Nego Transcript 405 2013-2014 TRWE

Negotiable Instruments Law Midterm Transcript. USC College of Law. Room 405.
AY 2013-2014
Discuss briefly the history of Negotiable Instruments Law: The Negotiable

Instruments Law of the Philippines was patterned after the draft approved by the What are the elements of negotiability? 1) It must be in writing and signed by the
Commissioners on Uniform State laws in the United States which was patterned after the Bills maker or drawer; 2) Must contain an unconditional promise or order to pay a sum
of Exchange Act of England which was codified in that country in 1882. certain in money; 3) Must be payable on demand, or at a fixed or determinable
future time; 4) Must be payable to order or to bearer; and 5) Where the instrument is
Prior to the Bills of Exchange Act in 1882, from what law did the English people addressed to a drawee, he must be named or otherwise indicated therein with
patterned the said act? From the law of merchants. The English copied this law and reasonable certainty.
codified it under the Bills of Exchange Act. Then it was copied by the United States of America
until such time that they decided a unified Negotiable Instruments Law. Since the Philippines What are the special kinds of promissory notes? Bank notes, Bonds, certificate of
was under the dominion of the USA at that time, we patterned our NIL from their unified NIL. deposit, due bills.
What are the governing laws of Negotiable Instruments in the Philippines? What are bank notes? They are promissory notes of the issuing bank payable to bearer on
(1) Act No. 2031 (which was enacted on February 3, 1911 and took effect 90 days after demand and intended to circulate as money. They are regarded as cash and pass from hand
its publication was completed. This was on March 4, 1911 and therefore, the Act took to hand without any evidence of title in the holder than that which arises from possession.
effect on June 2, 1911.) However, they are not money.
(2) The Code of Commerce (those provisions which were not repealed by the passage of
the New Civil Code) What is a bond? It is promise, under seal, to pay money. It may also be defined as a series
(2) New Civil Code (applied suppletorily to the NIL) of instruments representing unites of indebtedness regarded as parts of one entire debt. The
bond certifies that the issuing company is indebted to the bondholder for the amount
Why is it important for us determine the origin of the NIL? It is important because in specified on the face of the bond and contains an agreement of the company to pay a
interpreting our NIL, the courts, particularly our Supreme Court, may consult English or specified interest on the principal amount at regular intervals. Bonds are negotiable if they
American jurisprudence, in instances where there are vague provisions in our NIL. The conform with Section 1 of the NIL.
English and American NIL laws are our main sources of the NIL.
Is it the same bond you issue to NLRC in order to perfect an appeal? No because the
What are the common forms or kinds of negotiable instruments? These are: (1) purpose of that bond is to pay the claims of the workers in case your appeal is dismissed
promissory notes, (2) bills of exchange, and (3) checks, which are a special kind of a while the bond in the concept of negotiable instrument is a promise, under seal, to pay
bills of exchange. money.
*What is a negotiable promissory note? It is an unconditional promise in writing made What is a certificate of deposit? It is a written acknowledgement by a bank of the receipt
by one person to another, signed by the maker, engaging to pay on demand or at a fixed of money on deposit which the bank promises to pay to the depositor, bearer, or to some
or determinable future time, a sum certain in money to order or to bearer. other person or order. It is not ipso facto a negotiable instrument. To be such, it must
conform to Section 1 of the NIL.
Give an example of a promissory note:
P10,000 Cebu City, Philippines What is a due bill? It is an instrument whereby one person acknowledges his indebtedness
December 1, 2013 to another. If it conforms with Section 1 of the NIL, a due bill is considered a negotiable
For value received, I promise to pay to the order of Jo Borbajo the sum of Ten Thousand promissory note.
Pesos (P10,000) on or before December 31, 2014 at the River Bank, Cebu City.
(Sgd.) Rem Veloso Give an example of a due bill: Due B, P200, payable to his order. (Sgd.) A
What are the general characteristics of a promissory note: *What is a bill of exchange?
(1) The promise, “I promise to pay” consists of an absolute promise to pay. It is not subject It is an unconditional order in writing
to the fulfillment of a condition. addressed by one person to another
(2) The words “to the order of” means that the promise is to pay as ordered or commanded signed by the person giving it,
by the payee. But an instrument may be payable to bearer. requiring the person to whom it is addressed
(3) The name “Jo Borbajo” is the person whose order of command the money is promised to to pay on demand or at a fixed or determinable future time
be paid. He is known as the payee. a sum certain in money to order or to bearer.
(4) The signature “Rem Veloso” is made by the maker of the note. He is the one who
promised to pay it at the first instance. Give an example of a bill of exchange:
(5) The amount “Ten Thousand Pesos” indicates, as the figures do, the sum to be promised P10,000 Cebu City, Philippines
to be paid. As it is written in words, it cannot be easily altered and since it takes longer to December 1, 2013
write in words than the figures, the words are more likely to be accurate.
“Everything not saved will be lost.” -Nintendo "Quit Screen" message Page 1
Negotiable Instruments Law Midterm Transcript. USC College of Law. Room 405. AY 2013-2014
Thirty days after sight, pay to the order of Pedro Alamban, the sum of Ten Thousand Pesos What is a draft? It is a common term for all bills of exchange and they are used
(P10,000). Value received and charge the same to the account of synonymously.
(Sgd.) Ernesto Reyes
To Augusto Tolentino What is a trade acceptance? It is a bill of exchange drawn by the seller on the
buyer of goods sold and accepted by such buyer. It is a negotiable instrument because
What are the characteristics of a bill of exchange? it complies with the requisites under the Negotiable Instruments Law.
(1) The order or command to pay “Pay to”. This is an order or command to pay.
(2) The signature, “Ernesto Reyes”. He is the drawer. What is a treasury warrant? It is actually an order for payment out of a particular fund
(3) The name “Augusto Tolentino”. He is the drawee, i.e., the one ordered or commanded to and is not unconditional and does not fulfill one of the essential requirements of a negotiable
pay a sum certain in money. instrument, i.e, the unqualified order or promise to pay must be unconditional and
an order or promise to pay out of a particular fund is not unconditional. Treasury
Distinguished between a bill of exchange and a promissory note: warrants are paid out of a particular fund, i.e., Fund 501 which makes it not unconditional.
This is a non-negotiable instrument.
Bill of Exchange Promissory Note
As to the number of 3 (drawer, drawee, payee) 2 (maker, payee) What is a clean bill of exchange? Is one to which are not attached documents of title to
parties: be delivered to the person against whom the bill is drawn when he either accepts or pays the
As to the unconditional It is an unconditional order It is an unconditional bill.
thing to do or a command promise
As to the person who The drawer The maker PHILIPPINE EDUCATION CO vs MAURICIO SORIANO
executes the written FACTS: Enrique Montinola sought to purchase from Manila Post Office ten money orders. He
order or promise: managed to steal such checks and a message was sent to instruct all banks that it must not
As to whose primarily The drawee The maker pay for the money order stolen. Philippine Education Co received one of the above mentioned
liable: money orders as part of its sales receipts. The following day it deposited the same with the
As to the number of 2 (presentment for 1 (presentment for Bank of America, and one day thereafter the latter (BA) cleared it. After learning that the
presentments: acceptance, presentment payment) money order had been irregulary issued, the Money Order Division deducted BA’s clearing and
for payment) the latter, in turn, debited appellant’s account.
What are the special types of bills of exchange? ISSUE: Whether or not the postal money order in question is a negotiable instrument.
(1) banker’s acceptance
(2) draft HELD: Postal money orders are not negotiable instruments, the reason behind this rule
(3) money orders being that, in establishing and operating a postal money order system, the government is
(4) trade acceptance not engaging in commercial transactions but merely exercises a governmental
(5) treasury warrants power for the public benefit.
(6) clean bill of exchange
Moreover, there are provisions in the postal money order law of the Philippines which are not
What is a banker’s acceptance? It is a bill of exchange of which the acceptor is a bank or in consonance with our Negotiable Instruments Law. For instance, such laws and regulations
banker engaged generally in the business of granting banker’s acceptance credit. It is similar usually provide for not more than one endorsement. While under our NIL, endorsements are
to a trade acceptance, the fundamental difference being that the banker’s acceptance is allowed for a number of times.
drawn against the bank instead of the buyer.
What is a time bill? It is a bill which is payable at a fixed future time or at a determinable
What is a money order? A species of draft drawn by the post-office upon another for an future time.
amount of money deposited at the first office by the person purchasing the money order and
payable at the second office to payee named in the order. What is an inland bill? It is a bill of exchange which is both drawn and payable within
the Philippines.
Is a money order negotiable? Postal money orders are not negotiable instruments
because in establishing and operating a postal money order system, the government is not What is a foreign bill? A bill which on its face purports to be drawn and payable outside
engaging in commercial transactions but merely exercises a governmental power for the the Philippines. Any bill which does not fit the specification of an inland bill.
public benefit.
What if it is drawn in the Philippines but payable outside the Philippines? It is still a
foreign bill.
What if it is drawn outside the Philippines but payable in the Philippines? It is still a What is cross check? It is a check where there is stamped across the face of the check the
foreign bill. name of a certain banker through whom it must be presented for payment, and if presented
by any one else, it will not be honored.
What is a check? A bill of exchange drawn on a bank payable on demand.
How is the crossing of check done? Crossing of the check is usually done by drawing
What are the general characteristics of a check? parallel lines transversally on the face of the check. A check may be crossed 1) specially or 2)
1) There is an order or command to pay; generally.
2) There is a signature of the drawer;
3) The name of the Bank who is ordered or commanded to pay a sum certain in money. What is the purpose of crossing the check For security reasons, it gives assurance to the
drawer that it will be paid to the rightful owner especially when it is to be forwarded by mail
What are the special types of checks? The following are special types of checks: or when it is entrusted to any agent.
1) cashier’s check
2) manager’s check Is a cross-check a negotiable instrument? Yes, because such complies with the
3) memorandum check requirements on negotiable instrument under Section 1 of the NIL.
4) certified check
5) crossed check How about a warehouse receipt, is it a negotiable instrument? No, it is not a
negotiable instrument because a warehouse instrument represent goods, not money.
What is a cashier’s check? It is one drawn by the cashier of a bank in the name of the
bank against the bank itself payable to a third person or order. There is an assurance that the What about pawn tickets (papel de agencia)? No, it is not a negotiable instrument
check is funded. because pawn tickets represent the pawned item(s), not the money.
What is a manager’s check? It is a check drawn by the manager of a bank in the name of What about a bill of lading? No, it is not a negotiable instrument because a bill of lading
the bank against the bank itself. It is similar to the cashier’s check as to effect and use. It is represents goods, not money.
negotiable because it complies with the requisites on forms under the Negotiable Instruments
Law. What about trust receipt? No, it is not a negotiable instrument because it is an evidence of
ownership.
What is a memorandum check? A check on which is written the word “memorandum”,
“memo” and “mem”, signifying that the drawer engages to pay the bona fide holder
absolutely and not upon a condition to pay upon presentment and non-payment. It
is given by the borrower to the lender as evidence of his indebtedness. Distinctions between a check and a bill of exchange. (add as to)
What is the purpose of a memorandum check? It is one of the securities given to the CHECK BILL OF EXCHANGE
lender by the borrower. It is not supposed to be presented for payment. It is simply an A check is always drawn upon a bank An ordinary bill may or may not be
evidence of the borrower’s indebtedness. or banker drawn against a bank.
A check is always payable on demand An ordinary bill may be payable on
Can the lender still present it for payment? Yes, it can be presented for payment. demand or at a fixed or determinable
future time.
Can the borrower, as a matter of defense in a BP 22 case, say that is it just a A check is not necessarily presented An ordinary bill must be presented for
memorandum check, that it is not supposed to be presented for payment? No, it is for acceptance. Not to be accepted but acceptance.
not a matter of defense. He can still be held liable under BP 22. presented at once for payment.
(However, if the holder requests, and the
What is the purpose of BP 22? The purpose is to punish those who issue checks with banker desires, he may accept.)
insufficient fund. A check is drawn on a deposit. The An ordinary bill is not drawn on a
drawer must have funds in the hands deposit. In other words, it is not
What is a certified check? A check on which the drawee bank has written an of the drawee, otherwise it would be necessary that a drawer of a bill of
agreement whereby it undertakes to pay the check at any future time when fraud. exchange should have funds in the hands
presented for payment such as, by stamping on the check the word “certified” and of a drawee.
underneath it is written the signature of the cashier. The death of the drawer of a check, with The death of a drawer of a bill of
knowledge by the banks, revokes the exchange, with knowledge by the banks,
authority of the banker to pay. does not revoke the authority of the
banker to pay. CTDs, and thus executed an affidavit of loss to facilitate the issuance of the replacement
A check must be presented for payment A bill of exchange may be presented for CTDs. De la Cruz was able to obtain a loan of P875,000 from the bank, and in turn, he
within a reasonable time after its issue. payment within a reasonable time after executed a notarized Deed of Assignment of Time Deposit in favor of the bank. Thereafter,
its last negotiation. Caltex presented for verification the CTDs (which were declared lost by de la Cruz) with the
bank. Caltex formally informed the bank of its possession of the CTDs and its decision to
What is a negotiable instrument? It is a written contract for a payment of money which is preterminate the same. The bank rejected Caltex’ claim and demand, after Caltex failed to
intended as a substitute for money in such a way as to make the holder, as a holder in due furnish copy of the requested documents evidencing the guarantee agreement, etc. In 1983,
course, free from personal defenses. de la Cruz’ loan matured and the bank set-off and applied the time deposits as payment for
the loan. Caltex filed the complaint, but which was dismissed.
What is negotiation? It is such transfer of an instrument from one person to another as to
constitute the transferee the holder of the instrument. ISSUE 1: Whether or not the Certificate of Time Deposits in question are negotiable
ISSUE 2: Whether the CTDs’ negotiation require delivery only.
What is negotiability? It is an attribute or property whereby a bill, note or check passes or
may pass from hand to hand similar to money, so as to give the holder in due course the HELD: ISSUE 1: Yes, the CTDs in question are negotiable instruments. Section 1 of NIL
right to hold the instrument and collect the sum payable for himself free from defense. enumerates the requisites for an instrument to become negotiable and the CTDs in question
undoubtedly meet the requirements of the law for negotiability. The negotiability or non-
What is the purpose of negotiability? The primary purpose of negotiability of a negotiability of an instrument is determined from the writing, that is, from the
negotiable instrument is to allow bills and notes the effect which money, in the form of face of the instrument itself. In the construction of a bill or note, the intention of the
government bills or notes, supplies in the commercial world. parties is to control, if it can be legally ascertained. The duty of the court in such case is
to ascertain, not what the parties may have secretly intended as
What is a holder? A holder is the payee or endorsee of a bill or note who is in possession of contradistinguished from what their words express, but what is the meaning of
it or the bearer thereof. the words they have used.
SECTION 1.Form of Negotiable Instruments. — An instrument to be negotiable ISSUE 2: Although the CTDs are bearer instruments, a valid negotiation thereof for the true
must conform to the following requirements: purpose and agreement between it (Caltex) and de la Cruz requires both delivery and
1) It must be in writing and signed by the maker or drawer; indorsement; as the CTDs were delivered to it as security for dela Cruz’ purchases of its fuel
2) Must contain an unconditional promise or order to pay a sum certain in money; products, and not for payment. Herein, there was no negotiation in the sense of a transfer of
3) Must be payable on demand, or at a fixed or determinable future time; title, or legal title, to the CTDs in which situation mere delivery of the bearer CTDs would
4) Must be payable to order or to bearer; and have sufficed. The delivery thereof as security for the fuel purchases at most constitutes
5) Where the instrument is addressed to a drawee, he must be named or Caltex as a holder for value by reason of his lien.
otherwise indicated therein with reasonable certainty.
Is a Certificate of Time Deposit negotiable? It depends. In the case of Caltex vs CA, the
How do you determine the negotiability of an instrument The negotiability of an court held the CTD as negotiable.
instrument is to be determined: 1) by the provisions of the Negotiable Instruments Law,
particularly Section 1 thereof; 2) by considering the whole of the instrument; and 3) by what What are the governing laws on negotiable instruments? Act No 2031 (Negotiable
appears on the face of the instrument and not elsewhere. Instruments Law); Code of Commerce whose provisions are not conflict with the Negotiable
Instruments Law; Civil Code (suppletory)
Is there a need for you to consider external documents in determining the
negotiability of an instrument? No need to trace other documents. You only limit you Distinguished ordinary check from memorandum check
examination on the negotiability on the face of the document itself. We use negotiable
instruments in lieu of using money, for example in a promissory note we need look into or Ordinary check Memorandum check
inquire into the loan agreement. In fact you cannot demand from the person issuing the The word “memorandum”
negotiable instrument any documents to prove the validity of sufficiency of the negotiable written upon the check
instrument. describes the nature of the
contract
CALTEX vs CA As to form and Does not differ from an ordinary
FACTS: On various dates, Security Bank and Trust Co issued 280 certificates of time deposit appearance check except the word
(CTD) in favor of one Angel dela Cruz who deposited with the bank the aggregate amount of “memorandum”, “mem” or
P1.12 million. Anger de la Cruz delivered the CTDs to Caltex in connection with his purchase memo” is written upon its face.
of fuel products from the latter. Subsequently, dela Cruz informed the bank that he lost all the As to purpose For payment Given by the drawer to the
payee as memorandum of collect the sum payable regardless of defenses which might obtain between the
indebtedness original parties.
As to the steps taken Demand for payment The drawer may be sued the
before the holder can and a refusal on the same as upon a promissory note What is accumulation of secondary contracts A characteristic of a negotiable instrument
maintain an action part of the bank in which secondary contracts are picked and carried along with them as they are negotiated
against the drawer from one person to another. This attribute is just as essential as negotiability, if they are to
serve as substitute for money. The party to whom it is offered may not know anything about
What are the FUNCTIONS of negotiable instruments? the original parties on their solvency and can afford to take the paper only if the party with
1) They are a substitute for money. whom he is dealing with adds his credit.
2) They increase the purchasing medium in circulation.
3) They facilitate the sale of goods. A  B CD; B to C and C to D are the secondary contracts. From whom should D
4) They operate to supplement the currency of the government. collect the amount? D must present the instrument to A, the maker, who is primarily
5) They are a means of creating and transferring credit. liable. If, however, A cannot pay, who shall D make liable? First with C, where a
secondary contract was created between them. If however, C cannot pay, C can enforce
Is giving and taking of negotiable instrument or manager’s check considered as the instrument against B whom C created a secondary contract with.
absolute payment as in case of money? No, because a negotiable instrument is not a
legal tender, it is merely a prima facie conditional payment. The delivery of promissory What is the advantage of accumulation of secondary contracts? The negotiable
notes payable to order or bills of exchange shall produce the effect of payment only instruments improve as they pass from hand to hand, as more debtors are added. There are
when they have been cashed or when through the fault of the creditor, they have as many secondary contracts and debtors as the endorsements. The more endorsements, the
been impaired. In the meantime, the action derived from the original obligation shall be more debtors there will be, and the more debtors there are, the greater the chances that the
held in abeyance. holder has to collect the amount payable on the instrument.
What is legal tender? That kind of money which the law compels a creditor to accept in Differentiate negotiability from assignability.
payment for his debt when tendered by the debtor in the right amount.
Negotiability Assignability
What are the two principal FEATURES of negotiable instrument? negotiability pertains only to a special Assignability is a more comprehensive
1) Negotiability class of contracts, namely, to term than negotiability and pertains to
2) Accumulation of secondary contracts as they are transferred from one person to another. negotiable instruments. contracts in general.
a person who takes an instrument by A person who takes an instrument by
What is the concept of negotiability? It is that attribute or property whereby a bill, note negotiation takes it free from the assignment takes the instrument subject to
or check passes from hand to hand similar to money, so as to give the holder in due course personal defenses available among the the defenses obtaining among the original
the right to hold the instrument and collect the sum payable for himself free from defense. parties. parties
The defenses from which a holder in due course is free are personal defenses but he is not The endorser is not liable on his The assignor in good faith, does not
free from real defenses. endorsement unless there be warrant the solvency of the debtor unless it
presentment for payment at maturity has been expressly stipulated or unless the
What is the purpose of negotiability? The primary purpose of negotiability of negotiable and prompt notice of dishonor in case insolvency was prior to the assignment and
instrument is to allow bills and notes the effect which money, in the form of of dishonor. When these steps are of common knowledge. He merely warrants
government bills or notes, supplies in the commercial world. taken, he becomes immediately liable the existence and legality of the credit
on the instrument. The general assigned at the time of the assignment.
Illustration of negotiability. (1) A induces B by fraud to make a promissory note payable endorser is secondarily liable for any
to the order of A in the sum of P1000.00 payable on demand. This is fraud in inducement cause which the party primarily liable
which is a personal defense. If A files an action against the maker B for the amount, B can on a negotiable instrument does not or
interpose the defense that he was induced to make the note by fraud and that he did not cannot pay. He warrants the solvency
receive any valuable consideration for it. (2) But suppose that instead of trying to collect from of the party primarily liable. The
B, A transfers the note to C, who pays P1000.00 and acquires the note under circumstances qualified endorser and the person
that make him a holder in due course. And then C files an action against B for P1000.00. If negotiating by mere delivery have a
the note were not negotiable, B can still interpose the same defense that he could interpose limited secondary liability.
against A. But if the note is negotiable, B cannot interpose the personal defense of
fraud, because C as a holder in due course has the right to hold the instrument and SESBREÑO vs CA
FACTS: Raul Sesbreño made a money market placement in the amount of P300,000.00 with Philfinance intended the note to be offset against the outstanding obligation of Philfinance
Philfinance. Philfinance delivered to Raul Sesbreño a Denominated Custodian Receipt, issued represented by a promissory note issued to Delta as payee;
by Pilipinas Bank, indicating both their custody of the Delta Motors promissory note and to
undertake the physical delivery of the promissory note upon its maturity. Who was held to be liable in this case? Pilipinas Bank for damages. Ultimately,
according to the Supreme Court, who should be made liable? Philfinance.
However when Raul Sesbreño made demands to Pilipinas Bank for the physical delivery of the
promissory note, the latter allowed Raul to examine the note which on its face has the stamp METROBANK vs CA
‘NON-NEGOTIABLE’, but did not release the the same as the note has yet to mature. When FACTS: Eduardo Gomez opened an account with Golden Savings and deposited over a period
Raul made demand after the note matured, Pilipinas Bank simply referred the matter to of two months 38 treasury warrants with a total value of P1,755,228.37. All these warrants
Philfinance for written instructions. Raul also made demands to Delta Motors for the partial were subsequently endorsed by Gloria Castillo as Cashier of Golden Savings and deposited to
satisfaction of the promissory note, but the latter denied any liability claiming that it had its Savings Account in the Metrobank. Due to the repeated inquiries of Gloria and as an
previously agreed with Philfinance to offset its promissory note against another issued by accomodation for a valued client, Metrobank allowed Golden Savings to withdraw from the
Philfinance in favor of Delta Motors. proceeds of the warrants before the same was cleared. Golden Savings subsequently allowed
Gomez to make withdrawals from his own account. Metrobank informed Golden Savings that
ISSUE 1: Whether or not negotiability is the same as assignability. 32 of the warrants had been dishonored by the Bureau of Treasury and demanded the refund
ISSUE 2: Whether or not Pilipinas Bank is liable. by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its
account. The demand was rejected. Metrobank then sued Golden Savings.
HELD: ISSUE 1: No. Only an instrument qualifying as a negotiable instrument may be
negotiated either by endorsement coupled with delivery, or by delivery alone where the ISSUE 1: Whether or not treasury warrants are negotiable instruments.
negotiable instrument is in bearer form. A negotiable instrument may, instead of being ISSUE 2: Whether or not Metrobank can demand refund from Golden Savings
negotiated, also be assigned or transferred. The legal consequences of negotiation
as distinguished from assignment of a negotiable instrument are, of course, HELD: ISSUE 1: No. The treasury warrants in question are not negotiable
different. A non-negotiable instrument may, obviously, not be negotiated; but it may be instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this
assigned or transferred, absent an express prohibition against assignment or transfer written is of equal significance, it is indicated that they are payable from a particular fund, to wit,
in the face of the instrument. Fund 501. Under the NIL law, an instrument to be negotiable must contain an unconditional
promise or order to pay a sum certain in money; But an order or promise to pay out of a
In the instant case while the Delta Motors promissory note is marked "non-negotiable," was particular fund is not unconditional.
not at the same time stamped "non-transferrable" or "non-assignable." It contained no
stipulation which prohibited Philfinance from assigning or transferring, in whole or in part, The indication of Fund 501 as the source of the payment to be made on the treasury warrants
that Note. The assignment effected by Philfinance in favor of Raul Sesbreño was a makes the order or promise to pay "not unconditional" and the warrants themselves non-
valid one and that Raul accordingly became owner of the Delta Motor promissory note to the negotiable.
extent of the portion thereof assigned to him.
ISSUE 2: The amount Gomez has withdrawn must be charged not to Golden Savings but to
ISSUE 2: Yes. While there is nothing in the Denominated Custodian Receipt that establishes Metrobank, which must bear the consequences of its own negligence. But the balance
an obligation on the part of Pilipinas to pay Raul, Pilipinas had breached its undertaking under should be debited to Golden Savings, as obviously Gomez can no longer be permitted to
the DCR to Sesbreño. A contract of deposit was constituted by the act of Philfinance (who withdraw this amount from his deposit because of the dishonor of the warrants. To also credit
assigned such rights to Raul) in designating Pilipinas as custodian or depositary bank. The the balance to Golden Savings would unduly enrich it at the expense of Metrobank, let alone
depositary in a contract of deposit is obliged to return the security or the thing deposited the fact that it has already been informed of the dishonor of the treasury warrants.
upon demand of the depositor (or, in the present case, of the beneficiary) of the contract,
even though a term for such return may have been established in the said Distinctions between a negotiable instrument and a non-negotiable instrument
contract.
NEGOTIABLE INSTRUMENT NON-NEGOTIABLE INSTRUMENT
In the instant case, Pilipinas bank refused to deliver the security deposited with it when May be negotiated either by A non-negotiable instrument may not be
Sesbreño first demanded physical delivery. Therefore, Pilipinas bank must respond to endorsement thereof coupled with negotiated; May be assigned or
petitioner for damages sustained by him arising out of its breach of duty. This is without delivery, or by delivery alone where the transferred, absent an express
prejudice to such right of reimbursement as Pilipinas may have vis-a-vis negotiable instrument is in bearer form. prohibition against assignment or transfer
Philfinance. A negotiable instrument may also be written in the face of the instrument.
assigned or transferred.
What was the reason given by the Delta Motors in refusing to honor the A person who takes an instrument by A party who takes an instrument by
promissory note? The promissory note was not intended to be negotiated as manifested by negotiation takes it free from the assignment takes the instrument subject
the word "non-negotiable" stamp across the face of the Note and because Delta and
personal defenses available among the to the defenses obtaining between authorization to pay. By its term, the bill gives a discretion to the drawee to pay or not
parties. the original parties. to pay.
The general endorser is secondarily liable The assignor does not warrant the
for any cause for which the party solvency of the debtor unless it has Please let Ms. Gaviola or order have P700 from my account and you will oblige, is
primarily liable on a negotiable been expressly stipulated or unless the this instrument negotiable? This bill is not negotiable because it does not contain an
instrument does not or cannot pay. He insolvency was prior to the assignment and order to pay. It is nothing but a mere request to pay.
warrants the solvency of the party of common knowledge. He merely
primarily liable. The qualified warrants the existence and legality of Effect of mere words of civility. For example: Mr.Y will oblige Mr. X by paying Ms.
endorser and the person negotiating by the credit assigned at the time of the Gaviola or order P1000 on his account. This instrument is negotiable. The mere fact
mere delivery have a limited assignment. that is contains words of civility or courtesy does not make it non-negotiable, as long as the
secondary liability. bill still contains an order to pay. The words “by paying” are held sufficient to import an
A negotiable instrument is governed by A non-negotiable instrument is governed order to pay.
the The Negotiable Instruments Law by the provisions on contracts under
(Act No. 2031) the New Civil Code. Words of equivaIent meaning: I agree to pay to the sum of P1000 to X or order on
A holder of a negotiable instrument may The assignee is merely substituted in demand, is that negotiable? Yes, instead of the promise, the following words may be
be a holder in due course who takes the place of the assignor and that the used: “agree”, “will pay”, “shall pay” and the like. In the example, although it does not use
an instrument free from personal assignee acquires his rights subject to the word “promise”, still the word “agree” means a promise to pay.
defenses. the equities — i.e., the defenses — which
the debtor could have set up against the Effect of mere acknowledgment of debt: Due X P1000, (Sgd.) Y, is this a valid
original assignor before notice of the promissory note? No it is not a promissory note, a mere admission that the debt is due is
assignment was given to the debtor. not sufficient because is it nothing but an acknowledgement of a debt. As such, it
evidences only the existence of a debt, is is a due bill.
The negotiable instrument must be in writing, is that correct? Yes, the instrument
must be in writing. The writing may be in ink, print, or pencil. It may be upon parchment, When acknowledgement of debt is a promise: I do acknowledge myself to be
cloth, leather, or any other substitute of paper. indebted to X or order in the sum of P1000 to be paid on demand. Is that
negotiable? Yes, because in addition to the acknowledgement of indebtedness, there must
The instrument must be signed by the maker or drawer. The full name may be be other words expressing the intention to pay. In the example the words “to be paid”
written. At least , the surname should appear and generally the signature usually is by imply a promise to pay.
writing the signer’s name. But it may consist of mere initials or even numbers such as
1,2, 8. But where the name is not the signed, the holder must prove that what is written is Example: Due X or order on demand P1000. (Sgd.) Y. Is this negotiable? The
intended as a signature of the person sought to be charged. following may be held to be a promise because the sense requires the words “to be paid”
to be supplied before the words “on demand”.
What is the important in affixing your signature? That the person making the signature
is identified as the maker or the drawer and such person intends it to be his own Effect of words of negotiability: Due X or order, value received. Is this negotiable?
signature.  stressed by Atty. Soleng Yes, the word “order” has been held to imply a promise to pay.
Where is the location of the signature? The signature of the maker or drawer is usually Due X or bearer P100, for value with interest. Is this negotiable? Yes, the word
written at the bottom right hand corner. The location of the signature is not material. “bearer” has been held to imply a promise.
What is important is that it appears therefrom that the person intended to make it his
own. The promise or order to pay must be unconditional. It is not enough that there be a
promise or an order. The promise or order must also be unconditional or absolute. This
Should the word order appear in the bill of exchange? Yes, it must contain an order to means it must not be subject to a condition. Under the Civil Code, a condition is: (1) a future
pay. A bill is something more than the mere asking of a favor. It is an instrument event that may or may not happen, or (2) a past event which is unknown to the parties. It is
demanding right. However, it is not necessary that the word “order” should be used. Any to be distinguished from an event that is certain to happen even though the time of the
words which are equivalent to an order or which show the drawer’s will that the money happening is not known.
should be paid are sufficient to make the instrument a bill of exchange.
Illustration of condition: I promise to pay X or order the sum of P10 million pesos,
I hereby authorize X or order to pay P1000 on account, is this instrument if he marries Z. Is this negotiable? This is not a negotiable instrument because the order
negotiable? It is not negotiable because it is not an order to pay. It is a mere “to pay” is subject to the condition that X marries Z. It is a condition because X may
or may not marry Z. In other words, the marriage is uncertain.
Illustration of event certain to happen: I promise to pay Ms. Gaviola or order the 1) One thousand pesos (P1,000.00) for denominations of 1-Piso, 5-Piso and 10-
sum of P1000 ten days after her birthday. Is this negotiable? Yes, because the event Piso coins
is certain to happen. In effect it is determinable. The promise to pay is subject to the 2) One hundred pesos (P100.00) for denominations of 1-sentimo, 5-sentimo, 10-
happening of such an event. sentimo, and 25-sentimo coins.
Sum payable must be definite and certain. The amount of money to be paid must be Is a manager’s check a legal tender? No, a manager’s check is not legal tender because
determinable by inspection and must be stated plainly on the face of the instrument, and the it does not meet the requirements of a legal tender.
denomination of the money must be stated in the body of the instrument.
I borrowed money from you amounting to P1 million pesos and I told you that I
I promise to pay X or order P1000 thirty (30) days from this date at %6 interest. will pay you at the end of the month. The end of the month comes, you come to me
Is that negotiable? Yes, because the sum is certain and by mere mathematical to collect my indebtedness amounting to P1 million pesos. For purposes of facility,
computation, the amount to be paid on the maturity is ascertainable, namely, P1000 plus 6% I do not bring cash so I went to my bank and purchased a manager’s check in the
interest for 30 days. All that is required is that the principal shall be certain. amount of P1 million pesos. In effect the check was funded. In fact, I paid
additional sum for administrative cost. So I deliver to you the manager’s check,
Where sum is not certain: I promise to pay X or order P1000 plus all the account of you refused to accept on the ground that this is not a legal tender. Are you
my family that is due him on sight. Is that negotiable? No, because the sum is not correct? Yes
certain. P1000 is not only the principal amount due. It also includes all the account of
his family. How much those sums are is not stated and unknown. Consequently, this Suppose after your refusal to accept the manager’s check, I did not pay you
instrument is not negotiable as the sums to be paid are not sums certain. anymore. So you went to the court and ask the court to compel me to pay. One of
my defenses is that I already delivered and tendered payment to you in manager’s
Why is it that the sum payable must be in money only? It is only payable in money check worth P1 million pesos and you refused. Should the court agree with my
because money is the one standard of value in actual business. All other defense? No, a manager’s check or a cashier’s check is not legal tender. A creditor is not
commodities may rise and fall in value but in theory, money always measures this bound to accept a check in satisfaction of his demand because a check, even if good when
rise and fall and remains the same. The chattel which is used as means of payment may offered, does not meet the requirements of a legal tender. However, if I were you, I should
fluctuate in value. accept the manager’s check knowing for a fact that such manager’s check is funded. So if
someone delivers to you this manager’s check, this is good as cash, although not a legal
What is a legal tender? That kind of money which the law compels a creditor to accept in tender.
payment of his debt when tendered by the debtor in the right amount. Is one which is issued
by the Bangko Central ng Pilipinas. What if the negotiable note is payable in dollars, is there an effect on its
negotiability? No, there is no effect on its negotiability. A bill or note may be made payable
Is check considered a legal tender? A check is not legal tender because a check, even if in denominations of foreign money, currency or coins. Where a note is made payable in a
good, does not meet the requirements of a legal tender. According to Section 60 of the New country in the money or coins of another country which money or coins have value fixed by
Central Bank Act, checks representing demand deposits do not have legal tender law of the country where note is payable and which value can by a simple mathematical
power and their acceptance in the payment of debts, both public and private, is at the option calculation, be expressed in the value of the lawful money of the latter country, such note is
of the creditor. negotiable.
Suppose I pay you P1 million pesos through a check. Upon acceptance, does it Payment in foreign currency is now valid. Before, when an instrument is payable in
mean that payment was already effected? No, as a check is not a legal tender, it only dollars, you have to convert that amount into pesos. But now, according to Section 1 of
produces the effect of payment only when they have been cashed or when through Republic Act No 8183, the parties may agree that the obligation or transaction shall
the fault of the creditor, they have been impaired. In the meantime, the action derived be settled in any other currency at the time of payment.
from the original obligation shall be held in abeyance.
I promise to pay Mr. Ong or order the sum of 1000 upon demand. Is this
Is coin a legal tender? Yes, all notes and coins issued by the Central Bank are legal tender negotiable? No, this is not negotiable, because the sum payable must be definite and
in the Philippines for all debts, both public and private. certain. Therefore, the denomination or currency of money to paid determinable by
inspection and must be stated in the body of the instrument.
SIR: Last time we discussed that according to Section 52 of Republic Act No. 7653, that,
unless otherwise fixed by the Monetary Board, coins shall be legal tender in amounts not What if the instrument does not specify a year: I promise to pay Mr. Ong or order
exceeding Fifty pesos (P50.00) for denominations of Twenty-five centavos and above, and in the sum of P1000 on or before December 25. Is this negotiable? The note is not
amounts not exceeding Twenty pesos (P20.00) for denominations of Ten centavos or less. negotiable as the time of payment is not determinable as the year is not stated. Neither
Now, there is this Circular No. 537 issued by the Monetary Board, increasing the amount up to is it payable on demand as it is to be paid at a certain time, December 25.
which our coins will be considered legal tender:
The instrument is payable to a specified person or his assigns: I promise to pay Mr. ISSUE 1: No. The withdrawal slips in question were non-negotiable. Hence, the rules
Ong or his assigns P1000 on 25 December 2013. Is that negotiable? Yes, the governing the giving of immediate notice of dishonor of negotiable instruments do not apply.
instrument is negotiable because it is payable to order. The reason is that the word
“assigns” is equivalent to the word “order”. Citibank should have known that withdrawal slips were not negotiable instruments. It
could not expect these slips to be treated as checks by other entities. Payment or
Where payable to the order of bearer: I promise to pay to the order of bearer notice of dishonor from respondent bank could not be expected immediately, in contrast to
P1000 upon demand. Is that negotiable? This is held to be payable to bearer. The the situation involving checks. Citibank could not have missed the non-negotiable nature of
payee of such an instrument is the bearer and it can be negotiated only by his endorsement. the withdrawal slips. The essence of negotiability which characterizes a negotiable
paper as a credit instrument lies in its freedom to circulate freely as a substitute
Pay to X P5000. Is that negotiable? No, because it is neither made payable “to order” or for money. The withdrawal slips in question lacked this character.
to “bearer” as required by subsection (d) of Section 1.
ISSUE 2: No. The withdrawal slips in question were non-negotiable, the rules governing the
Pay to X P5000 upon demand. Is that negotiable? No, again because it is neither made giving of immediate notice of dishonor of negotiable instruments do not apply. The
payable “to order” or to “bearer” as required by subsection (d) of Section 1. withdrawal slips deposited with Firestone’s current account with Citibank were not checks, as
petitioner admits. Citibank was not bound to accept the withdrawal slips as a valid
Where payable to a specified person or his agent: I promise to pay to B or his mode of deposit. But having erroneously accepted them as such, Citibank — and petitioner
agent the sum of P1000. Is that negotiable? No, this is not a negotiable instrument as as account-holder — must bear the risks attendant to the acceptance of these instruments.
this is payable to a specified person. An agent or a collector is the same as the principal Petitioner and Citibank could not now shift the risk and hold private respondent liable for their
and they merely take the place of the principal. Consequently, the instrument is actually admitted mistake.
payable only to a specified person.
What is the importance of formalities in the negotiable instruments law? They are
What if names included are two alternative drawees: To A or B, Pay to X or order essential in determining whether the instrument is negotiable or not. If it is negotiable, we
the sum of P1 million, payable on demand.(Sgd.) Y. Does it affect the negotiability can ascertain the rights of the parties such as the maker, the drawer, the holder in due
of the instrument? Yes it affects the negotiability of the instrument because under Section course. When you follow the formalities, you can distinguish the rights of the parties. If it is
1 of the NIL, where the instrument is addressed to a drawee, he must be named or otherwise non-negotiable instrument, then you can determine what are the rights of the assignees, the
indicated therein with reasonable certainty, and in the example, there is NO CERTAINTY original parties, etc.
as to who will pay the instrument considering that there are two alternative drawees.
SECTION 2. Certainty as to Sum; What Constitutes. — The sum payable is a sum
FIRESTONE TIRE & RUBBER COMPANY vs LUZON DEVELOPMENT BANK certain within the meaning of this Act, although it is to be paid —
FACTS: Fojas-Arca maintains a special savings account with Luzon Development Bank, the (a)With interest; or
latter authorized and allowed withdrawals of funds therefrom through the medium of special (b)By stated installments; or
withdrawal slips. Fojas-Arca entered into a special agreement with Firestone whereby Fojas- (c)By stated installments, with a provision that upon default in payment of any
Arca has the privilege to purchase on credit and sell Firestone's products. Fojas-Arca installment or of interest the whole shall become due; or
purchased on credit products from Firestone. In payment of these purchases, Fojas-Arca (d)With exchange, whether at a fixed rate or at the current rate; or
delivered to Firestone six (6) special withdrawal slips drawn upon the Luzon Development (e)With costs of collection or an attorney's fee, in case payment shall not be made
Bank. In turn, these were deposited by the Firestone with its current account with the at maturity.
Citibank. All of them were honored and paid by the defendant LDB.
I promise to pay X or order P1000 upon demand with 5% interest per annum. Is
Relying on such confidence and belief and as a direct consequence thereof, Firestone that negotiable? Yes, because the sum would still be certain because the principal sum
extended to Fojas-Arca other purchases on credit of its products. Later, however, Firestone of P1000 is certain.
was informed by Citibank that 2 special withdrawal slips were dishonored and not paid for the
reason 'NO ARRANGEMENT.' As a consequence, the Citibank debited Firestone's account for What if the promissory note stipulates for payment of interest but fails to specify
the total sum representing the aggregate amount of the two special withdrawal slips. the rate: I promise to pay Ms. Abejo or order the sum of P5000 with interest
payable in demand? When the interest is stipulated but not specified, the interest shall be
ISSUE 1: Whether or not withdrawal slips are negotiable the legal rate which is 6% for loans or forbearance of money.
ISSUE 2: Whether or not Luzon Development Bank should be held liable for damages
suffered by Firestone, due to its allegedly belated notice of non-payment of the subject What is the legal rate? According to Circular No. 799, the rate of interest for the loan
withdrawal slips. or forbearance of any money, goods, or credits and the rate allowed in judgment, in
the absence of an express contracts as to such rate of interest, shall be six percent (6%)
HELD: per annum. This circular took effect on July 1, 2013 and abrogated the ruling in Eastern
Shipping.
When does the provision on payment of exchange apply? The provision on payment
Can an interest be collected even if it is not stipulated? Yes, where interest is not with exchange applies only to instruments drawn in one country and payable in
stipulated, legal interest will be paid when the debtor incurs delay. A debtor incurs delay another.
from the time the obligee judicially or extrajudicially demands from him the payment of the
instrument. The sum payable is a sum certain although it is to be paid with costs of collection
or an attorney's fee: What if the instrument provides for additional payment for
What is an escalation clause and deescalation clause? A stipulation in the agreement costs and attorney’s fees? Such a stipulation would not render the instrument non-
that the rate of interest agreed upon may be increased in the event that the applicable negotiable as it is expressly recognized in the Negotiable Instruments law and
maximum rate of interest is increased by law or by the Monetary Board. A deescalcation impliedly in the New Civil Code.
clause is a stipulation in the agreement that the rate of interest agreed upon shall be
reduced if the maximum rate of interest is decreased by law or by the Monetary I promise to pay Mr. Garcia or order the sum of P1 million pesos payable on
Board. The escalation clause is valid if there is also a deescalation clause. demand and failure to pay upon demand will make me liable for attorney’s fees in
the sum of P10 million pesos. Is that negotiable? Yes, even though the stipulation on
Today, is there a ceiling on the maximum interest rate? No, as the Monetary Board attorney’s fees is not reasonable. In this case we simply ignore the stipulation regarding the
has suspended the Usury Law. So in effect only creditors will impose the interest rate for as attorney’s fees and the rest of the instrument remains valid.
long as the parties agree to such interest rates.
So the parties may agree to 100% interest rate? No, parties may agree to any interest SECTION 3.When Promise is Unconditional. — An unqualified order or promise to
rate as long as it is not usurious or unconscionable. 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
By stated installments, what does it mean or what are the requisites? The a particular account to be debited with the amount; or
installments must: (1) must be stated and (2) the maturity of each installment must (b)A statement of the transaction which gives rise to the instrument.
be fixed or determinable. This last qualification is required in order to comply with the But an order or promise to PAY out of a particular fund is not unconditional.
requisite that the instrument, if not payable on demand, must be payable at a fixed or
determinable future time. What is a promise in a promissory note? It is an undertaking to pay a particular sum.
The sum payable is a sum certain although it is to be paid by stated installments: I What is meant by order in a bill of exchange? It is a command from the drawer to the
promise to pay B or order P1000 in installment. Is that negotiable? This is not drawee to pay the payee upon demand or at a fixed or determinable future time.
negotiable because the installments are not stated and therefore the sum payable for
each installment is uncertain. The same is true when the instrument is payable in “two Does the negotiability of an instrument affected if there is an indication of a
installments” without more. particular fund out of which reimbursement is to be made? No, it does not affect the
negotiability of the instrument because the particular fund indicated is not the direct source
The sum payable is a sum certain although it is to be paid by stated installments, of payment. It is only the source of reimbursement.
with a provision that upon default in payment of any installment or of interest the
whole shall become due: I promise to pay B or order the amount of P1000 paid in What if there is a particular account to be debited with said amount? Such
installment for 5 months to be paid on the 1st of each month. However, in case of stipulation does not render the instrument as non-negotiable because the instrument is to be
default in any of the installment period, the entire note shall be payable. Is that paid first, and afterwards, the particular account indicated will be debited. Hence, the
negotiable? Yes, the note is negotiable. The last sentence is called the acceleration payment is not subject to the sufficiency or adequacy of the particular account to be debited.
clause. It hastens the payment of the whole note.
What if there is a statement of the transaction which gives rise to the instrument?
The sum payable is a sum certain although it is to be paid with exchange, whether Such stipulation will not render the instrument as non-negotiable because instruments are
at a fixed rate or at the current rate: While the rate of exchange between two places at a not issued without any transaction upon which they are based. And the mere fact
particular date is a matter of common commercial knowledge, or at least easily ascertained by that the purchase and sale which gives rise to the instrument is stated in the instrument will
any one so that the parties can always, without difficulty, ascertain the exact amount not make the promise or order conditional.
necessary to discharge the paper.
Particular fund for reimbursement vs particular fund for payment: In the first there
What is an exchange? Exchange is the difference in value of the same amount in different are two acts: (1) the drawee pays the payee from his own funds; afterwards, (2) the
countries. The exchange may be at the (1) current rate or at a (2) fixed rate. drawee pays himself from the particular fund indicated. In the second, however, there
is only one act: (1) the drawee pays directly from the particular fund indicated.
Give an example: Pay to B or order P1000 with exchange at 1.2%.
Give an example of an instrument which contains an indication of a particular fund note is secured by a mortgage” and the mortgage contains clauses promising to do many
out of which reimbursement is to be made: Pay to B or order P100 and reimburse other acts the payment of money, it was held that the note is negotiable.
yourself out of my money in your hands. (Sgd. A)
When does a reference to a mortgage renders the instrument non-negotiable?
Is that negotiable? Yes according to Section 3 of the NIL, an unqualified order or promise When such provisions become part of the note, even though they are not in the note itself.
to pay is unconditional though coupled with an indication of a particular fund out of which Thus where the note contains a stipulation that it was secured by a mortgage, and that the
reimbursement is to be made. payee agreed to look at the mortgage security for its payment, the mortgage provisions
became part of the note and rendered it non-negotiable. The same is true where the note
Give an example of an instrument which contains an indication of a particular fund contains the following: “This note is secured by a mortgage and subject to the provisions of
for payment: Pay to B or order P100 from my bank account. (Sgd. A) such a mortgage.”
Is that negotiable? No, because according to Section 3 of the NIL, an order or promise to I promise to pay B or order the sum of P1000 payable on demand. This instrument
pay out of a particular fund is not unconditional. Thus, the instrument is non-negotiable. is secured by a mortgage. Is that negotiable? Yes, the instrument is negotiable because
by the terms of the instrument, it simply indicated that such is secured by a mortgage. The
Reason why one is unconditional while the other is conditional: In a particular fund instrument does not bind itself to the terms and conditions of the mortgage contract.
for reimbursement, the fund is merely for the purpose of subsequent reimbursement, the
order or promise is not subject to the sufficiency of the funds. The order or promise is upon I promise to pay B or order the sum of P1000 payable on demand. This instrument
the general credit of the drawee or maker. On the other hand, in a particular fund for is subject to the terms and conditions of the mortgage which I executed with B:
payment, instrument becomes non-negotiable because the payment is subject to a condition This instrument is non-negotiable because the provisions of the mortgage became part
that the funds indicated therein are sufficient. But the funds indicated may or may not be of the note itself.
sufficient.
SIR: One of the tests you can use to determine the negotiability is whether or not in using
Pay to order of X the sum of P1 million pesos to be taken from my share in the sale the face of the instrument, you can determine all its essential elements, i.e., there is no need
transaction of our house. Is that negotiable? No, it is non-negotiable because they for you to look for some other documents. If the instrument will provide that this is subject to
payment is subject to a condition and since it is subject to a condition, it is unconditional and the terms and conditions our mortgage agreement, then there is a need for you to look for
under Section 1, in order for the instrument to be considered as negotiable, it should be that document to determine the negotiability of the instrument itself. If you can determine all
unconditional. the essential elements of a negotiable instrument just by looking at the face of the
instrument, then more or less that document is considered as negotiable. However, if the
Class, today is? November 25. instrument starts referring to other papers, documents or agreements, you can doubt on the
negotiability of such instrument.
I promise to pay B or order the sum of P1000 out of my salary from the University
of San Carlos: It is non-negotiable as the promise is to pay out of a particular fund. Thus it SECTION 4.Determinable Future Time; What Constitutes. — An instrument is
is conditional and non-negotiable. payable at a determinable future time, within the meaning of this Act, which is
expressed to be payable —
I promise to pay B or order the sum of P1000 in payment for his books which I lost (a)At a fixed period after date or sight; or
after borrowing the same: The instrument is negotiable because according to the law, an (b)On or before a fixed or determinable future time specified therein; or
unqualified order or promise to pay is unconditional though coupled with a statement of the (c)On or at a fixed period after the occurrence of a specified event, which is
transaction which gives rise to the instrument. certain to happen, though the time of happening be uncertain.
An instrument payable upon a contingency is not negotiable, and the happening of
I promise to pay B or order the sum of P1000 subject to the terms and conditions the event does not cure the defect.
of our memorandum of agreement: The instrument is non-negotiable because the
obligation to pay is burdened with the condition of the contract. When is an instrument payable at a determinable future time? According to Section 4
of the NIL, an instrument is payable at a determinable future time which is expressed to be
Is negotiability of the instrument affected if the words “As per contract” indicated payable (1) At a fixed period after date or sight; (2) on or before a fixed or determinable
in the instrument itself? No, according to the great weight of authority, it does not affect future time specified therein; (3) on or at a fixed period after the occurrence of a specified
the negotiability of the instrument. event, which is certain to happen, though the time of happening be uncertain.
What if the instrument makes a reference to a mortgage? It does not affect the Give an example of an instrument which is payable at a determinable future time
negotiability of the instrument as long as the provision in a mortgage securing a negotiable which is expressed to be payable at a fixed period after date or sight: 60 days after
promissory note is not made part of the note. Thus where a note contains the words “this sight, pay to the order of Jose Soriano the sum of P1000. (Sgd.) A; To C
Give an example of an instrument which is expressed to be payable on or before a (1) Those that maintain that such a stipulation renders the instrument non-negotiable argue
fixed or determinable future time specified therein: I promise to pay Mr. Erojo or order that the time for payment becomes uncertain and indefinite. “If the maker fails when
P1000 on or before January 31, 2014. (Sgd.) Kyle. demanded to furnish additional security to the satisfaction of the holder, the note matures at
once”. It is argued that the maturity of the note is to be accelerated by the failure of the
What’s the difference between the 1st example and the 2nd example? The difference maker to do something in addition to the payment of money and both contingencies are
is that in the 2nd example, it has an acceleration clause in which payment can be made on made dependent upon something which he has no absolute control. It is within the power of
or before the date indicated. the holder by refusing assent to what the maker has done to make the note due at any time.
If the holder is not satisfied with the additional security, the note matures at once, the time at
Give an example of an instrument which is payable on or at a fixed period after the which the holder declared himself dissatisfied with the security delivered by the maker. The
occurrence of a specified event, which is certain to happen, though the time of effect of such stipulation is to leave the time when payable uncertain and indefinite.
happening be uncertain: I promise to pay Mr. Erojo or order the sum of P1000 upon the
death of his grandpa. (Sgd.) Kyle. (2) Those who maintain that the stipulation does not render the instrument non-negotiable
argue “that from the standpoint of expendiency as encouraging circulation and of
What if the document states I promise to pay X or order the sum of P1 million 20 business custom on account of their common acceptance by the commercial world,
days after sight? That is an instrument is payable at a determinable future time. such clauses should be interpreted as not affecting negotiability”. This appears to be the
better view.
I promise to pay X or order the sum of P1 million 20 days after date? That is an
instrument is payable at a determinable future time. What is an insecurity clause? Insecurity clause provides that if the holder becomes
insecure, he may declare the note as due and payable before maturity.
I promise to pay X or order the sum of P1 million 10 days after the death of my
mother-in-law? That is an instrument is payable at a determinable future time because it is Does an insecurity clause make the document non-negotiable? There is a conflict of
payable on or at a fixed period after the occurrence of a specified event, which is certain to authority. Thus: (1) It has been held that a note is rendered non-negotiable where it is
happen, though the time of happening be uncertain. payable at a fixed future time, but with an option on the part of the holder to declare it due
and payable before maturity, whenever he deems it insecure. (2) However, it is submitted
I promise to pay X or order the sum of P1 million 10 days before the death of my that these cases holding an instrument payable but accelerable at the option of the payee or
mother-in-law? This is not negotiable because the word used is “before” and the date of holder non-negotiable are directly contrary to the plain meaning of the section. Such
the maturity of the instrument can be determined only after the note has become overdue. instruments are certainly payable or on before a fixed time specified therein, and to
Consequently the time for payment is uncertain. hold them non-negotiable is certainly spurious construction of the Act. This appears to be the
better view.
What are acceleration notes? These are notes which contain provisions which make it
possible for the maker to pay the instrument at an earlier date or make it possible for the Pay to B or order the sum of P1000 payable at the time of his marriage: This note is
holder to require payment of the instrument at an earlier date. non-negotiable because according to the last paragraph of Section 4 of the NIL, an
instrument payable upon a contingency is not negotiable, and the happening of the
Give an example of an acceleration clause: I promise to pay B or his order P1000 in four event does not cure the defect.
equal monthly payments, the first to be paid within the first five days of the month and the
other within the first five days of every month thereafter. Upon default in the payment of any Pay to B or order the sum of P1000 payable on his 18 th birthday: This note is
installment, the whole sum payable under this note shall become due. negotiable because one’s birthday is certain to happen.
Give an example of an instrument where the holder requires payment of the Pay to B or order the sum of P1000 10 days before his birthday: This note is
instrument at an earlier date: those instruments: negotiable because one’s birthday is certain to happen and the date is determinable.
1) that contain acceleration clauses on the maker’s default in payment of installments or of
interest, or on the happening of an extrinsic event; Pay to B or order the sum of P1 million on the 200th birthday of his son: This note is
2) or contain, in notes secured by collateral, a provision that the maker shall supply additional negotiable because one’s birthday is certain to happen.
collateral in case of depreciation in the value of the original deposit, with the holder’s right to
declare the note due immediately on failure to make good the depreciation; or What are extension clauses? Is where an instrument is payable at definite time, if by its
3) contain provisions for acceleration where holder deems himself insecure. term it is payable at a definite time, subject to extension, at the option of the holder; or to
the extension to a further definite time at the option of the maker or acceptor, or
In the books, there are two views on notes secured by collateral containing automatically upon or after a specified act or event.
provision that the maker would supply additional collateral in case of depreciation,
what are those two views? Does it affect the negotiability of the instrument? Generally, it does not affect the
negotiability of the instrument
Payable two years from date, subject to extension for another year, at the option What are the exceptions to the rule that an instrument which contains an order or
of the maker: This note is negotiable because the instrument is payable at a fixed or promise to do any act in addition to the payment of money is not negotiable? These
determinable date. are provisions 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
SECTION 5.Additional Provision Not Affecting Negotiability. — An instrument at maturity; or (c) waives the benefit of any law intended for the advantage or protection of
which contains an order or promise to do any act in addition to the payment of the obligor; or (d) gives the holder an election to require something to be done in lieu of
money is not negotiable. But the negotiable character of an instrument otherwise payment of money.
negotiable is not affected by a provision which —
(a)Authorizes the sale of collateral securities in case the instrument be not paid at Give an example of the 1st exception: I promise to pay to B or order P1000 on December
maturity; or 2013, provided however, that if this note is no paid at the date of maturity, the ring which I
(b)Authorizes a confession of judgment if the instrument be not paid at maturity; deliver to B by way of pledge to secure the payment of my indebtedness to him may be sold
or by B and the proceeds thereof applied to the value of this note. (Sgd.) A
(c)Waives the benefit of any law intended for the advantage or protection of the
obligor; or I promise to pay to B or order the sum of P1000 payable on December 30, 2013.
(d)Gives the holder an election to require something to be done in lieu of payment This promissory note comes with a security which is my Rolex watch and B may
of money. sell the same prior to December 30, 2013 to effect payment of my indebtedness:
But nothing in this section shall validate any provision or stipulation otherwise This note is non-negotiable because it under the law, the additional act to be performed is to
illegal. be executed after the date of maturity, when the instrument ceases to be negotiable. Before
the date of maturity, no additional act is to be performed except the payment of money.
What is the effect on the negotiability of the instrument if the maker is given the Hence, before and until the date of maturity, the promise to pay is to pay money only. In this
option to deliver something in lieu of money? Even if there is an additional act, the example, B may execute the additional act before the date of maturity. Consequently, the
instrument remains negotiable provided that the right to choose between payment or note is not negotiable.
money or the performance of the additional act is in the hands of the holder.
Give an example of the 2nd exception: I promise to pay Ms. Tamayo or order P1million
I promise to pay Ms. Maligmat or order the sum of P1000 or 10 kilograms of beef and upon default I authorize any attorney of any court of record to appear for me in said
at my option. Is that negotiable? No, the instrument is non-negotiable because in this court, in term time or in vacation, at any time hereafter, and confess a judgment without
case, the drawee, not the holder, has the choice of paying either money or the 10 kilograms process in favor of the holder of this note, for such amount as may appear to be unpaid
of beef. thereon, with costs and attorney’s fees and to waive all errors in any such proceedings and
consent to immediate execution upon such judgment, hereby ratifying and confirming all that
I promise to pay Ms. Maligmat or order the sum of P1000 or 10 kilograms of beef, said attorney may do by virtue hereof.
at the option of the holder. Is this negotiable? Yes, the instrument is negotiable
because in this case, the holder, not the drawee, has the choice of paying either money or What is a confession of judgment? A written agreement in which the defendant in a
the 10 kilograms of beef. lawsuit admits liability and accepts the amount of agreed-upon damages he must pay to
plaintiff, and agrees that the statement may be filed as a court judgment against him if he
Is it considered as sum certain in money, even if there is an option? Yes, you can still does not pay or perform as agreed. This avoids further legal proceedings and may prevent a
consider it as sum certain in money because you are the holder and you have the right to legal judgment being entered (made) if the terms are fulfilled by defendant. google
choose, you can opt to treat it as a money and ask the maker for the equivalent money or
you can choose the alternative option. Furthermore, you can still negotiate it as money. What is cognovit actionem? It is a written confession of an action by a defendant, but not
Consequently it serves it function as a substitute for money. sealed, and irrevocably authorizing any attorney of any court of record to confess judgment
and issue execution usually for a sum named. It is given in order to save expense and differs
I promise to pay X or order the sum of P1000 and deliver him house and lot: This from a warrant of attorney which is given to an expressly designated attorney before the
note is non-negotiable because as stated in the first sentence of this section, an instrument commencement of any action and is under seal.
which contains an order or promise to do any act in addition to the payment of money is
not negotiable. What is a confession relicta verificatione? A confession of judgment made after
plea is pleaded, such as cognovit actionem, accompanied by a withdrawal of the plea.
What is the effect if the maker furnishes additional collateral? This will render the
note non-negotiable, as that would be an additional act to the promise to pay. However, they What is a warrant of attorney? An instrument in writing addressed to one or more
are to be distinguished from those instruments in which the holder may demand collateral attorneys name therein, authorizing them to appear in any court to appear in behalf of the
and, failure to furnish it accelerates the instrument which are clearly negotiable, being merely person giving it and to confess judgment in favor of some particular person therein named in
accelerable on the non-performance of an optional act. an action of debt.
Can a bill of exchange or a promissory note qualify as a negotiable instrument if its

