Negotiable Law Doctrines (Sundiang)

karell marie.

San Beda College Manila—College of Law I.

NEGOTIABILITY

[Philippine Education Co., Inc. v. Soriano] Postal money order is not a negotiable instrument. REASON: In establishing and operating a postal money order system, the government is not engaged in commercial transactions but merely exercises a governmental power for the public benefit. Moreover, some of the restrictions imposed upon money orders by postal laws and regulations are inconsistent with the character of negotiable instruments. EXAMPLE: Such laws and regulations usually provide for not more than 1 endorsement; payment of money orders may be withheld under a variety of circumstances.

[Caltex Philippines, Inc. v. CA] The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing that is from the face of the instrument itself. In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. While the writing may be read in the light of surrounding circumstances in order to more perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the only outward and visible expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of the court in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what their words may express, but what is the meaning of the words they have used. What the parties meant must be determined by what they said. Where the holder has a lien on the instrument arising from contract, he is deemed a HOLDER FOR VALUE to the extent of his lien. As such holder of collateral security, he would be a pledgee but the requirements therefor and the effects thereof, not being provided for by the NIL, shall be governed by the Civil Code provisions on pledge of incorporeal rights.

[Metropolitan Bank & Trust Company v. CA] The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay ―not unconditional‖ and the warrants themselves non-negotiable. There should be no question that the exception on Section 3 of the NIL is applicable in the case at bar.

[Sesbreno v. CA] A non-negotiable instrument may obviously not be negotiated but it may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument: ―The words ‗not negotiable‘ stamped on the face of the bill of lading, did not destroy its assignability, but the sole effect was to exempt the bill from the statutory provisions relative thereto, and a bill, though not negotiable, may be transferred by assignment; the assignee taking subject to the equities between the original parties.‖ DMC PN No. 2731, while marked ―non-negotiable‖, was NOT at the same time stamped ―non-transferrable‖ or ―non-assignable‖. It contained no stipulation which prohibited Philfinance from assigning or transferring, in whole or in part, that Note.

Negotiable Instruments Law Doctrines

karell marie.

San Beda College Manila—College of Law

[Firestone Tire & Rubber Co. of the Philippines v. CA] Withdrawal slips are non-negotiable. Hence, the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this case. Citibank could not expect these slips to be treated as checks by other entities. 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. The withdrawal slips in question lacked this character.

II.

PAYABLE TO BEARER

[Ang Tek Lian v. CA] A check payable to the order of ―cash‖ is a check payable to bearer, and the bank may pay it to the person presenting it for payment without the drawer‘s indorsement. Of course, if the bank is not sure of the bearer‘s identity or financial solvency, it has the right to demand identification and/or assurance against possible complications,--for instance, (a) forgery of drawer‘s signature, (b) loss of the check by the rightful owner, (c) raising of the amount payable, etc. The bank, may therefore require, for its protection, that the indorsement of the drawer—or of some other person known to it—be obtained. But where the bank is satisfied of the identity and/or economic standing of the bearer who tenders the check for collection, it will pay the instrument without further question; and it would incur no liability to the drawer in thus acting.

III.

COMPLETE BUT UNDELIVERED

[Development Bank of Rizal v. Sima Wei] A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species of property. Just as a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract. Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. DELIVERY of an instrument means transfer of possession, actual or constructive, from one person to another. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument.

Negotiable Instruments Law Doctrines

karell marie.

San Beda College Manila—College of Law

It does not necessarily follow that the drawer Sima Wei is freed from liability to petitioner Bank under the loan evidenced by the promissory note agreed to by her. Her allegation that she has paid the balance of her loan with the two checks payable to petitioner Bank has no merit for these checks were never delivered to petitioner Bank. And even granting, without admitting, that there was delivery to petitioner Bank, the delivery of checks in payment of an obligation does not constitute payment unless they are cashed or their value is impaired through the fault of the creditor. None of these exceptions were alleged by respondent Sima Wei.

IV.

LIABILITY OF PERSONS SIGNING AS AGENT

[Philippine Bank of Commerce v. Aruego] An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was signing as a representative of the Philippine Education Foundation Company. He merely signed as follows. JOSE ARUEGO

Acceptor

(Sgd) Jose Aruego

For failure to disclose his principal, Aruego is personally liable for the drafts he accepted. 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.

[Francisco v. CA] The Negotiable Instruments Law provides that where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. An 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. Even assuming that Francisco was authorized by HCCC to sign Ong‘s name, still, Francisco did not indorse the instrument in accordance with law. Instead of signing Ong‘s name, Francisco should have signed her own name and expressly indicated that she was signing as an agent of HCCC.

V.

FORGERY

[Jai-Alai Corp. of the Phil. V. BPI] It is the obligation of the collecting bank to reimburse the drawee-bank the value of the checks subsequently found to contain the forged indorsement of the payee. REASON: The bank with which the check was deposited has no right to pay the sum stated therein to the forger or anyone else upon a forged signature. The petitioner must in turn shoulder the loss of the amounts which the respondent, as its collecting agent, had to reimburse to the drawee-banks.

Negotiable Instruments Law Doctrines

karell marie.

San Beda College Manila—College of Law

[Republic Bank v. Ebrada] It is only the negotiation predicated on the forged indorsement that should be declared inoperative. This means that the negotiation of the check in question from Martin, the original payee, to Ramon, the 2nd indorser, should be declared of no effect, but the negotiation of the aforementioned check from Ramon to Adeliada, the 3rd indorser, and from Adeliada to the defendantappellant who did not know of the forgery, should be considered valid and enforceable, barring any claim of forgery. One who purchases a check or draft is bound to satisfy himself that the paper is genuine and that by indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts that he has performed his duty and the drawee who has paid the forged check without actual negligence on his part, may recover the money paid from such negligent purchasers. In such cases, the recovery is permitted because although the drawee was in a way negligent in failing to detect the forgery, yet if the encasher of the check had performed his duty, the forgery in all probability have been detected and the fraud defeated. Similarly, in the case before us, the defendant-appellant, upon receiving the check in question from Adeliada, was duty bound to ascertain whether the check in question was genuine before presenting it to plaintiff Bank for payment. Her failure to do so makes her liable for the loss and the plaintiff Bank may recover from her the money she received for the check. Fact that the person who encashed the check wherein the signature of the payee was forged turned over the proceeds to the one who indorsed said check to the said holder would not exempt the encasher from liability as by doing so he acted as an accommodation party.

