COMMERCIAL LAW REVIEW UNDER ATTY. MARLON M.

AGACETA

Commercial Law is defined as a branch of private law which regulates the juridical
relations arising from commercial acts and according to which the questions or
controversies which may arise therefrom are resolved.

Applicable Laws:

a. Code of Commerce
b. New Civil Code
c. Special Laws:

i. Negotiable Instruments Law

ii. Insurance Code of the Philippines
iii. Corporation Code of the Philippines
iv. Securities Regulation Code
v. Trust Receipts Law
vi. Financial Rehabilitation and Insolvency Law
vii. General Banking Law
viii.Warehouse Receipt Law
ix. Business Name Law
x. Chattel Mortgage Law
xi. Public Service Law
xii. Intellectual Property Law

For Class – Commercial Law I comprises the following:

Negotiable Instruments Law

Insurance Code of the Philippines
Corporation Code of the Philippines
Transportation Laws
Laws on Partnership, Agency & Trust
Laws on Credit Transactions
Laws on Securities Transactions
Others

I. Negotiable Instruments Law (NIL):

Applicability of the NIL:

The provisions of the NIL can be applied only to negotiable instruments. If the
instrument in not negotiable, the pertinent provisions of the Civil Code or other
special law should apply.

Note: NIL can be applied but only by analogy to non-negotiable instruments if

there is no law that can be applied (Borromeo vs. Sun, 317 SCRA 176 [1999]).

What is a negotiable instrument?

It is a written contract for payment of money which is intended as a substitute

for money and passes from one person to another as money, in such a manner
as to give a holder in due course the right to hold the instrument free from
defenses available to prior parties. It must comply with Section 1 of the
Negotiable Instruments Law.

What are the functions of a negotiable instrument?

a. It operates as a substitute for money;

Note: Substitute for Money vs. Legal Tender - Section 52 of the New Central
Bank Act provides that only notes and coins issued by the Bangko Sentral ng
Pilipinas are considered legal tender.

Section 52 of the New Central Bank Act the maximum amounts of coin
considered as Legal Tender:

- One thousand pesos (P1,000.00) for 1-Peso, 5-Peso and 10-Peso coins;
- One hundred pesos (P100.00) for 1-centavo, 5-centavo, 10-centavo and
25-centavo coins;

b. It is a means of creating and transferring credit;

c. It facilitates the sale of goods;
d. It increases the purchasing medium in circulation.

What is a promissory note?

What is a bill of exchange?
Distinguish a promissory note and a bill of exchange.
What is a check?

Distinguish a bill of exchange and a check:

1. A check is always payable on demand;

2. A check need not be presented for acceptance;
3. A check is drawn on a deposit;
4. For checks, the death of the drawer revokes bank’s authority to pay;
5. For checks, they must be presented for payment within a reasonable time
after its issue;

What are the requisites for negotiability?

a. Must be in writing and signed by the maker or drawer;

Meaning of Writing:

Section 191 of the NIL provides that the word “written” includes printed,
and “writing” includes “print”. (Relate to Holographic Wills under the New
Civil Code)

Likewise relate to Section 17, NIL – In case of conflict between written and
printed provisions, written provisions prevail.

Meaning of Signed:
 Signature maybe in one’s handwriting, printed, engraved, lithographed, or
photographed so long as they are adopted as signature of the signer, even
it is not his usual signature.

Note: The maker or drawer should signed the instrument with full
knowledge that the same refers to a negotiable instrument, otherwise, the
same may constitute Fraud in Factum or In Esse Contractus, which is
a real defense that can be raised even against a holder in due course.

b. Must contain an unconditional promise or order to pay sum certain in

money;

Note: The word “promise” or “order” need not appear in the instrument
(Jimenez vs. Bucoy, 103 Phil. 40 [1958])

Unconditional even coupled with:

a. An indication of particular fund out of which reimbursement is to be

made or a particular account to be debited with the amount;
b. A statement of transaction which give rise to the instrument;

Conditional:

a. An order or promise to pay out of a particular fund;

b. An instrument payable upon a contingency, the happening of the event
does not cure the defect. Thus, a promissory note wherein the maker
promises to pay as soon as his means permit him to do so is not
negotiable for being conditional. Note: Relate with the Civil Code
doctrine which considered the phrase: as soon as his means permit him
to do so as a period.

Note: Supposing, the drawee is authorized to reimburse P10,000.00 but

was ordered to pay P20,000.00 will the instrument become non-negotiable?
No, because the drawee may refuse to pay the instrument, with the remedy
of dishonor by non-payment.

Postal Money Orders are not negotiable instruments, and are under the
restrictions and limitations of postal laws. They do not contain an
unconditional promise or order as required under Section 1 of NIL [Phil.
Education Co. vs. Soriano (G.R. No. L-22405, June 30, 1971)].

Money need not be a legal tender. An instrument is still negotiable although

the amount to be paid is expressed in foreign currency (PNB vs. Zulueta,
101 Phil. 1071).

Note: Option of obligor to deliver goods instead of money, it is not

negotiable, but if the option lies with the payee it is still negotiable –
Substitute for Money. But Section 5, NIL, provides that an instrument which
contains an order or promise to do any act in addition to payment of money
is not negotiable.

Sum is certain in money although paid with interest, stated instalment (Date
and amount of each instalments must be stated and/or determinable),
default clause, with exchange and/or with collection cost (Section 2, NIL).
 Note: The drawer may insert in the instrument an express stipulation
negativing or limiting is own liability to the holder (Section 62, NIL)

c. Must be payable on demand, or at a fixed or determinable future time;

An instrument is payable on demand:

1. When it is so expressed to be payable on demand, or at sight, or on

presentation;
2. When no time for payment is expressed; and
3. When issued, accepted or indorsed when overdue, as regards the
person so issuing, accepting, or indorsing it (Section 7, NIL).

An instrument is payable at a determinable future time if it is

expressed to be payable:

1. At a fixed period after date or sight;

Note: What if the drawee is blind? After sight is not to be interpreted

literally.

2. On or before a fixed or determinable future time specified therein;

3. On or at a fixed period after the occurrence of a specified event which
is certain to happen, though the time of happening be uncertain (Section
4, NIL).

Note: Why is it “on or after” no “before”? Because for example the event
is the death of the person, if it is “before”, by the time the person dies,
the instrument shall have been overdue, hence the holder thereafter will
not be a holder in due course.

d. Must be payable to the order or bearer;

If payable to specified person not negotiable.

