Nego summary of cases INTRODUCTION FUNCTION AND IMPORTANCE OF NEGOTIABLE INSTRUMENTS A.

SUBSTITUTE FOR MONEY BUT NOT LEGAL TENDER. 1. MYRON C. PAPA V. A.U. VALENCIA , 1998

If the holder did not intentionally encash the check, will the sale be consummated in the light of article 1249 of CC? As a general rule, when check is not yet encashed, the sale is not consummated for the delivery of the check produces the effect of payment only when it is cashed pursuant to 1249. However, rule is otherwise if the debtor was prejudiced by the creditors unreasonable delay in presentment. Acceptance of a check implies an undertaking of due diligence in presenting it for payment. If no such presentment was made, the drawer cannot be held liable irrespective of the loss or injury sustained by the payee. Payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged. What law governs the money market transaction of CIFC with alegre? 1249 of CC or section 137 of the NIL?
1249 is applicable. the money market transaction between the petitioner and the private respondent is in the nature of a loan.

2.

CEBU INTERNATIONAL FINANCE CORP V. CA, 1999

Is check a legal tender? No. A check, whether a managers check or ordinary check, is
not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized.

Was alegre bound by the compromise agreement of CICF and BPI?

No, Alegre was not bound by the compromise agreement. The compromise agreement could not bind a party who did not sign the compromise agreement nor avail of its benefits.

When the BPI deducted the amount of the check from CIFCs account, did this ipso facto operate as a discharge or payment of the check? NO. Although the value of the CHECK was deducted from the
funds of CIFC, it was not delivered to the payee, Vicente Alegre.

3.

RUEDA V. SANDIGANBAYAN, 2000

What does cash mean in a generally accepted auditing principle?

Cash as consisting of those items that serve as a medium of exchange and provide a basis for accounting measurement. To be reported as cash, an item must be readily available and not restricted for use in the payment of current obligations. Examples: coin and currency on hand, and unrestricted funds available on deposit in a bank, which are often called demand deposits; The total of these items plus undeposited coin and currency is sometimes called cash on hand. Interest-bearing accounts, or time deposits, also are usually classified as cash, even though a bank legally can demand prior notification before a withdrawal can be made. In practice, banks generally do not exercise this legal right.

Are NIs cash?

YES. Petty cash funds or change funds and negotiable instruments, such as personal checks, travelers checks, cashiers checks, bank drafts, and money orders are also items commonly reported as cash.

4.

PIO BARRETTO RELATY V. CA, 2001

What is the effect of the delivery of the check?

It produces the effect of payment.

Is it not that payment takes effect only when the check is encashed?
YES. the rule is otherwise if the debtor was prejudiced by the creditor's unreasonable delay in presentment. Acceptance of a check implies an undertaking of due diligence in presenting it for payment. If no such presentment was made, the drawer cannot be held liable irrespective of loss or injury sustained by the payee. Payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged.

In this case, private respondent Moslares never questioned the tender done three (3) years earlier.

5.

BPI V. ROYECA, 2008

Whether the tender of check constitutes payment? No. A check is not legal tender and, therefore, cannot constitute
a valid tender of payment.23 Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized.

6.

MITRA V. PEOPLE, 2010

FUNCTIONS AND IMPORTANCE OF NI

1. 2. 3. serves as a substitute for money and as a convenient form of payment in financial transactions and obligations. The use of checks as payment allows commercial and banking transactions to proceed without the actual handling of money, thus, doing away with the need to physically count bills and coins whenever payment is made. It permits commercial and banking transactions to be carried out quickly and efficiently. But the convenience afforded by checks is damaged by unfunded checks that adversely affect confidence in our commercial and banking activities, and ultimately injure public interest.

4.

7.

HALLEY V. PRINTWELL, 2011

Is check money? NO. check is not money and only substitutes for money. When does a bill of exchange produce the fact of payment?
The delivery of a bill of exchange only produces the fact of payment when the bill has been encashed.

B.

MEDIUM OF COMMERCIAL TRANSACTIONS PEOPLE V. TONGKO What is the history of Article 315 (2) (d) of the RPC?
The history of the law will show that the severe penalties were intended to stop the upsurge of swindling by issuance of bouncing checks. It was felt that unless aborted, this kind of estafa ". . . would erode the people's confidence in the use of negotiable instruments as a medium of commercial transaction and consequently result in the retardation of trade and commerce and the undermining of the banking system of the country.

Is NI a medium of commercial transaction? YES. C. MEDIUM OF CREDIT TRANSACTION (EVIDENCE OF INDEBTEDNESS) If proof of indebtedness of drawercheck is with the payee or holder (presumably returned to payee after dishonored) If proof of indebtedness of payeecheck is with the drawer (when deposited, the check was honored, returned to drawer by drawee bank) Pacheco v. cadebt of drawer; benny godrawer; Antoniopayee; chua gawpayee 1. PACHECO V. CA, 1999 What are the elements of the felony of estafa under 315 (2 of the RPC?
1. that the offender postdated or issued a check in payment of an payment obligation contracted at the time the check was issued; 2. that such postdating or issuing a check was done when the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check; 3. deceit or damage to the payee thereof.

Can one waive the nego character of the check and treat it simply as proof of an obligation (evidence of indebtedness)? YES. By mutual agreement of the parties, the negotiable character of
a check may be waived and the instrument may be treated simply as proof of an obligation.

How material is the fact that the check was issued undated?
Section13. When date may be inserted. Where an instrument
expressed to be payable at a fixed period after date is issued undated, or where the acceptance of an instrument payable at a fixed period after sight is undated, any holder may insert therein the true date of issue or acceptance, and the instrument shall be

payable accordingly. The insertion of a wrong date does not avoid the instrument in the hands or a subsequent holder in due course; but as to him, the date so inserted is to be regarded as the true date. As stated in Section 14 thereof, complainant, as the person in possession of the check, has prima facie authority to complete it by filling up the blanks therein.

Section 14. Blanks, when may be filled. Where the instrument

is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up stricutly in accordance with the authority given and within a reasonable time.

What is the effect of stale check?

A check must be presented within a reasonable time from issue. By current banking practice, a check becomes stale after more than six (6) months. In fact a check long overdue for more than two and one-half years is considered stale.

2. 3.

BENNY GO V. BACARON, 2005 SPOUSES TAN V. VILLAPAZ, 2005

Are checks evidence of indebtedness? YES. Can a check prove a loan transaction that was required to be in writing under 1358 of the CC?
YES, it can. Such requirement, it has been held, is only for convenience, not for validity. At all events, a check, the entries of which are no doubt in writing, could prove a loan transaction.

4. 5.

CHUA GAW V. CHUA, 2008 LANDBANK V. MONETS EXPORT

Is the check evidence of indebtedness? YES.

Is a PROMISSORY NOTE evidence of indebtedness? YES. As the Court noted in its decision in G.R. 161865, the evidence then on record showed that the credit line Land Bank extended to Monet began at P250,000.00 but, after several amendments, eventually rose up to P5 million. Monet availed itself of these credit lines by taking out various loans evidenced by individual promissory notes that had diverse terms of payment. As it happened, however, in its original decision, the RTC held that Monet still owed Land Bank only P2.5 million as reported in the banks Schedule of Amortization (Exhibit 39). But that schedule covered only one promissory note, Promissory Note P-981. Noting this, the Court rejected Exhibit 39 as basis for determining Monets total obligation, given that it undeniably took out more loans as evidenced by the other promissory notes it executed in favor of Land Bank.

D.

IT IS A SPECIE OF PROPERTY 1. PEOPLE V. MIRTO

Are checks by itself personal property? the fund collections through checks paymentsall issued payable to cashare personal properties belonging to UCC. These funds through checks were paid by UCC clients for the deliveries of cement from UCC. May it be subject to theft or qualified theft? YES. Theft is qualified under Art. 310 of the RPC, when it is, among others, committed with grave abuse of confidence, UCC found that accused-appellant gravely abused the trust and confidence reposed on him as Branch Manager and violated company policies, rules and regulations. He did not remit collections from customers who paid "Pay to Cash" checks. He used the credit line of accredited dealers in favor of persons who did not have credit lines or other dealers who had exhausted their credit line. He diverted cement bags from Norzagaray Plant or La Union Plant to truckers who would buy cement for profit. In these transactions, he instructed dealers that check be made in the form of "pay to cash". He did not issue them receipts. Thechecks were either encashed or deposited to accusedappellants personal account No. 0301-261982-001 at Security Bank & Trust Co. (SBTC) Tuguegarao Branch or deposited to the accounts of a certain Mr. Magno Lim maintained at MetroBank and EquitablePCIBank, both located at Tuguegarao City A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species of property. Just as

2.

DBP OF RIZAL V. SIMA WEI

a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract. Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Delivery of an instrument means transfer of possession, actual or constructive, from one person to another. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument. Without the delivery of said checks to petitioner-payee, the former did not acquire any right or interest therein and cannot therefore assert any cause of action, founded on said checks, whether against the drawer Sima Wei or against the Producers Bank or any of the other respondents.

CHARACTERISTICS OF A NEGOTIABLE INSTRUMENT 1. NEGOTIABILITY

NATIVIDAD GEMPESAW V. CA Petitioner likewise contends that banking rules prohibit the drawee bank from having checks with more than one indorsement. The banking rule banning acceptance of checks for deposit or cash payment with more than one indorsement unless cleared by some bank officials does not invalidate the instrument; neither does it invalidate the negotiation or transfer of the said check. In effect, this rule destroys the negotiability of bills/checks by limiting their negotiation by indorsement of only the payee. Under the NIL, the only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof. Sec. 36. When indorsement restrictive. An indorsement is restrictive which either (a) Prohibits further negotiation of the instrument; or xxx xxx xxx In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in express words at the back of the instrument, so that any subsequent party may be forewarned that ceases to be negotiable. However, the restrictive indorsee acquires the right to receive payment and bring any action thereon as any indorser, but he can no longer transfer his rights as such indorsee where the form of the indorsement does not authorize him to do so.

