Negotiable Intruments Sundiang

One man’s morality should never by way of ideology become another’s legality ~The Icarus Agenda

NEGOTIABLE INSTRUMENTS LAW FROM THE CLASSES OF DEAN JOSE R. SUNDIANG SAN BEDA COLLEGE OF LAW MENDIOLA, MANILA

SUMMARY OF DOCTRINES

*Art.1249, NCC: xxx The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the debtor they have been impaired. C. Negotiable Instruments are governed by the NIL, and where the NIL is silent, the provisions of the Code of Commerce, the Law Merchant, and the Civil Code apply suppletorily.

I. NEGOTIABLE INSTRUMENTS IN GENERAL A negotiable instrument is a written contract for the payment of money which complies with the requirements of Section 1, NIL; which by its form and on its face is intended as a substitute for money and passes from hand to hand as money so as to give the holder in due course the right to hold the instrument free from personal defenses available to prior parties. A. Functions of a negotiable instrument: 1. It operates as a substitute for money 2. It is a means of creating and transferring credit 3. It facilitates the sale of goods 4. It increases the purchasing medium in circulation 5. It serves as proof of transactions

D. Primary Features of negotiable instruments: 1. Negotiability 2. Accumulation of Secondary Contracts E. Negotiable Instruments differ from non-negotiable instruments in the following respects:

Re: Governing Laws Re: Transferrability Re: Possibility of due course holding

B. A negotiable instrument is NOT legal tender and the delivery of an instrument does not generally operate as payment *Sec.52 of RA 7653 (the New Central Bank Act) defines legal tender as those notes and coins issued by the Bangko Sentral ng Pilipinas, fully guaranteed by the government of the Republic of the Philippines for the payment of debts, both public and private

Re: Defenses against the holder

Re: Nature of the 1|C A SE L A W FO R N E G O TI AB L E I N S TR U M E N T S

Negotiable Instruments NIL Code of Commerce By Negotiation By Assignment Transferee may become a holder in due course (HDC) provided all the requirements under Sec. 52, NIL are present Only Real defenses may be raised against a HDC

a HDC acquires clean

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Non-Negotiable Instruments Civil Code Only by Assignment Transferee remains an Assignee and can never become a HDC

All manner of defenses – real and personal – may be raised against the assignee/transferee By virtue of

One man’s morality should never by way of ideology become another’s legality ~The Icarus Agenda

Holder’s title

Re: Solvency of the debtor

title to the instrument, free from infirmities in the instrument and defects in the title of prior endorses; the shelter rule may be invoked In a sense, solvency of the debtor is guaranteed by the endorsements made by prior endorsers because they guarantee that the instrument will be accepted, paid or both and that they will pay if the same is dishonored

subrogation, the assignee/transferee acquires merely a derivative title to the instrument

Solvency of the debtor is not deemed guaranteed under Art.1628, NCC unless there is an express stipulation to that effect

II. NEGOTIABILITY Sec.1 Form of Negotiable Instruments – An instrument to be negotiable must conform to the following requirements: (a) It must be in writing, and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named therein with reasonable certainty

2|C A SE L A W FO R N E G O TI AB L E I N S TR U M E N T S

A. Postal Money Orders are not negotiable instruments. In establishing and operating a postal money order system, the government is not engaged in commercial transactions but is merely exercising a governmental power for the public benefit. Restrictions upon postal money orders imposed by postal laws and regulations are inconsistent with the character of negotiable instruments as defined under Sec.1, NIL (Phil. Education Co., Inc. v. Soriano, 39 SCRA 587) B. The negotiability or non-negotiability of an instrument is determined from the writing on the face of the instrument itself. (Caltex-Philippines, Inc v. CA, 212 SCRA 448) C. The indication of a particular fund as the source of payment makes the order to pay conditional. An order or promise to pay out of a particular fund is ‘not unconditional’, as stated in Sec.3, NIL (Metrobank v. CA, 194 SCRA 168) D. A non-negotiable document may not be negotiated; but it may be assigned or transferred, absent an express prohibition against assignment or transfer written on the face of the instrument. [A] note, though not negotiable, may be transferred by assignment, the assignee taking it being subject to the equities between the original parties (Sesbreño v. CA, 222 SCRA 466) E. Withdrawal slips are not negotiable instruments. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. Withdrawal slips lack this character. (Firestone Tire and Rubber Co, v. CA, 353 SCRA 601)