What is the effect of confession of judgment before maturity? A note which contains not dated? Yes, because under Section 6 of the NIL, the validity and negotiable character of
such provision is not negotiable. It has been held by overwhelming weight of authority that a an instrument is not affected by the fact that it is not dated.
power of attorney to confess judgment at any time before maturity renders the note non-
negotiable. What if the instrument does not specify the value given, or that any value has
been given therefor? This does not affect the negotiability of the instrument. Usually, all
What is the effect of judgment of confession in the Philippines? They have been that is stated in the instrument is that it is being issued for “value received”, without
declared as against public policy: (1) because they enlarge the field for fraud; (2) specifying what the value is. It is not even necessary to state that value has been
because under this instrument, the promisor bargains away his right to a day in court; and (3) received.
because the effect of the instrument is to strike down the right to appeal accorded by statute. Why does it not affect the negotiability of the instrument? The reason is that
consideration is presumed.
Does the provision on judgment of confession affect the negotiability of the
instrument? It does not affect the negotiability of the instrument. Only the provision or What if the instrument does not specify the place where it is drawn or where it is
stipulation regarding the confession of judgment is avoided, but the main obligation remains made payable? The validity and negotiable character of an instrument is not affected by
valid and subsisting. the fact that it does not specify the place where it is drawn or the place where it is payable.
I hereby authorize any attorney in the Philippines, in case this note is not paid at What if the instrument bears a seal? The validity and negotiable character of an
maturity, to appear in the name and confess judgment to the above sum with instrument is not affected. Why? Because it is expressly allowed under Section 6 of the NIL.
interest: Will it affect the negotiability of the instrument? The negotiability of the
instrument is not affected. Only the provision or stipulation regarding the confession of SIR: Your NIL is an old law. People before the like Europeans or the Chinese always used a
judgment is avoided, but the main obligation remains valid and subsisting. personal seal when dealing with documents or in order to show that, on top of his signature,
he is assenting to whatever is the content of the said document. Under your NIL, just
Give an example of a provision which waives the benefit of any law intended for because the instrument bears a seal, it does not mean that such instrument is non-negotiable.
the advantage or protection of the obligor: Six months after date, I promise to pay B or
order P1000, waiving the right to appeal and all of valuation, appraisement, stay and What if the instrument designates a particular kind of current money in which
exemption of laws. (Sgd.) A payment is to be made? The validity and negotiable character of an instrument is not
affected.
What about the election of holder to require some act, does it affect the
negotiability of the instrument? This does not affect the negotiability of the instrument, I promise to pay Ms. Maligmat or order the sum of 1000 Ringgit on or before
provided that the right to choose between payment of money or the performance of the December 30, 2013: Is that negotiable? Yes the note is negotiable because as already
additional act is in the hands of the holder. stated under Section 1, even if the money in which the instrument is to be payable is not legal
tender, provided that it is current money or foreign money which has a fixed value in relation
Give an example of an instrument which contains such provision: I promise to pay B to the money of the country in which the instrument is payable. Such instrument is still
or order P10000 or 2 carabaos, at B’s election. (Sgd.) A considered payable in money.
SECTION 6.Omission; Seal; Particular Money. — The validity and negotiable SECTION 7.When Payable on Demand. — An instrument is payable on demand —
character of an instrument are not affected by the fact that — (a)Where it is expressed to be payable on demand, or at sight, or on presentation;
(a)It is not dated; or or
(b)Does not specify the value given, or that any value has been given therefor; or (b)In which no time for payment is expressed.
(c)Does not specify the place where it is drawn or the place where it is payable; or Where an instrument is issued, accepted, or endorsed when OVERDUE, it is, as
(d)Bears a seal; or regards the person so issuing, accepting, or endorsing it, payable on demand.
(e)Designates a particular kind of current money in which payment is to be made.
But nothing in this section shall alter or repeal any statute requiring in certain What does the phrase payable on demand mean? It means an instrument is expressed
cases the nature of the consideration to be stated in the instrument. to be payable on demand, or at sight, or on presentation. Instead of “on demand” the words
“on sight” or ”on presentation” may be used. The words “at sight” however, are not ordinarily
What if the instrument is not dated? The validity and negotiable character of an used in promissory notes.
instrument is not affected by the fact that it is not dated. Generally, the instrument is not
rendered non-negotiable. However, there are cases where the date is necessary to fix the Under what circumstances can we treat the instrument as payable on
date of maturity. demand/When is the instrument considered payable on demand? Under Section 7 of
the NIL, an instrument is payable on demand: (1) where it is expressed to be payable on
demand, or at sight, or on presentation; (2) where no time for payment is
expressed; or (3) where an instrument is issued, accepted, or endorsed when What is the meaning of “payable to order”? Suppose A makes the following note: I
overdue, it is, as regards the person so issuing, accepting, or endorsing it, payable promise to pay to B or order P1000 on December 30, 2013. (Sgd.) A; This means that A
on demand. promises to pay to B or if not to B, to anybody designated by B to whom A must
pay or to anybody designated by the person designated by B, and so on. The
Pay to X or order the sum of P1000 _______ after date: Is it payable on demand? designation is made by endorsement.
Yes the note is held to be payable on demand. However, it may properly be
considered an incomplete instrument and may fall under the provision of Section 14, 15 To X (drawee): Pay to B (payee) or order P1000 . (Sgd.) A (drawer); Suppose A issued
or 16, depending upon how the instrument is delivered. the note to B and the following endorsements appear on the back of the note: Pay
to C (Sgd.) B  Pay to D (Sgd.) C  Pay to E (Sgd.) D. Can E enforce the note
For value received, I promise to pay Ms. Geonzon or order the sum of P1000. against B? Yes E can enforce the note against B because he promised to pay C or to
(Sgd.) Soleng: Is it payable on demand? Yes the instrument is payable on demand as anybody designated by C, who happens to be D; or to anybody designated by D, who
no time for payment is expressed. happens to be E, to whom B is to pay the note.
Give me an example of an instrument where it is expressed to be payable on SIR: This is the beauty of negotiable instruments, as they are used as substitute for money.
demand, or at sight, or on presentation: I promise to pay P1000 to the order of Mr. You simply endorse it from one hand to another hand, and the person holding the same may
Erojo on demand. (Sgd.) Kyle enforce it against the original drawee, the original payee or the original maker. In effect,
payable to order means that even if your name is not indicated in the instrument, for as long
Give me an example of an instrument where no time for payment is expressed: I as the instrument was properly endorsed to you, you may enforce it against the drawee.
promise to pay P1000 to the order of Mr. Erojo. (Sgd.) Kyle
Give an example of an instrument drawn payable to the order of a payee who is
Give me an example where an instrument is issued, accepted, or endorsed when not maker: I promise to pay to the order of B P100. (Sgd.) A
overdue, it is, as regards the person so issuing, accepting, or endorsing it, payable
on demand: I promise to pay P1000 to B or order on January 31, 2013. (Sgd.) A; A then Give an example of an instrument drawn payable to the order of a payee who is
keeps the instrument and then issues the instrument only February 28, 2013. As to A, the not a drawer, or drawee: To X, Pay to the order of B P100. (Sgd.) A
person so issuing, the instrument is payable on demand.
Give an example of an instrument where the drawer is the payee: To B, Pay to the
SECTION 8.When Payable to Order. — The instrument is payable to order where it order of ourselves P100. (Sgd.) A; In this example the instrument is payable to the order of
is drawn payable to the order of a specified person or to him or his order. It may the drawer and it is accepted by the drawee. The instrument is equivalent to a promissory
be drawn payable to the order of — note made by the acceptor in favor of the drawer.
(a)A payee who is not maker, drawer, or drawee; or
(b)The drawer or maker; or Give an example of an instrument where the maker is the payee: I promise to pay to
(c)The drawee; or the order of myself P100. (Sgd.) A; Under Section 184 of the NIL, the instrument is not
(d)Two or more payees jointly; or complete until it is endorsed by the maker.
(e)One or some of several payees; or
(f)The holder of an office for the time being. Can you think of a particular situation where you can use this particular example?
Where the instrument is payable to order the payee must be named or otherwise SIR: Say for example at this moment, I need P1 million, and I do not know if a lending
indicated therein with reasonable certainty. institution or someone will lend me money. So I will just draft a negotiable promissory note,
promising to pay myself such amount, without regard to any creditor because I do not know
When is the instrument payable to order? The instrument is payable to order where it who this creditor is. So I’ll try to deliver it to A, if A accepts, then good, if not, I can deliver
is drawn payable to the order of a specified person or to him or his order. the same instrument to B or C. The point here is I do not have to draft several negotiable
instruments, otherwise If I draft an instrument addressed to Bank A, and the latter refuses,
The instrument may be made payable to the order of WHOM/To whose order may then I would have to draft another instrument to be addressed to Bank B; Try not to read it
the instrument be made or drawn payable to? It may be drawn payable to the order literally because it is kind of pathetic. Any person endorsing such instrument may later on go
of: to the maker who signed it and ask for the equivalent money stated in the instrument.
(1) A payee who is not maker, drawer, or drawee
(2) The drawer or maker Give an example of an instrument where the drawee is the payee: To Y, Pay to
(3) The drawee yourself or order P1000. (Sgd.) A; The effect of this bill is to authorize the drawee to pay
(4) Two or more payees jointly himself from the funds belonging to the drawer which are in the possession of the
(5) One or some of several payees drawee.
(6) The holder of an office for the time being.
Give an example of an instrument where there are two or more payees jointly: I that it be paid to him or upon his endorsement. It follows that the mere fact that the payee
promise to pay A and B or order P1000. (Sgd.) C. named was an existing person does not preclude the application to the rule as to fictitious
payee, where, although the existence of the payee was known to or believed by the maker,
Give an example of an instrument where there are one or some of several payees: such maker did not intend that he should receive the paper or have any interest therein.
I promise to pay to the order of X or Y P1000. (Sgd.) C Thus an existing payee may be a fictitious payee.
Give an example of an instrument where the payee is holder of office for the time I promise to pay Teodora Alonso y Realonda the sum of P1000, payable on
being: Pay to the order of the cashier of the University of San Carlos in the amount of P1000. demand. (Sgd.) Shiela Licup: Since Teodora Alonso is no longer existing in the sense that
(Sgd.) A she already died, there’s a possibility that when the maker made the instrument she knew
that Teodora Alonso already died and she does not intend Teodora Alonso to receive note
SECTION 9.When Payable to Bearer. — The instrument is payable to bearer — or have any interest therein. In this case the instrument payable to the order of a fictitious or
(a)When it is expressed to be so payable; or non-existing person, and such fact was known to the person making it so payable. Thus, the
(b)When it is payable to a person named therein or bearer; or note is payable to bearer.
(c)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; or What if the person knew that Teodora Alonso already died and yet that person
(d)When the name of the payee does not purport to be the name of any person; or really intend to pay to the order of Teodora Alonso? Where the instrument is made
(e)When the only or last endorsement is an endorsement in blank. payable to the name of a non-existing person, or of a person having no interest in the
transaction, but the maker believes that such person exists and has interest in the transaction
When is the instrument payable to bearer? According to Section 9 of the NIL, the and intends that he shall receive the same or its proceeds, it is not payable to a fictitious
instrument is payable to bearer — person or to bearer.
(1) When it is expressed to be so payable,
(2) When it is payable to a person named therein or bearer, How do you call that person who despite such knowledge still wants to pay it to
(3) When it is payable to the order of a fictitious or non-existing person, and such fact was the order of Teodora Alonso? Crazy!
known to the person making it so payable,
(4) When the name of the payee does not purport to be the name of any person, PAYABLE TO BEARER NOT PAYABLE TO BEARER
(5) When the only or last endorsement is an endorsement in blank. Existing payee not intended to Existing payee intended to receive
receive proceeds proceeds
Pay to bearer the sum of P1000, payable on demand. (Sgd.) A: Is that a bearer Non-existing payee, known or Non-existing payee, but believed existing
instrument, i.e., payable to bearer? Yes this is payable to bearer as it is expressed to be believed non-existing not intended and intended to receive proceeds
so payable. to receive proceeds
Pay to B or bearer the sum of P1 million, payable on demand: This note is payable to What will govern in this particular situation? The intention of the person drawing or
bearer as it is payable to a person named therein, B, or bearer. making such note.
What are the requisites of an instrument payable to the order of a fictitious or Pay to Dean Largo or bearer the sum of P500,000 payable upon demand. (Sgd.)
non-existing person, and such fact was known to the person making it so payable? Shiela Licup: Is the document payable to bearer? Yes this is payable to bearer as it is
The requisites are: expressed to be so payable.
(1) the payee named must be fictitious or non-existent; and
(2) the one making the instrument so payable must know him to be fictitious or non-existing. Pay to Dean Largo or order the sum of P1000 payable upon demand. (Sgd.) Shiela
Licup: Is the document payable to bearer? No, the document is not payable to bearer as
Who is a fictitious person? The words “fictitious persons” mean to be a person who has Dean Largo is an existing payee and the maker intended that she receives the said
no right to the instrument, because the drawer or maker of it so INTENDED, and amount.
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 has never existed. The name is fictitious when it is What if the maker does not intend to pay Dean Largo the said amount? The
feigned or pretended and a non-existent person is one who does not exist in the document is payable to bearer because although Dean Largo is an existing person, the
sense that he was not INTENDED to be the payee by the drawer. maker does not intend that she receives the proceeds of such instrument. Thus an
existing payee may be a fictitious payee.
To Denise, Pay to the order of Obama the sum of P500, payable on demand. (Sgd)
Sheila Licup: Although a person beaing the name by which the payee designated in the SIR: Class, you have to know by heart the requisites because this particular provision is a
paper is in actual existence, the paper is payable to a fictitious payee and by legal intendment usual suspect during the Bar Exams. Even if the payees are existing persons, if the maker or
to bear, where the person drawing it, does not intend that he shall receive its proceeds, or
drawer does not intend such person to receive the proceeds, you may treat them as because the drawer had insufficient funds — not because the drawer's
fictitious persons and the note becomes payable to bearer. Whoever bears the instrument endorsement was lacking.
may collect the amount stated in the instrument. Is this clear? Yes Sir, clear as a puddle of
mud. A 15 year old high school student saw a check payable to “cash” in the amount of
P5 million. He brought the check to the drawee bank and presented it for payment.
Suppose a clerk drafted a promissory note for his boss, and the boss is the maker May the bank refuse? Yes, the bank may refuse if the bank is not sure of the bearer's
of the instrument. The clerk told the boss that, “We owe this entity X this much so identity or financial solvency. It has the right to demand identification and/or assurance
I prepared a note”. So, the boss, as the maker, signed the same. The fact, against possible complications. It is entirely reasonable for the bank to insist that the holder
however, is that there was not purchase at all and X is a fictitious person: give satisfactory proof of his identity. The bank may therefore require, for its protection, that
the endorsement of the drawer — or of some other person known to it — be obtained.
If an instrument is made or drawn by a clerk but signed by the boss, whose However, it is a bearer instrument and the person who holds such instrument may present it
intention must govern? The better view would seem to be that the signer, because in the for payment. That person has the right to present it for payment.
subsequent sections of the NIL, the law provides that you are not liable if your name does not
appear on the instrument and since the person signing his name on the instrument is liable, SIR: Your Supreme Court expects bank to be prudent enough to ask for verification
therefore it should also be him who determines who should own the instrument. and certain documents. When you transact with the bank, you should expect that the bank
will ask for some identification from you. So if there is this check payable to cash in the
In the same scenario, if the person signing the instrument really intended that this amount of P5 million being presented for payment by this “barely legal” kid, of course this
particular payment should be paid to X, who is a fictitious person, should the should raise suspicion on the part of the bank. There is no clear cut policy on this but if it’s
instrument be considered as payable to bearer? No, because the intent of the signer is very apparent that the person presenting the check has no right at all to such instrument,
to a specific person, who to him is not a fictitious person. In effect, it is the intent of the then the bank may therefore require, for its protection, that the endorsement of the drawer
person drawing or signing the instrument which will govern and not the intention of the — or of some other person known to it — be obtained. At least, the bank may call the drawer
person who drafted or prepared such instrument. of such instrument for verification, as he is a client of the bank. Otherwise, the bank may be
held liable by the Supreme Court for negligence. However, it is a bearer instrument and the
What if the document provides: Pay to the order of money or Pay to the order of person who holds such instrument may present it for payment. That person has the right to
cash? In these cases, the name of the payee does not purport to be the name of any present it for payment.
person. Hence, the instrument would be payable to bearer. Under the NIL, a check drawn
payable to the order of ‘cash’ is a check payable to bearer, and the bank may pay it to the Pay to the order of coin/Pay to the order of monkey: The instrument is payable to
person presenting it for payment without the drawer’s endorsement. bearer when the name of the payee does not purport to be the name of any person.
ANG TEK LIAN vs CA What if the instrument is payable to cash. Can it be considered as negotiable? Yes,
FACTS: It appears that, knowing he had no funds therefor, Ang Tek Lian drew a check upon the note is negotiable. Under Section 9 of the NIL, an instrument is payable to bearer when
the China Banking Corporation for the sum of P4,000, payable to the order of "cash". He the name of the payee does not purport to be the name of any person.
delivered it to Lee Hua Hong in exchange for money which the latter handed in the act. The
next business day, the check was presented by Lee Hua Hong to the drawee bank for Please explain what only or last endorsement in bank means: For example, I promise
payment, but it was dishonored for insufficiency of funds, the balance of the deposit of Ang to pay to X or his order the sum P100. (Sgd.) Denise Dueñas; When X received the
Tek Lian on both dates being P335 only. instrument, he simply signed his name at the back. That’s an endorsement in blank, and the
note becomes a bearer instrument.
Lee Hua Hong filed a complaint for estafa against Ang Tek Lian. Ang Tek argued that as the
check had been made payable to "cash" and had not been endorsed by him, he is not guilty SECTION 10.Terms, When Sufficient. — The instrument need not follow the
of the offense charged. language of this Act, but any terms are sufficient which clearly indicate an
intention to conform to the requirements hereof.
ISSUE: Whether or not Ang Tek Lian is liable for estafa.
In drafting a negotiable instrument, do you have to use the exact words of the
HELD: Yes. Under the Negotiable Instruments Law (sec. 9 [d]), a check drawn payable to law? No, although it is advisable to use the words of the law in order to avoid uncertainty
the order of "cash" is a check payable to bearer, and the bank may pay it to the person and doubt. However, under this provision, it is not necessary to use the exact words of the
presenting it for payment without the drawer's endorsement. law. Thus, instead of “promise”, the word “agree” may be used. Instead of “bearer”,
Of course, if the bank is not sure of the bearer's identity or financial solvency, it has the right “holder” may be used. An instrument may be valid and negotiable though written in a foreign
to demand identification and/or assurance against possible complications, — for instance, (a) language.
forgery of drawer's signature, (b) loss of the check by the rightful owner, (c) raising of the
amount payable, etc. It is significant, and conclusive, that the form of the check was totally
unconnected with its dishonor. The Court of Appeals declared that it was returned unsatisfied
I agree to pay Mr. Asoque the sum of P1 million payable on demand. (Sgd.) Can the holder of the instrument present it for payment? No. If the instrument is
Soleng: Is the instrument negotiable? No because the instrument is payable to a dated December 30 but was issued on December 2, you cannot simply go to the bank with
specified person only. Thus, the note is not payable to bearer or order. the post-dated check and present it for payment. The bank will tell you to keep that check
and come back on December 30. But you cannot come back on December 30 because
I agree to pay Mr. Asoque or order the sum of P1 million payable on demand: Is December 30 is a… holiday.
the instrument negotiable? Yes, because instead of “promise”, the word “agree” may be
used. Thus, the note is payable to order and negotiable. SECTION 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
SECTION 11.Date, Presumption As To. — Where the (1) instrument or (2) an an instrument payable at a fixed period after sight is undated, any holder may
acceptance or (3) any endorsement thereon is dated, such date is deemed prima insert therein the true date of issue or acceptance, and the instrument shall be
facie to be the true date of the making, drawing, acceptance, or endorsement, as payable accordingly. The insertion of a wrong date does not avoid the instrument
the case may be. 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.
2 December 2013. I agree to pay Mr. Asoque or order the sum of P1000. Payable
30 days from the date. (Sgd.) Soleng: The date placed thereon is deemed prima facie the Can you insert date on an instrument? Yes, as expressly provided for in Section 13 of the
true date of the making or drawing of the instrument. So the instrument becomes due 30 NIL.
days after December 2, 2013.
What is a prima facie presumption? It means a fact presumed to be true unless it is In what instances can you insert a date on the instrument? (1) Where an instrument
disputed. Applied in the example above, if you can present evidence that the document was expressed to be payable at a fixed period after date is issued undated, or (2) where
not made or drawn on December 2, 2013, the presumption may be struck down. 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
SIR: Starting today, as a matter of prudence, you have to make it a habit that when you sign be payable accordingly.
any document, at least put a date beside or near your signature. So that later on, you can
note when you received or signed the said document. Who may insert the date on the instrument? Any holder may insert therein the true
date of issue or acceptance.
SECTION 12.Antedated and Postdated. — The instrument is not invalid for the
reason only that it is antedated or postdated, provided this is not done for an What is the effect of a wrongful insertion of a wrong date? It will avoid it as to the
illegal or fraudulent purpose. The person to whom an instrument so dated is party who knowingly inserted the wrong date.
delivered acquires the title thereto as of the date of delivery.
What if it is already negotiated to a holder in due course? The insertion of a wrong
What is the rule on antedating and postdating? The instrument is not invalid for the date does not avoid the instrument in the hands of a subsequent holder in due course.
reason only that it is antedated or postdated, provided this is not done for an illegal or Furthermore, the wrong date inserted will be regarded as the true date.
fraudulent purpose. The intention of the person antedating or postdating the instrument
is material. So if a person antedating or postdating an instrument to defraud another When is date necessary? The date may be necessary:
person, then the act of antedating or postdating will invalidate such instrument as to the (1) to determine the date of maturity;
person who made the antedating or postdating. (2) where interest is stipulated, to determine when interest is to run;
(3) to determine whether a party has acted within a reasonable time.
Give an example of ante-dating: December 1, 2013, I promise to pay to B or order
P1000. (Sgd.) A; Suppose that the instrument is really issued or delivered by A to B, on I promise to pay B or order the sum of P1000, 60 days after date: Can you insert a
December 15, 2013. The instrument is ante-dated because the date written thereon is date on the said instrument? Yes, the holder may insert the true date of issue because
earlier than the true date of its issuance or delivery. the date of the instrument is necessary to determine the date of maturity.
Give an example of post-dating: In the same example given, if A delivers or issues the To C, Pay to B or order the sum of P1000, 60 days after sight. (Sgd.) A: Can you
instrument to the payee on November 15, 2013, a date earlier than December 1, 2013, which insert a date on the said instrument? Yes, the holder may insert the true date of
appears on the instrument, the instrument is post-dated. acceptance because the bill cannot be determined unless the acceptance is dated.
SIR: In commercial transactions, there are times that you would have to ante-date or post- What if the instrument provides for the day or the month but not the year: I
date your documents because they anticipate, say for example, that they may not have any promise to pay Mr. Erojo or order the sum of P1 million. Payable on 5 December.
funds on this particular period, so they need a period of 30 days from today. So even if I (Sgd.) X? The note is not negotiable because the instrument is neither payable on demand
deliver a check on December 2, I would put a date of December 30 on the instrument. nor payable on a fixed or determinable future time.
SECTION 14.Blanks; When May Be Filled. — Where the instrument is wanting in if it had been filled up strictly in accordance with the authority given and within a
any material particular, the person in possession thereof has a prima facie reasonable time.
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 I promise to pay Y or order the sum of ___________ payable on demand. (Sgd.) X;
converted into a negotiable instrument operates as a prima facie authority to fill it He delivered the instrument to Y. The instruction is that Y should put in the blank
up as such for any amount. In order, however, that any such instrument when only P1 million. However, Y believed the bigger, the better, so he inserted in the
completed may be enforced against any person who became a party thereto prior instrument the amount of P2 million. The instrument was endorsed by Y to A, A to
to its completion, it must be filled up strictly in accordance with the authority B, B to C. C, being a holder in due course. May C enforce the instrument against X,
given and within a reasonable time. But if any such instrument, after completion, the maker? Yes because where the instrument is incomplete and delivered, but completed
is negotiated to a holder in due course, it is valid and effectual for all purposes in contrary to the authority given, or not completed within a reasonable time, and the holder is a
his hands, and he may enforce it as if it had been filled up strictly in accordance holder in due course, he can enforce the instrument, as if it had been filled up strictly in
with the authority given and within a reasonable time. accordance with the authority given and within a reasonable time, against parties
prior or subsequent to the completion.
Does any person have the right to complete an instrument which is wanting in any
material particular? Only a person in possession thereof has a prima facie authority to Why can a holder in due course claim against a party even prior to its wrongful
complete it by filling up the material particular wanting on such instrument therein. insertion? The personal defense of parties prior to the completion, such as A, is that it is
not filled up strictly in accordance with the authority given or that it is not filled up
What is this prima facie authority? This prima facie authority is a presumption by law within a reasonable time, is not available against a holder in due course because under
from the following facts: the law, in the hands of such holder, the complete but delivered instrument is valid and
(1) want of a material particular in the instrument. effective for all purposes in his hands, and he may enforce it as if it had been filled up
(2) possession thereof by a person; strictly in accordance with the authority given and within a reasonable time.
(3) that such a person had authority to fill up the blanks.
Supposing C is not a holder in due course, may he enforce the said instrument
A signature on blank paper delivered by the person making the signature in order against the maker? Yes, but in order that a subsequent holder who is not a holder in due
to convert the paper into a negotiable instrument: What is the effect? It operates as course may enforce the instrument against a party prior to the completion of the note: (1)
a prima facie authority to fill it up as such for any amount. the blank must be filled up strictly in accordance with the authority given and (2) it must be
filled up within a reasonable time.
Should it be filled up strictly in accordance with the authority given by the person
who delivered it? Yes, in order that a subsequent holder may enforce the instrument In the example, who are liable to C, who is not a holder in due course? Y the payee;
against any person who became a party thereto prior to its completion. A and B, the endorsers.
When should the insertion be made? The insertion should be made within a Why are they liable? As to Y, he is liable because (1) he was the one who placed the
reasonable time. amount and (2) as endorser, he warrants that the instrument is in all respects what
it purports to be and (3) if he is a general endorser, that it is valid and subsisting. A
What is reasonable time? In order to determine what is a “reasonable time”, regard is and B are also liable because (1) they parties subsequent to the completion and (2) as
had: endorsers, they warrant that the instrument is in all respects what it purports to be
(1) to the nature of the instrument; and (3) if they are general endorsers, that it is valid and subsisting.
(2) usage of trade or business with respect to such instrument and
(3) the facts of the particular case. What are the warranties that endorsers make? An endorser warrants that the
instrument is:
What if the instrument is given to you by the maker, with instruction to fill up the (1) in all respects what it purports to be; and in addition, if he is a general endorser,
blank. You fill up the instrument after a period of (1) one year because you are (2) that it is valid and subsisting.
from Zamboanga and the city was under sieged by the rebels. Can you still
consider that as filling up the instrument within a reasonable time? Yes, because of What are the steps in the execution of negotiable instruments?
the fact that the delay in filling up the said instrument was caused by a fortuitous event and 1) Writing a complete instrument in accordance with Section 1 of the NIL.
such delay may be considered reasonable. 2) Delivery of the instrument, i.e, transfer of possession with the intent to transfer title.
What is the effect of an insertion of a wrong amount with respect to a holder in Bills of exchange or promissory note executed in blank and delivered to another to
due course? If any such instrument, after completion, is negotiated to a holder in due fill in and negotiate on behalf of the maker of the instrument. How do you call this
course, it is valid and effectual for all purposes in his hands, and he may enforce it as instrument? It is an incomplete but delivered instrument.
What does material particular refer to? Material particular may be:
(1) a particular the omission of which will render the instrument non-negotiable, such *What are the requisites before any such instrument when completed may be
as, the name of the payee or the name of the drawer; or enforced against any person who became a party thereto prior to its completion?
(2) ) a particular the omission of which will not render the instrument non-negotiable (1) it must be filled up strictly in accordance with the authority given and
such as the date, the rate of interest, place of payment. (2) within a reasonable time.
A makes a note and the name of the payee is not written, and the note is in I promise to pay B or order the sum of __________ on demand. (Sgd.) A; A
possession of B. May B write his name as a payee? Yes, under Section 14 of the NIL, delivers it to B with the authority to fill the instrument up to P1 million. B fills up
where the instrument is wanting in any material particular, the person in possession P1 million and negotiates it with C. May C enforce it against A? It depends. Even if B
thereof has a prima facie authority to complete it by filling up the blanks therein. fills up the instrument in accordance with the authority given, we still have to determine
whether the instrument was fill up by B within a reasonable time. Otherwise, if it was not fill
Is the instrument wanting in a material particular, and why? Yes, it is wanting in a up within a reasonable time, C may not enforce the instrument against A. Except if C is a
material particular, because in our example, the name of the payee is not stated in the holder in due course.
instrument.
In the same example given above, instead of putting in P1 million, B puts in P2
Is B in possession of the instrument? If so, what is the authority of B to fill out the million. B then negotiated it to C, C to D, D to E. E is not a holder in due course.
instrument? Yes, B is in the possession of the instrument and being such, has a prima May E enforce it against A, the maker? There are two views on this point:
facie authority to complete it by filling up the blanks therein. (1) The first view is that the one who is not a holder in due course cannot enforce the
instrument against a party prior to the completion of the instrument, such as A, if the
What are the requisites before a person can insert a material particular in an instrument is not filled up strictly in accordance with the authority given or within a
instrument? reasonable time.
(1) that the instrument is wanting in any material particular; (2) The second view is that, in such a case, the holder can enforce the instrument
(2) that he in possession of such instrument; according to the authorized tenor. In other words, E can collect from A the amount of P1
(3) you are the prima facie authorized to complete the instrument by filling in the million.
material particular which is wanting in the said instrument. The better view seems to be the first one. The law provides that in order that one who is not
a holder in due course may enforce mechanically incomplete but delivered instrument, the
In the first instance under Section 14, is it required that the said instrument must two requisites must exist. The implication is that when one or both of the requisites are
be delivered with intent to convert it to a negotiable instrument? No, it is not absent, the instrument may not be enforced.
required. The law merely requires that it be in (1) possession of a person other than the
drawer or maker and (2) that the instrument is wanting in a material particular. In the same example given above, may E enforce the instrument against B, the
person who caused the wrongful insertion, and against the subsequent endorsers?
When is it required that the instrument must be delivered with intent to convert it Yes, E may enforce the instrument against B because (1) the latter was the one who placed
to a negotiable instrument? It is required when the person only placed his signature the amount, and because (2) as endorser, he warrants that the instrument is in all
on a blank paper. respects what it purports to be and (3) if he is a general endorser, that it is valid and
subsisting.
What are the requisites in order for a person to fill the instrument up to any amount? The
requisites are: May E enforce the instrument against C and D? E may also enforce the instrument
(1) a signature on a blank paper against C and D because (1) they are parties subsequent to the completion and because (2)
(2) that the person signing in blank delivers it in order that the paper may be as endorsers, they warrant that the instrument is in all respects what it purports to
converted into a negotiable instrument. be and (3) if they are general endorsers, that it is valid and subsisting.
Mere possession is not enough.
In what ways or instances can B be held liable? He can be held liable for:
What if I make an instrument and deliver it to another person without such intent (1) inserting the wrong amount on the instrument
to make it a negotiable instrument. Does the person who received it have the (2) as an endorser, B warranted that the instrument is in all respects what it
authority to fill the instrument up to any amount? No, because the intent to convert purports to be and
it to a negotiable instrument is not present. (3) if B is a general endorser, he also warranted that the instrument is valid and
subsisting.
Is mere possession enough? No, mere possession is not enough.
When you endorse an instrument, what are the warranties you guarantee?
A signs a paper in blank and delivers it to B. May B fill in with the said paper any (1) as an endorser, you warrant that the instrument is in all respects what it purports
amount? It depends on the intention of A. to be and
(2) if you are also an general endorser, you warrant that the instrument is valid and
subsisting. Suppose that F is a holder in due course, can he now enforce the said instrument
against A? No, the non-delivery of an incomplete instrument of an incomplete instrument
Suppose, however, that E is a holder in due course, may he enforce the instrument is a valid defense, not only between the original parties but also against a holder in due
against A, the maker? Yes, under the law, if any such instrument, after completion, is course. The law uses the phrase “any holder” which includes a holder in due course.
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 Does it mean that F cannot enforce the instrument as against any party? No, the
the authority given and within a reasonable time. invalidity of the instrument is only with reference to the parties whose signature appears on
the instrument prior to delivery. As to parties whose signature appear on the instrument
In our example, what are the defenses of A, the maker of the instrument? The after the delivery, the instrument may be valid.
personal defenses of parties prior to the completion, such as A, is (1) that it is not filled
up strictly in accordance with the authority given or (2) that it is not filled up In the example given above, who are liable against F, or who can F enforce the
within a reasonable time. said instrument? F can enforce the instrument against B, C, D, and E. The instrument is
valid as to B because he was the one responsible for the negotiation of the instrument, its
What is the difference between real defense and personal defense? Real defense is a theft and filling up, and because he is an endorser and as such he warrants that the
defense which you can put up even against a holder in due course while a personal defense instrument is in all respect what it purports to be, and as to C, D, and E, also because they
cannot be raised against a holder in due course. are endorsers.
Give us a summary of the rule where the instrument is incomplete but delivered: What is the defense of a party whose signature appears on an instrument prior to
In the case of an instrument that is incomplete but completed contrary to the authority delivery? The possible defense of such party is that against him, the instrument is not valid
given, or not completed within a reasonable time: for having been incomplete and undelivered. Such a defense can be interposed not only
(1) where the holder is a holder in due course, he can enforce the instrument as against one who is not a holder in due course but also against a holder in due course, as
complete against parties prior or subsequent to the completion. the law uses the term “any holder”. It is, therefore, a real defense.
(2) where the holder is not a holder in due course, he can enforce the instrument as
completed only against parties subsequent to the completion, but not against those Is delivery conclusively presumed where the instrument is incomplete? No, delivery
prior thereto. is not conclusively presumed where the instrument is incomplete. There is however, a prima
facie presumption of delivery which the maker may rebut by proof of non-delivery.
Is it already time class? Yes Sir. You want to continue? [insert here the sound of
crickets chirping] What is meant by conclusive presumption? It is a presumption wherein contrary proof is
barred.
I promise to pay X or order the sum of _____________ 30 days after date. (Sgd.)
A. Supposing this was delivered by A to X: How do you classify this kind of As to deliveries:
instrument? This is an undated instrument. It is also an incomplete because there is a
blank, but it is a delivered instrument. WHERE THE AS TO A: THE PRESUMPTION IS:
INSTRUMENT IS
Will the filling up the blanks with any date, avoid the note in the hands of a holder Incomplete and Holder in due course Prima facie
in due course? The insertion of a wrong date does not avoid the instrument in the hands undelivered
of a subsequent holder in due course. Furthermore, the wrong date inserted will be Complete and Holder in due course Conclusive
regarded as the true date. undelivered
Incomplete and delivered Holder in due course Conclusive
SECTION 15.Incomplete Instrument Not Delivered. — Where an incomplete
instrument has not been delivered, it will not, if completed and negotiated without Suppose A makes or draws an incomplete instrument and entrusts it to B for
authority, be a valid contract in the hands of any holder, as against any person safekeeping or custody. B instead completes the instrument and negotiates it to
whose signature was placed thereon before delivery. C, who is a holder in due course. May C enforce the note against A? Yes, delivery to
the agency or custodian is a sufficient delivery to bind the maker or drawer.
Suppose A signed a blank check which was subsequently stolen by B who filled in
the amount and a fictitious name as payee. B then endorsed the payee’s name and SECTION 16.Delivery; When Effectual; When Presumed. — Every contract on a
passed the check to C, C to D, D to E, and E to F. Can E enforce the instrument negotiable instrument is incomplete and revocable until delivery of the instrument
against A? No, because an incomplete and undelivered instrument, will not, if for the purpose of giving effect thereto.
completed and negotiated without authority, be a valid contract in the hands of any holder,
as against any person, such as A, whose signature was placed thereon before delivery.
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 Unless respondent Sima Wei proves that she has been relieved from liability on the
or under the authority of the party making, drawing, accepting, or endorsing, as promissory note by some other cause, petitioner Bank has a right of action against her for the
the case may be; and in such case the delivery may be shown to have been balance due thereon.
conditional, or for a special purpose only, and not for the purpose of transferring
the property in the instrument. However, insofar as the other respondents are concerned, petitioner Bank has no privity with
But where the instrument is in the hands of a holder in due course, a valid them. Since petitioner Bank never received the checks on which it based its action against
delivery thereof by all parties prior to him so as to make them liable to him is said respondents, it never owned them (the checks) nor did it acquire any interest therein.
conclusively presumed. And where the instrument is no longer in the possession of Thus, anything which the respondents may have done with respect to said checks could not
a party whose signature appears thereon, a valid and intentional delivery by him is have prejudiced petitioner Bank.
presumed until the contrary is proved.
Give us the outline of rules on delivery of negotiable instruments under Section 15
Suppose A makes a complete instrument: I promise to pay B or order the sum of and 16:
P1000. (Sgd.) A. Later on, A tore up the instrument without delivering the note to (1) Delivery is essential to the validity of any negotiable instrument.
B. Did B acquire any right to the said instrument? No did not acquire any right because (2) As between immediates parties, delivery must be coupled with the intention of
no rights arise in respect to an instrument until it is delivered. transferring title to the instrument.
(3) An instrument signed by the drawer or maker but not completed by him and retained in
DBR vs SIMA WEI his custody is invalid as to him for want of delivery even though stolen and negotiated to a
FACTS: Sima Wei issued two crossed checks payable to petitioner Bank drawn against China holder in due course.
Banking Corporation. The said checks were allegedly issued in full settlement of the drawer's (4) When a mechanically complete by undelivered instrument is in the hands of a holder in
account evidenced by the promissory note. These two checks were not delivered to due course, there is prima facie presumption of delivery.
Development Bank Of Rizal or to any of its authorized representatives. For reasons not (5) Where the custody of the incomplete instrument has been entrusted to another, who
shown, these checks came into the possession of respondent Lee Kian Huat, who deposited wrongfully completes and negotiates it to a holder in due course, delivery to the agent or
the checks without Development Bank Of Rizal's endorsement (forged or otherwise) to the custodian is sufficient delivery to bind the drawer or maker.
account of respondent Plastic Corporation in Producers Bank. (6) A completed instrument in the possession of a holder not in due course, there is a prima
facie presumption of delivery – but subject to rebuttal.
Development Bank of Rizal now filed a complaint for a sum of money against respondents (7) Where a complete but undelivered instrument is in the hands of a holder in due course,
Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic there is a conclusive presumption of delivery.
Corporation and the Producers Bank. (8) Delivery of the instrument may be made on a parol condition or for a special purpose
consistent with its written terms.
ISSUE 1: Whether or not DBR has acquired any rights to the two crossed checks?
ISSUE 2: Whether petitioner Bank has a cause of action against any or all of the defendants. Can the maker or drawer revoke or tear out an instrument? Yes, before delivery, the
HELD: maker or drawer can revoke, cancel or tear up the instrument.
ISSUE 1: No. Under the NIL, Every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of giving effect thereto. Thus, the What is the significance if the instrument is not yet delivered to the payee? The
payee of a negotiable instrument acquires no interest with respect thereto until its payee named in the instrument acquires no right until the instrument is delivered to him.
delivery to him. Delivery of an instrument means transfer of possession, actual or
constructive, from one person to another. Without the initial delivery of the instrument from What is an immediate party?
the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery Literal meaning – the “drawer” and the “payee” are immediate parties to each other. So are
must be intended to give effect to the instrument. In the instant case, the instrument was not the “maker” and the “payee” to each other. So also are the “indorser” and “indorsee” to each
delivered to DBR. other. (p178, 446)
Broader meaning – an immediate party is confined to “those who are immediate, in the
ISSUE 2: Without the delivery of said checks to DBR, the former did not acquire any right or sense of knowing or being held to know the conditions or limitations placed upon delivery of
interest therein and cannot therefore assert any cause of action, founded on said checks, the instrument.” (p179, 447)
whether against the drawer Sima Wei or against the Producers Bank or any of the other
respondents. It does not necessarily follow that the drawer Sima Wei is freed from liability to What is a remote party?
petitioner Bank under the loan evidenced by the promissory note agreed to by her. These Literal meaning – the “drawer” or “maker” to the “indorsee” is a remote party. (p178, 446)
checks were never delivered to petitioner Bank. And even granting, without admitting, that Broader meaning – the criterion is whether or not the party in question knows of the
there was delivery to petitioner Bank, the delivery of checks in payment of an obligation does conditins or limitations placed upon delivery or the fact that the instrument was not delivered
not constitute payment unless they are cashed or their value is impaired through the fault of but stolen.
the creditor. If the party knows, he is an immediate party even though he is physically remote.
If he does not know, he is a remote party even though he is the next party physically. (p179, negotiable instrument.
447)
What is a trover? It is a common law concept. It is an action to recover the value of goods.
“M” made a promissory note, kept it inside his drawer. It was stolen by “B”. “A”
knew that “B” got the promissory note from the latter “M”. Is “A” considered an May an owner file an action for replevin for his instrument? Yes, the owner may
immediate party? Yes, even if “A” is physically remote from “M”, “A” is an immediate party likewise maintain an action for replevin against the finder. (459) Replevin – an action to
as far as “M” is concerned because he knows of the lack of delivery. (p179, 448) recover goods from one who has wrongfully acquired such.
What is conditional delivery? It is delivery to another, with a condition. What if a finder of the note received payment for the note. May an action for
Ex: “A” makes a complete note in favor of “B”, with the understanding that it is not to become money be filed against him? Why?
binding on “A” until it is also signed by “C.” (p180, 451) Yes, because the finder acquired no rights when he found the lost instrument, likewise he
acquired no right to receive payment for the note.
“A” made a promissory note and then delivered to “B”, subject to the condition
that “B” could not negotiate the same promissory until “B” passes the bar exam? What if the party liable to the instrument pays the same. May the party of the said
Is that an example of a conditional delivery? Why? (p180, 452) instrument be discharged of his liabilities? Ex. “Maker” –> “Payee” –> “A” –> “B”
Yes, what is conditional here is the delivery, not the promise or order to pay. (lost the instrument) –> “C” (found the lost instrument)
“C” collected the amount from the “Maker”, is the “Maker” discharged from his
Does conditional delivery affect the negotiability of the instrument? No, it is still liability? It depends, a party will not be discharged if he pays the amount to the holder of
negotiable because the condition was set on the delivery and not on the promise or order to the lost instrument before maturity, as such payment is not made in the usual course of
pay. business. (460)
Did the promissory note itself provide that it will be made payable only if “B” Ex. A promissory note dated Jan 10, 2014, on Jan 6, “C” went to “Maker” to collect
passes the bar exam? No, if it did then it would be rendered non-negotiable because a 1M. Is the “Maker” discharged from his liability? No, because he paid the 1M before
negotiable instrument must be an unconditional order or promise to pay. the maturity of the promissory note. Also if “B” already informed the “Maker” of the loss and
despite being notified he still paid “C”, the “maker” is still not discharged. Otherwise if the
What is delivery for special a purpose? Delivery for purposes of (1) safekeeping or (2) “maker” was not notified by “B” of the loss, and the “maker” paid “C” upon the maturity of
for collection only. the promissory note, then the “maker” is discharged of his liability.
Ex: “A” delivers a complete note payable to bearer signed by him to “B” for (1) safekeeping
or (2) for collection only. (p180, 453) “A” made a note and placed it on his table and was taken by “B”. May “B” be
criminally liable? Yes, Any person who with intent to gain, but without violence against or
“A” completed a note which was stolen by “B”. Note was endorsed to “C”, “C” to intimidation of persons nor force upon things, shall take the a negotiable instrument
“D”, “D” to “E”. “E” is now a holder in due course. May “A” raise the defense that belonging to another without the latter’s consent is guilty of the crime of theft. (461)
the note was stolen? What type of defense is it? No, where the instrument is in the
hands of a holder in due course, a valid delivery thereof by all parties to him is conclusively The instrument was placed inside a locked compartment. The same was destroyed
presumed. (p181, 454) It is a personal defense, it cannot be raised against a holder in due by B and took the instrument. May “B” be criminally liable? Yes, but not theft
course. (455) anymore since the taking with intent to gain was done with force upon things, the offender is
now guilty of the crime of robbery.
What if the instrument was delivered but was not authorized, is it a personal
defense? It is just a personal defense, it cannot be raised against a holder in due course. What if the person with intent to defraud another, removed, concealed or
destroyed the said instrument. What crime is he liable? What provision of the
What if the instrument was delivered on a condition or special purpose? personal? RPC? Yes, any person who shall defraud another by removing, concealing or destroying in
It is just a personal defense, it cannot be raised against a holder in due course. whole or in part a negotiable instrument is guilty of the crime of estafa under Art 315 of the
RPC.
What is the duty of a holder of a lost instrument? As soon as the owner discovers that
he has lost a negotiable instrument, he should instantly give notice of the loss to all the SEC 17. Construction where instrument is ambiguous
parties on such paper and inform them not to pay the amount to any except to the loser or
his order. (p182, 458) When do you construe an instrument? When the language of the instrument is
ambiguous or there are omissions therein.
What are the rights of a finder of a lost instrument? No title to a lost bill or note vests
in the finder and, the owner, when he has identified it, may maintain trover against the When do you apply the rules of construction? It is only applicable when the instrument
finder. (p182, 459) The rules in the Civil Code in finding something does not apply in a lost in question is ambiguous, doubtful or obscure, or when there are omissions therein. (p183,
463) What if the signature is placed upon the instrument making it unclear as to what
capacity said person signing it. What is the rule? If the capacity of the person signing is
The instrument provides for interest without specifying the date. When should so unclear, he shall be treated as a mere indorser. (470)
interest commence? The note will earn interest from the date of the note, or the date of its
issue, at the legal rate. (p184, 466) What if a person signed in the place of the maker’s name? Is he deemed as a
maker? One who signed in the place of the maker’s name is not an indorser. Sec 17 applies
What if there is discrepancy between the sum written in words and the sum only to cases of doubt arising out of the location of the signature.
written in figures. Which should govern?
The sum written in words should govern first. Instrument says “I promise to pay” but signed by 2 or more persons. What is the
Ex. Where a promissory note reads “twelve pesos” (in words), in its body and “Php 12,000” rule? They are deemed to be jointly and severally liable, not merely jointly liable. The holder
(in figures) at the margin. The note is only good for Php 12 only. (p184, 464) of the instrument can collect the whole amount of the instrument from either of them.
Reason: it is easier to change the figures or to commit a mistake in regards to them than
when the sum is written out in words. SEC 18. Liability of person signing in trade or assumed name
What if the words are ambiguous? When the words are ambiguous or uncertain, A person’s signature is not found in the instrument, may he be held liable?
reference may be had to the figures to fix the amount. (465)
General Rule: A person whose signature does not appear on the instrument is not liable.
What if the instrument is not dated? Under Sec 17, if the instrument is not dated, the (p186, 473)
date of its issue will be considered its date. Exceptions: (p187, 474)
1. When a duly authorized agent signs for a person, that person is liable;
What is the difference between this rule and the rule under section 11? Under Sec 2. Where a person sought to be charged forges the signature of another person, the
11, the instrument is dated it will be presumed to be its true date. However the presumption forger is liable even if his signature does not appear thereon;
is prima facie, or rebuttable, between the immediate parties (but not against a holder in due 3. Where a person sought to be charged signs on a paper separate from the instrument
course). Under Sec 17, the instrument is not dated, and the date of its issue will be itself, as in an “allonge” or where an acceptance is written on a paper other than the
considered its date. bill itself under Sec 134 and 135;
4. Where the person uses an assumed name or trade name. (ex. Partners under the law
What if there is a conflict between written and printed provisions? The handwritten firm “TGGT”. A note was given for firm purposes signed by “TGGT” by WG a partner
words would prevail. (p185, 468) in the firm. All partners here are liable for the note because used an assumed name
Which will govern? or trade name)
Ex. Written Printed
Eight hundred Three hundred What is an Allonge? An allonge is a piece of paper annexed to a negotiable promissory note
A: Written governs in which to write an endorsement where there is no room on the instrument itself. It must be
firmly affixed thereto as to become a part thereof. So if your signature is not found on the
Q: Which will govern? instrument itself but written on an allonge firmly affixed thereto, you can still be held liable.
Ex. Written Printed
300 Eight hundred Where do you usually find an endorsement? At the back of the instrument
A: SIR: Printed governs, let’s first follow the first rule of construction because the first
construction is very specific pertaining to figures and words. With respect to figures and What do you call an additional attachment included in the instrument? An allonge.
words there is a specific rule that words should govern. When there is a particular rule on
words and figures we must first follow it. In this case where there is an issue between figures SEC 19. Signature by agent; authority; how shown.
and words, follow the first construction where the words governs even though it was printed
and the figures were written. The rule where written governs over printed applies only when May the signature of the maker be signed by another person? Yes, as long as it is
there is no issue between words and figures, like the first example. made by a duly authorized agent or representative
What if the bill is so ambiguous to be considered as a bill or note? The payee or the What if the agency is merely constituted orally? Is that allowed? The agency may be
holder may treat it as a bill or note at the election of the holder. (p185, 469) oral or written. There is no particular from required by the law and the agency may be proved
by oral or written evidence, unless specific provisions of the general law, such as, the statute
Ex: I promise to pay to the order of “B” Php 1,000 at the PNB. of frauds, require otherwise. (p188, 477)
(Sgd) A
To the PNB Accepted, (Sgd) PNB X was made an agent to collect payment and received a check from the debtor.
May X now endorse the check?
No, the agent’s authority to collect does not include the authority to indorse the instrument. paid on the basis of the completed houses and developed lands delivered to and accepted by
(p188, 477) AFRDC and the GSIS. Sometime in 1979, Ong discovered that Diaz and Francisco, the Vice-
President of GSIS, had executed and signed seven checks of various dates and amounts
SEC 20. Liability of person signing as agent payable to HCCC for completed and delivered work under the contract. Ong, however, claims
that these checks were never delivered to HCCC. It turned out that Francisco forged the
What are the requisites for an agent to escape liability? (p188, 478) indorsement of Ong on the checks and indorsed the checks for a second time by signing her
1. Must be duly authorized; name at the back of the checks, petitioner then deposited said checks in her savings account.
2. Add words to his signature indicating that he signs as an agent, that is, for and in behalf A case was brought by private respondents against petitioner to recover the value of said
of a principal, or in a representative capacity; and checks. Petitioner however claims that she was authorized to sign Ong's name on the checks
3. Disclose his principal. by virtue of the Certification executed by Ong in her favor giving her the authority to collect
all the receivables of HCCC from the GSIS, including the questioned checks.
How do you sign as an agent?
Ex. If Pedro Vega is the agent and Jose Cruz is the principal. ISSUE: Whether petitioner cannot be held liable on the questioned checks by virtue of the
(1) Jose Cruz Certification executed by Ong giving her the authority to collect such checks from the GSIS.
By Pedro Vega
(2) Pedro Vega HELD: Petitioner is liable. The Negotiable Instruments Law provides that where any person
For Jose Cruz is under obligation to indorse in a representative capacity, he may indorse in such terms as to
(3) Pedro Vega negative personal liability. An agent, when so signing, should indicate that he is merely
As agent of Jose Cruz signing in behalf of the principal and must disclose the name of his principal; otherwise he
shall be held personally liable. Even assuming that Francisco was authorized by HCCC to sign
What if the principal is not disclosed? Then the agent is personally liable on the Ong's name, still, Francisco did not indorse the instrument in accordance with law. Instead of
instrument even if he is duly authorized. (p189, 480) signing Ong's name, Francisco should have signed her own name and expressly indicated that
she was signing as an agent of HCCC. Thus, the Certification cannot be used by Francisco to
PHILCOM vs ARUEGO validate her act of forgery.
FACTS: To facilitate payment of the printing of a periodical called “World Current Events.”,
Aruego, its publisher, obtained a credit accommodation from the Philippine Bank of Should the disclosure of principals be in the signature portion of the instrument?
Commerce. For every printing of the periodical, the printer collected the cost of printing by The disclosure of the principal in order to relieve the agent from liability need not be in the
drawing a draft against the bank, said draft being sent later to Aruego for acceptance. As an signature. (481)
added security for the payment of the amounts advanced to the printer, the bank also
required Aruego to execute a trust receipt in favor of the bank wherein Aruego undertook to SEC 21. Signature of Procuration
hold in trust for the bank the periodicals and to sell the same with the promise to turn over to
the bank the proceeds of the sale to answer for the payment of all obligations arising from What is the effect by a signature of procuration? It constitutes as a warning that the
the draft. The bank instituted an action against Aruego to recover the cost of printing of the agent has but limited authority, and therefore, a person who takes the instrument so signed is
latter’s periodical. Aruego however argues that he signed the supposed bills of exchange only bound at his peril to inquire into the extent and nature of the agent’s authority, and this
as an agent of the Philippine Education Foundation Company where he is president. applies to every person. (p190, 484)
ISSUES: Whether Aruego can be held liable by the petitioner although he signed the SEC 22. Effect of indorsement by infant or corporation
supposed bills of exchange only as an agent of Philippine Education Foundation Company.
What is the effect if the endorsement is made by an infant? A minor cannot give
HELD: For failure to disclose his principal, Aruego is personally liable for the drafts he consent to contracts and a contract entered into by him is voidable. Nevertheless, if a minor
accepted, pursuant to Section 20 of the NIL which provides that when a person adds to his or corporation indorses an instrument, the indorser acquires title to it and can enforce it
signature words indicating that he signs for or on behalf of a principal or in a representative against the maker or acceptor or other parties prior to the minor. (485)
capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of
words describing him as an agent or as filing a representative character, without disclosing his To whom can an endorsee go after? against the maker or acceptor or other parties prior
principal, does not exempt him from personal liability. to the minor
FRANCISCO vs. CA What about a lunatic? Sec 22 applies also to indorsements by lunatics, imbeciles, and other
FACTS: A. Francisco Realty & Development Corporation (AFRDC), of which petitioner incapacitated persons. (p191, 487)
Francisco is the president, entered into a Land Development and Construction Contract with
private respondent Herby Commercial & Construction Corporation (HCCC), represented by its
President and General Manager private respondent Ong. Under the contract, HCCC was to be
As against the collecting bank and the drawee bank, who should suffer the loss? It
is the collecting bank
REPUBLIC VS EBRADA:
FACTS: Ebrada encashed a “Back Pay Check” issued by the Bureau of Treasury at the
Republic Bank in Escolta Manila. The Bureau of Treasury advised the Republic Bank that the
instrument was forged. It informed the bank that the original payee of the check died 11
years before the check was issued. Therefore, there was a forgery of his signature.
This is the sequence:

Martin Lorenzo The deceased person, original “payee”, where the forgery happened
Ramon Lorenzo
Delia Dominguez
Mauricia Ebrada Defendant-appelant
SECTION 23.Forged Signature; Effect of . — When a signature is forged or made Ebrada refuses to return the proceeds of the check claiming that she already gave it to Delia
without the authority of the person whose signature it purports to be, it is wholly Dominguez. She also claims that she is a HDC (holder in due course) and that the bank is
inoperative, and no right to retain the instrument, or to give a discharge therefor, already estopped.
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 HELD: Ebrada should return the proceeds of the check to Republic Bank. As an indorser of the
such right is precluded from setting up the forgery or want of authority. check, she was supposed to have warranted that she has good title to said check. See Section
65.
What is forgery? It is the counterfeit making or fraudulent alteration of any writing, and
may consist in the signing of another’s name, or the alteration of the instrument in the name, It is only the negotiation based on the forged or unauthorized signature which is inoperative.
amount, description of the person and the like, with intent to defraud. Therefore:
Is it limited to only signature? No, it also includes forged indorsements. Martin Lorenzo Signature inoperative
Ramon Lorenzo To Dominguez: operative
JAI-ALAI VS BPI Delia Dominguez To Ebrada: operative
FACTS: Petitioner deposited 10 checks in its current account with BPI. The checks which Mauricia Ebrada
were acquired by petitioner from Ramirez, a sales agent of the Inter-Island Gas were all
payable to Inter-Island Gas Service, Inc. or order. After the checks had been submitted to Drawee bank can collect from the one who encashed the check. If Ebrada performed the duty
Inter-bank clearing, Inter-Island Gas discovered that all the indorsements made on the checks of ascertaining the genuiness of the check, in all probability, the forgery wouyld have been
purportedly by its cashiers were forgeries. BPI thus debited the value of the checks against detected and the fraud defeated.
petitioner's current account and forwarded to the latter the checks containing the forged
indorsements which petitioner refused to accept. Does the existence of a forged signature in the instrument render void all the
negotiations of the check in respect to other parties? No, it does not. Only the forged
ISSUE: Whether BPI had the right to debit from petitioner's current account the value of the signatures are rendered inoperative.
checks with the forged indorsements.
What distinguishes forgery from innocent alteration? The intent to defraud.
HELD: BPI acted within legal bounds when it debited the petitioner's account. Having
indorsed the checks to respondent bank, petitioner is deemed to have given the warranty What is meant by intent to defraud? It is the intention to deceive others causing
prescribed in Section 66 of the NIL that every single one of those checks "is genuine and in all financial loss to such party. It is more than bad faith.
respects what it purports to be." Respondent which relied upon the petitioner's warranty
should not be held liable for the resulting loss. MWSS vs CA
FACTS: Metropolitan Waterworks and Sewerage System (MWSS) had an account with PNB.
**The depositor of a check as indorser warrants that it is genuine and in all respects what it When it was still called
purports to be. Having indorsed the checks to respondent bank, petitioner is deemed to have NAWASA, MWSS made a special arrangement with PNB so that it may have personalized
given the warranty prescribed in Section 66 of the NIL that every single one of those checks " checks to be printed Mesina Enterprises. These personalized checks are the ones being used
is genuine and in all respects what it purports to be." by MWSS in its business transactions. From March to May 1969, MWSS issued 23 checks to
various payees in the aggregate amount of P320,636.26. During the same months, another
set of 23 checks containing the same check numbers earlier issued were forged. The
aggregate amount of the forged checks amounted to P3,457,903.00. This amount was X informed Y that he is in need of money and in fact he promised Y that he will
distributed to the bank accounts of three persons: Arturo Sison, Antonio Mendoza, and Raul bring the jewelry box which contain several valuable jewelries. Because of that
Dizon. MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB refused. The representation, Y issued a check amounting to P5 million payable to order of X. It
trial court ruled in favor of MWSS but the Court of Appeals reversed the trial court’s decision. turned out that the jewelry box contained no jewelry. May Y claim forgery? Y may
not claim forgery because this is not the type of forgery contemplated under Section 23. This
ISSUE: Whether or not PNB should restore the said amount. is a fraud in inducement wherein X induces Y to issue the check, which does not amount
to forgery and which is only a personal defense (which may not be raised against a
HELD: No. MWSS is precluded from setting up the defense of forgery. It has been proven holder in due course).
that MWSS has been negligent in supervising the printing of its personalized checks. It failed
to provide security measures and coordinate the same with PNB. Further, the signatures in Give an example of duress amounting to forgery: A points a gun against B and forces
the forged checks appear to be genuine as reported by the National Bureau of Investigation him to sign his name on a negotiable instrument.
so much so that the MWSS itself cannot tell the difference between the forged signature and
the genuine one. The records likewise show that MWSS failed to provide appropriate security Give an example of fraudulent impersonation: X represents himself to be Juan Cruz,
measures over its own records thereby laying confidential records open to unauthorized when in fact he is not. By this misrepresentation, X obtains from Y a note payable to the
persons. Even if the twenty-three (23) checks in question are considered forgeries, order of Juan Cruz. Then X endorses the note, signing as “Juan Cruz”
considering the MWSS’s gross negligence, it is barred from setting up the defense of forgery
under Section 23 of the Negotiable Instruments Law. Can this be considered as forgery? It depends upon whom Y intends to pay. If Y intends
The Supreme Court further emphasized that forgery cannot be presumed. It must be that proceeds of the note will go to X, the person dealing with him, named at the time
established by clear, positive, and convincing evidence. This was not done in the present Juan Cruz, then X’s signature of the name “Juan Cruz” is not a forgery. But if Y intends
case. that the proceeds of the note will go to the REAL Juan Cruz and not X, but whom Y issued
the notes on the belief that X was Juan Cruz, X’s signature of “Juan Cruz” would be a
What is the effect if the signature is forged or made without the authority of the forgery.
person whose signature it purports to be?
1) It is wholly inoperative Intent of the drawer/maker of the instrument that
2) No right to retain the instrument the Proceeds of the note will go to the:
3) To give a discharge therefor person physically present before him. Not a forgery
4) To enforce payment thereof against any party thereto person whom he believes the stranger to be. Forgery
What is the exception to this? When the party against whom it is sought to enforce such What is the difference between the two? In the first case, X is the intended payee,
right is precluded from setting up the forgery or want of authority. regardless of his name. In the second, Juan Cruz is the intended payee, not X.
What are the forms of forgery? What is double intent in fraudulent impersonation? First, he intends to make the
1) Ordinary forgery instrument payable to the person physically present before him or to the person
2) Fraud in factum writing at the other end of the line, in case the negotiation is by correspondence.
3) Duress amounting to forgery Second, he intends to make the instrument payable to the person whom he believes the
4) Fraudulent impersonation stranger to be.
Give an example of an ordinary forgery: 1) B makes a promissory note, making himself *Which is controlling? The first is the controlling intent except where the name of the
the payee, and forges the signature of A, making it appear that A made the note; 2) A draws payee was already known to the maker or drawer, or was more particularly
a bill of exchange against X, payable to the order of B. Y fraudulently gets hold of the bill and identified in some manner, e.g., by some designation, description or title.
signs the name of B, payee, endorsing the bill to himself.
In our example does X’s signature of “Juan Cruz” constitute a forgery? No because
What is fraud in factum? It is a fraud wherein the signature in a purported negotiable X is the intended payee and therefore, X’s signature of “Juan Cruz” would ordinarily not
instrument was made without any intention to issue an instrument. constitute a forgery but a signature of an assumed name.
Give an example of an fraud in factum: X obtains the signature of John Lloyd Cruz by Macario Davide went to C and represented himself as Hilario Davide III. Because
telling the latter it is only for autograph purposes. Then X writes above the signature a of such representation, C issued a check payable to the order of Hilario Davide III,
negotiable instrument. Although that is really the signature of JLC, but there is really no Governor of Cebu, the sum of P1 million, payable on demand. Thereafter, the
intention on his part to convert the paper into a promissory note. As it amounts to forgery, it instrument was negotiated by Macario Davide to D. D wants to enforce the said
has the effect of forgery such that it is a real defense.
amount to C. Can he do that? No because the name of the payee was particularly
described by some designation. Therefore the second intent, i.e., the drawer intends to make What are the defenses that are considered waived?
the instrument payable to the person whom he believes the stranger to be, (1) that the signature is a forgery
is controlling. This amounts to forgery and therefore, D cannot enforce the instrument against (2) that it was unauthorized, as in the case of an agent signing for his principal or on behalf
C. of a corporation
(3) that the party signed the instrument in some other capacity.
SIR: It’s already part of the exception. If X misrepresents in front of you passing off as Y,
and you acted on such misrepresentation, the rule is that forgery may not be present Is coercion, imbecility, illegality considered waived? No because these are matters
because you always go to the first intent, i.e., the person who issued the check intends which are not inconsistent with the execution and genuineness of the instrument.
pay to the person who is physically present before him. However, this rule admits of an
exception, i.e., where the person or the name of the payee was already known to the A (maker) makes a note payable to the ORDER of B (payee). C (forger) got hold of
maker or drawer, or was more particularly identified in some manner, e.g., by some the instrument and forged the signature of B and passed himself as B. C then
designation, description or title. In our example, the payee was particularly identified endorses it to D (endorser), D endorses it to E(holder). May E enforce the note
in the instrument by some designation as the Governor of Cebu. Even if C, did not know against the A (maker)? No because as the signature of B is forged or made without the
the physical appearance of the Governor of Cebu, C also made sure that he is well authority of the B, it is wholly inoperative, and no right to retain the instrument, or to give a
protected by stating therein that he is paying Hilario Davide III, the Governor of Cebu, and discharge therefor, or to enforce payment thereof against any party prior to the forgery, such
not some other person. Thus in the example: 1) there is forgery and 2) falls under the as A. Considering that it is an order instrument, the endorsement is necessary.
exception, therefore, D cannot enforce the instrument against C.
SIR: Take note this is an order instrument. When A makes such promissory note, he
What is the theory of actual intent? The drawer, among all other parties, in promised to B or his order. So he bound himself to pay B or his order. In this case, B did not
entertaining that person before him, should be the one to discover or detect the order C or D or E, for that matter, to get hold of the instrument and present it for payment
forgery, because it is the drawer who directly transacted with that person. The to A. In effect, C, D and E have no rights to the instrument because the signature of B is
drawer is duty-bound to ascertain the identity of such person by asking for any personal important being an order instrument. So, E cannot enforce such instrument against A.
identification (Government issued ID’s, Passport, Company ID) from that person before him or
the former could try to compare the signature of the latter using said ID’s, and not entirely May E (holder) make B (payee) liable? No because his signature is forged. Therefore the
believe on the representation made by that person, unless you know that person personally. instrument is wholly inoperative as to B, and no right to retain the instrument, or to give a
Considering that it was the drawer who entertained that person, then the law gives the discharge therefor, or to enforce payment thereof against B (payee), can be acquired through
obligation on your part and in fact the law would make that document issued as a valid and or under such forged signature.
binding negotiable instrument. It will never be considered by the law as forgery. Therefore,
the first intent is controlling, i.e., the drawer really intended to pay the person before him. May E (holder) make C (forger) liable? Yes, as a forger and endorser, C is liable to E.
Given another reason for the rule: theory of estoppel or negligence. As between two May E (holder) make D (endorser) liable? Yes, as an endorser, D warrants that the
innocent persons, the one whose act was the cause of the loss should bear the consequence. instrument is in all respects what it purports to be.
What if the impostor did not represent as the payee but as the agent of the payee? What if the instrument is a BEARER document: A (maker) makes a note payable to
In the absence of negligence on the part of the drawer – that as between the drawer and B (payee) or BEARER. C (forger) got hold of the instrument and forged the
drawee, or between the drawer and a holder in due course, the loss falls on the drawee or signature of B and passed himself as B. C then endorses it to D (endorser), D
the purchaser. endorses it to E(holder in due course). May E enforce the note against the A
(maker)? Yes, E may enforce the note against A because as a bearer instrument, the
X files a case against Y to collect the sum of P1 million under a promissory note. Y endorsement of the instrument is not necessary to pass title to the document to subsequent
did not sign such promissory note. In fact, Y did not know that such note existed. parties, such as E. Thus, E as a holder in due course, he may enforce the note even to parties
The copy of the promissory note was attached to the complaint. How should Y prior to the forgery.
deny such promissory note? Y should deny specifically under oath, otherwise the
genuineness and due execution of the instrument shall be deemed admitted. How do you negotiate a bearer instrument? By mere delivery.
What is the meaning of genuineness and due execution? Is meant that the party In the same example, is the signature of B necessary? No.
whose signature it bears admits that:
(1) he signed it, or it was signed by another for him, with his authority Why is it that only a HDC (holder in due course) can make A (maker) liable in the
(2) the words and figures in such document are exactly as set out in the pleading of the party same example? Yes, under Section 16 of the NIL, want of delivery of a mechanically
relying upon it complete instrument cannot be interposed against a HDC because where the instrument is in
(3) any formal requisites required by law are waived by him.
the hands of a HDC, a valid delivery thereof by all parties prior to him so as to make forgery. Other examples are: 1) unreasonable delay in giving notice of forgery and 2)
them liable to him is conclusively presumed. negligence in delivery.
SIR: Forgery can never be a defense here because this is just a bearer instrument which can What are the rights of parties in forgery of endorsement in a note payable to
be negotiated by mere delivery. When you can negotiate by mere delivery, those forged order? The party whose endorsement is forged and parties prior to him including the maker
signature are taken as mere surplusage, i.e., they are not necessary in order for the cannot be held liable by the holder, whether that holder is a HDC or not.
subsequent parties to a forgery can acquire title or right over such instrument. What is
necessary here is deliver. Take note this is a mechanically complete instrument but Why?
undelivered. 1) Inasmuch as the endorsement is forged, it is inoperative. It cannot effect any
transfer of any rights to the holder.
What if E is not a HDC? Under Section 16 of the NIL, where the instrument is no longer in 2) The law provides that no right to retain the note, give discharge therefor, or
the possession of a party whose signature appears thereon, a valid and intentional delivery by enforce payment, could be acquired through and under the forged signature.
him is presumed until the contrary is proved. Thus, E may not enforce the note against 3) A forger acquires no right to the note. As he is the transferor to the holder or the
the party whose endorsement is forged. In such cases, the defense of want of delivery is predecessor of the holder, the transferee acquires whatever rights the forger has in the note,
available against E as there is only prima facie presumption of delivery of a mechanically but as the forger has no rights to the note, the transferee likewise acquires no rights against
complete instrument, which A (maker) or B (payee) may controvert. such prior parties.
Can E (holder) enforce the note against C (forger)? Yes, as a forger and an
endorser, he is liable to E. In the same example of a bearer instrument, what if it’s the signature of the A
(maker) that is forged: May E enforce the note against the maker? Where the
May E (holder) enforce the note against D (endorser)? Yes, as an endorser, D maker’s signature is forged, he cannot be held liable by any holder, whether the holder is a
warrants that the instrument is genuine and in all respects what it purports to be. By mere holder in due course or not.
delivery you are also making a warranty.
Order instrument: A - drawer, B – payee, D – drawee bank, C – collecting bank, F –
Can we extend class? Do you have a class? Yes Are you sure?!? Yes!!! Is you forger; The check was issued by A drawn against D worth P1 million payable to B.
teacher here? Not yet Ah, not yet thank you very much. F, fraudulently gets hold of the check and forges the signature of B. F then
deposits the check in C collecting bank. C bank endorses the check to D drawee
If the instrument contains a forged signature, does it render the whole instrument bank and collects from D bank through the clearing house. Then, F, forger
inoperative? No, it does not. Only the forged signatures are rendered inoperative. withdraws from C bank the proceeds of the check and disappears:
What are the two general classes of persons that are precluded from setting up May A’s drawer account be charged by D the drawee bank? A’s account cannot be
the defense of forgery? charged by the drawee B for the amount paid and if his account is charged, A can recover the
(1) those who warrant or admit the genuineness of the signature in question amount from D, because as an order instrument the depositary owes to the
(2) those who by their declaration, acts, silence or negligence are estopped from depositor an absolute and contractual duty to pay the check only to the person to
setting up the defense of forgery. whom it is made payable or upon his genuine endorsement. The drawee bank has no
legal right to pay the money of the drawer on deposit with it to anyone except the drawer or
What is being warranted by the endorsers? He warrants that the instrument is genuine its order. In this case, the signature of B is forged, therefore, there was no genuine
and in all respects what it purports to be. endorsement.
Who are included under the classs of warrantors of genuineness? May the drawer collect from the collecting bank? No, the drawer has not right to
(1) endorsers collect from the collecting bank, as the duty of the collecting bank to exercise care in
(2) persons negotiating by delivery collection is due only to the payee.
(3) acceptors/warrantors
May drawee bank recover from the collecting bank? Yes, it may recover from the
Who are those persons estopped or precluded from raising forgery? It includes recipient of the payment such as the collecting bank under a forged endorsement because the
persons who ratify such instrument. collecting bank, as an endorser, warranted that the instrument is genuine and in all
respects what it purports to be, and it has breached that warranty.
Give an example of those who by their acts, silence or negligence are estopped
from setting up the defense of forgery: A’s signature on a note is forged. B is the payee. May the payee collect the amount due him from the drawer? Yes, the payee can
C wants to buy the note but before buying it, he asks A if the signature is A’s signature, and A collect from the drawer on the basis of his claim of debt upon which the check in the first
says, “It is all right”. C can collect from A who is estopped from setting up the defense of place had been issued. SIR: because there was no payment.
May payee recover from the recipient (collecting bank) of payment? Yes, as a What is the legal effect if the drawee already accepted the bill and it was found out that
general rule, a bank, corporation or an individual who has obtained possession of a check the signature of the drawer was forged?
upon an unauthorized or forged endorsement of the payee’s signature and who collects the 1) The drawee bank, by principle of estoppel, cannot set up the defense of forgery
amount of the check from the drawee is liable for the proceeds to the payee (rightful owner) because when he accepted the bill, he admitted the genuineness of the signature of
or other owner, notwithstanding that they have been paid to the person (forger) whom the the drawer.
check was obtained. 2) The drawer is not liable as his signature is inoperative and therefore he is not a party to
the bill.
Is the collecting bank liable to payee? Yes because the possession of the check on the
forged or unauthorized endorsement is wrongful and the proceeds are held for the What is the principle of estoppel? It is a principle which bars a party from denying or
rightful owners of the payment and may be recovered by them. alleging a certain fact owing to that party's previous conduct, allegation, or denial.
May payee recover it from the drawee bank? No, as a general rule, B payee cannot A – drawer, F – forger, D – drawee, H – holder. F endorses it to H: If the D drawee
recover it from D bank unless the check has been certified or accepted by the bank. paid the amount of the check, may the drawee recover the amount the holder H?
Without such certification or acceptance, there is no privity of contract between the No, because under our law, if the drawer’s signature is forged and the pays the amount of the
drawee bank and the payee. check upon presentment, he is considered to be constructively negligent in his obligation
to ascertain the genuineness of the signature of the drawer. As such, he cannot recover from
Who bears the loss? C collecting bank bears the loss but can recover from the person to the holder.
whom it has paid the check, F.
What is the doctrine of comparative negligence? Where a loss must be borne by one
What is the duty of the collecting bank? It is bound to scrutinize checks deposited with it of two innocent parties alike innocent of forgery, can be traced to the neglect or fault of
to determine genuiness and regularity. The collecting bank holds itself out to the public as either, it is reasonable that the one through whose means it has succeeded, must bear the
the expert and the law holds it to a high standard of conduct. loss.
Supposing it was the drawer’s signature that was forged, who among the parties it would be borne by him, even if innocent of any intentional fraud, through whose means
can ultimately be held liable? It is the drawee bank who is liable because as the drawer is it has succeeded or who put into the power of the third person to perpetuate the
its client, it has all the specimen signature of the drawee and it is bound to scrutinize such wrong.
signature to determine its genuiness and regularity.
In our example who are the two innocent persons and who is liable? The drawee
Whose Who is Why bank and the holder. The former should bear the loss since it has the obligation to
signature is ultimately held ascertain the genuineness of the signature of the drawer and it was negligent in
forged liable performing such obligation which allowed the forger to perpetuate the wrong.
Payee Collecting bank The collecting bank warrants the
genuineness and regularity of all the What if both the drawer’s and payee’s signature is forged, how will you ascertain
signatures of the previous endorsers the liabilities of the parties? Under the NIL, the endorser warrants the genuineness of
contained in the said instrument, including prior endorsements, and if the endorsement of the payee is forged, the endorser is laible on
the payee’s, which turned out to be forged. his warranty to all whom it runs. But the drawee is held not to be a holder in course,
Drawer Drawee bank The law places to the drawee bank the and therefore is not entitled to the benefit of the endorser’s warranty. The result is
obligation to determine the that, so far as the drawee is concerned, the situation is much the same as though the paper
genuineness of the signature because bore no endorsements, but was payable to bearer (the payment depends whether the
it is the latter who knows the holder is a HDC or not). If the drawee bank is a holder in due course, then it is entitled to
signatures of its depositors as all his an endorser’s warrantties
specimen signature are with it.
SIR: If both signatures are forged, then last entity who can examine the validity of the
May a holder of a bill of exchange payable to bearer recover from the drawee if the signatures by comparing them with the specimen signatures of the drawer, must be held
endorsement turns out to be a forgery? Yes provided the instrument is complete and liable, which in our example is the drawee bank. The drawee bank has the last clear
such holder is a holder in due course, since endorsement is not necessary to his title because chance to examine the validity of the signatures. A collecting bank, on the other hand,
in a bearer instrument, endorsement is made by mere delivery, and in the hands of a holder upon endorsement, may not know the signature of the drawee and the previous endorsers,
in due course, a valid delivery thereof by all parties prior to him so as to make them but is likewise is obligated by law to warrant the genuineness of the signatures of the
liable to him is conclusively presumed. instruments previous endorsers, including the payees’.
What is the criminal liability of the person who forges a signature on an forged because he never gave the bank the order to pay. However, the petitioner Gempesaw
instrument? He may be charge with falsification of private documents under the RPC. falls under the exception. Gempesaw was guilty of such gross negligence which causes the
bank to honor such checks and such negligence precludes her from setting up the defense of
What about the person who defrauds another by post-dating a check when such forgery or want of authority. In the case at bar, the agent (Galang) was the one who
person had no or insufficient funds in the bank? He may be charge with swindling or perpetrated the series of forgeries. Had the petitioner been more prudent under the
estafa through post-dating a check. circumstances, she could have discovered the fraud earlier. Drawee bank which contributed to
the loss incurred by the drawer by its own violation of internal rules adjudged liable to share
How about a person who represents to his victim that the check is in fact the the loss.
check of the person whose signature is forged and by reason of that
representation, the victim was induced to receive the check and pay the person Was there forgery in this case? Yes, forgery in the payee’s signature
the value of the instrument? He may be charged with estafa by falsification of signature.
ASSOCIATED BANK vs CA
BDO vs EQUITABLE FACTS: The province of Tarlac maintains an account with PNB-Tarlac. Part of its funds is
FACTS: BDO drew checks payable to member establishments. Subsequently, the checks were appropriated for the benefit of Concepcion Emergency Hospital. During a post-audit done by
deposited in Trencio’s account with Equitable. The checks were sent for clearing and was the province, it was found out that 30 of its checks weren’t received by the hospital. Upon
thereafter cleared. Afterwards, BDO discovered that the indorsements in the back of the further investigation, it was found out that the checks were encashed by Pangilinan who was
checks were forged. It then demanded that Equitable credit its account but the latter refused a former cashier and administrative officer of the hospital through forged indorsements. This
to do so. This prompted BDO to file a complaint against Equitable and PCHC. The trial court prompted the provincial treasurer to ask for reimbursement from PNB and thereafter, PNB
and RTC held in favor of the Equitable and PCHC. from Associated Bank. As the two banks didn't want to reimburse, an action was filed against
them.
ISSUE: Who is ultimately liable
ISSUE: Where thirty checks bearing forged endorsements are paid, who bears the loss, the
HELD: The collecting bank or last endorser generally suffers the loss because it has the duty drawer, the drawee bank or the collecting bank?
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 HELD: A collecting bank, as an indorser, warrants "that the instrument is genuine and in all
has done its duty to ascertain the genuineness of the endorsements. The collecting bank respects what it purports to be; that he has a good title to it; that all prior parties had
being primarily engaged in banking holds itself out to the public as the expert and the law capacity to contract; and that the instrument is at the time of his indorsement valid and
holds it to a high standard of conduct. If the drawee-bank discovers that the signature of the subsisting." Even if the indorsement on the check deposited by the banks' client is forged, the
payee was forged after it has paid the amount of the check to the holder thereof, it can collecting bank is bound by his warranties as an indorser and cannot set up the defense of
recover the amount paid from the collecting bank. In the instant case, Equitable bank as forgery as against the drawee bank.
collecting bank breached its warranty. Hence, it ultimately bears the loss.
The drawee bank, is under strict liability to pay the check to the order of the payee. The
GEMPESAW vs CA drawer's instructions are reflected on the face and by the terms of the check. Payment under
FACTS: Gempesaw was the owner of many grocery stores. She paid her suppliers through a forged indorsement is not to the drawer's order. The general rule then is that the drawee
the issuance of checks drawn against her checking account with respondent bank. The checks bank may not debit the drawer's account and is not entitled to indemnification from the
were prepared by her bookkeeper Galang. In the signing of the checks prepared by Galang, drawer. The risk of loss must perforce fall on the drawee bank. If at the same time the
Gempensaw did not bother in verifying to whom the checks were being paid and if the drawee bank was also negligent to the point of substantially contributing to the loss, then
issuances were necessary. She did not even verity the returned checks of the bank when the such loss from the forgery can be apportioned between the negligent drawer and the
latter notifies her of the same. During her two years in business, there were incidents shown negligent bank.
that the amounts paid for were in excess of what should have been paid. It was also shown
that even if the checks were crossed, the intended payees did not receive the amount of the In cases involving a forged check, where the drawer's signature is forged, the drawer can
checks. This prompted Gempesaw to demand the bank to credit her account for the amount recover from the drawee bank. No drawee bank has a right to pay a forged check. In cases
of the forged checks. The bank refused to do so and this prompted her to file the case against involving checks with forged indorsements, the chain of liability does not end with the drawee
the bank. bank. The drawee bank can seek reimbursement or a return of the amount it paid from the
collecting/presentor bank or person. The loss falls on the party who took the check from the
ISSUE: W/N the drawer precluded from setting up forgery or want of authority as a defense? forger, or on the forger himself.
HELD: Yes. AS a general rule forgery is a defense. The applicable rule is found under Sec. 23 In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee
of NIL. A party whose signature was forged was never a party and never gave his consent to bank (PNB). The former will necessarily be liable to the latter for the checks bearing forged
the instrument. The instrument can not even be enforced against him even by a holder in due indorsements. If the forgery is that of the payee's or holder's indorsement, the collecting bank
course. The drawee bank can not charge the account of the drawer whose signature was 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. ISSUE: Who shall bear the loss resulting from the altered check.
The former must necessarily return the money paid by the latter because it was paid
wrongfully. HELD: When an indorsement is forged, the collecting bank or last indorser, as a general rule,
bears the loss. But the unqualified indorsement of the collecting bank on the check
The failure of the Province of Tarlac to exercise due care contributed to a significant degree to should be read together with the 24-hour regulation on clearing house operation.
the loss tantamount to negligence. Hence, the Province of Tarlac should be liable for part of Thus, when the drawee bank fails to return a forged or altered check to the collecting bank
the total amount paid on the questioned checks. The drawee bank PNB also breached its duty within the 24-hour clearing period (as provided by Section 4c of Central Bank Circular 9, as
to pay only according to the terms of the check. Hence, it cannot escape liability and should amended), the collecting bank is absolved from liability. The drawee bank, FNCB, should bear
also bear part of the loss. The Philippine National Bank shall pay fifty percent (50%) of the the loss for the payment of the altered check for its failure to detect and warn Republic Bank
total amount to the Province of Tarlac. Associated Bank shall pay fifty percent (50%) of the of the fraudulent character of the check within the 24-hour clearing house rule.
total amount to the Philippine National Bank, likewise
PCIB vs CA 50-50
METROPOLITAN BANK vs FIRST NATIONAL CITY BANK 24 hour notice FACTS: Ford Philippines drew and issued Citibank Check. No. SN 04867 on October 19, 1977,
FACTS: August 25, 1964: Check dated July 8, 1964 for P50,000.00, payable to CASH, drawn Citibank Check No. SN 10597 on July 19, 1978 and Citibank Check No. SN-16508 on April 20,
by Joaquin Cunanan & Company on First National City Bank (FNCB) was deposited with 1979, all in favor of the Commissioner of Internal Revenue (CIR) for payment of its
Metropolitan Bank and Trust Company (Metro Bank) by Salvador Sales. Metro Bank percentage taxes. The checks were crossed and deposited with the IBAA, now PCIB, BIR's
immediately sent the cash check to the Clearing House of the Central Bank with the following authorized collecting bank. The first check was cleared containing an indorsement that "all
words stamped at the back of the check: All prior endorsements and/or Lack of endorsements prior indorsements and/or lack of indorsements guaranteed." The same, however, was
Guaranteed. Private respondent paid petitioner through clearing the amount of P50,000.00, replaced with two (2) IBAA's managers' checks based on a call and letter request made by
and Sales was credited with the said amount in his deposit with Metro Bank. August 26-31, Godofredo Rivera, Ford's General Ledger Accountant, on an alleged error in the computation
1964: Sales withdrew all the amount in his account. September 3, 1964: FNCB returned of the tax due without IBAA verifying the authority of Rivera. These manager's checks were
cancelled Check to drawer Joaquin Cunanan & Company, together with the monthly later deposited in another bank and misappropriated by the syndicate. The last two checks
statement of the company's account with FNCB. The company notified FNCB that the check were cleared by the Citibank but failed to discover that the clearing stamps do not bear any
had been altered as the actual amount of P50.00 was raised to P50,000.00 and the name of initials. The proceeds of the checks were also illegally diverted or switched by officers of PCIB
the payee, Manila Polo Club, was superimposed the word CASH. Sep 10, 1964: FNCB wrote — members of the syndicate, who eventually encashed them. Ford, which was compelled to
Metro Bank asking for reimbursement June 29, 1965: FNCB filed for recovery. pay anew the percentage taxes, sued in two actions for collection against the two banks on
January 20, 1983, barely six years from the date the first check was returned to the drawer.
ISSUE: Which bank is liable for the payment of the altered checks, the drawee bank (FNCB)
or the collecting bank (Metrobank) ISSUE: W/N Ford can recover from the collecting bank and the drawee bank.
HELD: Both banks are bound by the 24-hour clearing house regulation of the Central Bank
which requires the drawee bank receiving the check for clearing from the Central Bank HELD: 1st check: The collecting bank's negligence in its responsibility to make sure that the
Clearing House to return the check to the collecting bank within the 24-hour period if the check in question is deposited in Payee's account only, is the proximate cause of the loss, we
check is defective for any reason. conclude that PCIBank is liable in the amount corresponding to the proceeds of Citibank
Check No. SN-04867.
In this case, the check was not returned to Metro Bank, the collecting bank, in accordance
with the 24-hour clearing house period, but was cleared by FNCB, the drawee bank. Failure of 2nd set of checks: The general rule is that a bank is liable for the fraudulent acts or
FNCB, therefore, to call the attention of Metro Bank to the alteration of the check in question representations of an officer or agent acting within the course and apparent scope of his
until after the lapse of nine days, negates whatever right it might have had against Metro employment or authority. And if an officer or employee of a bank, in his official capacity,
Bank in the light of the said Central Bank Circular. Its remedy lies not against Metro Bank, but receives money to satisfy an evidence of indebtedness lodged with his bank for collection, the
against the party responsible for changing the name of the payee. bank is liable for his misappropriation of such sum. But in this case, responsibility for
negligence does not lie on PCIBank's shoulders alone. Citibank as drawee bank was likewise
REPUBLIC BANK vs CA 24 hour notice negligent in the performance of its duties. Citibank, as the drawee bank breached its
FACTS: San Miguel Corporation issued a dividend check for P240 in favor of J. Roberto contractual obligation with Ford and such degree of culpability contributed to the damage
Delgado, a stockholder. Delgado altered the amount of the check to P9,240. The check was caused to the latter. For its part, Ford contends that Citibank as the drawee bank owes to
indorsed and deposited by Delgado with Republic Bank. Republic Bank endorsed the check to Ford an absolute and contractual duty to pay the proceeds of the subject check only to the
First National City Bank (FNCB), the drawee bank, by stamping on the back of the check “all payee thereof, the CIR. PCIBank and Citibank are adjudged liable for and must share the loss,
prior and / or lack of indorsements guaranteed. Relying on the endorsement, FNCB paid the on a fifty-fifty ratio.
amount to Republic Bank. Later on, San Miguel informed FNCB of the material alteration of
the amount. FNCB recredited the amount to San Miguel’s account, and demanded refund from RAMON ILUSORIO vs CA proximate cause
Republic Bank. Republic Bank refused. Hence, the present action. FACTS: Ramon Ilusorio was a prominent businessman who, because of different business
commitments, entrusted to then secretary the handling of his credit cards and checkbooks.
For a material period of time, the secretary was able to encash and deposit in her personal
account money from the account of the petitioner. Upon knowledge of her acts, she was fired SECTION 24.Presumption of Consideration. — Every negotiable instrument is
immediately and criminal actions were filed against her. Thereafter, petitioner requested the deemed prima facie to have been issued for a valuable consideration; and every
bank to restore his money but the bank refused to do so. person whose signature appears thereon to have become a party thereto for value.
ISSUE: Whether or not petitioner is entitled to recover the amount from Manila Bank. X issued a promissory note naming Y as payee. The note does not state whether X
got a valuable consideration. Is the negotiability of the note affected? No, because
HELD: No. It is true that Sec. 23 of NIL provides that a forged check is inoperative and would our law, there is prima facie presumption that consideration was given.
give no authority to the drawee bank to pay the forged check. It is also a rule that when a
signature is forged or made without the authority of the person whose signature it purports to Is the presumption disputable? Yes, you can present contrary proof.
be, the check is wholly inoperative. No right to retain the instrument, or to give a discharge
therefor, or to enforce payment thereof against any party, can be acquired through or under X filed a case against Y arising from a promissory note without alleging the
such signature. However, the rule does provide for an exception, namely: "unless the party consideration for such note. Will it affect the case and if so, who will prove that
against whom it is sought to enforce such right is precluded from setting up the forgery or there was no consideration? No, because consideration is presumed. The person who
want of authority." alleges that there was no consideration given has the burden of proving such allegation.
In the instant case, it is the exception that applies. In our view, petitioner is precluded from What is the effect of lack of consideration? The promissory note is without effect and
setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to the payment of such note is not demandable.
his secretary his credit cards and checkbook including the verification of his statements of
account. He failed to examine his bank statements and this was the proximate case of his SECTION 25.Value, What Constitutes. — Value is any consideration sufficient to
own damage. support a simple contract. An antecedent or pre-existing debt constitutes value;
and is deemed such whether the instrument is payable on demand or at a future
Is there forgery in this case? Forgery was never established as petitioner he did not time.
submit his specimen signature. It was just assumed by the supreme court.
What is value? It is any consideration sufficient to support a simple contract.
Why is it that SC ruled Ilusorio is liable?
1) petitioner failed to submit additional specimen signatures as requested by the NBI What is consideration? It is the cause, price or motive which induces a contracting
2) petitioner accorded his secretary unusual degree of trust and unrestricted access to his party to enter into a contract.
credit cards, passbooks, check books, bank statements.
3) petitioner's failure to examine his bank statements. What is valuation consideration? An obligation to give, to do, not to do, in favor of a
party who makes a contract, such as the maker or endorser.
SAMSUNG CONSTRUCTION vs CA
FACTS: Samsung Construction held an account with Far East Bank. One day a check worth Give an example of a consideration in an obligation to give: To sell land or to deliver
900,000, payable to cash, was presented by one Roberto Gonzaga in the Makati Branch of Far goods.
East Bank. The check was certified to be true by Jose Sempio, the assistant accountant of
Samsung, who was also present during the time the check was cashed. Later however it was Give an example of a consideration in an obligation to do: To teach, to smoke mow
discovered that no such check was ever approved by the Samsung’s head accountant, the the grass. 
president of the company also never signed any such check.
Give an example of a consideration in an obligation not to do: Not to compete in a
ISSUE: Whether or not Far East Bank is liable to reimburse Samsung for cashing out the business.
forged check, which was drawn from the account of Samsung
What if there is already a pre-existing debt? It is a sufficient consideration.
HELD: Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law
states that a forged signature makes the instrument “wholly inoperative”. If payment is made Take note of this class, suppose that A, widow, issues a note for a pre-existing
the drawee (Far East) cannot charge it to the drawer’s account (Samsung). The fact that the debt of her deceased husband whose estate is insolvent. Is that a valuable
forgery is clever is immaterial. The forged signature may so closely resemble the genuine as consideration? No, because after the death of the husband, there is no more pre-
to defy detection by the depositor himself. And yet, if the bank pays the check, it is paying existing debt as the estate is insolvent.
out with its own money and not of the depositor’s. This rule of liability can be stated briefly in
these words: “A bank is bound to know its depositor’s signature.” The accusation of A issues a note to B, and B in return for the note, issues a check in favor of A. Is
negligence on the part of Samsung was not clearly proven. Absence of proof to the contrary, there a consideration? Yes, there is a sufficient consideration.
the presumption is that the ordinary course of business was followed.
X is the gay benefactor of Y, and because Y loves X so much, he issued a check any payment from A. If A has no available defense, C can collect the whole amount of P1000.
worth P1 million payable to X. Is there a consideration? There is good However, C has the obligation to hold the balance of P400 for the benefit of B, the endorsee.
consideration but does not constitute valuable consideration as sufficient of itself to
support the obligation of a bill or note. SECTION 28. Effect of Want of Consideration. — Absence or failure of
consideration is matter of defense as against any person not a holder in due
What if it was issued as a consideration of the illicit relationship? All the more there course; and partial failure of consideration is a defense pro tanto, whether the
is no consideration. failure is an ascertained and liquidated amount or otherwise.
What if X issued a check in favor as a sign of gratitude for his loyalty? There is good What is the effect of want of consideration? Absence or failure of consideration is
consideration but does not constitute valuable consideration as sufficient of itself to matter of defense as against any person not a holder in due course.
support the obligation of a bill or note.
When is there an absence of consideration? When there is total lack of valid
What if the promissory note is issues for the establishment of public institution as consideration.
churches, schools and hospitals? These are supported by sufficient consideration.
Give an example: Tara issues to note payable to Tantoy purportedly for the sale of a land.
SECTION 26.What Constitutes Holder for Value. — Where value has at any time It turned out that there was no land that was sold. Thus there is absence of consideration in
been given for the instrument, the holder is deemed a holder for value in respect the transaction between them.
to all parties who became such prior to that time.
Give other examples of absence of consideration: 1) a note given for a future illicit
What constitutes a holder for value? One who gives a valuable consideration for an cohabitation; 2) note by husband to his wife, upon promise of the wife to withdraw all
instrument issued or negotiated to him. opposition for divorce;
Two concepts of holder for value: When is there a failure of consideration? It is where there is neglect or failure of one
Concept 1: D endorses a note to E, and E gives valuable consideration to D for the of the parties to give, to do, or to perform the consideration agreed upon.
endorsement of the note, E would be a holder for value.
Give us an example: Ms. Licup issued a bill payable to Mr. Salcedo, in order for him to
Concept 2: A maker, B is the payee, B endorses it to C, C to D, D to E, now holder bungie jump in some place where bungie jumping is legally allowed (Take that professor!).
and last endorsee. B gives to A no valuable consideration for the note. C is known Overcome by fear, Mr. Salcedo did not jump. So there was a failure of consideration.
to have given valuable consideration to B. Whether D or E gave valuable
consideration is not known: Is E considered a holder for value? Under the law, as to What is the difference between absence and failure of consideration? Absence or
A, B, and C, E is considered a holder for value because at “C’s time” valuable consideration want of consideration embraces transactions where no consideration was intended to
was given, and A, B, and C became parties to the instrument before that time when value pass, while failure of consideration implies that the giving of valuable consideration was
was given. As to D, however, it is unknown. contemplated but that it failed to pass.
SECTION 27.When Lien on Instrument Constitutes Holder for Value . — Where the Suppose A is the maker of a note for P1000 issued by him to B for and
holder has a lien on the instrument, arising either from contract or by implication inconsideration of 10 forged shares of stock. Here, there is an absence of
of law, he is deemed a holder for value to the extent of his lien. consideration. B endorses the note to C who knows of the want of consideration.
May C enforce the note against A? Yes, because C is not a holder in due course.
A holder has a lien on the instrument arising from the contract or by Therefore, A can interpose the defense of want of consideration against C. But if C were a
implementation of law, what extent is he deemed a holder for value? He is deemed holder in due course, A cannot interpose the defense and C can collect.
a holder for value to the extent of his lien.
Suppose the extent of the absence of consideration is only P600, so B payee gave
Suppose that A makes a note in the sum of P1000 payable to the holder of B. B to A maker, valuable consideration to the extent of P400. What is the effect of
owes C P600. B endorses the note to C to secure the payment of his debt of P600 partial failure of consideration? A can interpose want of consideration only pro tanto or
to C. Up to what extent is the lien of C on the note? C is said to have a lien on the note proportionate, that is only to the extent of P600. If C were not a holder in due course, he can
to the extent of P600 and to that extent, he is a holder for value. only collect from A P400. But if C, were a holder in due course, he can collect the P1000
because failure or absence of consideration whether full or partial is not available against a
Can C being an endorsee collect the entire amount from A? It depends. If A maker, holder in due course.
has defenses against B endorser, such as absence of consideration (personal defense), C
even if a holder in due course, can collect from A only P600, the extent of his lien. If A has a What is the effect of the want of consideration between drawer and acceptor as to
real defense like he already paid his debt, C even if a holder in due course, cannot recover the holder? The drawee by accepting unconditionally the bill, is bound by the terms of
such instrument and becomes liable to the holder, and cannot allege want of accommodation party. Therefore, the holder for value may collect the said amount as
consideration between him and the drawer. The holder is a stranger as regards the stated in the instrument from the accommodation party.
transaction between the drawer and the drawee. The principle of estoppel applies in this
instance. X Corporation issued a note in accommodation of Y, who is the president of X
Corporation. Y endorsed the note to A. May A collect the said amount in the
SECTION 29.Liability of Accommodation Party. — An accommodation party is one instrument from the Corporation? No, this is because the issue or endorsement of
who has signed the instrument as maker, drawer, acceptor, or endorser, without negotiable paper by a corporation without consideration and for the accommodation of
receiving value therefor, and for the purpose of lending his name to some other another is ultra vires. Hence, one who has taken the instrument with knowledge of the
person. Such a person is liable on the instrument to a holder for value, accommodation nature thereof cannot recover against a corporation where it is only an
notwithstanding such holder at the time of taking the instrument knew him to be accommodation party. Since such accommodation paper cannot thus be enforced against the
only an accommodation party. corporation, the signatories thereof shall be personally liable therefor. By way of
exception, an officer or agent of a corporation shall have the power to execute or endorse a
Who is an accommodation party? An accommodation party is one who has signed the negotiable paper in the name of the corporation for the accommodation of a third person only
instrument as maker, drawer, acceptor, or endorser, without receiving value therefor, and if specifically authorized to do so.
for the purpose of lending his name to some other person.
What is ultra vires? It means that such act is beyond one's legal power or authority.
What is his liability? Such a person is liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew him to be only an Should the holder be a holder in due course for Section 29 to apply? Yes, otherwise
accommodation party. the defense of want of consideration can be interposed against such holder.
What are the requisites in order for you to be considered as an accommodation SADAYA vs SEVILLA
party? 1) he must be a party to the instrument, signing as maker, drawer, acceptor or FACTS: Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of the bank.
endorser; 2) he must not receive any value therefor; 3) he must sign for the purpose of Varona was the only one who received the proceeds of the note. Sadaya and Sevilla both
lending his name or credit. signed as co-makers to accommodate Varona. Thereafter, the bank collected from Sadaya.
Varona failed to reimburse. Consequently, Sevilla died and intestate estate proceedings were
What is the liability of the accommodation acceptor? He is primarily liable. established. Sadaya filed a creditor’s claim on his estate for the payment he made on the
note. The administrator resisted the claim on the ground that Sevilla didn't receive any
X received a consideration for signing the instrument itself but he signed as mere proceeds of the loan. The trial court admitted the claim of Sadaya though this was reversed
accommodation party, by the CA.
B approached A, asking the latter to sign the promissory note. A refused to sign
until B gives him P1000 because A is planning to eat a steak later (Sa David’s kay tag ISSUE: Whether or not Sadaya is entitled to reimbursement from the intestate of Sevilla.
P999 ilang Eat-all-you-can U.S. ribeye steak!). Is A still considered an accommodation
party? Yes, he would still be an accommodation party. The phrase used under Sec. 29 HELD: Under the law, a joint and several accommodation maker of a negotiable promissory
‘without receiving value therefor’ means ‘without receiving value by virtue of the note may demand from the principal debtor reimbursement for the amount that he paid to
instrument’ and not to mean ‘without receiving payment for lending his name’. the payee; and a joint and several accommodation maker who pays on the said promissory
note may directly demand reimbursement from his co-accommodation maker without first
Suppose the instrument itself contains the word “value received”, does it negative directing his action against the principal debtor provided that (a) he made the payment by
the note as an accommodation paper? No, it will not. virtue of a judicial demand or (b) the principal debtor is insolvent.
What are the rights and legal position of the accommodation party? 1) Regarded as Sadaya's payment to the bank "was made voluntarily and without any judicial demand," and
a surety for the accommodated party; 2) Right to sue the accommodated party for that "there is an absolute absence of evidence showing that Varona is insolvent". This
reimbursement. combination of fact and lack of fact epitomizes the fatal distance between payment by Sadaya
and Sadaya's right to demand of Sevilla "the share which is proportionately owing from him."
A made a note in accommodation to B as payee, May B collect the amount of note
from A? No, an accommodated party cannot recover from the accommodation party because CRISOLOGO-JOSE vs CA
as between them, absence of consideration is a defense. FACT: Plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc.; and
the president of the said corporation was Atty. Oscar Z. Benares. Atty. Benares, in
May want of consideration be interposed against a holder for value? Yes, because accommodation of his clients, the spouses Jaime and Clarita Ong, issued check against
the law provides that such a person is liable on the instrument to a holder for value, Traders Royal Bank, payable to defendant Ernestina Crisologo-Jose. Since the check was
notwithstanding such holder at the time of taking the instrument knew him to be only an under the account of Mover Enterprises, Inc., the same was to be signed by its president,
Atty. Oscar Z. Benares, and the treasurer of the said corporation. However, since at that time,
the treasurer of Mover Enterprises was not available, Atty. Benares prevailed upon the deposited and dishonored, Stelco came into possession of it in some way. Stelco cannot thus
plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid check. The check was issued to be deemed a holder of the check for value as it does not meet two essential requisites
defendant Ernestina Crisologo-Jose in consideration of the waiver or quitclaim by said prescribed by the statute, i.e. that it did not become “the holder of it before it was overdue,
defendant over a certain property which the Government Service Insurance System (GSIS) and without notice that it had been previously dishonored,” and that it did not take the check
agreed to sell to the spouses Jaime and Clarita Ong, with the understanding that upon “in good faith and for value.”
approval by the GSIS of the compromise agreement with the spouses Ong, the check will be
encashed accordingly. Since the compromise agreement was not approved within the TRAVEL-ON vs CA
expected period of time, the aforesaid check was replaced by Atty. Benares. This replacement FACTS: Petitioner Travel-On Inc. is a travel agency from which Arturo Miranda procured
check was also signed by Atty. Oscar Z. Benares and by the plaintiff Ricardo S. Santos, Jr. tickets on behalf of airline passengers and derived commissions therefrom. Miranda was sued
When defendant deposited this replacement check with her account at Family Savings Bank, by petitioner to collect on the six postdated checks he issued which were all dishonored by
Mayon Branch, it was dishonored for insufficiency of funds. The petitioner filed an action the drawee banks. Miranda, however, claimed that he had already fully paid and even
against the corporation for accommodation party. overpaid his obligations and that refunds were in fact due to him. He argued that he had
issued the postdated checks not for the purpose of encashment to pay his indebtedness but
ISSUE: May a corporation acting as an accommodation be held liable for purposes of accommodation, as he had in the past accorded similar favors to petitioner.
Petitioner however urges that the postdated checks are per se evidence of liability on the part
HELD: The provisions under the NIL which holds an accommodation party liable on the of private respondent and further argues that even assuming that the checks were for
instrument to a holder for value, although such holder at the time of taking the instrument accommodation, private respondent is still liable thereunder considering that petitioner is a
knew him to be only an accommodation party, does not include nor apply to corporations holder for value.
which are accommodation parties. This is because the issue or indorsement of negotiable
paper by a corporation without consideration and for the accommodation of another is ultra ISSUE: Whether Miranda is liable on the postdated checks he issued even assuming that said
vires. Since such accommodation paper cannot thus be enforced against the corporation, checks were issued for accommodation only.
especially since it is not involved in any aspect of the corporate business or operations, the
inescapable conclusion in law and in logic is that the signatories thereof shall be personally HELD: There was no accommodation transaction in the case at bar. In accommodation
liable therefor. By way of exception, an officer or agent of a corporation shall have the transactions recognized by the Negotiable Instruments Law, an accommodating party lends
power to execute or indorse a negotiable paper in the name of the corporation for the his credit to the accommodated party, by issuing or indorsing a check which is held by a
accommodation of a third person only if specifically authorized to do so. payee or indorsee as a holder in due course, who gave full value therefor to the
accommodated party. The latter, in other words, receives or realizes full value which the
The instant case falls squarely within the purview of the aforesaid decisional rules. If we accommodated party then must repay to the accommodating party. But the accommodating
indulge petitioner in her aforesaid postulation, then she is effectively barred from recovering party is bound on the check to the holder in due course who is necessarily a third party and is
from Mover Enterprises, Inc. the value of the check. not the accommodated party. In the case at bar, Travel-On was payee of all six (6) checks, it
presented these checks for payment at the drawee bank but the checks bounced. Travel-On
STELCO MARKETING vs CA obviously was not an accommodated party; it realized no value on the checks which bounced.
FACTS: Stelco Marketing Corporation sold steel bars and GI wires to RYL Construction Inc. Miranda must be held liable on the checks involved as petitioner is entitled to the benefit of
worthP126,859.61. RYL gave Stelco’s “sister corporation,” Armstrong Industries, a MetroBank the statutory presumption that it was a holder in due course and that the checks were
check fromSteelweld Corporation (The check was issued apparently by Steelweld’s President supported by valuable consideration.
Peter Rafael Limson toRomeo Lim, President of RYL and Limson’ friend, by way of
accommodation, as a guaranty and not inpayment of an obligation). When Armstrong BPI vs CA
deposited the check at its bank, it was dishonored because it wasdrawn against insufficient FACTS: Benjamin Napiza maintains an account with the Bank of the Philippine Islands (BPI).
funds. When so deposited, the check bore 2 indorsements, i.e. RYL and Armstrong.A criminal In 1987, Napiza was approached by Henry Chan and the latter gave him a $2,500 Continental
case was instituted against Limson, etc. for violation of BP 22, Subsequently, Stelco filed a Bank Manager’s check. Chan asked if Napiza can deposit the check to his (Napiza’s BPI
civilcase against RYL and Steelweld to recover the value of the steel products. account) by way of accommodation and for the purpose of clearing the said check. Napiza
ISSUE:Whether Stelco was a holder in due course of the check issued by Steelweld. agreed and so he deposited the check on September 3, 1987. Napiza then delivered a signed
blank withdrawal slip to Chan with the condition that the $2,500.00 may only be withdrawn if
HELD: There is no evidence whatever that STELCO's possession of check ever dated back to the check cleared. For some reason, the withdrawal slip ended up in the hands of one Ruben
any time before the instrument's presentment and dishonor. There is no evidence whatsoever Gayon who went to BPI and successfully withdrew the $2,500.00. At the time of the
that the check was ever given to it, or indorsed to it in any manner or form in payment of an withdrawal, the check was not yet cleared. Then days later, BPI was notified by the drawee
obligation or as security for an obligation, or for any other purpose before it was presented bank named in the check that the check is actually a counterfeit.
for payment. The records do not show any intervention or participation by Stelco in any
manner or form whatsoever in the transaction involving the check, or any communication of ISSUE: Whether or not Napiza may be held liable to refund the amount of the check.
any sort between Steelweld and Stelco, or between either of them and Armstrong Industries,
at any time before the dishonor of the check. The record does show that after the check was
HELD: No. The Supreme Court ruled that ordinarily, Napiza would have been liable because
he is an accommodation indorser. But due to the attendant circumstances, Napiza is What is the relationship between the accommodating party and the
discharged from liability. accommodated party? Principal debtor-surety
The withdrawal slip indicates as well as the rules promulgated by BPI that withdrawal from If the surety is held liable, can he go against the principal? Yes, has the right to
the bank should be accompanied by the presentment of the account holder’s (Napiza’s) collect.
savings bankbook. This was not done so in the case at bar because Gayon was able to
withdraw without it. Further, BPI allowed the withdrawal even before the check cleared. BPI SECTION 30.What Constitutes Negotiation. — An instrument is negotiated when it
already credited the $2,500.00 to Napiza’s account even without the drawee bank clearing the is transferred from one person to another in such manner as to constitute the
check. This is contrary to common banking practices and because of such negligence and lack transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if
of diligence, BPI, as the collecting bank, shall suffer the loss. payable to order, it is negotiated by the endorsement of the holder completed by
delivery.
What was the proximate cause of the loss? The collecting bank’s negligence in allowing
such withdrawal in disregard of its own rules and the clearing requirement in the banking What is negotiation? Negotiation is such transfer of an instrument from one person to
system. another as to constitute the transferee the holder of the instrument.
AGRO-CONGLOMERATE vs CA How is an instrument negotiated? If payable to bearer, it is negotiated by delivery; if