Note: Is “pay to the order of bearer” the same as “pay X or

bearer”? No, it is different, the 1st is an order instrument, while the
2nd is a bearer instrument.

Is a Bill of Exchange an order instrument because it is “payable to

order”? No. A Bill of Exchange refers to “an order to pay”
regardless of whether it may be payable to order or bearer.

When instrument payable to bearer?

1. When it is expressed to be so payable;

2. When it is payable to person named therein or bearer;
3. When it payable to the order or a fictitious or non-existing person, and
such fact was known to the person making it so payable;
 Note: The payee need not be actually fictitious or non-existent, as long
as the maker or drawer does not intend the payee to have any right
over the instrument.

4. When the name of the payee does not purport to be the name of any
person;
5. When the only or last indorsement is an indorsement in blank (Section
9, NIL).

What is the relation of Section 9 (e) and Section 40 of NIL? Section

40 states that an instrument, “once a bearer instrument, always a
bearer instrument.

An instrument may be made payable to the order of:

1. A payee who is not the maker, drawer or drawee;

2. The drawer or maker;
3. The drawee;
4. Two or more payees jointly (Not in the alternative or in succession);
5. One or more several payees (Not in the alternative or in succession);
6. The holder of an office for the time being (Section 8, NIL).

Note: When the instrument is payable to the order, the payee must be
named or otherwise indicated therein with reasonable certainty (Section 8,
NIL). Rationale: An order instrument requires indorsement.

Is “pay to the order of X” the same as “pay to X or order”? Yes.

Is “pay to the order of bearer” the same as “pay to X or bearer?
No. The 1st is an order instrument, the 2nd is a bearer instrument.

e. When the instrument is addressed to a drawee, he must be named or

otherwise indicated therein with reasonable certainty.

Reason: The holder must know to whom he should present it for acceptance
and/or payment, otherwise, the purpose of the negotiable instrument as a
tool in commercial dealings will be greatly hampered.

Note: What are the requisite of a negotiable promissory note – do not

include the requirement pertaining to a Drawee since promissory note has
no Drawee.

What are the two important features of a Negotiable Instrument?

1. Negotiability
2. Accumulation of Secondary Contracts

What are the incidents to the life of a negotiable instrument?

1. Issue
2. Negotiation
3. Presentment for Acceptance
4. Acceptance
5. Dishonor for Non-Acceptance
6. Presentment for Payment
7. Dishonor for Non-Payment
8. Notice of Dishonor
9. Discharge

What does negotiation means?

The transfer of instrument from one person to another in such manner as to

constitute the transferee a holder thereof. Concomitantly, a holder is the payee
or indorsee of a bill or note who is in possession of it, or the bearer thereof.
(Section 30 and 191, NIL)

Section 30. What constitute negotiation. An instrument is negotiated

when it is transferred from one person to another in such manner as
to constitute the transferee the holder thereof. If payable to bearer,
it is negotiated by delivery; if payable to order, it is negotiated by
indorsment of the holder and completed by delivery.

Are all transfers considered negotiation? No, there are assignments.

Supposing, a bearer instrument with the payee as “Cash” was

presented to a bank, which requires the holder to sign his name on
the instrument, was the bank correct in requiring him to sign?

Legally, No, because it is a bearer instrument, it does not need

indorsement for negotiation, mere delivery is required.

For practical consideration, Yes, for safety and security purposes.

How are instruments negotiated?

1. If payable to bearer, it is negotiated by delivery;

2. If payable to order, it is negotiated by the indorsement of the holder
completed by delivery;

Note: A bearer instrument always a bearer instrument. Thus, where an

instrument, payable to bearer, is indorsed specially, it may nevertheless be
further negotiated by delivery; but any person indorsing specially is liable as
indorser to only such holder as make title through his indorsement (Section 40,
NIL).

What is an allonge?

It is a separate piece of paper attached to the instrument bearing the required

indorsement.

Note: Section 32 of the NIL disallows negotiation to two or more indorsees

severally. The indorsement must be of the entire instrument.

Kinds of Indorsement:

1. Blank Indorsement;
2. Special Indorsement (Section 35, NIL);
3. Qualified Indorsement;
4. Conditional Indorsement (Section 39, NIL);
5. Restrictive Indorsement (Section 36, NIL).

Note: A mere assignee, as distinguished from an indorsee, cannot acquire

better rights than the assignor, because an assignee merely steps into the
shoes of the assignor. The spring cannot rise above its source.

Why are special endorser be held liable when their actions were
unnecessary in the first place? Because of the accumulation of
secondary contracts.

How is negotiability of an instrument determined?

It is determined by considering the instrument by its entirety and only what

appears on its face. It must comply with the requirements of Section 1 of NIL.

Kinds of Negotiable Instruments:

1. Bill of Exchange – is an unconditional order in writing addressed by one

person to another (Drawee), signed by the person giving it (Drawer),
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 the order or bearer
(Payee) (Section 126, NIL);

2. Promissory Note - is an unconditional promise in writing made by one

person (Maker) to another (Payee), 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.

Note: When a note is drawn to the maker’s own order, it is not complete
until indorsed by him (Section 184, NIL).

Note: When the instrument is so ambiguous that there is doubt whether it

is a bill or note, the holder may treat it as either at his election (Section17,
NIL).

When can a Bill of Exchange be treated as a Promissory Note?

a. The drawer and drawee are the same persons;

b. The drawee is a fictitious person;

Note: What is material in determining whether the person is fictitious? The

intention of the maker/drawer;

c. The drawee has no capacity to contract;

d. The instrument is ambiguous that there is doubt whether it is a bill or a
note (Sections 17 and 130, NIL)

What are the omissions and provisions that do not affect

negotiability?

1. It is not dated (date of issuance); or

Joke: If there is a wrong insertion, the instrument will make an illegal

discharge
 Note: The instrument is not invalid for the reason only that is ante-dated or
post-dated, provided this is not done for illegal or fraudulent purpose
(Personal Defense). The person to whom the instrument so dated is
delivered acquires the title thereto as of the date of delivery (Section 12,
NIL)

2. Does not specify the value given, or that any value was been given therefor;
or

Is love a valuable consideration? No.

3. Does not specify the place where it is drawn or the place where it is
payable; or
4. Bears a seal; or
5. Designates a particular kind of current money in which payment is to be
made;
6. Addressed to more than one drawee jointly (Section 6, NIL).

