2 B 5 A Rights&Liabilities

IV. RIGHTS AND LIABILITIES OF PARTIES Atty. Rene Alexis P.
Villarente, JD, MBA

Professor of Law and Economics
Section 60
L MAKER PAYEE A B HOLDER

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INDORSERS Sec 69 (20,21,44) Agent
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Sec 64 Irreg Sec 65 Del/ Qual Sec 66 General Sec 67 bearer
T Section 26 Holders for Value TS
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Tuazon vs. Heirs of Ramos GR. No. 156262 July 14, 2005; After an instrument is
ES Sec. 52/58 Holders in due course
dishonored by non payment, indorsers ceases to be merely secondarily liable;
they become principal debtors whose liability becomes identical to that of the
original obligor. The holder of a negotiable instrument need not even proceed
against the maker before suing the indorser. Drawer is not indispensable party in To sue, be paid and to negotiate
Section 61 an action against the indorser of checks.
DRAWER PAYEE A B HOLDER
“Order” Section 191 Definition of Terms: Holder means

Sec. 1 (b) Section 62 Villanueva vs. Nite GR. No. 148211 July 25, 2006; If a (drawee) the payee or indorsee of a bill or note, who is
bank refuses to pay a check (with sufficient funds), the payee-
in possession of it, or the bearer thereof.
holder should instead sue the drawer who might in turn sue the
Acceptor bank. Section 189 is sound law based on logic and established
DRAWEE legal principles: no privity of contract exists between the drawee-
bank and the payee. The Drawer is an indispensable party when BPI vs. Roxas GR. No. 157833 October 15, 2007; Under
Not liable drawee is sued by the payee. Section 52, as a general rule, every holder is presumed
prima facie to be a holder in due course. One who
claims otherwise has the onus probandi to prove that
one or more of the conditions are lacking.
Metro Bank vs. Cabilzo GR. No. 154469 December 6, 2006; A drawee who did not accept is not liable and may not
Drawee who paid under a materially altered instrument, be sued (Villanueva vs. Nite, id.) exception:
such payment is not payment done in accordance with the
drawer’s instruction. 1. In a suit initiated by the drawer (Solid Bank vs. Arieta, G.R. BPI vs. CA and Napiza GR. No. 112392 February 29,
No. 152720, February 17, 2005) 2000; An accommodation party is liable on the
instrument to a holder for value, notwithstanding such
Solid Bank vs. Arieta GR. No. 152720 Feb. 17, 2005; A (drawee) holder at the time of taking the instrument knew him
2. In a suit by the payee or holder based on Article 19 of
bank’s gross negligence in dishonoring a well-funded check, to be only an accommodation party.
the Civil Code (HSBC vs. Catalan, G.R. 159590, Oct. 18, 2004)
aggravated by its unreasonable delay in repairing the error, calls for
an award of moral and exemplary damages. The resulting injury to
the check writer’s reputation and peace of mind needs to be 3. Where the instrument involved is a manager’s or
Q: Is a collecting bank a holder for value with rights or
recognized and compensated. certified check (E-PCI vs. Ong, G.R. 156207, September 15, 2004)
a last indorser with liability (PCHC rule § 17)?
IV. RIGHTS AND LIABILITIES OF PARTIES Atty. Rene Alexis P. Villarente, JD, MBA
MAKER PAYEE A B HOLDER
DRAWEE
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DRAWEE
CHAPTER IV
RIGHTS OF THE
HOLDER

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DRAWEE
CHAPTER V
CHAPTER IV
LIABILITIES OF
PARTIES RIGHTS OF THE
HOLDER

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DRAWEE
CHAPTER V
CHAPTER IV
LIABILITIES OF
PARTIES RIGHTS OF THE
HOLDER

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SECTION 51
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DRAWEE

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SECTION 51
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Section 51. Right of holder to sue;

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payment. – The holder of a negotiable

instrument may sue thereon in his own
name; and payment to him in due course
discharges the instrument.

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SECTION 26
Section 26 Holders for Value TS
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DRAWEE

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SECTION 26
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Section 26. What constitutes holder for

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value. – Where value has at anytime been

given for the instrument, the holder is
deemed a holder for value in respect to all
parties who become such prior to that
time.

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SECTIONS 52,58,59
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DRAWEE
Section 52. What constitutes a holder in

due course. -- A holder in due course is a
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holder who has taken the instrument
Section 51 Simple Holder IG
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under the following conditions:
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(a) That is complete and regular upon its

face;
(b) That he became the holder of it before

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it was over due, and without notice that it

had been previously dishonored, if such
was the fact;
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Section 52. What constitutes a holder in

due course. -- A holder in due course is a
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holder who has taken the instrument
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under the following conditions:
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(c) That he took it in good faith and for

value;
(d) That at the time it was negotiated to

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him he had no notice of any infirmity in

the instrument or defect in the title of the
person negotiating it.
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Section 58. When subject to original

defenses. – In the hands of any holder
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other than a holder in due course, a
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negotiable instrument is subject to the
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same defenses as if it were non-

negotiable. But a holder who derives his
title through a holder in due course, and
who is not himself a party to any fraud or
illegality affecting the instrument, has all
DRAWEE
the rights of such former holder in respect

to all parties prior to the latter.
“SHELTER PRINCIPLE”

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SHELTER PRINCIPLE Section 51 Simple Holder
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2008 BEQ III (b) How does the “shelter
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principle” embodied in the Negotiable

Instruments Law operate to give the
rights of a holder-in-due course to a

holder who does not have the status of a
holder-in-due course? Briefly explain. (2%)
DRAWEE
Suggested Answer: Section 58 of the NIL


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Section 59. Who is deemed a holder in due

course. – Every holder is deemed prima
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facie to be a holder in due course; but
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when it is shown that the title of any
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person who has negotiated the instrument

was defective, the burden is on the holder
to prove that he (Section 52) or some
person (Section 58) under whom he claims

acquired the title as holder in due course.
DRAWEE
But the last mentioned rules does not

apply in favor of a party who became
bound on the instrument prior to the
acquisition of such defective title.

