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SECTION 126.Bill of Exchange, Defined. A bill of exchange is an unconditional
order in writing addressed by one person to another, signed by the person giving it,
requiring the person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to bearer.|||
SECTION 184.Promissory Note, Defined. A negotiable promissory note within the
meaning of this Act is an unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to bearer. Where a
note is drawn to the maker's own order, it is not complete until indorsed by him
a. Holder
"Holder" means the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof
b. Maker/Drawer
c. Payee
d. Drawee/Acceptor
e. Bearer


g. Indorsee

Villanueva vs Nite

G.R. No. 148211 July 25, 2006

Lessons Applicable: Liabilities of Parties (Negotiable Instruments Law)

Nite loaned from Villanueva P409,000

as a sceurity he issued an Asian Bank Corporation (ABC) check
of P325,500 dated February 8, 1994
it was consented to be changed to June 8, 1994
check was dishonored due to a material alteration
August 24, 1994: Nite while abroad partially paid P235K through
her representative Emily P. Abojada
The balance of P174K was due on or before December 8, 1994.

August 24, 1994: Villanueva filed an action for a sum of money and damages
against ABC for the full amount of the dishonored check (despite the loan not
being due and Nite away)
RTC: favored Villanueva
June 30, 1997: Nite went to ABC to withdraw but she was not able to because
of the RTC order
August 25, 1997: ABC remitted to the sheriff a managers check amounting
to P325,500 drawn on Nite's account
CA: favored Nite's appeal

ISSUE: W/N ABC should be liable to Villanueva


Negotiable Instruments Law

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. 189. When check operates as an assignment. 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

Rule 3, Sec. 7 of the Rules of Court states:

Sec. 7. Compulsory joinder of indispensable parties. Parties in interest without

whom no final determination can be had of an action shall be joined either as
plaintiffs or defendants.
The contract of loan was between Villanueva and Nite. No collection suit
could prosper without Nite who was an indispensable party

Hi-Cement Corp vs Insular Bank of Asia

132403 - G.R. No. 132419

September 28, 2007
Lessons Applicable: Rights of Holder against general indorser (Negotiable
Instrument Law)

Enrique Tan and Lilia Tan (spouses Tan) were the controlling stockholders of
E.T. Henry & Co., Inc. (E.T. Henry), a company engaged in the business of
processing and distributingbunker fuel.
E.T. Henry's customers were Hi-Cement Corporation (Hi-Cement), Riverside
Mills Corporation (Riverside) and Kanebo Cosmetics Philippines, Inc. (Kanebo)
who issued postdated checks for their purchases
Sometime in 1979: Insular Bank of Asia and America (turned PCIB then
Equitable PCI-Bank) granted E.T. Henry a credit facility known as Purchase of
Short Term Receivables. (re-discounting arrangement)
Through this, E.T. Henry was able to encash, with pre-deducted
interest, the postdated checks of its clients.

For every transaction, E.T. Henry had to execute a promissory note and
a deed of assignment
1979-1981: E.T. Henry was able to re-discount its clients' checks
February 1981: 20 checks of Hi-Cement (which were crossed and which bore
the restriction deposit to payees account only) were dishonored. So were the
checks of Riverside and Kanebo.
Bank filed a complaint for sum of money in CFI against E.T. Henry, the
spouses Tan, Hi-Cement (including its general manager and its treasurer as
signatories of the postdated crossed checks), Riverside and Kanebo
CA Affirmed RTC: Ordering E.T. Henry, spouses Tan, Hi-Cement, Riverside and
Kanebo, jointly and severally, to pay bank damages represented by the face
value of the postdated checks plus interests, services, charges and penalties
until fully paid
G.R. 132403: RTC & CA
Hi-Cement authorized its general manager and treasurer to issue the
subject postdated crossed checks
Hi-Cement was already estopped from denying such authority since it
never objected to the signatories' issuance of all previous checks to E.T. Henry