An instrument is still negotiable even if the following are present:

1. Authorizes the sale of collateral securities in case the instrument is not paid
at maturity;
2. Authorizes confession of judgment if the instrument be not paid at maturity;

Note: This stipulation is contrary to public policy, thus, void. However, the
existence of the same will not affect the negotiability of the instrument.

Note: An instrument which contains an order or promise to do any act in

addition to the payment of money is not negotiable (Section 5, NIL)

3. Waives the benefit of any law intended for the advantage or protection of
the obligor;
4. Gives the holder an election to require something to be done in lieu of
payment of money (Section 5, NIL).

Parties/Persons involved in a Negotiable Instrument:

1. Maker
2. Payee
3. Drawer
4. Drawee
5. Acceptor
6. Holder
7. Referee in case of need

Holder – the payee or indorsee of a bill or note who is in possession of it or

the bearer thereof (Section 191, NIL).

Holder in Due Course – is a holder who has taken the instrument under the
following conditions:

1. That it is complete and regular upon its face;

 Note: Refer to prima facie authority to fill up blanks;

2. That he became the holder of it before it was overdue, and without notice
that it has been previously dishonered, if such was the fact;

Note: Notice of Dishonor – refers to dishonor for non-acceptance, although

the law apparently made no distinction, if we considered it to include
dishonor for non-payment the instrument may already be overdue;

3. That he took it in good fact and for value;

4. That at the time it was negotiated to him, he had no notice of any infirmity
in the instrument or defect in the title of the person negotiating it;

Note: When title is defective? Section 55, NIL.

Note: The General Rule is a holder is deemed a holder in due course absent
any showing to the contrary. Exemption: Where an instrument payable on
demand is negotiated after an unreasonable length of time after its issue, the
holder is not deemed a holder in due course (Section 53, NIL).

Section 59 – Who is deemed holder in due course. Every holder is deemed

prima facie to be a holder in due course; but when it is shown that the title of
any person who has negotiated the instrument was defective, the burden is
on the holder to prove that he or some person under whom he claims
acquired the title as a holder in due course. But the last mentioned rule does
not apply in favor of a party who became bound on the instrument prior to
the acquisition of such defective title.

Unreasonable length of time is a relative term, thus, regard is to be had in the

nature of the instrument, usage of trade or business with respect to such
instruments, and facts of the particular case.

Note: A person who takes a crossed check without making further inquiries is
not a holder in due course. The act of crossing a check serves as a warning to
the holder that the check has been issued for a definite purpose so that he
must inquire if he has received the check pursuant to that purpose (Bataan
Cigar vs. CA, 230 SCRA 643, 1994). [The law does not require the obligation
to inquire into the infirmity in the instrument or defect in the title of the person
negotiating it. However, failure to make inquiry, when circumstances indicate
defect, renders the holder not a holder in due course. Gross negligence may
amount to legal absence of good faith (De Ocampo vs. Gatchalian)].

Note: Where the transferee receives notice of any infirmity in the instrument
or defect in the title of the person negotiating the same before he has paid the
full amount agreed to be paid therefor, he will be deemed a holder in due
course only to the extent of the amount paid therefor by him.

Rights of a Holder in Due Course:

A holder in due course holds the instrument free from any defect of title of
prior parties, and free from defenses available to prior parties among
themselves, and may enforce payment of the instrument for the full amount
thereof against all parties liable thereon.
 Note:

1. A holder in due course is free from personal defenses;

2. A holder in due course is not free from real defenses;
3. A holder not in due course is subject to personal and real defenses.

(Exception: {Shelter Rule} A holder who is not a holder in due course but
derived his title from a holder in due course [Section 58, NIL] – Illustration:
Even a holder is not a holder in due course for having notice of breach of
trust, if he/she took the instrument from a holder in due course, such holder
has all the rights of a holder in due course. Rationale: In assignment, the
assignee acquires all the rights of the assignor, nothing more nothing less,
hence, under the shelter rule, the holder shall be entitled to the rights of a
holder in due course from whom he acquired the instrument.

REAL DEFENSES PERSONAL DEFENSES

Minority (available only to the minor) Failure or Absence of Consideration

Partial failure of consideration is defense

pro tanto (Section 28, NIL)
Forgery Illegal Consideration
Non-delivery of Incomplete Instrument Non-delivery of a Complete Instrument
Material Alteration Conditional Delivery of Complete
Instrument
Ultra vires act of a corporation Fraud in Inducement
Fraud in Factum or in Esse Contractus Filling Up Blank Not Within Authority
Illegality, if declared void for any purpose Duress or Intimidation
Force/Violence Filling in Blank Beyond Reasonable Time
Want of Authority Transfer in Breach of Faith
Prescription Mistake
Discharge in Insolvency – Consider the Insertion of a Wrong Date
time when the instrument is indorsed Ante-Dating or Post-Dating for Illegal or
Fraudulent Purpose

What are the effect of Forgery:

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 (Section 23,
NIL). Thus, only the forged signature is wholly inoperative not the instrument
itself, and not the genuine signatures.

Note: Payment under a forged indorsement is not the drawer’s order.

Who are precluded from setting up forgery or want of authority:

1. Those who warrants (genuineness of signature) like the acceptors (by
accepting admits the existence of the drawer and his capacity to draw and
the genuineness of his signature), indorsers (parties after forgery);
2. Those who ratified the forgery, express or implied;
3. Those who were negligent, by their own silence and/or acts, are estopped
from setting up the defense of forgery;

Note: The depositary or collecting bank is liable to the drawee in case of forged
indorsement because it guarantees all prior indorsement. This is subject to the
qualification that the drawee himself was not negligent or guilty of such
conduct as would estop him from setting the forged character of the
indorsement as against the drawer.

Note: Section 14, NIL, concedes prima facie authority of the person in
possession of negotiable instruments to fill in the blanks. Where the instrument
is wanting in any material particular the person in possession thereof is prima
facie authorized to complete it.

Note: If the instrument is in the hands of a holder in due course, valid delivery
to him is conclusively presumed. But non-delivery of an incomplete instrument
is a real defense (Section 15, NIL). However, if an incomplete instrument, after
completion, is negotiated to a holder in due course, it is valid and effectual for
all purposes in his hands and he may enforce it as if it had been filled up strictly
in accordance with the authority given within reasonable time (Section 14,
NIL).

An insertion of a wrong date will not avoid the instrument in the hands of a
subsequent holder in due course; but as to him the date so inserted is to be
regarded as the true date.

Material alteration is any alteration which changes the date, sum payable, time
or place of payment, number or relation of parties, or medium or currency of
payment, or adds place of payment where not is specified or which alters the
effect of the instrument in any respect.

