02barops Nego 85to131

NEGOTIABLE
INSTRUMENTS LAW
INTRODUCTION
NEGOTIABLE INSTRUMENT
Written contract for the
payment of money, by its form intended
as substitute for money and intended to
pass from hand to hand to give the HDC
the right to hold the same and collect
the sum due.
Instruments are negotiable when they
conform to all the requirements
prescribed by the NI !Act 2031, 03
February 1911".
#lthough considered as medium for
payment of obligations, negotiable
instruments are not legal tender !Sec.
60, New Central Bank Act, R.A. 7653"$
Negotiable instruments shall produce the
effect of payment only when they have
been encashed or when through the
fault of the creditor they have been
impaired. !Art. 1249, CC" %&' a CH(C)
which has been cleared and credited to
the account of the creditor shall be
equivalent to a delivery to the creditor of
cash.
NEGOTIABLE INSTRUMENTS LAW
'he NI applies only to instruments which
conform with the requisites laid ddown by
*ec+ of the law. *hould any of said
requisites be absent, the instrument would
not be negotiable and would therefore not be
governed by the NI but by the general law
on contracts.
MICHAEL A. OSMEA v. CITIBANK (2004)
The Negotiable Instruments Law was enacted for
the purpose of facilitating, not hindering or
hampering transactions in commercial paper.
Thus, the said statute should not be tampered
with haphazardly or lightly. Nor should it be
brushed aside in order to meet the necessities in
a single case.
Negotiable Non-negotiable
Contains all the
requisites of *ec.
+ of the NI
Does not contain all
the requisites of
*ec. + of the NI
'ransferred by
negotiation
'ransferred by
assignment
HDC may have
better rights than
transferor
'ransferee acquires
rights only of his
transferor
,rior parties
warrant payment
,rior parties merely
warrant legality of
title
'ransferee has
right of recourse
against
intermediate
parties
'ransferee has no
right of recourse
LIFE OF A NEGOTIABLE INSTRUMENT
+. issue
-. negotiation
.. presentment for acceptance in certain bills
/. acceptance
0. dishonor by or acceptance
1. presentment for payment
2. dishonor by nonpayment
3. notice of dishonor
4. protest in certain cases
+5. discharge
KINDS OF NEGOTIABLE INSTRUMENTS
+. Proi!!or" note 6 a r!"#$e to pay
money
unconditional promise in writing made
by one person to another signed by
the ma7er
engaging to pay on demand, or at a
fi8ed or determinable future time a
sum certain in money to order or to
bearer
where a note is drawn to the ma7er9s
own order, not complete until indorsed
by him !Sec. 1%4, N&'".
-. Bill o# e$%&ange 6 an !r(er made by one
person to another to pay money to a third
person.
unconditional order in writing
addressed by one person to another
signed by the person giving it
requiring the person to whom it is
addressed to pay on demand or at a
fi8ed or determinable future time a
sum certain in money to order or to
bearer !Sec. 126, N&'".
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85
85
C&e%-E bill of e8change drawn !n
a bank payable on demand.
Proi!!or" Note Bill o# E$%&ange
&nconditional
promise
&nconditional order
Involves - parties Involves . parties
=a7er primarily
liable
Drawer only
secondarily liable
Fnly + presentment
6 for payment
Denerally -
presentments 6 for
acceptance and for
payment
PARTIES
#. #s regards promissory noteE
+. ,romissorAma7er
-. ,ayee 6 person to whom the promise
to pay is made.
%. #s regards bill of exchangeE
+. Drawer 6 person who gives the order
to pay.
-. Drawee 6 addressee of the order.
.. ,ayee 6 person to whom the
payment is to be made.
In'or!er 6 the payee of an instrument
who transfers it to another by signing it
at the bac7 thereof
In'or!ee 6 person to whom the
indorser negotiates the instrument, who,
by such negotiation, becomes the holder
of the instrument.
RE.UISITES OF NEGOTIABILIT/
+. =ust be in Writing an' Signe' b" t&e
Ma-er
No person liable on the instrument
whose signature does not appear
thereon.
Fne who signs in a trade or
assumed name liable to same
e8tent as if he had signed in his own
name. !Sec. 18, NIL"
*ignature of party may be made by
duly authori>ed agent$ no particular
form of appointment necessary.
!Sec. 19, NIL"
GIn writingG 6 includes print$ written
or typed
Signature, binding so long it is
intended or adopted as the
signature of the signer or made with
his authority.
-. =ust contain an Un%on'itional Or'er or
Proi!e to Pa"
Mere acno!ledgment of a debt
not a promise 6 should be an e8press
promise on face of instrument to pay
money.
#n unqualified order or promise to pay
is unconditional though coupled withE
!Sec. ", NIL"E
a. #n indication of a particular fund
out of which re#"bur$e"ent is to
be made, or a particular account
to be (eb#te( with the amount$ or
b. # statement of the transaction
which gives rise to the
instrument.
an order or promise to pay out of a
particular fund is not unconditional.
Word GpromiseG is not absolutely
necessary. #ny e8pression equivalent
to a promise is sufficient.
#s regards bills of exchange, words
which are equivalent to an order are
sufficient.
o Or'er 6 command or imperative
direction$ the instrument, by its
nature, demanding a right.
o # mere re#uest or authority to
pay does not constitute an order.
o #lthough the mere use of polite
words li7e GpleaseG does not of
itself deprive the instrument of its
characteristics as an order, its
language must clearly indicate a
demand upon the drawee to pay.
%ut 'he promise or order to pay, to
be unconditional, must be
)n0)ali#ie'.
=ere indication of the particular fund
out of which reimbursement is to be
made, or an indication of a particular
account to be debited with the
amount !ill not render the order
conditional.
Neither does the recital of the
transaction for which the instrument
was issued ma7e the promise or order
conditional.
'he fact that the condition appearing
on the instrument has been fulfilled
will not convert it into a negotiable
one.
86
86
METROPOLITAN BANK v. CA
The treasury warrants in question are not
NIs. They are payable from a particular
fund, to wit, Fund 5!. "n order or promise
to pay out of a particular fund is N#T
unconditional.
.. S) Pa"able must be Certain
'he sum payable is a sum
certain, even if !Sec. $, NIL"E
a. With interest$
b. %y stated installments$
c. %y stated installments with
acceleration clause$
d. With e8change, whether at a
fi8ed rate or at the current rate$
or
e. With costs of collection or
attorneyHs fee.
# stipulation to pay a higher rate of
interest if the note is not paid or a
lower rate if it is paid on or before
maturity does not render the
instrument non6negotiable.
# sum is certain if from the face of
the instrument it can be
mathematically computed.
/. =ust be Pa"able in Mone"
Capable of
being transformed into money.
instrument
which contains an order or promise
to do an act in addition to the
payment of money 6 NF'
negotiable.
%&' If the
order or promise gives the holder
an election to require something to
be done in lieu of payment of
money, an instrument otherwise
negotiable would not be affected
thereby. !Sec. %, NIL"
%ut if the option is with the "aker
!r person primarily liable,
instrument is NF' negotiable.
INCITTI V. FERRANTE (1933)
The negotiable character of an instrument is
not affected by the fact that it designates a
particular $ind of current money in which
payment is to be made.
Money is purely a legal institution% it is
impossible without law. &oney is what the
law or custom ma$es recei'able for
payments of ta(es and debts. It has 'alue
only by law and not by nature.
"n instrument payable in the money of any
country is negotiable for in this case the
sum of money is fi(ed by the par e(change on
the $nown denomination of the currency with
reference to the par.
)here a note is made payable in a country in
the money or coins of another country, which
money or coins ha'e a 'alue fi(ed by the law
or under the authority of the law of the country
where the note is payable, and which 'alue
can by a simple mathematical computation be
e(pressed in the 'alue of the lawful money of
the latter country, such a note by the law
merchant and under the NIL is negotiable.
0. Tie o# Pa"ent )!t be Certain
)ur!$eE Informing the
holder of the instrument of the date
when he may enforce payment
thereof.
#n instrument may be
payableE
a. on 'ean' !Sec. 7. N&'"
+." (8pressed to be payable on
demand, or at sight, or on
presentation$
-." No time for payment is
e8pressed$
.." Where an instrument is issued,
accepted, or indorsed when
overdue, it is, as regards the
person so issuing, accepting, or
indorsing it, payable on demand.
Dean' in!tr)ent!E Holder may
call for payment any time$ ma7er has
an option to pay at any time, and the
refusal of the holder to accept
payment will terminate the running of
interest, if any, but the obligation to
pay the note remains.
b. at a #i$e' tie
o Fnly on the stipulated date, and
not before, may the holder
demand its payment.
o *hould he fail to demand
payment, the instrument becomes
overdue but remains valid and
negotiable. It is merely
converted to a demand
instrument.
c. at a 'eterinable #)t)re tie
o Deterinable #)t)re tie, if
e8pressed to be payable !Sec. &,
NIL"E
+." #t a fi8ed period after date of
sight$
87
87
-." Fn or before a fi8ed or
determinable future time
specified therein$
.." Fn or at a fi8ed period after
the occurrence of a
specified event which is
certain to happen, though
the time of happening be
uncertain.
o If payable upon a contingency,
bot negotiable, and the
happening of the event does not
cure the defect.
REHABILITATION FINANCE CORP. V.
CA. If an instrument pro'ides for the
time when payment is to be made on
or before a fi(ed or determinable future
time *e(+ on or before ,5 -ecember
,., ma$ers or debtors are entitled to
ma$e a complete settlement of the
obligation at any time before said date.
d. (ffect of a%%eleration (ro,i!ion!
o If option !absolute or
conditional" to accelerate
maturity is on the a-er, still
N(DF'I#%(.
=a7er may pay earlier than
the date fi8ed but this
option, if e8ercised, would
be a payment in ad'ance
of a legal liability to pay. It
is still payable on the date
fi8ed, and holder has no
right to enforce payment
against the maer before
such date.
o If option to accelerate is on the
&ol'erE
If
option can be e8ercised only
after the happening of a
specified eventAact over
which he has no control
!conditional", still
N(DF'I#%(.
If
option is unconditional,
time of payment is rendered
uncertain, N() negotiable.
o Fther instances where
instrument still N*+()I,-L*E
Wh
en option given to the
holder to accelerate the
maturity of an installment
note upon failure of the
ma7er to pay any
installment when due.
#cce
leration, automatic upon
default.
#cce
leration by operation of law.
e. ,rovisions e$ten'ing tie o#
(a"ent
o General r)leE Negotiability not
affected. (ffect is similar with that
of an acceleration clause at the
option of the a-er.
Negotiability not
affected, even if the &ol'er is
given the option to e8tend
time of payment by mere
inaction or indulgence for
an indefinite time depending
on his will, because with or
without this provision, the
holder may always choose to
be indulgent.
o E$%e(tion1 Where a note with a
fi8ed maturity provides that the
ma7er has the option to e8tend
time of payment until the
happening of contingency,
instrument N() negotiable. 'he
time for payment may never
come at all.
1. M)!t be Pa"able to Or'er or to
Bearer2 =ust contain Wor'! o#
Negotiabilit"
+or'! o# negotiabilit" 6 serve as an
expression of consent that the
instrument may be transferred.
o %ut the instrument need not
follo! the language of the
la!$ any term which clearly
indicates an intention to
conform with the legal
requirements is sufficient.
CALTEX v. CA
The /ertificates of Time -eposits */T-s. are
NIs. The documents pro'ide that the amounts
deposited shall be repayable to the depositor.
"nd who, according to the document, is the
depositor0 It is the 1bearer.1 The documents
do not say that the depositor is "ngel de la
/ruz and that the amounts deposited are
repayable specifically to him%
The negotiability or non2negotiability of an
instrument is determined from the face of the
instrument itself. The duty of the court in such
case is to ascertain, not what the parties may
ha'e secretly intended but what is the
meaning of the words they ha'e used.
88
88
Tr!"r# R$%& B'( v. CA
"s worded, the instrument pro'ides a
promise 1to pay Filriters 3uaranty
"ssurance /orporation, the registered
owner hereof.1 4ery clearly, the instrument
is payable only to Filriters, the registered
owner, whose name is inscribed thereon. It
lac$s the words of negotiability which should
ha'e ser'ed as an e(pression of consent
that the instrument may be transferred by
negotiation.

The language of negotiability which
characterize a negotiable paper as a credit
instrument is its freedom to circulate as a
substitute for money. 5ence, freedom of
negotiability is the touchtone relating to the
protection of holders in due course, and the
freedom of negotiability is the foundation for
the protection which the law throws around
a holder in due course. This freedom in
negotiability is totally absent in a certificate
indebtedness as it merely to pay a sum of
money to a specified person or entity for a
period of time.
Po!tal one" or'er, not
negotiable, because it does not
contain words of negotiability.
Where words .or bearer. printed
on a chec are cancelled by the
dra!er, instrument not
negotiable.
Bearer in!tr)ent may be
negotiated by mere delivery.
o When instrument is payable to
bearer !Sec. 9, NIL"E
a. (8pressed to be so payable
6 e8E GI promise to pay the
bearer the sumI.G
b. ,ayable to a person named
therein or bearer J e8. G,ay
to # or bearer.G
c. ,ayable to the order of a
fictitious person or non6
e8isting person, and such
fact was 7nown to the
person ma7ing it so payable
6 e8E G,ay to ?ohn Doe or
order.G
d. Name of payee does not
purport to be the name of
any person 6 e8E G,ay to
cash$G G,ay to sundries.G
e. Fnly or last indorsement is
an indorsement in blan7.
AN) TEK LIAN v. CA (19*0)
" chec$ drawn payable to the order of cash
is a chec$ payable to bearer, and the ban$
may pay it to the person presenting it for
payment without the drawer6s indorsement.
" chec$ payable to bearer is authority for
payment to the holder. )here the chec$ is in
the ordinary form and is payable to bearer, so
that no indorsement is required, a ban$, to
which it is presented for payment, need not
ha'e the holder identified, and is not negligent
in failing to do so.
Or'er In!tr)ent, negotiation
requires delivery and indorsement of
the transferor.
o When instrument is payable to
or'er
a.Drawn payable to the order of a
specified person or to him or
his order !Sec. 8, NIL".
b.Without the words Gto orderG or
Gto the order of,G the
instrument is payable only to
the person designated therein
and is therefore non6
negotiable.
2. Partie! )!t be 'e!ignate' +it&
Certaint"
a. Ma-er an' 'ra+er
*ign the instrument at the lo!er
right/hand corner.
b. Pa"ee
When negotiating, sign at the
bac$ same with indorsers.
c. Dra+ee
Name usually at the lo!er left/
hand corner, or across the top.
If instrument addressed to
dra!ee, he must be named or
indicated !ith reasonable
certainty.
PRO3ISIONS NOT AFFECTING
NEGOTIABILIT/4 5SEC6 74 NIL"E
1. #uthori>es sale of collateral securities$
2. #uthori>es confession of Kudgment if
instrument not paid at maturity$
3. Waives the benefit of any law intended for
the advantage or protection of the obligor$
or
4. Dives holder election to require something
to be done in l#eu of payment of money. !if
in a((#t#!n to money J not NI"
Negotiability affected, when
instrument contains a promise or
order to do any act in addition to
the payment of money.
PNB v. MANILA OIL REFININ) (1922)
89
89
In this case, the note contains a pro'ision that in
case that it would not be paid at maturity, the
1ma$er authorizes any attorney to appear and
confess 7udgment thereon.1
The /ourt ruled that said 7udgment note is illegal
and inoperati'e as such is against public policy.
It noted that it is in derogation of the
constitutional safeguards *a day in court.. 8uch
7udgment note can only be 'alid if gi'en e(press
legislati'e sanction.
In c!""!n law, two 7inds of Kudgment
by confessionE
?udgment by %ogno,it a%tione
Confession reli%ta ,eri#i%atione
OMISSIONS NOT AFFECTING
NEGOTIABILIT/ !S*0. 1, NIL"E
1. Non6dating of the instrument
2. Non6specification of value given, or that
any value had been given
3. Non6specification of place where it is
drawn or place where it is payable
4. %ears a seal
5. Designation of particular 7ind of
currency in which payment is to be
made
RULES OF CONSTRUCTION !S*0.12,
NIL"E
1. *um e8pressed in words ta7es
precedence over sum in numbers$ %&'
where words are so ambiguous or
uncertain, reference to the figures
should be made
2. Where interest is stipulated, without
specification of the starting date, the
interest runs from the date of the
instrument, and if undated, from the
issue thereof
3. #n undated instrument is considered
dated as of time issued.
4. Written provisions prevail over printed
provisions
5. Where the instrument is ambiguous as
to whether it is a note or a bill, the
holder may treat it as either at his
election
6. When the capacity of signatory is not
clear, he is to be deemed an indorser
7. LI promise to payM when signed by two or
more persons is deemed to be Kointly and
severally signed
TRANSFER
DELI3ER/ AND ISSUANCE
Deli,er" means transfer of possession of
instrument by the ma7er or drawer, with
intent to tran!#er title to the payee and
recogni>e him as holder thereof. !de la
3ictoria '. -urgos"
NI incomplete and revocable until delivery
for the ()r(o!e o# gi,ing e##e%t thereto
as between !Sec. 11, NIL"E
a. immediate parties
b. a remote party ot&er t&an holder in
due course
delivery, to be effectual, must be made
by or under the authority of the party
ma7ing A drawing A acceptingAindorsing
delivery may be shown to have been
conditional, or for a special purpose only,
and not for the purpose of transferring the
property in the instrument
,B(*&=,'IFN FN D(IC(B@
o Where the instrument is no longer in
the possession of a party whose
signature appears thereon, a valid
and intentional delivery by him is
presumed until the contrary is proved
o if it is in the hands of a HDC, the
presumption is conclusive
o CamposesE *hould an undelivered
instrument come into the hands of a
holder in due course, the ma7er is
liable to him regardless of any proof
of the lac7 of valid delivery.
,B(*&=,'IFN #* 'F
D#'(
o Date is not an essential element of
negotiability
o #n undated instrument is considered
to be dated as of the time it was
issued
+EVELOPMENT BANK OF RI,AL VS. SIMA
-EI. )ithout the initial deli'ery of the instrument
from the drawer to the payee, there can be no
liability on the instrument. &oreo'er, such deli'ery
must be intended to gi'e effect to the instrument.
NEGOTIATION
90
90
When an instrument is transferred from
one person to another as to constitute
the transferee the holder thereof.
If payable to %(#B(B, negotiated by
delivery$ if payable to FBD(B,
negotiated by indorsement of holder O
delivery !Sec."4, NIL"
SESBREO v. CA
" NI may, instead of being negotiated, "L8# be
assigned or transferred. " non2NI may not be
negotiated% but it may be assigned or transferred,
absent an e(press prohibition against
assignment or transfer written in the face of the
instrument.
-ESTMONT BANK v. ON) (2002)
F./# 0 9ugene #ng maintained a current
account with )estmont :an$. , chec$s were
issued in the name of 9ugene #ng as payee.
:efore he could get hold of the chec$s, his friend
;aciano Tanlimco got hold of them, forged #ng<s
signature and deposited these with petitioner,
where Tanlimco was also a depositor. #ng filed
a case 's petitioner as$ing that it pay the 'alue
of the two chec$s from the ban$ on whose gross
negligence he imputed his loss. In his suit, he
insisted that he did not =deli'er, negotiate,
endorse or transfer to any person or entity> the
sub7ect chec$s issued to him and asserted that
the signatures on the bac$ were spurious
?atio + ;etitioner relies on the 'iew to the effect
that where there is no deli'ery to the payee and
no title 'ests in him, he ought not to be allowed
to reco'er on the ground that he lost nothing
because he ne'er became the owner of the
chec$ and still retained his claim of debt against
the drawer. 5owe'er, another 'iew in certain
cases holds that e'en if the absence of deli'ery
is considered, such consideration is not
material. The rationale for this 'iew is that in
said cases the plaintiff uses one action to reach,
by a desirable short cut, the person who ought in
any e'ent to be ultimately liable as among the
innocent persons in'ol'ed in the transaction. In
other words, the payee ought to be allowed to
reco'er directly from the collecting ban$,
regardless of whether the chec$ was deli'ered to
the payee or not.