[MWSS v. CA] There is no clear evidence in this case that the signatures on the checks are forgeries. The NBI reports indicate that the anomalous encashment of the checks were an ―inside job‖ or due to negligence of MWSS. These reports did not touch on the inherent qualities of the signatures which are indispensable in the determination of the existence of forgery. There must be conclusive findings that there is a variance in the inherent characteristics of the signatures and that they were written by 2 or more different persons. Where a depositor is using its own personalized checks, its failure to provide adequate security measures to prevent forgeries of its checks constitutes gross negligence and bars it from setting up the defense of forgery. It is accepted banking procedure for the depositary bank to furnish its depositors bank statements and debt and credit memos through the mail. Failure of depositor to make prompt reconciliation of the monthly bank statements furnished by the bank constitutes negligence for which the bank cannot be blamed in case depositor‘s checks are forged. This negligence was therefore the proximate cause of the failure to discover the fraud.

[BDO v. Equitable Banking Corp.] Apropos the matter of forgery in endorsements, this Court has succinctly emphasized that the collecting bank 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 check for payment to the drawee is an assertion that the party making the presentment has done its duty

Negotiable Instruments Law Doctrines

karell marie.

San Beda College Manila—College of Law

to ascertain the genuiness of the endorsements. This is laid down in the case of PNB v. National City Bank. In another case, this Court held that if the drawee-bank discovers that the signature of the payee was forged after it has paid the amount of the check to the holder thereof, it can recover the amount paid from the collecting bank. When endorsement is forged, the collecting bank or last endorser generally suffers the loss. A truism stated by this Court is that—―The doctrine of estoppels precludes a party from repudiating an obligation voluntarily assumed after having accepted benefits therefrom. To countenance such repudiation would be contrary to equity and would put premium on fraud or misrepresentation.‖

[Gempesaw v. CA] As a matter of practical significance, problems arising from forged indorsements of checks may generally be broken into 2 types of cases: (1) Where forgery was accomplished by a person not associated with the drawer—for example a mail robbery; and (2) Where the indorsement was forged by an agent of the drawer. This difference in situations would determine the effect of the drawer‘s negligence with respect to forged indorsements. While there is no duty resting on the depositor to look for forged indorsements on his cancelled checks in contrast to a duty imposed upon him to look for forgeries of his own name, a depositor is under a duty to set up an accounting system and a business procedure as are reasonably calculated to prevent or render difficult the forgery of indorsements, particularly by the depositors‘ own employees. And if the drawer (depositor) learns that a check drawn by him has been paid under a forged indorsement, the drawer is under duty promptly to report such fact to the drawee bank. For his negligence or failure either to discover or to report promptly the fact of such forgery to the drawee, the drawer loses his right against the drawee who has debited his account under the forged indorsement. In other words, he is precluded from using forgery as a basis for his claim for recrediting of his account. Gen. Rule: A drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer‘s account for the amount of said check. Exception: Where the drawer is guilty of such negligence which causes the bank to honor such check or checks. If a check is stolen from the payee, it is quite obvious that the drawer cannot possibly discover the forged indorsement by mere examination of his cancelled check. This accounts for the rule that although a depositor owes a duty to his drawee bank to examine his cancelled checks for forgery of his own signature, he has no similar duty as to forged indorsements. A different situation arises were the indorsement was forged by an employee or agent of the drawer, or done with the active participation of the latter. Most of the cases involving forgery by an agent or employee deal with the payee‘s indorsement. The drawer and the payee oftentimes have business relations of long standing. The continued occurrence of business transactions of the same nature provides the opportunity for the agent/employee to commit the fraud after having developed familiarity with the signatures of the parties.

Negotiable Instruments Law Doctrines

karell marie.

San Beda College Manila—College of Law

However, sooner or later, some leak will show on the drawer‘s books. It will then be just a question of time until the fraud is discovered. This is especially true when the agent perpetrates a series of forgeries.

[Associated Bank v. CA] A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument through it. A person whose signature to an instrument was forged was never a party and never consented to the contract which allegedly gave rise to such instrument. Section 23 does not avoid the instrument but only the forged signature. Thus, a forged indorsement does not operate as the payee‘s indorsement. The exception to the general rule in Section 23 is where ―a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of authority.‖ Parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or negligence are estopped from setting up the defense of forgery, are precluded from using this defense. Indorsers, persons negotiating by delivery, and acceptors are warrantors of the genuiness of the signatures on the instrument. When the indorsement is a forgery, only the person whose signature is forged can raise the defense of forgery against a holder in due course. When the holder‘s indorsement is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. Indorser cannot interpose the defense that signatures prior to him are forged. An indorser of an order instrument warrants ―that the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid and subsisting.‖ A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank is such an indorser. So even if the indorsement on the check deposited by the bank‘s client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank. The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The drawer‘s instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the drawer‘s order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customer‘s (the drawer) account only for properly payable items. Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to reimbursement from the drawer. Gen. Rule: The drawee bank may not debit the drawer‘s account and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank. Exception: If the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the forgery.

Negotiable Instruments Law Doctrines

karell marie.

San Beda College Manila—College of Law

In cases involving checks with forged indorsements, such as the present petition, the chain of liability does not end with the drawee bank. The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the party who took from the forger, and of course, to the forger himself, if available. In other words, the drawee bank can seek reimbursement or a return of the amount it paid from the presentor bank or person. Theoretically, the latter can demand reimbursement from the person who took the check from the forger, or on the forger himself. More importantly, by reason of the statutory warranty of a general indorser in Section 66 of the NIL, a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness of any indorsement. The drawee bank‘s duty is to verify the genuineness of the drawer‘s signature and not of the indorsement because the drawer is its client. Hence, the drawee bank can recover the amount paid on the check bearing the forged indorsement from the collecting bank. However, a drawee bank has the duty to promptly inform the presentor of the forgery upon discovery. If the drawee bank delays in informing the presentor of the forgery, thereby depriving said presentor of the right to recover from the forger, the former is deemed negligent and can no longer recover from the presentor. The rule mandates that the checks be returned within 24 hours after discovery of the forgery but in no event beyond the period fixed by law for filling a legal action. RATIONALE: to give the collecting bank (which indorsed the check) adequate opportunity to proceed against the forger. If prompt notice is not given, the collecting bank may be prejudiced and lose the opportunity to go after its depositor.