2.

ACCUMULATION OF SECONDARY CONTRACTS SALVADOR ECHANO V. TOLEDO

Echano, as Acting Branch Cashier, should have exercised a high degree of diligence and care in handling Perezs second -endorsed checks since her rediscounting of checks was not a regular banking transaction. Moreover, the managers check in this case had been crossed and issued for the payees account only. This meant that Medical Center Trading Corporation intended it to be deposited to the ac count of the payee, namely, the City Treasurer of Manila. And Echano cannot plead simple oversight because he had approved for deposit to Perezs accounts more or less 26 second-endorsed checks intended for the City Treasurer of Manila. What is more, Echano failed to prove that Perez had indeed been a valued client of his bank or that her questionable transactions carried the approval of higher bank officials.

SECTION 1 1. TRADERS ROYAL BANK V. CA,, FILRITERS GUARANTY ASSURANCE COPR AND CENTRAL BANK, 1997 Is a CBCI a negotiable instrument? NO. the subject CBCI is not a negotiable instrument in the absence of
words of negotiability within the meaning of the negotiable instruments law equivalent to a bond, it is properly understood as acknowledgment of an obligation to pay a fixed sum of money. It is usually used for the purpose of long term loans.

What is the negotiability?

The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money.

What is its relation to the right conferred to a holder in due course?

Freedom of negotiability is the touchtone relating to the protection of holders in due course, and the freedom of negotiability is the foundation for the protection which the law throws around a holder in due course. This freedom in negotiability is totally absent in a certificate indebtedness as it merely to pay a sum of money to a specified person or entity for a period of time.

2.

FIRESTONE TIRE &RUBBER COMPANY V. CA AND LUZON DEVELOPMENT BANK , 2001

When the CBCI was transferred to Philfinance and TRB, what was it that transpired? A negotiation or an assignment? ASSIGNMENT. Are special withdrawal slips negotiable?
The withdrawal slips in question were non-negotiable.

Do the rules governing the giving of immediate notice of dishonor of NI apply in this case? NO. Hence, the rules governing the giving of
immediate notice of dishonor of negotiable instruments do not apply in this case. Citibank could not have missed the non-negotiable nature of the withdrawal slips. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked this character. The withdrawal slips deposited with petitioner's current account with

Citibank were not checks, as petitioner admits. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. But having erroneously accepted them as such, Citibank and petitioner as accountholder must bear the risks attendant to the acceptance of these instruments.

3.

ASTRO ELECTRONICS CORP AND PETER ROXAS V. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE

Whether or not Roxas should be jointly and severally liable with Astro for thE sum awareded by the RTC?
YES, The promissory notes are valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed twice: first, as president of Astro and second, in his personal capacity. In signing his name aside from being the President of Asro, Roxas became a co-maker of the promissory notes and cannot escape any liability arising from it. ISSUE: What is a maker and what is its liability? Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers, promising that they will pay to the order of the payee or any holder according to its tenor. Thus, even without the phrase personal capacity, Roxas will still be primarily liable as a joint and several debtor under the notes considering that his intention to be liable as such is manifested by the fact that he affixed his signature on each of the promissory notes twice which necessarily would imply that he is undertaking the obligation in two different capacities, official and personal.

4.

GARCIA V. LLAMAS, 2003

Is the quoted promissory note a negotiable instrument?

NO. By its terms, the note was made payable to a specific person rather than to bearer or to order -- a requisite for negotiability under Act 2031, the Negotiable Instruments Law (NIL). Hence, petitioner cannot avail himself of the NILs provisions on the liabilities and defenses of an accommodation party. Besides, a non-negotiable note is merely a simple contract in writing and is evidence of such intangible rights as may have been created by the assent of the parties. The promissory note is thus covered by the general provisions of the Civil Code, not by the NIL.

Assuming that it is, what is the liability of an accommodation party?

Under Article 29 of Act 2031, an accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to be only an accommodation party. The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety -- the accommodation party being the surety. It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an original promissor and debtor from the beginning. The liability is immediate and direct.

5.

TRANSFIELD PHILIPPINES V. LUZON HYDRO CORPORATION, AUSTRALIA AND NEW ZEALAND BANKING CORP, SECURITY BANK CORP, 2004

What is a letter of credit?

a letter of credit is a written instrument whereby the writer requests or authorizes the addressee to pay money or deliver goods to a third person and assumes responsibility for payment of debt therefor to the addressee. A letter of credit, however, changes its nature as different transactions occur and if carried through to completion ends up as a binding contract between the issuing and honoring banks without any regard or relation to the underlying contract or disputes between the parties thereto. Letters of credit are employed by the parties desiring to enter into commercial transactions, not for the benefit of the issuing bank but mainly for the benefit of the parties to the original transactions. A letter of credit is not a third-party beneficiary contract because the issuer must honor drafts drawn against a letter regardless of problems subsequently arising in the underlying contract. Since the banks customer cannot draw on the letter, it does not function as an assignment by the customer to the beneficiary.

Is it a nego instrument? NO. because it is not payable to order or bearer

and is generally conditional

How about a draft drawn from a letter of credit? YES, often NEGOTIABLE.
NOTE: Instructive as to meaning and import of a letter of credit, but not strictly covered by NIL

6.

PEOPLE V. REYES, 2005

What is a negotiable order of withdrawal? (NOW)

Now is defined as interest-bearing deposit accounts that combine the payable on demand feature of checks and the investment feature of savings accounts. The fact that a NOW check shall be payable only to a specific person, and not valid when made payable to BEARER or to CASH or when indorsed by the payee to another person, is inconsequential. The same restriction is produced when a check is crossed: only the payee named in the check may deposit it in his bank account. If a third person accepts a cross check and pays cash for its value despite the warning of the crossing, he cannot be considered in good faith and thus not a holder in due course. The purpose of the crossing is to ensure that the check will be encashed by the rightful payee only. Yet, despite the restriction on the negotiability of cross checks, we held that they are negotiable instruments.

Is it a negotiable instrument? YES. Is negotiability the gravamen of estafa? NO. It is the fraud or deceit
employed by the accused in issuing a worthless check that is penalized.

7.

ANDAYA V. PEOPLE, 2006

Are disbursement vouchers commercial documents (nego instruments?) NO. The subject voucher is a private document only; it is not a
commercial document because it is not a document used by merchants or businessmen to promote or facilitate trade or credit transactions nor is it defined and regulated by the Code of Commerce or other commercial law. Rather, it is a private document, which has been defined as a deed or instrument executed by a private person without the intervention of a public notary or of other person legally authorized, by which some disposition or agreement is proved, evidenced or set forth, because it acted as the authorization for the release of the P21,000.00 finders fee to Guilas and as the receipt evidencing the payment of this finders fee.

8.

BATULANON V. PEOPLE, 2006

Are cash vouchers nego instruments?

NO. Subject vouchers are private documents and not commercial documents because they are not documents used by merchants or businessmen to promote or facilitate trade or credit transactions nor are they defined and regulated by the Code of Commerce or other commercial law. Rather, they are private documents, which have been defined as deeds or instruments executed by a private person without the intervention of a public notary or of other person legally authorized, by which some disposition or agreement is proved, evidenced or set forth.

9.

PENTACAPITAL INVESTMENT CORP V. MAKILITO AHINAY, 2010

Give another definition of promissory note other than section 1 and 184 of the NIL
A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it on the date and under the conditions agreed upon by the borrower and the lender. A person who signs such an instrument is bound to honor it as a legitimate obligation duly assumed by him through the signature he affixes thereto as a token of his good faith. If he reneges on his promise without cause, he forfeits the sympathy and assistance of this Court and deserves instead its sharp repudiation.

SECTION 1 (NIL AND TAX) 1. BANAS V. CA, 20000 What is re-discounting?

Petitioner discounted the promissory note covering the future installments. The discounting seems questionable because ordinarily, when a bill is discounted, the lender (e.g. banks, financial institution) charges or deducts a certain percentage from the principal value as its compensation. Here, the discounting was done by the buyer. Where an installment obligation is discounted at a bank or finance company, a taxable disposition results, even if the seller guarantees its payment, continues to collect on the installment obligation, or handles repossession of merchandise in case of default. Thus, by analogy, all the more would a taxable disposition result when the discounting of the promissory note is done by the seller himself. Clearly, the indebtedness of the buyer is discharged, while the seller acquires money for the settlement of his receivables. Logically then, the income should be reported at the time of the actual gain. For income tax purposes, income is an actual gain or an actual increase of wealth. Although the proceeds of a discounted promissory note is not considered initial payment, still it must be included as taxable income on the year it was converted to cash.

What is unusual with the rediscounting in this case?

When petitioner had the promissory notes covering the succeeding installment payments of the land issued by AYALA, discounted by AYALA itself, on the same day of the sale, he lost entitlement to report the sale as a sale on installment since, a taxable disposition resulted and petitioner was required by law to report in his returns the income derived from the discounting. What petitioner did is tantamount to an attempt to circumvent the rule on payment of income taxes gained from the sale of the land to AYALA for the year 1976. Hence, it was not correct to report it as sale on installment.

2.

