Documente Academic
Documente Profesional
Documente Cultură
Commentaries and
Jurispudence on the
Commercial Laws of the
Philippines
Manila, Philippines
August 1, 1949
For value received, I promise to pay to the order of Pedro Reyes the sum of Ten Thousand
Pesos (P10,000.00) on or before December 31,1949, at the Philippine National Bank, Manila.
(Sgd.) ExequielFerrer
186. General characteristics of a promissory note. The following are the general
characteristics of a promissory note:
(1) The figures at the upper left hand corner of the instrument, P10,000.00. This is to
indicate the amount of the note and is more quickly grasped that if the written in words.
(2) The place, Manila, Philippines. It shows the place where the contract to pay is
executed.
Manila Philippines
August 1, 1949
Thirty days after sight, pat to order of Juan Soriano the sum of Ten Thousand
Pesos (P10,000.00), Philipiine Currency. Value received and charge the same to the
account of
(Sgd.) Ernesto Reyes
To Augusto Tolentino
215 Regina Bldg.
191. Nature of acceptance does not determine whether negotiable paper is bill or
not. In a case, defendant, Aruego, contented that the drafts signed by him were not really bills
of exchange but mere pieces of evidence of indebtedness because payments were not made
before acceptance. It was held that as along as a commercial paper conforms with the
definition of a bill of exchange, that paper is considered a bill of exchange. The nature of
acceptance is important only in the determination of the kind of liabilities of the parties involved,
but not in the determination of whether a commercial paper is a bill of exchange or not.
192. General Characteristics of a bill of exchange.The following are the general
characteristics of a bill of exchange not found in the promissory note:
(1) The order or command to pay, Pay to. This is an order or command to pay. Thus,
instead of a promise, the bill of exchange contains a command or order to pay money.
(2) The signature, Ernesto Reyes. Ernesto Reyes is the drawer. He corresponds to the
maker of a promissory note,
No. 519917B
266. Effect of mere words of civility. Suppose the instrument reads as follows.
Mr. X will oblige X by paying Z or order P1,000.00 on his account.
(Sgd.) Y
To X
This instrument is negotiable. The mere fact that it contains word of civility or courtesy does not
make it non negotiable. In spite these words of courtesy or civility, the bill still contains an order
to pay. The word by paying are held sufficient to import an order to pay.
267. Where instrument is a note, it must contain promise to pay. The promise to pay
must be on the instrument itself, although it is not necessary to use the word promise. It is
enough (1) that words of equivalent meaning are used, or (2) that the promise is implied from the
promissory words contained in the instrument. But the promise to pay cannot be implied from
the mere existence of a debt.
268. Words of equivalent meaning. Instead of the promise, the following words may be
used: agree, will pay shall pay and the like. Thus, the following will be deemed to contain
a promise:
I agree to pay to the order of B, P1,000.00
(Sgd.) Z
The foregoing is the promissory note because, although it does not use the word
promise, still the word agree means a promise to pay.
269. Promissory word implying a promsise; illustrations.
As already stated, instead of the word promise, any word s fairly importing a
promise to pay may suffice. The following may be given as illustrations:
(1)The following contains a promise to pay because the word good implies a promise to pay.
Good to X or order P1,000.00
(Sgd.) Y
(2)When it is alleged that the defendant company se obligo a pagar it may, perhaps, be
considered as equivalent to an allegation that the company promised or agreed to pay.
(3) The following also contains a promise to pay because the words payable on demand
necessarily imply a promise to pay.
307. Necessity of compliance with provisions. Before the Negotiable Instruments Law
can come into operation, there must be a document in existence of the character described in
Section 1 of the Law. This means that, where the instrument does not comply with the
requirement of Section 1 of the Negotiable Instruments Law, the provisions of that law will not
govern the instrument.
308. Illustration.(1) Thus, suppose that A makes the following note:
I promise to pay to B P1,000.00.
(Sgd.) A
It is evident that this note is not negotiable because it is neither payable to bearer nor payable to
order but to a specified person, and therefore, does not conform with paragraph of Section 1.
Consequently, the rights and liabilities of theparties thereto are not governed by the Negotiable
Instruments Law.
(2) Suppose then that A the maker, was induced by fraud to make the promissory-note in the
illustration. Then B, the payee, indorses the instrument to C, C to D, D to E, and E to F, under
circumstances that would have made F a holder in due course had the instrument been
negotiable. F then files an action against A, the maker, to collect the P1,000.00. Under the facts
of the illustration, can A interpose the defense of fraud against F?
Under the Negotiable Instruments Law, A cannot interpose the defense of fraud against a
holder in due course. But since the instrument is not negotiable, the Negotiable Instruments Law
does not apply. Consequently, A can still interpose the defense of fraud as the transfers of the
instruments by B to C, C to D, D to E, and E to F are nothing but assignments of the instruments.
(3) Furthermore, under the Negotiable Instruments Law, indorsers are entitled to oresentmentfoi
payment and notice of dishonored. Otherwise, they would be discharged. But since theinstrument
is not negotiable, its provisions giving indorserssuch rights are not applicable. Hence, C, D and
E, transferors, are not entitled to presentment for payment and notice of dishonor, and where F
fails to present the instrument for payment to A, maker, or fails to give notice of dishonor t C,
D,and E, said C, D and E will not be discharged.
309. Determination of negotiability. The negotiability of an instrument is to be
determined: (1) by the provisions of the Negotiable Instruments Law, particularly Section 1
thereof; (2) by considering the whole of the instrument; and(3) by what appears on the face of
the instrument and not elsewhere. In other words, to determine whether an instrument is
negotiable or not, only the instrument itself, and no other, must be examined and compared with
the requirements of the Negotiable Instruments Law as stated in Section 1. If it appears on the
Instrument that it lacks one of the requirements, it is not negotiable. The requirement lacking
cannot be supplied by using a separate instrument in which that requirement which is lacking
appears.
The last sentence is called the acceleration clause. It is so called because it hastens the payment
of the whole note. Under the note, only the sum P250.00 is payable within the first five days of
each month, not the whole amount, which is payable in four months in equal monthly
installments.
319. Effect of failure to pay an installment. But suppose B fails to pay the first
installment on its date of maturity. Not only the sum of P250.00 is due but the whole amount of
P1,000.00.
320.
With exchange. The sum payable is a sum certain within the meaning of this
act, although it is to be paid with exchange, whether at a fixed rate or at the current rate.
Consequently, an instrument containing such a stipulation would not thereby be rendered nonnegotiable. This is because while the rate of exchange is not always the same and while it is
technically true that resort must be had to extrinsic evidence to ascertain what it is, yet the
current rate of exchange between two places at a particular date is a matter of common
commercial knowledge, or at least easily ascertained by any one so that the parties can always,
without difficulty, ascertain the exact amount necessary to discharge the paper.
321. Exchange, defined and explained. Exchange is the difference in value of the same
amount of money in different countries. The exchange may be at the (1) current rate or at a (2)
fixed rate. In the case of the latter, there is really no question of uncertainty as to the amount
because the rate is fixed. Thus:
Pay to B or order P1,000.00 with exchange at 1.2%.
(Sgd.) A
322. Exchange applicable only to foreign bills. The provision on payment with
exchange naturally applies only to instruments drawn in one country and payable in another.
Where an instrument is drawn and payable in the same country, there can be no exchange, so a
provision for payment of exchange may be disregarded.
GREGORIO ARANETA, INC. y. PHILIPPINE: NATIONAL BANK The plaintiff filed an
application for commercial letter of credit with the defendant, which the latter granted. Said letter
of credit was in favor of an English firm in London for the sum of 7,440 pounds. On August 30,
1949, a draft in the amount of 4,031.13 pounds was negotiated by the defendants correspodent
bank in London against the plaintiffs credit. The defendant paid said correspondent bank the
amount of the draft at the official parity rate then existing at 4.0325 for every English pound. On
the face of the draft, it matured on December 25, 1949. On September 23, 1949, the British
pound was devaluated to $2.80125. The defendant contended that the plantiff was liable in the
sum of P33,727.92 based on the rate of exchange on August 30, 1949 when the draft was
negotiated. The plaintiff contended, however, thatit was liable only for P23,194.37 on the basis
of the rate of exchange on the date of maturity of the draft. The application for the letter of
credit, which embodies the contract of the parties, provides that the draft must be drawn and
presented or negotiated and agreed to pay at maturity in Philippine currency, the equivalent of
any amount that might be drawn or paid upon the faith of plaintiffs credit; and that the plaintiff
agreed to reimburse the defendant bank in said manner
332. Illustration of fund for direct payment. But in the following instrument, the
particular fund indicated is not for reimbursement but for direct payment:
Pay B or order P100.00 out of my part the estate.
(Sgd.) A
To X
This is, therefore, non-negotiable as payment is to be made directly from the particular
fund indicated.5
In a case, the treasury warrants were made payable from Fund 501. It was that this
indication of a particular fund from which payment is to be made and make the treasury warrants
non-negotiable, and further that accordingly, Section 66 of the Negotiable Instruments Law does
not apply and consequently the indorser for the deposit of the warrants does not warrant that they
were genuine and in all respects that they purport to be.
333. Fund for reimbursement and fund for payment distinguished. The true
distinction seems to be this: in the first there are two cases, namely: (1) the drawee pays the
payee from his own funds: afterwards, (2) the drawee pays himself from the particular fund
indicated. In the second, however, there is only one act, namely, (1) the drawer pays directly
from the particular fund indicated.
334. Reason why one is unconditional while the other is conditional. In the second,
where the payment to the payee is directly from the funds indicated, the payment is subject to the
condition that the funds indicated are sufficient. But the funds indicated may or may not be
sufficient. In other words, when a particular fund is indicated out of which payment is to be
directly made, the order would in effect be:
Pay to X or order P1,000.00 out of my money in your hands, if money in
your hands are sufficient.
Hence the order is conditional. On the other hand, in the first case, w ere the fund is
merely for the purpose of subsequent reimbursement, the order or promise is not subject to the
sufficiency of the funds. The order or promise is upon the general credit of the drawee or maker.
It may, however, be argued that, if the drawer has no money in the hands of the drawee out of
which reimbursement could be made, the drawee may refuse to accept or pay the bill. This is
true. But, whether a bill of exchange is negotiable or not does not depend upon the drawees
willingness and ability to pay. It depends upon the tenor of the terms of the order. If the bill
absolutely requires the drawee to pay, then the order in the bill is unconditional.
335. Illustrative cases: (1) The following are not negotiable because the order or
promise is to pay out of the particular fund indicated: (a) Pay B or order P100.00 out of my
salary in the government. (b) I promise to pay B or orderP100.00 out of the proceeds of a
mortgage loan, and (c) I promise to pay B or order P100.00 from payment received on account
of sale of the merchandise for which this note is given.