[Metrobank v. The First National City Bank] Since both parties are part of our banking system, and both are subject to the regulations of the Central Bank, they are bound by the 24-hour clearing house rule of the Central Bank. In this case, the check was not returned to Metro Bank in accordance with the 24 hour clearing house period, but was cleared by FNCB. Failure of FNCB, therefore, to call the attention of Metro Bank to the alteration of the check in question until after the lapse of 9 days, negates whatever right it might have had against Metro Bank in the light of the said Central Bank Circular. Its remedy lies not against Metro Bank but against the party responsible for changing the name of the payee and the amount on the face of the check. Once that 24 hour period is over, the liability on such an indorsement has ceased.

[Republic Bank v. CA] The 24 hour clearing house rule is a valid rule applicable to commercial banks. 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 on the check should be read together with the 24 hour regulation on clearing house operation. Thus, when a drawee bank fails to return a forged or

Negotiable Instruments Law Doctrines

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San Beda College Manila—College of Law

altered check to the collecting bank within the 24 hour clearing period, the collecting bank is absolved from liability.

[Philippine Commercial & International Bank v. CA] 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 some circumstance raising estoppel against the drawer. This rule likewise applies to the checks fraudulently negotiated or diverted by the confidential employees who hold them in their possession. It is a well-settled rule that the relationship between the payee or holder of commercial paper and the bank to which it is sent for collection is, in the absence of an agreement to the contrary, that of PRINCIPAL and AGENT. A bank which receives such paper for collection is the agent of the payee or holder.

[Ilusorio v. CA] To be entitled to damages, petitioner has the burden of proving negligence on the part of the bank for failure to detect the discrepancy in the signatures on the checks. It is incumbent upon petitioner to establish the fact of forgery, i.e., by submitting his specimen signatures and comparing them with those on the questioned checks. Curiously though, petitioner failed to submit additional specimen signatures as requested by the NBI from which to draw a conclusive finding regarding forgery. The Court of Appeals found that petitioner, by his own inaction, was precluded from setting up forgery. NEGLIGENCE – omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs would do, or the doing of something which a prudent and reasonable man would do PROXIMATE CAUSE – that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred 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 check is wholly inoperative. No right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party, can be acquired through or under such signature. 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.

[Samsung Construction Co. Phils., Inc. v. Far East Bank & Trust Co.] Gen. Rule: A forged signature is ―wholly inoperative‖ and payment made ―through or under such signature‖ is ineffectual or does not discharge the instrument.

Negotiable Instruments Law Doctrines

karell marie.

San Beda College Manila—College of Law

If payment is made, the drawee cannot charge it to the drawer‘s account. TRADITIONAL JUSTIFICATION for the result: The drawee is in a superior position to detect a forgery because he has the maker‘s signature and is expected to know and compare it. The rule has a healthy cautionary effect on banks by encouraging care in the comparison of the signatures against those on the signature cards they have on file. Moreover, the very opportunity of the drawee to insure and to distribute the cost among its customers who use checks makes the drawee an ideal party to spread the risk to insurance. Under Section 23 of the NIL, forgery is a real or absolute defense by the party whose signature is forged. On the premise that Jong‘s signature was indeed forged, FEBTC is liable for the loss since it authorized the discharge of the forged check. Such liability attaches even if the bank exerts due diligence and care in preventing such faulty discharge. Forgeries often deceive the eye of the most cautious experts; and when a bank has been so deceived, it is a harsh rule which compels it to suffer although no one has suffered by its being deceived. The forgery may be so near like the genuine as to defy detection by the depositor himself, and yet the bank is liable to the depositor if it pays the check. Thus, the 1st matter of inquiry is into whether the check was indeed forged. A document formally presented is presumed to be genuine until it is proved to be fraudulent. In a forgery trial, this presumption must be overcome but this can only be done by convincing testimony and effective illustrations. Since the drawer Samsung Construction is not precluded by negligence from setting up the forgery, the general rule should apply. Consequently, if a bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. A bank is liable, irrespective of its good faith, in paying a forged check.

VI.

MATERIAL ALTERATION

[PNB v. CA] 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 incomplete instrument relating to the obligation of a party. In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the NIL. The case at bench is unique in the sense that what was altered is the serial number of the check in question, an item which, it can readily be observed, is not an essential requisite for negotiability under Section 1 of the NIL. The aforementioned alteration did not change the relations between the parties. The name of the drawer and the drawee were not altered. The intended payee was the same. The sum of money due to the payee remained the same. The check‘s serial number is not the sole indication of its origin. As succinctly found by the Court of Appeals, the name of the government agency which issued the subject check was prominently printed therein. The check‘s issuer was therefore sufficiently identified, rendering the referral to the serial number redundant and inconsequential. Petitioner, thus cannot refuse to accept the check in question on the ground that the serial number was altered, the same being an immaterial or innocent one.

Negotiable Instruments Law Doctrines

karell marie.