III. INSTRUMENTS PAYABLE TO BEARER

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One man’s morality should never by way of ideology become another’s legality ~The Icarus Agenda

Sec. 9 When payable to bearer – The instrument is payable to bearer: (a) When it is expressed to be so payable; (b) When it is payable to a person named therein or to bearer; (c) When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable; (d) When the name of the payee does not purport to be the name of any person; or (e) When the only or last endorsement is an endorsement in blank. A. Where a check is made payable to the order of ‘cash’, the word ‘cash’ does not purport to be the name of any person and hence the instrument is payable to bearer. The drawee-bank may pay it to the person presenting it without need of obtaining any endorsement (Ang Tek Lian v. CA, 87 SCRA 383)

IV. COMPLETE BUT UNDELIVERED INSTRUMENTS Sec. 16 Delivery; when effectual; when presumed – Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under authority of the party making, drawing, accepting or endorsing, as the case may be; and, in such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property in the instrument. But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And there the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery is presumed until the contrary is proven. 3|C A SE L A W FO R N E G O TI AB L E I N S TR U M E N T S

The payee of a negotiable instrument acquires no interest thereto until its delivery to him. Delivery of an instrument means transfer of possession, actual or constructive, from one person to another with intent of transferring title thereto. However, it does not follow that the drawer of an undelivered instrument is freed from the liability of the principal contract which gave rise thereto (Development Bank of Rizal v. Sima Wei, 219 SCRA 383)

V. LIABILITY OF PERSONS SIGNING AS AGENT Sec.20 Liability of persons signing as agent, and so forth – Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability A. A party who signs a bill of exchange as an agent, but failed to disclose his principal becomes personally liable for the drafts he accepted. (Phil. Bank of Commerce v. Aruego, 102 SCRA 530) B. The NIL provides that where any person is under obligation to endorse in a representative capacity, he may endorse in such terms as to negative personal liability. An agent, when so signing, should indicate that he is merely signing on behalf of the principal and must disclose the name of his principal; otherwise he shall be held personally liable. (Francisco v. CA, 319 SCRA 354)

VI. FORGERY 2K AY2012-2013 HIRYU KIMIKO (;

One man’s morality should never by way of ideology become another’s legality ~The Icarus Agenda

Sec.23 Forged Signature, effect of – When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative and no right to retain the instrument, or give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. A. The collecting bank which endorsed the checks to the drawee-bank for clearing, should be liable to the latter for reimbursement because the endorsement of the checks had been forged prior to delivery. The payments made by the drawee-bank to the collecting bank on account of the forged checks were ineffective because the creditor-debtor relationship between the depositor and the collecting bank had not been validly effected (Jai Alai v. BPI, 66 SCRA 29) B. It is only the negotiation predicated on the forged instrument that should be declared inoperative. The negotiation of the check in question between the parties after the immediate parties to the forgery should be considered valid and enforceable, barring any claim of forgery. (Republic Bank v. Ebrada, 65 SCRA 681) C. Petitioner MWSS was guilty of gross negligence in the printing of its personalized checks. The drawee-bank PNB cannot be faulted for not having detected the fraudulent encashment of the checks because the printing of MWSS’s personalized checks was not done under its supervision and control. MWSS was in a better position to detect and prevent the fraudulent encashment. (MWSS v. CA, 143 SCRA 20) D. Having stamped its guarantee of ‘all prior endorsements and/or lack of endorsements’, the collecting bank is estopped from claiming otherwise. Whenever any bank treats the signature at the back of the 4|C A SE L A W FO R N E G O TI AB L E I N S TR U M E N T S