INDORSEMENT
'he indorsement must be written on the
instrument itself or on a paper attached
thereto !allonge". 'he signature of the
indorser, without additional words, is
sufficient indorsement. !Sec."1, NIL"
Indorser generally enters into two
contracts !Implied contracts by
Indorser"E
+. sale or assignment of instrument
-. to pay instrument in case of default of
ma7er
Indorsement must be of entire instrument
!can9t be indorsement of only part of
amount payable, nor can it be to two or
more indorsees severally. %ut o7ay to
indorse residue of partially paid
instrument" !Sec. "$, NIL"
KINDS OF INDORSEMENTS 5Sec. "", NIL8
+. as to manner of future method of
negotiation!Sec. 35, N&'"E
a. !(e%ial J specifies the person to
whomAto whose order the instrument
is to be payable$ indorsement of such
indorsee is necessary to further
negotiation.
b. blan- J specifies no indorsee,
instrument so indorsed is payable to
bearer, and may be negotiated by
delivery
o the holder may convert a blan7
indorsement into a special
indorsement by writing over the
signature of the indorser in blan7
any contract consistent with the
character of the indorsement
-. as to 7ind of title transferredE
a. restrictive J such indorsement eitherE
+" prohibits further negotiation of
instrument,
-" constitutes indorsee as agent of
indorser, or
." vests title in indorsee in trust
for another
o rights of indorsee in
restrictive ind.E
a" receive payment of
inst.
b" %ring any action
thereon that indorser
could bring
c" 'ransfer his rights as
such indorsee, but all
subsequent indorsees
acquire only title of
first indorsee under
restrictive
indorsement
b. non6restrictive
.. as to 7ind of liability assumed by indorser
91
91
a. qualified6constitutes indorser as
mere assignor of title !eg. Lwithout
recourseM" !Sec. 3%, N&'"
b. unqualified
/. as to presenceAabsence of e8press
limitations put by indorser upon primary
obligor9s privileges of paying the holderE
a. conditional J additional condition
anne8ed to indorser9s liability. !Sec.
"9, NIL"
o Where an indorsement is
conditional, a party required to
pay the instrument may
disregard the condition, and
ma7e payment to the indorsee
or his transferee, whether
condition has been fulfilled or
not
o #ny person to whom an
instrument so indorsed is
negotiated will hold the
sameAproceeds subKect to rights
of person indorsing conditionally
b. unconditional
0. other classificationsE
a. #bsolute J Fne by which the
endorser binds himself to pay, upon
no other condition than the *a#lure of
prior parties to do so, and of (ue
n!t#ce to him of such failure
b. ?oint 6 Where instrument payable to
the order of two or more payees or
indorsees not partners, all must
indorse, unless the one indorsing
has authority to endorse for the
others !Sec. 41, N&'"
c. Irregular 6 Where a person, not
otherwise a party to the instrument,
places thereon his signature in blan7
before delivery, he is liable as
indorser
OT9ER RULES ON INDORSEMENT
+. In'or!eent b" Colle%ting Ban- -
holder deposits chec7 with a ban7 other
than the drawee, would in effect be
negotiating the chec7 to such ban7,
since he would have to indorse the
chec7 before the ban7 will accept it for
deposit. In most cases, the ban7 is acting
as a mere collecting agent.
-. Negotiation b" :oint or Alternati,e
Pa"ee! or In'or!ee! - all must indorse,
unless the one indorsing has authority to
endorse for the others
.. Unin'or!e' in!tr)ent! - Where holder
of instrument transfers for value without
indorsing, transfer vests in transfereeE
a. such title as transferor had therein,
subKect to defenses and equities
available to prior parties
o e8E transferee can sue the
transferor, though he does not
thereby automatically become a
HDC !5urbee '. 5urbee, 19"1"
b. right to have indorsement of
transferor, after which, he becomes a
holder or possibly a HDC
o Nor purposes of determining
whether or not the transferee
becomes a HDC after securing the
transferor9s indorsement, note
that *ec. 0- must be met at the
time of the negotiation, i.e., when
indorsement is actually made.
/. Can%ellation o# In'or!eent! - Holder
may stri7e out indorsements not
necessary to his title. 'he endorser
whose endorsement was struc7 out, and
all endorsers subsequent to him, are
relieved from liability on the instrument
!Sec. &8, NIL"
0. In'or!eent b" Agent - agent should
ma7e it plain that he is signing in behalf of
a principal otherwise he may be made
personally liable
1. Pre!)(tion a! to In'or!eent
o 'ime !Sec.&%, NIL" 6 (very
negotiation deemed prima facie
effected before instrument was
overdue, e8cept where indorsement
bears date after maturity of the
instrument.
o ,lace !Sec.&1, NIL" 6 (very
indorsement is presumed prima facie
made at place where instrument is
dated
o Where instrument drawn or indorsed
to person as cashier !Sec.&$, NIL" 6
deemed prima facie to be payable to
the ban7 or corporation of which he is
such officer$ may be negotiated by
either the indorsement !+" of the
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92
ban7 or corporation or !-" of the
officer.
2. Contin)ation o# Negotiable
C&ara%ter - #n NI, although overdue,
retains its negotiability unless it has
been paid or restrictively indorsed to
prevent further negotiation !Sec. &2,
NIL"
3. In'or!eent o# bearer in!t6
o Where an instrument payable to
bearer is indorsed specially, it may
nevertheless be further negotiated
by delivery
o ,erson indorsing specially liable as
indorser to only such holders as
ma7e title through his indorsement
9OLDER IN DUE COURSE
9OLDER !Sec. 191, NIL" 6 ,ayee or
indorsee of a bill or note who is in
possession of it, or the bearer thereof.
RIG9TS OF 9OLDER 5Sec. %1, NIL8
+. sue thereon in his own name
-. payment to him in due course
discharges instrument
RE.UISITES to be%oe a 9OLDER IN
DUE COURSE !Sec.%$, NIL"
HDC is one who has ta7en the instrument under
the following conditionsE
+. T&at it i! %o(lete an' reg)lar
)(on it! #a%e
When is an instrument completeP If
an instrument contains all the
requisites for ma7ing it a negotiable
one, it should be considered as
complete even if it may have blan7s
as to non6essentials.
When is an instrument INcompleteP
When it is wanting in any material
particular or particular proper to be
inserted in a NI without wAc the
same will not be complete.
What are material particularsP #
change in the ff. is considered a
aterial alteration !Sec. 1$%,
NIL"E
a. 'he date$
b. 'he sum payable,
either for principal or interest$
c. 'he time or place of
payment$
d. 'he number or the
relations of the parties$
e. 'he medium or
currency in which payment is to
be made$
f. Fr which adds a
place of payment where no place
of payment is specified,
IN D(N(B#E any other change or addition
which alters the effect of the instrument in
any respect
W&at are t&e rig&t! o# a 9DC o# an
in!tr)ent t&at &a! been ateriall"
altere'; enforce payment thereof
according to its original tenor IN not a
party to the alteration. !Sec. 1$&, NIL"
STELCO MARKETIN) v# CA (1992). There
is no e'idence that 8T9L/#6s possession of
the chec$ e'er dated bac$ to any time before
the instrument6s presentment and dishonor.
There is no e'idence whatsoe'er that the
chec$ was e'er gi'en to it, or indorsed to it in
any manner or form in payment of an
obligation or as security for an obligation, or
for any other purpose before it was presented
for payment.
It is clear from the rele'ant circumstances that
8T9L/# cannot be deemed a holder of the
chec$ for 'alue. It does not meet two of the
essential requisites prescribed by the statute.
It did not become 1the holder of it before it
was o'erdue, and without notice that it had
been pre'iously dishonored,1 and it did not
ta$e the chec$ 1in good faith and for 'alue.
ATRI1M MANA)EMENT v# CA (2001). In
the instant case, the chec$s were crossed
chec$s and specifically indorsed for deposit to
payee6s account only. From the beginning,
"trium was aware of the fact that the chec$s
were all for deposit only to payee6s account.
/learly, then, "trium could not be considered
a holder in due course.
5owe'er, it does not follow as a legal
proposition that simply because petitioner
"trium was not a holder in due course for
ha'ing ta$en the instruments in question with
notice that the same was for deposit only to
the account of payee 9.T. 5enry that it was
altogether precluded from reco'ering on the
instrument. The NIL does not pro'ide that a
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93
holder not in due course can not reco'er on
the instrument.
'he ff. cannot be HDCsE !Sec. %",
NIL"
o # holder who became such after
the date of maturity of the
instrument !instrument is
overdue"$
N+,-. An !/er(ue #n$tru"ent #$
$t#ll ne0!t#able, but #t #$ $ub1ect
t! t2e (e*en$e e3#$t#n0 at t2e
t#"e !* t2e tran$*er.
o In case of demand instruments,
a holder who negotiates it after
an unreasonable length of time
after its issue
#n instrument is not invalid for the
reason only that it is #N'(6D#'(D
FB ,F*'6D#'(D provided not done
for an illegal or fraudulent purpose.
'he person to whom an instrument
so dated is delivered acquires the
title thereto as of the date of
delivery. !Sec.1$, NIL"
-. T&at &e too- it in goo' #ait& AND
#or ,al)e1
a. 9OLDER FOR 3ALUE - 5a8
Where value has at any t#"e
been given for the instrument,
the holder is deemed a HNC in
respect to all parties who
become such prior to that time
!Sec.$1, NIL" and 5b8 Where
the holder has a l#en on the
instrument, he is deemed a HNC
to the e8tent of his lien
!Sec.$2, NIL".
PRESUMPTION J (very NI
is deemed prima facie
issued for valuable
consideration$ and every
person whose sig appears
thereon to have become a
party thereto for value
!Sec. $&, NIL"
3ALUE - any consideration
sufficient to support a
simple contract. #n
antecedent or pre6e8isting
debt constitutes value,
whether the instrument is
payable on demand or at a
future time. !Sec.$%, NIL"
MERCHANTS2 NATIONAL BANK OF
ST. PA1L v. STA. MARIA S1)AR CO.
(1914)
)#N by discounting the note and by
the subsequent transactions on the
account it can be considered that 'alue
passed therefor. 59L-+ The mere
discounting of the note and placing the
amount of said discount to the credit of
the 5F4 would not then ha'e
constituted a transfer for 'alue. :ut if
the sum had subsequently been
chec$ed out, then 'alue would ha'e
passed.
The general rule as to the application
of payments, there being no special
facts to interfere, is that the first
payments apply to the oldest debts.
The first debits are to be charged
against the first credits. It follows
therefore, upon the facts as found, that
the ban$ was a bona fide 5F4 without
notice, and, in accordance with the
stipulation, 7udgment should be
entered for the plaintiff upon the note.
@udgment re'ersed.
BA3ANI VS. PEOPLE (2004)
The petitioner cannot escape criminal
liability by denying that he recei'ed the
amount of ;55,. from ?ubia after
he issued the chec$ to her. The
e'idence on record shows that
9'angelista rediscounted the chec$
and ga'e ;55,. to ?ubia after
the latter endorsed the same. "s such,
9'angelista is a holder of the chec$ in
due course. Ander 8ection ,B of the
Negotiable Instruments Law *NIL.,
absence or failure of consideration is a
matter of defense only as against any
person not a holder in due course.
&oreo'er, 8ection ,C of the NIL
pro'ides the presumption of
consideration. 8uch presumption
cannot be o'ercome by the petitioner<s
bare denial of receipt of the amount of
;55,. from ?ubia.
%an7 credit as value 6 When
the holder of a chec7 deposits
it with his ban7 !assuming it
is not the drawee ban7" and
the ban7 credits it to his
account, is the ban7 at this
stage a HNCP
o =aKority Ciew first
money in is presumed to
be the first money paid
out
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94
o =inority Ciew as
long as the balance in
the depositor9s account
equals or e8ceeds the
amount of the
instrument deposited,
the latter cannot be
considered as
withdrawn for the
purpose of treating the
ban7 as a HNC.
o !S! *ar, t2ere 2a$ been
n! (ec#$#!n by t2e SC
!n t2#$ #$$ue."
b. 9OLDER IN GOOD FAIT9
BAD FAIT9 - does not
require actual 7nowledge of
the e8act fraud that was
practiced$ 7nowledge that
there was something wrong
about the assignor9s
acquisition of title is
sufficient. 'he burden is
upon the defendant to show
that notwithstanding the
*&*,ICIF&*
CIBC&=*'#NC(*, it acquired
the chec7 in actual good faith.
!6e (campo 7 0o. '.
+atchalian"
VICENTE R. +E OCAMPO 4 CO. v.
)ATCHALIAN5 ET. AL. (1961)
In order to show that the defendant had
$nowledge of such facts that his action
in ta$ing the instrument amounted to
bad faith, it is not necessary to pro'e
that the defendant $new the e(act fraud
that was practiced upon the plaintiff by
the defendant<s assignor, it being
sufficient to show that the defendant
had notice that there was something
wrong about the assignor<s acquisition
of title, although he did not ha'e notice
of the particular wrong that was
committed.
Ander the circumstances of the /":,
instead of the presumption that payee
was a holder in good faith, the fact is
that it acquired possession of the
instrument under circumstances that
should ha'e put it to inquiry as to the
title of the holder who negotiated the
chec$ to it. The burden was, therefore,
placed upon it to show that
notwithstanding the suspicious
circumstances, it acquired the chec$ in
actual good faith.
#ne line of cases had adopted the test
of the reasonably prudent man and the
other that of actual good faith. It would
seem that it was the intent of the
Negotiable Instruments "ct to harmonize
this disagreement by adopting the latter
test. Negligence on the part of the
plaintiff, or suspicious circumstances
sufficient to put a prudent man on inquiry,
will not of themsel'es pre'ent a reco'ery,
but are to be considered merely as
e'idence bearing on the question of bad
faith.
STATE INVESTMENT HO1SE v. IAC
(1979).
" chec$ with , parallel lines in the upper
left hand corner means that it could only
be deposited and may not be con'erted
to cash. /onsequently, such
circumstance should put the payee on
inquiry and upon him de'ol'es the duty
to ascertain the holders< title to the chec$
or the nature of his possession. Failing
in this respect, the payee is declared
guilty of gross negligence amounting to
legal absence of good faith and as such
the consensus of authority is to the effect
that the holder of the chec$ is not a
holder in good faith.
9ffects of crossing a chec$+ the chec$
may be negotiated only once D to one
who has an account with a ban$% and the
act of crossing the chec$ ser'es as a
warning to the holder that the chec$ has
been issued for a definite purpose so that
he must inquire if he has recei'ed the
chec$ pursuant to that purpose,
otherwise he is not a 5-/.
The NIL does not pro'ide that a holder
who is not a 5-/ may not in any case
reco'er from E)F if the latter has no 'alid
e(cuse for refusing payment. The only
disad'antage of a holder who is not in
due course is that the negotiable
instrument is sub7ect to defenses as if it
were non2negotiable.
3AN) v. CA (2003)
The Negotiable Instruments Law is silent
with respect to crossed chec$s, although
the /ode of /ommerce *"rt 5C!. ma$es
reference to such instruments.
Nonetheless, this /ourt has ta$en 7udicial
cognizance of the practice that a chec$
with two parallel lines in the upper left
hand corner means that it could only be
deposited and not con'erted into cash.
The effects of crossing a chec$, thus,
relates to the mode of payment, meaning
that the drawer had intended the chec$
for deposit only by the rightful person,
i.e., the payee named therein.
In Bataan Cigar, the rediscounting of the
chec$ by the payee $nowingly 'iolated
the a'owed intention of crossing the
chec$. Thus, in accepting the cross
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95
chec$s and paying cash for them,
despite the warning of the crossing, the
subsequent holder could not be
considered in good faith and thus, not a
holder in due course. #ur ruling in
Bataan Cigar reiterates that in De
Ocampo & Co. v. Gatchalian.
The factual circumstances in De
Ocampo and in Bataan Cigar are not
present in this case. For here, there is
no dispute that the crossed chec$s
were deli'ered and duly deposited by
-a'id, the payee named therein, in his
ban$ account. In other words, the
purpose behind the crossing of the
chec$s was satisfied by the payee.
# FINANCING COMPAN/
that is the indorsee of a
note issued by a buyer
payable to the seller of
goods is NF' a holder in
good faith as to the buyer.
In case the goods sold turn
out to be defective, it
cannot recover the purchase
price of the goods from the
buyer. !0onsolidated
8ly!ood '. I50"
o In installment sales, the
buyer usually issues a
note payable to the
seller to cover the
purchase price.
o =any times, pursuant
to a previous
arrangement with the
seller, a finance
company pays the full
price of the property
sold and the note is
indorsed to it by the
seller, subrogating it to
the right to collect the
price from the buyer.
o B&( In such cases,
the tendency of the
courts is to protect the
buyer against the
finance company in the
event that the goods
sold turn out to be
defective. 'he finance
company will be subKect
to the defense of failure
of consideration and
cannot recover the
purchase price from the
buyer. NF'(E
Consolidated ,lywood v.
INC rule applied$
*alas v. C# rule not
applied
SALAS v. CA (1990). in this case,
words of negotiablility was found in
the ;N as well as the other
requirements for negotiablility. The
;N was negotiated by indorsement.
Therefore, the indorsee was a 5-/,
ha'ing ta$en the instrument under
the following conditions+ *!. it is
complete and regular upon its face%
*,. it became the holder thereof
before it was o'erdue% *G. it too$ the
same in good faith and for 'alue%
and *C. when it was negotiated to
the indorsee, the latter had no notice
of any infirmity in the instrument or
defect in the title of the pre'ious
indorser.
,urchase of an instrument at
a DISCOUNT does not, of
itself, constitue bad faith.
However, if the instrument is
pruchased at a heavy
discount, this fact together
with other facts, mey be
ta7en into account in deciding
the issue of purchase in good
faith. !9am '. Meritt"
Where the transferee receives
notice of any infirmity in the
instrument or defect in the
title of the person negotiating
the same before he has paid
the full amount agrees to be
paid therefor, he will be
deemed a holder in due
course only to the e8tent of
the amount theretofore paid
by him. :Sec. %&, NIL;
Constructive notice not
sufficient$ ?ust as a
purchaser of a negotiable
instrument is not put on
inquiry, neither is he charged
with notice of defenses or
equities disclosed by public
records, nor is he affected by
the doctrine of lis pendens.
However, notice to an agent
is chargeable against the
principal.
.. T&at at tie it +a! negotiate' to
&i4 &e &a' no noti%e o#1
a. any infirmity in instrument
96
96
b. any defect in title of person
negotiating$ title DEFECTI3E
when !Sec. %%, NIL"E
+." instrument A signature
obtained by fraud, duress,
force or fear or other
unlawful means FB for an
illegal consideration$ or
-." instrument is negotiated
in breach of faith, or
fraudulent circumstances
NOTICE of infirmity or defect 6
actual 7nowledge of the
infirmity or defect FB
7nowledge of such facts that his
action in ta7ing the instrument
amounted to bad faith !Sec.%1,
NIL"
What are the rights of a
transferee who receives
NOTICE of any infirmity or
defect BEFORE he has PAID
T9E FULL amount for the
instrumentP He will be deemed
a HDC only to the e8tent of the
amount therefore paid by him
!Sec.%&, NIL"
CONSTRUCTI3E NOTICE !e8.
notice of defenses disclosed by
public records, doctrine of lis
pendens" is not sufficient to
charge a purchaser of a NI with
notice. However, notice to an
AGENT is chargeable against
the principal.
Notice of an ACCOMODATION
PART/ is not notice of a defect.
'hus, an accomodation party
!one who has signed the
instrument as ma7er, drawer,
acceptor or endorser, without
receiveing value therefor, and
for the purpose of lending his
name to some other person" is
liable on the instrument,
notwithstanding the fact that
the holder 7new him to be an
accomodation party.