FACTS: Petitioner sold to Wonderland Food Industries two parcels of land. They stipulated payable to order, it is negotiated by the endorsement of the holder completed by delivery.
under a Memorandum of Agreement that the terms of payment would be P1,000,000 in cash, What are the methods of transfer? 1) by assignment; 2) by operation of law; 3) by
P2,000,000 in shares of stock, and the balance would be payable in monthly installments. negotiation (either endorsement completed by delivery or by mere delivery)
Thereafter, an addendum was executed between them, qualifying the cash payment. Instead
of cash payment, the vendee authorized the vendor to obtain a loan from the financier on What is assignment? It is a method of transferring a non-negotiable instrument whereby
which the vendee bound itself to pay for. This loan was to cover for the payment of the assignee is merely placed in the position of the assignor and acquires the
P1,000,000. This addendum was not notarized. instrument subject to all defenses that might have been set up against the original
payee.
Petitioner Soriano signed as maker the promissory notes payable to the bank. However, the
petitioners failed to pay the obligations as they were due. During that time, the bank was in What is the effect of assignment of non-negotiable instrument? The assignee is
financial distress and this prompted it to endorse the promissory notes for collection. The substituted in place of the assignor subject to all defenses that might have been set up
bank gave ample time to petitioners then to satisfy their obligations. against the latter.
The trial court held in favor of the bank. It didn't find merit to the contention that Wonderland Can a negotiable instrument be assigned? Yes subject to the rules applying to
was the one to be held liable for the promissory notes. assignment
ISSUE: Whether or not agro would be held as an accommodation party What is meant by transfer by operation of law? It means full title to a bill or note may
pass without either assignment, endorsement or delivery and instead by operation of
HELD: Petitioners became liable as accommodation party. An accommodation party is a law: 1) by the death of the holder where the title vests in his personal representative;
person who has signed the instrument as maker, acceptor, or indorser, without receiving 2) bankruptcy of the holder, where title vests in his assignee or trustee or 3) upon the
value therefor, and for the purpose of lending his name to some other person and is liable on death of a joint payee or endorsee, where title vest in the surviving payee or
the instrument to a holder for value, notwithstanding such holder at the time of taking the endorsee.
instrument knew (the signatory) to be an accommodation party. He has the right, after paying
the holder, to obtain reimbursement from the party accommodated, since the relation Is delivery to payee considered as negotiation? There are two views on this question.
between them has in effect become one of principal and surety, the accommodation party The first view is that issuance or delivery of an instrument to the payee it no negotiation
being the surety. The surety's liability to the creditor or promisee of the principal is said to be because negotiation refers to an existing negotiable instrument and before delivery to payee,
direct, primary and absolute; in other words, he is directly and equally bound with the the instrument is not complete. The second view is that under Section 30, an instrument is
principal. And the creditor may proceed against any one of the solidary debtors. negotiated when it is delivered to the holder and under Section 191, a holder is a
payee or endorsee of a bill or note who is in possession of it. This is the better view.
What about the issue on novation? The court ruled that there was no novation by
"substitution" of debtor because there was no prior obligation which was substituted by a new SECTION 31.Endorsement; How Made. — The endorsement must be written on the
contract. It will be noted that the promissory notes, which bound the petitioners to pay, were instrument itself or upon a paper attached thereto. The signature of the endorser,
executed after the addendum. The addendum modified the contract of sale, not the without additional words, is a sufficient endorsement.
stipulations in the promissory notes which pertain to the surety contract.
How do you endorse an instrument? By affixing your signature on the at the back of the SECTION 34.Special Endorsement; Endorsement in Blank. — A special
instrument. 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
Where do you write your endorsement? 1) at the back of the instrument itself or 2) negotiation of the instrument. An endorsement in blank specifies no endorsee, and
upon a paper attached thereto (allonge) an instrument so endorsed is payable to bearer, and may be negotiated by
delivery.
SIR: Allonge, it must be attached on the instrument itself so as to derive a conclusion that
that additional paper containing such signature are also part of the negotiable instrument. What is a special endorsement? A special endorsement specifies the person to whom,
or to whose order, the instrument is to be payable; and the endorsement of such
SECTION 32.Endorsement Must Be of Entire Instrument. — The endorsement must endorsee is necessary to the further negotiation of the instrument.
be an endorsement of the entire instrument. An endorsement which purports to
transfer to the endorsee a part only of the amount payable, or which purports to What about endorsement in blank? An endorsement in blank specifies no endorsee,
transfer the instrument to two or more endorsees severally, does not operate as a and an instrument so endorsed is payable to bearer, and may be negotiated by delivery.
negotiation of the instrument. But where the instrument has been paid in part, it
may be endorsed as to the residue. In an order instrument: A (maker), B (payee), C (holder). B specially endorsed the
instrument to C. How should it be negotiated by C to D? Where the instrument is
May endorsement be made partially? No, the endorsement must be an endorsement originally payable to order, it can be further negotiated by endorsement completed by
of the entire instrument. delivery. Therefore, C can either endorse it in blank or specially endorse such instrument.
What is the effect of partial endorsement when unauthorized? It does not operate as ?? In the same order instrument, B endorsed the instrument to C in blank. How
an endorsement. But it may constitute a valid assignment binding the parties and the should it be negotiated by C? It can be further negotiated by C: 1) by mere delivery
assignee takes the note subject to defenses available between the original parties. because the effect of a blank endorsement is to make the instrument payable to bearer;
2) by specially endorsing the instrument
Is there an exception? Yes, where the instrument has been paid in part, it may be
endorsed as to the residue. ?? May C endorsed the instrument to D by endorsing it in blank? Yes. C may also
specially endorse the instrument.
Can an instrument be endorsed to two or more endorsees severally? No, such
endorsement does not operate as a negotiation of the instrument. In a bearer instrument: A (maker), B (payee), C (holder). B specially endorsed the
instrument to C. How should it be negotiated by C to D? Where the instrument is
Pay to X 500 and Y 500. (Sgd.) B. Is this a valid endorsement? No it does not does originally payable to bearer, it can be further negotiated by mere delivery, even if the
not operate as a negotiation of the instrument as it purports to transfer the instrument to original bearer negotiated it by special endorsement. C may also endorse it in blank or
two or more endorsees severally. specially endorse the note.
Pay to X and Y. (Sgd.) B. Is this a valid endorsement? Yes, because the endorsement is SIR: Once you go black, you can never go back. Once a bearer, always a bearer.
made to a joint person. It is not paid severally. It is made jointly.
SECTION 35.Blank Endorsement; How Changed to Special Endorsement. — The
SECTION 33.Kinds of Endorsement. — An endorsement may be either special or in holder may convert a blank endorsement into a special endorsement by writing
blank; and it may also be either restrictive or qualified, or conditional. over the signature of the endorser in blank any contract consistent with the
character of the endorsement.
What are the kinds of endorsement? An endorsement may be
1) special May a blank endorsement changed to a special endorsement? Yes by writing over
2) conditional the signature of the endorser in blank any contract consistent with the character of
3) restrictive the endorsement. (Endorsement in blank) (Sgd.) B above the signature of B  Pay to C.
4) absolute (Sgd.) B.
5) qualified
6) facultative SECTION 36.When Endorsement Restrictive. — An endorsement is restrictive
7) in blank which either —
8) joint (a)Prohibits the further negotiation of the instrument; or
9) irregular (b)Constitutes the endorsee the agent of the endorser; or
10) successive (c)Vests the title in the endorsee in trust for or to the use of some other persons.
But the mere absence of words implying power to negotiate does not make an (c)To transfer his rights as such indorsee, where the form of the indorsement
endorsement restrictive. authorizes him to do so.
But all subsequent indorsees acquire only the title of the first indorsee under the
When is the endorsement considered restrictive? An endorsement is restrictive which restrictive indorsement.
either —
(a)Prohibits the further negotiation of the instrument; or
(b)Constitutes the endorsee the agent of the endorser; or What are the rights conferred on the endorsee of a restrictive endorsement?
(c)Vests the title in the endorsee in trust for or to the use of some other persons. (a)To receive payment of the instrument;
(b)To bring any action thereon that the indorser could bring;
Give an example of an instrument which prohibits the further negotiation of the (c)To transfer his rights as such indorsee, where the form of the indorsement authorizes him
instrument: Pay to TJ and no other person. (Sgd.) B. to do so.
Give an example of an instrument which constitutes the endorsee the agent of the What are the rights acquired by the subsequent endorsees? All subsequent indorsees
endorser: Pay to C for collection. (Sgd.) B acquire only the title of the first indorsee under the restrictive indorsement.
Give an example of an instrument which vests the title in the endorsee in trust for SECTION 38.Qualified Indorsement. — A qualified indorsement constitutes the
or to the use of some other persons: Pay to X in trust for C. indorser a mere assignor of the title to the instrument. It may be made by adding
to the indorser's signature the words "without recourse" or any words of similar
Is the indorsee subject to the defenses of the indorser? There are two views on the import. Such an indorsement does not impair the negotiable character of the
question: The first view holds such indorsement restrictive under Section 47 of the NIL, instrument. [you do not warrant their financial responsibility/solvency of the parties]
making the indorsee subject to the defenses of the endorser. The second view declares that
such restrictive indorsement only gives notice of this trust to subsequent purchasers, but it What is the effect of qualified endorsement? It constitutes the indorser a mere
does not give notice of defenses obtaining between prior parties. The second view is the assignor of the title to the instrument.
better one.
How do you make a qualified endorsement? By adding to the endorser’s signature the
Is there presumption of consideration in restrictive indorsement? It would depend words “without recourse”, “sans recours”; “indorser not holden” or “with intent to transfer
on the kind of indorsement, if the endorsement constitutes the endorsee the agent of the title only and not to incur liability as endorser”
endorser, then there is no presumption of consideration as they are not intended to pass the
title but merely to enable the endorsee to collect for the benefit of the endorser. A (maker), B (payee). B endorses the note thus: “Sans recours, Pay to C, (Sgd.) B”.
It was found out that A’s signature is forged. Is B liable to pay C? Yes, 1) as an
SIR: If you restrictively endorse the instrument to another person and purpose of such endorser under Section 65, B warrants the genuineness of the A’s signature and 2) the
restrictive endorsement is to make that person as your own agent (for collection or deposit) ground relied upon by C is not the insolvency of A. Furthermore a qualified endorser is liable if
then there is no intent to pass the title to such agent but merely to enable the endorsee to the instrument is dishonored by non-acceptance or non-payment due to forgery.
collect for the your benefit. In effect, we also cannot presume consideration.
A (maker), B (payee). B qualifiedly endorsed the instrument to C. It was found out
What about a restrictive endorsement which vests the title in the endorsee in trust later that A is insolvent. May C collect the amount from B? It depends. If B did not
for or to the use of some other persons? Yes there is a presumption of consideration know of that fact at the time of negotiation, B cannot be held liable because his
because here the endorser parts his whole title to the bill and the presumption is that he endorsement is merely qualified one such that he merely guarantees that he holds title to it
does so for a consideration. The only effect such endorsement, by way of restriction, is to but he does not guarantee the financial responsibility of the prior parties on that paper.
give notice of the rights of the beneficiary named in the endorsement and protect
him against a misappropriation. What is meant by absolute endorsement? One by which the endorser binds himself to
pay upon no other condition than the failure of prior parties to do so and upon due
Suppose the endorser simply endorse to C by putting: “Pay to C”, without putting notice to him of such failure.
the words “order”. Is there any effect? The mere absence of words implying power to
negotiate does not make an endorsement restrictive but such omission in the body will What is conditional endorsement? An endorsement subject to the happening of a
render the instrument non-negotiable. contingent event, i.e., an event that may or may not happen, or at least a past event
unknown to the parties.
SECTION 37.Effect of Restrictive Indorsement; Rights of Indorsee. — A restrictive
indorsement confers upon the indorsee the right — Suppose A issued a note for P1000 to B. B endorsed it to C as follows: “Pay to C, if
(a)To receive payment of the instrument; he passes the bar examinations. (Sgd.) B” May A disregard the condition and pay
(b)To bring any action thereon that the indorser could bring;
C? Yes, A can disregard the condition and to C even if C has not passed the bar 2) delivery (bearer instrument).
examinations.
In our example, when B endorsed the instrument in blank to C. Did it convert the
Is A discharged from his liability if he pays C? Yes such a payment will discharge him instrument into a bearer instrument? Yes such endorsement in blank converted the
from liability on the instrument. order instrument into a bearer instrument.
May A refuse to pay due to the non-fulfillment of the condition? Yes A may refuse to How may C endorse the instrument to D? At this point, C has two options, he can either
pay on such ground. negotiate:
1) by endorsement completed by delivery;
What is the obligation of the C, the conditional indorsee if A disregards the C can either endorse by:
condition and pays C even before the result of the bar examinations? Y must hold it a. special endorsement
in trust for B while the condition is not fulfilled. b. endorsement in blank
2) by mere delivery.
What if C flunks on the bar exams? C must turn over the P1000 to B, the conditional
indorser. SECTION 41.Indorsement Where Payable to Two or More Persons. — Where an
instrument is payable to the order of two or more payees or indorsees who are not
Does a conditional endorsement affect negotiability? No it does not render the partners, all must indorse, unless the one indorsing has authority to indorse for
instrument non-negotiable. the others.
SECTION 40.Indorsement of Instrument Payable to Bearer. — Where an How should endorsement be made when the instrument is made to two or more
instrument, payable to bearer, is indorsed specially, it may nevertheless be further payees or indorsees? All payees must each sign or endorse in order to negotiate the
negotiated by delivery; but the person indorsing specially is liable as indorser to instrument.
only such holders as make title through his indorsement.
Are there exceptions? 1) where the payee or indorsee indorsing has authority to indorse
Bearer instrument: A (maker), B (bearer). B specially endorsed it to C. C specially of the others, and 2) where the payees or indorsees are partners.
endorsed it to D. How should D endorsed such instrument? As it is originally a bearer
instrument, it may be further negotiated by endorsement plus delivery or negotiate the SECTION 42.Effect of Instrument Drawn or Indorsed to a Person as Cashier. —
instrument by delivery. Where an instrument is drawn or indorsed 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
Can D endorsed it in blank? Yes. or corporation of which he is such officer; and may be negotiated by either the
indorsement of the bank or corporation, or the indorsement of the officer.
Bearer instrument: A (maker), B (bearer). B delivered it to C. C specially endorsed
it to D. D specially endorsed it to E. E delivered it to F. Is C liable to F? No because F What is the effect if the instrument is drawn or endorsed to a person as cashier or
did not take title through D’s endorsement but through delivery of E. 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;
To whom is C liable? To D and E because they acquired their title over the
instrument through C’s endorsement as D and E can trace their title through a series Who may negotiate in such instant? It may be negotiated by either the indorsement of
of unbroken endorsement from D, special endorser. Had E endorsed the note to F, instead the bank or corporation, or the indorsement of the officer.
of merely delivery it, C would be liable also to G for the same reason.
What if the payment is made to the City Treasurer of Cebu. May the City Treasurer
Order instrument: A (maker) B (payee). B endorses it in blank to C. C specially of Cebu endorse the said instrument? No because “corporation” in Section 42 does
endorsed it to D specially endorsed it to E. Can E endorsed the said instrument to F not include cities and towns.
by mere delivery? No because as instrument is originally payable to order, E can negotiate
it only by endorsement plus delivery. Are municipalities and cities corporation? Yes they are public corporations.
SIR: Do not be confuse endorsement and delivery. You go back to negotiation. When you SECTION 43.Indorsement Where Name is Misspelled, and So Forth. — Where the
negotiate you, you either: name of a payee or indorsee is wrongly designated or misspelled, he may indorse
1) endorse plus delivery (order instrument); the instrument as therein described, adding, if he thinks fit, his proper signature.
endorsement can be:
 special endorsement
 endorsement in blank
How should the instrument be endorse if the designated name of a payee or to defenses between original parties because such indorsee or transferee are not holder in
indorsee is misspelled? He may indorse the instrument as therein described, adding, if he due course.
thinks fit, his proper signature.
What is the effect if the person took the instrument after its maturity? Such person
SECTION 44.Indorsement in Representative Capacity. — Where any person is is no longer considered a holder in due course because there is already a notice on his part.
under obligation to indorse in a representative capacity, he may indorse in such
terms as to negative personal liability. May a holder not in due course recover the said amount of the instrument from a
maker or drawer? Yes if such maker or drawer has no valid excuse for refusing payment,
How should an agent of an endorsee endorse such instrument? He must endorse in then such holder may collect said amount, notwithstanding the fact that is not a holder in
such terms as to escape personal liability. due course.
What are the requisites in order for him to escape liability as an endorse? SECTION 48.Striking Out Indorsement. — The holder may at any time strike out
1) he must add words describing himself as an agent; any indorsement which is not necessary to his title. The indorser whose
2) he must disclose his principal indorsement is struck out, and all indorsers subsequent to him, are thereby
3) he must be duly authorized. relieved from liability on the instrument.
SECTION 45.Time of Indorsement; Presumption. — Except where an indorsement May a holder strike out any indorsement? Yes, the holder may at any time strike out any
bears date after the maturity of the instrument, every negotiation is deemed indorsement which is not necessary to his title.
prima facie to have been effected before the instrument was overdue.
What is the effect of striking out an indorsement? The indorser whose indorsement is
If the indorsement does not bear a date, what is the presumption? Every struck out, and all indorsers subsequent to him, are thereby relieved from liability on the
negotiation is deemed prima facie to have been effected before the instrument was instrument.
overdue.
?? Bearer instrument: A (maker) B (bearer). B delivered it to C. C specially
SECTION 46.Place of Indorsement; Presumption. — Except where the contrary endorsed it to D. D specially endorsed it to E. E delivered it to F. Whose
appears, every indorsement is presumed prima facie to have been made at the indorsement may F strike out? F may strike out C and D because F did not acquire his
place where the instrument is dated. title from C and D’s endorsement but through delivery of E.
Is there a presumption of place of endorsement if in such endorsement the place is SECTION 49.Transfer Without Indorsement; Effect of . — Where the holder of an
not disclosed? Every indorsement is presumed prima facie to have been made at the place instrument payable to his order transfers it for value without indorsing it, the
where the instrument is dated. transfer vests in the transferee such title as the transferor had therein, and the
transferee acquires, in addition, the right to have the indorsement of the
SECTION 47.Continuation of Negotiable Character. — An instrument negotiable in transferor. But for the purpose of determining whether the transferee is a holder
its origin continues to be negotiable until it has been restrictively indorsed or in due course, the negotiation takes effect as of the time when the indorsement is
discharged by payment or otherwise. actually made.
When is a negotiable instrument rendered non-negotiable? When it has been What is the effect if the holder of the instrument transfers such instrument
restrictively indorsed or discharged by payment or otherwise. Restrictive endorsement 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,
Does it apply to all to types of restrictive endorsement? No, only to restrictive in addition, the right to have the indorsement of the transferor.
endorsement which prohibits the further negotiation of the instrument.
B fraudulently induced A to issue a note. Thereafter, B got the note. B transferred
What if the instrument is negotiated after the date of maturity? There are two the note to C. May C claim from A? No because C, as transferee, acquires only B’s right
views on this question. and B cannot collect from A as B’s title is defective due to the fraudulent inducement.
1) The first view is that negotiability ceases in the full commercial sense after maturity or May C be considered as a holder in due course? Yes, C may be considered a holder in
after the default of the maker in his payment. due course if at the time of B indorsed the instrument to C, C had no notice of any
2) The second view that negotiability continues even after maturity. defects or infirmities.
How can they be reconciled? Yes, The mercantile character of the instrument as a What is the first step that C must do in order for him to be considered as a holder
negotiable paper and of the contracts of the parties to it, continues after its maturity and until in due course? C must enforce his right to require B to indorse the instrument.
it is paid except that and indorsee or transferre after maturity takes the instrument subject
SECTION 50.When Prior Party May Negotiate Instrument. — Where an instrument SIR: A note which says Pay to X or order, PHP 50 USD 50 Million. (Sgd.) B: If you
is negotiated back to a prior party, such party may, subject to the provisions of took an instrument under some circumstances wherein you must have to make inquiry as to
this Act, reissue and further negotiate the same. But he is not entitled to enforce an infirmity in a negotiable instrument and defect in the holder’s title, you have to do that.
payment thereof against any intervening party to whom he was personally liable.
What if the alteration is not apparent on the instrument? The instrument may be held
Bearer instrument: A (maker) B (bearer). B delivered it to C. C specially endorsed as complete and regular.
it to D. D specially endorsed it to E. E delivered it to F. May F endorse the said
instrument back to C? Yes. F may do so. When an instrument is considered overdue? After the date of maturity.
?? May C enforce the said instrument against F or D? No C cannot enforce the note What if the instrument is negotiated on the day of its maturity? It can still be
against intervening parties such as D and F, to whom he is liable. This is to avoid circuitry of negotiated because on the date of maturity, the instrument is not due and the principal
suits. debtor has the whole day to pay.
SECTION 51.Right of Holder to Sue; Payment. — The holder of a negotiable What if the instrument contains an acceleration clause and the holder knew that
instrument may sue thereon in his own name; and payment to him in due course one installment or interest is unpaid. Is he considered as a holder in due course?
discharges the instrument. No because such holder had notice that the instrument is due and demandable already.
What are the rights of the holder? What if the interest is overdue? He may still be considered a holder in due course as long
1) he may sue on the instrument in his own name as he purchased it in good faith. However, where by terms of the instrument, the principal
2) he may receive payment and if the payment is in due course, the instrument is discharged. was to become due upon default of the payment of interest, such person is not a holder in
due course.
May a simple transferee of an unendorsed instrument sue in his own name? It
depends on whether or not the person whom he derive his title could have done so. What is meant by good faith? It means the holder does not take it in bad faith.
SECTION 52.What Constitutes a Holder in Due Course. — A holder in due course is What is bad faith? Actual knowledge of infirmities in the instrument or defects in the title.
a holder who has taken the instrument under the following conditions:
(a)That it is complete and regular upon its face; When is a holder considered a holder in good faith? When he is without knowledge or
(b)That he became the holder of it before it was overdue, and without notice that notice of equities of any sort which could be set up against a prior holder of the instrument.
it had been previously dishonored, if such was the fact;
(c)That he took it in good faith and for value; What if the holder fails to inquire on the circumstances, is he barred from
(d)That at the time it was negotiated to him he had no notice of any infirmity in becoming a holder in due course? Ordinarily such failure will not bar him from becoming
the instrument or defect in the title of the person negotiating it. a holder in due course. However, when circumstances strongly indicate defect, such
failure to make inquiry renders him the holder not a holder in due course.
What is meant by payment in due course? Payment made at or after the maturity of
the instrument to the holder thereof in good faith and without notice that his title is DE OCAMPO vs GATCHALIAN Exception
defective. FACTS: Matilde Gonzales was a patient of the De Ocampo Clinic. She incurred a debt
amounting to P441.75. Her husband, Manuel Gonzales designed a scheme in order to pay off
What constitutes a holder in due course? A holder in due course is a holder who has this debt: In 1953, Manuel went to a certain Anita Gatchalian. Manuel purported himself to be
taken the instrument under the following conditions: selling the car of De Ocampo. Gatchalian was interested in buying said car but Manuel told
(a)That it is complete and regular upon its face; her that De Ocampo will only sell the car if Gatchalian shows her willingness to pay for it.
(b)That he became the holder of it before it was overdue, and without notice that it Manuel advised Gatchalian to draw a check of P600.00 payable to De Ocampo so that Manuel
had been previously dishonored, if such was the fact; may show it to De Ocampo and that Manuel in the meantime will hold it for safekeeping.
(c)That he took it in good faith and for value; Gatchalian agreed and gave Manuel the check. After that, Manuel never showed himself to
(d)That at the time it was negotiated to him he had no notice of any infirmity in the Gatchalian. Meanwhile, Manuel gave the check to his wife who in turn gave the check to De
instrument or defect in the title of the person negotiating it. Ocampo as payment of her bills with the clinic. De Ocampo received the check and even gave
Matilde her change (sukli). On the other hand, since Gatchalian never saw Manuel again, she
Is the holder considered a holder in due course if the instrument is altered on its placed a stop-payment on the P600.00 check so De Ocampo was not able to cash on the
face? It depends whether or not the alteration is apparent or not. check. Eventually, the issue reached the courts and the trial court ordered Gatchalian to pay
de Ocampo the amount of the check.
Gatchalian argued that De Ocampo is not entitled to payment because there was no valid May a payee be considered a holder in due course? A payee may be a holder in due
indorsement. De Ocampo argued tha he is a holder in due course because he is the named course under any circumstances in which he meets all the requirements of Section 52.
payee.
May a drawee be considered a holder in due course? The drawee can never be
ISSUE: Whether or not De Ocampo is a holder in due course. considred a not a holder in due course because principally he is not a holder and therefore
cannot be a holder in due course.
HELD: De Ocampo is not a holder in due course for his lack of good faith. De Ocampo should
have inquired as to the legal title of Manuel to the said check. The fact that Gatchalian has no MESINA vs IAC
obligation to De Ocampo and yet he’s named as the payee in the check hould have apprised FACTS: Jose Go maintains an account with Associated Bank. He needed to transfer
De Ocampo; that the check did not correspond to Matilde Gonzales’ obligation with the clinic P800,000.00 from Associated Bank to another bank but he realized that he does not want to
because of the fact that it was for P600.00 – more than the indebtedness; that why was be carrying that cash so he bought a cashier’s check from Associated Bank worth
Manuel in possession of the check; that the check had two parallel lines (cross check) in the P800,000.00. Associated Bank then issued the check but Jose Go forgot to get the check so it
upper left hand corner, which practice means that the check could only be deposited but may was left on top of the desk of the bank manager. The bank manager, when he found the
not be converted into cash – all these gave De Ocampo the duty to ascertain from the holder check, entrusted it to Albert Uy for the later to safe keep it. The check was however stolen
Manuel Gonzales what the nature of the latter’s title to the check was or the nature of his from Uy by a certain Alexander Lim. Jose Go learned that the check was stolen son he made a
possession. stop payment order against the check. Meanwhile, Associated Bank received the subject
check from Prudential Bank for clearing. Apparently, the check was presented by a certain
Is the check a cross check? Yes. Marcelo Mesina for payment. Associated Bank dishonored the check.When asked how Mesina
got hold of the check, he merely stated that Alfredo Lim, who’s already at large, paid the
What is the effect of inadequacy of consideration? Under the Civil Code, inadequacy of check to him for “a certain transaction”.
consideration shall note invalidate a contract unless there has been fraud, mistake or undue
influence. ISSUE: Whether or not Mesina is a holder in due course.
A offered B a promissory note worth P1 million for an amount of P100,000. B HELD: No. Admittedly, Mesina became the holder of the cashier’s check as endorsed by
purchased the said instrument. Is B considered as a holder in due course? No, an Alexander Lim who stole the check. Mesina however refused to say how and why it was
amount paid for an instrument if a trifling sum, may of itself establish notice and if taken passed to him. Mesina had therefore notice of the defect of his title over the check from the
without any inquiries, such holder is not a holder in due course. start. The holder of a cashier’s check who is not a holder in due course cannot enforce such
check against the issuing bank which dishonors the same. The check in question suffers from
Differentiate between defenses, infirmities and defects of title: the infirmity of not having been properly negotiated and for value by Jose Go who is the real
Defenses include common law defenses and matters outside the scope of Section 55 owner of said instrument.
such as:
1) mistake SECTION 53.When Person Not Deemed Holder in Due Course. — Where an
2) lack of consideration instrument payable on demand is negotiated an unreasonable length of time after
3) minority and other forms of incapacity to contract its issue, the holder is not deemed a holder in due course.
4) lack of authority of an agent.
What is the effect is an instrument payable on demand is negotiated an
Infirmities include things that are inherently wrong with the instrument itself such as: unreasonable length of time after its issue? The holder is not deemed a holder in due
1) wrong date inserted where the instrument is payable at a fixed period after sight is course.
undated.
2) lack of delivery Why not? Because it is provided for by law.
3) forgery
4) material alteration When do you consider time to be unreasonable length of time? It depends upon
circumstances of the case.
Defects of title are equitable defenses discussed under Section 55. The defect of title
of a person over an instrument may result from the following acquisition of the SECTION 54.Notice Before Full Amount Paid. — Where the transferee receives
instrument : notice of any infirmity in the instrument or defect in the title of the person
1) by fraud negotiating the same before he has paid the full amount agreed to be paid
2) by force, duress, fear therefor, he will be deemed a holder in due course only to the extent of the
3) by unlawful means amount theretofore paid by him.
4) for an illegal consideration
What is effect if the holder receives a notice of any infirmity in the instrument What are the rights of a holder not due course?
prior to the full payment of the instrument? He will be deemed a holder in due 1) he may sue on the instrument in his own name
course only to the extent of the amount theretofore paid by him. 2) he may receive payment and if the payment is in due course, the instrument is discharged
3) he holds the instrument subject to the same defenses as if it were non-negotiable. GR:
SECTION 55.When Title Defective. — The title of a person who negotiates an real and personal defense can be interposed against a holder not in due course
instrument is defective within the meaning of this Act when he obtained the 4) A holder not in due course who derives his title through a holder in due course and who is
instrument, or any signature thereto, by fraud, duress, or force and fear, or other not himself a party to any fraud or illegality affecting the instrument, has all the rights
unlawful means, or for an illegal consideration, or when he negotiates it in breach of such former holder in respect of all parties prior to the latter.
of faith, or under such circumstances as amount to a fraud. equitable defenses
A B C D E F. E is a holder in due course. F is not a holder in due course. F took this
When is the title of the person who negotiates an instrument considered title from E who is a holder in due course. May some acts of F be considered as a
defective? When he obtained the instrument, or any signature thereto, by fraud, duress, holder in due course? Yes, for as long as F is not himself a party to any fraud or illegality
or force and fear, or other unlawful means, or for an illegal consideration, or when affecting the instrument and he derives his title from a holder in due course.
he negotiates it in breach of faith, or under such circumstances as amount to a
fraud. SIR: Same example from above: When the instrument was transferred from A to B, there
was fraud. The instrument is then negotiated until it reached the hands of F, who is not a
SECTION 56.What Constitutes Notice of Defect. — To constitute notice of an holder in due course. However, E is not holder in due course because he has notice of fraud
infirmity in the instrument or defect in the title of the person negotiating the or lack of consideration. Nevertheless, for as long as he derives his title from a holder in due
same, the person to whom it is negotiated must have had actual knowledge of the course and he is not a party to the fraud or illegalities, E may still hold B C D liable. While
infirmity or defect, or knowledge of such facts that his action in taking the equitable defense cannot be interposed against by prior parties to the holder in due course,
instrument amounted to bad faith. real defenses can be interposed against him.
When is there a notice of defect? When the person to whom it is negotiated must have SECTION 59.Who is Deemed Holder in Due Course. — Every holder is deemed
had actual knowledge of the infirmity or defect, or knowledge of such facts that his prima facie to be a holder in due course; but when it is shown that the title of any
action in taking the instrument amounted to bad faith. person who has negotiated the instrument was defective, the burden is on the
holder to prove that he or some person under whom he claims acquired the title as
What if it’s the agent who has actual knowledge? It would bind the principal because holder in due course. But the last-mentioned rule does not apply in favor of a party
knowledge of the agent is knowledge by principal. who became bound on the instrument prior to the acquisition of such defective
title.
SECTION 57.Rights of Holder in Due Course. — A holder in due course holds the
instrument free from any defect of title of prior parties, and free from defenses Is there a presumption of being a holder in due course? Yes, every holder is deemed
available to prior parties among themselves, and may enforce payment of the prima facie to be a holder in due course.
instrument for the full amount thereof against all parties liable thereon.
LIABILITY OF MAKER — The maker of a negotiable instrument by making it
What are the rights of a holder in due course? engages that he will pay it according to its tenor, and admits the existence of the
1) he may sue on the instrument in his own name payee and his then capacity to indorse. [60]
2) he may receive payment and if the payment is in due course, the instrument is discharged
3) holds the instrument free from any defect of title of prior parties, and free from What is the engagement made by the maker in making the instrument?
defenses available to prior parties among themselves,
4) he may enforce payment of the instrument for the full amount thereof against all The maker engages that he will pay it according to its tenor.pr
parties liable thereon.
What are the admissions made by the maker in making the instrument?
INSERT REAL DEFENSE AND PERSONAL DEFENSE, ETC. HERE
He admits the existence of the payee and his then capacity to indorse.
SECTION 58.When Subject to Original Defenses. — In the hands of any holder
other than a holder in due course, a negotiable instrument is subject to the same Who has this capacity to indorse in that admission made by the maker?
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 The payee.
affecting the instrument, has all the rights of such former holder in respect of all
parties prior to the latter. A makes a note in the amount of P1 million. Subsequently the note was
transferred from A to B to C to D to E. During the said transfer, there was an
alteration as to the amount. P1 million becomes P10 million and the same is now tenor, and that if it be dishonored, and the necessary proceedings on dishonor be
in the hands of a holder in due course, F. What is the engagement on the part of duly taken, he will pay the amount thereof to the holder, or to any subsequent
the maker? indorser 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
A, maker, engages to pay P10million as the engagement of the maker is to pay absolutely holder. [61]
according to its tenor.
By signing a bill what is deemed admitted by the drawer?
Is the liability of the maker primary?
The drawer admits the existence of the payee and his then capacity to indorse
Yes, the maker’s liability is primarily and unconditional.
Is the drawer primarily liable?
Why is his liability primary?
No, because drawer does not engage to pay the bill absolutely.
Because by engaging to pay it according to its tenor, the maker binds himself to be primarily
liable on the said instrument. What is the engagement made by the drawer upon signing the bill?
What is the liability of two or more makers? The drawer engages:

1) that on due presentment the instrument will be accepted or paid, or both, according to its
Each of them is individually liable for the payment of the full amount of their obligation even if tenor,
one of them did not receive part of the value given therefor, as he would be considered an 2) that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will
accommodation party. pay the amount thereof to the holder, or to any subsequent indorser who may be compelled
to pay it.
If they signed jointly and severally, what is their liability?
To whom is the drawer considered secondarily liable?
They are solidarily liable, i.e., each of them is liable for the whole amount subject to
reimbursement. (NCC) The drawer is secondarily to:
1) the holder
What if the tenor of the liabilities of the parties is not expressed in the said note? 2) any of the subsequent indorsers who is compelled to pay by the holder.
The are jointly liable only because under the New Civil Code, joint and several liability cannot Give an example:
be presumed, it must be expressly stipulated.
A draws a bill against X, as drawee payable to B or order. B negotiates to C, C to D, D to E,
A made a note payable to the order of Lapu-lapu. Coincidentally, the note came and E to F.
into the hands of someone named Lapu-lapu, who wanted to enforce the
instrument against A. May A refuse payment on the ground that Lapu-lapu is just a 1) A, drawer is liable to F, holder, if X dishonors the bill either by non-acceptance or non-
product of his wild imagination? payment and the necessary proceedings of dishonor are duly taken.
2) If D, a subsequent indorser, is made to pay F, holder, D can recover what he has paid F
No, A is precluded from setting up the defense that the payee is a fictitious person because from A, drawer.
by making the note, A admits the existence of the payee.
Technically, when do you consider the drawer secondarily liable?
What if Lapu-lapu turned out to be only fifteen (15) years old and he indorse it to
C. Can A, as maker, raise it as a defense that Lapu-lapu cannot indorse the The drawer becomes secondarily liable only after acceptance. Thereafter, the burden of
instrument against C and therefore, there was no valid transfer because Lapu-lapu paying the bill is already passed on to the acceptor.
was a minor at that time?
Prior to drawee’s After drawee’s
No, A, as maker is precluded from setting up the defense that the payee is a minor because acceptance acceptance
by making the note, he admits the then capacity of the payee to indorse. Person primarily liable: Drawer Drawee
Person secondarily liable: Drawer
LIABILITY OF DRAWER — The drawer by drawing the instrument admits the
existence of the payee and his then capacity to indorse; and engages that on due
presentment the instrument will be accepted or paid, or both, according to its
SIR: A, drawer, B, payee, C, drawee. When a drawer issues a bill, primarily he is the debtor. An acceptor is a drawee who accepts the bill and engages to pay absolutely according to the
In order to pay his obligation, he delivers a bill to B, the payee. In effect, A is indebted to B. tenor of his acceptance.
Prior to the acceptance on the part of C, the person primarily liable is A, the drawer. C is
merely a third person in the transaction between A and B, and C is not a liable. Once C, the Is an acceptor a party to the instrument?
drawee, accepts the said bill from the payee, the drawee now becomes the acceptor and
there is a change in the rights and obligations of the parties. However, under Section 61 of Prior to his acceptance of the instrument, a drawee is not a party to the instrument. However,
your NIL, regardless of whether or not there is an acceptance on the part the drawee, the law once a drawee accepts the instrument by affixing his signature, he becomes an acceptor who
considers the drawer as secondarily liable. In its technical sense, prior to the acceptance on is primarily liable on the instrument.
the part of the drawee, it is the drawer who is primarily liable because he is the one indebted
to the payee. To whom is the acceptor liable?
May the drawer include in the bill a statement like “I shall not be liable in case of He is liable to the payee or his indorsee and also to the drawer himself.
payment or non-acceptance”?
X drew a bill payable to Y the amount of P1 million. A is the drawee. A accepted
Yes, the law allows the drawer to negative or limit his liability to the holder by express the bill indicating therein that he will pay P100,000. Upon presentment for
stipulation. payment, may a holder require A to pay the whole amount of P1 million?
Will it affect the negotiability of the instrument? No because an acceptor engages to pay according to the tenor of his acceptance, not the
tenor of the bill he accepts. In this example A accepted to pay P100,000 not P1 million as
No because all the requisites of Section 1 of the NIL are present stated in the bill.
Which element of Section 1 is appropriate in our study of Section 61? Can the acceptor vary the terms and conditions provided for in the instrument
such that if the instrument is drawn by a particular person in the amount of P100
Where the instrument is addressed to a drawee, he must be named or otherwise indicated million, the drawee may accept it and pay only P1?
therein with reasonable certainty.
Yes because the law allows an acceptor to accept the bill with qualification. In effect, the
LIABILITY OF ACCEPTOR — The acceptor by accepting the instrument engages drawee’s liability is limited to tenor of his acceptance and can never be compelled to pay the
that he will pay it according to the tenor of his acceptance; and admits — entire amount. The holder upon presentment for payment cannot demand from the acceptor
(a)The existence of the drawer, the genuineness of his signature, and his capacity the whole amount as drawn by the drawer.
and authority to draw the instrument; and
(b)The existence of the payee and his then capacity to indorse. [62] Suppose the bill is payable 30 days after sight. Then it was presented for
acceptance to the drawee and the drawee indicated therein that it will be payable
What is the engagement made by the acceptor? one (1) year after sight. Is that allowed?
The acceptor engages that he will pay it according to the tenor of his acceptance. Yes because an acceptor engages to pay according to the tenor of his acceptance, not the
tenor of the bill he accepts.
What are the admission of an acceptor when he signs as an acceptor of a bill?
X drawer. Y drawee. Z payee. Z altered the amount from P1 million to P10 million
The acceptor admits: which was accepted by Y. Z negotiated the bill to A, A to B, B to C. C is a holder in
1) the existence of the drawer, the genuineness of his signature, and his capacity and due course. Up to what extent may C enforce the note?
authority to draw the instrument; and
2) the existence of the payee and his then capacity to indorse. C may enforce the note up to P10 million since Y, an acceptor, engages to pay according to
the tenor of his acceptance, Y must pay to the subsequent holder the amount called for by
What is the liability of the acceptor? the time Y accepted even though larger than the original amount ordered by the drawer.
The acceptor is primarily liable because he engages to pay absolutely according to the tenor Do we have another view on this?
of his acceptance.
Yes, that the original tenor is the tenor of acceptance.
Who is acceptor?
Which view should we apply?
The first view that the altered tenor is the tenor of acceptance since an acceptor engages to WHEN PERSON DEEMED INDORSER — A person placing his signature upon an
pay according to the tenor of his acceptance. Therefore, he must pay to the subsequent instrument otherwise than as maker, drawer, or acceptor is deemed to be an
holder the amount called for by the time he accepted even though larger than the original indorser, unless he clearly indicates by appropriate words his intention to be
amount ordered by the drawer. bound in some other capacity. [63]
What if he accepted it only for P10 million and it was negotiated by Z to A, A to B. When is a person deemed an indorser?
B added an additional “0” to the amount changing the amount to P100 million. B
negotiated it to C, who is a holder in due course. Can C compel Y to whole amount In the absence of any indication in what capacity a person whose signature is written on the
of P100 million? instrument intends to be bound, he shall be deemed an indorser.
No because Y must only pay to the subsequent holder the amount called for by the time he Is there an exception?
accepted the note, which in this case is only P10 million.
Yes when such person clearly indicates by appropriate words his intention to be bound in
SIR: You have to relate this with Section 124 which provides that where an instrument has some other capacity.
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. LIABILITY OF IRREGULAR INDORSER — Where a person, not otherwise a party to
an instrument, places thereon his signature in blank before delivery, he is liable as
indorser, in accordance with the following rules:
Under the first view, what is the effect of Section 124 which provides that a holder (a)If the instrument is payable to the order of a third person, he is liable to the
in due course can recover only the original tenor of the instrument? payee and to all subsequent parties.
(b)If the instrument is payable to the order of the maker or drawer, or is payable
This refers to the original tenor of the instrument taken from the standpoint of the person to bearer, he is liable to all parties subsequent to the maker or drawer.
principally liable, Y, the acceptor. In our example the original tenor of the instrument is P10 (c)If he signs for the accommodation of the payee, he is liable to all parties
million, which the tenor of Y’s acceptance. If after his acceptance, a subsequent indorsee subsequent to the payee. [64]
alters the bill to read P100 million, then Y could be liable only for P10 million, the original
tenor of his acceptance, even as to a holder in due course. Who is an irregular indorser?
What is the effect if it’s the drawer’s signature which is forged and eventually A person who is not a party to an instrument, places thereon his signature in blank before
payment was made on such forged signature? delivery.
The drawee bank is principally liable. What are the requisites in order that a person may be considered as an irregular
indorser?
Can the drawee bank raise as a matter of defense that considering that the
signature of the drawer was forged, all the subsequent indorsements have no 1) he must not otherwise be a party to the instrument, i.e., he must not be a maker, drawer,
effect? acceptor or regular indorser.
2) he must sign the instrument in blank.
No because the drawee bank so impressed with public interests that it is bound to scrutinize 3) he must sign before delivery.
the signatures of its clients to determine genuiness and regularity. The drawee bank holds
itself out to the public as the expert and the law holds it to a high standard of conduct. Thus, Why is such person considered irregular or anomalous indorser?
when drawee bank is not able to detect forgery on their part, it is held primarily liable.
He indorses in an unsual, singular or peculiar manner.
What are the effects of an acceptor’s admission?
Given an example of an irregular indorser?
The acceptor is consequently precluded from setting up the defense that:
1) the drawer is non-existent or fictitious because of his admissions of the drawer’s existence. An instrument is payable to B or order. B’s name should appear on the back of the instrument
2) the drawer’s signature is a forgery, because he admits the genuineness of the drawer’s as the first indorser, but instead, we find the name of say, Y as the first indorser. In such as
signature. case, Y is an irregular indorser.
3) there is want of consideration between him and the drawer because by accepting the bill,
he admits the capacity and authority of the drawer to draw the bill. What is the meaning of “before delivery”?
Delivery here includes not only the original delivery to the payee but also every delivery from 2) that he has a good title to it;
the party accommodated to a subsequent party. 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
What are the rules on irregular indorsement? render it valueless.
1) If the instrument is payable to the order of a third person, the irregular indorser is liable to If the negotiation is by mere delivery, to whom does the warranty extend?
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, The warranty extends only to the immediate transferee.
the irregular indorser is liable to all parties subsequent to the maker or drawer.
3) If the irregular indorser signs for the accommodation of the payee, he is liable to all parties What if the person negotiates public or corporation securities other than bills and
subsequent to the payee. notes?
Give an example of an instrument payable to the order of a third person: Such person makes the same warranties as those negotiating an instrument by delivery or by
qualified indorser except he does not warrant that all prior parties had capacity to contract.
A makes a note payable to B or order. B is not willing to rely on the financial liability of A and
is not willing to take the instrument unless Y’s credit was on the back of it. A secures the A makes a note payable to B or bearer and delivers the same to B. B delivers the
signature of Y in blank. A delivered it to B who now takes it because of Y’s signature. B note to C. C delivers the note to D. What are the warranties made by C?
negotiates the not to C, and C to D. Y here is an irregular indorser. Y is liable to B, the payee,
who is a third person, and to C and D, subsequent parties. C warrants all the matters and things mentioned in paragraphs (a), (b), (c) and (d) of Section
65.
Give an example of an instrument payable to the order of maker or drawer or
payable to bearer: When D, holder, enforce the said note against A, maker, A raise as a matter of
defense the forgery of his own signature. May D insist to collect the said amount
A draws a bill payable to his own order but he cannot circulate the bill without name of Y from A?
being indorsed thereon. Y then signs at the back of the bill in blank. A, drawer and payee,
negotiates to it to B, B to C, C to D. Y here is an irregular indorser. Y is not liable to A, the No because A’s has a real defense, i.e., forgery of his signature. Thus, A’s signature is
drawer, but is liable to B, C, and D, subsequent parties to the drawer. inoperative and therefore, it did not operate to make A a party to the instrument nor bind him
therein. As against A, D acquired no right to retain, discharge, or enforce payment of the
Give an illustration of an irregular for accommodation of payee: note.
A makes a note payable to B or order. B wants to discount it with a bank but the bank is not May D enforce the said instrument against C?
willing to rely on the financial liability of A and B alone. B obtains the signature of Y in blank,
only for the purpose of lending his name or credit to B. Y is an irregular indorser. Y is not Yes, because C, who negotiated by mere delivery is liable to the D, holder, because C
liable to B, the payee, but to the bank and all subsequent parties to B. warrants that the instrument is genuine and in all respects what it purports to be.
WARRANTY WHERE NEGOTIATION BY DELIVERY AND SO FORTH — Every person May D collect the said amount from B?
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; No, because B’s (who negotiated by mere delivery) warranty extends only to his immediate
(b)That he has a good title to it; transferee, C. In effect, all the warranties mentioned in Section 65 is not true with respect to
(c)That all prior parties had capacity to contract; D. Thus, D cannot insist on collecting the said amount from B.
(d)That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless. A made a note and delivered the same to B. B delivered it to C, C delivered it to D.
But when the negotiation is by delivery only, the warranty extends in favor of no It turned out that A is insolvent and C knew that A is insolvent at the time C
holder other than the immediate transferee. delivered the note to D. When D tries to collect the said amount from C, may C
The provisions of subdivision (c) of this section do not apply to persons raise the defense of insolvency?
negotiating public or corporation securities, other than bills and notes. [65]
No because C knew of A’s insolvency at the time C delivered the note to D and a party
What are the warranties made by a person negotiating an instrument by delivery negotiating by delivery warrants that he is ignorant of any fact that would render the
or by qualified indorsement? instrument valueless. Therefore, C is liable on his warranty and cannot raise the defense of
insolvency.
1) that the instrument is genuine and in all respects what it purports to be;
Who is a qualified indorser? already mentioned herein. However, appellant Sambok indorsed the note "with recourse" and
even waived the notice of demand, dishonor, protest and presentment.
An indorser who merely transfers or assigns title to the instrument by adding the words
“without recourse”, “san recours”, etc. "Recourse" means resort to a person who is secondarily liable after the default of the person
who is primarily liable. Appellant, by indorsing the note "with recourse" does not make itself a
What is the nature of the liability of a qualified indorser or one who negotiates an qualified indorser but a general indorser who is secondarily liable, because by such
instrument by mere delivery? indorsement, it agreed that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go after
said appellant. The effect of such indorsement is that the note was indorsed without
They are secondarily liable. qualification. A person who indorses without qualification engages that on due presentment,
the note shall be accepted or paid, or both as the case may be, and that if it be dishonored,
LIABILITY OF GENERAL INDORSER. — Every indorser who indorses without he will pay the amount thereof to the holder. Appellant Sambok's intention of indorsing the
qualification, warrants, to all subsequent holders in due course — note without qualification is made even more apparent by the fact that the notice of demand,
(a)The matters and things mentioned in subdivisions (a), (b), and (c) of the next dishonor, protest and presentment were an waived. The words added by said appellant do
preceding section; and not limit his liability, but rather confirm his obligation as a general indorser.
(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, MARALIT vs. IMPERIAL
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 FACTS: Maralit filed three complaints for estafa through falsification of commercial
thereof to the holder, or to any subsequent indorser who may be compelled to pay documents through reckless imprudence against respondent Imperial. Maralit alleged that she
it. [66] was assistant manager of the Naga City branch of the Philippine National Bank (PNB); that on
May 20, 1992, June 1, 1992, and July 1, 1992 respondent Imperial separately deposited in
What are the warranties made by a general indorser? her savings account at the PNB three United States treasury warrants and on the same days
withdrew their peso equivalent of P59,216.86, P130,743.60, and P130,326.00, respectively;
1) that the instrument is genuine and in all respects what it purports to be; and that the treasury warrants were subsequently returned one after the other by the United
2) that he has a good title to it; States Treasury, on the ground that the amounts thereof had been altered. Maralit claimed
3) that all prior parties had capacity to contract; that, as a consequence, she was held personally liable by the PNB for the total amount of
4) that the instrument is at the time of his indorsement valid and subsisting. P320,287.30.
What is the engagement of a general indorser? Judgment of the MTC was rendered as follows: WHEREFORE, in view of the foregoing
considerations, the Court finds no ground to hold the accused criminally liable for which she is
He engages that on due presentment, it shall be accepted or paid, or both, as the case may charged, hence Corazon Jesusa L. Imperial is ACQUITTED of all the charges against her. The
be, according to its tenor, and that if it be dishonored, and the necessary proceedings on accused however is civilly liable as indorser of the checks which is (sic) the subject matter of
dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent the criminal action.
indorser who may be compelled to pay it.
The decision having become final and executory, the MTC ordered the enforcement of the
METROPOL vs. SAMBOK MOTORS CO. civil liability against the accused arising from the criminal action. Imperial moved to quash the
writ of execution on the that the judgment did not order the accused to pay a specific
FACTS: Dr. Villareal issued a promissory note in favor of Sambok, which waspayable in amount of money to a particular person as it merely adjudicated the criminal aspect but not
monthly installments. The promissory note was then indorsedto Metropol. Villareal defaulted the civil aspect hence there was no judgment rendered which can be the subject of execution.
payment and this prompted Metropol torun after Sampol. Sampol alleged that it is not liable
since it was a qualified indorser through the wordings it inserted in its indorsement—with ISSUE: Whether Imperial liable to pay the amount in the treasury warrant.
recourse.
HELD: Yes. The loss is chargeable to the accused who upon her indorsements warrant that
ISSUE: Whether Sampol is a qualfified indorser the instrument is genuine in all respect what it purports to be and that she will pay the
amount thereof in case of dishonor. (Sec. 66 Negotiable Instrument Law)
HELD: A qualified indorsement constitutes the indorser a mere assignor of the titleto the
instrument. It may be made by adding to the indorser's signature the words "without It is argued that the decision of the MTC did not order respondent, as accused in the case, to
recourse" or any words of similar import. Such an indorsement relieves the indorser of the pay a specific amount of money to any particular person such that it could not be an
general obligation to pay if the instrument is dishonored but not of the liability arising from adjudication of respondent’s civil liability. However, the ambiguity can easily be clarified by a
warranties on the instrument as provided in Section 65 of the Negotiable Instruments Law resort to the text of the decision or, what is properly called, the opinion part. Doing so, it is
clear that it can only be to petitioner that respondent was made liable as the former was the
offended party in the case. As for what amount respondent is liable, it can only be for the
total amount of the treasury warrants subject of the case, determined according to their peso Was Sapiera considered a general indorser?
equivalent, in the decision of the MTC.
What made the supreme court conclude that Imperial was a general indorser? BPI vs. CA and NAPIZA
FACTS: Benjamin Napiza maintains an account with the Bank of the Philippine Islands (BPI).
What is the defense raised by Imperial? In 1987, Napiza was approached by Henry Chan and the latter gave him a $2,500 Continental
Bank Manager’s check. Chan asked if Napiza can deposit the check to his (Napiza’s BPI
account) by way of accommodation and for the purpose of clearing the said check. Napiza
SAPIERA vs. CA agreed and so he deposited the check on September 3, 1987. Napiza then delivered a signed
blank withdrawal slip to Chan with the condition that the $2,500.00 may only be withdrawn if
FACTS: Remedios Nota Sapiera, a sari-sari store owner, on several occasions, purchased the check cleared. For some reason, the withdrawal slip ended up in the hands of one Ruben
from Monrico Mart grocery items, mostly cigarettes and paid for them with checks issued by Gayon who went to BPI and successfully withdrew the $2,500.00. At the time of the
one Arturo de Guzman. These checks were signed by Sapiera on the back. When they were withdrawal, the check was not yet cleared. Then days later, BPI was notified by the drawee
presented for payment, the checks were dishonoured because the drawer’s account was bank named in the check that the check is actually a counterfeit.
already closed. Respondent Ramon Samua informed Arturo de Guzman and petitioner but
both failed to pay. Hence, four charges of Estafa were filed against Sapiera while two counts ISSUE: Whether Napiza may be held liable to refund the amount of the check.
of BP 22 was filed against Arturo de Guzman. These cases were consolidated. On December
27 1999, the RTC Dagupan city acquitted Sapiera of all charges of Estafa but did not rule on HELD: No. The Supreme Court ruled that ordinarily, Napiza would have been liable because
the civil aspect of the case. Arturo de Guzman was held liable for the 2 BP 22 cases and was he is an accommodation indorser. But due to the attendant circumstances, Napiza is
ordered to pay Sua 167,150 Php as civil indemnity and was sentenced for imprisonment of 6 discharged from liability. The withdrawal slip indicates as well as the rules promulgated by BPI
months and 1 day. Respondent Sua appealed regarding the civil aspect of Sapiera’s case but that withdrawal from the bank should be accompanied by the presentment of the account
the court denied it saying that the acquittal of petitioner was absolute. Respondent filed a holder’s (Napiza’s) savings bankbook. This was not done so in the case at bar because Gayon
petition for mandamus with the Court of Appeals praying that the appeal be given due course, was able to withdraw without it. Further, BPI allowed the withdrawal even before the check
this was granted. On January 1996, CA rendered a decision ordering Sapiera to pay 335000 cleared. BPI already credited the $2,500.00 to Napiza’s account even without the drawee
php to Sua. Sapiera filed a motion for reconsideration. The CA the issued a resolution noting bank clearing the check. This is contrary to common banking practices and because of such
that the admission of both parties that Sua already collected 125000 for the 2 check paid by negligence and lack of diligence, BPI, as the collecting bank, shall suffer the loss.
De Guzman on the BP 22 cases. It appears that the payment should be deducted on her
liability as they involved the same two checks which Sapiera was involved in. the CA deducted Again what is the negligence on the part of the bank in this case?
the liability to 210,000 Php. Hence this petition by Sapiera claiming that the CA erred in
rendering such decision because she was acquitted and the fact from which the civil liability Was Napiza considered a general indorser in this case?
exists did not exist.
What is the proximate cause of the loss?
ISSUE: Whether Sapiera could be held civilly liable when she was acquitted in the criminal
charges against her. What is the distinction between the fourth warranty provided for in Section 65 and
Section 66?
HELD: Yes. Sec. 2 of rule 111 of the rules of court provides that extinction of the penal action
does not carry with it the extinction of the civil, unless this shows that the fact from which the The qualified indorser or person negotiating by delivery warrants that he is ignorant of any
civil liability is based is proven to not have existed because of such acquittal. Civil liability is fact that will impair the validity of the instrument or render it valueless while a general
not extinguished where: (a) the acquittal is not based on reasonable doubt. (b) Where the indorser warrants that the instrument he is indorsing is valid and subsisting regardless
court expressly declares that the liability is not criminal but only civil, (c) where the civil whether he is ignorant of that fact or not. But the fourth warranty of a general indorser does
liability is not derived from or based on the criminal act. The decision of the case would show not run in favor of holders who are parties to illegal consideration.
that the acquittal was based on failure of the prosecution to present sufficient evidence
showing conspiracy between her and De Guzman. Since all checks were signed by Sapiera on A made a note payable to B. However, the consideration made by B on the note is
the back, sec 17 of Negotiable instruments law says that she would be considered an indorser illegal. B negotiated the note to C. C negotiated the note to D. C in this case did
of the bill of exchange and under section 66 thereof would be held liable for breach of not know of the illegality of the consideration. May D hold C liable?
warranty and is held liable to pay the holder who may be compelled to pay the instrument.
Yes because C, as a general indorser, warrants that the instrument is valid and subsisting,
Why was Sapiera held liable by the Supreme Court? even if he did not know of the illegality of the consideration.
What if in that example C is a qualified indorser? acquire title 2) persons who

through his derive their title from
C would not be liable because he does not warrant that the instrument is valid and subsisting indorsement a holder in due
but merely that he does not know of any fact which impairs the validity of the instrument or regardless course
render it valueless, and C, did not know of the illegality of consideration. of whether 3) immediate
they are transferees, even if
Suppose C is a general indorser, may D make him liable at all times? holders in they are not holders
due course in due course.
No not at all times. D may make C liable only when D is a/an: or not.
1) subsequent holder in due course As to the That he has no knowledge of any That the instrument
2) person who derive his title from a holder in due course fourth fact which would impair the validity is at the time of his
3) immediate transferee, even when he is not a holder in due course. warranty: of the instrument or render it indorsement valid
valueless. and subsisting.
What is your basis for the 2nd instance? As to their Does not engage to pay the Engages to pay the
engagement: instrument if it is dishonored by holder or any
Section 58 of the NIL. non-acceptance or non-payment intervening party
except when such dishonor arises who may be
SIR: Despite the fact that the law provides that the warranties are extended only to a holder from his four (4) warranties. [limited compelled by the
in due course, still we make some exceptions because the law does not provide that the secondary liability] holder to pay the
general indorser warrants to a holder in due course only. instrument whether
such dishonor arises
Are the warranties provided under Section 66 extend to the genuineness of the from the warranties
drawer’s signature to the drawee who pays it? or from other causes
such as insolvency.
No because a drawee is not a holder in due course under Section 52 nor a holder under
Section 191. If person primarily liable is insolvent, is a notice of dishonor a condition sine qua
non in order to hold the general indorser liable?
What is the type of liability of a general indorser?
Yes because that is one way you can establish that such person primarily liable is insolvent
Secondary liability. unless his insolvency is a public knowledge.
Should the reason for dishonor be established before a general indorser can be What are the liabilities of an assignor?
made liable?
(1) He is responsible for the existence and legality of the credit at the time of the sale unless
No because the law does not require that the reason for the dishonor be established. It is it should have been sold as doubtful but not for the solvency of the debtor unless it has been
sufficient that there was dishonor. expressly stipulated or unless the insolvency was prior to the sale and of common knowledge.
(2) In case the assignor in good faith should have made himself responsible for the solvency
What is the liability of a general indorser if the person primarily liable is insolvent? of the debtor and the contracting parties should not have agreed upon the duration of the
liability, it shall last for one year only from the time of the assignment if the period already
He is liable even though he neither knew nor concealed that fact because he engages to pay expired.
if the person primarily liable cannot pay. (3) If the credit should be payable within a term or period which has not yet expired, the
liability shall cease one year after maturity.
Make a summary of distinctions between liabilities of (1) persons negotiating by (4) He is liable for the price received and for the expenses of the contract, and any other
mere delivery, (2) qualified indorsers, and (3) general indorsers: legitimate payments made by reason of the sale.
(5) An assignor in bad faith shall always be answerable for the payment of all expenses, and
Party negotiating Qualified General Indorser damages.
by delivery Indorser
As to whom Only to immediate All 1) subsequent A made a note to B or bearer. B negotiated it by mere delivery. What section
the warranty transferee subsequent holders in due governs his liability under the NIL?
extend: parties who course
Section 65.
He incurs all the liabilities prescribed by section sixty-five of this Act, unless he discloses the
What if he indorses it plus delivery? name of his principal and the fact that he is acting only as agent.
He is governed by Section 65 if he is a qualified indorser, and Section 66 if he is a general EFFECT OF WANT OF DEMAND ON PRINCIPAL DEBTOR — Presentment for
indorser. payment is not necessary in order to charge the person primarily liable on the
instrument; but if the instrument is, by its terms, payable at a special place, and
LIABILITY OF INDORSER WHERE PAPER NEGOTIABLE BY DELIVERY — Where a he is able and willing to pay it there at maturity, such ability and willingness are
person places his indorsement on an instrument negotiable by delivery he incurs equivalent to a tender of payment upon his part. But, except as herein otherwise
all the liabilities of an indorser. [67] provided, presentment for payment is necessary in order to charge the drawer and
indorsers. [70]
ORDER IN WHICH INDORSERS ARE LIABLE — As respects one another, indorsers
are liable prima facie in the order in which they indorse; but evidence is admissible What is presentment for payment?
to show that as between or among themselves they have agreed otherwise. Joint
payees or joint indorsees who indorse are deemed to indorse jointly and severally. Presentment for payment is the production of a bill of exchange to the drawee or acceptor for
[68] payment, or the production of a promissory note to the party liable for payment.
With respect to one another, what, if any, is the liability of the indorsers? Is presentment for payment necessary in order to charge the person primarily
liable?
They are prima facie liable in the order in which they indorse. No.
A made a note making B as the payee. The note was negotiated to C. C to D. D to A is the maker, B is the payee, C is the indorser. The note provides that it is
E. E to F. F to G. G wants to enforce the note against A. However, A is unable to payable at Shangri-la Mactan. Is it necessary for C to present the note for payment
pay. G now wants to enforce the note against D. May D raise it as a matter of in order to charge A liable?
defense that before G can go after him, the latter has to make E and F liable first?
No the rule is still the same.
No because the rules that indorsers are liable in the order they indorse is only as between or
among the indorsers themselves but not against a holder. As to the holder, they are liable in Supposing A is able and willing to pay the note at Shangri-la Mactan. What is the
any order. effect of lack of presentment for payment?
What is the presumption if a joint indorsees indorse an instrument? The only effect is that it is equivalent to a tender of payment on the part of A, and C, the
holder, loses his right to recover interest due subsequent to maturity and costs of collection
Joint payees or indorsees are deemed to indorse jointly and severally, i.e., their obligation is but he cant still hold A liable.
solidary in nature. Thus, if one of the indorsees is made liable by the holder, he has the right
to seek reimbursement from the other indorsees. What is tender of payment?
Is it not contrary to the provisions of the Civil Code? Tender of payment is the manifestation by the debtor of a desire to comply with or pay an
obligation.
No because Section 68 of the NIL provides for such presumption.
SIR: Tender of payment is particularly used in the litigation process. When you pay an
Is there an exception to the right to seek reimbusement? obligation and the creditor refuses to accept such payment without just cause, the tender of
payment will discharge the debtor of the obligation to pay but only after a valid consignation
Yes when payment was made voluntarily and without any judicial demand and that there is of the sum due shall have been made with the proper court.
an absolute absence of evidence that the principal debtor is insolvent. (Sadaya vs Sevilla)
Is presentment for payment necessary in order to charge persons secondarily
LIABILITY OF AN AGENT OR BROKER — Where a broker or other agent negotiates liable?
an instrument without indorsement, he incurs all the liabilities prescribed by
section sixty-five of this Act, unless he discloses the name of his principal and the Yes because it is provided for under Section 68 of the NIL.
fact that he is acting only as agent. [69]
What if the agent or broker negotiates an instrument without an indorsement?