check as an endorsement, and thus guarantees the same, it is liable. The drawer cannot be held liable for the negligence of the collecting bank. There is no privity between the drawer and the collecting bank. (Banco de Oro v. Equitable Banking Corp., 157 SCRA 189) E. As a rule, a drawee bank who has paid a check on which an endorsement has been forged cannot charge the drawer’s account for the amount of said check. An exception to the rule is where the drawer is guilty of such negligence which causes the bank to honor such a check or checks. (Gempesaw v. CA, 218 SCRA 683) F. The drawee-bank cannot debit the account of the drawer because it paid checks which bore forged endorsements. However, if the drawer was negligent to the point of contributing substantially to the loss, then the drawee-bank can charge the drawer’s account. If both the draweebank and the drawer were negligent, the loss should be apportioned between them (Associated Bank v. CA, 252 SCRA 620) G. The failure of FNCB as drawee-bank to inform the collecting bank, Metrobank, about the alteration of in question until after the lapse of 9 days negates whatever right it might have had against Metrobank in the light of Central Bank Circular No.9, as amended by Circular No.138, which requires all items cleared on a particular clearing to be returned not later than 3:30PM on the following business day. While it is true that Metrobank endorsed the check, such an endorsement must be read together with the 24-hour rule on Clearing House Operations of the Central Bank (Metrobank v. FNCB, 118 SCRA 537) H. It is true that when an endorsement is forged, the collecting bank or last endorser, as a general rule, bears the loss. But the unqualified endorsement of the collecting bank should be read together with the 24-hour rule on clearing house regulations. When the drawee bank fails to return a forged or altered check to the collecting bank within the 242K AY2012-2013 HIRYU KIMIKO (;

One man’s morality should never by way of ideology become another’s legality ~The Icarus Agenda

hour clearing period, the collecting bank is absolved from liability. (Republic Bank v. CA, 196 SCRA 100) I. The mere fact that the forgery was committed by a drawer-payor’s confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of circumstances raising estoppel against the drawer. A bank is liable for the fraudulent acts or representations of an office or agent acting within the scope of his employment or authority. But in this case, responsibility for negligence does not lie on the collecting bank’s shoulders alone. Citibank, as drawee-bank was likewise negligent, and must also answer for the damages suffered by the drawer because of the contractual relationship between it and the latter. Thus, invoking the doctrine of comparative negligence, both PCI and Citibank are equally liable. (PCI Bank v. CA, 350 SCRA 446) J. It is a rule that when a signature is forged or made without the authority of the person whose signature is forged or made without the authority of the person whose signature it purports to be, the check is wholly inoperative. However, the rule does provide for an exception, namely: ‘unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.’ In the instant case, it is the exception that applies. Petitioner 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 checkbook including the verification of his statements of account (Ilusorio v. CA, 393 SCRA 89) K. The bare fact that the forgery was committed by an employee of the party whose signature was forged cannot necessarily imply that such party’s negligence was the cause of the forgery. Employers do not 5|C A SE L A W FO R N E G O TI AB L E I N S TR U M E N T S

possess the preternatural gift of cognition as to the evil that may lurk within the hearts and minds of their employees. (Samsung Construction Co. Phils., Inc. v. FEBTC, 436 SCRA 402)

VII. MATERIAL ALTERATION Sec.124 Alteration of instrument; effect of – Where a negotiable instrument is materially altered and without the assent of all the parties liable thereon, it is avoided, except as against a party who has himself made, authorized or assented to the alteration and subsequent endorsers. But when an instrument has been materially altered and is in the hands if a holder in due course not a party to the alteration, he may enforce payment thereof according to its original tenor. Sec.125 What constitutes a material alteration – Any alteration which changes: (a) The date; (b) The sum payable, either for principal or interest; (c) The time or place of payment; (d) The number or relations of the parties; (e) The medium or currency in which payment is to be made; (f) Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration A. An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an instrument relating to the obligation of a party. In other words, a material alteration is one which changes the items which are required to 2K AY2012-2013 HIRYU KIMIKO (;