EFFECT OF .UALIFIED4 CONDITIONAL
AND RESTRICTI3E INDORSEMENTS
'he status of a holder as a HDC is not
affected by his ta7ing under a 0)ali#ie'
indorsement.
# %on'itional indorsement does not
deprive the conditional indorsee or
subsequent holder of the rights of a HDC.
If he fulfills all the requisites in *ec. 0-
then he is immune from all the personal
defense.
# re!tri%ti,e indorsement which prohibits
further negotiation will not prevent the
indorsee from being a HDC. %&', if he
further indorses the instrument, then the
subsequent indorsee will not be a due
course holder.
W9O IS DEEMED 9DC 5BURDEN OF
PROOF8 !Sec.%9, NIL"
General R)le1 ,rima facie presumption in
favor of holder
E$%e(tion1 %urden is reversed !burden
on holder to prove that he or some person
under whom he claims acquired title as
HDC" when it is shown that the title of any
person who has negotiated instrument
was defective
E$%e(tion to e$%e(tion1 'here will be no
reversal if the party being made liable
became bound prior to the acquisition of
such defective title !i.e., where defense is
not his own" J presumption in favor of
holder
RIG9TS OF 9OLDER IN DUE COURSE
1. to !)e on the instrument in his own name
!Sec. %1, NIL"
2. to re%ei,e (a"ent on the instrument J
discharges the instrument 4Sec. %1, NIL5
3. holds instrument #ree o# an" 'e#e%t of
title of prior parties !Sec. %2, NIL"
4. #ree #ro 'e#en!e! available to prior
parties among themselves 4Sec.%2, NIL5
5. a" en#or%e (a"ent of instrument for
full amount, against all parties liable
4Sec.%2, NIL5
BPI v. ALFRE+ BER-IN 4 CO. #nly a 5-/ may
enforce payment on the ;N. In /":, it is not clear
whether " *the payee. is still the 5-/ since - *the
ma$er. belie'ed that " may ha'e negotiated it.
Thus, to compel - to pay would e(pose him to pay
a second time to the 5-/ *in case " was no longer
one..
RIG9TS OF PURC9ASER FROM 9OLDER IN
DUE COURSE !Sec.%8, NIL"
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97
General R)le1 In the hands of any
holder other than a HDC, NI is subKect to
same defenses as if it were non6
negotiable.
E$%e(tion1 # holder who derives title
through a HDC and who is NF' himself #
,#B'@ 'F #N@ NB#&D or illegality has all
rights of such former holder in respect to
all parties prior to the latter (C(N
though he himself does not satisfy
*ec.0-
PRESUMPTION IN FA3OR OF DUE
COURSE 9OLDING
(very holder is deemed prima facie to be a
holder in due course$ but when it is shown
that the title of any person who has
negotiated the instrument was defective, the
burden is on the holder to prove that he or
some person under whom he claims acquired
the title as a holder in due course. %ut the
last mentioned rule does not apply in favor
of a party who became bound on the
instrument prior to the acquisition of such
defective title. 5Sec.%9., NIL8
ASIA BANKIN) CORP. v. TAN SEN )1AN
(1923). If it be a fact, as the e'idence tends to
show, that the plaintiff is not a bona fide holder of
the draft, and that it was held for collection only,
it follows that the defendants would ha'e a right
to ma$e any defense to the draft which they
would ha'e a right to ma$e against the ma$er.
The trial court found and the e'idence sustains
the finding that the acceptance of the draft by the
defendants was conditional, and that oral
e'idence was admissible to e(plain the terms
and conditions of the acceptance. That would
specially be true where the plaintiff held the draft
for collection. It also found, in legal effect, that
the plaintiff released and discharged the
defendants from any liability upon the draft, and
the e'idence sustains the finding.
DEFENSES < E.UITIES
DEFENSES IN GENERAL
+. REAL 'e#en!e J attaches to instrument
on the principle that there was no
contract at all$ available against #
holders including holders in due course.
'hey are those which attach to the
instrument itself and generally, disclose an
absence of one of the essential elements
of a contract.
-. PERSONAL 'e#en!e J grows out of the
agreement or conduct of a particular
person in regard to the instrument which
renders it inequitable NFB HI=, though
holding the legal title, to enforce it against
the party sought to be made liable$ not
available against a HDC.can be raised only
against holders not on due course. Here,
the true contract appears , but for some
reason , the defendant is e8cused from
the obligation to perform.
E.UITIES OR CLAIMS OF OWNERS9IP
ARE OF = KINDSE
+. Legal J one who has legal title to the
instrument may recover possession
thereof even from holder in due course
-. E0)itable J may only recover from a
holder not in due course
SPECIFIC DEFENSES
REAL DEFENSES
INCAPACIT/1 B(# defense but available
only to the incapacitated party !e8. minor or
corporation"$ the indorsement or assignment
of the instrument by a corp. or by an infant
passes the property therein, notwithstanding
that from want of capacity, the corp. or infant
may incur no liability thereon. !Sec.$$, NIL"
M1RRA3 v THOMPSON (1916). In stipulating in
8ection ,, of the NIL that the indorsement of the
instrument by the infant =passes the property
therein> , it was meant to pro'ide that the contract
of indorsement is not 'oid , and that his indorsee
has the right to enforce payment from all parties
prior to the INF"NT indorser .
The incapacity of the minor cannot be a'ailed by
prior parties.
The said section was not intended to pro'ide that
the indorsee shall become the owner of the
instrument by title indefeasible as against the
98
98
infant, or to ma$e the act of indorsement an
irre'ocable one.
INCOMPLETE4 UNDELI3ERED INSTRUMENT
Instrument will not, if completed and
negotiated without authority, be a valid
contract in the hands of #N@ holder, as
against any person whose signature was
placed thereon before delivery. !Sec.
1%, NIL"
62! "ay be e$t!e( *r!" ra#$#n0 t2e
real (e*en$e un(er Sec 157 # drawee
ban7 whose negligent custody of the
chec7s, after partial e8ecution,
contributed to its escape
PERSONAL DEFENSES
COMPLETE4 UNDELI3ERED INSTRUMENT
CFNC&*IC( presumption of a valid
delivery J where the instrument is in the
hands of a HDC
,BI=# N#CI( presumption of a valid
delivery J where the instrument is no
longer in the possession of a party
whose sig appears thereon !Sec. 11,
NIL"
INCOMPLETE4 DELI3ERED 4Sec.1&, NIL5
'his is a personal defense only because
provision states that if any instrument so
completed is negotiated to a holder in
due course , it is valid and effectual for
all purposes.
- )inds of WritingsE
a." Where instrument is +anting in
an" aterial (arti%)larE person
in possession has prima facie
authority to complete it by filing
up blan7s therein
b." Signat)re on blan- (a(er
delivered by person ma7ing the
signature IN FBD(B that the
paper may be CFNC(B'(D into a
NI operates as prima facie
authority to fill up as such for any
amount
'he authority to fill up is
limited by the followingE
!. When completed, it may be
enforced upon the parties
thereto only if it was
filled strictly in accordance
with the authority given
,. 'he filling up must be within
a reasonable time
N+,-. &* t2e $#0nature !n a
aer #$ 0#/en !nly *!r
aut!0ra2 ur!$e$ an( t2e
$a"e #$ c!n/erte( #nt! a N&,
t2#$ w#ll a"!unt t! *!r0ery,
c!n$t#tut#n0 t2u$ a /al#(
(e*en$e e/en a0a#n$t a 89C
'his provision contemplates
delivered instruments , so the
person in possesion cannot be a
thief or a finder but a person in
lawful possession6 one to whom
the instrument has been
delivered.
In order that any such
instrument, when completed,
may be enforced against any
person who became a party
thereto prior to its completionE
+" must be filled up strictly in
accordance wA
#&'HFBI'@ given
-" within a B(#*FN#%( 'I=(
J in determining what is
reasonable time, regard
is to be had to the !+"
nature of the instrument,
!-" usage of trade or
business !if any" with
respect to such
instruments, and ." the
facts of the particular
case
%&' if negotiated to HDC,
may enforce it as if it had
been filled up properly
62at (eta#l$ "ay be *#lle(
u7
1) A"!unt, a$ t! a $#0ne(
blank aer
2) 9ate 4Sec 13 :; ,2e
#n$ert#!n !* a wr!n0
(ate (!e$ n!t /!#( t2e
#n$tru"ent #n t2e
2an($ !* a $ub$e<uent
2!l(er #n (ue
c!ur$e;=5
3) )lace !* ay"ent
4) Na"e !* ayee
LACK OF CONSIDERATION 4Sec. $8, NIL5
99
99
#%*(NC( or failure of consideration is a
matter of defense as against any person
not a HDC.
,#B'I# N#I&B( of consideration is a
defense pro tanto whether the failure is
an ascertained and liquidated amount or
otherwise .
ILLEGALIT/
In general, a ,(B*FN# defense even if
CC+/54 provides that a contract with an
illegal cause is void.
RO+RI)1E, v MARTINE, (190*). &a$er
cannot be relie'ed from the obligation of paying
the holder the amount of the note alleged to ha'e
been e(ecuted for an unlawful consideration.
*Illegality is personal, so defense only against a
holder not in due course.
The holder paid the 'alue of the note to its
former holder . 5e did so without being aware of
the fact that the note had an unlawful origin. 5e
accepted note in good faith , belie'ing the note
was 'alid and absolutely good. The ma$er e'en
assured the holder before the purchase that the
note was good and that he would pay it at a
discount .
B(# when the law e8pressly provides
for illegality as a real defense !*tatutory
declaration of illegality"
DURESS
In general, ,(B*FN# defense.
B(# if duress so serious as to give rise
to a real defense for lac7 of contractual
intent
C#=,F*E Normally, fraud is a personal
defense as it is considered as a defect in
title under *ec 00. 'here may be cases
where the duress employed is so serious
that it will give rise to a real defense
because of the lac7 of contractual
intent . #lthough the signer may 7now
what he is signing , there may be
wanting the intent or willingness to be
bound. 'hen it becomes a real defense.
SOMETIMES REAL
SOMETIMES PERSONAL
FORGER/ !Sec. $", NIL"E made without
authority of person whose signature it
purports to be
In general, a B(# defenseE I (ffects
+. signature is wholly inoperative
-. no right to retain instrument,
or give discharge, or enforce
payment against any party
thereto, can e ac!uired
through or under such
signature "un#ess forged
signature unnecessary to
ho#der$s tit#e%
.. &o suse!uent party can
ac!uire the right against any
party thereto "prior to the
forgery% to'
a" Betain the instrument
b" Dive a discharge there for
c" (nforce payment thereof
,(B*FN# if the party against whom
it is sought to enforce such right is
,B(C&D(D from setting up
forgeryAwant of authority$ Who are
PRECLUDEDP
+. parties who ma7e certain
warranties, li7e a general indorser
or acceptor after forgery !Sec.
62, N&'"
-. estopped A negligent parties
.. parties who ratify !%&' there are
conflicting views whether
LprecludedM includes ratification"
Fne view holds that a forged
signature cannot be ratified because
ratification involves the relation of
agency and a forger does not assume
to act for another.
Where an instrument is generally
payable to BEARER, the holder who
did not 7now of the forgery can still
enforce it against the drawer or ma7er
because he can cancel the forged
indorsement as not being necessary
to his title. !*ec. /3, NI"
What happens when there is
acceptance and payment of a forged
instrumentP 'he rights and liabilities
of the parties depend on whether the
forgery pertains to the
drawerAma7er9s signature or merely of
an indorsement.
100
100
ACCEPTANCE < PA/MENT UNDER
MISTAKE > What happens when a forged
instrument is accepted and paidP
!a" When it is the sig of the
drawerAma7er that is forgedE
)R&C- / N-A', ,2e (rawee w2!
2a( a#( an accete( b#ll a$
well a$ a n!n>accete( b#ll,
eac2 !* w2#c2 wa$ *!r0e(, c!ul(
N+, rec!/er t2e "!ney a#(
!ut !n t2e b#ll. ,2e ne0lect wa$
!n t2e art !* t2e (rawee.
RP v E81ITABLE5 BPI (1964).
)here a loss , which must be borne by one of
two parties ali$e, innocent of forgery ,can be
traced to the neglect or fault of either% it is
reasonable that it would be borne by him through
whose means the fraud succeeded.
3enerally, where a drawee ban$ , otherwise
would ha'e a right of reco'ery against a
collecting or indorsing ban$ for its payment of a
forged chec$ , its action will be barred if it is
guilty of an unreasonable delay in disco'ering
the forgery and in gi'ing notice thereof.
PNB v CA (1967).
-rawee paid amount of the chec$ to the
collecting ban$ and debited it against the
account of the drawer. /hec$ had not been
accepted. 8ubsequent disco'ery of forgery of the
signature of officers of the drawer resulted in the
re2crediting of the said amount.
59L-+ -rawee cannot reco'er from collecting
agent. "cceptance and payment under the NIL
are essentially different things. "cceptance is a
promise to perform an act . It is the signification
by the drawee of his assent to the order of the
drawer . ;ayment is the actual performance of
the act. It is the compliance with the obligation
itself. H
Apon payment the chec$ ceased to become a
negotiable instrument and has become a mere
'oucher or proof of payment.
The warranty guaranteed only all prior
indorsements , not the authenticity of the
signatures of the drawer.
FRANCISCO v. CA (1999).
;etitioner claims that she was authorized to sign
#ng6s name on the chec$s by 'irtue of the
/ertification e(ecuted by #ng in her fa'or gi'ing
her authority to collect the questioned chec$s.
;etitioner6s defense must fail.
The NIL pro'ides that where any person is under
obligation to indorse in a representati'e capacity,
he may indorse in such terms as to negati'e
personal liability. "n agent, when so signing,
should indicate that he is merely signing in behalf
of the principal and must disclose the name of
his principal% otherwise he shall be held
personally liable.
9'en assuming that Francisco was authorized by
5/// to sign #ng6s name, still, Francisco did
not indorse the instrument in accordance with law.
Instead of signing #ng6s name, Francisco should
ha'e signed her own name and e(pressly
indicated that she was signing as an agent of
5///. Thus, the /ertification cannot be used by
Francisco to 'alidate her act of forgery.
IL1SORIO v# CA (2002).
;etitioner contends that under 8ection ,G of the
NIL a forged chec$ is inoperati'e, and that &anila
:an$ had no authority to pay the forged chec$s.
True, it is a rule that when a signature is forged or
made without the authority of the person whose
signature it purports to be, the chec$ is wholly
inoperati'e. No right to retain the instrument, or to
gi'e a discharge therefor, or to enforce payment
thereof against any party, can be acquired through
or under such signature.
5owe'er, the rule does pro'ide for an e(ception,
namely+ =9'&"## /:" ;r/% <='#/ >:$? =/ =#
#$9<:/ /$ "'@$r." #9.: r=<:/ =# ;r".&9!"! @r$?
#"//='< 9; /:" @$r<"r% $r >'/ $@ 9/:$r=/%.> In
the instant case, it is the e(ception that applies.
;etitioner is precluded from setting up the forgery,
assuming there is forgery, due to his own
negligence in entrusting to his secretary his credit
cards and chec$boo$ including the 'erification of
his statements of account.
SAMS1N) CONSTR1CTION CO.5 INC. VS. FAR
EAST BANK AN+ TR1ST CO. AN+ CA (2004).
The general rule remains that the drawee who has
paid upon the forged signature bears the loss.
The e(ception to this rule arises only when
negligence can be traced on the part of the drawer
whose signature was forged, and the need arises
to weigh the comparati'e negligence between the
drawer and the drawee to determine who should
bear the burden of loss.
The /ourt finds no basis to conclude that
8amsung /onstruction was negligent in the
safe$eeping of its chec$s. For one, the settled rule
is that the mere fact that the depositor lea'es his
chec$ boo$ lying around does not constitute such
negligence as will free the ban$ from liability to
him, where a cler$ of the depositor or other
persons, ta$ing ad'antage of the opportunity,
abstract some of the chec$ blan$s, forges the
depositor<s signature and collect on the chec$s
from the ban$.
"nd for another, in point of fact 8amsung
/onstruction was not negligent at all since it
reported the forgery almost immediately upon
disco'ery.
8till, e'en if the ban$ performed with utmost
diligence, the drawer whose signature was forged
may still reco'er from the ban$ as long as he or
she is not precluded from setting up the defense of
forgery. "fter all, 8ection ,G of the Negotiable
Instruments Law plainly states that no right to
enforce the payment of a chec$ can arise out of a
forged signature. 8ince the drawer, 8amsung
/onstruction, is not precluded by negligence from
setting up the forgery, the general rule should
apply.
101
101
/onsequently, if a ban$ pays a forged chec$, it
must be considered as paying out of its funds
and cannot charge the amount so paid to the
account of the depositor. " ban$ is liable,
irrespecti'e of its good faith, in paying a forged
chec$.
-3ten$#!n$ +* ,2e )r#ce / Neal
9!ctr#ne. ,2e bar t! rec!/ery
4)r#ce / Neal (!ctr#ne5 #$
e3ten(e( t! !/er(ra*t$ an( $t!
ay"ent !r(er$.
('erdraft !ccur$ w2en a
c2eck #$ #$$ue( *!r an
a"!unt "!re t2an w2at t2e
(rawer 2a$ #n (e!$#t w#t2
t2e (rawee bank. <=L*>
,2e (rawee w2! ay$ t2e
2!l(er !* t2e b#ll cann!t
rec!/er *r!" t2e 2!l(er
w2at 2e a#( un(er "#$take
Stop 8ayment (rder #$
!ne #$$ue( by t2e (rawer !*
a c2eck c!unter"an(#n0 2#$
*#r$t !r(er t! t2e (rawee
bank t! ay t2e c2eck.
<=L*> ,2e (rawee bank #$
b!un( t! *!ll!w t2e !r(er,
r!/#(e( #t #$ rece#/e( r#!r
t! #t$ cert#*#cat#!n !r
ay"ent !* t2e c2eck
S(M* *?0*8)I(NS>
o (f the payment to
ho#der is a
#egitimate det of
the dra)er )hich
the ho#der in due
course cou#d have
recovered from the
dra)er any)ay.
o If stop order comes
after the ban7 has
certified or accepted the
chec7, the ban7 is
under the legal duty to
pay the holder and will
not be liable to the
drawer for doing so.
-**ect +* Ne0l#0ence +*
9e!$#t!r > &* r!3#"ate cau$e
!* l!$$, t2e bank 4(rawee5 #$
n!t l#able.
It is the duty of the
depositorAdrawer to
carefully e8amine ban79s
statements, cancelled
chec7s, his chec7 stubs, and
other pertinent records
within a reasonable time and
to report any errors without
unreasonable delay.
If a drawerAdepositor9s
negligence and delay should
cause a ban7 to honor a
forged chec7, drawer cannot
later complain should ban7
refuse to recredit his account.
!b" When it is the !ig o# t&e in'or!er
that is forged J drawee and drawer
C#N recover vs holder
a. 'he drawee can recover the
amount paid by him in cases
where only an indorsement has
been forged . 'his is because
drawee ma7es no warranty as to
the genuineness of any
indorsement.
b. Denerally, the drawee may only
recover from the holder. *hould
he fail to do so!for instance due
to insolvency" he cannot recoup
his loss by charging it to the
drawer9s account
c. #lthough a depositorAdrawer owes
a duty to his drawee ban7 to
e8amine his cancelled chec7s , he
has no similar duty as to forged
indorsements.
d. 'he drawer , as soon as he comes
to 7now of the a forged
indorsement should promptly
notify the drawee ban7
!c" W&en 'ra+ee a" re%o,er #ro
DRAWER
o Where the instrument is originally
a bearer instrument, because the
indorsement can be disregarded
as being unnecessary to the
holder9s title
o Indorsement forged by an
employee or agent of the drawer
o If due to the drawer9s
negligence Adelay, the forgery is
not discovered until it is too late
for the ban7 to recover from the
holder or the forger
!d" W&en 'ra+ee a" not re%o,er
#ro &ol'er
o If drawee fails to act promptly , if
he delays in informing the holder
whom he paid
o Where the instrument is originally
a bearer instrument , because the
indorsement can be disregarded
102
102
as being unnecessary to the
holder9s title
!e" Bet+een Dra+ee Ban- an'
Colle%ting Ban-
o Where the negligence of the
drawee ban7 is the pro8imate
cause of the collecting ban79s
payment of a chec7 with a
forged indorsement , the
drawee ban7 may be held liable
to the collecting ban7 .
o When both are guilty of
negligence , the degree of
negligence of each will be
weighed in considering the
amount of loss which each
should bear .