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CLASSES OF HOLDERS:
(1) HOLDERS SIMPLY (SECTION 51)

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(2) HOLDERS FOR VALUE (SECTION 26)
(3) HOLDERS IN DUE COURSE

(SECTIONS 52,58,59)

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SECTION 191
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Section 191 Definition of Terms: Holder means

the payee or indorsee of a bill or note, who is
DRAWEE

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SECTION 191
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DRAWEE
Section 191 Definition of Terms:

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

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BASIC RIGHTS OF Section 26 Holders for Value
Sec. 52/58 Holders in due course

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HOLDERS
To sue, be paid and to negotiate

DRAWEE

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BASIC RIGHTS OF Section 26 Holders for Value

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HOLDERS

Basic Rights of Holders: (cf: Sec. 37) in possession of it, or the bearer thereof.
DRAWEE
1) To receive payment (Section 51)

2) To sue in his own name (Section 51)
3) To negotiate and constitute the
transferee a holder (Section 30)

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I BPI vs. ROXAS Section 26 Holders for Value TS
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(Oct. 15, 2007)

DRAWEE
BPI vs. Roxas GR. No. 157833 October 15, 2007; Under
Section 52, as a general rule, every holder is presumed
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(Oct. 15, 2007)
BPI vs. Roxas GR. No. 157833 October Section 191 Definition of Terms: Holder means
15, 2007; Under Section 52, as a general the payee or indorsee of a bill or note, who is
rule, every holder is presumed prima

DRAWEE
facie to be a holder in due course. One prima facie to be a holder in due course. One who
who claims otherwise has the onus

probandi to prove that one or more of the
conditions are lacking.
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I BPI vs. CA Section 26 Holders for Value TS
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(Feb. 29, 2000)

DRAWEE
BPI vs. CA and Napiza GR. No. 112392 February 29,

2000; An accommodation party is liable on the
holder at the time of taking the instrument knew him
to be only an accommodation party.

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I BPI vs. CA Section 26 Holders for Value TS
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(Feb. 29, 2000)
BPI vs. CA and Napiza GR. No. 112392 Section 191 Definition of Terms: Holder means
February 29, 2000; An accommodation the payee or indorsee of a bill or note, who is
party is liable on the instrument to a

DRAWEE
holder for value, notwithstanding such prima facie to be a holder in due course. One who
holder at the time of taking the BPI vs. CA and Napiza GR. No. 112392 February 29,
instrument knew him to be only an 2000; An accommodation party is liable on the

accommodation party.

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DRAWEE


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DRAWEE


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DRAWEE
CHAPTER IV BPI vs. Roxas GR. No. 157833 October 15, 2007; Under
RIGHTS OF THE BPI vs. CA and Napiza GR. No. 112392 February 29,
HOLDER


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DRAWEE
CHAPTER V BPI vs. Roxas GR. No. 157833 October 15, 2007; Under
LIABILITIES OF BPI vs. CA and Napiza GR. No. 112392 February 29,
PARTIES

Section 60

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SECTION 60
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DRAWEE


Section 60

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SECTION 60
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Section 60. Liability of Maker. – The maker of a in possession of it, or the bearer thereof.
negotiable instrument by making it engages that

DRAWEE
he will pay it according to its tenor, and admits

the existence of the payee and his then BPI vs. CA and Napiza GR. No. 112392 February 29,
capacity to indorse. instrument to a holder for value, notwithstanding such


Section 60

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SECTION 61
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Section 61

DRAWEE


Section 60

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SECTION 61
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Section 61
Section 61. Liability of drawer. – Section 191 Definition of Terms: Holder means
The drawer by drawing the instrument admits

DRAWEE
the existence of the payee and his then capacity BPI vs. Roxas GR. No. 157833 October 15, 2007; Under
to indorse; and engages that on due

presentment the instrument will be accepted or BPI vs. CA and Napiza GR. No. 112392 February 29,
paid, or both, according to its tenor, and that if it

be dishonored, and the necessary proceedings Q: Is a collecting bank a holder for value with rights or
Section 60

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SECTION 61
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Section 61
Section 61. Liability of drawer. – Section 191 Definition of Terms: Holder means
on dishonor be duly taken, he will pay the

DRAWEE
amount thereof to the holder, or to any BPI vs. Roxas GR. No. 157833 October 15, 2007; Under
subsequent indorser who may be compelled to

pay it. But the drawer may insert in the BPI vs. CA and Napiza GR. No. 112392 February 29,
instrument an express stipulation negativing or

limiting his own liability to the holder. Q: Is a collecting bank a holder for value with rights or
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Section 60

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SEC 1 (b)
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Section 61

Sec. 1 (b)
DRAWEE


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Section 60

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SEC 1 (b)
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Section 61
DRAWER PAYEE
“ORDER” (Section 1 [b])
A B HOLDER

Sec. 1 (b)
DRAWEE
1) Sec 1 (b) “order” of drawer to
drawee to pay;
2) Sec 1 (b) “order” refers to a bill

of exchange as “promise” is the holder at the time of taking the instrument knew him
term for a promissory note Q: Is a collecting bank a holder for value with rights or
Section 60

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ACCEPTOR
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Section 61

Sec. 1 (b)
Acceptor
DRAWEE


Section 60

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ACCEPTOR
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Section 61

Sec. 1 (b)
Acceptor
DRAWEE
Not liable Section 52, as a general rule, every holder is presumed

NOT LIABLE

Section 60

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SECTION 62
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Section 61

Sec. 1 (b) Section 62
Acceptor
DRAWEE


Section 60

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SECTION 62
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Section 61
DRAWER PAYEE
Section 62. Liability of
A B HOLDER
“Order”
Sec. 1 (b) Section 62 Acceptor. – The acceptor by Section 191 Definition of Terms: Holder means
DRAWEE
Acceptor
accepting the instrument
engages that he will pay it
according to the tenor of hisone or more of the conditions are lacking.
acceptance; and admits – BPI vs. CA and Napiza GR. No. 112392 February 29,
(a) The existence of the drawer