357. Illustrations of additional acts. The following clauses have been held to render the
instruments in which they arestipulated non-negotiable:
(1) and to pay taxes assessed upon the note or its mortgage security.
(2) and to keep free from incumbrance property on which pledged for security, of the
instrument depends.
(3) and to keep the machine, in payment for which it is given in repair.
The test of negotiability is whether or not the promise would give rise to a cause of action for
breach of contract if the additional act is not done. If it does, the instrument is rendered nonnegotiable.
358. Premise to furnish additional security. A promise of the maker to furnish
additional- will render the note non-negotiable, as that would be an additional act to the promise
to pay money. However, they are to be distinguished from those instruments in which the holder
may demand collateral and, failure to furnish it accelerates the instrument which are clearly
negotiable, being merely accelerable on the non-performance of an optional act.
359. Sale of collateral securities. The law gives four exceptions to the general rule that
an instrument which contains an order or promise to do any act in addition to the payment of
money is not negotiable. The first is that the negotiable character of an instrument otherwise
negotiable is not affected by a provision which authorizes the sale of collateral securities in case
the instrument be not paid at maturity.
360. Sale of collateral securities, explained. Sometimes the obligation arising from the
transaction which gives rise to the instrument is secured by a mortgage or pledge. Suppose A
borrows from B P1,000.00. A may deliver by way of pledge to B his ring to secure the payment
of the money he borrowed. He may also issue a promissory note in the following terms:
I promise to pay to B or order P1,000.00 on December 31. 1950, provided
however, that if this note is not paid at the date of maturity, the ring which I
deliver to B by way of pledge to secure the payment of my indebtedness to him
may be sold by R and the proceeds thereof applied to the value of this note.
(Sgd.)A
As will be seen, the note contains an act to be performed in addition to the payment of money.
Nevertheless, according to the law, the instrument is still negotiable. And with reason, as the
additional act to be performed is to be executed after the date of maturity, when the instrument
ceases to be negotiable in the full commercial sense. Before the date of maturity, no additional
act is performed except the payment of money. Hence, before and until the date of maturity, the
promise to pay is to pay money only.
361. Sale of collateral securities before maturity. But a stipulation authorizing sale of
collateral securities even before the date of maturity would render the instrument non-negotiable.
Thus, a note reciting that the title to property for which it is given shall remain in the payee, and
The confession of judgment is an additional act. But, asin the preceding paragraph, the
additional act is to be performed after the date of maturity when the instrument ceases to be
negotiable in the full commercial sense.
363. Classes of confession of judgment. In common law,there were two kinds of
judgments by confession; the one, a judgment by cognovitsactionem, and the other, by
confessionrelictaverficatione. The term cognovit is often used interchangeably -with the term
confession of judgment or judgment notes, but, technically, this is incorrect since
cognovitmeans more than a warrant of attorney, as it also covers thejudgment itseIf.
364. Cognovitactionem, defined. A written confession ofan action by a defendant,
subscribed, but not sealed and irrevocably authorizing any attorney of any court of record to
confess judgment and issue execution usually for a- sum named. It is given in order to save
expense and differs from a warrantof attorney which is given to an expressly designated
attorneybeforethecommencement of any action and is under seal.
365. Confession relictaverificatione, defined. A confessionof judgment made after plea
is pleaded, such as cogno vitactionem, accompanied by a withdrawal of the plea.
371. Election of holder to require some other act. The fourth exception to the general
rule is that the negotiable character of an instrument otherwise negotiable is not affected by a
provision which gives the holder an election to require something to be done in lieu of payment
of money. Under this paragraph, even if there is an additional act, the instrument still remains
negotiable provided that the right to choose between payment of money or the performance of
the additional act is in the hands of the holder. Thus, suppose A draws the following bill:
Pay to B or order P1,000.00 or lo cavanes of palay, at the option of the holder.
(Sgd.) A
To C
In this case, the holder, not the drawee, has the choice of demanding either money or the 1
cavanes of palay. This instrument, therefore, is not non-negotiable.
372. Illustrative cases. The following are illustrative cases of instruments in which the
holder is given the election to require something to be done in lieu of money, and therefore, the
instrument in question is not rendered non-negotiable:
(1) A note providing that title to the property for which it was given should remain in the payee
and upon non-payment at maturity, the property was to be repossessed by the payee, did not
impair negotiability, since it gave the holder an election to take the property in lieu of payment of
money.
(2) A provision in a bond otherwise negotiable, entitling the holder, at his option, to receive
money or stock of the corporation-maker, does not destroy the negotiability of the bond.
(3) The negotiability of notes was not impaired by a provision that the payee could retake the
chattel for which the notes were given if they were not paid.
373. Where choice lies with debtor. But if the choice to pay money or to deliver rice is
in the hands of the debtor, the instrument is rendered non-negotiable under the general rule above
stated. Thus, suppose A makes the following note:
I promise to pay B or order P1,000.00 or10 cavanes of palay.
(Sgd.) A
In this case, B can either deliver the 10 cavanes or theP1,000.00 to the holder of the instrument.
The holder cannot demand the delivery of money even he wants to. This instrument, therefore, is
non-negotiable.
SECTION 6.Omission; seal; particular money. The validity and negotiable character of
an instrument are not affected by the fact that
(a) It is not dated; or
(b) Does not specify the value given, or that any value had been given therefore; or
(c) Does not specify the place where it is drawn or the place where it is payable; or
(d) Bears a seal; or
(e) Designates a particular kind of current money in which payment is to be made.
But nothing in this section shall alter or repeal any statute requiring in certain cases the
nature of the consideration to be stated in the instrument.
This is payable on demand because no time for payment is expressed. Indeed, when a promissory
note expresses no time for payment, it is deemed payable on demand.
382. Where blank for time for payment unfilled. Is the following payable on
demand?
after
date
to
pay
or
bearer
P100.00.
(Sgd.) A
This has been held to be payable on demand.24 However, it may properly be considered an
incomplete instrument and may fall under the provision of Sections 14, 15 or 16, depending upon
how the instrument is delivered. Moreover, a note payable one was held payable on demand.
383. Illustration of last paragraph. Suppose that A draws the following bill:
Pay to B or order P1,000.00 on December 31, 1950.
(Sgd.)
(1) In the example given, if A, the drawer, keeps the instrument without delivering it until after
December 31, 1950, its date of maturity, and then issues the instrument, say on January 15, 1951,
as to A, the person so issuing, the instrument is payable on demand.
(2) Suppose that A, the drawer, issues the instrument on December 1, 1950, before the date of
maturity, but X, the drawee, accepts it on January 20, after its date of maturity.
As to X, the person so accepting it, the instrument is payable on demand. But as far as A is
concerned who issued the instrument before the date of maturity, the instrument is payable at a
fixed
future
time.
(3) Suppose that A issues and X accepts the bill of exchange before December 31, 1950, before
the date of maturity, but B, payee, indorses the instrument to C after the date of maturity, say on
January 20, 1951. As to B, the person so indorsing it, the instrument is payable on demand. But
as to A and X, who respectively issued and accepted the instrument before the date of maturity,
the
instrument
is
payable
at
a
fixed
future
time.
384. Instrument on demand only as to parties. It must be remembered, however, that
after the date of maturity, the instrument can no longer be negotiated as to make the parties who
acquire the instrument after the date of maturity holders in due course because they become
holders thereof with notice that it is already overdue, as this can be determined from the face of
the instrument itself. The last paragraph of Section 7 means that the instrument is payable on
demand
only
as
between
immediate
parties.
385. On promissory note payable on demand, statute of limitations begins
immediately. The promissory note, dated January 30, 1962, is worded thus: For value received
from time to time since 1947, we jointly and severally promise to pay to Mr. [George Pay] at his
office at the China Banking Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos]
(P26,900.00) with interest thereon at the rate of 12% per annum; upon receipt by either of the
undersigned of cash payment from the Estate of the late Don Carlos Palanca or upon demand
* * * As stated, this promissory note is signed by Rosa Gonzales Vda. de Carlos Palanca and
Justo Palanca. Action was filed fifteen years after execution of the note. Held: The obligation
being due and demandable, it would appear that the filing of the suit after fifteen years was much
(Sgd.) B
Pay to D
(Sgd.) C
(Sgd.) D
Pay to F
(Sgd.) E
The subject check was equivocal and patently ambiguous. The payee was not indicated with
reasonable certainty in contravention of Section 8 of the Negotiable Instruments Law. As
worded, it could be accepted as deposit to the account of the party named after the symbols
A/C, or payable to the Bank as trustee, or as an agent, for Casville Enterprises, Inc., with the
latter being the ultimate beneficiary. That ambiguity is to be taken contra proferentem that is,
construed against NELL who caused the ambiguity and could have also avoided it by the
exercise of a little more care. Thus, Article 1377 of the Civil Code, provides:
Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the
party
who
caused
the
obscurity.
390. Where blank for name of payee unfilled. Is the following payable to order?
Payto to
order P1,000.00.
(Sgd.)
This is not payable to order because the payee is not named, neither is he designated with
reasonable certainty. However, it may be considered an incomplete instrument and may be
covered by Sections 13, 14 and 15, depending upon how it is delivered.
391. To whose order instrument may be made or drawn. Under this section, a note
may be made and a bill may be drawn to the order of: (1) a payee who is not the maker; (2)a
payee who is not the drawer; (3) a payee who is not the drawee; (4) the drawer as payee; (5) the
maker as payee; (6)the drawee as payee; (7) two or more payees jointly; (8) one or some of
several payees; or (9) the holder of an office for the time being.
392. Payee not maker. An instrument may be drawn pay able to the order of a payee
who is not maker. Thus:
I promise to pay to the order of B P100.00.
(Sgd.) A
In this illustration, the payee, B, is other than the maker, A. B is not the same as A .
of
393. Payee not drawer or drawee. An instrument may be drawn payable to the order
payee
who
is
not
x
xx
drawer,
or
drawee.
Thus:
In this illustration, the payee B, is other than the drawer, A and the drawee, X .
drawer.
394. Drawer as payee. An instrument may be drawn payable to the order of the
Thus:
Pay to the order of ourslvs 100.00.
(Sgd.) Soriano & Co.
To:
The foregoing is payable to the order of the drawer. Where the instrument is payable to the order
of the drawer and it is accepted by the drawee, the instrument is equivalent to a promissory note
made by the acceptor in favor of the drawer.
395. Maker as payee. An instrument may be drawn payable to the order of the maker. Thus:
I promise to pay to the order of myself P100.00.
(Sgd.)
The maker is the payee. Under Section 184, however, the instrument is not complete until it is
indorsed
by
the
maker.
396. Drawee as payee. An instrument may be drawn payable to the order of the drawee. Thus:
Pay to yourself or order P100.00.
