Case Doctrines on Negotaible Instruments Law

Philippine Education Co. vs. Soriano

The Weight of authority in the United States is that postal money orders are not
negotiable instruments, the reason being that 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. For instance, such laws and
regulations usually provide for not more than one endorsement; payment of money
orders may be withheld under a variety of circumstances.

Caltex Phil. vs. Court of Appeals

A negotiable instrument that is payable to bearer may be negotiated by mere delivery.

No further act other than delivery is necessary in order to negotiate the instrument and
to make the transferee a holder.

Metrobank vs. Court of Appeals

An instrument to be negotiable instrument must contain an unconditional promise or

orders to pay a sum certain in money. As provided by Sec 3 of NIL an unqualified order
or promise to pay is unconditional though coupled with: 1st, an indication of a particular
fund out of which reimbursement is to be made or a particular account to be debited
with the amount; or 2nd, a statement of the transaction which give rise to the
instrument. But an order to promise to pay out of particular fund is not unconditional.

Sesbreno vs. Court of Appeals

Only an instrument qualifying as a negotiable instrument under the relevant statute may
be negotiated either by indorsement thereof coupled with delivery, or by delivery alone
if it is in bearer form. A negotiable instrument, instead of being negotiated, may also be
assigned or transferred. The legal consequences of negotiation and assignment of the
instrument are different. A negotiable instrument may not be negotiated but may be
assigned or transferred, absent an express prohibition against assignment or transfer
written in the face of the instrument.

Firestone Tire & rubber Co. vs. Court of Appeals

Withdrawal slips are non negotiable instruments. The essence of negotiability which
characterizes a negotiable paper as a credit instrument lies in its freedom to circulate
freely as a substitute for money. The withdrawal slips lacked this character.

Ang Tek Lian vs. Court of Appeals

A check drawn 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. However, if the bank is not sure of the bearer’s identity or financial
solvency, it has the right to demand identification or assurance against possible
complication. But where the bank is satisfied of the identity 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.

Development Bank of the Phils. vs. Sima Wei

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.

Philippine Bank of Commerce vs. Aruego

There is a difference between a qualified indorser and a person negotiating by mere

delivery. While a qualified indorser warrants to all subsequent holders, the warranties of
the person negotiating by mere delivery extends only in favor of his immediate
transferee.

Francisco vs. Court of Appeals

The negotiable Instruments Law  provides  that  when  a 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
as an agent in behalf of the  principal  and  must  disclose  the  name  of  his 
principal.    Otherwise, he will  be  held  liable  personally

Jai-Alai vs. Bank of the Philippine Islands

Holders of checks may obtain payment from the drawee bank by presenting it for
payment directly with the bank or by depositing it in his account in another bank
known as the collecting bank or depositary bank. When the holder deposits his check
with the collecting bank, the nature of the relationship created at that stage is one of
agency, that is the bank is to collect from the drawee of the check the corresponding
proceeds.

Republic Bank vs. Ebreda              

Where the signature on a negotiable instrument is forged, the negotiation of the check
is without force or effect. However, where a check has several indorsements on it, it is
only the negotiation based on the forged or unauthorized signature is inoperative. It will
not render void all the other negotiations of the check with respect to other parties
whose signatures are genuine.

MWSS vs. Court of Appeals

It is basic that whoever alleges forgery must prove such fact. Forgery cannot be
presumed, it must be duly established.

Banco de Oro vs. Equitable Banking Corporation           

If the instrument involved is a check, the drawee cannot charge the account of the
drawer if the payee’s or indorser’s signature is forged. The drawee, in turn has the right
of recourse against the collecting bank.

The drawer generally owes no duty of diligence to the collecting bank, the law imposes
a duty of diligence on the collecting bank to scrutinize checks deposited with it for the
purpose of determining their genuineness and regularity. The collecting bank being
primarily engaged in banking holds itself out to the public as the expert and the law
holds it to high standard of conduct.

It  is  the  collecting  bank  that  generally  suffers  the  loss with regard to forged
indorsements because  it  had  the  duty  to  ascertain  the  genuineness  of  all  prior
indorsements 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 indorsements. 

Gempesaw vs. Court of Appeals

A forged signature is wholly inoperative, no one can gain title to the instrument through
such forged insdorsement. Such indorsement prevents any subsequent party from
acquiring any right as against parties prior to the forgery. Although rights may exist
between and among parties subsequent to the forged instrument, not one of the can
acquire rights against parties prior to the forgery. Such forged instrument cuts-off the
rights of all subsequent parties as against parties prior to the forgery. However, the law
makes an exception to these rules where party is precluded from setting up forgery as
a defense.