One man’s morality should never by way of ideology become another’s legality ~The Icarus Agenda

be stated under Sec.1, NIL. The drawee bank cannot refuse to accept a check on the ground that the serial number of the said check was altered, since the serial number is an item which is not an essential requisite for negotiability under Sec.1, NIL. The alteration did not change the relations between the parties. (PNB v. CA, 256 SCRA 491) B. The insertion of the words ‘Agent, Phil. National Bank’ which converts the bank from a mere drawee to a drawer and therefore changes its liability constitutes a material alteration of the instrument without the consent of the parties liable thereto, and so discharges the instrument. (Montinola v. PNB, 88 Phil 178)

VIII. ACCOMMODATION PARTY Sec.29 Liability of Accommodation Party – An accommodation party is one who has signed the instrument as maker, drawer, acceptor and endorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party. A. a solidary accommodation maker who made payment has the right to contribution from is co-accommodation makers, in the absence of agreement to the contrary between them, and subject to conditions imposed by law (Sadaya v. Sevilla, 19 SCRA 924) B. Sec.29, NIL does not include nor apply to corporations which are accommodation parties, because the issue or endorsement of negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires. By way of exception, an officer or agent of a corporation shall have the power to execute or endorse a 6|C A SE L A W FO R N E G O TI AB L E I N S TR U M E N T S

negotiable paper in the name of the corporation for the accommodation of a third person only if specifically authorized to do so (Crisologo-Jose v. CA, 177 SCRA 594) C. A holder of a check who is not a holder in due course cannot sue the drawer-accommodation party. The Steelweld check was given by its president to R.Y. Lim only by way of accommodation, to be used as collateral for another obligation. In breach of trust, R.Y. Lim endorsed the check in payment of an obligation to a third person, Armstrong. When the latter deposited the same, it was dishonored and after the dishonor, Stelco came into possession of it. Stelco’s mere possession of the check does not make it a holder for value and gives no rise to liability on the part of the accommodation party, Steelweld, under Sec.29, NIL (Stelco Marketing v. CA, 210 SCRA 52) D. An accommodating party lends his credit to the accommodated party by issuing or endorsing a check which is held by a payee or endorsee as a holder in due course who gave full value therefor to the accommodated party. The accommodated party receives full value, for which he must then repay the accommodating party unless of course the latter intended to make a donation to the former. But the accommodating party is bound on the check to the holder in due course who is necessarily a third person and is not the accommodated party (TravelOn, Inc. v. CA 210 SCRA 352) E. Ordinarily, Napiza having affixed his signature at the dorsal side of the check, should be liable for the amount stated therein in accordance with Sec.66, NIL (i.e.: as a general indorser, and not as an accommodation maker), however, to hold him liable by the strict application of the law would result in injustice. The proximate cause of the withdrawal and eventual loss on BPI’s part was its own personnel’s negligence in allowing withdrawals in disregard of its own rules and the clearing requirement in the banking system. In so doing, BPI assumed the risk of 2K AY2012-2013 HIRYU KIMIKO (;

One man’s morality should never by way of ideology become another’s legality ~The Icarus Agenda

a forged or counterfeit foreign check and hence, should suffer the resulting damage (BPI v. CA, 326 SCRA 641) F. An accommodation party has the right, after paying the holder, to obtain reimbursement from the party accommodated, since the relationship between them has in effect become one of principal and surety, the accommodation party being the surety (Agro Conglomerates, Inc. v. CA, 348 SCRA 450)