(Sgd.) X
To:
Y, who is drawee, is also the payee. The effect of this bill is to authorize the drawee to pay
himself from funds belonging to the drawer which are in the possession of the drawee.
397. Two or more payees jointly. An instrument may be drawn payable to the order of x xx
two
or
more
payees
jointly.
Thus:
I promise to pay A and B or order P100.00.
(Sgd.)
Being
order
joint
payees
is
indicated
by
the
C
conjunction
and.
398. One or more of several payees. An instrument may be drawn payable to the
of
xxx
one
or
more
of
several
payees.
Thus:
Being joint and several payees is indicated by the conjunction or. Under this paragraph, the
instrument may also be made payable to the order of A, B and C or anyone of them or any two
of
Them.
399. Holder of office for the time being as payee. An instrument may be drawn payable to the
order of x xx the holder of an office for the time being.36 Thus:
Pay to the order of the oashier of the Lyceum of the Philippines, etc.
(Sgd.) A
To:
The cashier of the Lyceum of the Philippines is the holder of that office for the time being.
SECTION 9.When payable to bearer. The instrument is payable to bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such fact was
known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) When the only or last indorsement is an indorsement in blank.
400. When expressed to be so payable. The instrument is payable to bearer when it
is expressed to be so payable. Thus: Pay to bearer P1,000.00, etc. This is payable to bearer as
it is expressed to be so payable.
401. Payable to person named or bearer. The instrument is payable to bearer x xx
when it is payable to a person named therein or bearer.33 Thus: Pay to B or bearer, etc. This
is payable to bearer as it is payable to a person named therein, B, or bearer.
402. Payable to the order of a fictitious or non-existing person. The instrument is
payable to bearer x xx when it is payable to the order of a fictitious or non-existing person and
such fact was known to the one making it Sopayable. In general, there aretwo requisites: (1) the
payee named must be fictitious or non-existent; and (2) the one making the instrument so
payable must know him to be fictitious or non-existing. This provision of the law has been a
prolific source of litigation on the question as to: (1) when the paper is payable to a fictitious or
non-existing person; and (2) when such fact is known to the person making it so payable that
is, who is such person making it so payable.
403. Meaning of fictitious person. The first requirement must be qualified. The
words fictitious person are not limited to persons having no real existence. An existing person
may be considered a fictitious payee, depending upon the intention of the one making or drawing
the instrument. The words fictitious person mean to be a person who has no right to the
instrument because the drawer or the maker of it so intended, and, therefore, it does not matter
whether the name of the payee used by the drawer or maker be that of one living or dead, or one
who never existed.42 The name is fictitious when it is feigned or pretended and a non-existent
person is one who does not exist in the sense that he was not intended to he the payee by the
drawer.
404. Existing payee intended to receive proceeds; not payable to bearer.
Negotiable paper made payable to the name of an existing person known or believed by the
maker or drawer to be existing, with intent that he should receive it or its proceeds, or that it be
paid to him or upon his indorsement, is not payable a fictitio.is payee or to, bearer, although as a
matter fact such person has no interest in the paper and it, was procured by the fraud of a third
person or of the makers or drawers employee or agent whose knowledge or intent is not
imputable to the principal orthe employer, and cashed by the person having possession upon the
forged
indorsement
of
the
payee.
405. Illustration. Thus, suppose that Y, an employee of A, represents to A that he
bought a typewriter from Senator Madrigal. On this representation, A draws a check in favor of
Senator Madrigal, with the intention that Senator Madrigal will receive the proceeds of the
check. The fact, however, is that there was no purchase at all. The check is, not payable to bearer
The Want of interest in the payee is not the controlling consideration in determining whether an
instrument is payable to bearer. As payable to a fictitious person; and although a particular,
payee has in fact no interest, in the instrument, if the drawer or the maker intended that he should
have such interest and that such instrument be paid to him or upon his indorsement, although the
payee has in fact no such interest, the paper is not payable to a fictitious person, and must bear
the genuine indorsement of such payee before it can be validly transferred.
406. Existing payee not intended to receive proceeds payable to bearer. Although
a person bearing the name by which the payee is designated in the paper is in actual existence,
the paper is payable to a fictitious payee and by legal intendment to bearer, where the person
making or drawing it, or his agent or employee whose knowledge or intent is imputable to the
principal or the employer, does not intent that he shall receive the same or its proceeds, or that it
be paid to him or upon his indorsement. It follows that the mere fact that the payee named was an
existing person does not preclude the application of the rule as to fictitious payee, where,
although the existence of the payee was known to or believed by the maker, he, the maker, did
not intend that he should receive the paper or have an interest therein. Thus, an existing payee
may be a fictitious payee.
407. Illustration. Thus, suppose that A is the administrator of the estate of a deceased
person. He wants to appropriate for himself some money of the estate. For this purpose, as
administrator, he draws a check in favor Senator Madrigal from whom he bought a typewriter for
the use of the estate. Thereafter, he does not deliver -the check to Senator. Madrigal but instead
order
of
cash.
In these cases, the name of the payee does not purport to be the name of any person. Hence, the
instrument would be payable to bearer. Under the Negotiable Instruments Law, 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 drawers indorsement.
ANG TEK LIAN y. THE COURT OF APPEALS. For having issued a rubber check, Ang Tek
Lian was convicted of estafa in the Court of First Instance of Manila. The Court of Appeals
affirmed the verdict. It appears that knowing that he had no funds therefore, Ang Tek Lian drew
a check upon the China Banking Corporation for P4,000 payable to the order of cash. He
delivered it to Lee Hua Hong in exchange for money which the latter handed in the act. The next
business day, the check was presented by Lee Hua Hong to the drawee bank for payment but it
was dishonored for insufficiency of funds, the balance of the deposits of Ang Tek Lian being
P335 only on both the dates of issuance and presentment for payment. It is argued that as the
check had been made payable to cash and had not been endorsed by Ang Tek Lian, the
defendant is not guilty of the offense charged. HELD: Under the Negotiable Instruments Law
[Sec. 9(d)], a check drawn payable to the order of cash is payable to bearer, and the bank may
it to the person presenting it for payment without the drawers indorsement. x xx. Ofcourse if the
bank is not sure ofthe bearers identity or financial solvency, it has the right to demand
identification and/or assurance against possible complications, for instance,4forgery of the
drawers signature, (b) loss of the check by the rightful owner, (c) raising of the amount payable,
etc. The bank therefore, requires for its protection that the indorsement of the drawer or of
some other persons known to it be obtained.6 x xx. A check payable to bearer is authority for
payment to the holder. Where a check is in the ordinary form and is payable to bearer so that no
indorsement is required, a bank to which it is presented for payment need not have the holder
identified, and is not negligent in failing to do so.
414. Where payable to estate of deceased person. Is the following payable to bearer?
Pay to the order of the intestate estate of Martin Mendoza, deceased, P1,000. This has been
held to be payable to bearer.8 But this decision is criticized. And it has been held that the estate
of a deceased person is a juridical person in a limited way.9 It would seem, therefore, that the
foregoing instrument is payable to order.
It is, therefore, payable to bearer where: (1) there is only one indorsement and that indorsement
is in blank, or (2) there are several indorsements but the last indorsement is in blank.
SECTION 10. Terms, when sufficient. The instrument need not follow the language of
this Act, but any terms are sufficient which clearly indicate an intention to conform to the
requirements thereof.
416. Exact words of law need not be used. It is advisable to use the words of the law
in order to avoid uncertainty and doubt. However, under this provision, it is not necessary to use
the exact words ofthe law. Thus, instead of promise, the word agree may be used. Instead
of bearer, holder may be used. Indeed, an instrument may be valid and negotiable though
written in a foreign language.
SECTION 11. Date, presumption as to. Where the instrument or an acceptance or any
indorsement thereon is dated, such date is deemed prima fade to be the true date of the
making, drawing, acceptance, or indorsement, as the case may be.
417. Application of Section 11. This legal provision applies to three cases: (1) the
instrument contains the date of issue; (2) in an accepted bill of exchange, the acceptance is dated,
such as, accepted, August 1, 1952, (Sgd.) X; and (3)an instrument is indorsed, and the
indorsement is dated, such as, July 2, 1952, Pay to C, (Sgd.) B. In the first case, the date placed
thereon is deemed prime facie the true date of the making or drawing of the instrument. In the
second case, August 1, 1952 is deemed prima facie the true date of acceptance, and in third case,
July 2, 1952 is deemed prima facie the true date of indorsement.
418. Meaning of prima facie. The words prima facie are Latin words which mean
that the evidence produces for the time being a certain result but that result may be repealed by
contrary evidence. They have been defined as meaning apparent, as it first appears,
presumably.2 The words prima facie refer to evidence or proof in an action in court.
419. Illustration. Suppose that a bill is payable 30 days after sight and the true date of
acceptance is August 15, 1952, but the holder thereof placed August 1, 1952, instead of the true
date. Thirty days after August 1, 1952, the date that appears on the instrument to be the date of
acceptance, the holder files an action in court against X, the acceptor. The holder need not prove
that August 1, 1952 is the true date of acceptance, as that is prima facie deemed to be true date of
acceptance. But this result is only for the time being. It can be repealed by contrary evidence, and
it is the duty of X, the acceptor, to introduce evidence to prove that the true date of acceptance is
439. Rights of holder in due course. Suppose, however,' that E is a holder in due course. Can he
collect from A P10,000.00? Yes, under the last sentence of the section. The note was negotiated
after completion and he, being a holder in due course, the instrument is "valid and effective 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 and within a reasonable time. As to indorsers (and persons negotiating
by delivery), such as B, C and I), it is with greater reason that the holder in due course can
enforce the instrument against them.
440. It is a personal defense. Under this section, the defense of parties prior to the completion,
such as A, is that it is not filled up strictly in accordance with the authority given or that it is not
filled up within a reasonable time. However, such a defense is available only against holders who
are not holders in due course. The defense is not available against a holder in due course because under the law, in the hands of such a holder, the complete but delivered instrument is
"valid and effective for all purposes in his hands, and he may en-force it as if it had been filled
up strictly in accordance with the authority given and within a reasonable time."" The defense is,
therefore, a personal or equitable defense.
441. Summary of rules where instrument is incomplete but delivered. In the case of an
instrument that is incomplete and delivered, but completed contrary to the authority given, or not
completed within reasonable time:
(1) Where the holder is a holder in due course, he can en-force the instrument as completed
against parties 144.or or, sequent to the completion.
(2) Where the holder is not a holder in due course, he can enforce the instrument as completed
only against parties sub-sequent to the completion but not against those prior thereto.
It is to be noted that the holder of an instrument is either the payee or indorsee or bearer in
possession thereof who en-forces an instrument. He would be the plaintiff in an action on the
instrument. On the other hand, it is the debtor, either the maker, acceptor, drawer or indorser,
against whom an instrument is enforced. He would be the defendant.