San Beda College Manila—College of Law

[Montinola v. PNB] 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 thereon, and so discharges the instrument. (Section 124 of the Negotiable Instruments Law). The check was not legally negotiated within the meaning of the Negotiable Instruments Law. Section 32 of the same law provides that "the indorsement must be an indorsement of the entire instrument. An indorsement which purports to transfer to the indorsee a part only of the amount payable, . . . (as in this case) does not operate as a negotiation of the instrument." Montinola may therefore not be regarded as an indorsee. At most he may be regarded as a mere assignee of the P30,000 sold to him by Ramos, in which case, as such assignee, he is subject to all defenses available to the drawer Provincial Treasurer of Misamis Oriental and against Ramos. Neither can Montinola be considered as a holder in due course because section 52 of said law defines a holder in due course as a holder who has taken the instrument under certain conditions, one of which is that he became the holder before it was overdue. When Montinola received the check, it was long overdue. And, Montinola is not even a holder because section 191 of the same law defines holder as the payee or indorsee of a bill or note and Montinola is not a payee. Neither is he an indorsee for as already stated, at most he can be considered only as assignee. Neither could it be said that he took it in good faith. As already stated, he has not paid the full amount of P90,000 for which Ramos sold him P30,000 of the value of the check. In the second place, as was stated by the trial court in its decision, Montinola speculated on the check and took a chance on its being paid after the war. Montinola must have known that at the time the check was issued in May, 1942, the money circulating in Mindanao and the Visayas was only the emergency notes and that the check was intended to be payable in that currency. Also, he should have known that a check for such a large amount of P100,000 could not have been issued to Ramos in his private capacity but rather in his capacity as disbursing officer of the USAFFE, and that at the time that Ramos sold a part of the check to him, Ramos was no longer connected with the USAFFE but already a civilian who needed the money only for himself and his family. As already stated, as a mere assignee Montinola is subject to all the defenses available against assignor Ramos. And, Ramos had he retained the check may not now collect its value because it had been issued to him as disbursing officer. As observed by the trial court, the check was issued to M. V. Ramos not as a person but M. V. Ramos as the disbursing officer of the USAFFE. Therefore, he had no right to indorse it personally to plaintiff. It was negotiated in breach of trust, hence he transferred nothing to the plaintiff.

VII.

ACCOMODATION PARTY

[Sadaya v. Sevilla] On principle, a solidary accommodation maker—who made payment—has the right to contribution, from his co-accommodation maker, in the absence of agreement to the contrary between them, and subject to conditions imposed by law. This right springs from an implied promise between the accommodation makers to share equally the burdens that may ensue from their having consented to

Negotiable Instruments Law Doctrines

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stamp their signatures on the promissory note. For having lent their signatures to the principal debtor, they clearly placed themselves—in so far as payment made by one may create liability on the other—in the category of mere joint grantors of the former. This is as it should be. Not one of them benefited by the promissory note. They stand on the same footing. In misfortune, their burdens should be equally spread. Nothing extant in the NIL would define the right of 1 accommodation maker to seek reimbursement from another. Perforce, we must go to the Civil Code. Because Sevilla and Sadaya, in themselves, are but coguarantors of Varona, their case comes within the ambit of Article 2073 of the Civil Code which reads: Article 2073. When there are two or more guarantors of the same debtor and for the same debt, the one among them who has paid may demand of each of the others the share which is proportionally owing from him. If any of the guarantors should be insolvent, his share shall be borne by the others, including the payer, in the same proportion.

The provisions of this article shall not be applicable, unless the payment has been made by virtue of a judicial demand or unless the principal debtor is insolvent.

As Mr. Justice Street puts it: ―The article deals with the situation which arises when 1 surety has paid the debt to the creditor and is seeking contribution from his co-sureties.‖ RULES: (1) A joint and several accommodation maker of a negotiable promissory note may demand from the principal debtor reimbursement for the amount that he paid to the payee; and (2) A joint and several accommodation maker who pays on the said promissory note may directly demand reimbursement from his co-accommodation maker without 1st directing his action against the principal debtor provided that a. He made the payment by virtue of a judicial demand, or b. A principal debtor is insolvent. The Court of Appeals found that Sadaya‘s payment to the bank ―was made voluntarily and without any judicial demand,‖ and that ―there is an absolute absence of evidence showing that Varona is insolvent.‖ This combination of fact and lack of fact epitomizes the fatal distance between payment by Sadaya and Sadaya‘s right to demand of Sevilla ―the share which is proportionately owing from him.‖

[Crisologo-Jose v. CA] Section 29 of the NIL which holds an accommodation party liable on the instrument to a holder for value, although such holder at the time of taking the instrument knew him to be only an accommodation party, does not include nor apply to corporations which are accommodation parties. REASON: The issue or indorsement of a negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires. Hence, one who has taken the instrument with knowledge of the accommodation nature thereof cannot recover against a corporation where it is only an accommodation party. If the form of the instrument, or the nature of the transaction, is such as to charge

Negotiable Instruments Law Doctrines

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the indorsee with knowledge that the issue or indorsement of the instrument by the corporation is for the accommodation of another, he cannot recover against the corporation thereon. Exception: An officer or agent of a corporation shall have the power to execute or indorse a negotiable paper in the name of the corporation for the accommodation of a 3 rd person only if specially authorized to do so. Corollarily, corporate officers, such as the president and vice-president, have no power to execute for mere accommodation a negotiable instrument of the corporation for their individual debts or transactions arising from or in relation to matters in which the corporation has no legitimate concern. Since such accommodation paper cannot thus be enforced against the corporation, especially since it is not involved in any aspect of the corporate business or operations, the inescapable conclusion in law and in logic is that the signatories thereof shall be personally liable therefor, as well as the consequences arising from their acts in connection therewith.

[Stelco Marketing Corp. v. CA] To be sure, as regards an accommodation party (such as Steelweld), the 4th condition, i.e., lack of notice of any infirmity in the instrument or defect in title of the persons negotiating it, has no application. REASON: Section 29 of the NIL preserves the right of recourse of a ―holder for value‖ against the accommodation party notwithstanding that ―such holder, at the time of taking the instrument, knew him to be only an accommodation party.‖ Stelco never became a holder for value and that ―nowhere in the check itself does the name of Stelco Marketing appear as payee, indorsee or depositor thereof.‖ The record does not show any intervention or participation by Stelco in any manner of form whatsoever in the transactions or any communication of any sort between Steelweld and Stelco, or between either of them and Armstrong Industries, at any time before the dishonor of the check. As already pointed out, possession of a negotiable instrument after presentment and dishonor, or payment, is utterly inconsequential; it does not make the possessor a holder for value within the meaning of the law; it gives rise to no liability on the part of the maker or drawer and indorsers. A holder of a check who is not a holder in due course cannot sue the draweraccommodation party.