SAN CARLOS MILLIN) v BPI 4 CHINABANK
(1933). " collecting ban$ honored a manager<s
chec$ in which the signatureIindorsement of the
agent for the payeeIcorporation was forged.
59L-+ The signatures of the chec$ being
forged, under 8ec ,G of the NIL they are not a
charge against the payee nor are the chec$s of
any 'alue to the collecting ban$
The pro(imate cause of the loss was the
negligence of the collecting ban$.
PNB v 81IMPO (1977). ;erson forged the
signature of the drawer and encashed chec$ in
drawee ban$. -rawee debited the account of
drawer. -rawerIdepositor demanded that the
amount be returned to his account.
59L-+ " ban$ is bound to $now the signatures
of its depositors . If ban$ pays a forged chec$ it
must be considered as ma$ing the payment out
of its own funds and cannot charge the account
of the depositor whose signature was forged.
The prime duty of a ban$ is to ascertain the
genuineness of the signature of its depositors. It
is e(pected to use reasonable business
prudence in accepting and cashing a chec$.
EFFECT OF PA/MENT UNDER FORGED
INDORSEMENTS
REP1BLIC v EBRA+A
-rawee can reco'er. It is not supposed to be the
duty of the drawee to ascertain whether the
signatures of the payee or indorsers are genuine
or not.
AAIBALAI v BPI
@ai2"lai deposited chec$s *that turned out to be
with forged indorsement. with a collecting ban$
which pro'isionally credited the amount to its
account.
@A-3&9NT+
*!. /ollecting ban$ to reimburse drawee ban$%
*,. -epositor2holder to pay collecting ban$
BANCO +E ORO v E81ITABLE BANK5
E;hilippine /learing 5ouse ?ulesF In presenting the
chec$s for clearing the collecting agent, made an
e(press guarantee on the 'alidity of =all the prior
endorsements>. /ollecting ban$ or last indorser
generally suffers the loss because it has the duty
to ascertain the genuineness of all prior
indorsements
)EMPESA- v CA5 PBC
ENote+ This is not a suit by the party whose
signature was forged . The payees are not parties
to the case rather, it is the drawer, whose signature
is genuine, who instituted this action to reco'er
from the drawee ban$ .F
)hile there is no duty resting on the drawer to loo$
for forged indorsements on his cancelled chec$s,
in contrast to the duty imposed upon him to loo$
for forgeries in his own name, a depositor is under
a duty to set up an accounting system and
business procedure as are reasonably calculated
to pre'ent or render the forgery of indorsements
difficult, particularly by the depositor<s own
employees.
"s a rule the drawee ban$ who has paid the chec$
with forged indorsement , cannot charge the
drawer<s account for the amount of the said chec$.
"n e(ception to this rule is where the drawer is
guilty of such negligence which causes the ban$ to
honor the chec$.
)REAT EASTERN LIFE v HON)KON) 4
SHAN)HAI BANK (1922).
-rawee debited the depositor2drawer<s account
the amount it paid to collecting agent upon whom a
chec$ with forged indorsement was presented and
deposited.
59L-+ The legal presumption is that the drawee
ban$ would not honor the chec$ without the
genuine indorsement of the payee. The drawee
ban$ had no legal right to pay e(cept as to the
drawer or to its order
The collecting ban$ also had no license or
authority to pay money to forger or to anyone upon
a forged indorsement. It was its legal duty to $now
that the indorsement was genuine before cashing
the chec$.
=)here a chec$ is drawn payable to the order of
one person and is presented to a ban$ by another
and purports upon its face to ha'e been duly
indorsed by the payee of the chec$ , it is the duty
of the ban$ to $now that the chec$ was duly
indorsed by the original payee and where the ban$
pays the amount of the chec$ to a G
rd
person , who
has forged the signature of the payee , the loss
falls upon the ban$ who cashed the chec$ , and its
remedy is against the person to whom it paid the
money.>
BPI v CA (1992).
103
103
-rawer2-rawee issued chec$s on the basis of
misrepresentation of a woman who
preterminated a money mar$et placement. This
same woman opened a current account and
deposited the chec$s with the collecting ban$.
/ollecting ban$ paid the two chec$s on the basis
of the 'erification of the signature with the
specimen signature on file..The guaranty of prior
imdorsements was stamped to the chec$s.
/ollecting ban$ sent the chec$s for clearing .
The drawee ban$ cleared chec$s on the same
day. Apon disco'ery of the forgery, drawee ban$
returned the chec$s to the collecting agent for
the reason of forged indorsements.
59L-+ 8ection ,G of the NIL has , parts . The
first part states the general rule that a forged
signature is wholly inoperati'e and payment
made through or under such signature is
ineffectual . The second part admits of e(ception.
In this 7urisdiction , the negligence of the party
in'o$ing the forgery is an e(ception to the
general rule.
:oth drawee and collecting ban$ were negligent
in the selection and super'ision of their
employees resulting in the encashment of the
chec$s by the impostor. :oth ban$s were not
able to o'ercome the presumption of negligence
in the selection and super'ision of their
employees
/onsidering the comparati'e negligence of the
parties , the demands of substanti'e 7ustice are
satisfied by allocating the loss and the costs on a
J2C ratio.
EFFECT OF NEGLIGENCE OF DRAWER
IN CASE OF FORGED INDORSEMENTS
ON C9ECKS
MATERIAL ALTERATION !Sec.1$&, NIL"
+. ,(B*FN# defense when used to deny
liability according to the tenor of the
instrument
-. B(# defense when relied on to deny
liability according to the altered terms.
.. What constitutes material alterationP
Beview Se%6?=74 NIL
a" change date
b" sum payable, either for principal or
interest
c" time or place of payment
d" numberArelations of parties
e" mediumAcurrency of payment, adds
place of payment where none
specified,
f" other changeAaddition altering effect
of instrument in any respect
,2e enu"erat#!n $ee"$ t! be
e3clu$#/e. Ca"!$e$ $ay any !t2er
alterat#!n w!ul( be n!n>"ater#al an(
w!ul( n!t a**ect t2e l#ab#l#ty !* any
r#!r arty . N!te t2at ?7 #$ a catc2>
all r!/#$#!n $uc2 t2at 125 "ay $t#ll
2a/e br!a( al#cab#l#ty.
General R)leE Where NI materially altered
wAo the assent of all parties liable thereon it is
#CFID(D
E$%e(tionE Not avoided as against
+. party who has himself made,
authori>ed or assented to alteration
-. subsequent indorser because by
indorsement he warrants that the
instrument is in all respects what it
purports to be and that it was valid
and subsisting at the time of his
indorsement !Se%!6 @7 an' @@4 NIL"
When an instrument that has been
materially altered is in the hands of a HDC
not a party to the alteration, HDC may
enforce payment thereof according to
orig. tenor
#lteration must NF' be apparent on the
face of the instrument for the holder then
would not be a holder in due course
When alteration is of the amount or the
interest rate is altered, the holder can
recover the ORIGINAL AMOUNTAinterest
rate.
DRAWERAS NEGLIGENCE, before or
after the alteration, may estop him from
setting up alteration as a defense. !e8.
drawer leaves spaces ma7ing it possible to
insert figures" %&' the drawer is not
bound to so prepare the chec7 that
nobody else can successfully tamper with
it !e8. a drawer cannot be e8pected to
foresee that his cler7 will use acid to alter
his chec7s, Critten ,6 C&ei%al Natl
Ban-"
o ,2e 0eneral rule #$ t2at t2e (rawee
cann!t c2ar0e a0a#n$t t2e (rawer@$
acc!unt t2e a"!unt !* an altere(
c2eck.
o But t2e (rawer@$ ne0l#0ence , be*!re
!r a*ter t2e alterat#!n , "ay e$t!
2#" *r!" $ett#n0 u alterat#!n a$ a
(e*en$e.
o 62ere t2e ne0l#0ence !* t2e (rawer
c!n$#$t$ #n *a#l#n0 t! (#$c!/er
alterat#!n$ re/#!u$ly "a(e w2#c2 2e
c!ul( 2a/e (#$c!/ere( by a
c!"ar#$!n !* t2e cancelle( c2eck$
an( c2eck $tub$ !r by (#l#0ent
104
104
!b$er/at#!n !* 2#$ rec!r($ an( c!ul(
t2u$ 2a/e re/ente( t2e (rawee
bank *r!" $ub$e<uently ca$2#n0
!t2er altere( c2eck$ , t2e (rawee
can c2ar0e t2e $ub$e<uent c2eck
a0a#n$t t2e ne0l#0ent (rawer@$
acc!unt.
62ere t2e #ntere$t rate #$ altere( , t2e
2!l(er #n (ue c!ur$e can rec!/er t2e
r#nc#al $u" w#t2 t2e !r#0#nal rate !*
#ntere$t
W&o i! e$%e(te' #ro t&i! r)le ; #
subsequent indorser, because by the
indorsement he warrants that the
instrument is in all respects what it
purports to be and that it was valid and
subsisting at the time of his indorsement
!*ec 10 and 11"
What happens when drawee ACCEPTS
OR PA/S on the altered chec7P Can
drawee ban7 recoverP
o ,revailing view 6 @es, bec. of !+"
payment under mista7e, !-" *ec.
+-/ and !." *ec.1- in relation to
*ec. +.-
o =inority view J No, bec. of !+"
estoppel, !-" stability of transactions
and !." ban7 is in a better position
to shoulder the loss.
MONTINOLA , PNB 5?B7?8
The insertion of the words ="gent ;hilippine
National :an$> con'erted the ban$ from a mere
drawee to a drawer and therefore changes its
liability , constitutes material alterationof the
instrument without consent of the parties liable
thereon and so discharges the instrument.
-rawee ban$ is not liable.
HON)KON) 4 SHAN)HAI BANK v PEOPLES
BANK (19C0)
1
The failure of the drawee ban$ to call the
attention of the collecting ban$ as to such
alteration until after the lapse of ,K days would
negate whate'er right it might ha'e had. The
remedy of the drawee ban$ is against the party
responsible for the forgery or alteration.
REP1BLIC BANK v CA
The collecting ban$ is protected by the,C2hour
clearing house rule from the liability to refund the
amount paid by the drawee ban$. DN$/"0 "
much recent /ircular changed the point of
rec$oning for the return of the altered chec$ from
within ,C hours from the clearing to within ,C
hours from the disco'ery of the alterationF
REP1BLIC BANK v CA (1991)
!
#ffirmed the minority view that drawee cannot
recover
-rawee ban$ informed the collecting ban$ of the
alteration almost , months after the chec$ was
paid and cleared. The chec$ had already been
cleared before the drawee $new of the alteration.
59L-+ The collecting ban$ is protected by the,C2
hour clearing house rule from the liability to refund
the amount paid by the drawee ban$.
DN$/"0 " much recent /ircular changed the point
of rec$oning for the return of the altered chec$
from within ,C hours from the clearing to within ,C
hours from the disco'ery of the alteration F
PCIB v. CA (2001)
:an$ing business requires that the one who first
cashes and negotiates the chec$ must ta$e some
precautions to learn whether or not it is genuine.
"nd if the one cashing the chec$ through
indifference or other circumstance assists the
forger in committing the fraud, he should not be
permitted to retain the proceeds of the chec$ from
the drawee whose sole fault was that it did not
disco'er the forgery or the defect in the title of the
person negotiating the instrument before paying
the chec$.
For this reason, a ban$ which cashes a chec$
drawn upon another ban$, without requiring proof
as to the identity of persons presenting it, or
ma$ing inquiries with regard to them, cannot hold
the proceeds against the drawee when the
proceeds of the chec$s were afterwards di'erted to
the hands of a third party. In such cases the
drawee ban$ has a right to belie'e that the cashing
ban$ *or the collecting ban$. had, by the usual
proper in'estigation, satisfied itself of the
authenticity of the negotiation of the chec$s.
Thus, one who encashed a chec$ which had been
forged or di'erted and in turn recei'ed payment
thereon from the drawee, is guilty of negligence
which pro(imately contributed to the success of the
fraud practiced on the drawee ban$. The latter
may reco'er from the holder the money paid on
the chec$
FRAUD
fraud in in')%eent !7nows it is NI but
deceived as to valueAterms"E ,(B*FN#
defense
fraud in e$e%)tion A fraud in factum
!didn9t 7now it was NI"E B(# defense
'here now arises a question of
N(DID(NC( on the part of the ma7er or
signer !in determining what type of fraud
had been done". 'hree factors are
typically used in determining the e8istence
of negligenceE
1. le0al c2aracter !* t2e #n$tru"ent
w2#c2 t2e $#0ner t2#nk$ 2e #$ $#0n#n0
2. t2e 2y$#cal c!n(#t#!n !* t2e $#0ner
an( 2#$ ab#l#ty t! rea(
3. w2et2er t2e $#0ner 2a( t2e
!!rtun#ty at t2e t#"e !* $#0n#n0, t!
105
105
a$certa#n t2e le0al nature !* t2e
aer 2e #$ e3ecut#n0
LIABILIT/ OF PARTIES
IN GENERAL1
Partie! (riaril" liable1 unconditionally
liable$ duty bound to pay the holder at date
of maturity, WFN holder demands payment
from him, and he is not relieved from liability
even if the instrument should become
overdue due to failure of holder to ma7e
such demand. ,erson primarily liableE person
who by the terms of the instrument is
absolutely required to pay the same.
Ma-er of promissory note
A%%e(tor of bill of e8change
Partie! !e%on'aril" liable1 conditionally
liable$ not bound to pay unless the following
has been fulfilledE
!+" D)e (re!entent or demand from
primary party for payment or
acceptance$
!-" Di!&onor by such party$ and
!." Ta-ing o# (ro%ee'ing! required by
law after dishonor.
In'or!er!, both note and bill
Dra+er of bill
#. PRIMAR/ PARTIES
Pre!entent #or (a"ent not
necessary to charge primary party
if the instrument is, by its terms,
payable at a special place, and he is
able and willing to pay it there at
maturity, such ability and willingness
are equivalent to a tender of
payment upon his part. !Sec. 24,
NIL"
+. Liabilit" o# MAKER
a. ,romises to pay it according to
its tenor
b. #dmits e8istence of payee and
his then capacity to indorse
'herefore, ,B(C&D(D from
setting up the following
defensesE
1) the payee is a fictitious
person
2) the payee was insane, a
minor, or a corporation
acting ultra vires
-. Stat)! o# DRAWEE (rior to
a%%e(tan%e or (a"ent
# bill2%&e%- of itself does not
operate as an assignment of the
funds in the hands of the
draweeAban7, and the
draweeAban7 is NOT LIABLE on
the bill unless and &N'I heAit
#CC(,'* !or certifies" the same.
!Sec. 1$2, NIL"
%efore payment or certification by
the drawee ban7, drawer of the
chec7 may countermand the
order, and payment thereafter to
the payee by the ban7 is
wrongful.
sec. +34 !when chec7 operates as
assignment"
Dra+ee 6 person on whom a bill
of e8change or chec7 is drawn
and who is ordered to pay it.
not liable on the instrument until
he accepts it$ once accepted,
becomes primarily liable under
Sec. 1$, NIL.
ARANETA V. BANK OF AMERICA(19C1).
This was an action by a depositor against a
ban$ for damages resulting from the wrongful
dishonor of the depositor6s chec$s. 59L-+
"raneta6s claim for temperate damages is
legally 7ustified because of the ad'erse
reflection on the financial credit of a
businessman, a prized and 'aluable asset,
wIc constitutes material loss.
SIN)SON V. BPI (1967). The e(istence of a
contract between the parties does not bar the
commission of a tort by the one against the
other and the consequent reco'ery of
damages therefor.
HSBC VS. CATALAN (2004)0 58:/ claims
that /atalan has no cause of action because
under 8ection !BL of the Negotiable
Instruments Law, =a chec$ of itself does not
operate as an assignment of any part of the
funds to the credit of the drawer with the ban$,
and the ban$ is not liable to the holder unless
and until it accepts or certifies it.>
5owe'er, 58:/ is not being sued on the
'alue of the chec$ itself but for how it acted in
relation to /atalan<s claim for payment despite
the repeated directi'es of the drawer
Thomson to recognize the chec$ the latter
106
106
issued. /atalan may ha'e prayed that she
be paid the 'alue of the chec$s but it is
a(iomatic that what determines the nature of
an action, as well as which court has
7urisdiction o'er it, are the allegations of the
complaint, irrespecti'e of whether or not the
plaintiff is entitled to reco'er upon all or
some of the claims asserted therein.
5er allegations in the complaint that the
gross inaction of 58:/ on Thomson<s
instructions, as well as its e'ident failure to
inform /atalan of the reason for its
continued inaction and non2payment of the
chec$s, smac$ of insouciance on its part,
are sufficient statements of clear abuse of
right for which it may be held liable under
"rticle !L of the /i'il /ode for any damages
she incurred resulting therefrom.
58:"NM<s actions, or lac$ thereof,
pre'ented /atalan from see$ing further
redress with Thomson for the reco'ery of
her claim while the latter was ali'e.
.. Liabilit" o# ACCEPTOR !Sec.1$,
NIL"
Drawee is not liable unless he
accepts the bill and in doing so,
he engages to pay the bill
according to the tenor of his
acceptance.
#dmits the followingE
a. e8istence of drawer
b. genuineness of his signature
c. his capacity and authority to
draw the instrument
d. e8istence of payee and his
then capacity to endorse
Question as to the meaning of
.according to the tenor of
his acceptance. and Gthe
admission of e8istence of
payeeEG
Interpretations of Laccording to
its tenorM
o Ma@ority and pre'ailing
'ie!E Where alteration
consists in raising the
amount payable, acceptor
liable to HDC only as to its
original amount$ if the
alteration of payeeHs name,
paying ban7s cannot charge
drawerHs account with the
amount of the chec7
because its duty is to pay
only Laccording to the order
of the drawer.M
o 0ommon la! ruleE
#cceptor of altered chec7
not liable to innocent holder
e8cept for the original
amount
FORMAL RE.UISITES OF
ACCEPTANCE1
a. the signification by the
drawee of his assent to the
order of the drawer
b. G#cceptanceG completed by
delivery or notification !Sec.
19, NIL"
c. in +riting and !igne' by the
drawee$ must not e8press
that the drawee will perform
his promise by any other
means than the (a"ent o#
one". !Sec.1"$, NIL"$
does not change the implied
promise of acceptor to pay
only in money
o 'hus, there is no valid oral or
implied acceptance e8cept in
case of *ec. +.2
!Constructive #cceptance"
holder of a bill may require that
the acceptance be +ritten on
t&e bill, if request refused, may
treat the bill as dishonored. !Se%6
?CC4 NIL"
# bill may be acceptedE
a. before it has been signed by
the drawer, or
b. while otherwise incomplete,
or
c. when it is overdue, or
d. after it has been dishonored
by a previous refusal to
accept, or by non payment.
%ut when a bill payable after sight
is dishonored by non6acceptance
and drawee subsequently accepts
it, the holder, in the absence of
diff agreement, is entitled to have
bill accepted as of date of the +
st
presentment. !Se%6 ?CD4 NIL"$
Se%6 ?CD4 NIL allows
a%%e(tan%e to be made while the
bill i! in%o(lete.