A is the drawer, B is the acceptor, C is the payee. D and E are the indorsers. F is the
holder. F failed to make presentment for payment to B, acceptor. Who among the PRESENTMENT WHERE INSTRUMENT IS NOT PAYABLE ON DEMAND AND WHERE
can F hold liable? PAYABLE ON DEMAND. — Where the instrument is not payable on demand,
presentment must be made on the day it falls due. Where it is payable on demand,
Only B, the acceptor, would be left against whom F can enforce the bill because presentment presentment must be made within a reasonable time after its issue, except that in
for payment is not necessary in order to charge the person primarily liable. ( A, B, C, D are the case of a bill of exchange, presentment for payment will be sufficient if made
discharged) within a reasonable time after the last negotiation thereof. [71]
What are the necessary steps to charge the person secondarily liable in a bill of When should presentment be made when the instrument is not payable on
exchange? demand?
(1) In the three cases required by law presentment for acceptance to the drawee Presentment must be made on the day it falls due.
or negotiation within a reasonable time after acquisition:
(a)Where the bill is payable after sight, or in any other case, where presentment for When should presentment be made when the instrument is payable on demand?
acceptance is necessary in order to fix the maturity of the instrument; or
(b)Where the bill expressly stipulates that it shall be presented for acceptance; or Presentment must be made within a reasonable time after its issue, except that in the case of
(c)Where the bill is drawn payable elsewhere than at the residence or place of business a bill of exchange, presentment for payment will be sufficient if made within a reasonable
of the drawee. [143] time after the last negotiation thereof.
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 Under Section 71, is this presentment for acceptance or presentment for payment?
negotiate it within a reasonable time. If he fail to do so, the drawer and all indorsers are
discharged. [144] Presentment for payment.
unless excused:
(a)Where the drawee is dead, or has absconded, or is a fictitious person or a person not A drew a bill of exchange on Dec 31, 2010. B is the acceptor. C is the payee. C
having capacity to contract by bill. negotiated it to D. D to E. E negotiated it to F on February 5, 2014. F is the present
(b)Where, after the exercise of reasonable diligence, presentment cannot be made. holder. On February 8, 2014, F wants to claim the amount stated in the bill from
(c)Where, although presentment has been irregular, acceptance has been refused on the acceptor. May the acceptor deny payment?
some other ground. [148]
In other cased aside from the three [143], there is no need for presentment for acceptance. No because in the case of a bill of exchange, presentment for payment will be sufficient if
made within a reasonable time after the last negotiation thereof.
(2) If the bill is dishonored by non-acceptance,
(a) notice of dishonor by non-acceptance must be given to persons secondarily liable Supposing E did not negotiate it to F but after finding that the bill is just inside his
unless excused and, in case of foreign bills, locker, E immediately went to the acceptor. May the acceptor deny payment?
(b) protest for dishonor by non-acceptance must be made unless excused.
Yes because the bill was not presented for payment within a reasonable time after the last
(3) But if the bill is accepted or if the bill is not required to be presented for negotiation.
acceptance, it must be presented for payment to the persons primarily liable, SIR: The holder may circumvent the provisions of the NIL by simply negotiating the
unless excused. instrument to some other person. If you have a bill of exchange which is more than a year old
already, what you do is look for a person who takes it for value and negotiate such
(4) If the bill is dishonored by non-payment, instrument to said person. Such person can go back to the acceptor to claim payment
(a) a notice of dishonor by non-payment must also be given to person secondarily liable because the law provides that presentment for payment will be sufficient if made within a
unless excused, and in case of foreign bills, reasonable time after the last negotiation. But if you are the person whom the instrument is
(b) a protest for dishonor by non-acceptance must be made unless excused. negotiated, there must be a caveat. You should inquire or raise questions to the person who
is negotiating the instrument to you regarding the nature and circumstance on why the bill is
What are the necessary steps to charge the person secondarily liable in a not yet paid, etc.
promissory note?
What is meant by last negotiation?
(1) Presentment for payment must be made within the period required to the person primarily
liable unless excused; and Last transfer for value.
(2) if the note is dishonored by non-payment, notice of dishonor by non-payment must be
given to the persons secondarily liable unless excused.
Supposing that E colluded with F. F did not give any valuable consideration to E. able to give the check payments to Wong. Wong then made arrangement with LPI so that for
Can the acceptor raise it as a matter of defense? the meantime, Wong can use his personal checks to guarantee the calendar orders of the
LPI’s clients. LPI however has a policy of not accepting personal checks of its agents. LPI
No because an acceptor is required by the law to pay it according to the tenor of his instead proposed that the personal checks should be used to cover Wong’s debt with LPI
acceptance. Unlike a maker or an indorser who may raise the absence or failure of which arose from unremitted checks by Wong in the past. Wong agreed. So he issued 6
consideration as a matter of defense as against any person not a holder in due course. checks dated December 30, 1985. Before the maturity of the checks, Wong persuaded LPI not
to deposit the checks because he said he’ll be replacing them within 30 days. LPI complied
Why is it necessary that the last negotiation is the last transfer for value? however Wong reneged on the payment. On June 5, 1986 or 157 days from date of issue, LPI
presented the check to RCBC but the checks were dishonored (account closed). On June 20,
Because negotiation is a contract. In order to validly constitute a contract, there must be a 1986, LPI sent Wong a notice of dishonor. Wong failed to make good the amount of the
value consideration. Upon perfection, parties can compel other parties of the contract to checks within 5 banking days from his receipt of the notice. LPI then sued Wong for violations
perform their obligations. of Batas Pambansa Blg. 22. Among others, Wong argued that he’s not guilty of the crime of
charged because one of the elements of the crime is missing, that is, prima facie presumption
PRUDENTIAL BANK vs. CA of “knowledge of lack of funds” against the drawer. According to Wong, this element is lost by
reason of the belated deposit of the checks by LPI which was 157 days after the checks were
FACTS: issued; that he is not expected to keep his bank account active beyond the 90-day period –
90 days being the period required for the prima facie presumption of knowledge of lack of
ISSUE: Whether it is necessary for Philippine Rayon Mills to accept the drafts forwarded by fund to arise.
the bank.
ISSUE: Whether or not Wong is guilty of the crime charged.
HELD: No need to accept
HELD: Yes. Wong is guilty of violating BP 22. The second element of violation of BP 22
What is a letter of credit? pertinent is:
2) The knowledge of the maker, drawer, or issuer that at the time of issue he does not have
It is an engagement by a bank or other person made at the request of a customer that the sufficient funds in or credit with the drawee bank for the payment of such check in full upon
issuer will honor drafts or other demands for payment upon compliance with the conditions its presentment; and
specified in the credit. Through a letter of credit, the bank merely substitutes its own promise
to pay for the promise to pay of one of its customers who in return promises to pay the bank Under the second element, the presumption of knowledge of the insufficiency arises if the
the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually check is presented within 90 days from the date of issue of the check. This presumption is
agreed upon. lost, as in the case at bar, by failure of LPI to present it within 90 days. But this does not
mean that the second element was not attendant with respect to Wong. The presumption is
Is there a finding from the Supreme Court that the drafts here are not required to lost but lack of knowledge can still be proven, LPI did not deposit the checks because of the
be presented for acceptance? reassurance of Wong that he would issue new checks. Upon his failure to do so, LPI was
constrained to deposit the said checks. After the checks were dishonored, Wong was duly
Yes because they are sight drafts. notified of such fact but failed to make arrangements for full payment within five (5) banking
days thereof. There is, on record, sufficient evidence that Wong had knowledge of the
What are instruments that require presentment for acceptance?/What are the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the
instances wherein there is a need for an instrument to be presented for checks.
acceptance?
The Supreme Court also noted that under Section 186 of the Negotiable Instruments Law, “a
Presentment for acceptance must be made: check must be presented for payment within a reasonable time after its issue or
1) where the bill is payable after sight, or in any other case, where presentment for the drawer will be discharged from liability thereon to the extent of the loss caused by the
acceptance is necessary in order to fix the maturity of the instrument; or delay.” By current banking practice, a check becomes stale after more than six (6)
2) where the bill expressly stipulates that it shall be presented for acceptance; or months, or 180 days. LPI deposited the checks 157 days after the date of the check. Hence
3) where the bill is drawn payable elsewhere than at the residence or place of business of the said checks cannot be considered stale.
drawee.
SIR: Under Section 71, a bill of exchange must be presented for payment within a reasonable
WONG vs CA time after the last negotiation. With respect to notes, it should be presented for payment
within a reasonable time after its issue. A check is a bill of exchange drawn against a bank
FACTS: Wong is a collector of Limtong Press, Inc., a company which prints calendars. Wong payable on demand. However, there is a separate rule on when should a check be presented
was assigned to collect check payments from LPI’ clients. One time, 6 of LPI’s clients were not for payment. Under Section 186, a check must be presented for payment within a reasonable
time after its issue. Not after its last negotiation, despite the fact that a check is a bill of bank as a maker. Assuming that presentment is needed, failure to present on time will result
exchange. to the discharge of the drawer only to the extent of the loss caused by the delay. In the case
at bar, respondents have not alleged damage or loss caused by the delay or non-
What is a stale check? presentment.
A stale check is one which has not been presented for payment within a reasonable time after Even assuming that presentment is needed, failure to present for payment within a
its issue. reasonable time will result to the discharge of the drawer only to the extent of the loss caused
by the delay. Failure to present on time, thus, does not totally wipe out all liability. In fact, the
What if the check is not presented after seven (7) months? legal situation amounts to an acknowledgment of liability in the sum stated in the check. In
this case, the Gueco spouses have not alleged, much less shown that they or the bank which
Then the check is already stale. issued the manager's check has suffered damage or loss caused by the delay or non-
presentment. Definitely, the original obligation to pay certainly has not been erased.
What if there is a nuclear war and banks are closed?
It has been held that, if the check had become stale, it becomes imperative that the
Banking practices may be relaxed when the delay of presentment is caused by circumstances circumstances that caused its non-presentment be determined. In the case at bar, there is no
beyond the control of the holder, and not imputable to his default, misconduct, or negligence. doubt that the petitioner bank held on the check and refused to encash the same because of
When the cause of delay ceases to operate, presentment must be made with reasonable the controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or
diligence. [Sec. 81] negligence in this position taken by the Bank.
What is reasonable time? What is a manager’s check?
In order to determine what is a “reasonable time”, regard is had: It is a check drawn by the manager of a bank in the name of the bank against the bank itself.
(1) to the nature of the instrument; It is similar to the cashier’s check as to effect and use. There is an assurance that the check is
(2) usage of trade or business with respect to such instrument and funded. It is negotiable because it complies with the requisites on forms under the Negotiable
(3) the facts of the particular case. Instruments Law.
What is the test of reasonableness with respect to time? Is there a need for a manager’s check to be presented for acceptance?
The test is whether the payee employed such diligence as a prudent man exercises in his own No because it is not one of the instances mentioned under Sec. 143 and it is accepted in
affair. That span of time by which a diligent and prudent person may present said check for advance by the act of its issuance.
payment. If it is within that period of time, then you are presenting the check within a
reasonable time. What made the Supreme Court rule that the check did not become stale?
ICB vs Sps GUECO The check involved is a manager’s check which means it is already funded and it is accepted
in advance by the act of its issuance. Considering that there is already an acceptance made
FACTS: Respondent spouses, obtained a loan from petitioner bank for the purchase of a car by the bank, it may be likened to a promissory note with the bank as a maker. At the time of
secured by chattel mortgage. Unable to pay the monthly amortizations, the bank sued for acceptance (upon issuance), the drawer becomes primarily liable such that there is no more
collection. Thru negotiations, the amount was reduced and payment would release the car. need to present the check for payment in order to charge the bank liable.
Respondent spouses delivered a manager’s check in the said amount but petitioner bank
refused to release the car for respondents’ refusal to sign the joint motion to dismiss. Unable SIR: Just because you are an acceptor it does not follow that you cannot raise any defense at
to recover possession of the car, respondent filed an action for damages against petitioner all. If you want to escape liability, it is up to you to show that you are a mere agent of the
based on fraud. Respondents alleged that delivery of the check produced the effect of drawer or you have to allege and prove any other defense which you have to the liability.
payment. They also contend that since the check was not presented within a reasonable time, (PNB vs CA) In effect, even if you are primarily liable as an acceptor, it does not follow that
the same became stale. Petitioner, however, did not encash the check because of the present you cannot claim defenses at all. Take note that under Sec. 71 provides that presentment
case. MUST be made. You correlate that with Sec. 62 where the acceptor engages to pay
according to the tenor of his acceptance and the last sentence of Sec. 71 . xxx presentment
ISSUE: Whether the bank was negligent in opting not to deposit or use the manager’s check. for payment will be sufficient if made within a reasonable time after the last negotiation
thereof. I submit that this can be used by the acceptor to evade his liability such that if there
HELD: A check must be presented for payment within a reasonable time after its issue. In the is no presentment for payment within reasonable time after the last negotiation, they
case at bar, the check involved is a manager's check and is accepted in advance by the act of acceptor may refuse payment on the ground that the law requires that it be presented for
issuance. It is really the bank’s own check and may be treated as a promissory note with the payment within reasonable time after its last negotiation.
2) at a reasonable hour on a business day;

However, take note that Sec. 70 provides that presentment for payment is not necessary in 3) at a proper place as herein defined;
order to charge the person primarily liable (acceptor) on the instrument. You have to balance 4)To the person primarily liable on the instrument, or if he is absent or inaccessible, to any
Secs. 70 & 71. Say for example, I have with me a bill of exchange, and I kept such bill in the person found at the place where the presentment is made.
cabinet for 10 years. When I discovered that I have this bill of exchange, I negotiate it to my
friend to make it appear that the negotiation was for value. Even if the bill was not negotiated Supposing the person primarily liable is absent or inaccessible and the only person
within reasonable time after its issuance, for as long you present it for payment within a found at the place where the presentment is to be made is an insane person, will
reasonable time after the last negotiation, that person who took the instrument for value may you present it to such person?
go to the acceptor and present it for payment.
No because what is contemplated by the law are persons with sound mind and judgment. A
Now what if the who person discovered the said instrument immediately went to the acceptor diligent person can simply come back on the next business day.
because he wasn’t able to study NIL, and present it for payment to the acceptor. Of course
the acceptor may refuse payment on the ground mentioned in Sec 71. But such person may What is a reasonable hour on a business day?
say that under Sec. 70, presentment for payment is not necessary in order to charge the
person primarily liable on the instrument. What will the acceptor say? If I were the acceptor, I It depends on the general custom at the place of the particular transaction.
would say that the acceptor has all the rights to present his defenses and I submit that Sec.
71 is part of his defense. *Is it necessary to present the instrument personally to the person primarily
liable?
In order for a check not to become stale:
GR: A check must be presented for payment within a reasonable time after its issue. No because the law provides that if such person is absent or inaccessible, presentment for
EXC: If it is a manager’s check or as cashier’s check, the bank already accepted it in advance. payment can be made to any person found at the place where the presentment is made.
A check becomes stale after more than six (6) months, or 180 days. It would seem that the PLACE OF PRESENTMENT — Presentment for payment is made at the proper place
SC will not buy if the acceptor later on say (for example, the bill was drawn in 1980 and it —
was not negotiated to some other person and in 2014, the holder immediately presented it to (a)Where a place of payment is specified in the instrument and it is there
the acceptor for payment) that it was not negotiated within a reasonable time so I should be presented;
absolved from my liability. It would seem that will be the contention of the acceptor, it might (b)Where no place of payment is specified, but the address of the person to make
not be given credence by the SC because of the Gueco case. Although it is not entirely in four payment is given in the instrument and it is there presented;
square w/ the Gueco case. But the principle laid down in the Gueco case is that if there (c)Where no place of payment is specified and no address is given and the
already an acceptance, even if the check became stale (not negotiated within reasonable time instrument is presented at the usual place of business or residence of the person
after its issue), the SC said that considering that there was acceptance already, you cannot to make payment;
hide under the cloak that the check became stale. That is why the SC said that this is already (d)In any other case if presented to the person to make payment wherever he can
akin to a promissory note wherein you become a maker (a person who is primarily liable), so be found, or if presented at his last known place of business or residence. [73]
even if the check already became stale, you cannot use it as a matter of defense. Hence, you
are still primarily liable. In fact, presentment for payment is not necessary in order to charge What is meant by the words “proper place”?
you.
1) where a place of payment is specified in the instrument and it is there presented;
WHAT CONSTITUTES A SUFFICIENT PRESENTMENT — Presentment for payment, 2) where no place of payment is specified, but the address of the person to make payment is
to be sufficient, must be made — given in the instrument and it is there presented;
(a)By the holder, or by some person authorized to receive payment on his behalf; 3) where no place of payment is specified and no address is given and the instrument is
(b)At a reasonable hour on a business day; presented at the usual place of business or residence of the person to make payment;
(c)At a proper place as herein defined; 4) in any other case if presented to the person to make payment wherever he can be found,
(d)To the person primarily liable on the instrument, or if he is absent or or if presented at his last known place of business or residence.
inaccessible, to any person found at the place where the presentment is made.
[72] If you see the maker in the spa having the time of his life, are you allowed to
present it right there and then?
What are the elements in order for presentment for payment to be considered
sufficient? No you have to examine the instrument first in order to determine the proper place for
payment. (You must follow the first 3 instances before you may present the instrument for
Presentment for payment must be made payment wherever he can be found.)
1) by the holder, or by some person authorized to receive payment on his behalf;
INSTRUMENT MUST BE EXHIBITED. — The instrument must be exhibited to the Where will you present the instrument when the person primarily liable decided to
person from whom payment is demanded, and when it is paid must be delivered transfer his residency to Queens City Gardens?
up to the party paying it. [74]
Where no place of payment is specified, presentment for payment must be made to his
To whom should the instrument be exhibited? personal representative, if such there be, and if, with the exercise of reasonable diligence, he
can be found.
The instrument must be exhibited to the person from whom payment is demanded.
PRESENTMENT TO PERSONS LIABLE AS PARTNERS — Where the persons primarily
To whom should the instrument be delivered? liable on the instrument are liable as partners, and no place of payment is
specified, presentment for payment may be made to any one of them, even though
It must be delivered up to the party paying it. there has been a dissolution of the firm. [77]
Why is there a need to exhibit the instrument? What if the persons primarily liable are partners and no place of payment is
specified?
1) to determine the genuineness of the instrument and the right of the holder to receive
payment Presentment for payment may be made to any one of them.
2) to enable him to reclaim possession upon payment.
Can it be made after the dissolution of the partnership?
X wanted to collect an amount in the promissory note from his friend Y. X scanned
the note and sent it to Y through a private message on Koobface. Is that sufficient Yes presentment can be made even though there has been a dissolution of the firm.
exhibition of the instrument?
PRESENTMENT TO JOINT DEBTORS — Where there are several persons, not
No because the law requires that there must be actual exhibition. partners, primarily liable on the instrument, and no place of payment is specified,
presentment must be made to them all. [78]
When is exhibition excused?
What if several persons, not partners, who are primarily liable on the instrument,
1) when the debtor does not demand to see the instrument but refuses payment on some and no place of payment is specified?
other grounds.
2) when the instrument is lost or destroyed. Presentment must be made to them all.
PRESENTMENT WHERE INSTRUMENT PAYABLE AT BANK — Where the instrument WHEN PRESENTMENT NOT REQUIRED TO CHARGE THE DRAWER — Presentment
is payable at a bank, presentment for payment must be made during banking for payment is not required in order to charge the drawer where he has no right to
hours, unless the person to make payment has no funds there to meet it at any expect or require that the drawee or acceptor will pay the instrument. [79]
time during the day, in which case presentment at any hour before the bank is
closed on that day is sufficient. [75] When is presentment for payment not required in order to charge the drawer?
When an instrument is payable at a bank, when should presentment for payment Where the drawer has no right to expect or require that the drawee or acceptor will pay the
be made? instrument.
During banking hours. Give an example:
Is there an exception? 1) In a case of a check upon which payment has been stopped.
2) Where the drawer’s balance is less than the amount of the check.
Unless the person to make payment has no funds there to meet it at any time during the day, 3) where the drawer of a bill containing the words “Pay from balance” had no money on
in which case presentment at any hour before the bank is closed on that day is sufficient. deposit with the drawee bank but expected to arrange with the broker to cover drafts.
PRESENTMENT WHERE PRINCIPAL DEBTOR IS DEAD — Where the person WHEN PRESENTMENT NOT REQUIRED TO CHARGE THE INDORSER — Presentment
primarily liable on the instrument is dead, and no place of payment is specified, for payment is not required in order to charge an indorser where the instrument
presentment for payment must be made to his personal representative, if such was made or accepted for his accommodation and he has no reason to expect that
there be, and if, with the exercise of reasonable diligence, he can be found. [76] the instrument will be paid if presented. [80]
When presentment not required in order to charge the indorser?

Where the bill is payable in the United States, after the occupation of the Philippines by
Where the instrument was made or accepted for his accommodation and he has no reason to Japan, presentment for payment is dispensed with.
expect that the instrument will be paid if presented.
Give an example of the second circumstance:
Give an example:
Pay to the order of X.
A makes a note for the accommodation of B, payee. B indorses to C, C to D, D to E, E to F. F To: Carmen Sandiego (Sgd.) Y
need not make presentment for payment to A in order to charge B, indorser. The reason is
that as B did not give value to A, B has no reason to expect that the note will be paid upon Give an example of the third circumstance:
presentment. But C, D, and E are discharged as no presentment has been made. In effect,
the accommodated payee-indorser(B), who is the person primarily liable, is not discharged Express:
even if no presentment for payment is made. Pay to B or order P1000.
Presentment waived.
WHEN DELAY IN MAKING PRESENTMENT IS EXCUSED — Delay in making To X (Sgd.) Y
presentment for payment is excused when the delay is caused by circumstances
beyond the control of the holder, and not imputable to his default, misconduct, or Implied:
negligence. When the cause of delay ceases to operate, presentment must be May be manifested by any language, conduct or agreement between the parties reasonably
made with reasonable diligence. [81] calculated to lead the holder to believe presentment is waived or to mislead or prevent him
from treating the bill as he otherwise would.
When is delay in making presentment excused?
WHEN INSTRUMENT DISHONORED BY NON-PAYMENT — The instrument is
When the delay is caused by circumstances beyond the control of the holder, and not dishonored by non-payment when —
imputable to his default, misconduct, or negligence. (a)It is duly presented for payment and payment is refused or can not be
obtained; or
Give examples of circumstances beyond the control of the holder: (b)Presentment is excused and the instrument is overdue and unpaid. [83]
1) overwhelming calamity As a rule, is it required that presentment for payment be made in order to charge
2) malignant diseases the person secondarily liable?
3) interruption of trade negotiations by political circumstances
4) war between maker’s and holder’s countries Yes.
5) suspension of commercial INTERCOURSE by public enemy
6) occupation of country where parties reside or where the instrument is payable What are the exceptions?
7) by public and positive interdictions and prohibitions of state
8) impracticability of finding maker or his place of residence. 1) where the drawer has no right to expect or require that the drawee or acceptor will pay the
instrument. (Sec. 79)
WHEN PRESENTMENT MAY BE DISPENSED WITH — Presentment for payment is 2) where the instrument was made or accepted for the indorser's accommodation and he has
dispensed with — no reason to expect that the instrument will be paid if presented. (Sec. 80)
(a)Where after the exercise of reasonable diligence presentment as required by 3) where after the exercise of reasonable diligence presentment as required by this Act
this Act can not be made; cannot be made; (Section 82)
(b)Where the drawee is a fictitious person; 4) where the drawee is a fictitious person; (Section 82)
(c)By waiver of presentment, express or implied. [82] 5) by waiver of presentment, express or implied. (Section 82)
6) when the instrument has been dishonored by non-acceptance. (Sec. 151)
Under what circumstances may presentment for payment may be excused?
When is the instrument considered dishonored by non-payment?
1) where after the exercise of reasonable diligence presentment as required by this Act
cannot be made; 1) when it is duly presented for payment and payment is refused or cannot be obtained; or
2) where the drawee is a fictitious person; 2) when presentment is excused and the instrument is overdue and unpaid.
3) by waiver of presentment, express or implied.
LIABILITY OF PERSON SECONDARILY LIABLE, WHEN INSTRUMENT DISHONORED
Give an example of the first circumstance: — Subject to the provisions of this Act, when the instrument is dishonored by non-
payment, an immediate right of recourse to all parties secondarily liable thereon

accrues to the holder. [84] The time of payment is determined by excluding the day from which the time is to begin to
run, and by including the date of payment. [first day excluded-last day included]
What is the effect of dishonor by non-payment to persons secondarily liable?
RULE WHERE INSTRUMENT PAYABLE AT BANK — Where the instrument is made
Persons secondarily liable become principal debtors, provided that notice of dishonor is given payable at a bank it is equivalent to an order to the bank to pay the same for the
to them. If no notice of dishonor is given to them, they are discharged. (Among themselves, account of the principal debtor thereon. [87]
persons secondarily liable are presumed liable in the order they become parties to the
instrument. Thus if F is the holder and he collects from D, D can collect from C, but not from What is the rule if the instrument is made payable at the bank?
E. [924])
It is equivalent to an order to the bank to pay the same for the account of the principal
What about the persons primarily liable, can you still charge them? debtor thereon.
Yes they may be included as party defendants by the persons secondarily liable. So if the For example, I promise to pay Mr. Garcia or order the sum of P1 million. Payable at
issue reaches the court, the court has several persons to hold liable. BPI, Ayala Branch. (Sgd.) A:
TIME OF MATURITY — Every negotiable instrument is payable at the time fixed This is equivalent to an order to pay addressed to BPI, Ayala Branch, by A, maker. BPU may
therein without grace. When the day of maturity falls upon Sunday, or a holiday, charge the amount of the note from the account of A without further authority from A.
the instrument is payable on the next succeeding business day. Instruments
falling due or becoming payable on Saturday are to be presented for payment on What if there is a failure to make presentment for payment at PNB, is A, maker,
the next succeeding business day, except that instruments payable on demand discharged?
may, at the option of the holder, be presented for payment before twelve o'clock
noon on Saturday when that entire day is not a holiday. [85] A is not discharged because he is primarily liable.
The instrument is payable on February 14, 2014. When is it supposed to be WHAT CONSTITUTES PAYMENT IN DUE COURSE — Payment is made in due course
presented for payment? when it is made at or after the maturity of the instrument to the holder thereof in
good faith and without notice that his title is defective. [88]
Presentment for payment must be made on that date.
What are the requisites for payment in due course?
What if February 14 falls on a Sunday, when should it be paid?
Payment must be:
It is payable on Monday or the succeeding business day. Presentment must therefore be 1) made at or after the date of maturity.
made on that succeeding business day. 2) made to the holder.
3) made by the debtor in good faith and without notice that the holder’s title is defective.
What if February 14 falls on a holiday?
What if it is paid prior to the date where it is supposed to be due?
It is payable on the succeeding business day.
It would be considered a negotiation back to the person primarily liable and he can re-
What if February 14 falls on a Saturday? negotiate it. The payment does not discharge the instrument.
1) where the instrument is payable at a fixed or determinable future time, presentment must What is the effect if the instrument is paid to an indorsee who is not in possession
be made on the next succeeding business day, that is on Monday, February 16, 2014. of such instrument?
2) where the instrument is payable on demand, presentment must be made on Saturday,
February 14, before 12:00 noon or Monday, February 16, 2014, at the option of the holder. There is no payment in due course as he is not a holder.
TIME; HOW COMPUTED — When the instrument is payable at a fixed period after SIR: We’ve learned that in fact, the instrument must be exhibited to the person from whom
date, after sight, or after that happening of a specified event, the time of payment you are demanding payment in order for him to determine the genuineness of the instrument
is determined by excluding the day from which the time is to begin to run, and by and the right of the holder to receive payment.
including the date of payment. [86]
What if the payment is made to a person by the debtor who knows that such
How should you compute the time for payment? person stole it?
It would depend on whether the clause is optional or automatic. Where the acceleration
It is not payment in due course as such payment is not in good faith. clause is:
1) Automatic – failure to give notice of dishonor as to previous installment will discharge the
X is indebted to Y. X gave Y a promissory note worth P1 million. Does the act of persons secondarily liable as to the succeeding installments.
giving the promissory note produce the effect of payment? 2) Optional and it is:
a) exercised - failure to give notice of dishonor as to previous installment will
No they produce the effect of payment only when they have been cashed or when through discharge the persons secondarily liable as to the succeeding installments.
the fault of the creditor, they have been impaired. (NCC) b) not exercised - failure to give notice of dishonor as to previous installment will not
discharge the persons secondarily liable as to the succeeding installments.
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 or indorser to whom such notice is not given is
discharged. [89]
What is notice of dishonor?

Effect on failure to give notice of dishonor on previous installment (instrument
It means bringing it either verbally or in writing, to the knowledge of the drawer or indorser payable in installments):
of an instrument, the fact that a specified negotiable instrument, upon proper proceedings
taken, has not been accepted or has not been paid, and that the party notified is expected to No acceleration clause With an acceleration clause
pay it. Automatic Optional
Exercised Not exercised
Is it necessary to give such notice? 1) It does not discharge It will discharge It will discharge It does not
the drawers and the persons the persons discharge the
Yes in order to charge to persons secondarily liable. indorsers as to the secondarily liable secondarily liable drawers and
succeeding installments. as to the as to the indorsers as to
Who has the burden of proof that notice is given? 2) The holder can file an succeeding succeeding the succeeding
action against them for installments. installments. installments.
The plaintiff -- usually the holder or the indorser -- who seeks to enforce the defendant’s such succeeding
liability. instruments provided that
as to such succeeding
Is there a need to give notice to persons primarily liable? installments, notice is
given. (each installment
No because the purpose of the notice is to inform the person of such dishonor and it would be is equivalent to a
STUPID to inform the very ones who dishonor the instrument. separate note)
A made a promissory note making B as the payee. C is the indorsee and D is the Are there exceptions to the rule that failure to give notice to the drawer and
holder. The note is payable in four installments (P1 million per quarter). The indorser will discharge them?
amount of the note is P4 million. On the first quarter there was payment. There
was no payment on the second, third and fourth quarter. After the fourth quarter, Yes these exceptions are:
the holder sent a notice of dishonor to B and C. May B and C be held liable? 1) when notice is waived, express or implied. [109]
2) when notice of dishonor is dispensed with when, after the exercise of reasonable diligence,
They may be held liable only for the payment on the fourth quarter because each installment it cannot be given to or does not reach the parties sought to be charged. [112]
is equivalent to a separate obligation. For every default on each installment, you are required
to give a notice of dishonor. Since D did not give a notice of dishonor to B and C after no As to drawer:
payment was made on the second and third quarter, D can no longer enforce said amount as 3) where the drawer and drawee are the same person. [114]
against B and C as they are considered as discharged. 4) when the drawee is a fictitious person or a person not having capacity to contract. [114]
5) when the drawer is the person to whom the instrument is presented for payment. [114]
What if there is an acceleration clause? 6) where the drawer has no right to expect or require that the drawee or acceptor will honor
the instrument. [114]
7) where the drawer has countermanded payment. [114] May an agent give a notice of dishonor?
As to indorser: Yes it may be given by an agent either in his own name or in the name of any party entitled
8) where the drawee is a fictitious person or a person not having capacity to contract, and the to give notice, whether that party be his principal or not.
indorser was aware of the fact at the time he indorsed the instrument; [115]
9) where the indorser is the person to whom the instrument is presented for payment; [115] EFFECT OF NOTICE GIVEN ON BEHALF OF HOLDER — Where notice is given by or
10) where the instrument was made or accepted for the indorsers accommodation. [115] on behalf of the holder, it inures for the benefit of all subsequent holders and all
prior parties who have a right of recourse against the party to whom it is given.
Where due notice of dishonor by non-acceptance has been given: [92]
11), notice of a subsequent dishonor by non-payment is not necessary, unless in the
meantime the instrument has been accepted. [116] What is the effect if notice is given on behalf of holder?
As to a holder in due course without notice: It inures for the benefit of all subsequent holders and all prior parties who have a right of
12) an omission to give notice of dishonor by non-acceptance does not prejudice the rights of recourse against the party to whom it is given.
a holder in due course subsequent to the omission. [117]
Give an example:
BY WHOM GIVEN — The notice may be given by or on behalf of the holder, or by or
on behalf of any party to the instrument who might be compelled to pay it to the Suppose A makes a note payable to B or order. B negotiates to C, C to D, D to E and E to F. F
holder, and who, upon taking it up, would have a right to reimbursement from the notifies B, C, D and E.
party to whom the notice is given. [90]
The notice by F to B, inures to the benefit of C, D and E, as they are parties prior to F, holder,
Who should give notice of dishonor? who have a right of recourse against B. And even if they do not give notice to B, B is not
discharged as to them and they can hold B liable on the basis of the notice given by F. If any
It may be given by or on behalf of the holder, or by or on behalf of any party to the of them is compelled to pay, he can sue B without having the necessity of giving B another
instrument who might be compelled to pay it to the holder and who, upon taking it up, would notice of dishonor.
have a right to reimbursement from the party to whom the notice is given.
SIR: In this example, if F, holder, gives a notice of dishonor to B, and E; and F was able to
A is the maker, B is the payee, C, D, and E are indorsees. F is the holder. When F compel E to pay the amount. E may go after B because the notice given by F to B inured to
tried to collect the said note from the maker, the maker did not pay. F immediately the benefit of E.
sent a notice of dishonor to E, who was compelled to pay the amount to F. May E
go after B, C, and D? EFFECT WHERE NOTICE IS GIVEN BY PARTY ENTITLED THERETO — Where notice
is given by or on behalf of a party entitled to give notice, it inures for the benefit of
No because no notice of dishonor was given to them. the holder and all parties subsequent to the party to whom notice is given. [93]
NOTICE IS GIVEN BY ANY PARTY TO THE INSTRUMENT WHO MIGHT BE
Who should give that notice of dishonor to them? COMPELLED TO PAY IT TO THE HOLDER, AND WHO WOULD HAVE A RIGHT TO
REIMBURSEMENT FROM THE PARTY TO WHOM THE NOTICE IS GIVEN.
E may give such notice of dishonor to B, C, and D. Otherwise, B, C and D will be discharge.
What is the effect if notice is given by or on behalf of a party entitled to give
SIR: If you are E and you know that there are prior parties who can be made liable to pay notice?
the amount of the said instrument, then upon receipt of such notice of dishonor, you are not
sure if the same notice of dishonor was also given by F to prior parties (B, C, D), the first It inures for the benefit of the holder and all parties subsequent to the party to whom
thing you do is to make also your notice of dishonor addressed to B, C, and D. Otherwise, if notice is given.
you did not do that and you were compelled by F to pay the amount of the note, B, C and D
are discharged of their duties and obligations as persons secondarily liable, and you have no Give an example:
other recourse but to go only to A. And you know for a fact that A was not able to pay when
F demanded payment. Suppose A makes a note payable to B or order. B negotiates to C, C to D, D to E and E to F. F
compelled E to pay. E then gives notice only to B.
NOTICE GIVEN BY AGENT — Notice of dishonor may be given by an agent either in
his own name or in the name of any party entitled to give notice, whether that 1) Such notice by E to B inures to the benefit of F, the holder, and C and D, parties
party be his principal or not. [91] subsequent to the party (B) to whom notice was given.
2) As to F, B is not discharged and F can hold B liable, even if F has not given notice to B.
3) As to C and D, B is not discharged and they can hold B liable, even if they have not given 2) a statement that is has been presented for payment or for acceptance and that is has been
notice to B. dishonored.
3) a statement that the party giving notice intends to look for the party addressed for
WHEN AGENT MAY GIVE NOTICE — Where the instrument has been dishonored in payment
the hands of an agent, he may either himself give notice to the parties liable
thereon, or he may give notice to his principal. If he give notice to his principal, he How about Skype?
must do so within the same time as if he were the holder, and the principal upon
the receipt of such notice has himself the same time for giving notice as if the Yes because notice can be given orally.
agent had been an independent holder. [94]
What if it is sent through a private message on your Friendster?
What should the agent do if the instrument has been dishonored in the hands?
Yes as long as the notice contain the following:
He may either himself give notice to the parties liable thereon, or he may give notice to his 1) sufficient description of the instrument to identify it.
principal. If he give notice to his principal, he must do so within the same time as if he were 2) a statement that is has been presented for payment or for acceptance and that is has been
the holder, and the principal upon the receipt of such notice has himself the same time for dishonored.
giving notice as if the agent had been an independent holder. 3) a statement that the party giving notice intends to look for the party addressed for
payment
WHEN NOTICE SUFFICIENT — A written notice need not be signed, and an
insufficient written notice may be supplemented and validated by verbal How about a buzz through Yahoo Messenger?
communication. A misdescription of the instrument does not vitiate the notice
unless the party to whom the notice is given is in fact misled thereby. [95] Wala ni gi ask ni Sir. I just wrote this to waste 3 precious seconds of your life.
Should a notice be signed? How about a notice by phone?
No a written notice need not be signed. Yes because notice can be given orally. However, it must be clearly shown that the party to
be notified was really communicated with, i.e., fully identified as the party at the receiving
Can an insufficient written notice be supplemented and validated by verbal end of the line.
communication?
SIR: Because of the advent of new technologies, I believe we can use these technologies in
Yes the insufficiency can be supplemented by oral communication stating the things lacking. giving the notice of dishonor. For as long as you can prove notice was given. This is unlike the
requirement under presentment for payment wherein there must be actual exhibition of the
Does a misdescription of the instrument does not vitiate the notice? instrument. Besides, it is the burden of the person giving notice to prove to the court that
indeed such notice was given to person secondarily liable.
No it does not vitiate the notice unless the party to whom the notice is given is in fact misled
thereby. TO WHOM NOTICE MAY BE GIVEN. — Notice of dishonor may be given either to the
party himself or to his agent in that behalf. [97]
FORM OF NOTICE — The notice may be in writing or merely oral and may be given
in any terms which sufficiently identify the instrument and indicate that it has To whom should notice be given?
been dishonored by non-acceptance or non-payment. It may in all cases be given
by delivering it personally or through the mails. [96] Notice of dishonor may be given either to the party himself or to his agent in that behalf.
What is the required form of notice? SECTION 98.Notice Where Party is Dead. — When any party is dead, and his death
is known to the party giving notice, the notice must be given to a personal
The notice may be in writing or merely ORAL and may be given in any terms which representative, if there be one, and if with reasonable diligence he can be found. If
sufficiently identify the instrument and indicate that it has been dishonored by non- there be no personal representative, notice may be sent to the last residence or
acceptance or non-payment last place of business of the deceased.
Can you send a notice via a text message? What if the party decided to transfer his residence 6 feet below the ground?
Yes as long as the notice, whether written or oral, contain the following:
1) sufficient description of the instrument to identify it.
Notice must be given to a personal representative, if there be one, and if with reasonable No because where an instrument is payable at a fixed date, presentment must be made on
diligence he can be found. If there be no personal representative, notice may be sent to the the day it falls due. [71] However, if such maker will pay you then it would be considered a
last residence or last place of business of the deceased. negotiation back to the person primarily liable and he can re-negotiate it. The payment does
not discharge the instrument. [932(1)]
Under what circumstances can you send a notice to the last residence or last place
of business of the deceased? Supposing that the holder presented it for payment on February 20, 2014 and the
maker will not pay, can the holder send a notice of dishonor to the parties
1) if his death is not known to the party giving notice; or secondarily liable?
2) although his death is known to the party giving notice, but there is no personal
representative; or No because such notice would be insufficient because an instrument cannot be said to be
3) if there is one but he cannot be found with reasonable diligence. dishonored for non-payment unless presented, and presentment must be made on the date of
maturity unless presentment is excused.
NOTICE TO PARTNERS — When the parties to be notified are partners, notice to
any one partner is notice to the firm even though there has been a dissolution. What if the notice of dishonor was made on February 21, 2014, the date of its
(99) maturity, is that allowed?
What is the effect of giving notice to a partner in a partnership? Yes, provided that the instrument has been presented for payment and it has been
dishonored.
Notice to any one partner is notice to the other partners of the firm even though there has
been a dissolution. What if the instrument is payable at the bank?
NOTICE TO PERSONS JOINTLY LIABLE. — Notice to joint parties who are not It is not dishonored if the maker deposits the amount of the instrument before the close of
partners must be given to each of them, unless one of them has authority to banking hours. Hence, notice of dishonor must be given after the close of banking hours.
receive such notice for the others. (100)
Why is it that the notice must be sent promptly?
How do you give notice to persons jointly liable?
To give persons secondarily liable every opportunity to secure themselves such as, to enable
Notice must be given to each of them, unless one of them has authority to receive such the party to be charged to preserve and protect his rights against prior parties.
notice for the others.
WHERE PARTIES RESIDE IN SAME PLACE. — Where the person giving and the
NOTICE TO BANKRUPT. — Where a party has been adjudged a bankrupt or an person to receive notice reside in the same place, notice must be given within the
insolvent, or has made an assignment for the benefit of creditors, notice may be following times:
given either to the party himself or to his trustee or assignee. [101] (a)If given at the place of business of the person to receive notice, it must be
given before the close of business hours on the day following.
How do you give notice to a bankrupt or insolvent party? (b)If given at his residence, it must be given before the usual hours of rest of the
day following.
Notice may be given either to the party himself or to his trustee or assignee. (c)If sent by mail, it must be deposited in the post-office in time to reach him in
usual course on the day following. [103]
TIME WITHIN WHICH NOTICE MUST BE GIVEN. — Notice may be given as soon as
the instrument is dishonored; and unless delay is excused as hereinafter provided, When do you give the notice if the parties reside in the same place?
must be given within the times fixed by this Act. [102]
1) if given at the place of business of the person to receive notice, it must be given before the
When do you give a notice of dishonor? close of business hours on the day following.
2) if given at his residence, it must be given before the usual hours of rest of the day
Notice may be given as soon as the instrument is dishonored. (The time for giving notice is following.
fixed in Sections 103, 104, and107.) 3)If sent by mail, it must be deposited in the post-office in time to reach him in usual course
on the day following.
A promissory note is said to be due on February 21, 2014. Thereafter, the holder Supposing that presentment for payment has been done and the maker said he
who is in dire need of the money, presented it for payment on February 20, 2014. will not pay. In order to charge the person secondarily liable, when should notice
Can the holder present it for payment to the maker on February 20, 2014? be made if he opts to send the notice by mail?
If sent by mail, it must be deposited in the post-office in time to reach him in usual course on
the day following. WHEN SENDER DEEMED TO HAVE GIVEN DUE NOTICE. — Where notice of dishonor
is duly addressed and deposited in the post-office, the sender is deemed to have
What if I receive such notice that the maker will not pay at 4 o’clock in the given due notice, notwithstanding any miscarriage in the mails. [105]
afternoon on February 19, 2014. Are you telling me that I have to immediately go
to the postal office? What is the legal effect if the notice where notice of dishonor is duly addressed
and deposited in the post-office?
If there is no mail at such hour on February 19, 2014, the notice may be deposited in the
mails by the next mail thereafter. The sender is deemed to have given due notice, notwithstanding any miscarriage in the mails.
WHERE PARTIES RESIDE IN DIFFERENT PLACES. — Where the person giving and Is the presumption conclusive?
the person to receive notice reside in different places, the notice must be given
within the following times: Yes if not rebutted, or at least, contradicted.
(a)If sent by mail, it must be deposited in the post-office in time to go by mail the
day following the day of dishonor, or if there be no mail at a convenient hour on DEPOSIT IN POST-OFFICE; WHAT CONSTITUTES. — Notice is deemed to have been
that day, by the next mail thereafter. deposited in the post-office when deposited in any branch post-office or in any
(b)If given otherwise than through the post-office, then within the time that letter box under the control of the post-office department. [106]
notice would have been received in due course of mail, if it had been deposited in
the post-office within the time specified in the last subdivision. [104] When is the notice deemed to have been deposited in the post-office?
When do you give the notice if the parties reside in different places? When deposited in any branch post-office or in any letter box under the control of the post-
office department.
1) if sent by mail, it must be deposited in the post-office in time to go by mail the day
following the day of dishonor, or if there be no mail at a convenient hour on that day, by the NOTICE OF SUBSEQUENT PARTY; TIME OF. — Where a party receives notice of
next mail thereafter. dishonor, he has, after the receipt of such notice, the same time for giving notice
2) if given otherwise than through the post-office, then within the time that notice would have to antecedent parties that the holder has after the dishonor. [107]
been received in due course of mail, if it had been deposited in the post-office within the time
specified in the last subdivision. When should the party who receives the notice of dishonor give notice to
antecedent parties?
Can you send it through a private courier like DHL, is that allowed?
The same time for giving notice to antecedent parties that the holder has after the dishonor.
Yes because it may be given otherwise than through the post-office,
WHERE NOTICE MUST BE SENT — Where a party has added an address to his
What is meant by “same place”? signature, notice of dishonor must be sent to that address; but if he has not given
such address, then the notice must be sent as follows:
It refers to the corporate limits of a town or city where the presentment is made or where the (a)Either to the post-office nearest to his place of residence or to the post-office
holder resides. where he is accustomed to receive his letters; or
(b)If he lives in one place, and has his place of business in another, notice may be
What if you live in at two adjacent barangay, one belonging to Cebu City and the sent to either place; or
other to Mandaue City, do you live in the same place? (c)If he is sojourning in another place, notice may be sent to the place where he is
so sojourning.
No But where the notice is actually received by the party within the time specified in
this Act, it will be sufficient, though not sent in accordance with the requirement
What is the effect if notice is given out of time? of this section. [108]
It would be considered not to have been given, unless presentment is excused. Hence, the Where should the notice of dishonor be sent?
party to receive such notice would be discharged.
Where a party has added an address to his signature, notice of dishonor must be sent to that
So you are telling me that the law provides for the time frame? address; but if he has not given such address, then the notice must be sent as follows:
1) either to the post-office nearest to his place of residence or to the post-office where he is
Yes accustomed to receive his letters; or
2) if he lives in one place, and has his place of business in another, notice may be sent to Only such indorser is bound by the waiver. If there are other indorsers and no notice is given
either place; or to such indorsers, they are discharged.
3) if he is sojourning in another place, notice may be sent to the place where he is so
sojourning. WAIVER OF PROTEST — A waiver of protest, whether in the case of a foreign bill of
exchange or other negotiable instrument, is deemed to be a waiver not only of a
But where the notice is actually received by the party within the time specified in this Act, it formal protest, but also of presentment and notice of dishonor. [111]
will be sufficient, though not sent in accordance with the requirement of this section.
What is the effect of waiver of protest?
WAIVER OF NOTICE — Notice of dishonor may be waived, either before the time of
giving notice has arrived or after the omission to give due notice, and the waiver Presentment for payment and notice of dishonor are also waived.
may be express or implied. [109]
What is the effect of waiver of presentment for payment?
Can a notice of dishonor be waived?
Notice of dishonor is also waived.
Sí.
WHEN NOTICE IS DISPENSED WITH — Notice of dishonor is dispensed with when,
Why can he waive such notice of dishonor? after the exercise of reasonable diligence, it can not be given to or does not reach
the parties sought to be charged. [112]
Because the law says so tell this to Waldemar.
When is notice of dishonor dispense with?
When can you waive such notice of dishonor?
Where after the exercise of reasonable diligence, it cannot be given to or does not reach the
1) before the time of notice, such as express waiver in the body of the instrument or added to parties sought to be charged.
the signature of the party;
2) after the omission to give due notice. Give examples on when notice is excused:
What is an express waiver? 1) when political disturbance interrupt the ordinary negotiation of trades.
2) military operations or interdictions of commerce.
A waiver which is expressly written or printed in the body of the instrument. 3) prevalence of malignant, contagious or infectious disease which has become so extensive
as to suspend all commercial business and INTERCOURSE.
What is an implied waiver?
DELAY IN GIVING NOTICE; HOW EXCUSED — Delay in giving notice of dishonor is
A waiver which may be inferred from the acts, declarations or silence of the person to whom excused when the delay is caused by circumstances beyond the control of the
such instrument is presented for payment. holder, and not imputable to his default, misconduct, or negligence. When the
cause of delay ceases to operate, notice must be given with reasonable diligence.
WHOM AFFECTED BY WAIVER — Where the waiver is embodied in the instrument [113]
itself, it is binding upon all parties; but, where it is written above the signature of
an indorser, it binds him only. [110] When is the delay of giving notice excused?
To whom is the waiver binding? When the delay is caused by circumstances beyond the control of the holder, and not
imputable to his negligence, misconduct, or default.
1) where the waiver is embodied in the instrument itself, it is binding upon all parties.
2) where it is written above the signature of an indorser, it binds him only. Give an example when delay in giving notice is excused:
Give an example where waiver is in the instrument itself: Delay caused by inquiries as to the address of the party to receive notice where the holder
does not know the address.
To C. Pay to X or order P1000. Notice of dishonor waived. (Sgd.) Y
WHEN NOTICE NEED NOT BE GIVEN TO DRAWER — Notice of dishonor is not
What if the waiver is written above the signature of the indorser? required to be given to the drawer in either of the following cases:
(a)Where the drawer and drawee are the same person.
(b)When the drawee is a fictitious person or a person not having capacity to (a)Where the drawee is a fictitious person or a person not having capacity to
contract. contract, and the indorser was aware of the fact at the time he indorsed the
(c)When the drawer is the person to whom the instrument is presented for instrument;
payment. (b)Where the indorser is the person to whom the instrument is presented for
(d)Where the drawer has no right to expect or require that the drawee or acceptor payment;
will honor the instrument. (c)Where the instrument was made or accepted for his accommodation. (115)
(e)Where the drawer has countermanded payment. [114]
Is notice of dishonor required to charge the indorser? Why?
Is notice of dishonor required to discharge the drawer?
Yes because they are secondarily liable on the instrument
Oui.
What are the exceptions?
What are the exceptions?
1) where the drawee is a fictitious person or a person not having capacity to contract, and the
Notice of dishonor is not required to be given to the drawer in either of the following cases: indorser was aware of the fact at the time he indorsed the instrument;
1) where the drawer and drawee are the same person. 2) where the indorser is the person to whom the instrument is presented for payment;
2) when the drawee is a fictitious person or a person not having capacity to contract. 3) where the instrument was made or accepted for his accommodation
3) when the drawer is the person to whom the instrument is presented for payment.
4) where the drawer has no right to expect or require that the drawee or acceptor will honor Z, a partnership, made a note. It was negotiated to several persons. One of the
the instrument. indorsers is X, a partner to the Z partnership. Is presentment for payment made to
5) where the drawer has countermanded payment. one of the partners sufficient? Is there a need for the holder to send a notice of
dishonor of X?
Give an example where the drawer and drawee are the same person: Isn’t it that X already has knowledge? What makes it different from the other
examples before?
A is both the drawer and the drawee of the bill.
SIR:There is no need. The example given in the book presupposes that the presentment for
Give an example where drawee is a fictitious person: payment was not made by the same partner who is one of the indorsers. It presupposes that
a partnership is the maker and one of the indorsers is a partner. If its presented for payment
Pay to X or order P1000 payable on demand. to the partnership by some other partners, still you have to give a notice of dishonor to
To Carmen Sandiego (Sgd.) Q partner who indorsed the same instrument. However, if you present it for payment to the
same partner who is also one of the indorsers, then there is no need to give him a notice of
Give an example where the drawer is the person to whom the instrument is dishonor.
presented for payment:
NOTICE OF NON-PAYMENT WHERE ACCEPTANCE REFUSED — Where due notice of
A, the drawer; B, payee. X is the drawee. Note is payable at the office of A. B indorses to C, C dishonor by non-acceptance has been given, notice of a subsequent dishonor by
to D, D to E, E to F, holder. F makes presentment at A’s office. X is not there but A is there. F non-payment is not necessary, unless in the meantime the instrument has been
need not give notice to A, as the latter knows already of the dishonor. accepted.(116)
Give an example where the drawer has no right to expect or require that the Is there a need to give a notice of dishonor by non-payment if the notice of
drawee or acceptor will honor the instrument: dishonor by non-acceptance was already given?
Where the drawer of a check has no account with the drawee bank. No it is not necessary unless the instrument has been accepted
Give an example where the drawer has countermanded payment: Give an example:
A, drawer, tells the drawee X not to pay the bill. F, holder need not give notice to A, drawer. A, drawer, draw a bill payable on February 28, 2014. On February 1, 2014, B, holder presents
it for acceptance to X, drawee, who refuses to accept the bill. B negotiated the note to C, C to
WHEN NOTICE NEED NOT BE GIVEN TO INDORSER — Notice of dishonor is not D, D to E, E to F, F is now the holder. on February 15, 2014, F presented it for acceptance to
required to be given to an indorser in either of the following cases: X, who now accepts the bill and became an acceptor. On February 28, 2014, the holder
presented it for payment to X, the acceptor, who refuses to pay. F must give notice of
dishonor to A, B, C, D, and E, in order to charge them as “in the meantime the instrument has Why?
been accepted”.
Because it is required under Section 118 of the NIL
So there were two presentment for acceptance?
INSTRUMENT; HOW DISCHARGED. — A negotiable instrument is discharged —
Yes (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
SIR: There is a need for you to give a notice of dishonor because the instrument was made or accepted for accommodation;
accepted by the drawee who initially refused to accept the said instrument. So if it will be (c)By the intentional cancellation thereof by the holder;
dishonored upon presentment for payment, then there is a need for the said HOLDER to send (d)By any other act which will discharge a simple contract for the payment of
notice of dishonor by non-payment to persons secondarily liable. money;
(e)When the principal debtor becomes the holder of the instrument at or after
What is meant by he has accepted the instrument in the meantime? maturity in his own right. (119)
When is a negotiable instrument discharged?