Effect of Material Alteration – Avoids the instrument, except as against the

party who made it, authorized or assented to the alteration and subsequent
indorsers. The holder in due course can enforce it according to its original
tenor. Note: Alteration of Check’s Serial No. does not alter the effect of the
instrument, nor modify in any respect the obligation of the party thereto. Thus,
not considered as material alteration.

Illustration:

Original Tenor is P10,000, altered to P100,000:

(Alteration)
M--------------P-----A----B----C

If C is a holder in due course, for how much may he hold against M?

C may enforce it up to P10,000.

How much can C enforce from P, A & B? P100,000 because they are
parties privy to the alteration.
Supposed what was altered is the name of the payee, is it a material
alteration? Yes

Can the instrument be enforced? No, in Montinola Case the SC ruled

that the instrument cannot be enforced even in its original tenor.

How about Check’s Serial Number? No, PNB vs. CA.

Prescriptive period for filing of claim based on negotiable instrument is ten (10)
years from the time the cause of action accrues.

Note: Acceptance of check implies an undertaking of due diligence in

presenting it for payment. Notwithstanding, however, obligation remains even
if the check is not presented for payment.

Liabilities of Maker, Drawer and Acceptor: Sections 60, 61 and 62, NIL

Maker (Primary Liability):

1. Engages to pay according to the tenor of the instrument;

2. Admits the existence of the payee and his capacity to indorse;

Acceptor and Drawee who pays without accepting the instrument

(Primary Liability):

1. Engages to pay according to the tenor of the instrument;

2. Admits the existence of the drawer, genuineness of his signature and his
capacity and authority to draw the instrument;
3. Admits the existence of the payee and his capacity to indorse;

Drawer (Secondary Liability):

1. Admits the existence of the payee and his capacity to indorse;

2. Engages that the instrument will be accepted or paid by the party primarily
liable;
3. Engages that if the instrument is dishonored and proper proceedings are
brought, he will pay to the party entitled to be paid;

Note: The drawer may insert in the instrument an express stipulation

negativing or limiting is own liability to the holder (Section 62, NIL)

Warranties of Qualified and General Indorser: Sections 65 and 66,

NIL

Note: Qualified indorsement mere constitute the indorsee as a mere assignor

(Section 38, NIL);

Note: Without recourse – without resort to a person who is secondarily liable

after default of the person who is primarily liable.

Warranties of Qualified Indorser and Person Negotiating by Delivery:

1. That the instrument is genuine in all respect what it purports to be; that he
has good title to it;
2. That all prior parties had capacity to contract;
3. That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless;

Note: The warranty of persons negotiating by delivery extends to the

immediate transferee only.

Note: Relate to Forgery – 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 (Section 23, NIL). Thus, only the forged
signature is wholly inoperative not the instrument itself, and not the genuine
signatures.

Illustration:

Promissory Note:
(Forged)
M----------P----A---B---C

Is M liable? No, the signature is wholly inoperative.

Can A and B be made to pay by C? Yes, they are precluded from
setting up forgery as defense being subsequent indorsers thereof.

Bill of Exchange:

(Forged)
D---------P-----A----B----C
l
l
l
X (Accepted Instrument upon Presentment for Acceptance by C)

Can the drawee (X) refuse payment? No, X is estopped by his

acceptance.
Can C, the holder, hold the drawer liable? No, D’s signature is wholly
inoperative.

Warranties of General Indorser:

1. That the instrument is genuine in all respect what it purports to be; that he
has good title to it;
2. That all prior parties had capacity to contract;
3. That the instrument is, at the time of the indorsement, valid and subsisting;
4. Engages that on due presentment, it shall be accepted or paid, or both, as
the case maybe, according to its tenor, and 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;

Whose signature may be stricken out?

Section 48, NIL, provides that a holder may at any time strike out any
indorsement which is not necessary to his title. The indorser whose
indorsement is struck out, and all indorsers subsequent to him, are thereby
relieved from liability on the instrument.

Illustration:

(Order) (Blank) (Special) (Blank)

M----------P------------A--------------B----------C----------D
(Delivered) (Delivered)

Can P’s indorsement be strike out? No, necessary for further

negotiation.

B? Yes.

Irregular indorser – indorses and instrument in irregular, singular or peculiar

manner, and his name appers where we would naturally expect another name.
Usually involves a blank indorsement. He is liable as indorser (Section 64, NIL).

Who is an accommodation party: Section 29, NIL

An accommodation party is one who has signed the indorsement as maker,

drawer, acceptor or indorser, without receiving value therefor and for the
purpose of lending is name to some other person. An accommodation party is
liable to holder for value, notwithstanding such holder, at the time of taking
the instrument, knew him to be only an accommodation party.

Note: Valuable consideration refers to monetary consideration. Love is not

considered valuable consideration. Thought, the same is merely a personal
defense.

Note: The general rule is that no person shall be liable on the instrument whose
signature does not appear on the instrument, what are the exceptions?

a. A duly authorized agent who signs for a person;

Requisites for having an agent:

1. Must be duly authorized

2. Must add words to his signature indicating that he signs as an agent
3. Must sign in representative capacity
4. Must disclose principal (Section 20, NIL)

b. Person who forges the signature of another;

c. Person sought to be charged signs on allonge;
d. One who signs in an assumed name or trade name;

How to enforce liability:

Steps to charge Secondary Parties and Acceptor for Honor and
Referee in Case of Need:
Rules on Presentment for Payment:
Presentment for Acceptance:

Note: Is presentment for acceptance always required for bill of exchange? No

presentment for acceptance is required only for those cases falling under
Section 143, NIL;

Note: Prior to acceptance, there is not party to a bill of exchange who is

primarily liable, unless and until the bank or drawee accepts or certifies the
negotiable instrument.

Notice of Dishonor:

Note: In order to hold prior parties accountable, the holder needs only to give
notice of dishonor for non-payment within reasonable time from dishonor.

Protest:

Requisite of Acceptance for Honor:

1. The bill must have been protested for dishonor by non-acceptance or for
better security;
2. The acceptor for honor must be a stranger and not a party already liable
on the instrument;
3. Bill must not be overdue;
4. Acceptance for honor must be with the consent of the holder of the
instrument;

Formal Requisites:

1. Must be in writing;
2. Must indicate that it is an acceptance for honor;
3. Signed by the acceptor for honor;
4. Must contain an express or implied promise to pay money;
5. The accepted bill for honor must be delivered to the holder;

Requisites for Payment for Honor:

1. The bill has been dishonored by non-payment;

2. It has been protested for non-payment;
3. Payment supra protest is made by any person, even by a party thereto;
4. The payment is attested by a notarial act of honor which must be appended
to the protest or form an extension of it;
5. The notarial act must be based on the declaration made by, the payor for
honor or his agent on his intention to pay the bill for honor and for whose
honor he pays.