CONSTRUCTI3E ACCEPTANCE1
o 'he drawee is allowed =E
&o)r! after presentment to
decide WFN he will accept
the bill$ the acceptance, if
given, dates as of the day of
presentation. !Sec. 1"1,
NIL"
o &nder the clearing house
rules, the failure to return
within the prescribed time will
107
107
be deemed payment or
acceptance of the chec7.
o Where the drawee !+"
'e!tro"! the bill, or !-"
re#)!e! within -/hrs or
such other period as the
holder may allow, to ret)rn
the bill accepted or non6
accepted to the holder,
deemed to have accepted
the same. !Sec. 1"2, NIL"
o Where bill is duly presented
and is not accepted within
prescribed time, the person
presenting it must treat the
bill as dishonored by
nonacceptance or he loses
right of recourse against the
drawer and indorsers. !Sec.
1%4, NIL"
o If there is not demand for
the return of the bill and the
drawee 7eeps it until after
the e8piration of said period
without e8pressly accepting
or refusing it$ two viewsE
a. Constitutes constructive
notice
b. Constitutes dishonor
because *ec.+.2, NI
uses the word GrefusesG
o #cceptance, if given, will
retroact to date of
presentation.
S1MCA+ v. PROVINCE OF SAMAR
(19*6). There was implied acceptance
in 'iew of the circumstances of the
case *furnishing of photostatic copies,
presentment for certification. by
'oluntary assuming the obligation of
holding so much deposit as would be
sufficient to co'er the amount of the
chec$.
ACCEPTANCE ON A
SEPARATE INSTRUMENT
o E$trin!i% a%%e(tan%e 6
acceptance is written on a
(a(er ot&er t&an t&e bill
itself$ doesn9t bind the
acceptor e8cept in favor of a
person to whom it is shown
and who, on the faith
thereof, receives the bill for
value. !Se%6 ?CE4 NIL"$
acceptance of an e8isting bill
o 3irt)al a%%e(tan%e 6
unconditional promise in
writing to a%%e(t a bill
be#ore it i! 'ra+nF deemed
an actual acceptance in favor
of every person who, upon
the faith thereof, receives the
bill for value. !Se%6 ?C74
NIL"$ acceptance of future
bill
o In both cases, the
a%%e(tan%e )!t %learl"
an' )ne0)i,o%all" i'enti#"
t&e bill to which the
acceptance refers.
KINDS OF ACCEPTANCE1 #n
acceptance is either !+" general
or !-" qualified.
GENERAL - assents without
qualification to the order of the
drawer. !Sec.1"9, NIL"$
Includes acceptance to pay at a
particular place$ unless e8pressly
states that bill is to be paid there
only and not elsewhere. !Sec.
1&4, NIL"
.UALIFIED - in e8press terms
varies the effect of the bill as
drawn. !*ec. +.4, NI"
!a" Con'itional$ payment by the
acceptor dependent on the
fulfillment of a condition
therein stated$
!b" Partial$ to pay part only of
the amount for which the bill
is drawn$
!c" Lo%al$ to pay only at a
particular place$
!d" Qualified a! to tie$
!e" 'he acceptance of some, one
or more of the 'ra+ee! but
not of all. !Sec. 1&1, NIL"
o 'he holder may re#)!e
to ta-e a qualified
acceptance$ may treat
the bill as dishonored by
non6acceptance.
o Where a qualified
acceptance is ta7en, the
drawer and indorsers are
'i!%&arge' from liability
on the bill )nle!! they
have a)t&oriGe' the
holder to ta7e a qualified
acceptance, or
108
108
subsequently a!!ent
thereto.
o When the drawer or an
indorser receives notice
of a qualified
acceptance, he must,
within a reasonable
time, e8press his
'i!!ent to the holder or
he will be deemed to
have assented thereto.
!Sec. 1&$, NIL"
TRADE 6 a draft or bill of
e8change with a definite
maturity, drawn by a seller on a
buyer for the purchase price of
goods, bearing across its face
the acceptance of the buyer$
always states upon its face the
transaction from which it arose.
BANKERHS a%%e(tan%e 6 a
negotiable time draft or bill of
e8change drawn on and
accepted by a commercial ban7.
C9ECKS
o # %&e%- is an instrument in
the form and nature of a
%(, but an unli7e an
ordinary bill, always payable
on demand and always
drawn on a ban7.
o Ca!&ierH! or anagerH! 6
drawn by a ban7 on itself
and its issuance has the
effect of acceptance$ since
the drawer and drawee are
the same, the holder may
treat it is either a %( or ,N.
o Meoran') %&e%- 6
where the word
GmemorandumG or GmemoG
is written across its face,
signifying that the drawer
will pay the holder
absolutely, without need of
presentment.
o Tra,elerH! %&e%- 6 upon
which the holderHs signature
must appear twice 66 first
when it is issued, and again
when it is cashed.
o Cro!!e' J when the name
of a particular ban7er or a
company is written between
the parallel lines drawnI
STATE INVESTMENT HO1SE V.
IAC5 /rossed chec$ should put the
payee on inquiry to ascertain the
holders< title to the chec$ or the
nature of his possession. Failing
this, the payee is declared guilty of
gross negligence to the effect that
the holder of the chec$ is not a
holder in good faith. 9ffects of a
crossed chec$+
*a. the chec$ may not be encashed
but only deposited in the ban$%
*b. the chec$ may be negotiated
only once D to one who has an
account with the ban$% and
*c. the act ser'es as a warning to
the holder that the chec$ has
been issued for a definite
purpose so that he must inquire
if he has recei'ed the chec$
pursuant to that purpose,
otherwise, he is not a 5-/.
:ATAAN CI)AR 4 CI)ARETTE
FACTOR35 INC. v. CA
The negotiability of a chec$ is not
affected by its being crossed,
whether specially or generally. It
may legally be negotiated as long as
the one who encashes the chec$
with the drawee ban$ is another
ban$, or if it is especially crossed, by
the ban$ mentioned between the
parallel lines.
RP v. PNB (1961).
+"?'! !r@/# ha'e not been
presented either for acceptance or
for payment, thus the ban$ ne'er
had any chance of accepting or
re7ecting them% as such, these
cannot be sub7ect of escheat.
C#:="rE# .:".( is the substantial
equi'alent of a certified chec$ and is
thus sub7ect to escheat.
T"&"<r;:=. /r'#@"r# are li$ewise
sub7ect to escheat because upon
ma$ing payment complete the
transaction insofar as he is
concerned, though insofar as the
remitting ban$ is concerned, the
contract is e(ecutory until the credit
is established.
PAL V. CA (1990)
" chec$, whether a manager6s chec$
or ordinary chec$, and an offer of a
chec$ in payment of a debt is not a
'alid tender of payment and may be
refused receipt by the obligee or
creditor.
The issuance of the chec$ to a
person authorized to recei'e it
operates to release the 7udgment
109
109
debtor from any further obligations
on the 7udgment.
FORT1NA+O V. CA (1991)
The tender of a chec$ is sufficient
to compel redemption but it is not
in itself payment that relie'es the
redemptioner from his liability to
pay the redemption price.
PAPA v# A.1. VALENCIA (1997)
3ranting that petitioner had ne'er
encashed the chec$, his failure to
do so for more than ten *!. years
undoubtedly resulted in the
impairment of the chec$ through
his unreasonable and une(plained
delay.
)hile it is true that the deli'ery of
a chec$ produces the effect of
payment only when it is cashed,
the rule is otherwise if the debtor is
pre7udiced by the creditor<s
unreasonable delay in
presentment. The acceptance of a
chec$ implies an underta$ing of
due diligence in presenting it for
payment, and if he from whom it is
recei'ed sustains loss by want of
such diligence, it will be held to
operate as actual payment of the
debt or obligation for which it was
gi'en.
It has, li$ewise, been held that if
no presentment is made at all, the
drawer cannot be held liable
irrespecti'e of loss or in7ury unless
presentment is otherwise
e(cused. This is in harmony with
"rticle !,CL of the /i'il /ode
under which payment by way of
chec$ or other negotiable
instrument is conditioned on its
being cashed, e(cept when
through the fault of the creditor,
the instrument is impaired. The
payee of a chec$ would be a
creditor under this pro'ision and if
its non2payment is caused by his
negligence, payment will be
deemed effected and the
obligation for which the chec$ was
gi'en as conditional payment will
be discharged.
MESINA V. IAC (1976)
The holder of a cashier6s chec$
who is not a holder id due course
cannot enforce such chec$ against
the issuing ban$ which dishonors
the same.
FIRESTONE TIRE v# CA (2001)
;etitioner admits that the
withdrawal slips in question were
non2negotiable. 5ence, the rules
go'erning the gi'ing of immediate
notice of dishonor of negotiable
instruments do not apply. Thus,
respondent ban$ was under no
obligation to gi'e immediate notice
that it would not ma$e payment on
the sub7ect withdrawal slips.
;ayment or notice of dishonor from
respondent ban$ could not be
e(pected immediately, in contrast to
the situation in'ol'ing chec$s.
BPI v# CA (2000)
In depositing the chec$ in his name,
pri'ate respondent did not become
the outright owner of the amount
stated therein. 5e was merely
designating petitioner as the
collecting ban$. This is in
consonance with the rule that a
negotiable instrument, such as a
chec$, whether a manager<s chec$
or ordinary chec$, is not legal
tender.
"s such, after recei'ing the deposit,
under its own rules, petitioner shall
credit the amount in pri'ate
respondent<s account or infuse 'alue
thereon only after the drawee ban$
shall ha'e paid the amount of the
chec$ or the chec$ has been cleared
for deposit.
"gain, this is in accordance with
ordinary ban$ing practices and with
this /ourt<s pronouncement that 1the
collecting ban$ or last endorser
generally suffers the loss because it
has the duty to ascertain the
genuineness of all prior
endorsements considering that the
act of presenting the chec$ for
payment to the drawee is an
assertion that the party ma$ing the
presentment has done its duty to
ascertain the genuineness of the
endorsements.1 The rule finds more
meaning in this case where the
chec$ in'ol'ed is drawn on a foreign
ban$ and therefore collection is
more difficult than when the drawee
ban$ is a local one e'en though the
chec$ in question is a manager<s
chec$
INTERNATIONAL CORPORATE
BANK v# SPO1SES )1ECO
(2001)
" stale chec$ is one which has not
been presented for payment within a
reasonable time after its issue. It is
'alueless and, therefore, should not
be paid. Ander the NIL, an
instrument not payable on demand
must be presented for payment on
110
110
the day it falls due. )hen the
instrument is payable on demand,
presentment must be made within
a reasonable time after its issue.
In the case of a bill of e(change,
presentment is sufficient if made
within a reasonable time after the
last negotiation thereof.
" chec$ must be presented for
payment within a reasonable time
after its issue, and in determining
what is a =reasonable time,> regard
is to be had to the nature of the
instrument, the usage of trade or
business with respect to such
instruments, and the facts of the
particular case. The test is
whether the payee employed such
diligence as a prudent man
e(ercises in his own affairs. This is
because the nature and theory
behind the use of a chec$ points to
its immediate use and payability.
In the case at bar, howe'er, the
chec$ in'ol'ed is not an ordinary
bill of e(change but a manager<s
chec$. " manager<s chec$ is one
drawn by the ban$<s manager
upon the ban$ itself. It is similar to
a cashier<s chec$ both as to effect
and use. In effect, it is a bill of
e(change drawn by the cashier of
a ban$ upon the ban$ itself, and
..";/"! in ad'ance by the act of
its issuance. It is really the ban$<s
own chec$ and may be treated as
a promissory note with the ban$ as
a ma$er. The chec$ becomes the
primary obligation of the ban$
which issues it and constitutes its
written promise to pay upon
demand. The mere issuance of it
is considered an acceptance
thereof. If treated as promissory
note, the drawer would be the
ma$er and in which case the
holder need not pro'e
presentment for payment or
present the bill to the drawee for
acceptance.
9'en assuming that presentment
is needed, failure to present for
payment within a reasonable time
will result to the discharge of the
drawer only to the e(tent of the
loss caused by the delay. Failure
to present on time, thus, does not
totally wipe out all liability. In fact,
the legal situation amounts to an
ac$nowledgment of liability in the
sum stated in the chec$.
o CERTIFICATION
PRINCIPLES1
Certi#i%ation 6 an agreement
by which a ban7 promises to
pay the chec7 at any time it
is presented for payment$
must be in writing which may
be made on the chec7 or on
another instrument.
+. When chec7 certified by
ban7 on which it is
drawn, equivalent to
acceptance
-. Where &ol'er of chec7
procures it to be
acceptedAcertified,
drawer and all indorsers
discharged from all
liability !versus ordinary
bill of e8change J not
discharged"
.. where procured at
request of 'ra+erE
secondary parties not
released
/. %an7 which certifies liable
as an acceptor
0. Chec7s cannot be
certified before payable
1. 'he refusal to certify a
chec7 doesn9t constitute
dishonor$ the holder at
that stage cannot
e8ercise his right of
recourse against the
drawer and the indorsers.
2. Where the chec7 is
certified at the request of
the holder, the ban7
becomes the solidary
debtor and the drawer
and indorsers are
discharged.
3. Where certification is
obtained at the request of
the drawer, secondary
parties are not released.
NE- PACIFIC TIMBER v.
SENERIS.
8ince the chec$ had been certified
by the drawee ban$, by the
certification, the funds represented
by the chec$ are transferred from
the credit of the ma$er to that of the
payee or holder, and for all intents
and purposes, the latter becomes
the depositor of the drawee ban$,
with rights and duties of one in such
a situation.
ROMAN CATHOLIC BISHOP V.
IAC (1990).
111
111
" certified personal chec$ is not
legal tender nor is it the currency
stipulated, and therefore cannot
constitute 'alid tender of payment.
o 'he !)rren'er of the chec7
by the holder to the drawee
ban7 upon its payment is
not negotiation. %y
paying the chec7, the
drawee ban7 e8tinguishes it
as a negotiable instrument
and converts it into a mere
voucher.
o Di!tin%tion bet+een
!)rren'er o# %&e%- )(on
(a"ent t&ereo# an'
negotiation
a. 'he delivery of the
chec7 by the holder to
the drawee ban7 upon
its payment is not
negotiation. %y paying
the chec7, the drawee
ban7 e8tinguishes it as
a negotiable instrument
and converts it into a
mere voucher.
b. In the case of a deposit
of a chec7 by the holder
thereof in a ban7 other
than the drawee ban7,
the signature at the
bac7 of the chec7 would
constitute an
indorsement, unless
otherwise indicated.
'he holder in
negotiating the chec7 to
the depositary ban7,
which in turn will collect
on the chec7 from the
drawee ban7, through
the clearinghouse.
o Clearing o# %&e%-!
Clearing 6 chec7
collection process
Clearing &o)!e 6
where representatives
of different ban7s meet
every afternoon of
every business day to
receive the envelopes
containing chec7s
drawn against the ban7
he represents for
e8amination and
clearance.
%. SECONDAR/ PARTIES
+. Liabilit" o# DRAWER !Sec. 11, NIL"
a. #dmits e8istence of payee and his
then capacity to endorse
b. (ngages that on due presentment
instrument will be accepted, or
paid, or both, according to its
tenor
c. 'hat if it be dishonored O
necessary proceedings on
dishonor duly ta7en, will pay the
amount thereof to the holder or
to a subsequent indorser who
may be compelled to pay it
drawer may insert in the
instrument an e8press stipulation
negativing A limiting his own
liability to holder
PNB v. PICORNELL (1922). ;icornell
obtained money from ;N: /ebu to purchase
tobacco to be shipped to &anila. ;icornell
then drew a bill of e(change drawn against his
principal, 5yndman, Ta'era N 4entura *5T4.,
in fa'or of ;N: or his order. Apon
presentation of the bill, 5T4 accepted it.
5owe'er, 5T4 subsequently refused to pay
the bill because some of the tobacco shipped
were damaged.
59L-+
". Liability of "cceptor *5T4.
;N: is a holder in due course and
the partial want of consideration
does not e(ist with respect to the
ban$ who paid full 'alue for the bill
of e(change.
The want of consideration between
the acceptor and drawer does not
affect the rights of the payee who is
a remote party. The payee or holder
gi'es 'alue to the drawer, and if he
is ignorant of the equities between
the drawer and acceptor, his is in the
position of a bona fide indorsee.
:. Liability of -rawer *;icornell.
"s drawer of the bill, he warranted
that it would be accepted upon
proper presentment N paid in due
course. "s it was not paid, he
became liable to the payment of its
'alue to ;N:.
The fact that ;icornell was an agent
of 5T4 in the purchase of the
tobacco does not necessarily ma$e
him an agent of 5T4 in drawing the
bill of e(change. These are ,
different contracts. 5e cannot claim
e(emption from liability by in'o$ing
the e(istence of agency.
112
112
-rawer recei'ed notice of protest
in fulfillment of the condition set by
law for his liability to arise.
-rawer6s liability is only secondary
as the liability of the acceptor is
primary.
BANCO ATLANTICO v A1+ITOR
)ENERAL (19C7)5 : fraudulently altered
chec$s payable to her drawn by the
9mbassy by increasing the amounts. :
negotiated these chec$s by indorsement to
:" wIc paid the full amount of the chec$s
without first clearing with the drawee ban$,
contrary to normal ban$ing practice. 59L-+
-rawer *embassy. not liable. :" is guilty of
negligence in gi'ing : special treatment as
a pri'ileged client, in disregard of
elementary principles of prudence that
should attend ban$ing transactions. 5ence,
it should suffer the loss. :" could not ha'e
been a 5-/.
NO!" he Camposes note that the dra#er
#as not held liable because the decision
#as based on $%& on forgery instead of
$'%( on material alteration. )f B* had been
a +DC, the !mbassy could have been held
liable for the original amount of the chec,s
CRIMINAL LIABILIT/ FOR
BOUNCING C9ECKS
a. &nder %, --
b. (stafa under the B,C
LO,ANO v MARTINE, (1976).
Ouestions constitutionality of :; ,,
59L-+
". Non2imprisonment for debt
This pro'ision was intended to pre'ent
commitment of debtors to prison for
liabilities arising from actions e-
contractu. It was ne'er meant to
include damages arising in actions e-
delicto.
The gra'amen of the offense is the act
of ma$ing N issuing a worthless chec$
or a chec$ that is dishonored upon its
presentation for payment. "ny practice
tending to destroy the confidence on
chec$s as currency substitutes should
be deterred, for the proliferation of
worthless chec$s can only create
ha'oc in trade circles N the ban$ing
community.
:. Non2impairment of contract
/hec$s cannot be categorized as mere
contracts as they ha'e become
con'enient substitutes for money. It
forms part of the ban$ing system N
therefore not entirely free from the
regulatory power of the state.
/. 9qual protection of the law
The clause does not preclude
classification of indi'iduals N the law may
'alidly accord different treatment to the
drawer from the payee.
-. Andue delegation of legislati'e power
)hat cannot be delegated is the power
to legislate, the power to define the
offense.
PEOPLE v NITAFAN(1992)
Lim issued a memorandum chec$ which was
subsequently dishonored for insufficiency of
funds. " memorandum chec$ has the same
effect as an ordinary chec$ and within the
ambit of BP 22. )hat the law punishes is the
issuance itself of a bouncing chec$ N not the
purpose for which it was issued nor the terms
N conditions relating to its issuance.
-. Liabilit" o# INDORSERS1
Indorser 6 person placing his
signature upon an instrument
other than as a ma7er, drawer, or
acceptor unless he indicates by
appropriate words his intention to
be bound in some other capacity
!Sec. 1", NIL"
Where a person places his
signature on an instrument
negotiable by delivery he incurs
all the liabilities of an indorser.
