to its tenor, and admits the existence of the payee and is then capacity to endorse. The drawer by drawing the instrument admits the existence of the payee and his then capacity to endorse; and engages that on due presentment the instrument will be accepted or paid, or both, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent endorser who may be compelled to pay it. But the drawer may insert in the instrument an express stipulation negativing or limiting his own liability to the holder. The acceptor by accepting the instrument engages that he will pay it according to the tenor of his acceptance and admits the existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument, and the existence of the payee and his then capacity to endorse.

ENDORSER

A PERSON PLACING HIS SIGNATURE UPON AN INSTRUMENT OTHERWISE THAN AS MAKER, DRAWER, OR ACCEPTOR IS DEEMED TO BE AN ENDORSER, UNLESS HE CLEARLY INDICATES BY APPROPRIATE WORDS HIS INTENTION TO BE BOUND IN SOME OTHER CAPACITY. Every person negotiating by delivery or qualified endorsement warrants that: 1)the instrument is genuine and in all respects what it purports to be; 2) that he has good title to it: 3)that all prior parties had capacity to contract; 4) that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee. (sec.65) Irregular Endorser- is a person, not otherwise a party to an instrument, places thereon his signature in blank before delivery. He is liable as endorser in accordance with the following rules: 1)if the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties; 2) if the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer. 3) if he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee.

Continuation-Endorser

Liability of General Endorser-Every endorser who endorses without qualification, warrants to all subsequent holders in due course: 1)the matters or things mentioned in subdivisions a,b, and c of sec.65; 2) that the instrument is at the time of his endorsement 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 endorser who may be compelled to pay it. Where a person places his endorsement on an instrument negotiable by delivery he incurs all the liabilities of an endorser. Where a broker or other agent negotiates an instrument without endorsement, he incurs all the liabilities prescribed by section 65, unless he discloses the name of his principal, and the fact that he is acting only as agent. As respect one another, endorsers are liable prima facie in the order in which they endorse; but evidence is admissible to show that as between or among themselves they have agreed otherwise. Joint payees or joint endorsees who endorse are deemed to endorse jointly and severally.

Sec. 14 Blank Instrument

Where the instrument is wanting in any material particular, the person in possession thereof has prima facie authority to complete it by filling up the blanks therein. A signature on a blank paper delivered by a 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 any person who became a party thereto prior to its completion, it must be filled strictly in accordance with the authority given and within 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.

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.
Sec.16 Complete but undelivered- 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 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 endorsing, 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 is conclusively presumed. 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.

FORGERY SEC. 23
Where a signature is forged or made without 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. Forgery- meant the counterfeit making or fraudulent alteration of any writing, and may consist in the signing of another name, or the alteration of an instrument in the name, amount, description of the person and the like with intent to defraud. Example of fraud amounting to forgery- B obtains the signature of A telling the latter that it is only for autograph purposes. Then B writes above the signature a negotiable instrument. Fraud in inducement- A sells to B a diamond ring which is in fact a glass only. B issues a check. The check is not a forgery. The fraud here is in inducing B to issue a check. It is merely a personal defense as distinguish from fraud in factum.

Westmont Bank v Ong GR 132560 January 30, 2002


Under Section 23 of the Negotiable Instruments Law: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.Since the signature of the payee, in the case at bar, was forged to make it appear that he had made an indorsement in favor of the forger, such signature should be deemed as inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in making payment by virtue of said forged signature. The payee, herein respondent, should therefore be allowed to recover from the collecting bank.The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that the payees endorsement was genuine before cashing the check.[20] As a general rule, a bank or corporation who has obtained possession of a check upon an unauthorized or forged indorsement of the payees signature and who collects the amount of the check from the drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that the amount has been paid to the person from whom the check was obtained.[21]The theory of the rule is that the possession of the check on the forged or unauthorized indorsement is wrongful, and when the money had been collected on the check, the bank or other person or corporation can be held as for moneys had and received, and the proceeds are held for the rightful owners who may recover them. The position of the bank taking the check on the forged or unauthorized indorsement is the same as if it had taken the check and collected the money without indorsement at all and the act of the bank amounts to conversion of the check.[22]Petitioners claim that since there was no delivery yet and respondent has never acquired possession of the checks, respondents remedy is with the drawer and not with petitioner bank. Petitioner relies on the view to the effect that where there is no delivery to the payee and no title vests in him, he ought not to be allowed to recover on the ground that he lost nothing because he never became the owner of the check and still retained his claim of debt against the drawer.[23] However, another view in certain cases holds that even if the absence of delivery is considered, such consideration is not material. The rationale for this view is that in said cases the plaintiff uses one action to reach, by a desirable short cut, the person who ought in any event to be ultimately liable as among the innocent persons involved in the transaction. In other words, the payee ought to be allowed to recover directly from the collecting bank, regardless of whether the check was delivered to the payee or not.[24]