Bill in Set – is a bill composed of several parts, each part being numbered and
containing a reference to the other parts.

Referee in Case of Need - is a person whose name may be inserted in the

instrument (by drawer and any indorser) and to whom the holder may resort
to in case of need, when dishonored for non-acceptance or non-payment.
 Discharge:
Payment in Due Course:
Checks:
Stopping Payment:

II. Cases:

1. Phil. Education Co. vs. Soriano (G.R. No. L-22405, June 30, 1971)

Postal Money Orders which can only be negotiated once are not negotiable
instruments, thus, not governed by the Negotiable Instruments Law, but by
postal laws, rules and regulations. Worthy of note that in issuing postal money
orders, the government is not engaging in commercial transaction but merely
exercises a government function for the public interest. Furthermore, 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.

2. Tibajia vs. CA (G.R. No. 100290, June 04, 1993)

Section 63 of the Central Bank states that Checks representing money deposit
do not have legal tender power and their acceptance in the payments of debt,
both private and public, is at the option of the creditor. However, a check which
has been cleared and credited to the account of the creditor shall be equivalent
of cash in an amount equal to the amount credited to his account.

3. Metropolitan Bank and Trust Co. vs. CA (G.R. No. 88866, Feb. 18, 1991)

Treasury warrants which are stamped on its face as “Non-Negotiable”, and

particularly indicated as payable from a particular fund (which makes the same
not unconditional) are not negotiable instruments, thus, are not governed by the
Negotiable Instruments Law;

4. Caltex Phil., Inc. vs. CA (G.R. No. 97753, Aug. 10, 1992);

The negotiability or non-negotiability of an instrument is determined from the

face of the instrument itself. In the construction of the bill or note, the intention
of the parties is to control, if it can be legally ascertained. In the instant case,
the subject Certificates of Time Deposit were ruled as Negotiable Instruments
since they conform with the requisite of negotiability under Section 1 of the
Negotiable Instruments Law. However, the holder (Holder for Value by Reason
of Lien) thereof was not considered as a Holder in Due Course since the same
were merely delivered as a security, without corresponding indorsement for
payment as required under the Negotiable Instruments Law.

5. Ang Tek Lian vs. CA (G.R. No. L-2516, Sept. 25, 1950);

Under the Negotiable Instruments Law, a check drawn payable to the order of
cash is a check payable to bearer, accordingly the drawee bank may pay it to
the person presenting it for payment even without drawer’s indorsement.

However, if the drawee 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.
6. Development Bank of Rizal vs. Simawei (G.R. No. 85419, Mar. 9,
1993);

A negotiable instrument must be delivered to the payee in order to evidence its

existence as a binding contract. The payee acquires no right with respect thereto
until its delivery. Delivery of an instrument means transfer of possession, actual
or constructive, from one person to another.

7. Metropol (Bacolod) vs. Sambok Motors (G.R. No. L-39641, Feb. 28,
1983);

A qualified indorsement constitutes the indorser a mere assignor of the title of

the instrument. It may be made by adding to the indorsee’s signature the words
without recourse or any words of similar import. It relieves the indorser of the
general obligation to pay if the instrument is dishonoured, but not the liability
arising from warranties on the instrument as provided under Section 65 of the
Negotiable Instruments Law.

Recourse means resort to a person who is secondarily liable after the default of
the person who is primarily liable. A person indorsing the note “with recourse”
does not make him a qualified indorser, but a general-indorser who is secondarily
liable. By such indorsement, it agreed that if there was a failure on the part of
the person primarily liable to pay, the holder may go after him. 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.

8. De Ocampo vs. Gatchalian (G.R. No. L-15126, Nov. 30, 1961);

In case the indorsee of a check is guilty of gross negligence, he or she may not
be considered a holder in due course. In the instant case, the indorsee failed to
inquire from the maker about the check notwithstanding the fact that the amount
of the check did not correspond to the obligation of the indorser to the indorsee,
aside from the fact that the same cannot be converted in cash.

The rule that a possessor of the instrument is prima facie a holder in due course
does not apply when there is a defect in the title of the holder. The fact that the
drawer had no account with the payee, and 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 account, show that the holder’s title was defective or
suspicious. As the holder’s title was defective or suspicious, it cannot be stated
that the payee acquired the check without knowledge of the said defect in the
holder’s title, and for his reason the presumption that he is a holder in due course
or that he acquired the instrument in good faith does not exist. In other words,
instead of the presumption that the 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
him. The burden was, therefore, placed upon him to show that notwithstanding
the suspicious circumstances, it acquired the check in good faith.

9. Mesina vs. IAC (G.R. No. L-70145, Nov. 13, 1986);

 Holder of a check, which was indorsed by the one who stole the same, cannot
be considered a holder in due course, particularly in the case at hand, since the
holder failed to substantiate his claim that he is a holder in due course and for
consideration or value. In fact, he was found to have acquired the check in bad
faith, having notice of the defect of title of the subject check from the start.
Consequently, he cannot enforce such check against the issuing bank which
dishonors the same.

10. Crisologo vs. CA (G.R. No. 80599, Sept. 15, 1989);

Under the Negotiable Instruments Law, an accommodation party is liable on the

instrument to a holder for value although such holder at the time of indorsement
knew him only to be an accommodation party. However, the said rule does not
apply to corporation merely acting as accommodation party. An indorsement of
a negotiable paper by a corporation without consideration and merely for
accommodation of another is generally considered an ultra vires act, except if
the corporation explicitly authorized the same. As a rule, corporate officers have
no power to execute for mere accommodation a negotiable instrument of the
corporation for their individual debts in which the corporation has no legitimate
concern.

11. Sapaya vs. Sevilla (G.R. No. L-17845, April 27, 1965);

An accommodation maker who made payment has the right of contribution from
his co-accommodation maker in the absence of agreement to the contrary and
subject to the conditions provided by law. A joint and several accommodation
maker who pays may demand reimbursement from his co-accommodation maker
without first directing action against the principal debtor provided that payment
was made by virtue of judicial order and the principal debtor is not insolvent.