4Sec. 12, NIL5
(very person negotiating an
instrument by delivery or by a
qualified indorsement warrantsE
!Sec. 1%, NIL"
a. Instrument genuine, in all
respects what it purports to
be
b. He has good title to it
c. #ll prior parties had capacity
to contract
d. He has no 7nowledge of any
fact wAc would impair validity
of instrument or render it
valueless
o in case of negotiation by
delivery only, warranty only
e8tends in favor of immediate
transferee
.. Liabilit" o# a General or
Un0)ali#ie' In'or!er1 (very person
who indorses w#t2!ut <ual#*#cat#!n,
warrants to all subsequent HDCsE
!Sec. 11, NIL"
a. instrument genuine, good title,
capacity of prior parties
113
113
b. instrument is at time of
indorsement valid and
subsisting
c. on due presentment, it shall be
accepted or paid, or both,
according to tenor
d. if it is dishonored, and
necessary proceedings on
dishonor be duly ta7en, he will
pay the amt. 'o holder, or to
any subsequent indorser who
may be compelled to pay it
SAPIERA v# CA (1999). It is undisputed
that the four *C. chec$s issued by de
3uzman were signed by petitioner at the
bac$ without any indication as to how she
should be bound thereby and, therefore, she
is deemed to be an indorser thereof.
/. Liabilit" o# Irreg)lar In'or!er
!Sec. 1&, NIL"
Where a person not otherwise a
party to an instrument, places
thereon his signature in blan7
before delivery, he is liable as
an indorser, in accordance wA
these rulesE
a. Instrument payable to order
of .
rd
personE liable to
payee and to all subsequent
parties
b. Instrument payable to the
order of ma7erAdrawer, or
payable to bearerE liable to
all parties subsequent to
ma7erAdrawer
c. *igns for accommodation of
payee, liable to all parties
subsequent to payee
SA+A3A v. SEVILLA.
*a. a 7oint and se'eral accommodation
ma$er of a negotiable ;N may demand
from the principal debtor
reimbursement for the amt. that he paid
to the payee% *b. a 7oint and se'eral
accommodation ma$er who pays on
the said ;N may directly demand
reimbursement from his co2
accommodation ma$er without first
directing his action 's. the principal
debtor pro'ided+
!. he made the payment by 'irtue of
a 7udicial demand
,. or the principal debtor is insol'ent
Or'er o# Liabilit" aong
In'or!er! !Sec. 18, NIL"E
a. among themselvesE liable
prima facie in the order they
indorse, but proof of another
agreement admissible
b. but holder may sue any of the
indorsers, regardless of order
of indorsement
c. Koint payeesAindorsees
deemed to indorse Kointly and
severally
0. Liabilit" o# an ACCOMODATION
PART/ - iable on the instrument to
HNC even if holder 7new he was only
an #,
#ccomodation ,artyE one who
signed instrument as
ma7erAdrawerAacceptorA indorser
wAo receiving value thereof, for
the purpose of lending his name
to some other person
MA1LINI v. SERRANO (1914).
8errano is a bro$er in the business of acting
as a mediary between those who had money
to loan N those who desired to borrow money.
&aulini agreed to lend money to &oreno but
did not want to appear on the boo$s of the
borrowing company as a lender of money.
&aulini as$ed that the promissory note of
&oreno be made to the order of 8errano to be
indorsed to &aulini e'entually.
59L-+ There ne'er was a moment when
8errano was the real owner of the note.
8errano was not an accommodation indorser.
In accommodation indorsement, the indorser
ma$es the indorsement for the
accommodation of the ma$er. 8uch an
indorsement is generally for the purpose of
better securing the payment of the note, i.e.
he lends his name to the ma$er not to the
holder. "n accommodation note is one which
the accommodation party has put his name,
without consideration, for the purpose of
accommodation some other party who is to
use it and is e(pected to pay it.
Note" Campos disagrees #ith this ruling,
referring to the case of Goodman v Gaul
#here an accommodation indorsement may
be made for the accommodation of the payee
or holder.
PNB v. MA,A (192*).
&ecenas N &aza e(ecuted promissory notes
to the order of ;N:. They claim that 9chaus
requested them to sign blan$ promissory
notes so that he might negotiate them with
;N:. 59L-+ "s accommodation parties, the
defendants ha'ing signed the instruments
without recei'ing 'alue therefore N for the
purpose of lending their names to some other
person, are still liable on the instruments.
114
114
It is not necessary that any consideration
should mo'e to the accommodation ma$er.
The consideration which supports the
promise of the accommodation ma$er is that
parted with by the person ta$ing the note N
recei'ed by the person accommodated.
"ccommodation parties ha'e a right of
reimbursement against the accommodated
party, since the relation between them is
that of principal N sureties.
AC1A v. VELOSO(192C).
Pa'ier as$ed 4eloso to become a co2ma$er
of a note to obtain a loan in order to
purchase a piece of real estate. ;ayee
negotiated the note to "cuQa after it fell due.
59L-+ "cuQa is not a holder in due course
but merely acquired the rights of his
transferor, the payee of the note. 5owe'er,
the payee paid in full 'alue for the note at
the time of its creation. Therefore "cuQa is
entitled to enforce the note.
)here the accommodation ma$er draws a
note payable to the accommodated payee N
the payee negotiates the note after the date
of maturity, the accommodation party cannot
be held liable. :ut in /":, the
accommodating party N the accommodated
party unite in ma$ing the 7oint N se'eral note
to a person who ad'ances the face 'alue of
the note to one of its ma$ers at the time of
the note6s creation.
The consideration for the note was the
money which the payee ad'anced to one of
the ma$ers. It cannot be said that the note
was lac$ing in consideration as to 4eloso
because he recei'ed none of the money.
4alue was gi'en for the note N this was
enough.
AN) TION) v. TIN) (1967).
Ting issued a chec$ payable to cash with
"ng6s signature appearing at the bac$. "ng
Tiong presented it to the drawee ban$ who
dishonored it. :oth Ting N "ng refused to
pay upon demand by the holder.
59L-+ "ng is a general indorser. "ssuming
arguendo that "ng is a mere
accommodation party, he is still liable on the
instrument to a holder for 'alue. The
accommodation party is liable to a holder for
'alue as if the contract was not for
accommodation. It is not a 'alid defense
that the accommodation party did not
recei'e any 'aluable consideration when he
e(ecuted the instrument. Nor is it correct to
say that the holder for 'alue is not a holder
in due course merely because at the time he
acquired the instrument, he $new that the
indorser was only an accommodation party.
The fact that the accommodation party
stands only as a surety in relation to the
ma$er is a matter of concern e(clusi'ely
between accommodation indorser N
accommodated party. It is immaterial to the
claim of a holder for 'alue. The liability of the
accommodation party remains primary N
unconditional.
SA+A3A v. SEVILLA (196C).
8e'illa, 4arona, N 8adaya e(ecuted, 7ointly N
se'erally, in fa'or of :;I a promissory note.
The proceeds of the note was recei'ed by
4arona alone. 8e'illa N 8adaya signed the
note as co2ma$ers only as a fa'or to 4arona.
:;I collected from 8adaya the balance of the
note. 4arona failed to reimburse 8adaya
despite repeated demands. 8e'illa died.
8adaya filed a creditors6 claim upon the estate
of 8e'illa for the amount paid to :;I.
59L-+ The solidary accommodation ma$er
who made payment has the right of
contribution from his co2accommodation
ma$er. This right springs from an implied
promise between the accommodation ma$ers
to share equally the burdens that may ensue
from their ha'ing consented to stamp their
signatures on the promissory note. The
following are the rules on reimbursement+
!. " solidary accommodation ma$er of a
note may demand from the principal
debtor reimbursement for the amount he
paid to the payee% and
,. " solidary accommodation ma$er who
pays on the note may directly demand
reimbursement from his co2
accommodation ma$er without first
directing his action against the principal
debtor pro'ided that +
*a. he made the payment by 'irtue of a
7udicial demand or
*b. the principal debtor is insol'ent.
TRAVELBON5 INC. v. CA.
Tra'el2#n was entitled to the benefit of the
statutory presumption that it was a 5-/, that
the chec$s were supported by 'aluable
consideration. The only e'idence pri'ate
respondent offered was his own testimony
that he had issued the chec$s to Tra'el2#n as
payee to 1accommodate1 its 3eneral
&anager% this claim was in fact a claim that
the chec$s were merely simulated, that
pri'ate respondent did not intend to bind
himself thereon. #nly e'idence of the clearest
and most con'incing $ind will suffice for that
purpose.
PR1+ENCIO v. CA (1976).
; agreed to mortgage their property to secure
the loan of /T/ with ;N:. They li$ewise
signed the ;N co'ering the loan. ; see$s to
be released from obligation on the note.
59L-+ The accommodation party is
discharged because ;N: is not a 5F4. ;N:
did not act in good faith when it allowed the
115
115
'iolation of the -eed of "ssignment which
principally mo'ed ;rudencio to sign the ;N.
CRISOLO)OBAOSE v. CA.
8ection ,L of the NIL does not apply to
corporations which are accommodation
parties because the issue or indorsement of
negotiable paper by a corporation without
consideration is ultra 'ires. 5ence, one who
has ta$en the instrument with $nowledge of
the accommodation can<t reco'er against a
corporation 2 accommodation party
9P/9;T if the officer or agent of the corp.
was specifically authorized to e(ecute or
indorse the paper for the accommodation of
a third person. :AT as in /":, corporate
officers, such as the president and 'ice2
president, ha'e no power to e(ecute for
mere accommodation a NI of the
corporation for their indi'idual debts or
transactions in which the corporation has no
legitimate concern. It is the signatories
thereof that shall be personally liable
therefor.
1. Liabilit" o# an AGENT
*ignature of any party may be
made by duly authori>ed agent,
established as in ordinary
agency
Where person adds to his
signature words indicating that
he signs on behalf of a principal,
not liable if he was duly
authori>ed, %&' mere addition
of words describing him as an
agent without disclosing his
principal, not e8empt from
personal liability.
*ignature per procuration
operates as notice that the
agent has limited authority to
sign, and the principal is bound
only in case the agent in so
signing acted within the actual
limits of his authority
Where a bro7er or agent
negotiates an instrument
without indorsement, he incurs
all liabilities in *ec. 10, unless
he discloses name of principal
and fact that he9s only acting as
agent. !Sec. 19, NIL"
INS1LAR +R1) v. PNB.
The right of an agent to indorse
commercial paper will not be lightly
inferred. " salesman with authority to
collect money does not ha'e the
implied authority to indorse chec$s
recei'ed in payment. "ny person
ta$ing chec$s made payable to a
corporation does so at his peril N must
abide by the consequences if the agent
who indorses the same is without
authority.
PBC v AR1E)O (1971).
"ruego obtained a credit accommodation
from ;:/. For e'ery printing of the
publication, the printer collected the cost
of printing by drawing a draft against
;:/, which will later be sent to "ruego
for acceptance. ;:/ see$s reco'ery on
these drafts. "ruego in'o$es the defense
that he signed the document in his
capacity as ;resident of the ;hil.
9ducation Foundation N only as an
accommodation party.
59L-+ "ruego is personally liable
because nowhere in the draft did he
disclose that he was signing as a
representati'e of the ;hil 9ducation
Foundation. Neither did he disclose his
principal.
"s an accommodation party, "ruego is
liable on the instrument to a holder for
'alue, notwithstanding such holder, at the
time of the ta$ing of the instrument $new
him to be only an accommodation party.
"ruego signed as a draweeIacceptor.
"s drawee, he is primarily liable for the
drafts.
The contention that the drafts are not bills
of e(change but mere pieces of e'idence
of indebtedness because they were
payments were made before acceptance
is untenable. "s long as a commercial
paper conforms with the definition of a bill
of e(change, that paper is considered a
bill of e(change. The nature of
acceptance is determinati'e of liabilities
of the parties but not of the character of a
commercial paper.
C. PRESENTMENT - meansE !a" the
production of a %( to the drawee for his
#CC(,'#NC(, or to the drawer or acceptor
for ,#@=(N'$ or !b" the production of a
,N to the party liable for payment
+. PRESENTMENT FOR ACCEPTANCE
W&en ne%e!!ar" !Sec. 1&",
NIL"
a. bill payable after sight, or in
other cases where
presentment for acceptance
necessary to fi8 maturity
116
116
b. where bill e8pressly
stipulates that it shall be
presented for acceptance
c. where bill is drawn payable
elsewhere than at residence
A place of business of
drawee
o In no other case is
presentment for acceptance
necessary in order to render
any party to the bill liable.
E##e%t o# non-(re!entent
:wAin reasonable time< 4Sec.
1&&, NIL5 / discharges the
drawer and all indorsers.
Rea!onable Tie1
considerations
a. nature of instrument
b. usage of trade or business
with respect to instrument
c. facts of each case
9o+ a'e 4Sec. 1&%, NIL5
o %@ or FN %(H#N of the
holder
o #' a reasonable hour,
o FN a business day and
before the bill is overdue,
o 'F the drawee or some
person authori>ed to accept
or refuse acceptance on his
behalf$ and
bill addressed to
drawees not partners,
=&*' be made to them
all unless one has
authority to accept or
refuse acceptance for
all$
drawee is dead, =#@ be
made to his personal
representative$
drawee has been
adKudged a ban7rupt or
an insolvent or has
made an assignment for
the benefit of creditors,
=#@ be made !+" to
him or !-" to his trustee
or assignee.
W&en a'e !Sec. 1&1, NIL"
on any day on which NIs may be
presented for payment underE
o Sec. 2$, NIL J at a
reasonable hour on a
business day
o Sec. 8%, NIL J
- at the time fi8ed therein
without grace.
- Instruments falling due or
becoming payable on
*aturday 6 ne8t
succeeding business day
- (RC(,' instruments
payable on demand :at
the option of the holder<
J before twelve oHcloc7
noon on *aturday WH(N
that entire day is not a
holiday.
Where the holder has no time,
with the e8ercise of reasonable
diligence, to present the bill for
acceptance before presenting it
for payment, delay is e8cused and
doesn9t discharge the drawers and
indorsers. 4Sec. 1&2, NIL5
W&en E$%)!e' 4Sec. 1&8, NIL5
%ill may be treated as dishonored
by non6acceptanceE
a. Where the drawee is !+"
dead, !-" absconded, !."
fictitious, !/" does not have
capacity to contract by bill.
b. Where, after the e8ercise of
reasonable diligence,
presentment can not be
made.
c. Where, although presentment
has been irregular,
acceptance has been refused
on some other ground.
Di!&onor an' E##e%t!
o Di!&onor by nonacceptanceE
a. When duly presented for
acceptance J acceptance
is refused or can not be
obtained$ or
b. When presentment for
acceptance is e8cused J
bill is not accepted. :Sec.
1&9, NIL;
o D)t" o# &ol'er where bill not
accepted S must treat the bill
as dishonored by
nonacceptance or he loses
the right of recourse against
the drawer and indorsers.
:Sec. 1%4, NIL;
117
117
o Rig&t! o# &ol'er where bill
not accepted. S immediate
right of recourse against the
drawer and indorsers and
no presentment for
payment is necessary.
:Sec. 1%1, NIL;
o To +&o noti%e of
dishonor must be given 6
(8cept as herein otherwise
provided, !+" to the drawer
and !-" to each indorser,
and any drawer or indorser
to whom such notice is not
given is discharged.
:Sec.89, NIL;
o E##e%t o# oi!!ion to gi,e
noti%e of non6acceptance 6
does not preKudice the
rights of a HDC subsequent
to the omission. !Sec. 112,
NIL"
-. PRESENTMENT FOR PA/MENT
W&ere ne%e!!ar" !Sec. 24,
NIL" in order to charge the
drawer and indorsers
W&ere NOT ne%e!!ar"
a. to charge the person
primarily liable on the
instrument !Sec. 24, NIL"
b. to charge the 'ra+er
where he has no right to
e8pect or require that the
drawee or acceptor will pay
the instrument. !Sec. 29,
NIL"
c. to charge an in'or!er
where the instrument was
made or accepted for his
accommodation and he has
no reason to e8pect that the
instrument will be paid if
presented. !Sec. 84, NIL"
d. (8cusedE
1) Where, after the
e8ercise of reasonable
diligence, presentment
cannot be made$
2) Where the drawee is a
fictitious person$
3) %y waiver of
presentment, e8press
or implied.
e. when a bill is dishonored by
nonacceptance J immediate
right to recourse accrues to
holder !*ec. +0+, NI"
f. in case of waiver of protest,
whether in the case of a
foreign bill of e8change or
other NI J deemed to be a
waiver not only of a formal
protest but also of
presentment and notice of
dishonor. !Sec. 111, NIL"
Date an' tie o# (re!entent
a. bearing #i$e' at)rit" 2
not (a"able on 'ean' J
on the day it falls due
o if day of maturity falls on
*unday or a holiday, the
instruments falling due or
becoming payable on
*aturday are to be
presented for payment on
the ne8t succeeding
business day !Sec.%5,
N&'"
b. (a"able on 'ean' J
within a reasonable time after
its issue,
o at the option of the
holder, may be presented
for payment before
twelve oHcloc7 noon on
*aturday when that
entire day is not a holiday
4Sec. %5, N&'"
c. 'ean' bill o# e$%&ange J
within a reasonable time after
the last negotiation. !Sec. 71,
N&'5 !N+,-. t2!u02
rea$!nable t#"e *r!" la$t
ne0!t#at#!n, #t "ay be
unrea$!nable t#"e *r!"
#$$uance t2u$ 2!l(er "ay n!t
be 89C un(er $ec. 71"
d. C&e%- 6 must be presented
for payment within
reasonable time after its issue
or drawer will be discharged
from liability thereon to
e8tent of loss caused by delay
o 9o+ tie %o()te'6 S
When payable at a !+"
fi8ed period after date,
!-" after sight, or !."
after that happening of a
specified event, e8clude
day from which the time
is to begin to run, include
date of payment. !Sec.
81, NIL"
118
118
o Where the day, or the
last day for payment
falls on a *unday or on
a holiday J may be
done on the ne8t
succeeding secular or
business day. !Sec.
19&, NIL"
PNB v. SEETO (19*2)
#n !G &arch, 8eeto indorsed to ;N:2
8urigao a bearer chec$ dated ! &arch
drawn against ;:/2/ebu. ;N:2
8urigao mailed the chec$ to its /ebu
branch on , &arch N was presented
to the drawee ban$ on L "pril. The
chec$ was dishonored for insufficient
funds because the delay in
presentment cause the e(haustion of
the drawer6s funds. Indorser 8eeto
as$ed that the suit be deferred while he
made inquiries. 5e assured ;N: that
he would refund the 'alue in case of
dishonor.
59L-+ The indorser is discharged from
liability by reason of the delay in the
presentment for payment, under RBC.
-rawer had enough funds when he
issued the chec$ because his
subsequent chec$s drawn against the
same ban$ had been encashed.
The assurances of refund by the
indorser are the ordinary obligation of
an indorser which are discharged by
the unreasonable delay in presentation
of the chec$.
NO!" Camposes note that the
discharge of the indorser should have
been based on $$ .. & /' on
presentment as a condition to the
indorser0s liability & presentment for
payment of a demand bill made #ithin
a reasonable time from its last
negotiation.
CR3STAL v. CA (19C6)
/rystal used a chec$ in paying the
redemption price of the property sold at
an e(ecution sale. The 'alue of the
chec$ had ne'er been realized
because it had either been dishonored
or become stale. The 'alidity of the
redemption is in question.
59L-+ If the chec$ had been
dishonored, the redemption is 'oid.
:ut if it had only become stale through
no fault of the redemptioner, then it
would be unfair to depri'e him of the
rights he had acquired as
redemptioner, particularly if the 'alue of
the chec$ has otherwise been recei'ed
or realized. There is a strong showing
that the party had already been paid in
full.
W&ere DELA/ e$%)!e' - 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 operate,
presentment must be made with
reasonable diligence !Sec.
81,NIL"
Manner o# Pre!entent
o 'he instrument must be
e8hibited$ when paid, must
be delivered up to the party
paying it. 4Sec. 2&, NIL5
o What constitutes a sufficient
presentment. !Sec. 2$, NIL"
a. %@ WHF=E the holder, or
by some person
authori>ed to receive
payment on his behalf$
CHAN -AN v. TAN KIM(1960)
Tan Mim drew specially crossed chec$s
payable to bearer. /han )an presented
the chec$s for payment to the drawee
ban$ but they were dishonored due to
insufficient funds. /han )an see$s
reco'ery on these chec$s.