Section 60

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SECTION 62
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Section 61
DRAWER PAYEE
A B HOLDER
“Order”
Sec. 1 (b) Section 62 Acceptor. – Section 191 Definition of Terms: Holder means
Acceptor
DRAWEE
the genuineness of his

signature, and his capacity and

authority to draw the BPI vs. CA and Napiza GR. No. 112392 February 29,
instrument, holder at the time of taking the instrument knew him


Section 60

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SECTION 62
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Section 61
DRAWER PAYEE
A B HOLDER
“Order”
Sec. 1 (b) Section 62 Acceptor. – Section 191 Definition of Terms: Holder means
Acceptor
DRAWEE
(b) The existence of the payee

and his (payee’s) then capacity

to indorse. BPI vs. CA and Napiza GR. No. 112392 February 29,
PAYEE

Section 60

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Section 61

Acceptor
DRAWEE


Section 60

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Section 61

Acceptor
DRAWEE
INDORSERS

Section 60

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SEC. 63 When person deemed indorser. – A
person placing his signature upon an

Section 61
instrument otherwise than a maker, drawer or

acceptor is deemed to be an indorser, unless he

“Order”
clearly indicates by appropriate words his

DRAWEE
Acceptor
intention to be bound in some other capacity.

INDORSERS

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SEC. 17 (g) Where a signature is so placed upon Professor of Law and Economics
the instrument that it is not clear in what

Section 60
capacity
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Ito sign, he is to be deemed an indorser. R
INDORSERS
L IG Section 51 Simple Holder
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SEC. 63 When person deemed indorser. – A
person placing his signature upon an

Section 61
instrument otherwise than a maker, drawer or

acceptor is deemed to be an indorser, unless he

“Order”
clearly indicates by appropriate words his

DRAWEE
Acceptor
intention to be bound in some other capacity.

INDORSERS

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Section 60

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Sec 64 Irreg
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Section 61

Acceptor
DRAWEE

SEC. 64 IRREGULAR INDORSER


SEC. 64 Liability of irregular indorser. – where a Professor of Law and Economics
person,
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not otherwise a party to an instrument,
Section 60
places thereon his signature in blank before

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delivery,
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I he is liable as indorser, in accordance H
Sec 64 Irreg
IG Section 51 Simple Holder
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with the following rules:
TS Section 26 Holders for Value
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(a) If the instrument is payable to the order of a
Section 61
third person, he is liable to the payee and to all

“Order”
subsequent parties.
Acceptor
DRAWEE
(b) If the instrument is payable to the order of




SEC. 64 Liability of irregular indorser. – where a Professor of Law and Economics
person,
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not otherwise a party to an instrument,
Section 60
places thereon his signature in blank xxx rules:R

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INDORSERS
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Sec 64 Irreg
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the maker or drawer, or is payable to bearer, he
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is liable to all parties subsequent to the maker

or drawer. Section 61
“Order”
(c) If he signs for the accommodation of the

payee, he is liable to all parties subsequent to

Acceptor
DRAWEE
the payee. Not liable Section 52, as a general rule, every holder is presumed



Section 60

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Sec 64 Irreg Sec 65 Del/ Qual
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Section 61

Acceptor
DRAWEE

SEC. 65 DELIVERY/QUALIFIED

SEC. 65 Warranty where negotiation by delivery, Professor of Law and Economics
and
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so forth. – Every person negotiating by
Section 60
delivery or by a qualified indorsement warrants:R

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(a) That the instrument is genuine and in all
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respects what it purports to be;

Section 61
(b) That he has good title to it;


(c) That all prior parties had capacity to

Acceptor
DRAWEE
contract; Not liable Section 52, as a general rule, every holder is presumed


SEC. 65 Warranty where negotiation by delivery, Professor of Law and Economics
and
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so forth. – Every person negotiating by
Section 60
delivery or by a qualified indorsement warrants:R

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(d) That he has no knowledge of any fact which
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would impair the validity of the instrument or

render it valueless.
Section 61
“Order”
But when the negotiation is by delivery only, the

warranty extends in favor of holder other than

Acceptor
DRAWEE
the immediate transferee. Not liable Section 52, as a general rule, every holder is presumed


Section 60

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Sec 64 Irreg Sec 65 Del/ Qual Sec 66 General
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Section 61

Acceptor
DRAWEE

SEC. 66 GENERAL INDORSER


SEC. 66 Liability of general indorser. – Every Professor of Law and Economics
indorser
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who indorses without qualification,
Section 60
warrants to all subsequent holders in due

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course:
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(a) The matters and things mentioned in sub-

divisions (a), (b) and (c) of the next preceding
Section 61
section; and

(b) That the instrument is at the time of his

Acceptor
DRAWEE
indorsement, valid and subsisting.




SEC. 66 Liability of general indorser. – Every Professor of Law and Economics
indorser
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who xxx holders in due course:
Section 60

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And, in addition, he engages that on due
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presentment, it shall be accepted or paid, or
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both, as the case may be, according to its tenor,

and that if it be dishonored, and the necessary
Section 61
proceedings on dishonor be duly taken, he will

“Order”
pay the amount thereof to the holder, or to any


Acceptor
DRAWEE
pay it. Not liable Section 52, as a general rule, every holder is presumed



SEC. 66 (a): The matters and things mentioned Professor of Law and Economics
in
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sub-divisions (a), (b) and (c) of Section 65:
Section 60

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“(a) That the instrument is genuine and in all
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respects what it purports to be;
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(b) That he has good title to it; and
Section 61
“Order”
(c) That all prior parties had capacity to

contract”
Acceptor
DRAWEE

SEC. 66 and SEC. 65 Compared


SEC. 66 (b): “That the instrument is at the time Professor of Law and Economics
of
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his indorsement, valid and subsisting.”
Section 60

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SEC. 65 (d): “That he has no knowledge of any
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fact which would impair the validity of the
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instrument or render it valueless.”

Section 61

Acceptor
DRAWEE



SEC. 66: “And, in addition, he engages that on Professor of Law and Economics
due
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presentment, it shall be accepted or paid, or
Section 60
both, as the case may be, according to its tenor,

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and
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Sec 64 Irreg
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Sec 65 Del/ Qual Sec 66 General
Section 51 Simple Holder
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proceedings on dishonor be duly taken, he will
TS Section 26 Holders for Value
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pay the amount thereof to the holder, or to any

Section 61
pay it.”