SECTION 15. Incomplete instrument not delivered. Where an incomplete instrument
has not been delivered, it will not, if completed and negotiate without authority, be a valid
contract in the hands of, any holder, as against any person whose signature was placed
thereon delivery.
442. Scope of Section 15. This section applies to incomplete and. undelivered instruments.
443. Instrument not valid against party before delivery. Suppose that A signed a blank check
which was subsequently stolen by B who filled. In the amount and a fictitious name as payee. B
then indorsed the payee's name and passed the check to C, C to D; D to E, and E to F. Can F
enforce the instrument against A? Why? No, because as against A, whose signature was placed
on the check prior to the delivery, the instrument is not valid.
446. It is a real defense. Under Section 15, the possible defense of a party whose signature
appears on an instrument prior to delivery is that, as against him, the instrument is not valid for
having been incomplete and undelivered. This defense may be called "want of delivery of a
mechanically incomplete instrument." Such a defense can be interposed not only against one
who is not a holder in due course but also against a holder in due course, as the law uses the term
"any holder" which includes a holder in due course. It is, therefore, real defense.
447. Delivery is not conclusively presumed where instrument , incomplete. Under Section
16, delivery is conclusively presumed where an instrument is in the hands of a holder in due
course, although possession is prima facie evidence of delivery, the presumption can be rebutted.
The provision of Section 18 that a valid delivery is conclusively presumed when the instrument
is in the hands of a holder in due course must be read in connection with Section 15, and Section
16 does not apply in the case of an incomplete instrument completed and negotiated without
authority. Section 16 applies to a mechanically complete instrument not delivered, while Section
l4" applies to a mechanically incomplete instrument not delivered.
448. But delivery presumed prima facie. But where an incomplete and undelivered instrument
is in the hands of a holder in due course, there is prima facie presumption of delivery which the
maker may rebut by proof of non-delivery. This presumption must, however, be distinguished
from the presumption where an undelivered mechanically complete instrument is in the hands of
a holder in due course, in which the presumption of valid delivery is not Merely prima facie but
conclusive: Furthermore, where the custody of the incomplete instrument has been entrusted to
another, who wrongfully completes and negotiates it to a holder in due course, delivery to the
agent or custodian is a sufficient delivery to bind the drawer or maker."
SECTION 16. Delivery; when effectual; when presumed. - Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of
giving effect thereto. As between immediate parties and as regards a remote party other
than a holder in due course, the delivery, in order to be effectual, must be made either by
or under the authority of the party making, drawing, accepting, or indorsing, as the case
may be; and, in such case, the delivery may be shown to have been conditional, or for a
515. Extent of the effect of forgery. It must be noted, however. It must be noted,
however, that:
(1) Only the signature forged or made without authority is stated by the law to the inoperative
but neither the instrument itself is, nor the genuine signatures are, rendered inoperative.
(2) The instrument can be enforced by holders to whose tie over the instrument the forged
signature is not necessary, such as, an indorsement of instrument which on its face is payable to
bearer.
526. Illustrative cases. (1) Y is the agent of B with power to sell goods and collect
accounts for B. As such, he comes into possession of a check with B as the payee. Y indorses
and cashes the check. B, however, delays in complaining to the collecting bank of the forgery for
three years. May B still recover from the collecting bank? No. B, the payee, is barred by his
delay of three years in complaining of the forgery, which amounts to ratification of the agent's
unauthorized acts.
(2) A forged the signature of his wife on a note signe by him as co-maker for a loan given him.
Thereafter, the wife discovered the forgery. She failed, however, for many months after she
discovered it, to inform the payee of it, thus prevent- ii( ing the payee from taking steps to ptect
532. Rights of parties in forgery of indorsement in note payable to order. Where the
indorsement is forged and the note is payable to order, the party whose indorsernent is forged
and parties prior, to him including the maker cannot be held liable by the holder, whether that
holder is a holder in due or not.
538. Drawer cannot recover from collecting bank. The drawer has no right to recover the
amount paid from the collecting bank, as the duty of the collecting bank to exercise care in
collection is due only to the payee, and as the drawer suffers no damage smc it can recover the
amount paid from the drawee bank which has no right to charge the drawers account.
539. Drawee can recover from collecting bank. The drawee may recover from the recipient of
payment, such as the collecting bank, under a forged indorsement. The reason for this is the same
as for the rule allowing the payee to recover from the recipient of the payment under a forged
indorsement.
540. Payee can recover from drawer. In the illustration, B, payee, can still recover from the
drawer A on the basis of his claim of debt upon which the check in the first place had been
issued. Suppose that A is an insurance company and B isthe. beneficiary ofa deceased person
whose life was insured by A. And A issue a check to B or his order to cover the proceeds of the
insurance policy. B would not lose his right to the proceeds of te policy just because somebody
without fault on his part forged the check, B can still collect from A on the basis of the insurance
contracts.
541. Payee can recover from recipient of payment. According to the general rule, a bank or
other corporation or an individual, who has obtained possession of a check, upon an
unauthorized or forged indorsement of the payees signature and who collects the amount of the
check from the drawee, is liable for the proceeds thereof to the payee or other owner,
notwithstanding that they have been paid to the person whom the check was obtained.
542. Collecting bank liable to payee. The theory of the rule set out x x x has been expressed in
different ways, all of which may be summed up in the statement that the possession of the check
on the forged or unauthorized indorsement is wrongful, and when the- money had been collected
on the check, the bank, or other person or corporation, can be held as for moneys had and
received,21 and the proceeds are held for the rightful owners of the payment and, may be
recovered by them. The position of the bank or other corporation or person taking the check. on
the forged or unauthorized indorsement is the same as if he had taken the check and collected the
money without indorsement at all, and the act of the bank amounts to conversion of the
check.
Payment to depositor of forged signature of the payee, or to drawee bank on the same forged
signature give rise to an obligation to return the amounts received. Section 2154 of the New Civil
Code mandates that: if something is received when there is no fight to demand it, and it was
unduly delivered through mistake, the obligation to return it arises.
543. Collecting bank bound to scrutinize checks deposited with it to determine genuineness
and regularity While 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 a high
standard of conduct. The collecting bank has privity with the depositor who is principal culprit in
In a Philippine case, it was held that the prime duty of a bank is to ascertain the genuineness of
the signature of the drawer or the depositor on the check being encashed. It is expected to use
reasonable business prudence in accepting and cashing a check presented to it. Accordingly
where the drawer bank encashed a check in which the drawees signature is forged which shows
marked variation from the genuine signature of the supposed drawer, said bank is negligent, and
should return to the drawer what it has debited the latter s account.
551. But payment not equivalent to acceptance or certification. The payment of a forged
check does not include or imply its acceptance in the sense that this word is used in Section 62 of
the Negotiable Instruments Law. Payment is the final act which extinguishes a bill.
Acceptance is a promise to pay in the future and continues the life of the bill.4 Consequently,
the basis of the general rule is not that the drawee is precluded from setting up forgery because,
by-paying the check, it has accepted the check and therefore admitted the genuineness of the
drawers signature.4 The basis is that by paying the check, the drawee is presumed negligent or
deemed constructively negligent.
552. Qualifications to the foregoing rules. It must be remembered that the foregoing rules are
qualified by the rules precluding the setting up of the defense of forgery by warranty, as in the
case of parties negotiating an instrument subsequent to the forgery or by estoppel, as in the case
of negligence.
553 Indorsers and parties negotiating. Parties negotiating by indorsement and delivery, or by
mere delivery subsequent to the forgery, are precluded from setting up the defense of forgery and
may be held liable under their warranties or liabilities stated in Section 65 or 66. The following
are illustrations of this principle.
(1) As signature is forged, as maker. B payee. Re indorses to C. CtoD. DtoE. E toF. FcanholdB,
C, DorE liable because as indorsers, they warrant that the note is genuine and in all respects what
it purports to be. If they are general indorsers, they also warrant that the note is valid and
subsisting and therefore, they cannot be heard thereafter to deny the genuineness of As
signature.
(2) A, drawer, B, payee, X, drawee. Y steals the hill and forges Bs signature, and, by this means,
indorses the bill to C. CtoD. D to E. EtoF. FcanholdC, DandEliablefor the same reasons above
stated.
554. Negligence in forgery of indorsements in bill. A generally recognized or assumed
qualification of the general rule, however, is that it presupposes that the drawer himself was not
negligent or guilty of such conduct as would estop him from asserting the forged character of the
indorsement as against the depository (drawee), and that if he was negligentor guilty of such
conduct, the loss must fall on him.4 But the depositors negligence or conduct which would
stop him must be the proximate cause of the payment by the depository upon the forged
indorsement. Thus, the (1) negligence of drawers in making possible forged indorsements by
their swindling clerks, and not discovering or reporting them promptly, barred recovery from the
OP
APPEALS
case:
563. Indorser's negligence (holder receiving payment). "After a draft or check has
once been negotiated so that it is in circulation, there is little opportunity for negligence on the
part of those through whose hands it passes; but as to them, in most cases, the rule will apply
that, as between innocent per-sons, the loss must fall on the drawee." Just the same, "the rule is
perfectly well settled that in determining the relative rights of a drawee who, under a mistake of
fact, has paid, and a holder who has received such payment, upon a check to which the name of
the drawer has been forged, it is only fair to consider the question of diligence or negligence of
the parties in respect thereto. So, If it appears that one to whom payment was made was not an
innocent sufferer but was guilty of negligence in not doing something which plain duty
demanded, and which if it had been done, would not have entailed loss on any one, he is not
entitled to retain the moneys paid through mistake on the part of the drawee bank."
564. Duty of purchaser of check or bill. And "most of the courts now agree that one
who purchases a check or draft is bound to satisfy himself that the paper is genuine; and that by
indorsing it or presenting it for payment or putting it into circulation before presentation, he
impliedly asserts that he has performed his duty, and the drawee, who has, without actual
negligence on his part paid the forged demand. may recover the money paid from such negligent
purchaser. Of course, the drawer must, in order to recover back from the holder, show that he
himself was free from fault. In other words, in the illustration, the drawee X, while
constructively negligent, must not be actually or actively negligent while the recipient of the
proceeds must be actually negligent. In such it case, the drawee can recover what it has paid. But
where the drawee X is not merely constructively negligent but is also actively or actually
negligent, its actual negligence will offset the actual negligence of the recipient and tenor
effective the constructive negligence of the drawee X. In such a case, it would seem that the
drawee cannot recover from the recipient what it has paid.