W/N bank was a holder in due course - NO
W/N Hi-Cement can still be made liable for the checks NO
HELD: CA AFFIRMED with MODIFICATION remanded to RTC for recomputation

Section 191
Section 52
Bank was all too aware that subject checks were crossed and bore restrictions
that they were for deposit to payee's account only; hence, they could not be
further negotiated to it
irregularity - only the treasurer's signature appeared on the deed of
As a banking institution, it behooved respondent to act with extraordinary
diligence in every transaction
Its business is impressed with public interest, thus, it was not expected to be
careless and negligent, specially so where the checks it dealt with were crossed.
It is then settled that crossing of checks should put the holder on inquiry and
upon him devolves the duty to ascertain the indorsers title to the check or the
nature of his possession. - failure: guilty of gross negligence amounting to legal
absence of good faith

2. NO.

the drawer of the postdated crossed checks was not liable to the holder who
was deemed not a holder in due course

may recover from the party who indorsed/encashed the checks if the
latter has no valid excuse for refusing payment - E.T. Henry had no justification
to refuse payment, it should pay

2. Requisites of Contract and Capacity to Contract

ARTICLE 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties; cdtai
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261)
ARTICLE 1327. The following cannot give consent to a contract:
(1) Unemancipated minors; casia
(2) Insane or demented persons, and deaf-mutes who do not know
how to write. (1263a)
ARTICLE 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than one-fourth of
the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter
suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in
any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to
rescission. (1291a)
ARTICLE 1390. The following contracts are voidable or annullable, even though
there may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a
(2) Those where the consent is vitiated by mistake, violence,
intimidation, undue influence or fraud. acd
These contracts are binding, unless they are annulled by a proper action
in court. They are susceptible of ratification. (n)
ARTICLE 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has
been given no authority or legal representation, or who has
acted beyond his powers;

(2) Those that do not comply with the Statute of Frauds as set forth in
this number. In the following cases an agreement hereafter
made shall be unenforceable by action, unless the same, or
some note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed
within a year from the making thereof;
(b) A special promise to answer for the debt, default, or
miscarriage of another; cd i
(c) An agreement made in consideration of marriage, other
than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos,
unless the buyer accept and receive part of such goods
and chattels, or the evidences, or some of them, of such
things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction
and entry is made by the auctioneer in his sales book, at
the time of the sale, of the amount and kind of property
sold, terms of sale, price, names of the purchasers and
person on whose account the sale is made, it is a
sufficient memorandum;
(e) An agreement for the leasing for a longer period than one
year, or for the sale of real property or of an interest
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a

Void or Inexistent Contracts

ARTICLE 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained; acd
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.
3. Exceptions with respect to Negotiable Instruments

a. Incapacity
SECTION 22.Effect of Indorsement by Infant or Corporation. The indorsement or
assignment of the instrument by a corporation or by an infant passes the property
therein, notwithstanding that from want of capacity the corporation or infant may
incur no liability thereon.||| (Negotiable Instruments Law, ACT NO. 2031, [1911])
b. Illegality
SECTION 38.Qualified Indorsement. 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 does not impair the negotiable character of the
SECTION 39.Conditional Indorsement. Where an indorsement is conditional, a
party required to pay the instrument may disregard the condition and make
payment to the indorsee or his transferee whether the condition has been fulfilled
or not. But any person to whom an instrument so indorsed is negotiated will hold
the same, or the proceeds thereof, subject to the rights of the person indorsing
c. Forgery
SECTION 18.Liability of Person Signing in Trade or Assumed Name. No person is
liable on the instrument whose signature does not appear thereon, except as herein
otherwise expressly provided. But one who signs in a trade or assumed name will be
liable to the same extent as if he had signed in his own name.||| (Negotiable
Instruments Law, ACT NO. 2031, [1911])
SECTION 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 to 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.||| (Negotiable
Instruments Law, ACT NO. 2031, [1911])
d. Duress
SECTION 55.When Title Defective. The title of a person who negotiates an
instrument is defective within the meaning of this Act when he obtained the

instrument, or any signature thereto, by fraud, duress, or force and fear, or other
unlawful means, or for an illegal consideration, or when he negotiates it in breach of
faith, or under such circumstances as amount to a fraud