SEC. 65: “But when the negotiation is by

DRAWEE
Acceptor
delivery only, the warranty extends in favor of

Not liable
holder other than the immediate transferee.” claims otherwise has the onus probandi to prove that



II. SECTIONS 14, 15 and 16/ INDORSEMENT Atty. Rene Alexis P. Villarente, JD, MBA
*Blondeau Doctrine: ACT OF WRITING Section 30

INDORSEMENT
“The rule: where one of Negotiation
two persons must suffer
by the bad faith of “If payable to bearer, it
another, the loss must is negotiated by
fall upon the one who delivery; if payable to
first reposed confidence order, it is negotiated by
and made it possible for the indorsement of the
COMPLETE INCOMPLETE BLANK SPECIAL
the loss to occur” holder completed by
delivery”
Section 9 (a-e) Section 40

P B
Section 65 or 66 Section 9(a-d)
E
D D SECTION A Section 65 or 66
E E O. K. Y
A
14* R NI can be NI can be negotiated
L L A E negotiated by by delivery without
R delivery indorsement
I B
V L Section 34 Section 34
E U E Section 9(e) Section 8
R N SECTION SECTION O Section 65 or 66 Section 65 or 66

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Y D 16* 15 T D NI is payable to NI is payable to
E E bearer until indorsed order, indorsement
O specially necessary to further
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negotiate
Section 14: NI payable to bearer and delivered without indorsement: (ok, as

Sps. Ojeda vs. Orbeta G.R. No. 142074, July 10, 2006. The law merely requires required by section 30)
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 presumes agency to fill up the blanks. The burden of NI payable to order and delivered without indorsement: (Section 49)
proving absence of authority is on the person questioning it. BPI vs. CA GR. No. 136202 January 25, 2007; Section 49 NIL where the
holder of an instrument payable to his order transfers it for value without
indorsing it, the transfer vests in the transferee such title as the transferor had
therein, and the transferee acquires in addition, the right to have the
Section 15: indorsement of the transferor. But for the purpose of determining whether the
Ching vs. Nicdao and CA GR. No. 141181 April 27, 2007; In as much as the
transferee is a holder in due course negotiation takes effect as of the time
check was incomplete and undelivered in the hands of complainant Ching, he did
when the indorsement is actually made. The weight of authority is that the
not acquire any right or interest therein and cannot, therefore, assert any cause of
mere possession of a negotiable instrument does not in itself conclusively
action founded on said stolen check. Nicdao has no obligation to make good the
establish either the right of possessor to receive payment, or of the right of one
stolen check and is not therefore liable of BP Blg. 22
who has made payment to be discharge from liability.
W13 D2
II. SECTIONS 14, 15 and 16/ INDORSEMENT Atty. Rene Alexis P. Villarente, JD, MBA
*Blondeau Doctrine: ACT OF WRITING Section 30

INDORSEMENT
“The rule: where one of Negotiation
two persons must suffer
by the bad faith of “If payable to bearer, it
another, the loss must is negotiated by
fall upon the one who delivery; if payable to
first reposed confidence order, it is negotiated by
and made it possible for the indorsement of the
COMPLETE INCOMPLETE BLANK SPECIAL
the loss to occur” holder completed by
delivery”
Section 9 (a-e) Section 40

P B
Section 65 or 66 Section 9(a-d)
E
D D SECTION A Section 65 or 66
E E O. K. Y
A
14* R NI can be NI can be negotiated
L L A E negotiated by by delivery without
R delivery indorsement
I B
V L Section 34 Section 34
E U E Section 9(e) Section 8
R N SECTION SECTION O Section 65 or 66 Section 65 or 66

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Y D 16* 15 T D NI is payable to NI is payable to
E E bearer until indorsed order, indorsement
O specially necessary to further
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negotiate
Section 14: NI payable to bearer and delivered without indorsement: (ok, as

Sps. Ojeda vs. Orbeta G.R. No. 142074, July 10, 2006. The law merely requires required by section 30)
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 presumes agency to fill up the blanks. The burden of NI payable to order and delivered without indorsement: (Section 49)
proving absence of authority is on the person questioning it. BPI vs. CA GR. No. 136202 January 25, 2007; Section 49 NIL where the
holder of an instrument payable to his order transfers it for value without
indorsing it, the transfer vests in the transferee such title as the transferor had
therein, and the transferee acquires in addition, the right to have the
Section 15: indorsement of the transferor. But for the purpose of determining whether the
Ching vs. Nicdao and CA GR. No. 141181 April 27, 2007; In as much as the
transferee is a holder in due course negotiation takes effect as of the time
check was incomplete and undelivered in the hands of complainant Ching, he did
when the indorsement is actually made. The weight of authority is that the
not acquire any right or interest therein and cannot, therefore, assert any cause of
mere possession of a negotiable instrument does not in itself conclusively
action founded on said stolen check. Nicdao has no obligation to make good the
establish either the right of possessor to receive payment, or of the right of one
stolen check and is not therefore liable of BP Blg. 22
who has made payment to be discharge from liability.
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Section 60

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INDORSERS
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Section 61

Acceptor
DRAWEE

SEC. 67 BY DELIVERY

Section 60

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B R
INDORSERS
I H
I
SEC. 67 Liability of indorser where paper

Section 61
negotiable by delivery. – Where a person places

his indorsement on an instrument negotiable by

delivery he incurs all the liabilities of an

DRAWEE
Acceptor
indorser.