59L-+ /hec$s crossed specially to
/hina :an$ing should ha'e been
presented for payment by that ban$, not
by /han )an. Inasmuch as /han )an
presented them for payment himself,
there was no proper presentment N the
liability did not attach to the drawer.
:ut there was due presentment as
clearance endorsements by /hina :an$
can be found at the bac$ of the chec$s.
5owe'er, some of the chec$s were
stamped account closed.
"s /han )an filed to indicate how the
chec$s reached his hands, the court held
him not to be a holder in due course who
can still reco'er on the chec$s but
sub7ect to personal defenses, such as
lac$ of consideration.
NO!" Camposes note that despite the
addition of the #ords 1non2negotiable1 on
the specially crossed chec,s, the Court
considered the chec,s as negotiable
instruments. * chec, on its face
normally has all the re3uisites of
negotiability, and the addition of the
119
119
above #ords should not change its
character as a negotiable instrument.
ASSOCIATE+ BANK v. CA 4 RE3ES
(1992)
-ifferent department stores issued
crossed chec$s bearing 1for payee6s
account only1 payable to &elissa6s
?T). 8ayson, acting without authority,
deposited N encashed the chec$s with
"ssociated :an$.
59L-+ /iting 8tate In't 5ouse ' I"/,
the effects of crossing a chec$ are+
!. chec$ may not be encashed but
only deposited in the ban$%
,. chec$ may be negotiated only
one 22 to one who has an
account with a ban$% and
G. the act of crossing the chec$
ser'es as a warning to the
holder that the chec$ has been
issued for a definite purpose so
that he must inquire if he has
recei'ed the chec$ pursuant to
that purpose.
The effects of crossing a chec$ relate to
the mode of presentment for payment.
The law imposes a duty of diligence on
the collecting ban$ to scrutinize chec$s
deposited with it, for the purpose of
determining their genuineness N
regularity.
b. 'I=(E reasonable hour
on a business day$
where instrument
payable at ban7. S
must be made
during ban7ing
hours, &N(** the
person to ma7e
payment has no
funds there to meet
it at any time
during the day, in
which case
presentment at any
hour before the
ban7 is closed on
that day is
sufficient !Sec. 2%,
NIL"
c. ,#C(E proper place as
herein definedE !Sec.
2", NIL"
+" place of payment
specified J at place
of payment$
-" no place of
payment specified
but address of the
person to ma7e
payment is given in
the instrument J at
the address given$
." no place of payment
and no address is
given J at the usual
place of business or
residence of the
person to ma7e
payment$
/" in any other case J
wherever person to
ma7e payment can
be !+" found, or if
presented !-" at his
last 7nown place of
business or residence
d. 'F WHF=E !+" person
primarily liable on the
instrument, or if he is
absent or inaccessible,
!-" to any person found
at the place where the
presentment is made.
where principal
debtor is 'ea' and
no place of payment
is specified J to his
personal
representative, IN
any #ND IN he can be
found with the
e8ercise of
reasonable diligence
!Sec. 21, NIL"
where persons
primarily liable are
(artner! and no
place of payment is
specified,
presentment for 6 to
any one of them,
even though there
has been a
dissolution of the
firm. !Sec. 22, NIL"
Ioint 'ebtor! and
no place of payment
is specified 6 to them
all !Sec. 28, NIL"
DIS9ONOR B/ NONPA/MENT
WhenE !a" duly presented for payment O
payment refused or cannot be obtained$
or !b" presentment is e8cused O
120
120
instrument is overdue and unpaid. !Sec.
8", NIL"
(ffectEE :subKect to NI provs< an
immediate right of recourse to all parties
secondarily liable accrues to the holder.
!Sec. 8&, NIL"
NOTICE OF DIS9ONOR
De#inition1
'o bring either verbally or by
writing, to the 7nowledge of the
drawer or indorser of an instrument,
the fact that a specified NI, upon
proper proceedings ta7en, has not
been accepted or has not been paid,
and that the party notified is
e8pected to pay it
Deneral ruleE MUST be given to
drawer and to each indorser, and
any drawer or indorser to whom
such notice is not given is
discharged
W&en ne%e!!ar"
)1LLAS v. PNB (193*)
3ullas indorsed the treasury warrant
which was sold to ;N:. 3ullas also
maintained an account with the ban$.
The warrant was subsequently
dishonored by the Insular Treasurer. The
ban$ sent notices of dishonor to by mail
to 3ullas which could not be deli'ered to
him at that time because he was in
&anila. The ban$ set off 3ullas6 deposits
as payment of the warrant. This resulted
in the non2payment of chec$s he had
issued.
59L-+ " notice of dishonor is necessary
to charge an indorser N that the right of
action against him does not accrue until
the notice is gi'en.
"s a general rule, a ban$ has a right of
set off of the deposits in its hands for the
payment of any indebtedness to it on the
part of a depositor. 5owe'er, prior to the
mailing of notice of dishonor N without
awaiting any action by 3ullas, the ban$
made use of the money standing in his
account to ma$e good for the treasury
warrant. 3ullas was merely an indorser N
notice should actually ha'e been gi'en to
him in order that he might protect his
interests.
For 6 in writing or oral$ Content!
6 in any terms which sufficiently !+"
identify the instrument, and !-"
indicate that it has been dishonored
by non6acceptance or non6payment$
delivered personally or through the
mails. !Sec. 91, NIL"
'he ff. notice still sufficientE !Sec. 9%,
NIL"
!+" a written notice, not signed
!-" insufficient written notice,
supplemented and validated by
verbal communication
!." instrument suffering from
misdescription &N(** the party
to whom the notice is given is in
fact misled thereby.
Tie 6 as soon as the instrument is
dishonored and +it&in t&e tie
#i$e' by NI, unless delay e8cused
!Sec. 14$, NIL"
o Where parties reside in same
place !Sec. 14", NIL"E =ust be
given wAin the ff. timesI
If given at the place of business of the
person to receive notice 6 before the
close of business hours on the day
following
If given at his residence 6 before the
usual hours of rest on the day
following
If sent by mail 6 deposited in the post
office in time to reach him in usual
course on the day following.
o Where parties reside in different
places !Sec. 14&, NIL".E
If sent by mail 6 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 last day, by the ne8t mail
thereafter
If given otherwise 6 within the time
that notice would have been received
in due course of mail, if it had been
deposited in the post office within the
time specified above
When sender 'eee' to have given
due notice. S Where notice of
dishonor is duly addressed and
deposited in the post office,
notwithstanding any miscarriage in
the mails. !Sec. 14%, NIL"
o What constitutes L'e(o!it in post
officeM S when deposited in any
branch post office or in any letter
bo8 under the control of the post6
office department. !Sec. 141,
NIL"
W&ere notice must be sent !Sec.
148, NIL". S to the address, if any,
121
121
added by the party to his signature$
if address not givenE
a" to the post6office nearest to his
place of residence or where he
is accustomed to receive his
letters$ or
b" If he lives in one place and has
his place of business in another,
to either place$ or
c" If he is soKourning in another
place, to the place where he is
so soKourning.
%ut where the notice is actually
received by the party within the
time specified in this #ct, sufficient,
though not sent in accordance with
the requirement of this section
Dela" in giving
notice$ how e8cused. S 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
operate, notice must be given with
reasonable diligence. !Se%6 ??C4
NIL"
B" W&o Gi,en
o !+" %y or on behalf of the holder
or !-" any party to the
instrument who may be
compelled to pay it to the
holder, and who, upon ta7ing it
up, would have a right to
reimbursement from the party
to whom the notice is given
!Sec. 94, NIL"
o 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 party be his
principal or not !Sec. 91, NIL"
o Where instrument has been
dishonored in hands of agent,
he may either himself give
notice to the (artie! liable
thereon, or he may give notice
to his (rin%i(al !within the
same time as if agent were
holder" !Sec. 9&, NIL"
To +&o noti%e MA/ be gi,en
o to his principal, in case of an
instrument dishonored in the
hands of an agent !*ec. 4/,
NI"
o to the party himself or his agent
in that behalf !Sec. 92, NIL"
o where party is dead and death
7nown to the party giving notice J
!+" =&*' be given to a personal
representative, if there be one,
and if with reasonable diligence,
he can be found$ !-" no personal
representative J =#@ be sent to
the last residence or last place of
business of the deceased. !Sec.
98, NIL"
o partners S to any one partner,
even though there has been a
dissolution. !Sec. 99, NIL"
o persons Kointly liable. S to each
of them unless one of them has
authority to receive such notice
for the others. !Sec. 144, NIL"
o ban7rupt. S to the party himself
or to his trustee or assignee
!Sec. 141, NIL"
In +&o!e #a,or noti%e o(erate!
+. when given byAon behalf of
holderE inures to benefit of !Sec.
9$, NIL"
a. all subsequent holders and
b. all prior parties who have a
right of recourse vs. the party
to whom it9s given
-. where notice given byAon behalf
of a party entitled to give noticeE
inures for benefit !Sec. 9", NIL"
a. holder
b. all parties subsequent to
party to whom notice given
Wai,er
o Waiver of notice. S either !+"
before the time of giving notice
has arrived or !-" after the
omission to give due notice$ may
be e8pressed or implied. !Sec.
149, NIL"
o Where the waiver is embodied in
the instrument itself 6 binding
upon all parties$ where written
above the signature of an
indorser 6 binds him only. !Sec.
114, NIL"
W&ere not ne%e!!ar" to %&arge
'ra+er 5Sec. 11&, NIL8
a. drawerAdrawee same person
b. drawee fictitious, incapacitated
122
122
c. drawer is person to whom
instrument is presented for
payment
d. drawer has no right to
e8pectArequire that
draweeAacceptor will honor
instrument
e. drawer countermanded payment
STATE INVESTMENT HO1SE v CA (1993).
&oulic issued , chec$s to 4ictoriano as
security for pieces of 7ewelry to be sold on
commission. 4ictoriano negotiated these
chec$s to 8tate In'estment. "s &oulic
failed to sell the 7ewelry, she returned them
to 4ictoriano. 5owe'er, she failed to
retrie'e her chec$s. &oulic withdrew her
funds from the drawee ban$. Apon
presentment, the chec$s were dishonored.
59L-+ 8tate In'estment is a holder in due
course N is not sub7ect to the personal
defense of lac$ of consideration.
There is no need to ser'e the drawer a
notice of dishonor because she was
responsible for the dishonor of her chec$s.
"fter withdrawing her funds, she could not
ha'e e(pected her chec$s to be honored.
W&ere not ne%e!!ar" to %&arge
in'or!er 5Sec. 11%, NIL8
a. drawee fictitious, incapacitated,
and indorser aware of the fact
at time of indorsement
b. indorser is person to whom
instrument presented for
payment
c. instrument madeAaccepted for
his accommodation
D. PROTEST
6efinition1 testimony of some
proper person that the regular legal
steps to fi8 the liability of drawer
and indorsers have been ta7en
W&en ne%e!!ar"1 in case of a
NFB(IDN %I appearing on its face
to be such$ protest for non6
acceptance if dishonored by
nonacceptance T protest for
nonpayment if not previously
dishonored by nonpayment. If not
so protested, the drawer and
indorsers are discharged. !Sec.
1%$, NIL"
For J !+" anne8ed to the bill or
must contain a copy thereof, and !-"
must be under the hand and seal of
the notary ma7ing it$ Content! J !a"
'he time and place of presentment$
!b" 'he fact that presentment was
made and the manner thereof$ !c"
'he cause or reason for protesting the
bill$ !d" 'he demand made and the
answer given, if any, or the fact that
the drawee or acceptor could not be
found. !Sec. 1%", NIL".
B" +&o 6 !a" # notary public$ or
!b" any respectable resident of the
place where the bill is dishonored, in
the presence of two or more credible
witnesses. !Sec. 1%&, NIL"
Tie 6 on the day of its dishonor
unless delay is e8cused$ when duly
noted, the protest may be
subsequently e8tended as of the date
of the noting. !Sec. 1%%, NIL"$ Pla%e
6 at the place where it is dishonored,
(RC(,' bill drawn payable at the
place of business or residence of
person other than the drawee has
been dishonored by nonacceptance, it
must be protested for non6payment at
the place where it is e8pressed to be
payable, and no further presentment
for payment to, or demand on, the
drawee is necessary. !Sec. 1%1, NIL"
Prote!t #or better !e%)rit" against
the drawer and indorsers S where the
acceptor has been adKudged a
ban7rupt or an insolvent or has made
an assignment for the benefit of
creditors before the bill matures !Sec.
1%8, NIL"
When 'ela" e$%)!e' J when 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
operate, the bill must be noted or
protested with reasonable diligence.$
When (rote!t 'i!(en!e' with 6 by
any circumstances which would
dispense with notice of dishonor.
!Sec. 1%9, NIL"
TAN LEONCO v )O IN81I(190C). In
e(change for the abaca from Tan Leonco6s
plantations, 3o Inqui drew a bill of e(change
against Lim Ayco. Apon presentment of the
draft, it was refused payment due to a stop
order from the drawer. The bill was not
protested.
59L-+ The action is not brought upon the bill
of e(change which was used only as e'idence
of the indebtedness. Ander these conditions,
protest N notice of nonpayment are
123
123
unnecessary in order to render the drawer
liable.
NO!" he ruling of the Court on protest is
merely obiter dictum.
Wai,er o# (rote!t1 deemed to be a
waiver not only of a formal protest
but also of presentment and notice
of dishonor. !Se%6 ???4 NIL"
(. ACCEPTANCE or PA/MENT FOR
9ONOR
When bill may be a%%e(te' #or
&onor. S When a %( has been !+"
protested for dishonor by non6
acceptance or protested for better
security and !-" is not overdue
any person not being a party
already liable may, with the
CFN*(N' 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 is drawn.
'he acceptance for honor may be for
part only of the sum for which the
bill is drawn$
where there has been an acceptance
for honor for one party, there may
be a further acceptance by a
different person for the honor of
another party. !Sec. 111, NIL"
Re#eree in %a!e o# nee' S person
whose name is inserted by the
drawer of a bill and any indorser to
whom the holder may resort in case
bill is dishonored by non6acceptance
or non6payment$ option of the
holder to resort to the referee !Sec.
1"1, NIL"
PA/MENT FOR 9ONOR - any
person may intervene and pay bill
protested for non6payment supra
protest !Sec. 121, NIL"
N. INSTRUMENTS PA/ABLE AT BANK
BIN)HAMPTON PHARMAC3 v FIRST
NATIONAL BANK (191*)
There is a distinction between the drawer of a chec$
N the ma$er of a note payable at a ban$+
Note payable at
ban$
/hec$
ma$er of a note is
primarily liable on
the instrument
drawer of a chec$ is
only liable after
dishonor
law e(cuses
presentment of the
instrument
requires presentment
within a reasonable
time at the peril of
discharging the drawer
obligation of the
ma$er of a note is
not a conditional
promise to pay only
at a special place,
but is a promise to
pay generally, e'en
though a place of
payment
:reach of the duty of
the holder of a chec$ to
present for payment at
the place where it is
payable at a
reasonable time
discharges the drawer
from liability to the
e(tent he is damaged
by the breach.
D. BILLS IN SET
composed of various parts being
numbered, and containing a reference to
the other parts, all of which parts
constitute one bill of lading
%ills in set constitute one bill. !Sec.
128, NIL"
Rig&t o# 9DC! where different parts
are negotiated. S the holder whose
title first accrues is the true owner of
the bill. %ut nothing in this section
affects the right of a person who, in
due course, accepts or pays the parts
first presented to him. !Sec. 129.,
NIL"
Liabilit" o# &ol'er who indorses two
or more parts of a set to different
persons. S liable on every such part,
and every indorser subsequent to him
is liable on the part he has himself
indorsed, as if such parts were
separate bills. !Sec. 184, NIL"
A%%e(tan%e 6 may be written on any
part and it must be written on one
part only. If the drawee accepts more
than one part and such accepted parts
negotiated to different holders in due
course, he is liable on every such part
as if it were a separate bill. !Sec.
181, NIL"
Pa"ent 6 When the acceptor of a
bill drawn in a set pays it without
requiring the part bearing his
acceptance to be delivered up to him,
and the part at maturity is
outstanding in the hands of a holder
124
124
in due course, he is liable to the
holder thereon. !Sec. 18$, NIL"
(ffect of 'i!%&arging one of a set.
S (8cept as herein otherwise
provided, the whole bill is
discharged. !Sec. 18", NIL"
DISC9ARGE
DISC9ARGE 6 is the release of all parties,
whether primary or secondary, from the
obligation on the instrument$ renders the
instrument non6negotiable
#. OF T9E INSTRUMENT 5Sec. 119,
NIL8 > How dischargedE
+. payment in due course by or on
behalf of principal debtor
a. by whom made
b. at or after maturity
c. to the holder thereof
E81ITABLE BANK v#. IAC 5 The
sub7ect chec$ was also ambiguous and
equi'ocal. :y ma$ing the chec$ read,
=payable to 9quitable ban$ #rder of
"I/ /as'ille 9nterprises, Inc.>, the
payee ceased to be indicated with
reasonable certainty and thus in
contra'ention of sec. B of the NIL. This
ambiguity should be construed against
Nell.
,
d. in good faith and without notice
that his title is defective
-. payment in due course by party
accommodated where party is madeA
accepted for accommodation
.. intentional cancellation by holder
if unintentional or under mista7e or
without authority of holder,
inoperative$ where instrument or sig
appears to have been cancelled,
burden of proof on party which
alleges it was unintentional, etc.
!Sec. 1$", NIL"
/. any other act which discharges a simple
contract for payment of money
0. principal debtor becomes holder of
instrument at or after maturity in his
own right
1. renunciation of holderE !Sec. 1$$, NIL"
,
Nor our purpose, L payment to one of several payees
or indorsees in the alternative discharges the
instrumentIM!see p. 3-1 of Campos"
holder may e8pressly renounce his
rights vs. any party to the instrument,
before or after its maturity
absolute and unconditional
renunciation of his rights against
,BINCI,# D(%'FB made at or after
maturity discharges the instrument
renunciation does not affect rights of
HDC wAo notice.
*enunciation must e in )riting
un#ess instrument de#ivered up
to person primari#y #ia#e
thereon
2. material alteration J review *ec. +-0, NIE
what constitutes material alteration !*ec.
+-/, NIE material alteration wAo assent of
all parties liable avoids instrument e8cept
as against party to alteration and
subsequent indorsers"
%. OF SECONDAR/ PARTIES 5Sec. 1$4,
NIL8
+. by discharge of instrument
-. intentional cancellation of signature
by holder
.. discharge of prior party
/. valid tender of payment by prior party
0. release of principal debtor, unless
holder9s right of recourse vs. -ndary
party reserved
1. any agreement binding upon holder to
e8tend time of payment, or to
postpone holder9s right to enforce
instrument, &N(** !+" made with
assent of party secondarily liable, or
!-" right of recourse reserved.
2. Nailure to ma7e due presentment
!*ecs. 25, +//, NI"
3. failure to give notice of dishonor
4. certification of chec7 at instance of
holder
+5. reacquisition by prior party
where instrument negotiated bac7
to a prior party, such party may
reissue and further negotiate, but
not entitled to enforce payment
vs. any intervening party to
whom he was personally liable
where instrument is paid by party
secondarily liable, it9s not
discharged, but
a. the party so paying it is
remitted to his former rights
as regard to all prior parties
b. and he may stri7e out his
own and all subsequent
indorsements, and again
125
125
negotiate instrument,
e8cept
o where it9s payable to
order of .
rd
party and
has been paid by
drawer
o where it9s
madeAaccepted for
accommodation and has
been paid by party
accommodated
OT9ER FORMS
OF COMMERCIAL PAPER
Coer%ial (a(er! 6 also NIs$ merely
special forms of either ,Ns or %(s$ also
governed by the NI
.)a!i-negotiable 6 include commercial
paper which though not governed by the
NI, have certain attributes of
negotiability.