BPI FAMILY BANK V. CA, CTA,CIR, 2006

When the PN was rediscounted in this manner, was it correct to report it as sale on installment? NO. Are T-Bills and CB bill promissory notes or deposit substitutes such that it is exempt from DST?
T-bills and Central Bank bills, under its governing laws, RA No. 245, as amended by PD No. 142, and R.A. No. 265, are denominated as evidence of indebtedness, hence, are deemed the same as certificates of obligations or certificates of indebtedness. Treasury bills are evidence of indebtedness, issued by the National Government on a discount basis and offered for sale either at auction on competitive or non-competitive basis, payable at any date not later than one year from the date of issue. Central Bank bills are also evidence of indebtedness issued by the Central Bank conformably with Section 98 of R.A. No. 265, which authorizes the Central Bank to issue and negotiate Central Bank obligations, and to place, buy, and sell freely its negotiable

evidence of indebtedness. The confirmations of sale of government securities made by the petitioner to private individuals/entities are subject to documentary stamp tax pursuant to Section 225 of the NIRC. ISSUE: What is the difference between deposit substitutes and certificates of indebtedness? What is the difference between certificate of indebtedness and promissory notes? HELD: A certificate of indebtedness includes only instruments having the general character of investment securities as distinguished from instruments evidencing debts arising in ordinary transactions between individuals. As distinguished from a promissory note which is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money, to order or bearer, T-bills and Central Bank bills are investment securities of a public character, issued by the Philippine Government, thru the Central Bank of the Philippines. On the other hand, the chief feature of a deposit substitute is borrowing. In this case, petitioner sells government securities to private individuals/entities, in which its confirmations of sale are being subjected to documentary stamp tax. There is no borrowing or debt instrument involved in this case. Here, the petitioner, as the seller, simply conveys through sale, specific government securities to the buyer, who thereby acquires title thereto, including the plenary right of disposal. As there is no borrowing, there is no debt with respect to which the seller can be primarily bound. Nor is the seller subsidiarily bound to respond in case the issuer of the said securities defaults, hypothetically assuming that the Philippine Government, as issuer of the securities sold, could default. Precisely, the sale of said government securities is always "without recourse."

3.

BPI V. CIR, 2006

ISSUE: What does Section 182 of the NIRC cover? HELD: Section 182 imposes a documentary stamp tax on (1) foreign bills of exchange, (2) letters of credit, and (3) orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons. This enumeration is further limited by the qualification that they should be drawn in the Philippines and payable outside of the Philippines. ISSUE: What is the definition of a Bill of Exchange (B/E)? HELD: A definition of a bill of exchange is provided by Section 39 of Regulations No. 26, the rules governing documentary taxes promulgated by the Bureau of Internal Revenue (BIR) in 1924:

Sec. 39. Definition of bill of exchange.

The term bill of exchange denotes checks, drafts, and all other kinds of orders for the payment of money, payable at sight, or on demand or after a specific period after sight or from a stated date. Section 126 of The Negotiable Instruments Law (Act No. 2031) reiterates that it is an order for the payment of money and specifies the particular requisites that make it negotiable.

Sec. 126. Bill of exchange defined. A bill of exchange is an unconditional

order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at fixed or determinable future time a sum certain in money to order or to bearer. Section 129 of the same law classifies bills of exchange as inland and foreign, the distinction is laid down by where the bills are drawn and paid. Thus, a foreign bill of exchange may be drawn outside the Philippines, payable outside the Philippines, or both drawn and payable outside of the Philippines.

Sec. 129.

Inland and foreign bills of exchange. -- An inland bill of exchange is a bill which is, or on its face purports to be, both drawn and payable within the Philippines. Any other bill is a foreign bill. x x x
ISSUE: credit? What is the distinction between a B/E and a letter of

HELD: A bill of exchange and a letter of credit may differ as to their negotiability, and as to who owns the funds used for the payment at the time payment is made. However, in both bills of exchange and letters of credit, a person orders another to pay money to a third person. The Code of Commerce loosely defines a letter of credit and provides for its essential conditions, thus:

Art. 567. Letters of credit are those issued by one merchant to another or
for the purpose of attending to a commercial transaction.

Art 568. The essential conditions of letters of credit shall be:

1. To be issued in favor of a definite person and not to order. 2. To be limited to a fixed and specified amount, or to one or more undetermined amounts, but within a maximum the limits of which has to be stated exactly. A more explicit definition of a letter of credit can be found in the commentaries: A letter of credit is one whereby one person requests some other person to advance money or give credit to a third person, and promises that he will repay the same to the person making the advancement, or accept the bills drawn upon himself for the like amount. ISSUE: What is a telegraphic transfer? HELD: The phrase orders, by telegraph or otherwise, for the payment of money used in reference to documentary stamp taxes may be found in an earlier documentary tax provision, Section 1449(i) of the Administrative Code of 1917, which was substantially reproduced in Section 195 (now Section 182) of the NIRC. Regulations No. 26, which provided the rules and guidelines for the documentary stamp tax imposed under the Administrative Code of 1917, contains an explanation for the phrase orders, by telegraph or otherwise, for the payment of money:

What may be regarded as telegraphic transfer.a local bank cables to a

certain bank in a foreign country with which bank said local bank has a credit, and directs that foreign bank to pay to another bank or person in the same locality a certain sum of money, the document for and in respect such transaction will be regarded as a telegraphic transfer, taxable under the provisions of Section 1449(i) of the Administrative Code. ISSUE: What is the nature of a DST? HELD: A documentary stamp tax (DST) is an excise upon the facilities used in the transaction of the business separate and apart from the business itself. It is not a tax upon the business itself which is so transacted, but it is a duty upon the facilities made use of and actually employed in the transaction of the business, and separate and apart from the business itself. ISSUE: What is a draft? HELD: A draft is a form of a bill of exchange used mainly in transactions between persons physically remote from each other. It is an order made by one person, say the buyer of goods, addressed to a person having in his possession funds of such buyer ordering the addressee to pay the purchase price to the seller of the goods. Where the order is made by one bank to another, it is referred to as a bank draft.

4.

SECURITY BANK CORPORATION V. CIR, 2006

Does the term securities include negotiable promissory notes?

NO. The issue of DST assessment on sales of securities with repurchase agreement, which was the subject of the reassessment being questioned in this case, is definitely not within the scope of the compromise agreement, being limited as it is to DST on promissory notes issued prior to October 15, 1984. The DST assessed on the former arises from the act of selling securities (presently taxed under Section 176), while the DST assessed in the latter is on the act of issuing promissory notes (taxed under Section 180). It is evident from the separate provisions governing the two that the law treats these two instruments differently. This Court simply cannot agree with SBC that securities and promissory notes for purposes of the subject Compromise Agreement are one and the same thing. Besides, even assuming, in gratia argumenti, that promissory notes may be included under the generic term securities, securities cannot be included under the specific term promissory notes so as to be deemed within the scope of the same compromise agreement. To be sure, the term promissory note has a definite meaning under the negotiable instruments law, which does not include securities, and this definite meaning is what is deemed incorporated in the compromise agreement entered into by and between SBC and the BIR, unless a different definition is therein expressly agreed upon, which is not the case.

5.

INTERNATIONAL EXCHANGE BANK V. CIR, 2007

ISSUE: Are the Savings Account-Fixed Savings Deposit (FSDs) subject to DST? HELD: Certificates of time deposit are subject to the DST and that a certificate of time deposit is but a type of a certificate of deposit drawing interest.The FSD, like a time deposit, provides for a higher interest rate when the deposit is not withdrawn within the required fixed period; otherwise, it earns interest pertaining to a regular savings deposit. Having a fixed term and the reduction of interest rates in case of pre-termination are essential features of a time deposit. SA-FSD is a deposit account with a fixed term. Withdrawal before the expiration of said fixed term results in the reduction of the interest rate. Having a fixed term and reduction of interest rate in case of pretermination are essentially the features of a time deposit.

Thus, a regular savings account with a passbook which is withdrawable at any time is not subject to DST, unlike a time deposit which is payable on a fixed maturity date. Hence, FSDs are subject to DST. ISSUE: Is the negotiability of an instrument material for the imposition of DST? HELD: Contrary to petitioners claim, not all certificates of deposit are negotiable. A certificate of deposit may or may not be negotiable as gathered from the use of the conjunction or, instead of and, in its definition. A certificate of deposit may be payable to the depositor, to the order of the depositor, or to some other person or his order. In any event, the negotiable character of any and all documents under Section 180 is immaterial for purposes of imposing DST.

SECTION 2 1. NEW SAMPAGUITA AND SPOUSES DEE V. PHILIPPINENATIONAL BANK, 2004

ISSUE: Can banks unilaterally increase interest rates? HELD: The Court holds that petitioners accessory duty to pay interest did not give respondent unrestrained freedom to charge any rate other than that which was agreed upon. No interest shall be due, unless expressly stipulated in writing. It would be the zenith of farcicality to specify and agree upon rates that could be subsequently upgraded at whim by only one party to the agreement. The unilateral determination and imposition of increased rates is violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code. One-sided impositions do not have the force of law between the parties, because such impositions are not based on the parties essential equality. Article 1308. The contracts must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. Although escalation clauses are valid in maintaining fiscal stability and retaining the value of money on long-term contracts, giving respondent an unbridled right to adjust the interest independently and upwardly would completely take away from petitioners the right to assent to an important modification in their agreement and would also negate the element of mutuality in their contracts. The clause cited earlier made the fulfillment of the contracts dependent exclusively upon the uncontrolled will of respondent and was therefore void. Besides, the pro forma promissory notes have the character of a contract dadhsion, where the parties do not bargain on equal footing, the weaker partys [the debtors] participation being reduced to the alternative to take it or leave it. ISSUE: What is the effect of the repeal of the Usury Law? HELD: While the Usury Law ceiling on interest rates was lifted by [Central Bank] Circular No. 905, nothing in the said Circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. Neither this Circular nor PD 1684, which further amended the Usury Law, authorized either party to unilaterally raise the interest rate without the others consent. Rates found to be iniquitous or unconscionable are void, as if it there were no express contract thereon. Above all, it is undoubtedly against public policy to charge excessively for the use of money. ISSUE: What is the use of the Truth in Lending Act? HELD: The time is now ripe to give teeth to the often ignored forty-oneyear old Truth in Lending Act and thus transform it from a snivelling paper tiger to a growling financial watchdog of hapless borrowers. No penalty charges or increases thereof appear either in the Disclosure Statements or in any of the clauses in the second and the third Credit Agreements earlier discussed. While a standard penalty charge of 6 percent per annum has been imposed on the amounts stated in all three Promissory Notes still remaining unpaid or unrenewed when they fell due, there is no stipulation therein that would justify any increase in that charges. The effect, therefore, when the borrower is not clearly informed of the Disclosure Statements -- prior to the consummation of the availment or drawdown -- is that the lender will have no right to collect upon such charge or increases thereof, even if stipulated in the Notes. ISSUE: Can attorneys fees mentioned in the PNs reduced? HELD: Yes, it can be reduced. We affirm the equitable reduction in attorneys fees. These are not an integral part of the cost of borrowing, but arise only when collecting upon the Notes becomes necessary. The purpose of these fees is not to give