12. Travel-On Inc. vs. CA (G.R. No. 56169, June 26, 1992);

A check regular on its face is prima facie to have been issued for valuable
consideration and every person whose signature appears thereon are deemed to
have become a party for value. It is therefore incumbent upon the oppositor
thereof to prove that the said checks were issued without consideration.

Under the Negotiable Instruments Law, the accommodated party receives or

realizes full value which the accommodated party must repay to the
accommodating party unless the latter intends the same to be a mere donation.

13. Associated Bank vs. CA (G.R. No. 107382, Jan. 31, 1996);

When the holder’s indorsement is forged, all prior parties to the forgery may
raise the defense of forgery against all parties subsequent thereto. An indorser
warrants the genuineness of the instrument and in all respects what it purports
to be. They are even precluded from setting up the defense of forgery. The
collecting bank has the same warranty as that of indorser when it presents check
to drawee bank for payment. Collecting bank is therefore liable for its warranty
and cannot likewise set up the defense of forgery to the drawee bank. On the
other hand, the drawee bank does not warrant the genuineness of indorser’s
signature. It is the collecting bank who knows the depositor and has taken risk
on his deposit.
 However, negligence of the drawer was likewise noted and penalized. In the
instant case, it was found out that the drawer, Province of Tarlac, was equally
negligent for permitting the identified forger from collecting the subject checks
despite the forger’s retirement from service.

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.

In bearer instruments, the signature of the payee or holder is unnecessary to

pass title to the instrument. Hence, when the indorsement is a forgery, only the
person whose signature is forged can raise the defense of forgery against the
holder in due course.

14. Republic Bank vs. Ebrada (G.R. No. L-40796, July 31, 1975);

It is only the negotiation predicated on the forged signature that should be

declared inoperative. The indorser is exposed to warrant to the drawee that the
signatures of the payee and previous indorsers are genuine. Everyone, even with
the least experience, knows that not businessman would accept a check in-
exchange for money or goods unless he is satisfied that the check is genuine.
The indorser is duty bound to ascertain whether the check in question was
genuine before presenting it to the drawee bank for payment. Failure to do so
will make him/her liable for the loss.

When a check is drawn payable to the order of one person and is presented to
a bank by another and purports upon its face to have been duly indorsed by the
payee of the check, it is the duty of the bank to know that the check was duly
indorsed by the original payee. Where the bank pays the amount of the check to
a third person, who has forged the signature of the payee, the loss falls upon
the bank who cashed the check and its only remedy is against the person to
whom it paid the money.

15. Illusorio vs. CA (G.R. No. 139130, Nov. 27, 2002);

Gross negligence in checking statement of accounts, pursuing investigation of

forgery by inaction, over trust and confidence to his secretary, were taken
against a check account owner, being the proximate cause of the fraudulent
encashment.

16. Samsung Construction Co. Phil. Inc. vs. Far East Bank and Trust Co.
(G.R. No. 129015, Aug. 31, 2004);

Under Section 23 of the Negotiable Instruments Law, the forged signature is

wholly inoperative. Forgery is a real and absolute defense by a party whose
signature is forged. The drawee bank is liable for the loss since it authorized the
discharge of the forged check, even if the bank exerts due diligence and care in
preventing such faulty discharge. The forgery may be so real like the genuine as
to defy detection by the depositor himself but the bank is still liable if it pays the
check.

Check Owner - The bare fact that forgery was committed by an employee of a
company whose signature is forged cannot imply the employer’s negligence.
Negligence is not presumed but must be proven by the one who alleges it.
 The general rule is the drawee who has paid upon the forged signature bears
the loss. The settled rule is that the mere fact that the depositor leaves his
checkbook lying around does not constitute negligence as will free the bank from
liability to him where a clerk of the depositor or other person not entrusted with
the safekeeping of the checkbook took advantage of the opportunity, abstracts
some of the check blanks, forged the depositor’s signature and collect from the
bank. The depositor was not negligent at all since it reported the forgery almost
immediately upon discovery.

17. Metropolitan Bank and Trust Company vs. Cabilzo (G.R. No. 154469,
Dec. 6, 2006);

An alteration to be material must change the effect of the instrument. It means

unauthorized change in the instrument which purports to modify in any respect
the obligation of a party or unauthorized addition of words or numbers or other
change to an incomplete instrument relating to the obligation of party.

Section 124 of the Negotiable Instruments Law provides that the check altered
is avoided except as against a party who has himself made, authorized, assented
to the alteration and subsequent indorsers. But when found in a holder in due
course, he may enforce the payment according to its original tenor.

18. Wong vs. CA (G.R. No. 117857, Feb. 2, 2001);

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. However, it
is not an element of the offense. Neither does it discharge the issuer thereof to
maintain sufficient funds.

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 caused by the delay. In the
instant case, the checks were deposited 157 days after the date of the checks,
but were not considered state.

19. International Corporate Bank vs. Spouses Gueco (G.R. No. 141968,
Feb. 12, 2001);

A manager’s check is considered accepted in advance by the act of its issuance.

It is really the banks own check and may be treated as a promissory note with
the bank as maker. The mere issuance of it is considered an acceptance thereof.

Non-presentment for payment of a check does not release contractual

obligations. Drawer is still contractually liable to the payee.

20. State Investment House Inc. vs. CA (G.R. No. 101163, Jan. 11, 1993);

The issuer of the check may not unilaterally discharge him/herself from liability
by the mere expediency of withdrawing funds from the drawee bank. The issuer
will remain liable to a holder in due course.

Need of notice is not absolute. Under Section 114 of the Negotiable Instruments
Law, there are instances where notice of dishonour need not be given to the
 drawer. After withdrawing funds, drawer could not have expected the checks to
be honoured. The drawer is in fact responsible for the dishonour of the checks,
thus, liable to a holder in due course of the subject checks. A notice of dishonor
would be futile.

21. Equitable PCI Bank vs. Ong (G.R. No. 156207, Sept. 15, 2006);

Its peculiar and general use in commerce, a manager’s check is substantially to

be as good as money it represents. The check becomes the primary obligation
of the back which issues it and constitutes its written promise to pay upon
demand. Accordingly, the issues concerning the indorsee being not a holder in
due course and failure or want of consideration for the issuance of the subject
manager’s check is immaterial.

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.

Note: In RCBC vs. Hi-Tri (G.R. No. 192413, June 13, 2012), mere issuance
of a manager’s check does not ipso facto work as an automatic transfer of funds
to the account of the payee. In case the procurer of the manager’s check or
cashier’s check retains custody of the instrument, does not tender it to the
intended payee, or fails to make an effective delivery, it cannot be said that the
delivery of the check has been taken place.