What are the instances wherein the instrument must be presented for acceptance?
1) by payment in due course by or on behalf of the principal debtor;
Presentment for acceptance must be made: 2) by payment in due course by the party accommodated, where the instrument is made or
1) where the bill is payable after sight, or in any other case, where presentment for accepted for accommodation;
acceptance is necessary in order to fix the maturity of the instrument; or 3) by the intentional cancellation thereof by the holder;
2) where the bill expressly stipulates that it shall be presented for acceptance; or 4) by any other act which will discharge a simple contract for the payment of money;
3) where the bill is drawn payable elsewhere than at the residence or place of business of the 5) when the principal debtor becomes the holder of the instrument at or after maturity in his
drawee. (143) own right.
EFFECT OF OMISSION TO GIVE NOTICE OF NON-ACCEPTANCE — An omission to What is meant by payment in due course?
give notice of dishonor by non-acceptance does not prejudice the rights of a
holder in due course subsequent to the omission. (117) Payment made at or after the maturity of the instrument to the holder thereof in good faith
and without notice that his title is defective.
What is the effect of omission to give notice of dishonor by non-acceptance to a
holder in due course? What is the effect if a third party pays the instrument?
It does not prejudice the rights of a holder in due course subsequent to the omission The instrument is not discharged and can be renegotiated by the person paying the holder.
Give an example: *Supposing that the instrument in the hands of the holder is already due for
payment. Here comes X wanting to pay the value of the instrument because prior
A, drawer, B, payee, X, drawee. The bill is payable on February 28, 2014. It is successively parties are his friends; in order to surprise his friends, to show that he is a friend
indorsed it to C, D, E, and F, holder. X refuses to accept the bill. F fails to give notice to B, C, of these persons, X paid the holder of the instrument. What is the effect?
D, and E. F then negotiates the note to G, a holder in due course. As to such holder in due
course, B, C, D and E are not discharged because omission to give notice of dishonor by non- The instrument is not discharged because X is not a party to the negotiable instrument.
acceptance does not prejudice the rights of a holder in due course subsequent to the
omission. *Are you saying it can be re-negotiated by such third person even if it is overdue?
WHEN PROTEST NEED NOT BE MADE; WHEN MUST BE MADE — Where any *SIR: Yes, subject to the defenses available to the maker and it can be re-negotiated by
negotiable instrument has been dishonored it may be protested for non- such third person and the person who later on accepts such instrument knowing it is already
acceptance or non-payment, as the case may be; but protest is not required except overdue is not a holder in due course. However, if you convince that third person and that
in the case of foreign bills of exchange. (118) third person paid the instrument to the holder at the time it was due (it matured?), hence, he
can re-negotiate it because the instrument is considered as not yet discharged.
When is it necessary to make a protest?
*What if the person simply kept it, because his intention is to free all those
Protest is necessary for foreign bills of exchange persons prior to the holder?
Still the instrument is not discharge. 2) burning it or

3) writing across it the word “cancel”
*What if the instrument was burned by the third person?
For example, here is A who is using the comfort room, without a toilet paper. So
He better clean up his mess. It depends on the intention of such third person. he uses the instrument. Is the instrument discharged?
What is the effect of payment made by an accommodation party? No because he has no intention of cancelling the instrument
It does not discharge the instrument What are the other acts which will discharge the instrument?
What is the effect of payment made by a person secondarily liable? Novation will discharge the instrument.
It does not discharge the instrument What is novation?
Who is a principal debtor? The substitution of a new contract for an old one.
It refers to person ultimately bound to pay the debt. This is true whether he is a party to the M, the maker, made a note which is due and demandable on February 25, 2014.
instrument or not, or whether he appears to be primarily or secondarily liable on the However, the holder extended the maturity to March 25, 2014. Is the instrument
instrument. discharge?
*Going back to our example a while ago, that third person who paid the No because an extension of time by the holder will not discharge the instrument.
instrument and who wanted to discharge the instrument. Can we not consider
such person as a person paying for and behalf of the principal debtor because his What are the requisites to in order to discharge an instrument when the principal
intention was to free all his friend who are secondarily liable? debtor becomes the holder? 1019
No because he is paying for and behalf of he persons secondarily liable and not the principal Reacquisition must be:
debtor. 1) by the principal debtor
2) in his own right
When does the delivery of instrument produce the effect of payment? 3) at or after the date of maturity.
1) when they have actually be cashed; or Can you give an example of the last circumstance under Section 199 in order to
2) when through the fault of the creditor, they have been impaired. discharge the instrument?
What are the requisites of a valid cancellation of an instrument? A is the maker. F, holder owes money to A, the principal debtor. F, instead of paying money,
negotiated the instrument back to A.
The cancellation must be:
1) intentional *Supposing that there is a promissory note made by A which due and demandable
2) by the holder on March 25, 2014. It was negotiated until it reached F, the holder. On December
25, 2013, F went back to A and told the latter that he does not have any money
What the effect if the cancellation is not intentional? this holiday and so A paid the instrument; The maker simply kept the instrument
instead of negotiating it. The instrument was in A’s hand on the date of maturity,
The instrument is not discharged. i.e, March 25, 2014.
What if it’s made by a person who is not a holder of the said instrument? A reacquisition by the principal debtor before the maturity will not discharge the instrument.
It will merely constitute a negotiation back to the principal debtor who may renegotiate the
The instrument is not discharged. instrument.
How do you cancel an instrument? *On March 26, 2014, A did not renegotiate the instrument because he has no
intention of doing so. What is the effect? Will it not be discharge?
Cancellation may be done by
1) tearing the instrument up,
The instrument is not discharged because the holder did not reacquire the instrument at or A, maker, B, payee. The note is successively indorsed to C, D, E, and F, holder. F then
after maturity. intentionally cancels the signature of D. D is discharged. No consideration is necessary to
support a discharge under this instance.
Can we not use (c)?
Give an example of a discharge of a prior party:
If the intention of A as a holder, is to cancel the instrument, the instrument is discharged.
Using the example above, the intentional cancellation of D’s signature also discharges E, as D
Can an instrument be discharge by operation of law? is a party prior to E. And according to this paragraph, the discharge of a prior party
discharges parties subsequent thereto. The reason is that if E were not discharged by the
Yes. discharge of D, and he is made to pay by F, holder, he would not be able to enforce his
recourse against D.
Give an examples of discharge by operation of law:
Supposing that A, maker, B, payee. The note was successively indorsed to C, D, E,
1) discharge by reason of bankruptcy and F, holder. F sent a notice of dishonor to C, D, and E, without sending a notice
2) discharge of a party not given due notice of dishonor to B. What is the effect with respect to B?
3) discharge by the Statute of Limitations
As an indorser to whom such notice is not given, B is discharged.
WHEN PERSONS SECONDARILY LIABLE ON, DISCHARGED — A person secondarily
liable on the instrument is discharged — Considering that B is discharged, are the subsequent parties also discharged?
(a)By any act which discharges the instrument;
(b)By the intentional cancellation of his signature by the holder; No prior parties are not discharged. A discharge by prior party referred under Section 120(c)
(c)By the discharge of a prior party; must be one that arises from the act of the holder, such as the intentional cancellation of the
(d)By a valid tender of payment made by a prior party; signature of a person secondarily liable by the holder. It does not refer to a discharge by
(e)By a release of the principal debtor, unless the holder's right of recourse operation of law such as a 1) discharge of a party not given due notice of dishonor or 2) a
against the party secondarily liable is expressly reserved; discharge by the Statute of Limitations.
(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 SIR: The discharge of prior party must be from the act of the holder (the discharge must be
assent of the party secondarily liable, or unless the right of recourse against such the act of the holder). If the intention of F is to discharge B, then all subsequent parties are
party is expressly reserved. (120) also discharge. However, if it is by operation of law, like when F did not give such notice of
dishonor to B, while he give notice of dishonor to parties subsequent to B, these subsequent
When is a person secondarily liable on the instrument discharged? when the parties cannot claim to be discharge by saying that they cannot hold B liable.
instrument is discharged under 119; 120
What is a tender of payment?
1) by any act which discharges the instrument;
2) by the intentional cancellation of his signature by the holder; It means the act by which one produces and offers to a person holding a claim or demand
3) by the discharge of a prior party; against him the amount of money which he considered and admits to be due, in satisfaction
4) by a valid tender of payment made by a prior party; of such claim or demand without any stipulation or condition.
5) by a release of the principal debtor, unless the holder's right of recourse against the party
secondarily liable is expressly reserved; Give an example of a release of principal debtor (maker) unless the holder’s right
6) by any agreement binding upon the holder to extend the time of payment, or to postpone of recourse against parties secondarily is expressly reserved:
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. Using the same example above, if F release A, the maker, the persons secondarily liable, B, C,
D, and E, are also discharged, as (1) this discharges the instrument and (2) deprives them of
Give an example of any act which discharges the instrument: their right of recourse against A, maker. But if on releasing A, the holder F reserves his right
of recourse against the parties secondarily liable, they are not discharged. The reason is that
Payment in due course by the principal debtor the effect of such reservation is the implied reservation of their (BCDE) right of recourse
against A. In other words, while the holder cannot hold A liable, F can hold B, C, D, and E
Give an example of intentional cancellation of his signature by the holder: liable, but they can hold A liable should any of them be made to pay by F. This reservation
must be express.
RIGHT OF PARTY WHO DISCHARGES INSTRUMENT — Where the instrument is 2) at maturity

paid by a party secondarily liable thereon, it is not discharged; but the party so 3) after maturity
paying it is remitted to his former rights as regard all prior parties, and he may
strike out his own and all subsequent indorsements, and again negotiate the When does renunciation discharge the instrument?
instrument, except —
(a)Where it is payable to the order of a third person, and has been paid by the When it is:
drawer; and 1) absolute and unconditional
(b)Where it was made or accepted for accommodation, and has been paid by the 2) made in favor of the person primarily liable
party accommodated. (121) 3) made at or after the maturity.
What are the effects if the person secondarily liable pays the instrument? What if it is made by the drawer?
1) the instrument is not discharged but it discharges the party paying. Renunciation may only be made by the holder.
2) she is remitted to her former rights as regard all prior parties.
3) she may strike out her own and all subsequent indorsements What if the renunciation was made in favor of the drawer?
4) she can renegotiate the instrument.
It does not discharge the instrument because the drawer is not a person primarily liable on
What are the exceptions to right to renegotiate? the instrument.
1) where it is payable to the order of a third person, and has been paid by the drawer; and What if the renunciation was made in favor of the indorser?
2) where it was made or accepted for accommodation, and has been paid by the party
accommodated. It does not discharge the instrument because an indorser is not a person primarily liable on
the instrument.
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 Who is the principal debtor?
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 The acceptor.
renunciation must be in writing, unless the instrument is delivered up to the
person primarily liable thereon. (122) How about the drawee?
What is meant by renunciation? No because he is not even a party.
The act of surrendering a right or claim without recompense but it can be applied with equal CANCELLATION; UNINTENTIONAL; BURDEN OF PROOF . — A cancellation made
propriety to the relinquishing of a demand upon an agreement supported by a consideration. unintentionally, or under a mistake or without the authority of the holder, is
inoperative, but where an instrument or any signature thereon appears to have
What are the forms of renunciation? been cancelled the burden of proof lies on the party who alleges that the
cancellation was made unintentionally, or under a mistake or without authority.
Renunciation must be: (123)
1) express
2) in writing What is cancellation?
What is the exception? Any act which signifies the intention of the holder to cancel the instrument.
When the instrument is delivered to the person primarily liable, the renunciation may be How do you cancel an instrument?
ORAL.
By drawing criss-cross lines, tearing, obliterations, erasures or burning. It may be made by
When should renunciation be made? any other means by which the intention to cancel instrument may be evident.
Renunciation may be made by the holder: When is cancellation considered inoperative?

1) before maturity
When: alteration did not change the relations between the parties. The name of the drawer and the
1) made unintentionally drawee were not altered. The intended payee was the same. The sum of money due to the
2) made under mistake payee remained the same. The check's serial number is not the sole indication of its origin. As
3) made without the authority of the holder. succinctly found by the Court of Appeals, the name of the government agency which issued
the subject check was prominently printed therein. The check's issuer was therefore
Who has the burden of proof that the cancellation was made unintentionally, or sufficiently identified, rendering the referral to the serial number redundant and
under a mistake or without authority? inconsequential. Petitioner, thus cannot refuse to accept the check in question on the ground
that the serial number was altered, the same being an immaterial or innocent one.
The party claiming that the cancellation is inoperative.
Therefore, there being no material alteration in the check committed, PNB could not return
ALTERATION OF INSTRUMENT; EFFECT OF — Where a negotiable instrument is the check to PBCOM. It should pay the same.
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 What is the test in order to determine whether the alteration is material or not?
alteration, and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of a holder The test is whether the alteration is one which changes the items which are required to be
in due course, not a party to the alteration, he may enforce payment thereof stated under Section 1 of the Negotiable Instruments Law.
according to its original tenor. (124)
What are the requirements?
What is an alteration?
1) it must be in writing and signed by the maker or drawer;
The act, process, or result of changing or altering something. 2) must contain an unconditional promise or order to pay a sum certain in money;
3) must be payable on demand, or at a fixed or determinable future time;
PNB vs CA 4) must be payable to order or to bearer; and
5) where the instrument is addressed to a drawee, he must be named or otherwise indicated
FACTS: A check with serial number 7-3666-223-3, in the amount of P97,650.00 was issued therein with reasonable certainty.
by the Ministry of Education and Culture payable to F. Abante Marketing. This check was
drawn against Philippine National Bank. F. Abante Marketing, a client of Capitol City What is the effect of material alteration against a holder not in due course?
Development Bank (Capitol), deposited the questioned check in its savings account with said
bank. In turn, Capitol deposited the same in its account with the Philippine Bank of It is avoided in the hands of one who is not a holder in due course as against any prior party
Communications (PBCom) which, in turn, sent the check to petitioner for clearing. PNB who has not assented to the alteration.
cleared the check as good and, thereafter, PBCom credited Capitol's account for the amount
stated in the check. Later on, PNB returned the check to PBCom and debited PBCom's account What are the exceptions?
for the amount covered by the check, the reason being that there was a "material alteration"
of the check number. Subsequent debits were made but Capitol cannot debit the account of It is not avoided against a:
Abante any longer for the latter had withdrawn all the money already from the account. This 1) party who has made the alteration.
prompted Capitol to seek reclarification from PBCOM and demanded the recrediting of its 2) party who authorized or assented to the alteration.
account. PBCOM followed suit by doing the same against PNB. Demands unheeded, it filed an 3) subsequent indorsers.
action against PBCOM and the latter filed a third-party complaint against PNB.
A made a note for P100,000 payable to the order of B. With the authority of C and
ISSUE: Whether the alteration in the check constitutes material alteration. the assent of E, D alters the note to P1,000,000. The note is successively indorsed
to F, and G, holder. G is not a holder in due course. May G go after A?
HELD: An alteration is said to be material if it alters the effect of the instrument. It means an
unauthorized change in an instrument that purports to modify in any respect the obligation of No because as to A, the instrument is avoided.
a party or an unauthorized addition of words or numbers or other changes to an incomplete
instrument relating to the obligation of a party. In other words, a material alteration is one Why is it avoided as to A?
which changes the items which are required to be stated under Section 1 of the Negotiable
Instruments Law. Because A is neither a party who himself made, authorized, or assented to the alteration nor
is he a subsequent indorser.
The case at bench is unique in the sense that what was altered is the serial number of the
check in question, an item which, it can readily be observed, is not an essential requisite for What about B?
negotiability under Section 1 of the Negotiable Instruments Law. The aforementioned
Is it also avoided as to B for the same reason as A. encashment. Laya in his capacity as Provincial Treasurer of Misamis Oriental as drawer, issued
a check to Ramos in the sum of P100000, on the Philippines National Bank as drawee; the
In the example, who would be liable to G, who is not a holder in due course? P400000 value of the check was paid in military notes. Ramos was unable to encash the said
check for he was captured by the Japanese. But after his release, he sold P30000 of the check
C and E are liable to G for P1,000,000 as they are parties who respectively authorized and to Montinola for P90000 Japanese Military notes, of which only P45000 was paid by the latter.
assented to the alteration. D is also liable to G for P1,000,000 as he is the party who made The writing made by Ramos at the back of the check was to the effect that he was assigning
the alteration. F would also be liable to G P1,000,000 as he is a subsequent indorser. only P30000 of the value of the document with an instruction to the bank to pay P30000 to
Montinola and to deposit the balance to Ramos's credit. This writing was, however,
Can G go after A and at least ask for P100,000? mysteriously obliterated and in its place, a supposed indorsement appearing on the back of
the check was made for the whole amount of the check. At the time of the transfer of this
No because the instrument is avoided in the hands of one who is not a holder in due course check to Montinola, the check was long overdue by about 2-1/2 years.
as against any prior party who has not assented to the alteration.
ISSUE: Whether the alteration in the check constitutes material alteration.
What is the effect if the instrument is materially altered and is now in the hands of
a holder in due course? HELD: The words "Agent, Phil. National Bank" now appearing on the face of the check were
added or placed in the instrument after it was issued by the Provincial Treasurer Laya to
He may enforce payment according to its original tenor. In our example, if G is a holder in Ramos. The check was issued by Laya only as Provincial Treasurer and as an official of the
due course, he could recover from A and B P100,000, the original tenor of the note. Government, which was under obligation to provide the USAFE with advance funds, and not
as agent of the bank, which had no such obligation. The addition of those words was made
What about C, D, E, and F? after the check had been transferred by Ramos to Montinola. The insertion of the words
"Agent, Phil. National Bank," which converts the bank from a mere drawee to a drawer
G can recover P1,000,000 from C, as C authorized the alteration; also from D, as D made the and therefore changes its liability, constitutes a material alteration of the
alteration; also E, as E assented to the alteration; and from F, as he is a subsequent indorser. instrument without the consent of the parties liable thereon, and so discharges the
instrument.
*A made a note for P100,000 making B as the payee. B negotiated it to C, who
while examining the instrument, inadvertently drew a line on the instrument What was the original tenor of the instrument?
which made it appear that the amount of the instrument is P1,100,000. C
negotiated the note to D for P100,000. D negotiated it to E. E is a holder in due The check was issued by Laya in his capacity as Provincial Treasurer of Misamis Oriental and
course. When E enforce the note against A, maker, the latter was unable to pay. E as an official of the Government.
went to C. Can C, indorser, be required to pay the whole amount of P1,100,000?
What convinced the Supreme Court that indeed the check was not issued by Laya
Yes because the law does not make the distinction between fraudulent and innocent as an agent of PNB?
alteration.
There is no reason known to why Provincial Treasurer Laya should issue the check as agent of
Is there a crime committed if the person alters the instrument? the Philippine National Bank. Said check for P100,000 was issued to complete the payment of
the other check for P500,000 issued by the Provincial Treasurer of Lanao to Ramos, as part of
Yes the crime of falsification of commercial document by private individuals. (RPC, Art 171, the advance funds for the USAFFE in Cagayan de Misamis. The balance of P400,000 in cash
172) was paid to Ramos by Laya from the funds, not of the bank but of the Provincial Treasury.
Said USAFFE were being financed not by the Bank but by the Government and, presumably,
X issued a check for P100,000 drawn against a bank. The instrument was altered one of the reasons for the issuance of the emergency notes in Mindanao was for this purpose.
to make it appear that the check is worth P1,000,000. When the check was
presented to the bank, the latter paid P1,000,000. May the bank debit the account What is the test in determining that the alteration is material?
of the drawer?
The test is whether the alteration is one which changes the items which are required to be
The bank should be allowed to debit the amount of the drawer only for the correct amount. stated under Section 1 of the Negotiable Instruments Law.
MONTINOLA V. PNB In this case, did it affect any elements of the Section 1 of the NIL?
FACTS: Ramos, as a disbursing officer of an army division of the USAFE, made cash Yes, under the first requisite of Sec. 1, the instrument must be in writing and signed by the
advancements w/ the Provincial Treasurer of Lanao. In exchange, the Prov’l Treasurer of maker or drawer; In this case, Laya, as drawer, signed the instrument in his capacity as
Lanao gave him a P500,000 check. Thereafter, Ramos presented the check to Laya for Provincial Treasurer, not as an agent of PNB. In effect, it changed one of the elements of
Section 1 of the NIL, because it made it appear that the instrument was signed by a different
drawer. What is a clean bill of exchange?
WHAT CONSTITUTES A MATERIAL ALTERATION — Any alteration which changes — One which are not attached documents of title to be delivered to the person against whom
(a)The date; the bill is drawn when he either accepts or pays the bill.
(b)The sum payable, either for principal or interest;
(c)The time or place of payment; What is a documentary bill of exchange?
(d)The number or the relations of the parties;
(e)The medium or currency in which payment is to be made; One to which are attached documents of title to be delivered and surrendered to the drawee
Or which adds a place of payment where no place of payment is specified, or any when he accepts or pays the bill.
other change or addition which alters the effect of the instrument in any respect,
is a material alteration. (125) What is time or usance bills?
When do you consider an alteration material? Bills which are payable at a fixed future time or a determinable future time.
Any alteration which changes the— What is a Document against acceptance bill?
1) date;
2) sum payable, either for principal or interest; D/A bill is a time bill to which are attached documents to be delivered and surrendered to the
3) time or place of payment; drawee when he accepts the bill.
4) number or the relations of the parties;
5) currency or medium in which payment is to be made; What is a Document against payment bill?
6) 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. D/P bill is a sight or time bill to which are attached documents to be delivered and
surrendered to the drawee when he has paid the corresponding bill.
A note payable in Philippine peso for P1million pesos. The holder has a plan to visit
Japan, so he is in dire need of Japanese Yen. He altered the tenor of the note from BILL NOT AN ASSIGNMENT OF FUNDS IN HANDS OF DRAWEE — A bill of itself does
P1 million to ¥2 million. If you make a calculation mathematically, more or less P1 not operate as an assignment of the funds in the hands of the drawee available for
million is equivalent to ¥2 million. Is there still a material alteration even if there the payment thereof, and the drawee is not liable on the bill unless and until he
is no damage? accepts the same. (127)
Yes because such alteration changes the currency in which payment is to be made. What does the phrase “A bill of itself does not operate as an assignment of the
funds in the hands of the drawee available for the payment thereof” mean?
The instrument is made payable at Cyma in Ayala Terraces. It was altered such
that payment is to be made at Café Laguna in Ayala Terraces. Will it be considered The drawee, as a third party, is not liable on the bill unless and until he accepts the same, or
as material alteration knowing for a fact that the distance is just a booger’s throw he pays such instrument.
away?
BILL ADDRESSED TO MORE THAN ONE DRAWEE. — A bill may be addressed to two
Yes because such alteration changes the place of payment. or more drawees jointly, whether they are partners or not; but not to two or more
drawees in the alternative or in succession. (128)
BILLS OF EXCHANGE: FORM AND INTERPRETATION
BILL OF EXCHANGE, DEFINED — A bill of exchange is an unconditional order in Can a bill be addressed to two or more drawees jointly?
writing addressed by one person to another, signed by the person giving it,
requiring the person to whom it is addressed to pay on demand or at a fixed or Yes
determinable future time a sum certain in money to order or to bearer. (126)
What if the instrument provides “To A, or in his incapacity, B will pay”, is that
What is a bill of exchange? allowed?
A bill of exchange is an unconditional order in writing addressed by one person to another, No because a bill cannot be addressed to two or more drawees in the alternative or in
signed by the person giving it, requiring the person to whom it is addressed to pay on succession.
demand or at a fixed or determinable future time a sum certain in money to order or to
bearer.
INLAND AND FOREIGN BILLS OF EXCHANGE. — An inland bill of exchange is a bill person is called the referee in case of need. It is in the option of the holder to
which is, or on its face purports to be, both drawn and payable within the resort to the referee in case of need or not, as he may see fit. (131)
Philippine Islands. Any other bill is a foreign bill. Unless the contrary appears on
the face of the bill, the holder may treat it as an inland bill. (129) Who is a referee in case of a need?
What is an inland bill? A referee is a person, whose name has been inserted on the instrument by the drawer or any
indorser, to whom the holder may resort in case of need.
An inland bill of exchange is a bill which is, or on its face purports to be, both drawn and
payable within the Philippine Islands. What does “in case of need” mean?
What is a foreign bill? In case of need means in case the instrument is dishonored by non-acceptance or non-
payment by the drawee, the holder may, instead of going to the drawer and prior indorsers,
A foreign bill of exchange is a bill which is, or on its face purports to be, drawn or payable apply to the referee for payment.
outside the Philippine Islands. In short, any bill which does not fit the specification of an
inland bill. Is there a need for the holder to give a notice of dishonor to the referee, drawer
and indorsers?
Why is it important for us to know the difference between an inland bill and a
foreign bill? The holder need not give a notice of dishonor to the referee; what the holder needs to give is
a protest. As to the drawer and indorsers, the holder must give a notice of dishonor in order
The distinction is important in: to charge them.
1) that foreign bills are required to be protested. Failure to protest foreign bills will discharge
persons secondarily liable thereon. SIR: Give a notice of dishonor to the drawer and indorsers before you present it for payment
2) for the determination of the law applicable. to the referee. In case the referee refuses to pay, there is no more need to send another
notice of dishonor to the drawer and indorsers.
WHEN BILL MAY BE TREATED AS PROMISSORY NOTE. — Where in a bill drawer
and drawee are the same person, or where the drawee is a fictitious person, or a Should a bill be protested first before you can go to the referee?
person not having capacity to contract, the holder may treat the instrument, at his
option, either as a bill of exchange or a promissory note. (130) Yes because where a dishonored bill contains a reference in case of need, it must be
protested for non-payment before it is presented for payment to the referee in case of need.
When can you treat a bill of exchange as a promissory note? (167)
The holder may treat the instrument, at his option, either as a bill of exchange or a If the referee pays, from whom can the referee recover?
promissory note in the following cases:
1) where in a bill drawer and drawee are the same person such as, in a draft drawn by an He may recover the amount from the drawer or indorser who has named him as referee in
agent on his principal by authority of the principal. Another example is a draft drawn by a case of need.
bank on its branch.
2) where the drawee is a fictitious person. What is the legal liability of the referee?
3) where the drawee is a person not having capacity to contract.
The referee has no legal liability because he is not a party to the instrument. You can never
Is there a need to give a notice of dishonor to the drawer in these instances? hold the referee liable if the latter refuses to pay.
1) Under Section 114, there is no need to give notice of dishonor in all of these cases in order ACCEPTANCE
to charge the drawer.
2) Treating the bill as a note would constitute the drawer, the maker. Thus, considered as ACCEPTANCE; HOW MADE, AND SO FORTH — The acceptance of a bill is the
maker, the drawer would then be a party primarily liable on the instrument to whom notice of signification by the drawee of his assent to the order of the drawer. The
dishonor need not be given. acceptance must be in writing and signed by the drawee. It must not express that
the drawee will perform his promise by any other means than the payment of
REFEREE IN CASE OF NEED. — The drawer of a bill and any indorser may insert money. (132)
thereon the name of a person to whom the holder may resort in case of need; that
is to say, in case the bill is dishonored by non-acceptance or non-payment. Such What is acceptance?
Acceptance is the signification of the drawee of his assent to the order of the drawer. Can the holder require the drawee to write the acceptance on the bill itself?
What are the requisites of actual acceptance? Yes the holder may require that the acceptance be written on the bill.
It must be: What if the drawee says, “I would do anything for love but I won’t do that”?
1) in writing
2) signed by the drawee The holder may treat the bill as dishonored.
3) it must not express that the drawee will perform his promise by any other means than the
payment of money ACCEPTANCE BY SEPARATE INSTRUMENT. — Where an acceptance is written on a
4) it must be communicated or delivered to the holder. paper other than the bill itself, it does not bind the acceptor except in favor of a
person to whom it is shown and who, on the faith thereof, receives the bill for
*Can an acceptance may made through a text message/telegram? value. (134)
Yes for as long as the bill is properly identified. The law merely requires some substantial and Where do you write the acceptance?
tangible evidence of contract.
On the bill itself or on a separate paper.
Can an acceptance may made through a telephone?
X, the drawee accepted the instrument using another document. The instrument
No because an acceptance must be in writing. was passed on several times until it reached the hand of Y (Y is an amputee). May
Y enforce the instrument against X?
Is acceptance required for checks?
It depends on whether or not Y has seen the letter of acceptance. If Y has been shown such
No because they are payable on demand. document, and on faith thereof, received the bill for value, Y may enforce the bill against X.
Otherwise, X is not liable against Y.
SIR: It is my submission that in the advent of new technologies, I think you can accept the
instrument through the different mediums available, particularly email messages. Just like on PROMISE TO ACCEPT; WHEN EQUIVALENT TO ACCEPTANCE — An unconditional
the olden times, the SC allowed acceptance by means of telegram notwithstanding the fact promise in writing to accept a bill before it is drawn is deemed an actual
that the sender does not sign on the telegram. In fact, transmittal of electronic evidence is acceptance in favor of every person who, upon the faith thereof, receives the bill
now allowed by your SC. for value. (135)
Is it important for acceptance to be delivered? Is there an acceptance on a non-existing bill?
Yes because acceptance is incomplete until delivery or notification. Yes
What is the effect of acceptance on the drawee? What are the requisites on acceptance on a separate paper if the bill is non-
existent?
Upon acceptance, the drawee becomes liable on the bill.
1) That the contemplated drawee shall describe the bill to be drawn, and promise to accept it.
Is acceptance the same as payment? 2) That the bill shall be drawn within a reasonable time after such promise is written
3) That the holder shall take the bill upon the credit of the promise
No because acceptance is “a promise to perform an act” whereas payment is the “actual
performance” thereof. Can you accept the instrument by simply writing the word “good”?
SIR: Acceptance and payment are two different legal terms. Acceptance is only needed on “Good” constitutes an acceptance if written on the bill or check but not when written in a
three instances (143) whereas payment must be made unless the person primarily liable has collateral document such as a telegram.
a defense. Even if there is payment, you cannot legally say that there is an acceptance.
TIME ALLOWED DRAWEE TO ACCEPT — The drawee is allowed twenty-four hours
HOLDER ENTITLED TO ACCEPTANCE ON FACE OF BILL — The holder of a bill after presentment in which to decide whether or not he will accept the bill; but the
presenting the same for acceptance may require that the acceptance be written on acceptance, if given, dates as of the day of presentation. (136)
the bill, and, if such request is refused, may treat the bill as dishonored. (133)
How much time is given to the drawee to accept the bill?
No because the bill is at all times the property of the holder and he is entitled to have it when
The drawee is allowed twenty-four hours after presentment for acceptance in which to decide he wants to, and Section 137 so provides. If the holder should demand its return before 24-
whether or not he will accept the bill. hours, the drawee would be required to comply on pain of being held as an acceptor; but
return within 24-hours unaccepted would not be a dishonor because the drawee could still
What is the effect if the drawee fails to communicate with the holder of the action accept by notification within the 24-hours.
taken by him within the 24 hours?
Does this 24-hour period to present for acceptance apply to presentment for
The person presenting it must treat the bill as dishonored by non-acceptance or the loses the payment?
right of recourse against the drawer or indorsers. (150)
Yes Sections 136 and 137 covers presentment for acceptance and payment because the
X holds the check and he presented it to the bank. Does the 24-hour period within considerations involved in both cases are the same although the law is silent on the point of
which to accept and pay the instrument apply to banks? how long the drawee may take to pay. The rule established in the Wisner case forces uniform
treatment on instruments whether presented for payment or acceptance and established
No it does not apply to banks since a check is present for payment and not acceptance. certain and predictable results where it is not clear for which purpose the instrument was
presented.
LIABILITY OF DRAWEE RETAINING OR DESTROYING BILL — Where a drawee to
whom a bill is delivered for acceptance destroys the same, or refuses within ACCEPTANCE OF INCOMPLETE BILL. — A bill may be accepted before it has been
twenty-four hours after such delivery, or within such other period as the holder signed by the drawer, or while otherwise incomplete, or when it is overdue, or
may allow, to return the bill accepted or non-accepted to the holder, he will be after it has been dishonored by a previous refusal to accept, or by non-payment.
deemed to have accepted the same. (137) But when a bill payable after sight is dishonored by non-acceptance and the
drawee subsequently accepts it, the holder, in the absence of any different
Upon presentment for acceptance, the drawee destroyed the instrument. What is agreement, is entitled to have the bill accepted as of the date of the first
the legal effect? presentment. (138)
The drawee will be deemed to have accepted the bill. When do you make an acceptance?
What is constructive acceptance? Acceptance may be made:

1) before the bill is signed by the drawer
Constructive acceptance is where the drawee will be deemed to have accepted the bill even if 2) even when the bill is otherwise incomplete
there is no actual written acceptance by him. 3) even when the bill is overdue
4) even after it has been dishonored by non-acceptance or non-payment.
Give examples of constructive acceptance:
KINDS OF ACCEPTANCE — An acceptance is either general or qualified. A general
1) where the drawee to whom a bill is delivered for acceptance destroys it acceptance assents without qualification to the order of the drawer. A qualified
2) where the drawee refuses within 24 hours after such delivery, or within such time as is acceptance in express terms varies the effect of the bill as drawn. (139)
given to him, to return the bill accepted or not accepted.
What is general acceptance?
What is the effect of constructive acceptance?
A general acceptance assents without qualification to the order of the drawer
The drawee will be primarily liable as an acceptor.
What is a qualified acceptance?
Is mere retention considered as acceptance?
A qualified acceptance in express terms varies the effect of the bill as drawn.
Yes the mere failure to return the bill within 24-hours is an acceptance.
WHAT CONSTITUTES A GENERAL ACCEPTANCE — An acceptance to pay at a
X brings the instrument to U, the drawee and asks U to accept the instrument. particular place is a general acceptance, unless it expressly states that the bill is to
After giving U 3 hours to examine the instrument, X demands that U return the be paid there only and not elsewhere. (140)
same. Can U tell X that he will keep the instrument within the period of 24-hours
and return the instrument after such period? Payment on a particular place is that a general acceptance or a qualified
acceptance?
An acceptance to pay at a particular place is a general acceptance, unless it expressly states

that the bill is to be paid there only and not elsewhere. 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
QUALIFIED ACCEPTANCE — An acceptance is qualified which is — thereto.
(a)Conditional; that is to say, which makes payment by the acceptor dependent on
the fulfillment of a condition therein stated; PRESENTMENT FOR ACCEPTANCE
(b)Partial; that is to say, an acceptance to pay part only of the amount for which
the bill is drawn; WHEN PRESENTMENT FOR ACCEPTANCE MUST BE MADE — Presentment for
(c)Local; that is to say, an acceptance to pay only at a particular place; acceptance must be made —
(d)Qualified as to time; (a)Where the bill is payable after sight, or in any other case, where presentment
(e)The acceptance of some one or more of the drawees, but not of all. (141) for acceptance is necessary in order to fix the maturity of the instrument; or
(b)Where the bill expressly stipulates that it shall be presented for acceptance; or
What are the types of qualified acceptance? (c)Where the bill is drawn payable elsewhere than at the residence or place of
business of the drawee.
1) Conditional: which makes payment by the acceptor dependent on the fulfillment of a In no other case is presentment for acceptance necessary in order to render any
condition therein stated. party to the bill liable. (143)
 “Accepted if Y marries Z. (Sgd.) X”
2) Partial an acceptance to pay part only of the amount for which the bill is drawn; What are the circumstances wherein presentment for acceptance is necessary?
 Bill is for P1000. “Accepted for P500 only. (Sgd) X”
3) Local: an acceptance to pay only at a particular place; 1) where the bill is payable after sight, or in any other case, where presentment for
 “Accepted, payable at BPI Ayala Branch only. (Sgd.) X” acceptance is necessary in order to fix the maturity of the instrument; or
4) Qualified as to time. 2) where the bill expressly stipulates that it shall be presented for acceptance; or
 Bill is payable 30 days after sight. “Accepted. Payable 60 days after sight. (Sgd.) X” 3) where the bill is drawn payable elsewhere than at the residence or place of business of the
5) The acceptance of some one or more of the joint drawees, but not of all. drawee.
 The drawees of the bill are X and Y, and it is accepted only by Y.
If an instrument is not within those circumstances, can it be presented for
What if they are solidary drawees? acceptance?
A bill cannot be addressed two or more drawees in the alternative or in succession. (128) Yes, there is nothing wrong in making a presentment for acceptance in the other cases. And if
the bill is dishonored by non-acceptance. The holder may treat the bill as if it had required
RIGHTS OF PARTIES AS TO QUALIFIED ACCEPTANCE. — The holder may refuse to acceptance.
take a qualified acceptance, and if he does not obtain an unqualified acceptance,
he may treat the bill as dishonored by non-acceptance. Where a qualified If you are the holder, will you present the instrument for acceptance?
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 SIR: Yes because if you present the instrument for acceptance and it would be accepted by
qualified acceptance, or subsequently assent thereto. When the drawer or an the drawee, then you have already a person primarily liable on the said instrument. Later on,
indorser receives notice of a qualified acceptance, he must, within a reasonable if the acceptor will not pay, you can send a notice to the persons secondarily liable and they
time, express his dissent to the holder, or he will be deemed to have assented can go after that drawee. In effect, there is more security on your part. Rather than you keep
thereto. (142) on negotiating the instrument from one hand to another without asking the drawee whether
or not the instrument will be accepted later on; and you just wait until the instrument is due
Does the holder have the right to ask for a general acceptance? for payment and you present it for payment immediately and if he says no, then you cannot
make that person liable any more.
Yes
What is presentment for acceptance?
What is the legal effect if its denied?
It is the production of a bill of exchange to the drawee for his acceptance.
He may treat the bill as dishonored by non-acceptance. Accordingly, the holder must give a
notice of dishonor. WHEN FAILURE TO PRESENT RELEASES DRAWER AND INDORSER — Except as
herein otherwise provided, the holder of a bill which is required by the next
What is the effect of accepting a qualified acceptance as to the indorser and preceding section to be presented for acceptance must either present it for
drawer?
acceptance or negotiate it within a reasonable time. If he fail to do so, the drawer

and all indorsers are discharged. (144) Presentment may be made to him or to his trustee or assignee.
Under the instances provided for under Sec. 143, what should the holder do in Is it necessary to make a presentment for acceptance if the drawee is already
order that the drawer or indorser will not be discharge? dead?
1) to make presentment for acceptance, or No because presentment is excused when the drawee is dead. (148)
2) to negotiate the bill within reasonable time.
Why is there a need for you to present the instrument to the personal
What is reasonable time? representative when the drawee is already dead and presentment is excused by
law?
In order to determine what is a “reasonable time”, regard is had:
(1) to the nature of the instrument; The law merely gives the holder the option to make such presentment.
(2) usage of trade or business with respect to such instrument and
(3) the facts of the particular case. If you are the holder, which option will you choose?
PRESENTMENT; HOW MADE. — Presentment for acceptance must be made by or on You should make presentment for acceptance in order to determine whether the personal
behalf of the holder at a reasonable hour, on a business day and before the bill is representative of such deceased person will accept the instrument. It’s the same reason that
overdue, to the drawee or some person authorized to accept or refuse acceptance you present the instrument for acceptance even in instances wherein presentment for
on his behalf; and acceptance is not required.
(a)Where a bill is addressed to two or more drawees who are not partners,
presentment must be made to them all, unless one has authority to accept or *If you are the holder and you choose the option of not presenting it for
refuse acceptance for all, in which case presentment may be made to him only; acceptance, what should you do?
(b)Where the drawee is dead, presentment may be made to his personal
representative; You may present the instrument for payment to the personal representative and if the latter
(c)Where the drawee has been adjudged a bankrupt or an insolvent, or has made refuses to pay the amount on the instrument, you may send a notice of dishonor to the
an assignment for the benefit of creditors, presentment may be made to him or to persons secondarily liable. ?!?!
his trustee or assignee. (145)
If the instrument is dishonored by non-acceptance, can you directly to the persons
When do you present a bill for acceptance? secondarily liable?
Presentment for acceptance must be made: Yes provided you have given such persons a notice of dishonor.
1) before the bill is overdue; and
2) within reasonable time after acquisition thereof Why is there no need for you to present the instrument for payment?
Otherwise what is the effect if you did not do that? Because when a bill is dishonored by non-acceptance, an immediate right of recourse against
the drawer and indorsers accrues to the holder and no presentment for payment is necessary.
The drawer and indorsers are discharged. (151)
To whom should you present the instrument for acceptance? Are you prevented from presenting it again for acceptance?
1) to the drawee or some person authorized to accept or refuse the acceptance on his behalf. No.
2) where there are two or more drawees, presentment must be made to both of them unless:
a. one is duly authorized to accept or refuse acceptance, or ON WHAT DAYS PRESENTMENT MAY BE MADE — A bill may be presented for
b. they are partners. acceptance on any day on which negotiable instruments may be presented for
payment under the provisions of sections seventy-two and eighty-five of this Act.
What if the drawee is already dead? When Saturday is not otherwise a holiday, presentment for acceptance may be
made before twelve o'clock, noon, on that day. (146)
Presentment may be made to his personal representative.
PRESENTMENT WHERE TIME IS INSUFFICIENT — Where the holder of a bill drawn
What if the drawee is adjudged to be insolvent? payable elsewhere than at the place of business or the residence of the drawee
has no time with the exercise of reasonable diligence to present the bill for *Supposing that the drawee is a fictitious person, isn’t it that presentment for
acceptance before presenting it for payment on the day that it falls due, the delay acceptance is excused, you can treat the instrument as having been dishonored by
caused by presenting the bill for acceptance before presenting it for payment is non-acceptance, and you can send a notice of dishonor to persons secondarily
excused, and does not discharge the drawers and indorsers. (147) liable such that even if the instrument has not yet matured, you can charge this
persons as secondarily liable; Is there a need for presentment for payment if the
WHERE PRESENTMENT IS EXCUSED — Presentment for acceptance is excused, and instrument is already treated as dishonored by non-acceptance?
a bill may be treated as dishonored by non-acceptance, in either of the following
cases: No because when presentment is excused, you can immediately treat the instrument to have
(a)Where the drawee is dead, or has absconded, or is a fictitious person or a been dishonored by non-acceptance; and after that you can immediately send a notice of
person not having capacity to contract by bill. dishonor by non-acceptance to the persons secondarily liable; and after sending such notice,
(b)Where, after the exercise of reasonable diligence, presentment can not be there is no need for you to wait for the instrument to become mature before you can charge
made. the persons secondarily liable.
(c)Where, although presentment has been irregular, acceptance has been refused
on some other ground. (148) PROTEST
When is presentment for acceptance excused? IN WHAT CASES PROTEST NECESSARY — Where a foreign bill appearing on its face
to be such is dishonored by non-acceptance, it must be duly protested for non-
1) where the drawee is dead, or has absconded, or is a fictitious person or a person not acceptance, and where such bill which has not previously been dishonored by non-
having capacity to contract by bill. acceptance is dishonored by non-payment, it must be duly protested for non-
2) where, after the exercise of reasonable diligence, presentment cannot be made. payment. If it is not so protested, the drawer and indorsers are discharged. Where
3) where, although presentment has been irregular, acceptance has been refused on some a bill does not appear on its face to be a foreign bill, protest thereof in case of
other ground dishonor is unnecessary. (152)
WHEN DISHONORED BY NON-ACCEPTANCE — A bill is dishonored by non- What is meant by protest?