IX. HOLDERS IN DUE COURSE Sec.52 What constitutes a holder in due course – A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue and without notice that it has previously been dishonored, if such was the fact; (c) That he took it in good faith and for value; and (d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. Sec.53 When person not deemed holder in due course – Where an instrument payable on demand is negotiated on an unreasonable length of time after its issue, the holder is not deemed a holder in due course Sec.57 Rights of a holder in due course – A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon 7|C A SE L A W FO R N E G O TI AB L E I N S TR U M E N T S

Sec.59 Who is deemed holder in due course – Every holder is deemed prima facie to 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 title as holder in due course. But 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. A. Where a holder’s title is defective or suspicious, it cannot be stated that the payee acquired the check without the knowledge of such defect in holder’s title, and for this reason the presumption that he is a holder in due course or that he acquired the instrument in good faith does not exist. Where the payee acquired the check under circumstances which should have put him on inquiry (i.e.: why the holder had the check and used it to pay his own personal account) the duty devolved upon him to prove that he actually acquired the check in good faith (de Ocampo v. Gatchalian, 3 SCRA 596) B. The holder of a cashier’s check who is not a holder in due coruse cannot enforce such check against the issuing bank which dishonors the same. If a payee of a cashier’s check obtained it from the issuing bank by fraud, or if there is some other reason why the payee is not entitled to collect the check, the bank would, of course, have the right to refuse payment on the check when presented by the payee since the bank was aware of the facts and circumstances surrounding the check (Mesina v. IAC, 145 SCRA 497)

X. LIABILITY OF THE GENERAL ENDORSER Sec.63 When a person deemed endorser –

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A person placing his signature upon an instrument otherwise than as a maker, drawer, or acceptor, is deemed to be an endorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity Sec.66 Liability of general endorser – Every endorser who endorses without qualification, warrants to all subsequent holders in due course: (a) The matters and things mentioned in subdivisions (a), (b) and (c) of the preceding section*, and; (b) That the instrument is, at the time of his endorsement, valid and subsisting; And, in addition, he engages that, on due presentment, it shall be accepted, or paid or both, as the case may be, according to its tenor and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent endorser who may be compelled to pay it. *Sec.65 Warranty where negotiation by delivery and so forth – xxx (a) That the instrument is genuine and in all respects what it purports to be; (b) That he has good title to it; (c) That all prior parties had capacity to contract xxx Sec.17 Construction where instrument is ambiguous – Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: xxx (f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is deemed an endorser 8|C A SE L A W FO R N E G O TI AB L E I N S TR U M E N T S

xxx A. ‘Recourse’ means resort to a person who is secondarily liable after the default if the person who is primarily liable. Sambok, by endorsing the note ‘with recourse’ does not make itself a qualified endorser but a general endorser who is secondarily liable (Metropol v. Sambok, 120 SCRA 846) B. Notwithstanding criminal liability, Imperial is still civilly liable on the checks, having signed the same as a general endorser. The dispositive portion acquitting her dealt only with her criminal liability, not her civil liability. (Maralit v. Imperial, 301 SCRA 605) C. Sec.17, NIL states that where a signature is so placed upon the instrument that it is not clear in what capacity the person making it intended to sign, he is deemed an endorser. Under Sec.63, NIL, a person placing his signature other than as maker, drawer, or acceptor, is deemed to be an endorser unless an intention to be bound in some other capacity can be shown. The liabilities of a general endorser are set forth in Sec.606, NIL. It is undisputed that the 4 checks were signed by petitioner at the back without any indication as to how she would be bound thereby, and therefore, she is deemed to be an endorser thereof. (Sapiera v, CA, 314 SCRA 370) D. Petitioner contends that that by signing the withdrawal slip, private respondent Napiza ‘presented the opportunity for the withdrawal of the amount in question’. Ordinarily, private respondent may be held liable as an endorser of the check or even as an accommodation party, however, to hold him responsible for the amount of the check he deposited by the strict application of the law and without considering the attending circumstances in the case would result in an injustice and in the erosion of the public trust in the banking system. Under petitioner’s own rules to be able to withdraw from the savings account deposit a duly-fil;led up 2K AY2012-2013 HIRYU KIMIKO (;