565. Illustrative case. "A's signature is forged by strangers in two checks. B is payee.
The strangers negotiated the checks to C for tire purchases, pretending to be agents of B. C did
not make any inquiries whatsoever, One check was crossed generally. The check with a prior
number to the other was issued on a latter date. A is a good customer of C which receives checks
from A every month in payment of account. C indorsed the checks to the D bank for deposit and
was credited with the amount. Thereafter, the checks were credited at the clearing house and X,
drawee, credited the D bank with the amount. When the X bank found that A's signature was
forged, it demanded payment from C. HELD: Under the facts, C was negligent and had no right
to retain the proceeds of the checks. X can recover from it what it has paid. The basic rule
underlying estoppel by negligence is that "where loss, which must be borne by one of two parties
566. Forgery of both drawer's and payee's signature. There is some difference of
opinion. But under the Negotiable Instruments Law, the indorser guarantees the genuineness of
prior indorsements, and if the indorsement of the payee is forged, the indorser is liable on his
warranty to all to whom it runs." But the drawee is held not to be a holder in due course, and
therefore. is not entitled to the benefit of the indorser's warranty. The result is that. so far as the
drawee is concerned, the situation is much the same as though the paper bore no indorsements,
but was payable to bearer, and the ordinary rules apply, making the right to recover depend on
the presence or absence of negligence on the part of the one who negotiated the paper, and
viewed in the light of subsequent negligence of the drawee which may have caused him to
change his position for the worse because of acts of the drawee.
567. Other rules change of position. "When negligence on the part of the one
receiving the proceeds has been established so as to entitle the drawee to recover the proceeds,
conduct of the drawee may again intervene to prevent his recovery. No matter how negligent the
one receiving the proceeds has been, he is entitled to receive prompt notice of the forgery so as
to enable him to preserve whatever rights he may have against the forger or other persons to
whom he may be entitled to look for reimbursement, and if the drawee is negligent in this
respect, he may be prevented from recovering his money.
568. Paper forwarded for collection. "The fact that the paper was not cashed and
indorsed with unrestricted indorsement but was taken for collection and forwarded for that
purpose under an indorsement giving notice of that fact, may place a greater burden upon the
drawee than it would otherwise bear. The mere fact that the paper bears an indorsement 'for
collection' should warn the drawee that the responsibility of the genuineness of the paper is
placed upon it."
570. Swindling through post-dating of checks. Among the methods whereby a person
may be guilty of swindling or estafa is the defrauding of another by post-dating a check or
issuing a check in payment of an obligation when the offender had no funds in the bank or his
funds deposited therein were not sufficient to cover the amount of the check. The failure of the
drawer of the check to deposit the amount necessary to cover his check within three (3) days
from receipt of notice from the hank and/or the payee or holder that said check has been
dishonored for lack or insufficiency of funds, shall be prima facie evidence of deceit constituting
false pretense or fraudulent act.
571. Forger need not imitate genuine signature. And it is not necessary that the forger
attempt to imitate or simulate the signature being forged. Consequently, one who signs the name
of another without the latters authority, as drawer in a check, and thereby makes it appear
falsely that the alleged drawer of the check was a real party thereto, when as a matter of fact he
did not participate in the transaction, is guilty of falsification, even though there was no attempt
to imitate or simulate the signature of the person whose name was illegally used.
572. Estafa by falsification of signature. Where the defendant represented to the
offended party that the check was in fact the check of the person whose signature is forged and
by reason of that representation, the defendant induced the offended person to receive the check
and deliver to him the difference between the value of the merchandise which he puchased and
the amount of the check, the defendant is guilty of estafa committed by means of the falsification
of a private commercial document.
II CONSIDERATION
575. Application of Section 24. Under this section, where A makes and issues note to the
order of B in the sum of P1,000, the presumption is that A received from B some valuable
consideration more or less equivalent to P1.000, such as a parcel of land worth P1,000. Under
this section also, where B places his signature on the note to C for instance as an indorser and
delivers the note to C, It is also presumed that B received some valuable consideration from C.
577. Consideration need not be alleged or proved. In an action based upon a negotiable
instrument, it is unnecessary to aver or prove consideration, for consideration is imported and
presumed from the fact that it is a negotiable instrument. The presumption exists whether the
583. Obligation not to do. Not to give extension of time; not to compete in business.
Thus, suppose that A promises not to put up a gasoline station within one kilometer from the
gasoline station of B, in consideration of which B gives A a check for p5,000. The undertaking
not to put up thc gasoline station is suffcient consideration.
584. Pre existing debt. Suppose A owes B P1,000 payable on December 31, 1949. He
fails to pay in cash. He issues a check to B for the amount. The pre-existing debt is a sufficient
consideration for the check. But suppose that A, widow, issues a note for a pre-existing debt of
her deceased husband whose estate is insolvent. Is there valuable consideration? No, because
after the death of the husband, there is no more pre-existing debt as the estate is insolvent."
585. Third person's pre-existing debt. A third person's pre-existing debt is sufficient
consideration."
586. Bank credits as valuable consideration. B, payee of a check, deposits the check in
his bank. The bank credits his account for the amount of the check. Does the act of crediting
constitute value so as to make the bank a holder for value? There is a division of authorities. But
the better view is that the act of crediting constitutes value.
587. Exchange of negotiable papers. A issues a note to B, and B in return for the note,
issues a check in favor of A. One in sufficient consideration for the other.
589. Love or affection. Consideration founded on (1) love and affection, as between
husband and wife, father and son, etc., or (2) upon gratitude, is good consideration, but does not
constitute such valuable consideration as is sufficient of itself to support the obligation of a bill
or note, as between original parties. An agreement or promise to make gift in the future, not
being based upon a valuable consideration, is not enforceable, even when put in the form of
promissory note and therefore gift notes are not supported by sufficient consideration. And a
mere moral obligation is not a sufficient consideration to support a promissory note between the
parties to such obligation. But notes given for establishing such public institutions as churches,
schools, and hospitals, are supported by sufficient consideration.
590. Presumption of valuable consideration under Section 24 is prima facie and can
be rebutted. Illustrative case.
611 Effect of placing "value received. Suppose that the note contains the phrase "value
received." This will not negative the character of the note as an accommodation paper. "An
accommodation note showing on the face in express terms that it had been issued for no
consideration would be of little or no use to the payee, and for that reason, if for no other,
practically all .accommodation notes are, so drawn as to either exigAssaor imply a valuable
consideration prima facie."
614. But, Want of Consideration Cannot Be Interposed Against Holder For Value. The
Prudential Bank and Trust Co. received a letter from International Asian Co., Inc. applying for
credit facilities in the amount of P15,000. The bank notified International Asian Co., Inc. of the
approval of a discounting line of P15,000 in favor of the latter, available by means of draft drawn
on an acceptable local merchant for a period of 60 days with interest at the rate of 8%.
International Asian Co., Inc., therefore, executed in favor of the bank an exchange draft drawn
against Ramesh Trading Co. The exchange draft was accepted by Ramesh Trading. In an action
brought to recover payment of the exchange draft, Ramesh Trading contends that it cannot be
held liable because the International Asian Co., Inc. as drawer, Ramesh Trading as draweeacceptor, and Prudential Bank as payee, intended that no liability wash to attach the acceptance
In instruments which are not accommodation papers, the effect of this notice of want of
consideration is to render the holder for value not a holder in due course because he has notice of
a defense of prior parties,'' namely, want of consideration, which is a defense under Section 28.
However, because of the provisions of this section, an accommodation party cannot interpose the
defense of want of consideration between him and the accommodated party against a holder for
value even if the holder for value has notice of the fact that he is an accommodation party and
therefore, has notice that he did not receive any consideration for the instrument which he
signed.
616. Illustration. Thus, suppose that A signs a promissory note as maker to lend his name or
credit to B but without receiving any consideration for the note. The amount is P1,000. And the
date of maturity is December 1, 1951. 13 then indorses the note to the PNB, which discounts the
note on the basis of the signature of A, who has a very good credit standing. The indorsement is
made before maturity and the PNB knows that A is only an accommodation party. On the date of
maturity, A refuses to pay the bank on the ground that he, A, did not receive any consideration
from B, and the PNB, even though a holder for value, is not a holder in due course because it had
620. Rights of Accommodation Parties As Against Each Other. Illustrative Case. Sevilla,
Varona, and Sadaya executed a promissory note for P15.000, jointly and severally, in favor of
the Bank of the Philippines or order, payable on demand. Only Varona received the P15.000 with
621. Holder must otherwise be holder in due course. But the holder for value must otherwise
be a holder in due course, that Is, he must meet all the requisites under Section 52 except notice
of want of consideration, In other words, the holder for value must have acquired the instrument
complete and regular on its face, before it is overdue and without notice that it was previously
dishonored if such be the fact, in good faith. etc. Consequently, a transferee from the
accommodated party, acquiring accommodation paper after maturity, although he gives a
valuable consideration therefore, takes only the title of the transferor and obtains no higher right
against the accommodation party than he would have in the case of the purchase of ordinary
commercial paper under similar circumstances. This is the weight of American authority. In
other words, where the holder is not otherwise a holder in due course, Section 28 will govern and
not
Section
29.
Thus, in the illustration, if the PNB acquired the Instrument after maturity, that Is, after
December 1. 1951. It would not otherwise be a holder in due course because it acquired the note
after it has become overdue. Hence, A can interpose the defense of want of consideration against
it and it cannot recover on the note from A. It has been held that the rule that where
accommodation paper is negotiated after maturity, the accommodation party cannot be held
622. Accommodation party can interpose defense of want of consideration against one not
holder
in
due
course.
Illustrative
case.
623. Method of transfer. There are three methods of transfer, namely: (1) by assignment. (2) by
operation of law, (3) by negotiation, which may either be by indorsement completed by delivery
or by mere delivery.
624. Assignment. It is the method of transferring a non- negotiable instrument whereby the
assignee is merely placed in the position of the assignor and acquires the instrument subject to all
defenses that might have been set up against the original payee.
625. Mode of assignment. The mode of assignment of non-negotiable instruments differs in no
respect from that of any other contract. Although some sort of written assignment is customarily
employed, ft may be written either on the instrument itself or on a separate piece of paper.
630. Is delivery to payee negotiation? There is a division of authorities on this question. The
first view is that issuance or delivery of an instrument to the payee is not negotiation because
negotiation refers to an existing negotiable instrument and, before delivery to the payee, the
instrument is incomplete. The second view is that under this section and Section 191, an
instrument is negotiated when it is delivered to the payee or to an indorsee. Negotiation is not
confined to transfer after delivery to the payec. This seems to be the better view.
631, Argument in support of second view. Briefly, the argument in support of the second view
Is that under Section 191, a holder is a payee (or an indorsee) who is in possession of an
instrument payable to order. Consequently, when an instrument payable to order is delivered to
the payee thereof, the payee becomes a holder or he becomes thereby a payee in possession of
the instrument. In short, the delivery to him of the instrument constitutes him the holder thereof.
And since negotiation is defined under the first sentence of Section 30 as being such transfer of
an instrument as to constitute the transferee the holder thereof, such a delivery to the payee is
negotiation.