SEC. 67 BY DELIVERY

Section 60

IA
B R
I H
I

Section 61

Acceptor
DRAWEE

SEC. 69 LIABILITY OF AGENT


Section 60

IA
B R
I H
SEC. 69 Liability of an agent or broker. – Where
I
a broker or other agent negotiates an To sue, be paid and to negotiate
instrument without indorsement, he incurs all

Section 61

the liabilities prescribed by section sixty-five of
this Act, unless he discloses the name of his

Acceptor
principal and the fact that he is acting only as
DRAWEE
agent. (Also Sections 20, 21 and 44 on Agents)


SEC. 69 LIABILITY OF AGENT


Section 60

IA
B R
I H
I

Section 61

Acceptor
DRAWEE


Section 60

IA
B R
I H
I

Section 61

Acceptor
DRAWEE

ILLUSTRATIVE CASES

Section 60

IA
B R
I H
I
ES
Metrobank vs. Cabilzo (Dec. 6, 2006)

Section 61

Acceptor
DRAWEE
Metro Bank vs. Cabilzo GR. No. 154469 December 6, 2006;
Drawee who paid under a materially altered instrument,
drawer’s instruction. BPI vs. CA and Napiza GR. No. 112392 February 29,

Section 60

IA
B R
I H
I
ES
Metrobank vs. Cabilzo (Dec. 6, 2006)

Section 61

Sec. 1 (b)
Metro Bank vs. Cabilzo GR. No.
Section 62
Acceptor
DRAWEE 154469 December 6, 2006; Drawee BPI vs. Roxas GR. No. 157833 October 15, 2007; Under
who paid under a materially altered

instrument, such payment is not

payment done in accordance with

the drawer’s instruction. to be only an accommodation party.

Section 60

IA
B R
I H
I
ES
Solid Bank vs. Arieta (Feb. 17, 2005)

Section 61

Acceptor
DRAWEE
the check writer’s reputation and peace of mind needs to be Q: Is a collecting bank a holder for value with rights or
recognized and compensated. a last indorser with liability (PCHC rule § 17)?
Section 60

IA
B R
I H
I
ES
Solid Bank vs. Arieta (Feb. 17, 2005)

Section 61
Solid Bank vs. Arieta GR. No. 152720 Feb. 17,

“Order”
2005; A (drawee) bank’s gross negligence in

dishonoring a well-funded check, aggravated by

Acceptor
DRAWEE
its unreasonable delay in repairing the error, Not liable Section 52, as a general rule, every holder is presumed
calls for an award of moral and exemplary

damages. The resulting injury to the check

writer’s reputation and peace of mind needs to

Solid Bank vs. Arieta GR. No. 152720 Feb. 17, 2005; A (drawee)
be recognized and compensated.

the check writer’s reputation and peace of mind needs to be
recognized and compensated.
W13 D3
Section 60

IA
B R
I H
I

Section 61

Acceptor
DRAWEE
W13 D3
Section 60

IA
B R
I H
I
ES
Villanueva vs. Nite (July 25, 2006)

Section 61

Section 60

IA
B R
I H
I
ES
Villanueva vs. Nite (July 25, 2006)

Section 61
Villanueva
DRAWER vs.PAYEE Nite GR. No.
A 148211
B July 25,
HOLDER 2006; If a
(drawee) bank refuses to pay a check (with

“Order”
Sec. 1 (b) Section 62 Villanueva vs. Nite GR. No. 148211 July 25, 2006; If a (drawee)
sufficient funds),
Acceptor the payee-holder should instead holder should instead sue the drawer who might in turn sue the
bank. Section 189 is sound law based on logic and established
sue the drawerNot liable who might in turn sue the bank. bank and the payee. The Drawer is an indispensable party when
drawee is sued by the payee.
Section 189 is sound law based on logic and

established legal principles: no privity of contract

exists between the drawee-bank and the payee. The

Drawer is an indispensable party when drawee is

sued by the payee.

Villanueva vs. Nite (July 25, 2006) A Professor of Law and Economics
drawee who did not accept is not liable

Section 60
L
IA
B
MAKER
and may not be sued. PAYEE A B HOLDER
INDORSERS Sec 69 (20,21,44) Agent R

I H
A drawee who did not accept is not liable and

T
I
ES
may not be sued. Exception:

Section 61


Section 60
L
IA
B
MAKER

I H

T
I
ES
1. In a suit initiated by the drawer (Solid Bank

Section 61
vs. Arieta, G.R. No. 152720, February 17, 2005)


Section 60
L
IA
B
MAKER

I H

T
I
ES

Section 61

2. In a suit by the payee or holder based on

Article 19 of the Civil Code (HSBC vs. Catalan,

Not liable
bank and the payee. The Drawer is an indispensable party when
G.R. 159590, Oct. 18, 2004)

A drawee who did not accept is not liable and may not
be sued (Villanueva vs. Nite, id.) exception:


Section 60
L
IA
B
MAKER

I H
CHAPTER 2
I
Section 61
HUMAN RELATIONS (n) To sue, be paid and to negotiate
“Order”
Sec. 1 (b)
Art. 19. Every person must, in the
Section 62 Villanueva vs. Nite GR. No. 148211 July 25, 2006; If a (drawee)
exercise of his rights and in the

performance of his duties, act with

justice, give everyone his due, and

observe honesty and good faith.


Section 60
L
IA
B
MAKER

I H

T
I
ES

Section 61



Not liable
G.R. 159590, Oct. 18, 2004)



Section 60
L
IA
B
MAKER

I H

T
I
ES

Section 61



Not liable
G.R. 159590, Oct. 18, 2004)

3. Where the instrument involved is a manager’s

drawer’s instruction. 1. In a suit initiated by the drawer (Solid Bank vs. Arieta, G.R.
No. 152720, February 17, 2005)
or certified check (E-PCI vs. Ong, G.R. 156207,

September 15, 2004)

Section 60

IA
B R
I H
I

Tuazon vs. Ramos (July 14, 2005)

Tuazon
IV. RIGHTSvs. Heirs of
AND LIABILITIES Ramos GR.Atty.
OF PARTIES No.
Professor 156262
of Law and Economics July
Rene Alexis P. Villarente, JD, MBA
14, 2005; After an instrument is dishonored by

Section 60
non
L
IA
payment, indorsers ceases to be merely
secondarily
B
IL liable; they become principal INDORSERS R
IG
Sec 69 (20,21,44) Agent
debtors whose liability becomes identical to

I H
T TS Section 26 Holders for Value
I
that of the original obligor. The holder of a
ES Tuazon vs. Heirs of Ramos GR. No. 156262 July 14, 2005; After an instrument is
negotiable instrument need not even proceed

Section 61
against the maker before suing the indorser. Drawer is not indispensable party in
an action against the indorser of checks.
against the maker before suing the indorser.