[Travel-On v. CA] In accommodation transactions recognized by the NIL, an accommodating party lends his credit to the accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as a holder in due course, who gave full value therefor to the accommodated party. The latter, in other words, receives or realizes full value which the accommodated party then must repay to the accommodating party, unless of course the accommodating party intended to make a donation to the accommodated party. But the accommodating party is bound on the check to the holder in due course who is necessarily a 3rd party and is not the accommodated party. Having issued or indorsed the check, the accommodating party has warranted to the holder in due course that he will pay the same according to its tenor.

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In the case at bar, Travel-On was payee of all 6 checks; it presented these checks for payment at the drawee bank but the checks bounced. Travel-On obviously was not an accommodated party; it realized no value on the checks which bounced.

[BPI v. CA] In People v. Maniego, Maniego may also be deemed an ‗accommodation party‘ in light of the facts, i.e., a person ‗who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefore, and for the purpose of lending his name to some other person.‘ As such, she is under the law ‗liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew her to be only an accommodation party,‘ although she has the right, after paying the holder, to obtain reimbursement from the party accommodated, ‗since the relation between them is in effect that of principal and surety, the accommodation party being the surety.

[Agro Conglomerates, Inc. v. CA] By this time, we note a subsidiary contract of suretyship had taken effect since petitioners signed the promissory notes as maker and accommodation party for the benefit of Wonderland. Petitioners became liable as accommodation party. ACCOMMODATION PARTY - a person who has signed the instrument as maker, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person and is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew (the signatory) to be an accommodation party. He has the right, after paying the holder, to obtain reimbursement from the party accommodated, since the relation between them has in effect become one of PRINCIPAL and SURETY, the accommodation party being the surety. SURETYSHIP - the relation which exists where one person has undertaken an obligation and another person is also under the obligation or other duty to the obligee, who is entitled to but one performance, and as between the two who are bound, one rather than the other should perform. The surety‘s liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal. And the creditor may proceed against any one of the solidary debtors.

VIII.

HOLDERS IN DUE COURSE

[De Ocampo & Co. v. Gatchalian] Section 52 (c) provides that a holder in due course is one who takes the instrument "in good faith and for value;" Section 59, "that every holder is deemed prima facie to be a holder in due course;" and Section 52 (d), that in order that one may be a holder in due course it is necessary that "at the time the instrument was negotiated to him "he had no notice of any . . . defect in

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the title of the person negotiating it;" and lastly Section 59, that every holder is deemed prima facie to be a holder in due course. In the case at bar the rule that a possessor of the instrument is prima facie a holder in due course does not apply because there was a defect in the title of the holder (Manuel Gonzales), because the instrument is not payable to him or to bearer. On the other hand, the stipulation of facts indicated by the appellants in their brief, like the fact that the drawer had no account with the payee; that the holder did not show or tell the payee why he had the check in his possession and why he was using it for the payment of his own personal account — show that holder's title was defective or suspicious, to say the least. As holder's title was defective or suspicious, it cannot be stated that the payee acquired the check without knowledge of said defect in holder's title, and for this reason the presumption that it is a holder in due course or that it acquired the instrument in good faith does not exist. And having presented no evidence that it acquired the check in good faith, it (payee) cannot be considered as a holder in due course. In other words, under the circumstances of the case, 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 have put it to inquiry as to the title of the holder who negotiated the check to it. The burden was, therefore, placed upon it to show that notwithstanding the suspicious circumstances, it acquired the check in actual good faith. When the case has taken such shape that the plaintiff is called upon to prove himself a holder in due course to be entitled to recover, he is required to establish the conditions entitling him to standing as such, including good faith in taking the instrument. It devolves upon him to disclose the facts and circumstances attending the transfer, from which good or bad faith in the transaction may be inferred. In the case at bar as the payee acquired the check under circumstances which should have put it to inquiry, why the holder had the check and used it to pay his own personal account, the duty devolved upon it, plaintiff-appellee, to prove that it actually acquired said check in good faith. The stipulation of facts contains no statement of such good faith, hence we are forced to the conclusion that plaintiff payee has not proved that it acquired the check in good faith and may not be deemed a holder in due course thereof.

[Mesina v. IAC] Admittedly, petitioner became the holder of the cashier‘s check as endorsed by Alexander Lim who stole the check. A person who became the holder of a cashier‘s check as endorsed by the person who stole it and who refused to say how and why it was passed to him is not a holder in due course. He had therefore notice of the defect of his title over the check from the start. The holder of a cashier‘s check who is not a holder in due course cannot enforce such check against the issuing bank which dishonors the same.

IX.

LIABILITY OF THE GENERAL INDORSER

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[Metropol (Bacolod) Financing & Investment Corp. v. Sambok Motors Co.] A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser‘s signature the words ―without recourse‖ or any words of similar import. Such an indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument as provided in Section 65 of the NIL. RECOURSE – resort to a person who is secondarily liable after the default of the person who is primarily liable Appellant, by indorsing the note ―with recourse‖ does not make itself a qualified indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go after said appellant. The effect of such indorsement is that the note was indorsed without qualification. A person who indorses without qualification engages that on due presentment, the note shall be accepted or paid, or both as the case may be, and that if it be dishonored, he will pay the amount thereof to the holder. Appellant Sambok‘s intention of indorsing the note without qualification is made even more apparent by the fact that the notice of demand, dishonor, protest and presentment were all waived. The words added by appellant do not limit his liability, but rather confirm his obligation as a general indorser. After dishonor of the note, a person secondarily liable becomes a principal debtor. His liability becomes the same as that of the original obligor. Consequently, the holder need not even proceed against the maker before suing the indorser.

[Maralit v. Imperial] While the MTC found petitioner partly responsible for the encashment of the altered checks, it found respondent civilly liable because of her indorsements of the treasury warrants, in addition to the fact that respondent executed a notarized acknowledgement of debt promising to pay the total amount of said warrants. The MTC sympathizes with the complainant that there was indeed damage and loss, but said loss is chargeable to the accused who upon her indorsements warrant that the instrument is genuine and in all respects what it purports to be and that she will pay the amount thereof in case of dishonor. (Section 66 of the NIL)

[Sapiera v. CA] It is undisputed that the 4 checks issued by the De Guzman were signed by petitioner at the back without any indication as to how she should be bound thereby and therefore, she is deemed to be an indorser thereof. 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 indorser. (Section 17, 63, and 66 of NIL) 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: XXXX (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 to be deemed an indorser;

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Sec. 63. When a person deemed indorser. - A person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor, is deemed to be indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity. Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all subsequent holders in due course: (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and (b) That the instrument is, at the time of his indorsement, valid and subsisting; And, in addition, he engages that, on due presentment, it shall be accepted or paid, 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 indorser who may be compelled to pay it.