respondent a larger compensation for the loan than the law already allows, but to protect it against any future loss or damage by being compelled to retain counsel in-house or not -- to institute judicial proceedings for the collection of its credit. Courts have has the power to determine their reasonableness based on quantum meruit and to reduce the amount thereof if excessive. NOTE: quotable quotes: the time is now ripe to give teeth to the often ignored 41-year old truth in lending act and thus transform it from a sniveling paper tiger to a growling financial watchdog of hapless borrowers) ISSUE: whether or not the RTC and the CA a) correctly deleted the penalty charges because of BPIs alleged failure to comply with the Truth in Lending Act; HELD: NO. the promissory notes signed by the Yus contained data, including penalty charges, required by the Truth in Lending Act. They cannot avoid liability based on a rigid interpretation of the Truth in Lending Act that contravenes its goal. although BPI failed to state the penalty charges in the disclosure statement, the promissory note that the Yus signed, on the same date as the disclosure statement, contained a penalty clause that said: "I/We jointly and severally, promise to further pay a late payment charge on any overdue amount herein at the rate of 3% per month." The promissory note is an acknowledgment of a debt and commitment to repay it on the date and under the conditions that the parties agreed on.43 It is a valid contract absent proof of acts which might have vitiated consent. b) WON it correctly reduced the attorneys fees to 1% of the judgment debt yes. based on the following reasons: (1) attorneys fee is not essential to the cost of borrowing, but a mere incident of collection;55(2) 1% is just and adequate because BPI had already charged foreclosure expenses; (3) attorneys fee of 10% of the total amount due is onerous considering the rote effort that goes into extrajudicial foreclosures.

2.

BPI V. SPOUSES YU

3.

UNION BANK OF THE PHILIPPINES V. SPOUSES TIU

ISSUE: Is the stipulation that the promissory note is payable in dollars prohibited? NO. Art. 1249. The payment of debts in money shall be made in the

currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.

ISSUE: Trace the history of the rule on payment using foreign denomination from Article 1249 of the CC to RA 8183 of July 5, 1996. HELD: June 16, 1950-- Section 1 of Republic Act No. 529, any agreement to pay an obligation in a currency other than the Philippine currency is void; the most that could be demanded is to pay said obligation in Philippine currency to be measured in the prevailing rate of exchange at the time the obligation was incurred. August 30, 1950Civil Code June 19, 1964---Republic Act No. 4100 took effect, modifying Republic Act No. 529 by providing for several exceptions to the nullity of agreements to pay in foreign currency. April 13, 1993--Central Bank Circular No. 1389] was issued, lifting foreign exchange restrictions and liberalizing trade in foreign currency. In cases of foreign borrowings and foreign currency loans, however, prior Bangko Sentral approval was required. July 5, 1996---Republic Act No. 8183 took effect, expressly repealing Republic Act No. 529 in Section 2 thereof. The same statute also explicitly provided that parties may agree that the obligation or transaction shall be settled in a currency other than Philippine currency at the time of payment. Although the Credit Line Agreement between the spouses Tiu and Union Bank was entered into on November 21, 1995, when the agreement to pay in foreign currency was still considered void under Republic Act No. 529, the actual loans, as shown in the promissory notes, were taken out from September 22, 1997 to March 26, 1998, during which time Republic Act No. 8183 was already in effect. In United Coconut Planters Bank v. Beluso,] we held that:

[O]pening a credit line does not create a credit transaction of loan ormutuum, since the former is merely a preparatory contract to the contract of loan or mutuum. Under such credit line, the bank is merely obliged, for the considerations specified therefor, to lend to the other party amounts not exceeding the limit provided. The credit transaction thus occurred not when the credit line was opened, but rather when the credit line was availed of. x x x.
Having established that Union Bank and the spouses Tiu validly entered into dollar loans, the conclusion of the Court of Appeals that there were no dollar loans to novate into peso loans must necessarily fail.

SECTION 5 PNB V. MANILA OIL REFINING CORP

ISSUE: Whether or not the promissory note containing a confession of judgment is legal HELD: NO. Judgments by confession as appeared at common law were considered an amicable, easy, and cheap way to settle and secure debts. They are a quick remedy and serve to save the court's time. They also save the time and money of the litigants and the government the expenses that a long litigation entails. In one sense, instruments of this character may be considered as special agreements, with power to enter up judgments on them, binding the parties to the result as they themselves viewed it. On the other hand, are disadvantages to the commercial world which outweigh the considerations just mentioned. Such warrants of attorney are void as against public policy, because they enlarge the field for fraud, because under these instruments the promissor bargains away his right to a day in court, and because the effect of the instrument is to strike down the right of appeal accorded by statute. The recognition of such a form of obligation would bring about a complete reorganization of commercial customs and practices, with reference to short-term obligations. It can readily be seen that judgement notes, instead of resulting to the advantage of commercial life in the Philippines might be the source of abuse and oppression, and make the courts involuntary parties thereto. If the bank has a meritorious case, the judgement is ultimately certain in the courts. We are of the opinion that warrants of attorney to confess judgment are not authorized nor contemplated by our law. We are further of the opinion that provisions in notes authorizing attorneys to appear and confess judgments against makers should not be recognized in this jurisdiction by implication and should only be considered as valid when given express legislative sanction. ISSUE: What will happen to the negotiable instrument? Is it still valid? HELD: YES. The Negotiable Instruments Law, in section 5, provides that "The negotiable character of an instrument otherwise negotiable is not affected by a provision which ". . . (b) Authorizes a confession of judgment if the instrument be not paid at maturity." We do not believe, however, that this provision of law can be taken to sanction judgments by confession, because it is a portion of a uniform law which merely provides that, in jurisdiction where judgment notes are recognized, such clauses shall not affect the negotiable character of the instrument. Moreover, the same section of the Negotiable Instruments. Law concludes with these words: "But nothing in this section shall validate any provision or stipulation otherwise illegal." DECISION: The judgment appealed from is set aside, and the case is remanded to the lower court for further proceedings in accordance with this decision. Without special finding as to costs in this instance, it is so ordered. NOTES: At common law, there were two kinds of judgments by confession; the one a judgment by cognovit actionem, and the other by confession relicta verificatione.

SECTION 7 International CORPORATE BANK V. GUECO, 2001

ISSUE: What is a stale check? HELD: A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an instrument not payable on demand must be presented for payment on the day it falls due. When the instrument is payable on demand, presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof. ISSUE: What is meant by reasonable time after issue that a check must be presented for payment? HELD: A check must be presented for payment within a reasonable time after its issue, and in determining what is a "reasonable time," regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case. The test is whether the payee employed such diligence as a prudent man exercises in his own affairs. This is because the nature and theory behind the use of a check points to its immediate use and payability. In a case, a check payable on demand which was long overdue by about 2-1/2 years was considered a stale check. Failure of a payee to encash a check for more than 10 years undoubtedly resulted in the check becoming stale. Thus, even a delay of 1 week or 2 days, under the specific circumstances of the cited cases constituted unreasonable time as a matter of law.

ISSUE: What is the nature of a managers check? HELD: A manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a cashier's check both as to effect and use. A cashier's check is a check of the bank's cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance. It is really the bank's own check and may be treated as a promissory note with the bank as a maker. The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance.

SECTION 9 (BEARER INSTURMETNS) 1. VERTUDES V. BUENAFLOR, 2005

ISSUE: What is the effect of the issuance of bearer checks that were not crossed? HELD: The two checks were made payable to "cash," a bearer instrument, and was not even crossed on its face, hence, can be encashed by any person holding the negotiable instrument. ISSUE: Is this proof that the transaction was not for loan but the promise for travel document to Japan? HELD: YES, it is proof that the transaction was not for a loan. Aside from petitioners testimony and that of her household helpers to prove this assertion, no other independent and unbiased evidence was offered to prove the fact of loan. As it is, her theory of loan stands on flimsy ground and is not sufficient enough to overthrow the fact established by complainant. This considering that it is highly improbable and even contrary to human experience for a person to loan a huge amount of money as P 50,000.00 without any document evidencing such loan nor a collateral to secure its payment. Note even that the two checks were made payable to "cash," a bearer instrument, and was not even crossed on its face, hence, can be encashed by any person holding the negotiable instrument. If, indeed, private respondent gave the two checks to petitioner as a clean loan (without any collateral) without any separate document embodying their loan agreement, the latter should have at least been made the payee of the checks and a memorandum written at the back of the check to the effect that it is being extended as a loan, in order to protect the interest of the lender. This is conventional business practice which is altogether absent in the case at bar, hence, petitioner's theory of loan must necessarily crumble.

2.