Drawer is not indispensable party in an action

“Order”
against the indorser of checks.


Tuazon
IV. RIGHTSvs. Heirs of
AND LIABILITIES Ramos GR.Atty.
OF PARTIES No.
Professor 156262
of Law and Economics July
Rene Alexis P. Villarente, JD, MBA
14, 2005; After an instrument is dishonored by

Section 60
non
L
IA
payment, indorsers ceases to be merely
secondarily
B
IL liable; they become principal INDORSERS R
IG
Sec 69 (20,21,44) Agent
debtors whose liability becomes identical to

I H
T TS Section 26 Holders for Value
I
that of the original obligor. The holder of a
ES Tuazon vs. Heirs of Ramos GR. No. 156262 July 14, 2005; After an instrument is
negotiable instrument need not even proceed

Section 61
against the maker before suing the indorser. Drawer is not indispensable party in
an action against the indorser of checks.
against the maker before suing the indorser.

Drawer is not indispensable party in an action

“Order”
against the indorser of checks.

Compare: Villanueva vs. Nite: The Drawer is an

indispensable party when drawee is sued by the payee.


W14 D1
Section 60

IA
B R
I H
I
ES
CHAPTER V dishonored by non payment, indorsers ceases to be merely secondarily liable; Sec. 52/58 Holders in due course
LIABILITIES OF
“Order”
Sec. 1 (b) PARTIES Section 62 Villanueva vs. Nite GR. No. 148211 July 25, 2006; If a (drawee)
W14 D1
Section 60

IA
B R
I H
Q: IS A COLLECTING
I
BANK A HOLDER?

1. Is a collecting bank a holder for value Professor of Law and Economics
with rights or a last indorser with

L
IA
B
liability (PCHC rule § 17)?
R
I H
2. A collecting bank was considered a

I
ES
holder for value [BPI vs. CA, G.R. No.
112392, February 29, 2000, an

accommodation party is liable to a

collecting bank as it is a holder for

value]. But a collecting bank was

DRAWEE
considered an indorser since usually it Section 52, as a general rule, every holder is presumed
“guarantees all prior indorsements or

lack of it”. [Associated Bank vs. CA 252 BPI vs. CA and Napiza GR. No. 112392 February 29,
SCRA 260, January 31, 1996]


3. First Answer. Up until the latest case Professor of Law and Economics
of Metro Bank vs. BA Finance [GR

L
IA
B
179952, December 4, 2009] “the
R
IL
I collecting bank or last endorser Section 51 Simple Holder IG
H
generally suffers the loss because it

I
ES
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

DRAWEE
presentment has done its duty to Section 52, as a general rule, every holder is presumed
ascertain the genuineness of the

endorsement” (Associated Bank vs. CA, BPI vs. CA and Napiza GR. No. 112392 February 29,
G.R. 107382, January 31, 1996)


4. Second Answer. A collecting bank is a Professor of Law and Economics
holder with rights (Section 191: payee

L
IA
B
or indorsee or bearer) and not an
R
IL
I indorser with liabilities (Section 63: Section 51 Simple Holder IG
H
“intent to be bound”). A collecting

I
ES
bank’s practice of guaranteeing “all
prior indorsements or lack of it” is a

clearing house indorsement, [PCHC

rules, Section 17] and not one under

the NIL [Section 65 or 66]. A collecting

DRAWEE
bank is a holder for value [Bank of the Section 52, as a general rule, every holder is presumed
Philippine Islands vs. Gregorio C.

Roxas, G.R. No. 157833, October 15, BPI vs. CA and Napiza GR. No. 112392 February 29,
2007]

5. Third Answer: Section 4-205 of the U.S. Professor of Law and Economics
Uniform Commercial Code (US UCC) defines a

collecting
L
IA
MAKER bank
PAYEE as “a bank
A handling
B an item
HOLDER
Ifor collection except the payor bank”. Also

B R
L Section 51 Simple Holder IG
I
Section
T 4-201 of US UCC states “unless the Section 26 Holders for Value
H
TS
I
contrary intent clearly appears and before
the time that a settlement given by a To sue, be paid and to negotiate
collecting
DRAWER
bank
PAYEE
for an item
A
is or BbecomesHOLDER
final, the bank, with respect to the item, is an Section 191 Definition of Terms: Holder means
agent or sub-agent of the owner of the item the payee or indorsee of a bill or note, who is
and DRAWEE
any settlement given for the item is BPI vs. Roxas GR. No. 157833 October 15, 2007; Under
provisional” (http://www.law.cornell. Section 52, as a general rule, every holder is presumed

edu/ucc/4/4-201.html). A collecting bank is one or more of the conditions are lacking.
neither holder nor indorser but an agent or BPI vs. CA and Napiza GR. No. 112392 February 29,
sub-agent of the owner of the item. holder at the time of taking the instrument knew him

6. What is a collecting bank then? Professor of Law and Economics
(a) An
L
IA indorser
MAKER with liabilities?
PAYEE A (Section
B 17
HOLDER
PCHC Rules; Associated Bank vs. CA, 1996)

B
IL Section 51 Simple Holder
R
IG
I H
I
(b) A holder with rights? (Bank of the
Philippine Islands vs. Gregorio C. Roxas, G.R. To sue, be paid and to negotiate
No. DRAWER
157833, October
PAYEE
15,
A
2007) B HOLDER
(c) Agent for purposes of collection? (Section the payee or indorsee of a bill or note, who is
4-205 of the U.S. Uniform Commercial Code)

DRAWEE
7. In 2008 it seems that the better view is one or more of the conditions are lacking.
that, a collecting bank is an agent . The BPI vs. CA and Napiza GR. No. 112392 February 29,
case at point was Far East Bank vs. Gold holder at the time of taking the instrument knew him
Palace, GR 168274, August 20, 2008 Q: Is a collecting bank a holder for value with rights or
7. (c) Agent for purposes of collection is the Professor of Law and Economics
now the better view. Far East Bank vs. Gold