One man’s morality should never by way of ideology become another’s legality ~The Icarus Agenda

withdrawal slip and the depositor’s passbook must be presented. In allowing the withdrawal of private respondent’s deposit in disregard of its own rules, it is clear that the negligence of BPI was the proximate cause of the loss. (BPI v. CA, 326 SCRA 641)

90 days is simply one of the conditions for the prima facie presumption of knowledge of lack of funds to arise. Corollarily, under Sec.185, NIL, a check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay (Wong v. CA, 357 SCRA 100)

XI. PRESENTMENT FOR PAYMENT/ACCEPTANCE

C. While it is true that failure to present for payment within a reasonable time will result in the discharge of the drawer to the extent of the loss caused by the delay, failure to present on time does not totally wipe out all liability. The original obligation to pay certainly has not been erased. (International Corporate Bank v. Sps. Gueco, 351 SCRA 516)

Sec.143 When presentment for acceptance must be made – Presentment for acceptance must be made: (a) Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in order to fix the maturity of the instrument; or (b) Where the bill expressly stipulates that it shall be presented for acceptance; or (c) Where the bill Is drawn payable elsewhere than at the residence or place of business of the drawee In no other case is presentment for acceptance necessary in order to render any party to the bill liable Sec.144 When failure to present releases drawer and endorser – Except as herein otherwise provided, the holder of a bill which is required by the next preceding section to be presented for acceptance must either present it for acceptance or negotiate it within a reasonable time. If he fails to do so, the drawer and all endorsers are discharged. A. Presentment for acceptance is necessary only in the cases expressly provided for in Sec.143, NIL. Sight draft do not require presentment for acceptance. Corollarily, sight drats, pursuant to sec.7, NIL are payable on demand. (Prudential Bank v. IAC, 216 SCRA 257) B. Nowhere in Batas Pambansa 22 is a person required to maintain funds in his account for only 90 days. That the check must be deposited within 9|C A SE L A W FO R N E G O TI AB L E I N S TR U M E N T S

XII. CHECKS Sec.185 Check, defined – A check is a bill of exchange drawn on a bank, payable on demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check. Sec.186 Within what time a check must be presented – A check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. A. That State Investment failed to give notice of dishonor to Moulic is of no moment. The need for such notice is not absolute; there are exceptions under Sec.114, NIL (i.e.: when notice need not be given to drawer). Moulic already knew of the dishonor because, by withdrawing her funds to protect herself, she could not have expected her checks to be honored. The withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the rights of holders in due 2K AY2012-2013 HIRYU KIMIKO (;

One man’s morality should never by way of ideology become another’s legality ~The Icarus Agenda

course. The drawing and negotiation of a check have certain effects aside from the transfer of title or the incurring of liability in regard to the instrument by the transferor. The holder who takes the negotiated paper makes a contract with the parties on the face of the instrument. There is an implied representation that funds or credit are available for the payment of the instrument in the bank upon which it is drawn. Consequently, the withdrawal of money renders Moulic liable to State Investment, a holder in due course. (State Investment House, Inc v. CA, 217 SCRA 32) B. The crossing of a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once – to the one who has an account with the bank; (c) the act of crossing a check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise he is not a holder in due course (Bataan Cigar and Cigarette Factory, Inc v. CA, 230 SCRA 643) C. A bank is liable for dishonoring checks which are sufficiently funded, notwithstanding the fact that the depositor wrote down an inaccurate account number. The use of numbers is simply for the convenience of the bank but was never intended to disregard the real name of the depositor. (Citytrust Banking Corp. v. IAC, 232 SCRA 559) D. A cashier’s check is a primary obligation of the issuing bank and accepted in advance by its issuance. By its very nature, a cashier’s check is a bank’s order to pay, drawn upon itself, committing in effects its total resources, integrity and honor behind the check (Tan v. CA, 239 SCRA 310) E. While it is true that the delivery of a check produces the effect of payment only when it is cashed pursuant to article 1249 of the civil code, 10 | C A S E L A W F O R N E G O T I A B L E I N S T R U M E N T S

the rule is otherwise if the debtor is prejudiced by the creditor’s unreasonable delay in presentment (Papa v. A.U. Valencia, 284 SCRA 643)