22. Asia Banking Corporation vs. Javier (G.R. No. 19051, April 4, 1923);

It is incumbent upon the collecting bank which seeks to enforce a liability for
issuance of a check to establish the said liability by proving that corresponding
Notice of Dishonor by drawee bank was given to the drawer within the time and
in the manner provided by law.

23. Far East Realty Investment Inc. vs. CA (G.R. No. L-36549, Oct. 5,
1988);

When an instrument is not payable on demand, it must be presented for payment

on the day it falls due. When it is payable on demand it must be presented within
reasonable time after its issue or last negotiation in case of bills. Notice may be
given as soon as there is dishonor, unless delay is excused. In the instant case,
the check was issued on Sept. 13, 1960, but was only presented on March 5,
1964, more or less four (4) years thereafter. The payee was found guilty of
negligence, and failed to show justification for the unreasonable delay.

24. MWSS vs. CA (G.R. No. L-62943, July 4, 1986);

Forgery cannot be presumed and must be established by clear and convincing

evidence. Moreover, Section 24 of NIL recognizes that every negotiable
instrument is deemed prima facie to have been issued for valuable consideration
and every person whose signature apprears thereon becomes a party thereto for
value.

Note: In the instant case what was allegedly forged was the type face, check
writing and printing of the check, but not the signatories thereof. Likewise the
drawer were found guilty of gross neglect for failing to provide the necessary
 security measure noting that the subject checks were its personalized checks
instead of the drawee bank’s commercial checks.

25. Jai Alai Corporation of the Phil. vs. BPI (G.R. No. L-29432, Aug. 6,
1975);

It is the obligation of the collecting bank to reimburse the forged value of the
check because it was its duty to know the payee’s indorsement was genuine
before cashing the check pursuant to its warranty under Section 66, NIL, that
the instrument is genuine and in respects what it purports to be.

In the instant case, the collecting bank was found negligent in receiving the
checks despite the payee was a corporation and it failed to make the necessary
inquiry as to the authority of the depositor, noting that the subject checks were
crossed checks.

A forged signature in a negotiable instrument is wholly inoperative and no right

to discharge it or enforce its payment can be acquired through or under the
forged signature except against a party who cannot invoke the forgery. It stands
to reason, upon the facts of record, that the respondent, collecting bank which
endorsed the checks to the drawee-bank for clearing, should be liable to the
latter for reimbursement, for as found by the court a quo and by the appellate
court, the endorsements on the checks had been forged prior to their delivery to
the petitioner. In legal contemplation, the payments made by the drawee-bank
to the respondent on account of the said checks were ineffective; and such being
the case, the relationship of creditor and debtor between the petitioner and the
respondent had not been validly effected, the checks not having been properly
and legitimately converted into cash.

26. Garcia vs. Llamas (G.R. No. 154127, Dec. 8, 2003);

The liability of an accommodation party is in effect similar to a surety, thus,

equally and absolutely bound with the principal.

A non-negotiable note is merely a simple contract in writing and is evidence of

such intangible rights as may have been created by the assent of the parties.
The promissory note is thus governed by the general provisions of the Civil Code,
not by the NIL.

27. Astro Electronics Corp. vs. Phil. Export and Foreign Loan Guarantee
Corp. (G.R. No. L-136729, Sept. 23, 2003);

The defendant failed to establish that he merely signed the instrument in blank
and that the words: “in his personal capacity” were merely fraudulently inserted
without his consent in the said instrument. On the contrary, the court found that
defendant’s signature covered the typewritten words “personal capacity”
indicating that the words were already typewritten when he signed the same.
Thus, he is liable as a co-maker of the subject instrument.

Under the NIL, persons who write their names on the face of the promissory
notes are makers, promising that they will pay to the order of the payee or any
holder according to its tenor. Thus, even without the phrase “personal capacity”,
a person whose name appears on the promissory note will still be primarily liable
as a joint and several debtor under the notes considering his intention to be
 liable as such is manifested by the fact that he affixed his signature on each of
the promissory note twice.

28. Gonzales vs. RCBC (G.R. No. 156294, Nov. 29, 2006);

A qualified indorsement (irregular indorsement for sum less than the face value
of the subject instrument) may be valid reason for dishonor by a drawee bank.

Under Section 66, NIL, the warranties of general indorsers in favor of subsequent
endorsers extend only to the state of instrument at the time of their
endorsements. This provision, however, cannot be used by the party which
qualifiedly endorsed the same in order to hold prior endorsers liable on the
instrument. This would result in the absurd situation whereby a subsequent party
may render an instrument useless and inutile and let innocent parties bear the
loss while he himself gets away scot-free.

29. Agro Conglomerates, Inc. vs. CA (G.R. No. 117660, Dec. 18, 2000);

An accommodation party is liable as a surety.

30. National Bank vs. Manila Oil Refining and By Products Co. (G.R. No.
18103, June 8, 1992);

A stipulation of confession of judgment is considered void as against public

policy. The instrument reduces the court to a mere clerk that will enter and
record the judgment called therein. Agreements whose object is to oust the court
its jurisdiction are contrary to public policy and will not be enforced.

31. Consolidated Plywood Industries, Inc. vs. IFC Leasing and Acceptance
Corp. (G.R. No. L-72593, April 30, 1987);

A holder who is not a holder in due course is merely an assignee, thus, subject
to personal defenses, such as: failure of consideration, particularly in the case
at hand since he knew that the subject tractors turned out to be defective.

32. Sesbreno vs. CA (G.R. No. 89252, May 24, 1993);

An instrument otherwise negotiable had not been marked as “Non-Negotiable”,

is not necessarily non-transferrable or non-assignable. Partially discharged
instrument may subsequently assigned/transferred in so far as the remaining
unsatisfied portion.

33. State Investment House vs. Intermediate Appellate Court (G.R. No.
72764, July 13, 1989);

Crossing of check entails that the drawer had intended the subject check for
deposit only by the rightful person, the payee named therein.

The only disadvantage of a holder who is not a holder in due course is that the
negotiable instrument is subject to the defenses as if it was non-negotiable.

34. Bataan Cigar vs. CA (G.R. No. 93048, March 3, 1994);

 A crossed check is specially made when the name of a particular banker or a
company is written between the parallel lines drawn. It is generally crossed when
the only words “and company” are written or nothing is written at all between
the parallel lines.