Palace,
L
IA
MAKER GR 168274,
PAYEE August
A 20, 2008
B HOLDER
B R
I
When Gold Palace deposited the check
T
I
Section 26 Holders for Value
H
TS
with Far East, the latter, under the terms

of the deposit and the provisions of the To sue, be paid and to negotiate
NIL, became an agent of the former for

the collection of the amount in the draft. Section 191 Definition of Terms: Holder means
The subsequent payment by the drawee

DRAWEE
bank and the collection of the amount by BPI vs. Roxas GR. No. 157833 October 15, 2007; Under
the collecting bank closed the claims otherwise has the onus probandi to prove that
transaction insofar as the drawee and BPI vs. CA and Napiza GR. No. 112392 February 29,
the holder of the check or his agent are

concerned, converted the check into a Q: Is a collecting bank a holder for value with rights or

Palace,
L
IA
MAKER GR 168274,
PAYEE August
A 20, 2008
B HOLDER
B R
I
mere voucher, and, as already discussed,
T
I
H
TS
foreclosed the recovery by the drawee of

the amount paid. This closure of the To sue, be paid and to negotiate
transaction is a matter of course;

otherwise, uncertainty in commercial Section 191 Definition of Terms: Holder means

transactions, delay and annoyance will

DRAWEE
arise if a bank at some future time will BPI vs. Roxas GR. No. 157833 October 15, 2007; Under
call on the payee for the return of the claims otherwise has the onus probandi to prove that
money paid to him on the check. BPI vs. CA and Napiza GR. No. 112392 February 29,


Palace,
L
IA
MAKER GR 168274,
PAYEE August
A 20, 2008
B HOLDER
B R
I
As the transaction in this case had been
T
I
H
TS
closed and the principal-agent

relationship between the payee and the To sue, be paid and to negotiate
collecting bank had already ceased, the

latter in returning the amount to the Section 191 Definition of Terms: Holder means
drawee bank was already acting on its

DRAWEE
own and should now be responsible for BPI vs. Roxas GR. No. 157833 October 15, 2007; Under
its own actions. Neither can petitioner be claims otherwise has the onus probandi to prove that
considered to have acted as the BPI vs. CA and Napiza GR. No. 112392 February 29,
representative of the drawee bank when

it debited respondent’s account, Q: Is a collecting bank a holder for value with rights or

Palace,
L
IA
MAKER GR 168274,
PAYEE August
A 20, 2008
B HOLDER
B R
I
because, as already explained, the
T
I
H
TS
drawee bank had no right to recover

what it paid. Likewise, Far East cannot To sue, be paid and to negotiate
invoke the warranty of the

payee/depositor who indorsed the Section 191 Definition of Terms: Holder means
instrument for collection to shift the

DRAWEE
burden it brought upon itself. This is BPI vs. Roxas GR. No. 157833 October 15, 2007; Under
precisely because the said indorsement claims otherwise has the onus probandi to prove that
is only for purposes of collection which, BPI vs. CA and Napiza GR. No. 112392 February 29,
under Section 36 of the NIL, is a

restrictive indorsement. Q: Is a collecting bank a holder for value with rights or


Palace,
L
IA
MAKER GR 168274,
PAYEE August
A 20, 2008
B HOLDER
B R
I
It did not in any way transfer the title of
T
I
H
TS
the instrument to the collecting bank. Far

East did not own the draft, it merely To sue, be paid and to negotiate
presented it for payment. Considering

that the warranties of a general indorser Section 191 Definition of Terms: Holder means
as provided in Section 66 of the NIL are

DRAWEE
based upon a transfer of title and are BPI vs. Roxas GR. No. 157833 October 15, 2007; Under
available only to holders in due course, claims otherwise has the onus probandi to prove that
these warranties did not attach to the BPI vs. CA and Napiza GR. No. 112392 February 29,
indorsement for deposit and collection

made by Gold Palace to Far Q: Is a collecting bank a holder for value with rights or

Palace,
L
IA
MAKER GR 168274,
PAYEE August
A 20, 2008
B HOLDER
B R
I
East. Without any legal right to do so, the
T
I
H
TS
collecting bank, therefore, could not

debit respondent’s account for the To sue, be paid and to negotiate
amount it refunded to the drawee bank.


DRAWEE


W14 D2

Palace,
L
IA
MAKER GR 168274,
PAYEE August
A 20, 2008
B HOLDER
B R
I
East. Without any legal right to do so, the
T
I
H
TS
collecting bank, therefore, could not

debit respondent’s account for the To sue, be paid and to negotiate
amount it refunded to the drawee bank.


DRAWEE
BUT… BPI vs. Roxas GR. No. 157833 October 15, 2007; Under


W14 D2
8. IN 2009… Professor of Law and Economics

IA
B R
I H
I

DRAWEE


L
Metropolitan Bank and Trust Company
IA
B
(formerly Asian Bank Corporation) vs. BA R
Finance Corporation and Malayan Insurance
IL
I
H
Co., Inc., G.R. No. 179952, December 4, 2009,
T
I
ES
First Division, J. Carpio Morales.

DRAWEE


L
Metropolitan Bank and Trust Company
IA
B
(formerly Asian Bank Corporation) vs. BA R
Finance Corporation and Malayan Insurance
IL
I
H
Co., Inc., G.R. No. 179952, December 4, 2009,
T
I
ES
First Division, J. Carpio Morales.
“the collecting bank or last endorser

generally
DRAWER
suffers
PAYEE
the loss
A
because
B
it has the
HOLDER
duty to ascertain the genuineness of all prior Section 191 Definition of Terms: Holder means
endorsements
DRAWEE
considering that the act of
presenting the check for payment to the BPI vs. Roxas GR. No. 157833 October 15, 2007; Under
drawee is an assertion that the party making

the presentment has done its duty to BPI vs. CA and Napiza GR. No. 112392 February 29,
ascertain the genuineness of the instrument to a holder for value, notwithstanding such
endorsements” [Associated Bank id.]” Q: Is a collecting bank a holder for value with rights or
9. What is a collecting bank then? How do we Professor of Law and Economics
answer this question if ask?