acceptance —
(a)When it is duly presented for acceptance and such an acceptance as is By protest is meant a formal statement in writing made by a notary under his seal of office at
prescribed by this Act is refused or can not be obtained; or the request of the holder of a bill or note in which it is declared that the same was on a
(b)When presentment for acceptance is excused, and the bill is not accepted. certain day presented for acceptance/payment and such acceptance/payment was refused,
(149) whereupon the notary protests against all parties to such instrument and declares that they
will be held responsible for all loss or damage arising from its dishonor. It means all the steps
When can you treat an instrument to be dishonored by non-acceptance? or acts accompanying the dishonor of a bill or note necessary to charge an indorser.
1) when it is duly presented for acceptance and such an acceptance as is prescribed by this When is it necessary?
Act is refused or cannot be obtained; or
2) when presentment for acceptance is excused, and the bill is not accepted. Protest is required:
1) where the foreign bill is dishonored by non-acceptance.
DUTY OF HOLDER WHERE BILL NOT ACCEPTED — Where a bill is duly presented for 2) where the foreign bill is dishonored by non-payment.
acceptance and is not accepted within the prescribed time, the person presenting 3) where the bill has been accepted for honor, it must be protested for non-
it must treat the bill as dishonored by non-acceptance or he loses the right of payment before it is presented for payment to the acceptor for honor.
recourse against the drawer and indorsers. (150) 4) where the bill contains a referee in case of need, it must be protest for non-
payment before it is presented for payment for the referee in case of need.
What is the duty of the holder of the instrument which has been dishonored by
non-acceptance? What is the effect of non-protest if such protest is necessary?
The holder must give notice of dishonor to the persons secondarily liable. Otherwise, the The drawer and indorsers are discharged.
drawer and indorsers will be discharged.
PROTEST; HOW MADE — The protest must be annexed to the bill, or must contain
RIGHT OF HOLDER WHERE BILL NOT ACCEPTED — When a bill is dishonored by a copy thereof, and must be under the hand and seal of the notary making it, and
non-acceptance, an immediate right of recourse against the drawer and indorsers must specify —
accrues to the holder and no presentment for payment is necessary. (151) (a)The time and place of presentment;
(b)The fact that presentment was made and the manner thereof;
(c)The cause or reason for protesting the bill; 2) by any respectable resident of the place where the bill is dishonored, in the presence of
(d)The demand made and the answer given, if any, or the fact that the drawee or two or more credible witnesses. (154)
acceptor could not be found. (153)
PROTEST; WHEN TO BE MADE. — When a bill is protested, such protest must be
How do you make a protest? made on the day of its dishonor, unless delay is excused as herein provided. When
a bill has been duly noted, the protest may be subsequently extended as of the
The protest must be annexed to the bill, or must contain a copy thereof, and must be under date of the noting. (155)
the hand and seal of the notary making it, and must specify —
1) the time and place of presentment; When should protest be made?
2) the fact that presentment was made and the manner thereof;
3) the cause or reason for protesting the bill; It must be made on the day of its dishonor unless delay is excused as herein provided.
4) the demand made and the answer given, if any, or the fact that the drawee or acceptor
could not be found. What is meant by the word ‘duly noted’?
What is certificate of protest? It means that the notary public jots down a note on the bill, or a paper attached thereto, or in
his registry book, consisting of his initials or signature and those matters required to be stated
It is a solemn declaration made by the notary public to prove that it has been presented for in Section 153.
payment or acceptance to the person liable and that it has been refused and that there has
been a protest of the instrument. PROTEST; WHERE MADE — A bill must be protested at the place where it is
dishonored, except that when a bill drawn payable at the place of business or
What is the purpose of protest? residence of some person other than the drawee has been dishonored by non-
acceptance, it must be protested for non-payment at the place where it is
To furnish to the holder the legal testimony of presentment, demand and notice of dishonor expressed to be payable, and no further presentment for payment to, or demand
to be used in an action against the drawer and indorsers. on, the drawee is necessary. (156)
What is the difference between a certificate of protest and notice of protest? Where do you make such protest?
A certificate of protest generally serves as evidence of the facts set forth in its terms whereas At the place where it is dishonored, except that when a bill drawn payable at the place of
a notice of protest is a formal declaration sent by the notary to all parties to the instrument business or residence of some person other than the drawee has been dishonored by non-
after he protests the instrument. acceptance, it must be protested for non-payment at the place where it is expressed to be
payable.
Why is protest required?
PROTEST BOTH FOR NON-ACCEPTANCE AND NON-PAYMENT — A bill which has
To charge the persons secondarily liable. been protested for non-acceptance may be subsequently protested for non-
payment. (157)
After protesting a bill, what kinds of damages can you charge against the holder?
Can you protest a bill for non-payment even though it was already protested for
The damages are: non-acceptance?
1) the face value of the bill
2) interest thereon Yes but it is merely optional on the part of the holder.
3) protest fees
4) re-exchange, being the additional expense of procuring a new bill PROTEST BEFORE MATURITY WHERE ACCEPTOR INSOLVENT — Where the
acceptor has been adjudged a bankrupt or an insolvent, or has made an
PROTEST; BY WHOM MADE — Protest may be made by — assignment for the benefit of creditors before the bill matures, the holder may
(a)A notary public; or cause the bill to be protested for better security against the drawer and indorsers.
(b)By any respectable resident of the place where the bill is dishonored, in the (158)
presence of two or more credible witnesses. (154)
What is protest for better security?
Who can make a protest?
It is one made by the holder against the drawer and indorsers where the acceptor has been
1) a notary public; or adjudged bankrupt or an insolvent or has made an assignment for the benefit of creditors
before the bill matures. Such a protest is not necessary to charge the drawer and indorsers. It there may be a further acceptance by a different person for the honor of another
is optional on the part of the holder. party. (161)
When do you make a protest for better security? What is an acceptance for honor/acceptance “supra protest”?
1) after acceptance An acceptance of a bill made by a stranger to it before maturity, where the drawee of the bill
2) before the date of maturity has refused to accept it, and the bill has been protested for non-acceptance, or where the bill
3) when the acceptor has been adjudged bankrupt or an insolvent or has made an has been protested for better security.
assignment for the benefit of creditors
What is the purpose of acceptance for honor?
What is the purpose for making a protest for better security?
It is done to save the credit of the parties to the instrument or some party to it, as the
To give notice to the drawer and indorsers that the acceptor is bankrupt, insolvent, or has drawer, drawee, or indorser,or somebody else.
made an assignment in order to enable them to make the necessary arrangements so that
they will not be held liable thereon and prevent loss of exchange. Who shall benefit such acceptance for honor?
WHEN PROTEST DISPENSED WITH. — Protest is dispensed with by any It will inure to the benefit of all parties subsequent to him for whose honor it was accepted.
circumstances which would dispense with notice of dishonor. Delay in noting or
protesting is excused when delay is caused by circumstances beyond the control of What are the requisites for acceptance for honor?
the holder and not imputable to his default, misconduct, or negligence. When the
cause of delay ceases to operate, the bill must be noted or protested with 1) bill must have been previously protested (a) for non-acceptance or (b) for better security.
reasonable diligence. (159) 2) bill is not overdue at the time of the acceptance for honor.
3) the acceptor for honor must be a stranger to the bill.
When can you dispense with the act of protest? 4) holder must give his consent.
By any circumstances which would dispense with notice of dishonor. (112, 114, 115, 117) ACCEPTANCE FOR HONOR; HOW MADE. — An acceptance for honor supra protest
must be in writing, and indicate that it is an acceptance for honor, and must be
When is delay in noting or protesting excused? signed by the acceptor for honor. (162)
When delay is caused by circumstances beyond the control of the holder and not imputable to How do you make an acceptance for honor?
his default, misconduct, or negligence. When the cause of delay ceases to operate, the bill
must be noted or protested with reasonable diligence. 1) in writing, and indicate that it is an acceptance for honor, and
2) signed by the acceptor for honor.
PROTEST WHERE BILL IS LOST, AND SO FORTH. — When a bill is lost or destroyed
or is wrongly detained from the person entitled to hold it, protest may be made on Is it necessary for an acceptor for honor to appear before a notary?
a copy or written particulars thereof. (160)
Yes because an acceptance for honor can be properly made by the acceptor appearing before
Does loss or destruction of a bill dispense with making a protest? a notary public and declaring his intention to accept for honor of some one or more of the
parties and subscribing to some such expression of his intention as “accepted for the honor of
No because loss or destruction of a bill does not excuse the making of protest. Protest may be X”
made on a copy or written particulars thereof.
WHEN DEEMED TO BE AN ACCEPTANCE FOR HONOR OF THE DRAWER. — Where an
ACCEPTANCE FOR HONOR acceptance for honor does not expressly state for whose honor it is made, it is
deemed to be an acceptance for the honor of the drawer. (163)
WHEN BILL MAY BE ACCEPTED FOR HONOR. — Where a bill of exchange has been
protested for dishonor by non-acceptance or protested for better security, and is What is the effect if the acceptance for honor does not specify to whose honor the
not overdue, any person not being a party already liable thereon may, with the bill is accepted?
consent of the holder, intervene and accept the bill supra protest for the honor of
any party liable thereon, or for the honor of the person for whose account the bill It is deemed to be an acceptance for the honor of the drawer.
is drawn. The acceptance for honor may be for part only of the sum for which the
bill is drawn; and where there has been an acceptance for honor for one party,
LIABILITY OF THE ACCEPTOR FOR HONOR. — The acceptor for honor is liable to (a)If it is to be presented in the place where the protest for non-payment was
the holder and to all parties to the bill subsequent to the party for whose honor he made, it must be presented not later than the day following its maturity.
has accepted. (164) (b)If it is to be presented in some other place than the place where it was
protested, then it must be forwarded within the time specified in section one
What is the extent of the liability of an acceptor for honor? hundred and four. (168)
He is liable to the holder and to all parties to the bill subsequent to the party for whose honor How do you make presentment for payment to an acceptor for honor?
he has accepted.
1) if it is to be presented in the place where the protest for non-payment was made, it must
Is his liability primary or secondary? be presented not later than the day following its maturity.
2) if it is to be presented in some other place than the place where it was protested, then it
His liability is secondary. must be forwarded within the time specified in section one hundred and four (Sec 104).
AGREEMENT OF ACCEPTOR FOR HONOR. — The acceptor for honor, by such WHEN DELAY IN MAKING PRESENTMENT IS EXCUSED. — The provisions of section
acceptance engages that he will on due presentment pay the bill according to the eighty-one apply where there is delay in making presentment to the acceptor for
terms of his acceptance, provided it shall not have been paid by the drawee, and honor or referee in case of need. (169)
provided also that it shall have been duly presented for payment and protested for
non-payment and notice of dishonor given to him. (165) Can delay in making presentment excused?
By accepting the instrument for honor, what is the engagement made by the Yes delay in making presentment to the acceptor for honor or referee in case of need is
acceptor for honor? excused when the delay is caused by circumstances beyond the control of the holder, and not
imputable to his default, misconduct, or negligence. When the cause of delay ceases to
He engages to pay if: operate, presentment must be made with reasonable diligence.
1) presentment for payment has been made
2) the drawee does not pay DISHONOR OF BILL BY ACCEPTOR FOR HONOR. — When the bill is dishonored by
3) the bill is protested for non-payment the acceptor for honor it must be protested for non-payment by him. (170)
4) notice of dishonor is given to him
If an acceptor for honor dishonors an instrument, is protest for non-payment
MATURITY OF BILL PAYABLE AFTER SIGHT; ACCEPTED FOR HONOR. — Where a necessary?
bill payable after sight is accepted for honor, its maturity is calculated from the
date of the noting for non-acceptance and not from the date of the acceptance for Yes in order to fix the liability of the indorsers.
honor. (166)
PAYMENT FOR HONOR
When do you start to count the maturity of the instrument payable after sight if
the same is accepted for honor? WHO MAY MAKE PAYMENT FOR HONOR. — Where a bill has been protested for
non-payment, any person may intervene and pay it supra protest for the honor of
From the date of the noting for non-acceptance and not from the date of the acceptance for any person liable thereon or for the honor of the person for whose account it was
honor. drawn. (171)
PROTEST OF BILL ACCEPTED FOR HONOR, AND SO FORTH. — Where a dishonored Who may make payment for honor?
bill has been accepted for honor supra protest or contains a reference in case of
need, it must be protested for non-payment before it is presented for payment to Any person, even a party thereto, may pay supra protest.
the acceptor for honor or referee in case of need. (167)
What are the requisites in order that a payment for honor may be validly made?
When is protest for non-payment necessary?
1) the bill has be protested for non-payment
When a dishonored bill has been accepted for honor supra protest or contains a referee in 2) any person, even a party thereto, may pay supra protest.
case of need.
PAYMENT FOR HONOR; HOW MADE. — The payment for honor supra protest in
PRESENTMENT FOR PAYMENT TO ACCEPTOR FOR HONOR, HOW MADE. — order to operate as such and not as a mere voluntary payment must be attested by
Presentment for payment to the acceptor for honor must be made as follows:
a notarial act of honor which may be appended to the protest or form an extension the instrument or some party to it. incur the liabilities of an
to it. (172) indorser of a bill or of one
negotiating by mere delivery.
What is the form for payment for honor?
PREFERENCE OF PARTIES OFFERING TO PAY FOR HONOR. — Where two or more
1) the payment must be attested by notarial act appended to the protest or from an extension persons offer to pay a bill for the honor of different parties, the person whose
to it. payment will discharge most parties to the bill is to be given the preference. (174)
2) the notarial act must be based on a declaration by the payer for honor.
What happens if two or more persons want to pay for honor?
DECLARATION BEFORE PAYMENT FOR HONOR. — The notarial act of honor must
be founded on a declaration made by the payer for honor or by his agent in that The person whose payment will discharge most parties to the bill is to be given the
behalf declaring his intention to pay the bill for honor and for whose honor he preference.
pays. (173)
EFFECT ON SUBSEQUENT PARTIES WHERE BILL IS PAID FOR HONOR. — Where a
What is the procedure for payment for honor? 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,
1) payer or his agent goes to a notary public and declares his intention to pay the bill and for both the rights and duties of the holder as regards the party for whose honor he
whose honor he pays. pays and all parties liable to the latter. (175)
2) the notary then records the declaration in the protest or in a separate paper attached to it.
3) the payor then notifies the person for whose honor he pas within reasonable time. What is the effect on subsequent parties where the bill is paid for honor?
If these formalities are not followed, the payment will operate as a mere voluntary payment All parties subsequent to the party for whose honor it is paid are discharged.
and the payor acquires only the rights stated in Articles 1236 to 1237 of the NCC and not
thosestated in Section 175. Give an example:
What is the purpose of payment for honor? A draws a bill payable to B or order with X, as the drawee. The bill is successively indorsed to
C, D, E, and F, holder. X does not pay and F has duly protested non-payment. Y pays for the
It is availed of when the holder does not want to indorse the bill and thereby incur the honor of C.
liabilities or of one negotiating by mere delivery. 1) D and E, parties subsequent to C, for whose honor the payment is made, are discharged;
2) Y, the payer for honor, acquires the rights of F, holder, as against C and A, B, and X,
*Give an example: parties who are liable to C.
What about the person for whose honor it was paid, is he also discharged?
Can holder still negotiate at this point in time?
No he is not discharged and the payer for honor may go after him.
Yes but subject to defenses available under the law which will make the holder a holder not in
due course. 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
What is the difference between acceptance for honor and payment for honor? recourse against any party who would have been discharged by such payment.
(176)
ACCEPTANCE FOR HONOR PAYMENT FOR HONOR
As to their concept: An acceptance of a bill made by a Payment of a bill which has What is the legal effect if the holder refuses to receive payment supra protest?
stranger to it before maturity, been protested for non-
where the drawee of the bill has payment by any person for the The holder loses his right of recourse against any party who would have been discharged by
refused to accept it. honor of any person liable such payment.
thereon.
As to who may be Any person not being a party Any person, even a party Give an example:
an acceptor/payor: already liable thereon thereto.
As to their form:
As to their purpose: To save the credit of the parties to To enable the holder not to
Using the example above, suppose Z offers to pay for the honor of B, and F refuses. F, by his part, and such accepted parts are negotiated to different holders in due course, he
refusal, loses his right to hold C, D, and E liable, as had he accepted Z’s offer, they would is liable on every such part as if it were a separate bill. (181)
have been discharged.
What is the effect if the drawee accepts two or more bills?
*Can you think of a situation wherein the holder will not accept such payment?
Take note that at this point, the instrument was already dishonored by He is liable on every such part as if it were a separate bill.
nonpayment.
PAYMENT BY ACCEPTOR OF BILLS DRAWN IN SETS. — When the acceptor of a bill
RIGHTS OF PAYER FOR HONOR. — The payer for honor, on paying to the holder drawn in a set pays it without requiring the part bearing his acceptance to be
the amount of the bill and the notarial expenses incidental to its dishonor, is delivered up to him, and that part at maturity is outstanding in the hands of a
entitled to receive both the bill itself and the protest. (177) holder in due course, he is liable to the holder thereon. (182)
BILLS IN A SET What is the legal effect if the drawee pays one bill without requiring the surrender
of the first bill containing his acceptance?
BILLS IN SETS CONSTITUTE ONE BILL. — Where a bill is drawn in a set, each part
of the set being numbered and containing a reference to the other parts, the He would still be liable to the holder of the first part on which appears his acceptance.
whole of the parts constitutes one bill. (178)
EFFECT OF DISCHARGING ONE OF A SET. — Except as herein otherwise provided,
What is a bill in set? where any one part of a bill drawn in a set is discharged by payment or otherwise
the whole bill is discharged. (183)
It is one composed of various parts, each part being numbered, and containing a reference to
the other parts, all of which parts constitute but one bill. PROMISSORY NOTES AND CHECKS
What is the purpose of bill in set? PROMISSORY NOTE, DEFINED. — A negotiable promissory note within the
meaning of this Act is an unconditional promise in writing made by one person to
To increase the probability of the bill reaching its destination. 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 to bearer. Where a
RIGHTS OF HOLDERS WHERE DIFFERENT PARTS ARE NEGOTIATED. — Where two note is drawn to the maker's own order, it is not complete until indorsed by him.
or more parts of a set are negotiated to different holders in due course, the holder (184)
whose title first accrues is as between such holders the true owner of the bill. But
nothing in this section affects the rights of a person who in due course accepts or What is a promissory note?
pays the part first presented to him. (179)
A promissory note is an unconditional promise in writing made by one person to another,
What is the legal effect if the bill in set is negotiated to two or more holders in due signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a
course? sum certain in money to order or to bearer.
The holder whose title first accrues is as between such holders the true owner of the bill. What are the special types of promissory notes?
LIABILITY OF HOLDER WHO INDORSES TWO OR MORE PARTS OF A SET TO 1) bank notes
DIFFERENT PERSONS. — Where the holder of a set indorses two or more parts to 2) bonds
different persons he is liable on every such part, and every indorser subsequent to 3) certificate of deposit
him is liable on the part he has himself indorsed, as if such parts were separate 4) due bills
bills. (180)
What are bank notes?
What is the liability of a holder who negotiates to two or more parties?
They are promissory notes of the issuing bank payable to bearer on demand and intended to
He is liable on every such part, and every indorser subsequent to him is liable on the part he circulate as money. They are regarded as cash and pass from hand to hand without any
has himself indorsed, as if such parts were separate bills. evidence of title in the holder than that which arises from possession.
ACCEPTANCE OF BILLS DRAWN IN SETS. — The acceptance may be written on any What is a bond?
part and it must be written on one part only. If the drawee accepts more than one
It is promise, under seal, to pay money. It may also be defined as a series of instruments One the principal of which may or may not be secured by a mortgage but the interest is
representing unites of indebtedness regarded as parts of one entire debt. The bond certifies payable only out of the net profit.
that the issuing company is indebted to the bondholder for the amount specified on the face
of the bond and contains an agreement of the company to pay a specified interest on the What are coupon bonds?
principal amount at regular intervals. Bonds are negotiable if they conform with Section 1 of
the NIL. Those to which are attached a sheet of dated, numbered and similarly printed coupons which
the bondholder may cut off when due or thereafter.
What is a certificate of deposit?
CHECK, DEFINED. — A check is a bill of exchange drawn on a bank payable on
It is a written acknowledgement by a bank of the receipt of money on deposit which the bank demand. Except as herein otherwise provided, the provisions of this Act applicable
promises to pay to the depositor, bearer, or to some other person or order. It is not ipso facto to a bill of exchange payable on demand apply to a check. (185)
a negotiable instrument. To be such, it must conform to Section 1 of the NIL.
What is a check?
What is a due bill?
A bill of exchange drawn on a bank payable on demand.
It is an instrument whereby one person acknowledges his indebtedness to another. If it
conforms with Section 1 of the NIL, a due bill is considered a negotiable promissory note. How will you distinguish a check from a promissory note?
What is a mortgage bond? Unlike a promissory note, a check is not a mere undertaking to pay an amount of money. It is
an order addressed to a bank and partakes of a representation that the drawer has funds on
Those that are secured by a mortgaged constituted on a corporate physical property. The deposit against which the check is drawn. There is therefore an element of certainty or
property is conveyed to a trustee for the benefit of the bondholders in case the interest or assurance that the instrument will be paid upon presentation.
principal is defaulted.
What are the special types of checks?
What is the primary purpose of a bond?
1) cashier’s check
To increase capitalization or raise more funding. 2) certified check
3) crossed check
SIR: For example, a corporation issues to you a mortgage bond if you raise P20 Million. Some 4) manager’s check
properties of the corporation will be mortgaged in your favor. Later on, if you will “call on the 5) memorandum check
bond” and the corporation cannot pay, you can collect the indebtedness by virtue of that
mortgage bond. What is a cashier’s check?
What is a collateral trust? It is one drawn by the cashier of a bank in the name of the bank against the bank itself
payable to a third person or order. There is an assurance that the check is funded.
Those that are not secured by a lien on physical property of the corporation but by a lien on
securities deposited with a trustee as collateral. What is the significance of the issuance of a cashier’s check?
What are guaranteed bonds? The mere issuance of it is considered an acceptance thereof, and the holder has the option of
treating it as a promissory note or bill of exchange.
One that is secured by the guaranty of a corporation other than the one issuing it. It implies,
therefore, a double obligation, that of the issuing corporation and that of the guaranteeing What is a manager’s check?
corporation.
It is a check drawn by the manager of a bank in the name of the bank against the bank itself.
What are debentures? It is similar to the cashier’s check as to effect and use. It is negotiable because it complies
with the requisites on forms under the Negotiable Instruments Law.
Those that are not secured by any specific mortgage lien pledge on specific corporate
property but by the general credit of the corporation and restrictive agreement. What is a memorandum check?
What are income bonds? A check on which is written the word “memorandum”, “memo” and “mem”, signifying that the
drawer engages to pay the bona fide holder absolutely and not upon a condition to pay upon
presentment and non-payment. It is given by the borrower to the lender as evidence of his Crossed check is one where two parallel lines are drawn across its face or across a corner
indebtedness. thereof. It may crossed generally or specially. A check is crossed specially when the name of
a particular banker or a company is written between the parallel lines drawn. It is crossed
Can you be held liable under B.P. 22 even if it is a mere memorandum check? generally when only the words "and company" are written or nothing is written at all between
the parallel lines. It may be issued so that presentment can be made only by a bank.
Yes because the gravamen of B.P. 22 is the act of making and issuing a worthless check and
putting it into circulation, or a check that is dishonored upon its presentment for payment. It What is the effect of crossing a check?
is not the non-payment of an obligation which the law punishes. Memorandum check falls
within ambit of B.P. 22. The mere act of issuing a worthless check, whether as a deposit, as a 1) the check may not be encashed but only deposited in the bank;
guarantee, or even as an evidence of a pre-existing debt, is malum prohibitum. (People vs 2) the check may be negotiated only once — to one who has an account with a bank;
Nitafan) 3) and the act of crossing the check serves as warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he has received the check pursuant to
What is meant by gravamen? that purpose, otherwise, he is not a holder in due course.
The material or significant part of a complaint. What is the significance of a check which is crossed generally?
Can you not, as a matter of defense, say that it was issued merely as an evidence Payment must be made through the intervention of any company which is duly authorized.
of your indebtedness?
What is the significance of specially crossing the check?
No because B.P.22 applies in cases where the dishonored checks were issued merely in the
form of a DEPOSIT or a GUARANTY and not as actual payment. The law does not make any The one who encashes the check with the drawee bank must be the bank mentioned between
distinction. Criminal liability attaches to the drawer of the check whether it was issued in the parallel lines.
payment of an obligation or merely to guarantee the said obligation.
What are the advantages of crossing a check?
*How do you distinguish a memorandum check from an ordinary check?
It is a good precaution when it is to be forwarded by mail or when it is entrusted to an agent
In an ordinary check, it is a contract whereby the maker engages to pay the bona fide holder and the drawer wants to be sure that it will be paid to the rightful owner.
absolutely without any condition concerning the payment whereas in a memorandum check,
the making of a check in this manner is merely for the purpose of indicating that it is not to STATE INVESTMENT HOUSE VS COURT OF APPEALS
tbe presented immediately for payment.
FACTS: Corazon Victoriano provided pieces of jewelry to Nora Moulic so that the latter may
What is a certified check? sell the same. As security for the jewelries, Moulic issued to Victoriano two post dated checks
in the aggregate amount of P100,000.00. Moulic was not able to sell the jewelries so she
A check on which the drawee bank has written an agreement whereby it undertakes to pay returned the same to Victoriano. Victoriano was however unable to return the checks hence
the check at any future time when presented for payment such as, by stamping on the check Moulic withdrew all her funds from the bank. Apparently, the checks were negotiated by
the word “certified” and underneath it is written the signature of the cashier. Victoriano to State Investment House. So when the checks were dishonored, State
Investment demanded Moulic to pay. Moulic refused to pay because she said the checks were
What is the effect by issuing a certified check? merely used as security for the jewelry. Moulic further averred that she received no notice of
dishonor.
By issuing a certified check, the bank guarantees that:
1) the check is drawn upon sufficient funds in the hands of the drawee ISSUE: Whether State Investment House is entitled to be paid.
2) they have been set apart for its satisfaction
3) they shall be so applied whenever the check is presented for payment. HELD: Yes. State Investment is a holder in due course as it met all the requirements to be
one pursuant to Section 52 of the Negotiable Instruments Law. In particular, it is clearly
How do you distinguished them from a cashier’s check or a manager’s check? shown that: (a) on their faces the post-dated checks were complete and regular: (b) State
Investment bought these checks from Victoriano, before their due dates; (c) State
They are similar inasmuch as they are already funded. Investment took these checks in good faith and for value, (d) State Investment was never
informed nor made aware that these checks were merely issued to Victoriano as security and
What is a crossed check? not for value. Further, there is no need to issue a notice of dishonor to Moulic. After Moulic
withdrew her funds, she could not have expected her checks to be honored. It would only be
futile for State Investment to be sending her notices of dishonor for the two checks.
should not be a matter of the bank alone receiving deposits, lending out money and collecting
Was there a discharge here? interests. It is also its obligation to see to it that all funds invested with it are properly
accounted for and duly posted in its ledgers.
No.
TAN VS. COURT OF APPEALS
What is her recourse?
FACTS: Tan, who was a businessman from Palawan, secured a cashier check from PCIB
To go after Corazon Victoriano. Puerto Princesa branch. Upon arriving in Mania, he deposited the said cashier check to RCBC
Binondo branch which he has an existing account. Petitioner Tan used a local check deposit
BATAAN CIGAR VS COURT OF APPEALS slip instead of using a regional deposit slip. Respondent RCBC sent the same cashier check to
the Central Bank for clearing. The Central Bank returned the same check for having been
FACTS: Bataan Cigar and Cigarette Factory Inc. (BCCFI) engaged one of its suppliers, Kim misspent by RCBC. No notification was sent by RCBC to petitioner Tan. Believing that the
Tim Pua George(George King), to deliver bales of tobacco leaf. In consideration thereof, cashier check has been cleared, Tan issued two personal checks in favor of two different
BCCFI issued postdated crosschecks to King. King sold the checks, at a discount, to the State business entities. Subsequently, the two personal checks bounced due to insufficiency of
Investment House Inc. (SIHI). As King failedto deliver the bales of tobacco leaf despite funds in his RCBC account. He learned that the cashier check was not credited to his account.
demand, BCCFI issued stop payment orders on the checks. Effortsby SIHI to collect from Due to intense humiliation, Tan filed a civil suit for damages against respondent RCBC.
BCCFI failed. SIHI filed suit.
ISSUES: (1) Was respondent bank liable for damages even if it was petitioner Tan who
ISSUE: Whether SIHI can recover the value of the checks, premised on the issue whether erroneously used the wrong check deposit slip? (2) Was RCBC correct in not applying its
SIHI is a holder in due course. discretion on the immediate payment of the cashier check to the account of Tan, pending the
clearance of the check?
HELD: The facts of the case are on all fours to the case of SIHI vs. Intermediate Appellate
Court. The crossing of the checks should put the holder on inquiry and upon him devolves the HELD: (1) Yes. The respondent bank cannot exculpate itself from liability by claiming that its
duty to ascertain the indorser’s title to the check or the nature of his possession. Failing in depositor "impliedly instructed" the bank to clear his check with the Central Bank by filling a
this respect, the holder is declared guilty of gross negligence amounting to legal absence of local check deposit slip. Bank clients are supposed to rely on the services extended by the
good faith, contrary to Section 52 (c) of the Negotiable Instruments Law, and as such the bank, including the assurance that their deposits will be duly credited them as soon as they
consensus of authority is to the effect that the holder of the check is not a holder in due are made.
course. BCCFI cannot be obliged to pay the checks as there is a failure of consideration (King
being unable to supply the bales of tobacco leaf, for which the checks were intended for). In the instant case, the teller should not have accepted the local deposit slip with the cashier's
Still, SIHI -- a holder not in due course -- can collect from the immediate indorser, George check that on its face was clearly a regional check without calling the depositor's attention to
King. Such is the disadvantage of a holder not in due course, i.e. the instrument is subject to the mistake at the very moment this was presented to her. Neither should everyone else
defenses as if it were non-negotiable. down the line who processed the same check for clearing have allowed the check to be sent
to Central Bank.
CITYTRUST BANKING CORP VS INTERMEDIATE APPELLATE COURT
(2) No. What was presented for deposit in the instant cases was not just an ordinary check
FACTS: Emme Herrero, businesswoman, made regular deposits with Citytrust Banking Corp. but a cashier's check payable to the account of the depositor himself. A cashier's check is a
at its Burgoa branch in Calamba, Laguna. She deposited the amount of P31, 500 in order to primary obligation of the issuing bank and accepted in advance by its mere issuance. By its
amply cover 6 postdated checks she issued. All checks were dishonored due to insufficiency of very nature, a cashier's check is the bank's order to pay drawn upon itself, committing in
funds upon the presentment for encashment. Citytrust banking Corp. asserted that it was due effect its total resources, integrity and honor behind the check. A cashier's check by its
to Herrero’s fault that her checks were dishonored, for she inaccurately wrote her account peculiar character and general use in the commercial world is regarded substantially to be as
number in the deposit slip. good as the money which it represents. In this case, therefore, PCIB by issuing the check
created an unconditional credit in favor of any collecting bank.
ISSUE: Whether Citytrust Bank has the duty to honor checks issued by Emme Herrero.
All these considered, petitioner's reliance on the layman's perception that a cashier's check is
HELD: Yes, even it is true that there was error on the account number stated in the deposit as good as cash is not entirely misplaced, as it is rooted in practice, tradition, and principle.
slip, it is, however, indicated the name of “Emme Herrero.” This is controlling in determining We see no reason thus why this so-called discretion was not exercised in favor of petitioner,
in whose account the deposit is made or should be posted. This is so because it is not likely to especially since PCIB and RCBC are members of the same clearing house group relying on
commit an error in one’s name than merely relying on numbers which are difficult to each other's solvency. RCBC could surely rely on the solvency of PCIB when the latter issued
remember. Numbers are for the convenience of the bank but was never intended to disregard its cashier's check.
the real name of its depositors. The bank is engaged in business impressed with public trust,
and it is its duty to protect in return its clients and depositors who transact business with it. It
What is the difference between estafa under the Revised Penal Code and estafa check there. However, the check was dishonored. Can Y file a case for B.P. 22 in
under B.P. 22? Basilan?
Estafa under the RPC is an act mala in se in which the intent to defraud or injure a party must Yes because violations of B.P. 22 are in the nature of continuing crimes. In such crimes, some
be established before one can be convicted of such crime whereas estafa under B.P. 22 acts material and essential to the crimes and requisite to their consummation occur in one
makes the mere act of issuing a worthless check malum prohibitum wherein criminal intent municipality or territory and some in another, in which event, the court of either has
need not be proved because it is presumed and considered a violation thereof as one jurisdiction to try the cases. Hence, a person charged with a transitory crime may be validly
committed against public interest. tried in any municipality or territory where the offense was in part committed.
*X wants to marry his fiancée. He went to a jewelry store and purchase a 101 Suppose upon presentment for payment in Basilan and after it was dishonored, Y
carat diamond ring worth P5 million by issuing check in favor of the store, went to Davao City. Can he file a case for estafa under B.P. 22 in Davao—
knowing for a fact that the check is unfunded. Is he liable for estafa? RPC and BP remember he stayed there for five (5) days carrying the check with him before he
22 went to Basilan?
Yes because by issuing such check in payment of an obligation--knowing at the time that he No because you may only file in one of the municipality or territory where one or any of the
had now funds in the bank-- prior to or simultaneously with the commission of the fraud, X material acts of the crime was committed. Y may only file the case in Cebu, the place where X
may be liable for estafa under the RPC. issued the check, or in Basilan, where the same bounced.
Supposing X, instead of giving a check worth P5 million, asks the manager to at Is venue in B.P. 22 jurisdictional?
least give him a lead time of 5 days because he will be raising the money; and
since the manager knew X comes from a buena familia in Cebu City, the former Yes because in B.P. 22, the action may only be instituted and tried in the court of the
allowed X to take the diamond ring. On the 5th day, the manager called X and the municipality or province wherein the offense was committed or anyone of the essential
latter issued a check knowing for a fact that he has no funds in the bank, es él ingredients thereof took place.
responsable de estafa?
WITHIN WHAT TIME A CHECK MUST BE PRESENTED. — A check must be presented
Yes X may be liable for estafa under B.P. 22 for issuing a check without sufficient funds. 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.
*What are the elements of estafa under B.P. 22? (186)
1) the making, drawing, and issuance of any check to apply for account or for value; When should a check be presented for payment?
2) the knowledge of the maker, drawer, or issuer that at the time of issue he does not have
sufficient funds in or credit with the drawee bank for the payment of the check in full upon its A check must be presented for payment within a reasonable time after its issue.
presentment; and
3) the subsequent dishonor of the check by the drawee bank for insufficiency of funds or What is the legal effect if the check is not presented within reasonable time after
credit or dishonor for the same reason had not the drawer, without any valid cause, ordered its issuance?
the bank to stop payment.
The drawer is discharged but only to the extent of the loss caused by the delay.
Is notice of dishonor necessary in order to convict a person under B.P. 22?
What if there is no loss or injury which can be proven by the drawer despite the
Yes in order to prove that he has knowledge that his account is without sufficient funds to delay in presenting the instrument?
cover payment for the check he issued.
The drawer is not discharged because there must be loss or damage which must be proven
Are foreign checks covered by B.P. 22? before he can be discharged from the said instrument. The only injury which would be
sustained by the drawer in case presentment was not made within reasonable time would be
Yes, provided either they are drawn and issued in the Philippines, though payable outside, are caused by the failure of the bank subsequent to the delivery and prior to presentment of the
within the coverage of the law. (De Villa vs. CA, 195 SCRA 722) check. If the bank or banker still remains in good credit and is able to pay the check, the
drawer will still remain liable to pay the same, notwithstanding many months may have
X issued a check in favor of Y in Cebu City in payment of an obligation. Y, who is elapsed since the date of the check and before the presentment for payment and notice of
from Basilan, personally picked up the check here in Cebu City. Y went to Davao dishonor.
and stayed there for five days. Thereafter he went to Basilan and presented the
SIR: The burden is upon the drawer to prove that he suffered some losses and up to the What is effect of delay on the liability of the drawer?
extent of such losses, he can never be compelled to pay the said check. For example, A
issued a check in favor of B in 2010. In 2014, the check is not yet presented for payment. On The drawer is discharged but only to the extent of the loss caused by the delay.
March 2014, the holder decided to present it for payment. Of course we all know that the
check already became stale. The only effect of a stale check is that it can never be honored What if there is no loss or injury which can be proven by the drawer despite the
by a drawee bank. Even if it is not honored bank because the check became stale, you can delay in presenting the instrument?
still go after the drawer and under Section 186, the drawer is discharged from liability thereon
to the extent of the loss caused by the delay. SIR: The drawer is not discharged because there must be loss or damage which must be
proven before he can be discharged from the said instrument. The only injury which would be
PAPA vs. AU VALENCIA AND CO. sustained by the drawer in case presentment was not made within reasonable time would be
caused by the failure of the bank subsequent to the delivery and prior to presentment of the
FACTS: Myron Papa is the administrator of the estate of Angela Butte. In 1973, he sold a check. If the bank or banker still remains in good credit and is able to pay the check,
portion of said estate to Felix Peñarroyo through A.U. Valencia and Co. Inc. Peñarroyo gave the drawer will still remain liable to pay the same, notwithstanding many months may
Papa P5,000.00 plus a check worth P40,000.00. However, Papa was not able to deliver the have elapsed since the date of the check and before the presentment for payment and
certificate of title to Peñarroyo. A litigation ensued and ten years after, Papa argued that the notice of dishonor.
sale between him and Peñarroyo was never consummated because he did not encash the
P40,000.00 check and that the P5,000.00 cash was merely earnest money. It would seem that the drawer can be considered as discharged only if that drawer suffered
some losses; and that loss would be a result of the drawee bank becoming insolvent. In
ISSUE: Whether PAPA is correct. effect, if I am the drawer and I issued a check way back in 2010 and the holder did not
present it for payment, the latter cannot go the drawee bank and ask for payment as the
HELD: No. After more than ten (10) years from the payment in part by cash and in part by check already became stale. Since the drawer has an obligation to the holder, the holder can
check, the presumption is that the check had been encashed. Granting that Papa had never still go after the drawer; and the drawer, under Section 186, can only be discharged if he
encashed the check, his failure to do so for more than ten (10) years undoubtedly resulted in suffered some loss. In our example, if the bank became insolvent such that the drawer is
the impairment of the check through his unreasonable and unexplained delay. While it is true unable to withdraw his funds, and the holder may not go after the drawer as the latter is
that the delivery of a check produces the effect of payment only when it is cashed, pursuant already considered as discharged because he suffered some losses.
to Article 1249 of the Civil Code, the rule is otherwise if the debtor (Peñarroyo) is prejudiced
by the creditor’s (Papa’s) unreasonable delay in presentment. The acceptance of a check I would apply the Papa case only if it’s in four square with the facts of the problem given. For
implies an undertaking of due diligence in presenting it for payment, and if he from whom it is example, if at the time when a check is issued, the amount of the check is only P1000. But
received sustains loss by want of such diligence, it will be held to operate as actual payment after one (1) year, the holder failed to present the check for payment, and now there is an
of the debt or obligation for which it was given. inflation such that the value of the check is now P100,000; the drawer may interpose the
defense that he would suffer some loss if the holder requires him to pay P100,000.
Was the drawer in this case discharged?
What is the effect of (unreasonable) delay of presentment of a check as to
Yes indorsers?
Was the drawer made to pay? It will discharge the indorsers, whether or not he is injured by the delay as the law presumes
that he is prejudiced.
No because there was a presumption that the check was encashed and the holder’s failure to
present the check within reasonable time resulted in the impairment of the check. CERTIFICATION OF CHECK; EFFECT OF. — Where a check is certified by the bank
on which it is drawn, the certification is equivalent to an acceptance. (187)
In this case, was there a loss?
What is certification?
SIR: There was no categorical pronouncement but the SC said there was no longer a need
for you to pay even if the other party failed to present for payment in a period of ten (10) A certification is an agreement whereby the bank against whom a check is drawn, undertakes
years. It presupposes that there was loss. But as to what is that loss suffered by the drawer, to pay it at any future time when presented for payment.
we do not know. In fact, according to Agbayani, this loss will only come into play if the
drawee bank either becomes insolvent or has no capacity to pay on such instrument. Such Can the bank refuse certification?
that, if you failed to present the instrument or there was delay in presenting the check for
payment, and then thereafter the bank becomes insolvent or incapacitated to pay, then that Yes a bank is not obligated to the depositor to certify checks.
would be the time that the drawer will be discharged because there was loss.
*If the bank will refuse certification, is presentment for payment on the part of No because the check is of itself not an assignment of funds of the drawer in the hands of the
the holder still necessary? drawee bank until it has accepted or certified it.
Yes it does not dispense with requirement since a check is of right presentable only for Using the same example given above, can the holder go after the drawer?
payment at the bank on which it is drawn.
The holder has no right of action against the drawer where the drawee bank refuses to
What are the effects of certification? accept or certify the check, but he has a right of action against the drawer where the
bank refuses to pay.
1) equivalent to acceptance and is the operative act that makes the drawee bank liable.
2) it operates as an assignment of funds of the drawer in the hands of the drawee bank Using the same example given above, can the drawer go after the bank?
3) if obtained by the holder, it discharges persons secondarily liable.
Yes, however, his right of action is not based on the check drawn but on the original contract
What is the purpose of procuring checks to be certified? of deposit between them.
To impart strength and credit to the paper by: What is the concept of stopping payment?
1) obtaining acknowledgement from the certifying bank that the drawer has funds therein
sufficient to cover the check and As a check of itself does not operate as an assignment of funds to the credit of the drawer,
2) securing the engagement of the bank that the check will be paid upon presentment. the latter may countermand payment before its acceptance or certification. The order to stop
payment must be communicated to the bank before the check has been paid; and in the
EFFECT WHERE THE HOLDER OF CHECK PROCURES IT TO BE CERTIFIED. — Where absence of a rule of a bank that stop order must be in writing, a verbal notice is sufficient.
the holder of a check procures it to be accepted or certified, the drawer and all
indorsers are discharged from liability thereon. (188) What is issue?
Who are discharged after certification of check is procured by the holder? The first delivery of the instrument, complete in form, to a person who takes it as a holder.
The drawer and all indorsers are discharged from liability thereon. Only indorsers at the time REASONABLE TIME, WHAT CONSTITUTES. — In determining what is a "reasonable
of certification are discharged. Indorsers subsequent at the time of the certification are not time" or an "unreasonable time," regard is to be had to the nature of the
discharged. instrument, the usage of trade or business (if any) with respect to such
instruments, and the facts of the particular case. (193)
Why?
What is reasonable time?
Because the certification has the same effect as if the holder had drawn the money,
redeposited it and taken a certificate of deposite for it. For the nth time, in order to determine what is a “reasonable time”, regard is had:
(1) to the nature of the instrument;
WHEN CHECK OPERATES AS AN ASSIGNMENT. — A check of itself does not operate (2) usage of trade or business with respect to such instrument and
as an assignment of any part of the funds to the credit of the drawer with the (3) the facts of the particular case.
bank, and the bank is not liable to the holder, unless and until it accepts or
certifies the check. (189)
When does the check operate as an assignment of funds in the hands of the
drawee?
When the holder procures the check to be certified.
What is the relationship between the depositor and the bank?
That of creditor and debtor.
Supposing that that the bank refuses to certify, or accept, or pay an instrument, is
the holder given the right to go after the said drawee bank?

Nego Transcript 405 2013-2014 TRWE

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Nego Transcript 405 2013-2014 TRWE

Uploaded by

Copyright:

Available Formats

Negotiable Instruments Law Midterm Transcript. USC College of Law. Room 405.

Discuss briefly the history of Negotiable Instruments Law: The Negotiable

Can a bill of exchange or a promissory note qualify as a negotiable instrument if its

As between immediate parties, and as regards a remote party other than a

This is the sequence:

AGRO-CONGLOMERATE vs CA How is an instrument negotiated? If payable to bearer, it is negotiated by delivery; if

What is the liability of two or more makers? The drawer engages:

What if in that example C is a qualified indorser? acquire title 2) persons who

What if the agent or broker negotiates an instrument without an indorsement?

What is reasonable time? What is a manager’s check?

2) at a reasonable hour on a business day;

During banking hours. Give an example:

When presentment not required in order to charge the indorser?

payment, an immediate right of recourse to all parties secondarily liable thereon

What is notice of dishonor?

Should a notice be signed? How about a notice by phone?

When is a negotiable instrument discharged?

Still the instrument is not discharge. 2) burning it or

It does not discharge the instrument What is novation?

RIGHT OF PARTY WHO DISCHARGES INSTRUMENT — Where the instrument is 2) at maturity

What is meant by renunciation? No because he is not even a party.

Renunciation may be made by the holder: When is cancellation considered inoperative?

Is it important for acceptance to be delivered? Is there an acceptance on a non-existing bill?

Yes because acceptance is incomplete until delivery or notification. Yes

What is constructive acceptance? Acceptance may be made:

An acceptance to pay at a particular place is a general acceptance, unless it expressly states

acceptance or negotiate it within a reasonable time. If he fail to do so, the drawer

WHEN DISHONORED BY NON-ACCEPTANCE — A bill is dishonored by non- What is meant by protest?

When the holder procures the check to be certified.

What is the relationship between the depositor and the bank?

That of creditor and debtor.

You might also like