The negotiability of a check is not affected by its being crossed, whether specially
or generally crossed. It may be legally negotiated from one person to another as
long as one who encashes the check with the drawee bank is another bank or if
it is specially crossed, by bank mentioned between the parallel lines.

Effects of crossing checks:

a. Checks may not be encashed but only deposited in the bank;

b. Checks may be negotiated only once to the one who has an account with
the bank;
c. 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 the purpose, otherwise, he is not a holder
in due course.

Note: Failing in this respect, the holder is declared guilty of gross neglect
amounting to legal absence of good faith contrary to Section 52, NIL.

In Equitable vs. Special Steel (G.R. No. 175350, June 13, 2012) – The
checks that contained a notation “account payee only” creates a reasonable
expectation that the payee alone would receive the proceeds of the checks and
the diversion of the checks would be averted. At the very least, the nature of
crossed checks should place the bank on notice that it should exercise more
caution or expend more than cursory inquiry, to ascertain whether the payee on
the check has authorized the holder to deposit the same in a different account.

35. Arceo vs. People (G.R. No. 142641, July 17, 2006);

The 90-day period is not an element of the offense (B.P. 22). The reasonable
period within which to present a check to the drawee bank is 6 months. The
check becomes stale and the drawer is discharged from liability thereon to the
extent of the loss caused by the delay.

36. Gempesan vs. CA (G.R. No. 92244, Feb. 9, 1993);

The petitioner’s negligence or failure to either discover or report promptly the

fact of forgery to the drawee, the drawer losses his right against the drawee who
has debited his account under the forged indorsement. He is precluded from
using forgery as a basis for his claim for re-crediting his account. Petitioner’s
negligence was found as the proximate cause of the loss, notwithstanding that
the subject checks were crossed checks, with the court stressing that the only
indorsement which prohibits further negotiation is a restrictive indorsement.

37. PNB vs. CA (G.R. No. 107508, April 25, 1996);

Alteration in check’s Serial No. does not change the relations of parties. Its
alteration had no effect on the integrity of the check. It is not the sole indication
of its origin. The drawee bank cannot refuse acceptance thereof on the ground
that the serial number was altered.
38. Yang vs. CA (G.R. No. 138074, Aug. 15, 2003);

A holder is deemed a holder in due course, particularly when the instrument was
complete and regular upon its face when it was negotiated to him. Notably in
the instant case, no stop order payment was made when the holder made an
inquiry and that he had no notice of what transpired earlier between the parties.
Holder have no other reason to make further inquiry as to any infirmity in the
instrument and defect of title of the indorser.

39. De La Victoria vs. Burgos (G.R. No. 111190, June 27, 1995);

Section 16, NIL states that where the instrument is no longer in the possession
of a party whose signature appears thereon, a valid and intentional delivery is
presumed. However, such presumption is not conclusive for the last portion of
the said provision likewise provides: “until the contrary is proved.

40. Ilano vs. Espanol (G.R. No. 161756, Dec. 16, 2005);

41. Evangelista vs. Mercator Finance Corp. (G.R. No. 148864, Aug. 21,
2003);

Courts can interpret a contract only if there is doubt in its letter. But an
examination of the promissory note shows no such ambiguity. Besides, assuming
arguendo that there is an ambiguity, Section 17, NIL, states: Section 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; (g) Where an instrument containing the world “I promise to
pay” is signed by two or more persons, they are deemed to be jointly and
severally liable thereon.

42. Republic Planters Bank vs. CA (G.R. No. 93073, Dec. 21, 1992);

Where an instrument containing the words: “2 promise to pay” is signed by two

persons, they are deemed to be jointly and severally liable thereon. It indicates
that the promise is individual as to each other, meaning that each other of the
co-signor is deemed to have made an independent singular promise to pay the
notes in full.

Mere addition of the words describing the signatory as mere agent or as

representative, without disclosing the principal, does not limit the liability of the
signatory.

43. PAL vs. CA (G.R. No. 49188, Jan. 30, 1990);

Since a negotiable instrument is only a substitute for money, the delivery of such
does not by itself, operate as payment. Mere delivery of checks does not
discharge the obligation and judgement. The obligation is not extinguished and
remains suspended until the payment by commercial document is actually
realized.

44. PNB vs. Picornell, et. al. (G.R. No. L-18751, Sept. 26, 1992);
45. Salas vs. CA (G.R. No. 76788, Jan. 22, 1990);

46. People vs. Maniego (G.R. No. L-30910, Feb. 27, 1987);

47. International Corporate Bank Inc. vs. CA (G.R. No. 129910, Sept. 5,
2006);

An alteration to be material must change the effect of the instrument or modify

the obligation of the party or unauthorized addition of words or numbers or other
change to an incomplete instrument relating to the obligation of the party. The
alteration of the serial number of a check does not constitute material alteration.

48. Great Eastern Life Insurance Co. vs. HSBC (G.R. No. 18657, Aug. 23,
1992);

49. PNB vs. Quimpo (G.R. No. L-53194, March 14, 1988);

The primary duty of the bank is to ascertain the genuineness of the signature of
the drawer or the depositor on the check being encashed. It is bound to know
the signatures of its customers. If it pays a forged check, it must be considered
as making payment out of its own funds and cannot charge the account of the
depositor whose signature is forged.

The act of Gozon in leaving his check book cannot be considered as negligence
to excuse PNB from its own negligence. When Gozon left his car, Santos a long
time classmate and friend remained in the same. Gozon could not have been
expected to know that Santos would remove a check from his check book. Gozon
has trusted his classmate and friend. He had no reason to suspect that the latter
would breach his trust.

50. New Pacific Timber and Supply Co., Inc. vs. Seneris (G.R. No. L-
41764, Dec. 19, 1980);

Under Section 63 of the Central Bank Act, a check which has been cleared and
credited to the account of the creditor shall be equivalent to a delivery to the
creditor in cash in an amount equal to the amount credited to his account.

51. BPI vs. De Reny Fabric Industries Inc. (G.R. No. L-24821, Oct. 16,
1970);

52. Bank of America vs. CA (G.R. No. 105395, Dec. 10, 1993);

53. Feati Bank and Trust Company vs. CA (G.R. No. 94209, April 30,
1991);

54. Rosario Textile Mills Corp. vs. Home Bankers Savings (G.R. No.
137232, June 29, 2005);
55. Landl and Company Inc. vs. Metrobank (G.R. No. July 30, 2004);

56. Pilipinas Bank vs. Ong (G.R. No. 133176, Aug. 8, 2002);

- Be prepared for a Quiz and Class Recitation…………….