PNB V. RODRIGUEZ, 2008

Can an actual, existing and living payee be considered fictitious? YES. A review of US jurisprudence yields that an actual, existing, and living payee may also be "fictitious" if the maker of the check did not intend for the payee to in fact receive the proceeds of the check. This usually occurs when the maker places a name of an existing payee on the check for convenience or to cover up an illegal activity.[14] Thus, a check made expressly payable to a non-fictitious and existing person is not necessarily an order instrument. If the payee is not the intended recipient of the proceeds of the check, the payee is considered a "fictitious" payee and the check is a bearer instrument. Who bears the loss in a fictitious payee situation, the drawee or drawer? In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss. What is the fictitious payee rule? When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery. The underlying theory is that one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. And since the maker knew this limitation, he must have intended for the instrument to be negotiated by mere delivery. Thus, in case of controversy, the drawer of the check will bear the loss. This rule is justified for otherwise, it will be most convenient for the maker who desires to escape payment of the check to always deny the validity of the indorsement. This despite the fact that the fictitious payee was purposely named without any intention that the payee should receive the proceeds of the check. What is the commercial bad faith exception to the ficitious payee rule? A showing of commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense. The exception will cause it to bear the loss. Commercial

bad faith is present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme. n the case under review, the Rodriguez checks were payable to specified payees. It is unrefuted that the 69 checks were payable to specific persons. Likewise, it is uncontroverted that the payees were actual, existing, and living persons who were members of PEMSLA that had a rediscounting arrangement with spouses Rodriguez. For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not intend for the named payees to be part of the transaction involving the checks. At most, the bank's thesis shows that the payees did not have knowledge of the existence of the checks. This lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention on the part of respondentsspouses that the payees would not receive the checks' proceeds. Considering that respondents-spouses were transacting with PEMSLA and not the individual payees, it is understandable that they relied on the information given by the officers of PEMSLA that the payees would be receiving the checks Verily, the subject checks are presumed order instruments. PNB failed to present sufficient evidence to defeat the claim of respondents-spouses that the named payees were the intended recipients of the checks' proceeds. The bank failed to satisfy a requisite condition of a fictitiouspayee situation - that the maker of the check intended for the payee to have no interest in the transaction. FICTITIOUS PAYEE RULE DOES not apply. Thus, the checks are to be deemed payable to order. Consequently, the drawee bank bears the loss.[20]

SECTION 12 SAN MIGUEL V. PUZON

ISSUE: What is the meaning of delivery in relation to Sec. 16? Held: Sec. 12. Antedated and postdated The instrument is not invalid for the reason only that it is antedated or postdated, provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery. (Underscoring supplied. Note however that delivery as the term is used in the aforementioned provision means that the party delivering did so for the purpose of giving effect thereto.[12] Otherwise, it cannot be said that there has been delivery of the negotiable instrument. Once there is delivery, the person to whom the instrument is delivered gets the title to the instrument completely and irrevocably. If the subject check was given by Puzon to SMC in payment of the obligation, the purpose of giving effect to the instrument is evident thus title to or ownership of the check was transferred upon delivery. However, if the check was not given as payment, there being no intent to give effect to the instrument, then ownership of the check was not transferred to SMC. The evidence of SMC failed to establish that the check was given in payment of the obligation of Puzon. There was no provisional receipt or official receipt issued for the amount of the check. What was issued was a receipt for the document, aPOSTDATED CHECK SLIP.[13] ISSUE: When the check was issued only for security and was taken by the drawer who gave it as security can the drawer be charged for theft. Held: NO. Considering that the second element is that the thing taken belongs to another, it is relevant to determine whether ownership of the subject check was transferred to petitioner. The evidence proves that the check was accepted, not as payment, but in accordance with the long-standing policy of SMC to require its dealers to issue postdated checks to cover its receivables. The check was only meant to cover the transaction and in the meantime Puzon was to pay for the transaction by some other means other than the check. Title to the check did not transfer to SMC; it remained with Puzon. The 2 nd element of the felony of theft was threrefore not established. Petitioner was not able to show that Puzon took a check that belonged to another. Hence, the prosecutor and the DOJ were collect in finding no probable cause for theft.

SECTIONS 14-15-16 1. BORROMEO V. SUN AND CA, 1999

ISSUE: Is document subject in this case executed with similar effects as Section 14 of the Negotiable Instruments Law? HELD: YES, the subject Deed of Assignment is embodied in a blank form for the assignment of shares with authority to transfer such shares in the

2.

QUIRINO GONZALES LOGGING V. CA AND REPUBLIC PLANTERS BANK, 2003

books of the corporation. It was clearly intended to be signed in blank to facilitate the assignment of shares from one person to another at any future time. This is similar to Section 14 of the Negotiable Instruments Law where the blanks may be filled up by the holder, the signing in blank being with the assumed authority to do so. ISSUE: Did the promissory note comply with Section 1 of the Negotiable Instruments Law? YES. What is the presumption of consideration? HELD: YES. The promissory notes appear to be negotiable as they meet the requirements of Section 1 of the Negotiable Instruments Law. Such being the case, the notes are prima facie deemed to have been issued for consideration. It bears noting that no sufficient evidence was adduced by petitioners to show otherwise. ISSUE: blank? What is the consequence of an instrument issued in

HELD: In any case, it is no defense that the promissory notes were signed in blank as Section 1448 of the Negotiable Instruments Law concedes the prima facie authority of the person in possession of negotiable instruments, such as the notes herein, to fill in the blanks.

3.

SPOUSES OJEDA V. ORBETA, 206

ISSUE: What is the effect of a blank check that was delivered? HELD: the presumption is that the latter had prima facie authority to complete the check by filling up the same. Here, the provision of Section 14 of the Negotiable Instruments Law is pertinent. The law merely requires that the instrument be in the possession of a person other than the drawer or maker, and from such possession, together with the fact that the instrument is wanting in a material particular, the law presumes agency to fill up the blanks. Because of the presumption of authority, the burden of proving that there was no authority or that the authority granted was exceeded is placed on the person questioning such authority. There is nothing on record to show that the prima facie presumption created by the afore-quoted section was successfully refuted by the spouses. Therefore, the couple's stance that they cannot be held liable for the check because they were not the ones who wrote the date, the name of the payee and the amount, is untenable.

4.

CHING V. NICDAO, 2007

ISSUE: What is the effect of Sections 15 and 16 of the NIL? HELD: The P20,000,000.00 check was filled up by Ching without Nicdaos authority. Further, it was incomplete and undelivered. Hence, Ching did not acquire any right or interest therein and could not assert any cause of action founded on the stolen checks. Respondent could not be held liable for violation of BP 22. ISSUE: Is the check here an evidence of indebtedness? HELD: Generally checks may constitute evidence of indebtedness. However, in view of the CAs findings relating to the 11 checks - that the P20,000,000.00 was a stolen check and the obligations secured by the other 10 checks had already been fully paid by Nicdao they can no longer be given credence to establish Nicdaos civil liability to Ching. Such civil liability, therefore, must be established by preponderant evidence other than the discredited checks. The existence of Nicdaos civil liability to Ching in the amount of P20,950,000.00 representing her unpaid obligations to the latter has not been sufficiently established by preponderant evidence.

5.

LUNARIA V. PEOPLE, 2008

ISSUE: What is the effect of Section 14 of the Negotiable Instruments? HELD: At the outset, it should be borne in mind that the exchange of the pre-signed checks without date and amount between the parties had been their practice for almost a year by virtue of their money-lending business. They had authority to fill up blanks upon information that a check can then be issued. ISSUE: What is presumption of authority to fill the blanks? HELD: Because of the presumption of authority, the burden of proof that there was no authority or that authority granted was exceeded is carried by the person who questions such authority. Records show that [petitioner] had not proven lack of authority on the part of Artaiz to fill up such blanks. Having failed to prove lack of authority, it can be presumed that Artaiz was within his rights to fill up blanks on the check. Note: Issue means the first delivery of the instrument, complete in form, to a person who takes it as a holder.

6.

DY V. PEOPLE AND CA, 2008

ISSUE: What is Issuance of a check under Section 191?

HELD: Section 191 of the Negotiable Instruments Law defines "issue" as the first delivery of an instrument, complete in form, to a person who takes it as a holder. Significantly, delivery is the final act essential to the negotiability of an instrument. Delivery denotes physical transfer of the instrument by the maker or drawer coupled with an intention to convey title to the payee and recognize him as a holder. It means more than handing over to another; it imports such transfer of the instrument to another as to enable the latter to hold it for himself. ISSUE: What is the prima facie authority to complete blank material particulars under Section 14 of the Negotiable Instruments Law? HELD: In this case, even if the checks were given to W.L. Foods in blank, this alone did not make its issuance invalid. When the checks were delivered to Lim, through his employee, he became a holder with prima facie authority to fill the blanks. This was, in fact, accomplished by Lim's accountant. Hence, the law merely requires that the instrument be in the possession of a person other than the drawer or maker. From such possession, together with the fact that the instrument is wanting in a material particular, the law presumes agency to fill up the blanks. Because of this, the burden of proving want of authority or that the authority granted was exceeded, is placed on the person questioning such authority. Petitioner failed to fulfill this requirement.

7.

BANK OF AMERICA V. PHILIPPPINE RACING CLUB, 2009

ISSUE: What are the effects of Article 14 and 16? HELD: In defense of its cashier/tellers questionable action, petitioner insists that pursuant to Sections 14 and 16 of the NIL, it could validly presume, upon presentation of the checks, that the party who filled up the blanks had authority and that a valid and intentional delivery to the party presenting the checks had taken place. Thus, in petitioners view, the sole blame for this debacle should be shifted to Philippine Racing club for having its signatories pre-sign and deliver the subject checks. Petitioner argues that there was indeed delivery in this case because, following American jurisprudence, the gross negligence of respondents accountant in safekeeping the subject checks which resulted in their theft should be treated as a voluntary delivery by the maker who is estopped from claiming non-delivery of the instrument. ISSUE: What is the effect of Article 15? HELD: Petitioners contention would have been correct if the subject checks were correctly and properly filled out by the thief and presented to the bank in good order. In that instance, there would be nothing to give notice to the bank of any infirmity in the title of the holder of the checks and it could validly presume that there was proper delivery to the holder. The bank could not be faulted if it encashed the checks under those circumstances. However, the undisputed facts plainly show that there were circumstances that should have alerted the bank to the likelihood that the checks were not properly delivered to the person who encashed the same. In all, we see no reason to depart from the finding in the assailed CA Decision that the subject checks are properly characterized as incomplete and undelivered instruments thus making Section 15 of the NIL applicable in this case. ISSUE: What is material alteration? HELD: A material alteration is defined in Section 125 of the NIL to be one which changes the date, the sum payable, the time or place of payment, the number or relations of the parties, the currency in which payment is to be made or one which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect. With respect to the checks at issue, petitioner points out that they do not contain any material alteration. ISSUE: What is meant by obvious irregularity? HELD: Although not in the strict sense "material alterations," the misplacement of the typewritten entries for the payee and the amount on the same blank and the repetition of the amount using a check writer were glaringly obvious irregularities on the face of the check. Another type of irregularity: such as when blanks were not properly filled out)Clearly, someone made a mistake in filling up the checks and the repetition of the entries was possibly an attempt to rectify the mistake. RULING: Following established jurisprudential precedents,[27] we believe the allocation of sixty percent (60%) of the actual damages involved in this case (represented by the amount of the checks with legal interest) to petitioner is proper under the premises. Respondent should, in light of its contributory negligence, bear forty percent (40%) of its own loss.