Associated Bank vs. Court of Appeals

When a check is deposited with the collecting bank, it takes a risk on its depositor. It is
only logical that this bank be held accountable for checks deposited by its customers.
It is important to mention that Payee whose signature was forged may directly proceed
against the collecting bank. However, the drawer cannot opt to recover from the
collecting bank. There is no privity of contract between the drawer and the collecting
bank.

Metrobank vs. First National City Bank

When the indorsement itself is very clear when it begins with the words “For clearance,
clearing office” such indorsement must be read together with the 24-hour rule
regulation of the House operations of the Central Bank. Once that 24-hour period is
over, the liability on such indorsement has ceased. Failure of drawee bank to call the
attention of collecting bank to the alteration of the check in question until after the
lapse of 24 hours negates whatever right it might have against the collecting bank. Its
remedy lies not against collecting bank but against the party responsible for the
changing of the name of the payee and the amount on the face of the check.

Republic Bank vs. Court of Appeals

The 24-hour clearing house rule is valid rule applicable to commercial banks. As
general rule, the collecting bank or last endorser bears the loss when the indorsement
was forged. But the unqualified endorsement of the collecting bank on the check
should be read together with the 24-hour regulation on the clearing house operation.
Thus, when the drawee bank fails to return a forged or altered check to the collecting
bank is absolved from liability. Unless an alteration is attributable to the fault or
negligence of the drawer himself, the remedy of the drawee bank that negligently
clears a forged and/or honor altered check for payment is against the party responsible
for the forgery or alteration, otherwise, it bears the loss.

Philippine Commercial International Bank vs. Court of Appeals

A bank (in this case PCIB) which cashes a check drawn upon another bank (in this
case Citibank), without requiring proof as to the identity of persons presenting it, or
making inquiries with regard to them, cannot hold the proceeds against the drawee
when the proceeds of the checks were afterwards diverted to the hands of a third
party.

Ramon Illusorio vs. Court of Appeals

The collecting bank or last endorser generally suffers the loss because it has the duty
to ascertain the genuineness of all prior indorsements 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 indorsements.
As between the drawer and the drawee bank, the drawee bank should bear the loss.
The drawee bank shall have recourse against the collecting bank because such
collecting bank guarantees that all prior endorsements are genuine. The collecting
bank then can go against the forger. In cases involving a forged check, where the
drawer’s is forged, drawer can recover from the drawee bank. No drawee bank has a
right to pay a forged check. If it does, it shall have to recredit the amount of check to
the account of the drawer. The liability chain ends with drawee bank whose
responsibility it is to know the drawer’s signature since the latter is its customer.

Samsung Construction Co. Phils, Inc vs. FEBTC and CA

Under Sec. 62 of NIL, among the warranties to be assumed by the acceptor is it admits
the existence of the drawer, the genuineness of his signature, and his capacity and
authority to draw the instrument. It is incumbent upon the drawee bank to ascertain the
genuineness of the signature of its depositor. The respondent bank in this case did not
exercise the degree of diligence required to enable it to detect the forgery. Aside from
the warranties as an indorser, the collecting bank is made liable because it is privy to
the depositor who negotiated the check because it knows him, his address and history
for being a client thereof. Thus, it is in a better position to detect forgery or irregularity
in the indorsement aka “Doctrine of Comparative Negligence”

Philippine National Bank vs. Court of Appeals

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,
material alteration is one which changes the items which is required to be stated under
Sec 1 of NIL.

Sadaya vs. Sevilla

On  principle,  a  solidary  accommodation  maker—who  made  payment—has the

right to contribution, from his co-accomodation maker, in the absence of agreement to
the contrary between them, subject to conditions imposed by  law.      This  right 
springs  from  an  implied  promise  to  share  equally  the burdens  thay  may  ensue 
from  their  having  consented  to  stamp  their signatures on the promissory note.

Crisologo-Jose vs. Court of Appeals          

The provision of NIL which holds an accommodation party liable on the instrument to
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. This is because the issue or indorsement of negotiable paper
by a corporation without consideration and for 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 a accommodation
party.