SECTION 31. Indorsement; how made. The indorsement must be written on the
632. Nature of indorsement. An indorsement is not only a mode of transfer. it is also a contract.
Every indorser is a new drawer and the terms are found on the face of the bill or note. There is an
added obligation upon the instrument aside from what appears upon the face of the instrument.
The indorsement of a bill or note implies an undertaking from the indorser to the person in
whose favor it is made and to every other person to whom the bill or note may afterwards be
transferred, exactly similar to that which is Implied by drawing a bill except that, in the case of
drawing a bill, the stipulations with respect to the drawers responsibility and undertaking do not
apply Thus, the general indorser. in effect, states to every person who follows him: This
instrument will be paid by the maker, if a note, or accepted by the drawee or paid by the
acceptor, if a bill. If it is dishonored by non-payment or non- acceptance and you give me notice
thereof, I will pay it. This, in effect, is the contract of the general indorser.
633. Where indorsement written. The indorsement may be written (1) on the instrument
itself or (2) upon a paper attached thereto. if written on the instrument itself, the indorsement
is usually written on the back thereof. But the indorsement may be written on the face of the
instrument. Where the indorsement is written on a paper attached to the instrument, such paper is
called an allonge. But the allonge must be tacked or pasted on the instrument so as to become a
part of it, and where the separate paper is only temporarily attached. as when clipped or pinned,
it
cannot
be
considered
an
allonge.
634. May allonge be used where there Is room on Instrument for indorsement? It has been held
that the use of an allonge is allowable only when there Is a physical impossibility of writing the
indorsement on the instrument itself, and an indorsement on a separate piece of paper where
there is sufficient space on the instrument for indorsements will be considered a mere
assignment, not a negotiation. This view, however, is questionable. Indorsement on the note
itself are not invalidated because there Is a blank space above them. Why should such a space be
material when some Indorsementa are on the attacbed piece of paper? In neither case does
leaving a blank space facilitate fraud, since nobody would gain any advantage by inserting his
name in the space and rendering him. self liable to those who indorsed below him upon the note
or
the
allonge.5
635. How Indorsement written. As writing includes print, an Indorsement may be
typewritten or made by rubber stamp. But the indorsement does not prove itself; It must be
shown
that
the
means
was
intended
as
an
indorsement.
negotiable
instrument
(4) For value received, I hereby guarantee payment of the within maturity x x x waiving
demand,
notice
of
payment.
and
protest.
(5) For value received, we hereby guarantee payment of the within note, including interest and
costs
at
maturity
or
at
any
time
thereafter
demanded.4
SECTION
32.
Indorsement
must
be
of
entire
instrument.
The Indorsement must be an Indorsement of the entire instrument. An indorsement which
purports to transfer to the indorsee a part only of the amount payable, or which purports
to transfer the instrument to two or more indorsees severally, does not operate as a
negotiation of the instrument. But where the instrument has been paid in part, It may be
indorsed
as
to
the
residue.
637. Indorsement must be of entire instrument. The general rule is that the indorsement must
be of the entire instrument. Accordingly, an indorsement of a part of the instrument does not
operate as a negotiation thereof. Thus, supose that the note is for P1,000 with A, as the maker,
and B, as the payee. It is indorsed as follows: Pay to X P400. (Sgd.) B. This is not valid
negotiation of the instrument.
638. Effect of partial indorsement when unauthorized. It does not operate as an indorsement.
But it may constitute a valid assignmentbinding between the parties. The person to whom the
instrument is indorsed would not be considered an indorsee but merely an assignee and would
therefore take the instrument subject to defenses available between the original parties.44
639. Exception. But where the instrument has been paid in part, it may be indorsed as to the
residue. Suppose that in the illustration, A, the maker has paid P600. B can indorse the
instrument. as to the balance, thus: Pay to X P400. (Sgd.) B.
640. Transfer to two or more indorsees severally. An indorsement which purports x x x to
transfer the instrument to two or more indorsees severally, does not operate as a negotiation of
the instrument. The following is an illustration of transfer to two or more indorsees severally.
Suppose that the note is for P1,000 payable to the order of B. It is indorsed as follows: Pay to C
P600 and to 1) r400, (Sgd.) B. This does not operate as a negotiation of the instrument. But the
following operates as an indorsement. Pay to X and Y. (Sgd.) B.
SECTION 33. Kinds of lndorsement An Indorsement may be either special or in blank;
and it may also be either restrictive or qualified or conditional.
641. Kinds of indorsement. An indorsement may be (1)special, (2) in blank (3) absolute, (4)
conditional, (5) restrictive, (6) qualified, (7) joint, (8) successive, (9) irregular and (10)
facultative.
SECTION 34. Special lndorscment; indorsement In blank. A special indorsement
specifies the person to whom or to whse order, the Instrument is to be payable, and the
Indorsement of such indorsee is necessary to the further negotiation of the instrument. An
indorsement in blank specifies no indorsee and an instrument so indorsed is payable to
bearer and may be negotiated by delivery.
642 Special and blank indorsement. See comments under Section 1, this volume.
644. Application of Section 35. Suppose that A makes a note with B as the payee. It is
indorsed as follows: (Indorsement in blank) (Sgd.) B. Delivery to C, holder. C may place above
the signature o .B, Pay to C. so as to make the indorsement thus: Pay to C. (Sgd.) B. This
converts the blank instrument into a special indorsement.
645. Limitation upon conversion of blank indorsement. The holder must not write any
contract not consistent with the indorsement, that is, the contract so written must not change the
contract of the blank indorser. The following have been held to be contracts inconsistent with the
character
of
the
indorsement:
(1)
Pay
to
X
and
Y.
(2)
Demand
and
notice
waived.
(3) I guaranty payment. This will make the indorser a guarantor and deprive him thereby of his
to
demand
notice.
(a)
Prohibits
the
further
negotiation
of
the
instrument;
or
(b)
Constitutes
the
indorsee
the
of
the
Indorser;
or
(c) Vests the title in the Indorsee In trust for or to the use of some other persons.
But the mere absence of words implying power to negotiate does not make an indorsement
restrictive.
646. Prohibtion of further negotiation. The following are illustrations of an indorsement that
prohibits
the
further
negotiation
of
the
instrument.
(1)
Pay
to
C
only.
(Sgd.)
B
(2)
Pay
to
C
and
no
other
person.
(Sgd.)
The Instrument so indorsed ceases to be negotiable.
647. Indorsee agent of the indorser. This is known as the agency type of restrictive
indorsement. The following is an illustration of an indorsement that constitutes the indorsee an
agent
of
the
indorser:
Pay
to
C
for
collection
(Sgd.)
B
C does not acquire title over the instrument as against B. lie merely becomes the agent of B and
may present the paper, demand and receive payment, and remit the proceeds. hence, any action
the indorsee (agent) may file is subject to defenses available against the indorser (principal), such
as lack of consideration. Thus. where the proof tends to show that the plaintiff held the draft for
collection only, and that the acceptance of it by the defendants was conditional, and that after
such an acceptance, the defendants refused to accept the goods evidenced by the draft, which
were returned to and accepted by the plaintiff, who agreed to release the defendants from any
liability, plaintiff thereafter cannot recover.
648. Indorsements for deposit. An indorsement for deposit constitutes the Indorsee the agent of
the indorser. Thus Pay to C for deposit (Sgd.) B. Such an indorsement, like an indorsement for
collection, constitutes a retention of title in the depositor in the absence of any practice or
agreement to the contrary. In any event, a restrictive indorsement of an instrument for collection
or deposit, or to the use of the indorser and for his benefit, in the absence of any other
circumstances, will not divest the indorser of his title thereto until the money is paid.
Indorsements for deposit only are usually informal. Most are by means of a rubber stamp. A
bank would be justified in accepting a check indorsed for deposit even with only a typed
indorsement,
650. Vests title in indorsee in trust for another. The following are illustrations on an
indorsement
which
vests
title
in
the
indorsee
in
trust
for
another.
(1)
Payto
X
in
trust
for-C
(2)
Pay
to
X
for
the
use
of
C
These transfer the title over the instrument to the indorsee. This is the so-called trust type of
restrictive indorsement.
653. Effect of omission of words of negotiability. Under the law. the mere absence of words
implying power to negotiate does not make an indorsement restrictive. Thus: Pay to X is the
same as Pay to X or order. The omission of the word order does not render the indorsement
restrictive. But while the omission of words of negotiability in the indorsement does not affect
the negotiability of the instrument, such omission in the body thereof will render the instrument
non-negotiable.
654. Restrictive indorsee may receive payment. A restrictive indorsement confers upon the
indorsee the right to receive payment of the lnstrument. Thus, suppose that A Is the maker of a
note of P1,000 payable to B or his order. It is indorsed thus: Pay to X for deposit., (Sgd.) B
The indorsement passes the legal title over the note to X so as to enable X to demand and receive
payment of the value of the note, P1.000, from A. maker. This is true under any of the forms of
restrictive indorsement.
655. Restrictive indorsee may bring any action. A restrictive indorsement confers upon the
indorsee the right x x x to bring any action thereon that the indorser could bring.'
In a restrictive indorsement for deposit, can the indorsee, such as B in the illustration, bring an
action against the indorser, such as A? Yes, if the indorser received value for said indorsement.
658. Illustrative cases. Thus, where the indorsement Is Pay to C only, the instrument becomes
non-negotiable. But an indorsement for collection does not destroy the transferability of the
instrument and it can be reindorsed so that the indorsee can sue in his own name. Neither does an
indorsement for deposit only destroy the transferability of the instrument, but the restrictive
indorsee cannot transfer the instrument for his own debt or for his own benefit.
659. Limitation on transfer of right; illustrations. But all subsequent indorsees acquire only
the title of the first indorsee under the restrictive indorsement. The following are illustrations of
this rule: (1) In the indorsement. pay to A for collection. the rights of the subsequent indorsee
are subject to the restrictive indorsement, namely, that he can collect only, for, being a restrictive
indorsee, he acquires only the title of the first indorsee whose right is merely to collect.
(2) Suppose that a note for P1,000 Is Indorsed thus: Pay to B for deposit only.(Sgd.)-A, and
that B owes Y, P1,000. B cannot transfer the note to Y for said debt. Or, suppone that B transfers
the note to another person for P1.000. B cannot use the P1,000 for his personal expenses. He
must safely keep the amount on deposit until A, the indorser, asks for the return thereof.
660. How qualified indorsement made. A qualified indorsement is made by adding to the
indorsers signature the words without recourse, sans recours indorser not holden; or with
intent to transfer title only, and not to ilwur liability as indorser, at the indorsees own risk.
Thus: Pay to C, at indorsees risk. (Sgd.) B.