Sps.Sergio & Milagros Ojeda v Andrelina Orbeta GR No.142047 7/10/2006


In any event, the spouses do not deny that the check was delivered to Orbeta and that the signature appearing on the check belongs to Milagros Ojeda. Even if the check was delivered to Orbeta in blank, we must stress that the presumption is that the latter had prima facie authority to complete the check by filling up the same. Here, the provision of Section 14 of the Negotiable Instruments Law is pertinent: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 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. (Emphasis supplied.)The law merely requires that the instrument be in the possession of a person other than the drawer or maker, and from such possession, together with the fact that the instrument is wanting in a material particular, the law presumes agency to fill up the blanks.[10] Because of the presumption of authority, the burden of proving that there was no authority or that the authority granted was exceeded is placed on the person questioning such authority.[11] There is nothing on record to show that the prima facie presumption created by the afore-quoted section was successfully refuted by the spouses. Therefore, the couple's stance that they cannot be held liable for the check because they were not the ones who wrote the date, the name of the payee and the amount, is untenable.

Equitable PCI Bank v Rowena Ong GR No.156207 9/15/2006


In the case of New Pacific Timber & Supply Co., Inc. v. Seneris[28]:[S]ince the said check had been certified by the drawee bank, by the certification, the funds represented by the check are transferred from the credit of the maker to that of the payee or holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank, with rights and duties of one in such situation. Where a check is certified by the bank on which it is drawn, the certification is equivalent to acceptance. Said certification implies that the check is drawn upon sufficient funds in the hands of the drawee, that they have been set apart for its satisfaction, and that they shall be so applied whenever the check is presented for payment. It is an understanding that the check is good then, and shall continue good, and this agreement is as binding on the bank as its notes circulation, a certificate of deposit payable to the order of depositor, or any other obligation it can assume. The object of certifying a check, as regards both parties, is to enable the holder to use it as money. When the holder procures the check to be certified, the check operates as an assignment of a part of the funds to the creditors. Hence, the exception to the rule enunciated under Section 63 of the Central Bank Act to the effect that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to the amount credited to his account shall apply in this case x x x. By accepting PCI Bank Check No. 073661 issued by Sarande to Ong and issuing in turn a managers check in exchange thereof, PCI Bank assumed the liabilities of an acceptor under Section 62 of the Negotiable Instruments Law which states: Sec. 62. Liability of acceptor. The acceptor by accepting the instruments engages that he will pay it according to the tenor of his acceptance; and admits (a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and (b) The existence of the payee and his then capacity to indorse. With the above jurisprudential basis, the issues on Ong being not a holder in due course and failure or want of consideration for PCI Banks issuance of the managers check is out of sync.

ALTERATION

SEC 124 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 endorsers. 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. Ex. A makes a note for P1,000 payable to the order of B. B negotiates the note to C. B and C consented to alter the note to P4,000 and thereafter negotiates it D, E, and F who is not a holder in due course. Can F collect from A? How about with regards to B, C, D, and E? Suppose F is a holder in due course. Can he collect from A and how much?

WHAT CONSTITUTES MATERIAL ALTERATION?

SEC125- The following constitutes material alteration: 1.The date 2.The sum payable, either principal or interest 3.The time or place of payment 4.The number or the relations of the parties 5.The medium or currency in which payment is to be made 6.Or which adds a place of payment where no place of payment is specified, or any change or addition which alters the effect of the instrument in any respect, is a material alteration.