SECTION 17

1.

PEOPLE V. ROMERO, 1999

Is section 17 of the NIL applicable?

HELD: No, it is not applicable The rule in the Negotiable Instruments Law is that when there is ambiguity in the amount in words and the amount in figures, it would be the amount in words that would prevail. However, this rule of interpretation finds no application in the case. The agreement was perfectly clear that at the end of 21 days, the investment of P150,000.00 would become P1,200,000.00. Even if the trial court admitted the stipulation of facts, it would not be favorable to accused-appellant.

2.

SAPIERA V. CA, 1999

ISSUE: In what capacity did Sapiera sign when there is doubt as to her signature? What is the rule of construction under Section 17? HELD: Despite the conflicting versions of the parties, it is undisputed that the four (4) checks issued by de Guzman were signed by petitioner at the back without any indication as to how she should be bound thereby and, therefore, she is deemed to be an indorser thereof. The Negotiable Instruments Law clearly provides

Sec. 17. Construction where instrument is ambiguous. - Where the

language of the instrument is ambiguous, or there are admissions therein, the following rules of construction apply: x x x x (f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is deemed an indorser. x x x x ISSUE: Who are indorsers under Section 63? HELD:

Sec. 63. When person deemed indorser. - A person placing his signature
upon an instrument otherwise than as maker, drawer or acceptor, is deemed to be an indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity. ISSUE: What is the liability of an indorser under Section 66? HELD:

Sec. 66. Liability of general indorser. - Every indorser who indorses

without qualification, warrants to all subsequent holders in due course: (a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next preceding section; and (b) That the instrument is, at the time of the indorsement, valid and subsisting; And, in addition, he engages that, on due presentment, it shall be accepted or paid or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it.

3.

EVANGELISTA V. MERCATOR FINANCE CORP, 2003

ISSUE: What rule must be followed if there is no ambiguity? HELD: Courts can interpret a contract only if there is doubt in its letter. But, an examination of the promissory note shows no such ambiguity. ISSUE: How will the document be interpreted under Section 17 of the NIL when the NI reads: I/WE and signed by two or more persons? HELD: Assuming arguendo that there is an ambiguity, Section 17 of the Negotiable Instruments Law states, viz:

Sec. 17. Construction where instrument is ambiguous. Where the

language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: xxx xxx xxx (g) Where an instrument containing the word I promise to pay is signed by two or more persons, they are deemed to be jointly and severally liable thereon.

SECTIONS 19, 20, 44, 69 1. FRANCISCO V. CA, 1999

ISSUE: What are the effects of the finds of fact of the trial courts of the existence of forgery? HELD: As regards the forgery, we concur with the lower courts' finding that Francisco forged the signature of Ong on the checks to make it appear as if Ong had indorsed said checks and that, after indorsing the checks for a second time by signing her name at the back of the checks, Francisco deposited said checks in her savings account with IBAA. The

forgery was satisfactorily established in the trial court upon the strength of the findings of the NBI handwriting expert. Other than petitioner's selfserving denials, there is nothing in the records to rebut the NBI's findings. Well-entrenched is the rule that findings of trial courts which are factual in nature, especially when affirmed by the Court of Appeals, deserve to be respected and affirmed by the Supreme Court, provided it is supported by substantial evidence on record, as it is in the case at bench. ISSUE: How a NI may be issued through an agent (Section 20) or indorsed in a representative capacity (Section 44)? HELD: The Negotiable Instruments Law provides that where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. An agent, when so signing, should indicate that he is merely signing in behalf of the principal and must disclose the name of his principal; otherwise he shall be held personally liable. Even assuming that Francisco was authorized by HCCC to sign Ong's name, still, Francisco did not indorse the instrument in accordance with law. Instead of signing Ong's name, Francisco should have signed her own name and expressly indicated that she was signing as an agent of HCCC. Thus, the Certification cannot be used by Francisco to validate her act of forgery.

2.

SOLIDBANK CORP V. MINADANAO FERROALLOY CORP

ISSUE: What is the liability of an agent under Section 19 and 20 of the NIL? HELD: The Promissory Note in question is a negotiable instrument. Under Section 19 of the Negotiable Instruments Law, agents or representatives may sign for the principal. Their authority may be established, as in other cases of agency. Section 20 of the law provides that a person signing for and on behalf of a [disclosed] principal or in a representative capacity x x x is not liable on the instrument if he was duly authorized. Respondents Cu and Hong signed the Promissory Note without the word by preceding their signatures, atop the designation Maker/Borrower and the printed name of the corporation. While their signatures appear without qualification, the inference that they signed in their individual capacities is negated by the following facts: 1) the name and the address of the corporation appeared on the space provided for Maker/Borrower; 2) Respondents Cu and Hong had only one set of signatures on the instrument, when there should have been two, if indeed they had intended to be bound solidarily -- the first as representatives of the corporation, and the second as themselves in their individual capacities; 3) they did not sign under the spaces provided for Co-maker, and neither were their addresses reflected there; and 4) at the back of the Promissory Note, they signed above the words Authorized Representative. The authority of Respondents Cu and Hong to sign for and on behalf of the corporation has been amply established by the Resolution of Minfacos Board of Directors. In the totality of the circumstances, Respondents Cu and Hong clearly signed the Note merely as representatives of Minfaco. Hence, they are not solidarily liable since they acted merely as agents. Since solidary liability is not clearly expressed in the Promissory Note and is not required by law or the nature of the obligation in this case, no conclusion of solidary liability can be made.

SECTION 22 ATRIUM MANAGEMEN TCORP V. CA, 2001

ISSUE: What is an ultra vires act? HELD: "An ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the power conferred upon it by law". The term "ultra vires" is "distinguished from an illegal act for the former is merely voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated." ISSUE: In what instances will personal liability of corporate officers attach? HELD: "Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when: "1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; "2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; "3. He agrees to hold himself personally and solidarily liable with the corporation; or

"4. He is made, by a specific provision of law, to personally answer for his corporate action." In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of Hi-Cement were authorized to issue the checks. However, Ms. de Leon was negligent when she signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware that the checks were strictly endorsed for deposit only to the payee's account and not to be further negotiated. What is more, the confirmation letter contained a clause that was not true, that is, "that the checks issued to E.T. Henry were in payment of Hydro oil bought by HiCement from E.T. Henry". Her negligence resulted in damage to the corporation. Hence, Ms. de Leon may be held personally liable therefor. ISSUE: What is a holder in due course? HELD: The Negotiable Instruments Law, Section 52 defines a holder in due course, thus: Section 52. A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. ISSUE: Is Atrium a holder in due course when it re-discounted the crossed checks? HELD: In the instant case, the checks were crossed checks and specifically indorsed for deposit to payee's account only. From the beginning, Atrium was aware of the fact that the checks were all for deposit only to payee's account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due course. ISSUE: Are holders not in due course precluded from recovering on the instrument? HELD: However, it does not follow as a legal proposition that simply because petitioner Atrium was not a holder in due course for having taken the instruments in question with notice that the same was for deposit only to the account of payee E.T. Henry that it was altogether precluded from recovering on the instrument. The Negotiable Instruments Law does not provide that a holder not in due course can not recover on the instrument. The disadvantage of Atrium in not being a holder in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. One such defense is absence or failure of consideration.

SECTION 23 1. ASSOCIATED BANK V. CA, 2001

ISSUE: Give a review of the effects of a forged indorsement HELD: A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument through it. A person whose signature to an instrument was forged was never aparty and never consented to the contract which allegedly gave rise to such instrument. Section 23 does not avoid the instrument but only the forged signature. Thus, a forged indorsement does not operate as the payees indorsement. The exception to the general rule in Section 23 is where a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of authority. Parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or negligence, are estopped from setting up the defense of forgery are precluded from using this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness of the signatures on the instrument. In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the instrument. Hence, when the indorsement is a forgery, only the person whose signature is forged can raise the defense of forgery against a holder in due course. Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the holders indorsement is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto An indorser of an order instrument warrants that the instrument is