661 Effect of qualified indorsement. It constitutes the indorser a mere assignor of the title to
the instrument. Without recourse means without resort to a person who Is secondarily liable
after the default of the person who Is primarily liable. In effect, any one who indorses without
recourse states that all parties to the paper are genuine; I am the lawful holder of that paper, and
I have title to it and know of no reason why you could not recover on it as a valid instrument, but
one thing I do not guarantee; I do not guarantee the financial responsibility of the parties on that
paper but I do say that I hold the title to it just the same as any other personal property.
662. Qualified indorser has limited secondary liability. The qualifiied indorser is not entirely
free from secondary liability. He Is secondarily liable on his warranties as an indoser under
Section 65, that is, the qualified indorser is liable if the instrument is dishonored by nonacceptance or non-payment due to:
(1) forgery: (2) lack of good title on the part of the indorser (3) lack of capacity to indorse on the
part of the prior parties; or (4) the fact that, at the time of the indorsement, the instrument was
valueless or not valid and he knew of that fact.
663. Illustration. Suppose that A makes a note payable to B or his order, and B indorses the note
thus: Sans recours, Pay to C, (Sgd.) B. if C cannot compel A to pay because As signature is
forged, C can recover from B. as B warrants the genuineness of As signature. But if C cannot
compel A to pay because A is not solvent and B did not know of that fact at the time of
negotiation. B cannot be held liable because his indorsement is merely a qualified one.
667. Right to disregard condition. Under the first sentence, A, maker, can disregard the
condition and pay to Y, indorsee, even if Y has not passed the bar examinatjons. Such a payment
will discharge him from liability on the instrument. But, of course, A may refuse to pay on the
ground of non fulfillment of condition.
668. Obligation of conditional indorsee. Under the second sentence of this section, Y, indorsee,
holds the note or the proceeds thereof, if he is paid by A, subject to the rights of the indorser, B.
In other words, if A disregards the condition, and pays Y the P1,000 without waiting for the
condition to be fulfilled, Y does not immediately ccquire ownership over the sum. Ymust hold it
in trust while the condition is not fulfilled. It is upon the fulfillment of the condition that such
ownership over the proceeds of the note is absolutely acquired by the conditional indorsee Y. In
case of non-fulfillment, as when Y does not pass the examination, he must turn over the P1,000
to B, the conditional indorser.
671. Illustration. Thus, suppose that A makes a note payable to the order of B, and B indorses
the note in blank as follows: Sgd.) B, and delivers the same to C. Thereafter. C specially
indorses the note to D as follows: Pay o D (Sgd.) C. Can D negotiate the instrument by mere
delivery? No. because Section 40 applies only to instruments originally payable to bearer. In this
case, the instrument is originally payable to order. D can negotiate it only by indorsement plus
delivery.
727. Defenses. The term defenses seems to include common law defenses, outside of those
covered in Section 55 Defenses then include (1) mistake; (2) absence and failure of
consideration. covered in Section 28; (3) minority and other forms of incapacity to contract
covered in Section 22; (4) lack of authority of an agent covered in Section 19, etc.3 One
acquiring an instrument with knowledge of any of the foregoing defenses is not a holder in due
course.
728. Infirmities. Infirmities must include things that are wrong with the instrument itself as
distinguished from those that are lacking in the contracts on the instrument. Such infirmities are
to be found in situations arising under:
(1) Section 13, wrong date inserted where the instrument is expressed to be payable at a fixed
period after sight is undated;
(2) Sectiqn14 filling up of a blank instrument not strictly in accordance with the authority given
or not within reasonable time, where it was delivered wanting in a material particular;
(3) Section 15, filling up and negotiating without authority an incomplete and undelivered
instrument;
(4) Section 16, lack of valid and intentional delivery of a mechanically complete instrument;
(5) Section 21, agent signing per procuration beyond the scope of his authority;
(6) Section 23, for forgery;
(7) Sections, 124 and 125, material alteration.
Accordingly, notice by the holder of an instrument of any of the foregoing, at the time of the
negotiation of the instrument to him, would render him not a holder in due course.
729. Holder to whom cashiers check is not duly indorsed and negotiated is not holder in due
course Illustrative case
MESINA y INTERMEDIATE APPELLATE COUR Jose Go respondent bought a cashiers
check from the Associated Bank for P800,000.00. He left it on the table of the manager, who
entrusted it to respondent Alberto Uy, who then had a visitor, Alexander Lim. Uy went out to
answer the telephone and went to the mens room. When he returned Lim had left and the check
was missing. Uy advised Go to stop payment. He did so. When the Associated Bank re.eted the
check for clearing, coming from the Prudential Bank, it refused payment twice sending it back to
the Prudential Bank, with the words payment stopped.
Later certain Atty. Lorenzo Navarro demanded payment, by letter, of the check to his client,
whose name he did not disclose. The Prudential Bank also refused to disclose the name of the
person encashing the check. As will be seen, it turned out to be petitioner Mesina. When asked
736. What constitutes unreasonable length of time. Unreasonable length of time: (1) nine
months delay; (2) negotiation after issue of a note, twenty months, or six months. Practically no
authorities hold that a reasonable time for negotiating a demand note could be extended beyond
year.
But the following have been held not to be negotiation for unreasonable length of time: (1)
Where the note is negotiated thirty days after its issue ;16 (2) where the note is negotiated sixteen
months after issue, if the payments of monthly interests were made to the payee ;h1 (3) and even
three years when interest for demand note is paid is where a certified check which was held for
nearly six months to secure performance of a government contract when negotiated and
presented within a few days after the completion of the contract. It is not negotiation at an
unreasonable length of time from its issue. The reason is that the holder of a certified check is
placed on the same footing as a depositor, and the certifying bank cannot complain of any delay
within the statute of limitations as it is benefited by such delay.
SECTION 54. Notice before full amount paid. Where the transferree 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 therefor paid by him.
737. Application of Section 54. A draws a bill for P1,000 with B as payee and X as drawee. B
indorses it to C, who fails to give value thereto. C indorses it to D on July 1, 1950, who, on
maturity date, pays C only P400. On July 5, 1950, D learns that C did not give value for the
instrument. D can be considered a holder in due course only for 400, the amount he paid before
he had notice, even if he pays the balance of P600 afterwards, say on July 7, 1950.
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.
738. Defective title in. general. The title of a person in an instrument becomes defective either:
(1) in the acquisition, or (2) in the negotiation thereof. In the acquisition therefor, the title of a
person becomes defective when he obtains the instrument or any signature thereto by: (1) ,graud,
(2) duress or force and fear, (3) other unlawful means, or (4) for an illegal consideration. In the
negotiation thereof, the title of a person becomes defective when he negotiates. it: (1) with
breach of faith, or (2) under such circumstances as amount to a fraud.
739. Illustration of fraud. A and B, brokers, are employed by C to buy some stocks. They
represent that they had already bought stocks when in fact they have not. On the strength of that
representation, C gives them a check therefor. A and Bs title to the check is defective because
they obtained it by means of fraud.
898. When payable on demand in case of notes. Where the instrument is payable on demand,
the time for presentment depends upon whether the instrument is a bill or a note. If the
instrument is a note, it must be presented for payment within reasonable time for issue. Thus,
suppose that A makes a note payable to B or order. B negotiates to C, C to D, D to E, and E to F.
The date of the issuance of the note is April 1, 1950. F, the holder, must present the note for
payment to A, maker, within reasonable time after April 1, 1950, the date of issue.
899. When payable on demand in case of bills. If the instrument is a bill, it must be presented
for payment within reasonable time from last negotiation, not from issue, as in the case of notes.
Thus, suppose that A issues a bill to B or order on April 1, 1950. The date of its last negotiation
is December 31, 1950. The presentment must be made within reasonable time after December
31, 1950, not after April 1, 1950. The last negotiation means the last transfer for value, and
subsequent transfers between banks for purposes of collection are not negotiations within this
section. Consequently, the requirement of reasonable time begins to run from the last taking for
value.
900. What constitutes reasonable time. The term reasonable time is relative.
SECTION 72. What constitutes a sufficient presentment. Presentment fr payment, to be
sufficient, must be made
(a)By the holder, or by some persons authorized to receive payment on his behalf;
(b) At a reasonable hour on a business day;
(c) At a proper place as herein defined;
(d) To the person primarily liable on the instrument, or if he is absent or inaccessible, to
any person found at the place where the presentment is made.
901. Application, of Section 72. This section establishes the requisites for a sufficient
presentment for payment. If the presentment made does with any of these requisites, it is not
sufficient. The effect the same as if no presentment is made, namely, the persons secondarily
liable are discharged.
902. Who makes presentment. Presentment for payment must be made by the holder of the
instrument or by some person authorized to receive payment on his behalf. A presentment for
payment of a promissory note by a bank having it for collection is sufficient. In the illustration
under Section 70, F holder, or his agent duly authorized to receive payment, can make the
presentment for payment.
903. Time for making presentment. Presentment must be made, at n reasonable hour on a
business day. What is reasonable hour on a business day depends upon the general custom at
the place of the particular transaction.3 Presentment for payment cannot be made on a Sunday
or holiday.
904. Where presentment is made. The proper place is as defined in Section 73.
905. To whom presentment is made. Presentment for payment is to be made to the maker, if a
note, or to the acceptor, if a bill, not to the person secondarily liable. A clerk found at the
counting room of the acceptor or promisor is a competent party for presentment for payment to
be made to, without special authority given him. So also where a note is payable at a certain
store, presentment for payment at such a store to a person connected therewith is sufficient and
no personal demand on the maker is necessary.
SECTION 73. Place of presentment. Presentment for payment is made at the proper
place
(a) Where a place of payment is specified in the instrument and it is there presented;
(b) Where no place of payment is specified but the address of the person to make payment
is given in the instrument and it is there presented;
(c) Where no place of payment is specified and no address is given and the instrument is
presented at the usual place of business or residence of the person to make payment;
(d) In any other ease if presented to the person to make payment wherever he can be found,
or if presented at his last known place of business or residence.
906. Place specified; illustration. A makes a note in the following terms: I promise .to pay at
the PNB, Manila, to X or order P1,000. The proper place for making presentment for payment
is at the PNB, Manila, the place specified.7 And where the name of the bank on the check has
been changed, presentment for payment at the bank the name of which had been substituted and
not at the original named bank, is also sufficient. But where a note is payable at a designated
branch of a trust company, presentment at the principal office or at any other branch of the
company is not sufficient.
907. Address given; illustration. In a promissory note made by Y, no place is specified for
payment but it is signed as follows: (Sgd.) Y, 404 Regina Bldg., Manila. The proper place for
making presentment for payment is 404 Regina Bldg., Manila.
908. Usual place of business, etc., illustration. The note does not specify a place for payment.
Neither is the address of the person to pay given. But the maker or acceptor resides in 12
Quiricada St. and has a business office at 240 Calvo Bldg., Manila. Either place is proper for
making presentment for payment.