XIII. ADDITIONAL DOCTRINES A. There are well-defined distinctions between the contract of an endorser and that of a guaranty/surety of a commercial paper. The contract of endorsement is primarily that of transfer, while the contract of guaranty is that of personal security. The liability of an endorser is not as broad as that of a guarantor or surety (Allied Banking Corp. v. CA, 494 SCRA 467) B. A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies the check. If a bank refuses to pay a check, the payee-holder cannot sue the bank. The payee should instead sue the drawer, who might in turn sue the bank. (Villanueva v. Nite, 496 SCRA 459) C. The term ‘bill of exchange’ denotes checks, drafts and all other kinds of orders for the payment of money, payable at sight or on demand, or after a specific period after sight or from a stated date. A bill of exchange and letter of credit may differ as to their negotiability, and as to who owns the funds used for the payment of the instrument at the time presentment is made. However, in both cases, a person orders another to pay money to a third person. (BPI v. CIR, 496 SCRA 601) D. Manager’s Checks are drawn by the bank’s manager upon the bank itself and regarded to be as good as the money they represent.

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One man’s morality should never by way of ideology become another’s legality ~The Icarus Agenda

The crossing of a check with the phrase ‘Payee’s Account Only’ is a warning that the check should only be deposited in the payee’s account, and such is the duty of the collecting bank. (Citibank v. Sabeniano, 504 SCRA 378) E. A check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account. A manager’s check stands on the same footing as a certified check. Under Sec.187, NIL, where a check is certified by the bank on which it is drawn, the certification is equivalent to acceptance. (Equitable PCI Bank v. Ong, GR. No. 156207, Sept. 15, 2006) F. Discrepancies in the serial numbers of checks cannot be said to be material alterations. A material alteration is one which changes the items which are required under Sec.1, NIL; as well as those items under Sec.125, NIL (International Corp. Bank v. CA and PNB, 501 SCRA 20)

Pambansa 22 could exonerate a person so charged from criminal liability. A contrary interpretation would defeat the purpose of BP 22 as the drawer could very well have himself exonerated by the mere expediency of paying a minimal fraction of the face value of the check (Macalalag v. People of the Philippines, 511 SCRA 400) J. The transaction referred to in Sec.49, NIL is an equitable assignment where the transferor acquires the instrument subject to defenses and equities available among prior parties. The underlying premise of the provision is that a valid transfer of ownership of the negotiable instrument in question has taken place. (BPI v. CA, 512 SCRA 620)

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G. Sec.66, NIL regarding the liabilities of a general endorser cannot be used by the party which introduced a defect on the instrument. Sec.66 must be read in the light of the rule in equity requiring that those who come to court should come with clean hands (Gonzales v. RCBC, 508 SCRA 459) H. The drawee bank cannot shift liability to the collecting bank with respect to a material alteration where the drawer and drawee were not grossly negligent. The drawee bank cannot rely on the collecting bank’s endorsement in clearing the check. The corollary liability of such endorsement is separate and independent from the liability of the drawee to the drawer (Metrobank v. Cabilzo, 510 SCRA 259) I. Only a full payment of the face value of a check at the time of presentment or during the 5-day grace period granted by Batas 11 | C A S E L A W F O R N E G O T I A B L E I N S T R U M E N T S

2K AY2012-2013 HIRYU KIMIKO (;