ARTICLE 1335. There is violence when in order to wrest consent, serious or

irresistible force is employed.
There is intimidation when one of the contracting parties is compelled by a
reasonable and well-grounded fear of an imminent and grave evil upon his person
or property, or upon the person or property of his spouse, descendants or
ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and condition of the person
shall be borne in mind.
A threat to enforce one's claim through competent authority, if the claim is just or
legal, does not vitiate consent. (1267a)
4. Liabilities
Primarily Liable (Maker and Acceptor)

Secondarily Liable (Drawer and Indorser)

5. Indorser vs Guarantor/Surety
Allied Banking Corp. V. CA (Jan - Dec 2006)
G.R. No. 125851
July 11, 2006
Lessons Applicable: Liabilities of the Parties (Negotiable Instruments Law)


January 6, 1981: Allied Bank (Allied) purchased Export Bill of $20,085 from
G.G. Sportswear Mfg. Corporation (GGS)

The bill, drawn under a letter of credit covered Men's Valvoline Training
Suit that was in transit to West Germany
The export bill was issued by Chekiang First Bank Ltd., Hongkong.

With the purchase of the bill, ALLIED credited GGS the peso equivalent
of the bill amounting to P151,474.52

Nari Gidwani and Alcron International Ltd. (Alcron) executed their

respective Letters of Guaranty, holding themselves liable on the export bill if it
should be dishonored or retired by the drawee for any reason.

spouses Leon and Leticia de Villa and Nari Gidwani also executed a
Continuing Guaranty/Comprehensive Surety (surety), guaranteeing payment of
any and all such creditaccommodations which ALLIED may extend to GGS

When ALLIED negotiated the export bill to Chekiang, payment was refused
due to some material discrepancies in the documents submitted by GGS relative
to the exportation covered by the letter of credit.

ALLIED demanded payment

GGS and Nari Gidwani: signed blank forms of the Letters of Guaranty
and the Surety, and the blanks were only filled up by ALLIED after they had
affixed their signatures. They also added that the documents did not cover the
transaction involving the subject export bill.

spouses de Villa: not aware of the existence of the export bill; they
signed blank forms of the surety; and averred that the guaranty was not meant
to secure the export bill

Alcron: foreign corporation doing business in the Philippines, its branch

in the Philippines is merely a liaison office; neither its liaison office in the
Philippines nor its then representative, Hans-Joachim Schloer, had the authority
to issue Letters of Guaranty for and in behalf of local entities and persons

RTC: in favor of Allied

CA: modified holding GGS liable to reimburse Allied, but it exonerated the
guarantors from their liabilities under the Letters of Guaranty

ISSUE: W/N Gidwani, Alcron and Spouses Villa can be held jointly and severally liable
becuase of their capacity as guarantors and surety in the absence of protest on the
bill in accordance with Section 152 of the Negotiable Instruments Law?

HELD: YES. CA modified. Nari Gidwani, and Spouses Leon and Leticia de Villa are
jointly and severally liable together with G.G. Sportswear
Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor
to fulfill the obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of
Section 4,Chapter 3, Title I of this Book shall be observed. In such case the
contract is called a suretyship.

Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied

on by respondents, is not pertinent to this case.

There are well-defined distinctions between the contract of an indorser

and that of a guarantor/surety of a commercial paper, which is what is involved
in this case.

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 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.

Therefore, no protest on the export bill is necessary to charge all

the respondents jointly and severally liable

having affixed their consenting signatures in several documents executed at

different times, it is safe to presume that they had full knowledge of its terms
and conditions, hence, they are precluded from asserting ignorance of the legal
effects of the undertaking they assumed thereunder