[BPI v. CA and Napiza] A negotiable instrument, such as a check, whether a manager‘s check or ordinary check, is not legal tender. As such, after receiving the deposit, under its own rules, petitioner shall credit the amount in private respondent‘s account or infuse value thereon only after the drawee bank shall have paid the amount of the check or the check has been cleared for deposit. Again, this is in accordance with ordinary banking practices and with this Court‘s pronouncement that ―the collecting bank 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 check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. The rule finds more meaning in this case where the check involved is drawn on a foreign bank and therefore collection is more difficult than when the drawee bank is a local one even though the check in question is a manager‘s check.

X.

PRESENTMENT FOR PAYMENT/ACCEPTANCE

[Prudential Bank v. IAC] LETTER OF CREDIT – an engagement by a bank or other person made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit. Through a letter of credit, the bank merely substitutes its own promise to pay for the promise to pay off one of its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. In the instant case then, the drawee was necessarily the herein petitioner. It was to the latter that the drafts were presented for payment. In fact, there was no need for acceptance as the issued drafts are sight drafts. Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the NIL.

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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.

Obviously then, sight drafts do not require presentment for acceptance.

[Wong v. CA] An essential element of the offense in BP 22 is "knowledge" on the part of the maker or drawer of the check of the insufficiency of his funds in or credit with the bank to cover the check upon its presentment. Since this involves a state of mind difficult to establish, the statute itself creates a prima facie presumption of such knowledge where payment of the check "is refused by the drawee because of insufficient funds in or credit with such bank when presented within 90 days from the date of the check." To mitigate the harshness of the law in its application, the statute provides that such presumption shall not arise if within 5 banking days from receipt of the notice of dishonor, the maker or drawer makes arrangements for payment of the check by the bank or pays the holder the amount of the check. Contrary to petitioner‘s assertions, nowhere in said provision does the law require a maker to maintain funds in his bank account for only 90 days. Rather, the clear import of the law is to establish a prima facie presumption of knowledge of such insufficiency of funds under the following conditions (1) Presentment within 90 days from date of the check, and (2) The dishonor of the check and failure of the maker to make arrangements for payment in full within 5 banking days after notice thereof. That the check must be deposited within 90 days is simply one of the conditions for the prima facie presumption of knowledge of lack of funds to arise. It is not an element of the offense. Neither does it discharge petitioner from his duty to maintain sufficient funds in the account within a reasonable time thereof. Under Section 186 of the Negotiable Instruments Law, "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." By current banking practice, a check becomes stale after more than 6 months, or 180 days. Private respondent herein deposited the checks 157 days after the date of the check. Hence said checks cannot be considered stale. Only the presumption of knowledge of insufficiency of funds was lost, but such knowledge could still be proven by direct or circumstantial evidence. As found by the trial court, private respondent did not deposit the checks because of the reassurance of petitioner that he would issue new checks. Upon his failure to do so, LPI was constrained to deposit the said checks. After the checks were dishonored, petitioner was duly notified of such fact but failed to make arrangements for full payment within 5 banking days thereof. There is, on record, sufficient evidence that petitioner had knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the checks. And despite petitioner‘s insistent plea of innocence, we find no error

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in the respondent court‘s affirmance of his conviction by the trial court for violations of the Bouncing Checks Law.

[International Corporate Bank v. Gueco] STALE CHECK – one which has not been presented for payment within a reasonable time after its issue. It is valueless and therefore, should not be paid. Under the NIL, an instrument not payable on demand must be presented for payment on the day it falls due. When the instrument is payable on demand, presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof. A check 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. TEST: Whether the payee employed such diligence as a prudent man exercises in his own affairs. REASON: The nature and theory behind the use of a check points to its immediate use and payability. In a case, a check payable on demand which was long overdue by about 2 ½ years was considered a stale check. Failure of a payee to encash a check for more than 10 years undoubtedly resulted in the check becoming stale. Thus, even a delay of 1 week or 2 days under the specific circumstances of the cited cases constituted unreasonable time as a matter of law. Even 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 extent 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 acknowledgment of liability in the sum stated in the check. In this case, the Gueco spouses have not alleged, much less shown that they or the bank which issued the manager‘s check has suffered damage or loss caused by the delay or non-presentment. Definitely, the original obligation to pay certainly has not been erased.

XI.

CHECKS

[State Investment House, Inc. v. CA] That the post-dated checks were merely issued as security is not a ground for the discharge of the instrument as against a holder in due course. For, the only grounds are those outlined in Section 119 of the NIL. Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation;

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Obviously, Moulic may only invoke paragraphs (c) and (d) as possible grounds for the discharge of the instrument. But, the intentional cancellation contemplated under paragraph (c) is that cancellation effected by destroying the instrument either by tearing it up, burning it, or writing the word ―cancelled‖ on the instrument. The act of destroying the instrument must also be made by the holder of the instrument intentionally. Since Moulic failed to get back possession of the post-dated checks, the intentional cancellation of the said checks is altogether impossible. 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 credits are available for the payment of the instrument in the bank upon which it is drawn. Consequently, the withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the rights of holders in due course. In the instant case, such withdrawal renders the drawer, Nora B. Moulic, liable to State, a holder in due course of the checks.