genuine and in all respects what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid and subsisting. He cannot interpose the defense that signatures prior to him are forged. A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the bankss client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank. The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The drawers instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the drawers order. When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customers (the drawer) account only for properly payable items. Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to reimbursement from the drawer. The general rule then is that the drawee bank may not debit the drawers account and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank. If the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the forgery. If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss, then such loss from the forgery can be apportioned between the negligent drawer and the negligent bank. In cases involving a forged check, where the drawers signature is forged, the drawer can recover from the drawee bank. No drawee bank has a right to pay a forged check. If it does, it shall have to recredit the amount of the check to the account of the drawer. The liability chain ends with the drawee bank whose responsibility it is to know the drawers signature since the latter is its customer. In cases involving checks with forged indorsements, such as the present petition, the chain of liability does not end with the drawee bank. The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the party who took from the forger and, of course, to the forger himself, if available. In other words, the drawee bank can seek reimbursement or a return of the amount it paid from the presentor bank or person. Theoretically, the latter can demand reimbursement from the person who indorsed the check to it and so on. The loss falls on the party who took the check from the forger, or on the forger himself. Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee bank. The former must necessarily return the money paid by the latter because it was paid wrongfully. In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB). The former will necessarily be liable to the latter for the checks bearing forged indorsements. If the forgery is that of the payees or holders indorsement, the collecting bank is held liable, without prejudice to the latter proceeding against the forger. More importantly, by reason of the statutory warranty of a general indorser in Section 66 of the Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged indorsement and presents it to .the drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. This liability scheme operates without regard to fault on the part of the collecting/presenting bank. Even if the latter bank was not negligent, it would still be liable to the drawee bank because of its indorsement. The Court has consistently ruled that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history because he is a client. It has taken a risk on his deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the indorsement. The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness of any indorsement. The drawee banks duty is but to verify the genuineness of the drawers signature and not of the indorsement because the drawer is its client. The drawee bank can recover the amount paid on the check bearing a forged indorsement from the collecting bank. However, a drawee bank has the duty to promptly inform the presentor of the forgery upon discovery. If the drawee bank delays in informing the presentor of the

forgery, thereby depriving said presentor of the right to recover from the forger, the former is deemed negligent and can no longer recover from the presentor. ISSUE: Where thirty checks beraing forged endorsements are paid, who bears the loss, the drawer, the drawee bank or the collecting bank? HELD: Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the current account of the Province of Tarlac because it paid checks which bore forged indorsements. However, if the Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss, then the drawee bank PNB can charge its account. If both drawee bank-PNB and drawer-Province of Tarlac were negligent, the loss should be properly apportioned between them. The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto Pangilinan, liable. If PNB negligently delayed in informing Associated Bank of the forgery, thus depriving the latter of the opportunity to recover from the forger, it forfeits its right to reimbursement and will be made to bear the loss. After careful examination of the records, the Court finds that the Province of Tarlac was equally negligent and should, therefore, share the burden of loss from the checks bearing a forged indorsement. The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the latter, having already retired from government service, was no longer connected with the hospital. With the exception of the first check, all the checks were issued and released after Pangilinans retiremen. After nearly three years, the Treasurers office was still releasing the checks to the retired cashier. In addition, some of the aid allotment checks were released to Pangilinan and the others to Elizabeth Juco, the new cashier. The fact that there were now two persons collecting the checks for the hospital is an unmistakable sign of an irregularity which should have alerted employees in the Treasurers office of the fraud being committed. There is also evidence indicating that the provincial employees were aware of Pangilinans retirement and consequent dissociation from the hospital. The failure of the Province of Tarlac to exercise due care contributed to a significant degree to the loss tantamount to negligence. Hence, the Province of Tarlac should be liable for part of the total amount paid on the questioned checks. The drawee bank PNB also breached its duty to pay only according to the terms of the check. Hence, it cannot escape liability and should also bear part of the loss. The Court finds as reasonable, the proportionate sharing of fifty percent - fifty percent (50%-50%). Due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital for a period close to three years and in not properly ascertaining why the retired hospital cashier was collecting checks for the payee hospital in addition to the hospitals real cashier, respondent Province contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB. The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of the payees indorsement. A delay in informing the collecting bank (Associated Bank) of the forgery, which deprives it of the opportunity to go after the forger, signifies negligence on the part of the drawee bank (PNB) and will preclude it from claiming reimbursement.

2.

SPOUSES ANTONIO V.SPOUSES OMNES

ISSUE: Are the Antonios precluded from recovering from Standard Chartered Bank due to negligence? HELD: Yes, they are precluded from recovering. Petitioners failed to meet the quantum of proof necessary to establish forgery, the existence of which cannot be presumed. the failure of Mr. Antonio for over three years to detect the repeated commission of fraud within his business, which he claims eventually involved the total amount of P4,720,600.00, despite the fact that respondent bank sent monthly statements to Rarecrafts, is indicative of his extreme negligence. It appears that Mr. Antonio completely left to Mrs. Omnes the management of such an important aspect of his business. While the general rule is that a drawee bank which clears a forged check for payment should reimburse the drawer, this does not apply when the failure of the latter to exercise ordinary care made the loss possible. Hence, even is the signatures in the checks were forged, petitioners have no right of recourse against respondent bank.

3.

METROPOLITAN BANK V. SANVAR DEVELOPMENT COPR, 2001

ISSUE: Whether or not Sanvars complaint states a cause of action against Metrobank, the collecting bank, as to the two checks?

HELD: The answer is in the affirmative. Respondents complaint alleges that Talaue, instead of bringing the same to respondents office in Quezon City and contrary to his representation, deposited the checks to the account of Lily Ballesteros with petitioner bank, by falsifying the indorsements of Engr. Urrea; that petitioner bank, despite the falsification of the indorsements of Engr. Urrea and the obvious irregularity of his alleged indorsements, accepted the deposit of the 2 checks to the account of Lily Ballesteros; and that by virtue of the negligent acts of petitioner bank, together with that of Eduardo Talaue, respondent had been damaged and prejudiced in the total amount of P368,996.06. Petitioner contends that respondents complaint does not state a cause of action against it, since the same does not allege that petitioner committed any wrongdoing or fraud but only alleges that petitioner agreed to act as collecting bank and did not honor the checks. This contention is without merit. Section 23 of the Negotiable Instruments Law provides that when a signature is forged or made without authority of the person whose signature it purports to be, it is wholly inoperative and no right to retain the instrument or to give a discharge therefor or to enforce payment thereof against any party thereto can be acquired through or under such signature unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. Talaue forged the indorsements of Engr. Urrea which allowed the former to deposit the checks to the account of Lily Ballesteros. The checks were then indorsed by petitioner Metrobank (as collecting bank) to DBP, as drawee bank. Petitioner acted as a general indorser when it stamped all prior indorsements and/or lack of indorsements guaranteed because it thereby warranted the genuineness of all prior indorsenients. Petitioner is thus liable to DBP for the two checks as a forged indorsement does not operate as the payees indorsement. By reason of the statutory warranty of a general indorser in Section 66 of the Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. This liability scheme operates without regard to fault on the part of the collecting/presenting bank. Even if the latter bank was not negligent, it would still be liable to the drawee bank because of its indorsement. ISSUE: Who bears the loss in case of a forged instrument? HELD: The Court has consistently ruled that "the collecting bank or last indorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment had done its duty to ascertain the genuineness of the indorsements. The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness of any indorsement. The drawee banks duty is but to verify the genuineness of the drawers signature and not of the indorsement because the drawer is its client. Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history because he is a client. It has taken a risk on his deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the indorsement.

4.

WESTMONT BANK V. ONG, 2002

ISSUE: What is the effect of forgery? HELD: Since the signature of the payee, in the case at bar, was forged to make it appear that he had made an indorsement in favor of the forger, such signature should be deemed as inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in making payment by virtue of said forged signature. The payee, herein respondent, should therefore be allowed to recover from the collecting bank. ISSUE: What is the nature of the liability of a collecting bank in forgeries of indorsements? HELD: The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that the payees endorsement was genuine before cashing the check. As a general rule, a bank or corporation 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 the amount has been paid to the person from whom the check was obtained. ISSUE: Is Ong a holder under Section 51 and 191 when he was never in actual or physical possession of the checks?

Section 51. Right of holder to sue; payment The holder of a negotiable

instrument may sue thereon in his own name; and payment to him in due course discharges the instrument.

Section 191. Definitions and meaning of terms In this Act, unless the
context otherwise requires xxx Holder means the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof; xxx HELD: Yes, Ong is a holder even if he never had possession of the checks nor did he authorize anybody. Petitioners claim that since there was no delivery yet and respondent has never acquired possession of the checks, respondents remedy is with the drawer and not with petitioner bank. Petitioner relies on the view to the effect that where there is no delivery to the payee and no title vests in him, he ought not to be allowed to recover on the ground that he lost nothing because he never became the owner of the check and still retained his claim of debt against the drawer. However, another view in certain cases holds that even if the absence of delivery is considered, such consideration is not material. ISSUE: What is the concept of a desirable short cut? HELD: A desirable shortcut is to reach the party who ought in any event to be ultimately liable. The plaintiff uses one action to reach, by a desirable short cut, the person who ought in any event to be ultimately liable as among the innocent persons involved in the transaction. In other words, the payee ought to be allowed to recover directly from the collecting bank, regardless of whether the check was delivered to the payee or not. ISSUE: What is the degree of care required for banks considering the nature of its business? Why was there negligence here? HELD: Banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and depositors who transact business with them. They have the obligation to treat their clients account meticulously and with the highest degree of care, considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family. In the present case, petitioner was held to be grossly negligent in performing its duties. As found by the trial court: xxx (A)t the time the questioned checks were accepted for deposit to Paciano Tanlimcos account by defendant bank, defendant bank, admittedly had in its files specimen signatures of plaintiff who maintained a current account with them. Given the substantial face value of the two checks, totalling P1,754,787.50, and the fact that they were being deposited by a person not the payee, the very least defendant bank should have done, as any reasonable prudent man would have done, was to verify the genuineness of the indorsements thereon. The Court cannot help but note that had defendant conducted even the most cursory comparison with plaintiffs specimen signatures in its files it would have at once seen that the alleged indorsements were falsified and were not those of the plaintiff-payee. However, defendant apparently failed to make such a verification or, what is worse did so but, chose to disregard the obvious dissimilarity of the signatures. The first omission makes it guilty of gross negligence; the second of bad faith. In either case, defendant is liable to plaintiff for the proceeds of the checks in question. ISSUE: Was Ong barred by laches since it took him five (5) months to demand from Westmont? HELD: In the case at bar, it cannot be said that respondent sat on his rights. He immediately acted after knowing of the forgery by proceeding to seek help from the Tanlimco family and later the Central Bank, to remedy the situation and recover his money from the forger, Paciano Tanlimco. Only after he had exhausted possibilities of settling the matter amicably with the family of Tanlimco and through the CB, about five months after the unlawful transaction took place, did he resort to making the demand upon the petitioner and eventually before the court for recovery of the money value of the two checks. These acts cannot be construed as undue delay in or abandonment of the assertion of his rights. Moreover, the claim of petitioner that respondent should be barred by laches is clearly a vain attempt to deflect responsibility for its negligent act. As explained by the appellate court, it is petitioner which had the last clear chance to stop the fraudulent encashment of the subject checks had it exercised due diligence and followed the proper and regular banking procedures in clearing checks. As we had earlier ruled, the one who had the last clear opportunity to avoid the impending harm but failed to do so is chargeable with the consequences thereof.