Stelco Marketing vs. Court of Appeals

A person cannot be holder of the check for value if it does not meet the essential
requisites prescribed by the law. He must become the holder of it before it was
overdue, and without notice that it had previously dishonored,” and he took the check
in good faith and for value before he can be considered as a holder of the check for
value.

Travel-On BPI vs. Court of Appeals

Check which is regular on its face is deemed prima facie to have been issued for a
valuable consideration and every person whose signature appears thereon is deemed
to have become a party thereto for value. Further the rule is quite settled that a
negotiable instrument is presumed to have been given or indorsed for a sufficient
consideration unless otherwise contradicted and overcome by another evidence.

            In the 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 the payee or indorsee as a holder in due course, who gave full value
which the accommodated party must repay 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 third 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.

De Ocampo vs. Gatchalian

Good faith on the part of the holder is presumed, such presumption is destroyed if the
payee or indorsee acquired possession of the instrument under circumstances that
should have put it to inquiry as to the title of the holder who negotiated the instrument.
The burden is now on the part of the holder to show that notwithstanding the
suspicious circumstances, it acquired in the actual good faith.

Mesina vs. IAC

The  holder  of  a  cashier’s  check  who  is  not  a  holder  in  due  course cannot 
enforce  payment  against  the  issuing  bank  which  dishonors  the same.  If a payee
of a cashier’s check obtained it from the issuing bank by fraud,  or  if  there  is  some 
other  reason  why  the  payee  is  not  entitled  to collect  the  check,  the  bank 
would  of  course  have  the  right  to  refuse payment of the check when presented by
payee.

Metropol vs. Sambok

A qualified indorserment 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 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 by section 65 of NIL. 

Recourse means resort to a person who is secondarily liable after the default of the
person who is primarily liable. A person who indorses without qualification engages
that on due presentment, the note shall be accepted or paid, or both as the case
maybe, and that if it be dishonored, he will pay the amount thereof to the holder.

Sepiera vs. Court of Appeals

Every indorser who indorses without qualification, warrants to all subsequent holders in
due course that, on due presentment, it shall be accepted or paid or both, 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. 

Prudencial Bank vs. IAC

Acceptance is presumed to be unqualified or absolute. If the drawee intends toqualify

his acceptance, he must do so distinctly and unmistakably or else the acceptance will
be taken as absolute.

Wong vs. Court of Appeals 

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 six (6)
months, or 180 days.

The International Corporate Bank vs. Francis S. Gueco and Ma. Luz E Gueco

A stale check is 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
negotiable instruments law, 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. The test is whether the payee
employed suchdiligence as a prudent man exercises in his own affairs. This is because
the nature and theory behind the useof a check points to its immediate use and
payability.

State Investment House Inc. vs. CA

The withdrawal of the money from the drawee bank to avoid liability on the checks
cannot prejudice the rights of holders in due course. For the reason that the holder who
takes the negotiated paper makes a contract with the parties on the face of the
instrument; there is an implied representation that funds or credit are available for the
payment of the instrument in the bank upon which it is withdrawn.

Bataan Cigar and Cigarette Factory, Inc. vs. CA

In order to preserve the credit worthiness of checks, jurisprudence has pronounced

that crossing a check should have the following effects: (1) check may not be
encashed but only deposited in the bank; (2) the check may be negotiated only once,
to one who has an account with a bank; (3) and the act of crossing the check serves as
a warning to the holder that the check has been issued for a definite purpose so that
he must inquire if he has received the check pursuant to that purpose, otherwise he is
not a holder in due course.

Citytrust banking Corp., vs. Intermediate Appellate Court

Even there was error on the account number the controlling in determining in whose
account the deposit is name of the account owner. 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. Numbers are 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 trust, and it is its duty to protect in return its clients and depositors who
transact business with it.

Tan vs. Court of Appeals

A cashier’s check is a primary obligation of the issuing bank and accepted in advance
by its mere issuance, and by its peculiar character and general use in the commercial
world is regarded substantially to be as good as the money which it represents.

Papa vs. A.U. Valencia

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. Failure of the payee to encash a
check for more than 10 years undoubtedly resulted in the impairment of the check
through his unreasonable and unexplained delay.

Bank of the Philippine Islands vs. Court of Appeals

Every negotiable instrument is deemed prima facie to have been issued for a valuable
consideration; every person whose signature appears thereon to have become a party
thereto for value. Therefore, it is up to the party who alleges that there was absence of
consideration to prove such fact.

The presumption will operate only if there was negotiation. Consideration is not
presumed if there was transfer without indorsement.