[Bataan Cigar & Cigarette Factory, Inc. v. CA] CHECK - defined by law as a bill of exchange drawn on a bank payable on demand. There are a variety of checks, the more popular of which are the memorandum check, cashier's check, traveler's check and crossed check. CROSSED CHECK - one where two parallel lines are drawn across its face or across a corner thereof. It may be crossed generally or specially. A check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn. It is crossed generally when only the words "and company" are written or nothing is written at all between the parallel lines. It may be issued so that the presentment can be made only by a bank. Veritably the NIL does not mention "crossed checks," although Article 541 of the Code of Commerce refers to such instruments. In the Philippine business setting, however, we used to be beset with bouncing checks, forging of checks, and so forth that banks have become quite guarded in encashing checks, particularly those which name a specific payee. Unless one is a valued client, a bank will not even accept second indorsements on checks. In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check should have the following effects: (a) the check may not be encashed but only deposited in the bank;

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(b) the check may be negotiated only once - to one who has an account with a bank; (c) and the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course. It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser's title to the check or the nature of his possession. Failing in this respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith, contrary to Sec. 52 (c) of the Negotiable Instruments Law, and as such the consensus of authority is to the effect that the holder of the check is not a holder in due course.

[Citytrust Banking Corp. v. IAC] We cannot uphold the position of defendant. For, even if it be true that there was error on the part of the plaintiff in omitting a "zero" in her account number, yet, it is a fact that her name, "Emme E. Herrero", is clearly written on said deposit slip. This is controlling in determining in whose account the deposit is made or should be posted. This is so because it is not likely to commit an error in one's name than merely relying on numbers which are difficult to remember, especially a number with 8 digits as the account numbers of defendant's depositors. We view the use of numbers as simply for the convenience of the bank but was never intended to disregard the real name of its depositors. The bank is engaged in business impressed with public interest, and it is its duty to protect in return its many clients and depositors who transact business with it. It should not be a matter of the bank alone receiving deposits, lending out money and collecting interests. It is also its obligation to see to it that all funds invested with it are properly accounted for and duly posted in its ledgers. Having accepted a deposit in the course of its business transactions, it behooved upon defendant bank to see to it and without recklessness — that the depositor was accurately credited therefor. To post a deposit in somebody else's name despite the name of the depositor clearly written on the deposit slip is indeed sheer negligence which could have easily been avoided if defendant bank exercised due diligence and circumspection in the acceptance and posting of plaintiff's deposit. In every case, the depositor expects the bank to treat his account with utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation. The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. [Tan v. CA] An ordinary check is not a mere undertaking to pay an amount of money. There is an element of certainty or assurance that it will be paid upon presentation that is why it is perceived as a convenient

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substitute for currency in commercial and financial transactions. BASIS of the perception: confidence. Any practice that destroys that confidence will impair the usefulness of the check as a currency substitute and create havoc in trade circles and the banking community. Now, what was presented for deposit in the instant case was not just an ordinary check but a cashier‘s check payable to the account of the depositor himself. CASHIER‘S CHECK – a primary obligation of the issuing bank and accepted in advance by its mere issuance. By its very nature, a cashier‘s check is the bank‘s order to pay drawn upon itself, committing in effect its total resources, integrity and honor behind the check. A cashier‘s check by its peculiar character and general use in the commercial world is regarded substantially to be as good as the money which it

represents. In this case therefore, PCIB by issuing the check created an unconditional credit in favor of any collecting bank. All these considered, petitioner‘s reliance on the layman‘s perception that a cashier‘s check is as good as cash is not entirely misplaced, as it is rooted in practice, tradition, and principle.

[Papa v. A.U. Valencia and Co., Inc.] Petitioner himself admits having received said amounts and having issued receipts therefor. After more than 10 years from the payment in part by cash and in part by check, the presumption is that the check had been encashed. Granting that petitioner had never encashed the check, his failure to do so for more than 10 years undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay. While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditor‘s unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he from whom it is received 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 given. It has, likewise, been held that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code under which payment by way of check or other negotiable instrument is conditioned on its being cashed, except when through the fault of the creditor, the instrument is impaired. The payee of a check would be a creditor under this provision and if its non-payment is caused by his negligence, payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged.

XII.

OTHERS

[Allied Banking Corp. v. CA] There are well-defined distinctions between the contract of an indorser and that of a guarantor/surety of a commercial paper. The contract of indorsement is primarily that of transfer, while the contract of guaranty is that of personal security. The liability of a guarantor/surety is broader

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than that of an indorser. Unless the bill is promptly presented for payment at maturity and due notice of dishonor given to the indorser within a reasonable time, he will be discharged from liability thereon. On the other hand, except where required by the provisions of the contract of suretyship, a demand or notice of default is not required to fix the surety‘s liability.

[Villanueva v. Nite] If a bank refuses to pay a check (notwithstanding sufficiency of funds), the payeeholder cannot sue the bank—the payee should instead sue the drawer who might in turn sue the bank. Section 189 is sound law based on logic and established legal principles: no privity of contract exists between the drawee-bank and the payee. Indeed, in this case, there was no such privity of contract between ABC and petitioner. Petitioner should not have sued ABC. Contracts take effect only between the parties, their assigns and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation, or by provision of law. None of the foregoing exceptions to the relativity of contracts applies in this case.

[BPI v. CIR] A bill of exchange and a letter of credit may differ as to their negotiability, and as to who owns the funds used for the payment at the time payment is made. However, in both bills of exchange and letters of credit, a person orders another to pay money to a 3rd person.

[Citybank, N.A. v. Sabeniano] Petitioner Citibank did not deny the existence nor questioned the authenticity of the promissory notes it issued in favor of respondent for her money market placements. In fact, it admitted the genuineness and due execution of the said PNs but qualified that they were no longer outstanding. By the admission of the genuineness and due execution of an instrument, is meant that the party whose signature it bears admits that he signed it or that it was signed by another for him with his authority; that at the time it was signed it was in words and figures exactly as set out in the pleading of the party relying upon it; that the document was delivered; and that any formal requisites required by law, such as a seal, an acknowledgement, or revenue stamp, which it lacks, are waived by him. Hence, such defenses as that the signature is a forgery; or that it was unauthorized, as in the case of an agent signing for his principal, or one signing in behalf of a partnership or of a corporation; or that, in the case of the latter, that the corporation was authorized under its charter to sign the instrument; or that the party charged signed the instrument in some other capacity than that alleged in the pleading setting it out; or that it was never delivered are cut-off by the admission of its genuineness and due execution. The effect of the admission is such that in the case of a promissory note a prima facie case is made for the plaintiff which dispenses with the necessity of evidence on his part and entitles him to a judgment on the pleadings unless a special defense of new matter, such as payment, is interposed by the defendant. Manager‘s Checks are drawn by the bank‘s manager upon the bank itself and regarded to be as good as the money it represents. A crossed check cannot be presented to the drawee bank for payment in cash—the check can only be deposited with the payee‘s bank which in turn, must present it for payment against the drawee bank in the