909. Any other place; illustration. When the holder meets the maker or acceptor while waiting
at
the
Escolta,
presentment
may
properly
be
made
there.
the
instrument
must
be
u1y.presnted
for
payment;
(2) If sent otherwise than by mail, as by personal messenger, the notice must be sent at such time
as to enable C to receive the notice within the time he would have received it had it been
mailed. Suppose that had the notice been mailed to him under paragraph (a) herein, the notice
would have been received by him (C) on August 4, 1950. The personal messenger must deliver
the notice to him not later than August 4, 1950, otherwise, the notice would be too late.
985. Effect of notice given out of time. Unless excused, notice given out of time would be
considered not to have been given. Hence, the party to receive notice would be discharged.
SECTION 105. When sender deemed to have given due notice. Where notice of dishonor
is duly addressed and deposited in the post-office, the sender is deemed to have given due
notice, notwithstanding any miscarriage in the mails.
986. Application of Section 105. A party giving notice is deemed to have given due notice
where: (1) the notice of dishonor is duly addressed, and (2) deposited in the post-office,even
when there is miscarriage of mail. The notice must beproperly addressed, stamped and mailed.
Otherwise, the no tice, even though mailed, is not proper, arid the indorser will be discharged
from liability, such as, where a notice addressed to other than the one given on the note, or
without sufficient postage prepaid.
987. Is the presumption conclusive? It has been held that when the notice by letter is duly
stamped, addressed and mailed, the sender is deemed to have given due notice which is
presumed to be received by the addressee, notwithstanding any miscarriage in the mails, and the
addressees (indorsers) evidence that he had not received the notice will be excluded. But, in a
Philippine case, it was held that where copy of the protest is sent by mail in good season
addressed to the drawer, the presumption is now conclusive that the latter received it, not
having been rebutted, or at least, contradicted.43 It would seem, therefore, that the presumption
is conclusive if not rebutted, or at least, contradicted.
SECTION 106. Deposit in post-office; what constitutes. Notice is deemed to have been
deposited in the post-office when deposited in any branch post-office or in any letter box
under the control of the post-office department.
988. Deposit in letter box. The letter box must be under the control of the post-office
department. Otherwise, notice would not deemed to have been deposited in the post-office. Thus;
a notice of protest properly addressed and left in a place in the notarys office where mail was
usually collected by the postman, was held not a mailing of the notice as required by the statute.
SECTION 107. Notice to subsequent party; time of. Where a party receives notice of
dishonor, he has, after the receipt of such notice, the same time for giving notice to
antecedent parties that the holder has after the dishonor.
989. Illustration of Section 107. Suppose that F, holder gives notice to E on August 2, 1950. E
is a party entitled to give notice to D, a prior indorser. if D resides in the same place as E, E must
give notice to D not latter than August 3, 1950, the day following Es receipts of notice.45 If E
But even if the bill is drawn in Washington, D.C. if the place where it is drawn does not
appear thereon, as when Washington, D.C. are omitted, the holder may treat it as an inland bill,
as the contrary does not appear thereon.
1095. Importance of distinction. The distinction is important in (1) that foreign bills are
required to be protested. Failure to protest foreign bills will discharge persons secondarily liable
thereon. (2) The distinction is also important for the determination of the law applicable.
Section 130.When bill may be treated as promissory note. - Where in a bill the
drawer and drawee are the same person or where the drawee is a fictitious person or a
person not having capacity to contract, the holder may treat the instrument at his option
either as a bill of exchange or as a promissory note.
1096. When bill may be treated as note. A bill may be treated by the holder at his
option as a note in the following cases:
(1) Where the drawer and the drawee are the same person such as, in a draft drawn by an
agent on his principal by authority of the principal. Another example is a draft drawn by a bank
on its branch.
(2) Where the drawee is a fictitious person.
(3) Where the drawee has no capacity to contract.
In all these cases, notice of dishonor need not be given to the drawer to charge him.
Treating the bill as a note would constitute the drawer, the maker. Thus, considered as maker, the
drawer would then be a party primarily liable on the instrument to whom notice of dishonor need
not be given. Furthermore, the holder need not prove presentment for payment or present the bill
to the drawee for acceptance.
Section 131. Referee in case of need. - The drawer of a bill and any indorser may
insert thereon the name of a person to whom the holder may resort in case of need; that is
to say, in case the bill is dishonored by non-acceptance or non-payment. Such person is
called a referee in case of need. It is in the option of the holder to resort to the referee in
case of need or not as he may see fit.
1097. Illustration of Section 131. This insertion is rarely found in English or American
bills. The following is a bill which contains a referee in case of need:
Pay to B or order P 1,000.00. In case of need, apply to Y,
220 Regina Bldg., Escolta, Manila.
(Sgd.) A
To X
216 Regina Bldg.
Escolta, Manila
This bill must be presented for acceptance in order to inform the drawee X of the
existence of the bill so that he can make arrangements for its payment at the PNB, Manila.
Section 145. Presentment; how made. - Presentment for acceptance must be made
by or on behalf of the holder at a reasonable hour, on a business day and before the bill is
This is a bill payable at a place other than the residenceor place of business of thedrawee.
Under Section 143 (c), B must present the bill for acceptance to X, drawee, who is in
Washington, and under Section 71, B must also present the bill for payment at the PNB on
January 5, 1950. However, under the circumstances, as B has to send the bill for acceptance to X,
B would not be able to make the presentment for payment on January 5, 1950. He will, therefore,
be delayed in making his presentment for payment. This delay, however, is excused.
Section 148.Where presentment is excused. - Presentment for acceptance is excused
and a bill may be treated as dishonored by non-acceptance in either of the following cases:
(a) Where the drawee is dead, or has absconded, or is a fictitious person or a person
not having capacity to contract by bill.
(b) Where, after the exercise of reasonable diligence, presentment can not be made.
(c) Where, although presentment has been irregular, acceptance has been refused
on some other ground.
1135. Application of Section 148.
(1) Where the drawee is dead, presentment for acceptance is not necessary. Hence, it
seems that under Section 145 (b) the presentment mentioned there to be made to the personal
representative of the deceaseddrawee is merely optional. Presentment is excused in this case and
in case the drawee has absconded, or is fictitious or a person not having capacity to contract
because it would then be futile.
(2) Where presentment cannot be made notwithstanding the exercise of reasonable
diligence, presentment is excused.
(3) An irregular presentment in which acceptance is refused on some other ground is
where presentment is made on a Sunday, and therefore, it is irregular but the acceptance is
refused on the ground that the drawer has no funds in the hands of the drawee.
Section 149. When dishonored by nonacceptance. - A bill is dishonored by nonacceptance:(a) When it is duly presented for acceptance and such an acceptance as is
prescribed by this Act is refused or can not be obtained; or
These two parts constitute only one bill for P2,000. B is entitled only to P2,000.00, not
P4,000.00.
1177. Purpose of bill in set. Bills in set are for the purpose of increasing the probability
of the bill reaching its destination. For this reason, each part is sent by different conveyances. B,
the payee, is supposed to negotiate only one part, or if he is paid on one, he cannot be paid on the
second part.
Section 179.Right of holders where different parts are negotiated. - Where two or
more parts of a set are negotiated to different holders in due course, the holder whose title
first accrues is, as between such holders, the true owner of the bill. But nothing in this
section affects the right of a person who, in due course, accepts or pays the parts first
presented to him.
1178. Illustration of Section 179. In the illustration given under Section 178, suppose
that B, payee, wants to raise P4,000. In violation of his rights, he negotiates the first part of the
bill to C and the second part to D, both of whom are holders in due course. Who is the true
owner of the bill? If B negotiates to C on January 3, 1950 and to D on January 5, 1950, C is the
true owner, as Cs title, accrues first. But if D succeeds in presenting his part of the bill for
acceptance or payment, and X the drawee, accepts or pays the second part in clue course, X is
protected and X can refuse to accept Cs part of the bill.
Section 180.Liability of holder who indorses two or more parts of a set to different
persons. - Where the holder of a set indorses two or more parts to different persons he is
liable on every such part, and every indorser subsequent to him is liable on the part he has
himself indorsed, as if such parts were separate bills.
1179. Liability of holder who indorses two or more parts.Under Section 180 in the
illustration, B is liable on both parts as if there are two bills, on the first to C and on the second to
D. In other words, as a result of his negotiation of the two parts, B is liable for a total of P4,000,
But A, the drawer, or X, the drawee, is liable only on one part or for P2,000 unless the drawee
accepts both parts. Suppose that C and D respectively negotiate the parts they have to E, the first
part, and F, the second part. C is liable to E for the part he indorsed to E, and D is liable to F for
the part he indorsed to F.
In this case, the payment must be made through the intervention of any company which is
duly authorized. Otherwise the payment will not be valid. In actual practice, the holder of the
crossed check merely deposits it for collection with the bank indicated between the parallel lines
or with any bank where he keeps an account in the case of a check crossed generally. The
depositary then takes charge of the collection.
1246. Under crossed check, payee has duty to ascertain holders title to checks.
Admittedly, the Negotiable Instruments Law regulating the issuance of negotiable checks as well
as the rights land liabilities arising therefrom does not mention crossed checks. But this Court
has taken cognizance of the practice that a check with two parallel lines in the upper left hand
corner means that it could only be deposited and may not be converted into cash. Consequently,
such circumstance should put the payee on inquiry and upon him devolves the duty to ascertain
the holders title to the check or the nature of his possession. Failing in this respect, the payee is
declared guilty of gross negligence amounting to legal absence of good faith and as such the
consensus of authority is to the effect that the holder of the check is not a holder in good faith.
Accordingly, petitioner, to whom three crossed checks were assigned and rediscounted, is not a
holder in due course as he knowingly violated the avowed intention of crossing the check.
Furthermore, his failure to inquire from the payee the purpose for which the three checks were
crossed, despite the warning of the crossing, prevents him from being considered in good faith
and thus he is not a holder in due course. Being not a holder in due course, plaintiff is subject to
personal defenses, such as lack of consideration between appellants and New Sikatuna Wood
Industries. Note that under the facts the checks were postdated and issued only as a loan to New
Sikatuna Wood Industries, Inc. if and when deposits were made to back up the checks. Such
deposits were not made, hence no loan was made, hencethe three checks are without
consideration (Sec. 28, Negotiable Instruments Law)
But the Negotiable Instruments Law does not provide that a holder who is not a holder in
due course may not in any case recover on the instrument for in the case at bar, petitioner may
recover from the New Sikatuna Wood Industries, Inc. if the latter has no valid excuse for
refusing payment. The only disadvantage of a holder who is not in due course is that the
negotiable instrument is subject to defenses as if it were non-negotiable.
1247. Drawee should not encash a crossed check but merely accept the same for
deposit. Under usual practice, crossing acheck is done by placing two parallel lines diagonally