NEGOTIABLE DOCUMENTS OF TITLE
a. as distinguished from negotiable
instruments, refer to goods and not to
money$ the sale of goods covered is
effected by the transfer of said
document.
b. not governed by the NI but by the Civil
Code.
c. includes any bill of lading, doc7 warrant,
LquedanM, or warehouse receipt or order
for the delivery of goods, or any other
document used in the ordinary course of
business in the sale or transfer of goods,
as proof of the possession or control of
the goods, or authori>ing or purporting
to authori>e the possessor of the
document to transfer or receive, either
by indorsement or by delivery, goods
represented by such document.
d. Documents of title negotiable when
goods represented thereby are
deliverable to a specified person , to
order or to bearer.
e. valuable in commerce because it
facilitates the sale and delivery of goods.
#. KINDS
+. Ware&o)!e re%ei(t! an agreement
by a warehouseman to store goods
and deliver them to a named person
or his order or to bearer.
-. Bill o# La'ing a similar contract by a
carrier to ship goods and deliver them
to the person named therein or his
order or to bearer$ negotiable bill of
lading is useful not only as evidence
of the receipt of the goods by the
carrier but as evidencing title to goods
covered by it. It also facilitates the
purchase of goods by one person from
another who is physically remote and
probably un7nown to him.
LstraightM bill where the goods are
to be delivered to a specified
person, it is not negotiable and is
called a LstraightM bill. Ftherwise,
it is referred to as an LorderM bill.
.. Certificate of Deposit
a receipt of a ban7 for certain
sum of money received upon
deposit$ generally framed in such
NFB= as to constitute a
promissory note, payable to the
depositor, or to the depositor or
order, or to bearer.
it is ta7en when depositor does
not need his money for some
e8tended period of time and
wants it to earn interest$ more of
an investment paper than a
commercial paper because it is
not attendant to a commercial
transaction the way a chec7 or a
promissory note is.
it is negotiable if it meets all the
requirements of *ec + NI
/. Bon'! an' Debent)re!
B!n($
o evidences of indebtedness, in
the nature of a ,Ns
o usually accompanied by a
mortgage of the property of
the issuer
o issued by the government
!municipal T other public
corporations" T private
corporations$
o though not to mature for a
long time, assure some
regular income to
bondholders in the form of
126
126
interestU, usually payable
annually
o bonds and interest coupons
!evidences interest
obligations"U
may be negotiable in
form, therefore
governed by NI !*ec
10"$
both are actually
promissory notes
o they run for long periods of
time, and are often sold to
the public in general
o funds generated by such
bonds are used to finance
corporate proKects and
public wor7s$
o there is no warranty on the
part of such indorser or
negotiator that prior parties
had capacity to contract.
'he qualified indorser T
negotiator by delivery of a
bond do not warrant
therefore that the
corporation which issued
the bonds has any Kudicial
capacity to act. # general
indorser thereof however
would be liable for such
want of capacity.
6ebentures
o similar to bonds e8cept that
they are usually for a
shorter tem and may or
may not be accompanied by
a mortgage.
o they are often issued on the
general credit of the issuer
corporation
0. Dra#t! an' Letter! o# Cre'it 6 'he
draft and the letter of credit are
generally used together to effect
payment in international
transactions.
9ra*t a form of %( generally
used to facilitate the
transactions between persons
physically remote from each
other.
'etter$ !* Cre(#t
o one person requests some
other person to advance
money or give credit to a
third person, and promises
that he will repay the same
to the person ma7ing the
advancement, or accept bills
drawn upon himself for the
li7e amount.
o must be issued in favor of a
definite person, and not to
order.
o under our law, a letter of
credit cannot be a negotiable
instrument because !a" it
may not contain the words of
negotiability$ !b" may be
issued for an undetermined
amount. *ee #rt 013 Code of
Commerce.
o LIND(,(ND(NC( ,BINCI,(ME
Credits, by their nature, are
separate transactions from
the sales or other contract!s"
on which they may be based
and ban7s are in no way
concerned with or bound by
such contract!s", even if any
reference whatsoever to such
contract!s" is included in the
credit. Consequently, the
underta7ing of a ban7 to pay,
accept and pay draft!s" or
negotiate andAor fulfill any
other obligation under the
credit is not subKect to claims
or defenses by the applicant
resulting from his
relationships with the issuing
ban7 or the beneficiary. #
beneficiary can in no case
avail himself of the
contractual relationships
e8isting between the ban7s or
between the applicant and
the issuing ban7.
2 'hus, the engagement of
the issuing ban7 is to pay
the seller or beneficiary of
the credit once the draft
and the required
documents are presented to
it. 'his principle assures
the seller or the beneficiary
of prompt payment
independent of any breach
of the main contract and
precludes the issuing ban7
from determining whether
the main contract is
actually accomplished or
not. &nder this principle,
ban7s assume no liability or
responsibility for the form,
sufficiency, accuracy,
genuineness, falsification or
legal effect of any
127
127
documents, or for the
general andAor particular
conditions stipulated in
the documents or
superimposed thereon,
nor do they assume any
liability or responsibility
for the description,
quantity, weight, quality,
condition, pac7ing,
delivery, value or
e8istence of the goods
represented by any
documents, or for the
good faith or acts andAor
omissions, solvency,
performance or standing
of the consignor, the
carriers, or the insurers of
the goods, or any other
person whomsoever.
2 'he independent nature
of the letter of credit may
beE !a" independence #n
t!t! where the credit is
independent from the
Kustification aspect and is
a separate obligation from
the underlying agreement
li7e for instance a typical
standby$ or !b"
independence may be
only as to the Kustification
aspect li7e in a
commercial letter of credit
or repayment standby,
which is identical with the
same obligations under
the underlying
agreement. In both
cases the payment may
be enKoined if in the light
of the purpose of the
credit the payment of the
credit would constitute
fraudulent abuse of the
credit. !'ransfield vs.
u>on Hydro"
,ertinent Co'e o# Coer%e
provisionsE
o Art 7@J. etters of credit 6
issued by one merchant to
another for the purpose of
attending to a commercial
transaction.
o Art 7@D. 'he essential
conditions of letter of credit
shall beE
+. issued in favor of a
definite person, and not
to order.
-. limited to a fi8ed and
specified amount, or to
one or more
undetermined amount,
but all within a ma8imum
the limit of which has to
be stated e8actly.
N!te. ,2!$e w2#c2 (! n!t 2a/e
any !* t2e$e la$t c#rcu"$tance$
$2all be c!n$#(ere( a$ "ere
letter$ !* rec!""en(at#!n.
Art 7@B. 'he drawer of a letter of
credit shall be liable to the person
on whom it was issued, for the
amount paid by virtue thereof,
within the ma8imum fi8ed
therein.
etters of credit may not be
protested even if not be paid$
bearer cannot acquire any right of
action by reason of non6payment
against the person who issued it.
'he person paying shall has right
to demand the proof of the
identity of the person in whose
favor the letter of credit was
issued.
Art 7JK. 'he drawer of a letter of
credit may annul it, informing the
bearer and the person to whom it
is addressed
Art 7J?. 'he bearer of a letter or
credit shall pay the amount
received to the drawer without
delay. *hould he not do so, an
action involving e8ecution may be
brought to recover it, with legal
interest and the current e8change
in the place where it is repaid.
Art 7J=. If the bearer of a letter
of credit does not ma7e use
thereof within the !+" period
agreed upon with the drawer, or
in default of a period fi8ed, !-"
within 1 months, counted from its
date, in any point in the
,hilippines, and within +- months
anywhere outside thereof, it shall
be void in fact and in law.
)RE)ORIO ARANETA INC. v PNB (19*4).
"n alleged ban$ing custom whereby a draft
should be paid at the rate e(is!ting on the
date of its maturity is immaterial since there is
an e(press contract between the parties
embodied in the application for commercial
letter of credit. The application specifically
128
128
pro'ides that what is to be paid at maturity
in ;hilippine currency is the equi'alent of
=the amount or such portion thereof as may
be drawn or paid upon the faith> of the
plaintiff<s credit% and it is admitted that the
defendant ban$ actually paid for the draft
the amount of ;GG,K,K.L,. There is also an
agreement of the plaintiff to =reimburse> the
defendant ban$ D a term that requires the
return of something paid.
NAT2L RICE 4 CORN v. PANBPHIL
SHIPPIN).
The letter of credit is in strict accord with the
terms of Nat<l ?ice<s contract with ;an2
;hilippine. "ccordingly, the mere refusal of
the beneficiary *N3N8<s which relinquished
its interest in the letter of credit upon alleged
ground of 'iolation with conditions of the
sales contract. cannot be force ma7eure
within the meaning of the law
Nat<l ?ice could not ha'e used that letter of
credit for some other purpose because it is
an irre'ocable letter of credit in fa'or of a
specified party *N3N8., the same could not
be changed by Nat<l ?ice or the ban$
without the consent of the beneficiary
*N3N8..
BPI v. +E REN3 FABRIC (19C0).
The company and its officers cannot shift
the burden of loss to the ban$ because of
the terms of their /ommercial Letter of
/redit "greement with the ban$ pro'ides
that latter shall not be responsible for the
any difference in character or condition of
the property. Furthermore, the ban$ was
able to pro'e the e(istence of a custom in
international ban$ing and financing circles
negating any duty of the ban$ to 'erify
whether what has been described in letters
of credits or drafts or shipping documents
actually tallies with what was loaded aboard
ship. :an$s, in pro'iding financing in
international business transactions do not
deal with the property to be e(ported or
shipped to the importer, but deal only with
documents.
TRANSFIEL+ VS. L1,ON H3+RO (2004).
/an the beneficiary in'o$e the
independence principle0 Ses.
3i'en the nature of letters of credit,
petitioner<s argumentTthat it is only the
issuing ban$ that may in'o$e the
independence principle on letters of creditT
does not impress this /ourt. To say that the
independence principle may only be in'o$ed
by the issuing ban$s would render nugatory
the purpose for which the letters of credit
are used in commercial transactions. "s it
is, the independence doctrine wor$s to the
benefit of both the issuing ban$ and the
beneficiary.
Letters of credit are employed by the parties
desiring to enter into commercial transactions,
not for the benefit of the issuing ban$ but
mainly for the benefit of the parties to the
original transactions. )ith the letter of credit
from the issuing ban$, the party who applied
for and obtained it may confidently present the
letter of credit to the beneficiary as a security
to con'ince the beneficiary to enter into the
business transaction. #n the other hand, the
other party to the business transaction, i.e.,
the beneficiary of the letter of credit, can be
rest assured of being empowered to call on
the letter of credit as a security in case the
commercial transaction does not push
through, or the applicant fails to perform his
part of the transaction. It is for this reason
that the party who is entitled to the proceeds
of the letter of credit is appropriately called
=beneficiary.>
;etitioner<s argument that any dispute must
first be resol'ed by the parties, whether
through negotiations or arbitration, before the
beneficiary is entitled to call on the letter of
credit in essence would con'ert the letter of
credit into a mere guarantee. @urisprudence
has laid down a clear distinction between a
letter of credit and a guarantee in that the
settlement of a dispute between the parties is
not a pre2requisite for the release of funds
under a letter of credit.
In other words, the argument is incompatible
with the 'ery nature of the letter of credit. If a
letter of credit is drawable only after
settlement of the dispute on the contract
entered into by the applicant and the
beneficiary, there would be no practical and
beneficial use for letters of credit in
commercial transactions.
1. Certi#i%ate o# Sto%-
or !&are %erti#i%ate is the
customary and convenient
evidence of the holder9s interest
in the corporation which issues it.
not a NI, but is included in the
term LsecuritiesM bec does not
contain any promise or order to
pay money$
described as Auasi/Negotiable
bec oftentimes, by application of
the principles of estoppel, and to
effectuate the ends of Kustice and
the intention of the parties, the
courts decree a better title to the
transferee than actually e8isted in
his transferor, and is the same as
would be reached if the certificate
were negotiable.
When the shareholder signs the
bac7 of certificates of stoc7
without filling in the blan7s !for
129
129
the name of the transferee and
attorney6in6fact" and the
certificate is delivered to
another, the latter appears to be
the owner thereof. # bona fide
purchaser of value without
notice, will be protected in his
acquisition, although such third
person has diverted the
certificate from the purpose for
which he was entrusted
therewith. !,rinciple of
E!to((el"
'he same rule is applicable if
the certificate is in bearer form.
'he rule is applicable where the
certificate is lost or stolen while
signed in blan7. (ven a
purchaser in good faith cannot
acquire title as against the true
owner. !P"
#t common law, stoc7
certificates are given the
attributes of negotiability only
where the owner thereof has
entrusted the wrongdoer with
the possession of such
certificate and clothed him with
apparent ownership thereof.
SANTAMARIA v HON)KON) 4
SHAN)HAI BANK (19*1).
;laintiff, in failing to ta$e the necessary
precaution upon deli'ering the certificate of
stoc$ to her bro$er, was chargeable with
negligence in the transaction which resulted
to her own pre7udice, and as such, she is
estopped from asserting title to it as against
the defendant ban$.
" certificate of stoc$, indorsed in blan$, is
deemed quasi2negotiable, and as such the
transferee thereof is 7ustified in belie'ing
that it belongs to the holder and transferor.
+E LOS SANTOS5 M.)RATH (19**).
" share of stoc$ may be transferred by
endorsement of the stoc$ certificate,
coupled with its deli'ery. 5owe'er, the
transfer shall not be 'alid e(cept as
between the parties, until it is entered and
noted upon the boo$s of the corporation
*8ec G5 /orporation Law..
No such entry in the name of the plaintiffs
ha'ing been made, it follows that the
transfer effected by /ampos and 5ess in
their fa'or is not 'alid, e(cept as between
themsel'es. It does not bind &adrigal or the
&itsuis who are not parties to the
transactions.
"lthough a stoc$ certificate is sometimes
regarded as quasi2negotiable, in the sense
that it may be transferred by endorsement,
coupled with deli'ery it is well settled that the
instrument is non2negotiable, because the
holder thereof ta$es it without pre7udice to
such rights or defense as the registered
owner or credit may ha'e under the law,
e(cept in so far as such rights or defenses are
sub7ect tot eh limitations imposed by the
principles go'erning estoppel.
In the case at bar, the certificates of stoc$
were in the name of &adrigal. Therefore, the
alleged sellers */ampos and 5ess. were not
registered owners. ;laintiffs must ha'e been
conscious of the infirmities in the title of the
supposed 'endors. Therefore, plaintiffs
assumed those ris$s and hence, cannot
'alidly claim, against the registered
stoc$holder, the status of purchasers in good
faith.
CAPCO v. MACASAET (1990).
/ertificates of stoc$s are considered as quasi2
negotiable instruments. )hen the owner or
shareholder signs the printed form of sale or
assignment at the bac$ of e'ery stoc$
certificates without filling in the blan$s
pro'ided for the name of the transferee as
well as for the name of the attorney2in2fact,
the said owner or shareholder, in effect,
confers on another all the indicia of ownership
of the said stoc$ certificates.
In this case, the petitioner signed the printed
from at the bac$ of both stoc$ certificates and
without filling in the blan$s at the time the said
stoc$ certificates were deli'ered to &acasaet.
5ence, the petitioner<s acts of indorsement
and deli'ery conferred on &acasaet the right
to hold them as thought they were his own. It
was not irregular of &acasaet to deli'er the
stoc$ certificates to Feliciano for
consideration.
%. Negotiation - same as those used in NIs$
to orderVdelivery O indorsement, to
bearer V delivery
+. 'he means of negotiating a document
of title are the same as those used in
negotiable instruments.
-. If by the terms of the document, the
goods are deliverable to the order of a
specified person, then it should be
indorsed by such person, either
specially or in blan7.
.. If the goods are deliverable to bearer,
or the document has been indorsed in
blan7, then negotiation may be by
mere delivery.
130
130
C. RIG9TS OF A 9OLDER
+. W&en #ree #ro (er!onal
'e#en!e!
&nder ,rt 1%18 0i'il 0ode, a
holder of a negotiable document
of title in good faith, for value
and without notice is placed on
the same level as a HDC of a
negotiable instrument J i.e.,
personal defenses enumerated
in said article are not available
against him. ,ersonal defenses
includeE negotiation was a
breach of duty on the part of
the person ma7ing the
negotiation, owner of the
document was deprived of the
possession of the same by loss,
theft, fraud, accident, mista7e,
duress or conversion.
Note #rt +0+39s conflict with #rt
+0+-. !see p 4+0"
-. W&at title a%0)ire' !NF'(E see
#rts +0+., +0+/ and +0+4 Civil
Code"
a. # person to whom a negotiable
document of title has been duly
negotiated acquires the title of
the person N(DF'I#'IND #t as
well as the title of the FBIDIN#
%#IFB or depositor of the
goods.
e8. if the original bailor had no
authority from such owner to
deposit the goods, then the
holder of the negotiable
document, even if the
negotiation to him was valid,
cannot acquire title to the
goods$ #ND even if the original
bailor had authority, if the
negotiation to the present
holder9s transferor was not
valid, such holder, even if in
good faith and for value, does
not acquire any right to the
goods. the holder9s remedy if
any, is against his transferor
andAor the guilty party.
'hus, if the original bailor or
depositor of the goods was
not the owner thereof or
had no authority from such
owner to deposit the goods,
then the holder of the
negotiable document, even if
the negotiation to him was
valid, cannot acquire title to
the goods.
Fn the other hand, even if
the original bailor or depositor
was the owner or had
authority from the owner, if
the negotiation to the present
holder9s transferor was not
valid, such holder, even if in
good faith and for value, does
not acquire any right to the
goods.
In both cases, the holder9s
remedy if any, is against his
transferor andAor the guilty
party.
b. 'he person to whom the
document has been negotiated
acquires the obligation of the
bailee to a-e 'eli,er" to him,
as if they had contracted directly
with each other.
+. %y issuing a negotiable
document of title, such bailee
had given in advance his
consent to hold the goods for
any person to whom such
document is negotiated.
-. If document non6negotiable,
notice of any transfer should
be given to the bailee
otherwise bailee or any other
person other than the
transferor not bound
.. 'hus, the transferee9s rights
may be defeated by a levy of
attachment on the goods or
by a notification to the bailee
of a sale of the goods to
another purchaser.
/. # sale of the goods without
the document will not
preKudice a subsequent
purchaser who ta7es the
document in good faith and
for value.
0. 'he bailee9s delivery to the
legal holder of the document
would relieve him of any
further responsibility for the
goods.
D. Liabilit" o# In'or!er
131
131
'he indorsement of a negotiable
document of title carries with it
certain implied warranties by the
indorser.
#s to the 'o%)ent, his warranty
covers its genuineness, his legal
right to negotiate it and his lac7 of
7nowledge of any fact which would
impair its validity.
#s to the goo'!, he warrants that
he has the right to transfer title
thereto and that they are
merchantable.
However, unli7e the indorser of a NI
who is liable if the primary party
fails to pay, the indorser of a
negotiable document of title is not
liable for the failure of the bailee to
fulfill his obligation to deliver the
goods.
ROMAN v ASIA BANKIN) CORP. (1922).
" warehouse receipt must be interpreted
according to its e'ident intent and it is ob'ious
that the deposit e'idenced by the receipt in this
case was intended to be made sub7ect to the
order of the depositor and therefore negotiable.
The indorsement in blan$ of the receipt with its
deli'ery which too$ place on the date of the
issuance of the receipt demonstrate the intent to
ma$e the receipt negotiable. Furthermore, the
receipt was not mar$ed =non2negotiable.>
SI3 CON) BIEN) v. HSBC.
If the owner of the goods permits another to ha'e
the possession or custody of negotiable
warehouse receipts running to the order of the
latter, or to bearer, it is a representation of title
upon which bona fide purchasers for 'alue are
entitled to reply, despite breaches of trust or
'iolations of agreement on the part of the
apparent owner.
132
132

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