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course of normal banking hours; The crossed check can only be deposited and the drawee bank may only pay to another bank in the payee‘s or indorser‘s account. A check, whether a manager‘s check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the oblige or creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized. (Art. 1249, CC, par. 3) As a rule, forgery cannot be presumed and must be proved by clear, positive and convincing evidence and the burden of proof lies on the party alleging forgery. The best evidence of a forged signature in an instrument is the instrument itself reflecting the alleged forged signature. The fact of forgery can only be established by a comparison between the alleged forged signature and the authentic and genuine signature of the person whose signature is theorized upon to have been forged. Without the original document containing the alleged forged signature, one cannot make a definitive comparison which would establish forgery. A comparison based on a mere Xerox copy or reproduction of the document under controversy cannot produce reliable results.

[Equitable PCI Bank v. Ong] 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 is an order of the bank to pay, drawn upon itself, committing in effect its total resources, integrity and honor behind its issuance. By its peculiar character and general use in commerce, a manager‘s check is regarded substantially to be as good as the money it represents. A manager‘s check stands on the same footing as a certified check. The effect of certification is found in Section 187, NIL.—Where a check is certified by the bank on which it is drawn, the certification is equivalent to an acceptance.

[International Corporate Bank, Inc. v. CA] The alteration on the serial number of a check is not a material alteration. 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 incomplete instrument relating to the obligation of a party. In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the NIL. Since there was no material alterations on the checks, respondent as drawee bank has no right to dishonor them and return them to petitioner, the collecting bank. Thus, respondent is liable to petitioner for the value of the checks, with legal interest from the time of filing of the complaint until full payment.

[Gonzales v. RCBC] The foreign drawee bank would not have dishonored the check had it not been for the signature of Gomez with the same phrase ―up to P17,500.00 only‖ written by her. The foreign drawee

Negotiable Instruments Law Doctrines

karell marie.

San Beda College Manila—College of Law

bank, Wilshire Center Bank N.A., refused to pay the bearer of the dollar-check drawn by Don Zapanta because of the defect introduced by RCBC, through its employee, Olivia Gomez. It is therefore a useless piece of paper if returned in that state to its original payee, Eva Alviar. There is no doubt in the mind of the Court that a subsequent party which caused the defect in the instrument cannot have any recourse against any of the prior endorsers in good faith. Eva Alviar‘s and the petitioner‘s liability to subsequent holders of the foreign check is governed by the NIL. Section 66 of the NIL which further states that the general endorser additionally engages that, on due presentment, the instrument 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, must be read in the light of the rule in equity requiring that those who come to court should come with clean hands. The holder or subsequent endorser who tries to claim under the instrument which had been dishonored for ―irregular indorsement‖ must not be the irregular endorser himself who gave cause for the dishonor. Otherwise, a clear injustice results when any subsequent party to the instrument may simply make the instrument defective and later claim from prior endorsers who have no knowledge or participation in causing or introducing said defect to the instrument, which thereby caused its dishonor. Courts in this jurisdiction are not only courts of law but also of equity, and therefore cannot unqualifiedly apply a provision of law so as to cause clear injustice which the farmers of the law could not have intended to so deliberately cause.

[Metropolitan Bank & Trust Co. v. Cabilzo] The bank on which the check is drawn, known as the drawee bank, is under strict liability to pay to the order of the payee in accordance with the drawer‘s instructions as reflected on the face and by the terms of the check. Payment made under materially altered instrument is not payment done in accordance with the instruction of the drawer. When the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its client‘s account only for bona fide disbursements he had made. Since the drawee bank, in the instant case, did not pay according to the original tenor of the instrument, as directed by the drawer, then it has no right to claim reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the drawer‘s account which it was expected to treat with utmost fidelity.

[Macalalag v. People] There is no violation of BP 22 if the complainant was actually told by the drawer that he has no sufficient funds in a bank, and payment by the accused of the amount of the check prior to its presentation for payment would certainly serve the same purpose. BP 22 was not intended to shelter or favor nor encourage users of the banking system to enrich themselves through the manipulation and circumvention of the noble purpose and objectives of the law. Such manipulation is manifest when payees of checks issued as security for loans present such checks for payment even after the payment of such loans. Only a full payment of the face value of the check at the time of its presentment or during the 5-day grace period could exonerate the drawer from criminal liability. A contrary interpretation would defeat the purpose of BP 22, that of safeguarding the interest of the banking system and the legitimate public

Negotiable Instruments Law Doctrines

karell marie.

San Beda College Manila—College of Law

checking account user, 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. The gravamen of BP 22 is the issuance of a check, not the nonpayment of an obligation—the law has made the act of issuing a bum check a malum prohibitum.

[BPI v. CA] Transferees under Section 49 of the NIL do not enjoy the presumption of ownership in favor of holders since they are neither payees nor indorsees of such instruments. The weight of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to receive payment, or of the right of one who has made payment to be discharged from liability. Thus, something more than mere possession by persons who are not payees or indorsers of the instrument is necessary to authorize payment to them in the absence of any other facts from which the authority to receive payment may be inferred. If instruments payable to named payees or to their order have not been indorsed in blank, only such payees or their indorsees can be holders and entitled to receive payment in their own right. Negotiable instruments are negotiated by ―transfer to one person or another in such a manner as to constitute the transferee a holder thereof. If payable to bearer it is negotiated by delivery. If payable to order it is negotiated by the indorsement completed by delivery. The present case involves checks payable to order. Not being a payee or indorsee of the checks, private respondent Salazar could not be a holder thereof. It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. Precisely because the situation is abnormal, it is but fair to the maker and to prior holders to require possessors to prove without the aid of an initial presumption in their favor, that they came into possession by virtue of a legitimate transaction with the last holder. The taking and collection of a check without the proper indorsement amount to a conversion of the check by the bank.

Negotiable Instruments Law Doctrines