IA
B R
I H
I

DRAWEE



(a) An indorser with liabilities (Section 17
IA
B R
PCHC Rules; Associated Bank vs. CA, 1996,
IL
I
H
Latest is Metro Bank vs. BA Finance
T
I
ES
Corporation G.R. No. 179952, December 4,
2009) To sue, be paid and to negotiate

DRAWEE



IA
B R
IL
I
H
T
I
ES
(b) ADRAWER
holder with
PAYEE
rights A(Bank of Bthe HOLDER
Philippine Islands vs. Gregorio C. Roxas, G.R. Section 191 Definition of Terms: Holder means
No. DRAWEE
157833, October 15, 2007)



IA
B R
IL
I
H
T
I
ES
(b) ADRAWER
holder with
PAYEE
rights A(Bank of Bthe HOLDER
Philippine Islands vs. Gregorio C. Roxas, G.R. Section 191 Definition of Terms: Holder means
No. DRAWEE
157833, October 15, 2007)
(c) Agent for purposes of collection (Section

4-205 of the U.S. Uniform Commercial Code;

Far East Bank vs. Gold Palace, GR 168274, BPI vs. CA and Napiza GR. No. 112392 February 29,
August 20, 2008) holder at the time of taking the instrument knew him


IA
B R
I H
I

DRAWEE


Section 60

IA
B R
I H
COLLECTING
I
BANK

Section 60

IA
B R
I H
I
“Order”
Sec. 1 (b) Section 62 CHAPTER IV
Villanueva vs. Nite GR. No. 148211 July 25, 2006; If a (drawee)
RIGHTS OF THE
HOLDER
Section 60

IA
B R
I H
I
ES
CHAPTER V dishonored by non payment, indorsers ceases to be merely secondarily liable; Sec. 52/58 Holders in due course
LIABILITIES OF
“Order”
Sec. 1 (b) PARTIES Section 62 CHAPTER IV
Villanueva vs. Nite GR. No. 148211 July 25, 2006; If a (drawee)
RIGHTS OF THE
HOLDER
Section 60

IA
B R
I H
I

BAR STATISTICS 1983 TO 2019 Atty. Rene Alexis P. Villarente, JD, MBA
1983- 2011 2018 1983-

2017 (NY) BAR 2019 BAR 2019
Section 1 and Allied
Sections 37 14 52.5 0 36
Rights and Liabilities 22 47 0.0 30 22

Section 14, 15, 16 and
Indorsement 13 11 25.0 0 13
Forgery and Material
Alterations 9 14 0.0 70 10
Section 29
(Accommodation) 7 3 10.0 0 7
Section 3 (24)
Consideration 5 8 12.5 0 5
Others 7 3 0.0 0 7
1983- 2011 2018 1983-

2017 (NY) BAR 2019 BAR 2019
Sections 37 14 52.5 0 36

Section 29
Section 3 (24)
Others 7 3 0.0 0 7
1983- 2011 2018 1983-

2017 (NY) BAR 2019 BAR 2019
Sections 37 14 52.5 0 36

Section 29
Section 3 (24)
Others 7 3 0.0 0 7
W14 D3
1983- 2011 2018 1983-

2017 (NY) BAR 2019 BAR 2019
Sections 37 14 52.5 0 36
93.0%
Section 29
Section 3 (24)
Others 7 3 0.0 0 7
W14 D3
Section 60

IA
B R
I H
I


2 B 5 A Rights&Liabilities

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IV. RIGHTS AND LIABILITIES OF PARTIES Atty. Rene Alexis P.

Villarente, JD, MBA

L MAKER PAYEE A B HOLDER

DRAWER PAYEE A B HOLDER

“Order” Section 191 Definition of Terms: Holder means

MAKER PAYEE A B HOLDER

DRAWER PAYEE A B HOLDER

MAKER PAYEE A B HOLDER

DRAWER PAYEE A B HOLDER

L MAKER PAYEE A B HOLDER

DRAWER PAYEE A B HOLDER

L MAKER PAYEE A B HOLDER

DRAWER PAYEE A B HOLDER

L MAKER PAYEE A B HOLDER

DRAWER PAYEE A B HOLDER

L MAKER PAYEE A B HOLDER

DRAWER PAYEE A B HOLDER

Section 51. Right of holder to sue;

payment. – The holder of a negotiable

L MAKER PAYEE A B HOLDER

DRAWER PAYEE A B HOLDER

L MAKER PAYEE A B HOLDER

DRAWER PAYEE A B HOLDER

Section 26. What constitutes holder for

value. – Where value has at anytime been

L MAKER PAYEE A B HOLDER

DRAWER PAYEE A B HOLDER

Section 52. What constitutes a holder in

(a) That is complete and regular upon its

(b) That he became the holder of it before

it was over due, and without notice that it

Section 52. What constitutes a holder in

(c) That he took it in good faith and for

(d) That at the time it was negotiated to

him he had no notice of any infirmity in

Section 58. When subject to original

same defenses as if it were non-

the rights of such former holder in respect

L MAKER PAYEE A B HOLDER

principle” embodied in the Negotiable

rights of a holder-in-due course to a

Suggested Answer: Section 58 of the NIL

L MAKER PAYEE A B HOLDER

DRAWER PAYEE A B HOLDER

Section 59. Who is deemed a holder in due

person who has negotiated the instrument

person (Section 58) under whom he claims

But the last mentioned rules does not

L MAKER PAYEE A B HOLDER

(1) HOLDERS SIMPLY (SECTION 51)

(2) HOLDERS FOR VALUE (SECTION 26)

(3) HOLDERS IN DUE COURSE

L MAKER PAYEE A B HOLDER

DRAWER PAYEE A B HOLDER

Section 191 Definition of Terms: Holder means

L MAKER PAYEE A B HOLDER

DRAWER PAYEE A B HOLDER

Section 191 Definition of Terms: Holder means

Section 191 Definition of Terms:

L MAKER PAYEE A B HOLDER

Sec. 52/58 Holders in due course

DRAWER PAYEE A B HOLDER