5.

TRADERS ROYAL BANK V. RADIO PHILIPPINES NETWORK, 2002

ISSUE: Whether or not TRB should be held solely liable when it paid the amount of the checks in question to a person other than the payee indicated on the face of the check, the BIR? HELD: YES, TRB is solely liable. Petitioner ought to have known that, where a check is drawn payable to the order of one person and is

presented for payment by another and purports upon its face to have been duly indorsed by the payee of the check, it is the primary duty of petitioner to know that the check was duly indorsed by the original payee and, where it pays the amount of the check to a third person who has forged the signature of the payee, the loss falls upon petitioner who cashed the check. Its only remedy is against the person to whom it paid the money. Since TRB did not pay the rightful holder or other person or entity entitled to receive payment, it has no right to reimbursement. Petitioner TRB was remiss in its duty and obligation, and must therefore suffer the consequences of its own negligence and disregard of established banking rules and procedures. ISSUE: What is the effect of Section 23 of the NIL? HELD: When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature. ISSUE: What is the consequence of a bank paying a forged check? HELD:Consequently, if a bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. ISSUE: What is a crossed check? HELD: It should be noted further that one of the subject checks was crossed. The crossing of one of the subject checks should have put petitioner on guard; it was duty-bound to ascertain the indorsers title to the check or the nature of his possession. Petitioner should have known the effects of a crossed check: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once to one who has an account with a bank and (c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course. ISSUE: Was TRB negligent? HELD: YES, TRB was negligent. By encashing in favor of unknown persons checks which were on their face payable to the BIR, a government agency which can only act only through its agents, petitioner did so at its peril and must suffer the consequences of the unauthorized or wrongful endorsement. In this light, petitioner TRB cannot exculpate itself from liability by claiming that respondent networks were themselves negligent. A bank is engaged in a business impressed with public interest and it is its duty to protect its many clients and depositors who transact business with it. It is under the obligation to treat the accounts of the depositors and clients with meticulous care, whether such accounts consist only of a few hundreds or millions of pesos. ISSUE: What is a collecting bank? HELD: A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the banks client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank. A collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement itself, and ultimately should be held liable therefor. ISSUE: Under the circumstances, is Security Bank and Trust Company (SBTC) a collecting bank? HELD: NO, SBTC is not a collecting bank. It is doubtful if the subject checks were ever presented to and accepted by SBTC so as to hold it liable as a collecting bank ISSUE: Who are deemed indorsers? HELD:

Sec. 63. When person deemed indorser. - A person placing his signature
upon an instrument otherwise than as maker, drawer or acceptor, is deemed to be an indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity.

6.

ILUSORIO V. CA, 2002

ISSUE: What is the effect of the negligence of the drawer on the rule that when the signature of the drawer is forged (Section 23)

the drawee bears the loss? HELD: It was petitioner, not the bank, who was negligent. Petitioner accorded his secretary unusual degree of trust and unrestricted access to his credit cards, passbooks, check books, bank statements, including custody and possession of cancelled checks and reconciliation of accounts. Appellant had put so much trust and confidence in the said secretary, by entrusting not only his credit cards with her but also his checkbook with blank checks. He also entrusted to her the verification and reconciliation of his account. While the bank was sending him the monthly Statements of Accounts, he was not personally checking the same. His testimony did not indicate that he was out of the country during the period covered by the checks. Thus, he had all the opportunities to verify his account as well as the cancelled checks issued thereunder -- month after month. But he did not, until his partner asked him whether he had entrusted his credit card to his secretary because the said partner had seen her use the same. Petitioners failure to examine his bank statements appears as the proximate cause of his own damage. Proximate cause is that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. In the instant case, the bank was not shown to be remiss in its duty of sending monthly bank statements to petitioner so that any error or discrepancy in the entries therein could be brought to the banks attention at the earliest opportunity. But, petitioner failed to examine these bank statements not because he was prevented by some cause in not doing so, but because he did not pay sufficient attention to the matter. Had he done so, he could have been alerted to any anomaly committed against him. In other words, petitioner had sufficient opportunity to prevent or detect any misappropriation by his secretary had he only reviewed the status of his accounts based on the bank statements sent to him regularly. Petitioner further contends that under Section 23 of the Negotiable Instruments Law a forged check is inoperative, and that Manila Bank had no authority to pay the forged checks. True, it is a rule that when a signature is forged or made without the authority of the person whose signature it purports to be, the check is wholly inoperative. However, the rule does provide for an exception, namely: unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. In the instant case, it is the exception that applies. Petitioner is precluded from setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account.

7.

OSMENA V. CITIBANK , 2004

ISSUE: Was there negligence on the part of the banks in paying the amount of the check without the indorsement of Frank Tan? HELD: NO, there was no negligence. ISSUE: Is the ruling in the Associated Bank case (1996) on the liability of a collecting bank applicable int his case? HELD: NO, it is not applicable for, as has been amply demonstrated, the petitioner failed to establish that the proceeds of the check was indeed wrongfully paid by the respondents Banks to a person other than the intended payee. In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial paper. Thus, the said statute should not be tampered with haphazardly or lightly. Nor should it be brushed aside in order to meet the necessities in a single case. The petitioners allegation that respondent Tan did not receive the proceeds of the check is belied by the evidence on record and attendant circumstances. Petitioner never bothered to find out from the said respondent whether the latter received the check from his messenger. And if it were to be supposed that respondent Tan did not receive the check, given that his need for the money was urgent, it strains credulity that respondent Tan never even made an effort to get in touch with the petitioner to inform the latter that he did not receive the check as agreed upon, and to inquire why the check had not been delivered to him.

8.

BPI V. CASA MONTESSORI, 2004

ISSUE: What is forgery under Section 23? HELD: Under Section 23, a forged signature is a real or absolute defense, and a person whose signature on a negotiable instrument is forged is deemed to have never become a party thereto and to have never consented to the contract that allegedly gave rise to it. The counterfeiting of any writing, consisting in the signing of anothers name with intent to defraud, is forgery. In the present case, there was forgery of the drawers signature on the check. ISSUE: What are the factual findings of the sole negligence of BPI?

HELD: YES, negligence is attiributable to BPI alone. Having established the forgery of the drawers signature, BPI -- the drawee -- erred in making payments by virtue thereof. The forged signatures are wholly inoperative, and CASA -- the drawer whose authorized signatures do not appear on the negotiable instruments -- cannot be held liable thereon. Neither is the latter precluded from setting up forgery as a real defense. BPI contends that it has a signature verification procedure, in which checks are honored only when the signatures therein are verified to be the same with or similar to the specimen signatures on the signature cards. Nonetheless, it still failed to detect the eight instances of forgery. Its negligence consisted in the omission of that degree of diligence required of a bank. It cannot now feign ignorance, for very early on we have already ruled that a bank is "bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged." ISSUE: Who bears the loss in case of forgery of the drawers signature? HELD: Loss is borne the proximate cause of negligence. For allowing payment on the checks to a wrongful and fictitious payee, BPI -- the drawee bank -- becomes liable to its depositor-drawer. Since the encashing bank is one of its branches, BPI can easily go after it and hold it liable for reimbursement. It "may not debit the drawers account and is not entitled to indemnification from the drawer." In both law and equity, when one of two innocent persons "must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong. BPI failed to conform to its internal banking rules and regulations. First, Yabut was able to open a bank account in one of its branches without privity; that is, without the proper verification of his corresponding identification papers. Second, BPI was unable to discover early on not only this irregularity, but also the marked differences in the signatures on the checks and those on the signature card. Third, despite the examination procedures it conducted, the bank even passed off these evidently different signatures as genuine. Without exercising the required prudence on its part, BPI accepted and encashed the eight checks presented to it. As a result, it proximately contributed to the fraud and should be held primarily liable for the "negligence of its officers or agents when acting within the course and scope of their employment." It must bear the loss. ISSUE: What is estoppel? HELD: Estoppel precludes individuals from denying or asserting, by their own deed or representation, anything contrary to that established as the truth, in legal contemplation. Our rules on evidence even make a juris et de jure presumption that whenever one has, by ones own act or omission, intentionally and deliberately led another to believe a particular thing to be true and to act upon that belief, one cannot -- in any litigation arising from such act or omission -- be permitted to falsify that supposed truth. ISSUE: Was Casa estopped in failing to make a report? HELD: NO, Casa was not estopped in failing to make a report. Neither waiver nor estoppel results rom failure to report error in bank statement. CASA never made any deed or representation that misled BPI. The formers omission, if any, may only be deemed an innocent mistake oblivious to the procedures and consequences of periodic audits. Since its conduct was due to such ignorance founded upon an innocent mistake, estoppel will not arise. A person who has no knowledge of or consent to a transaction may not be estopped by it. "Estoppel cannot be sustained by mere argument or doubtful inference x x x." CASA is not barred from questioning BPIs error even after the lapse of the period given in the notice.

9.

SAMSUNG CONSTRUCTION V. FAR EAST BNAK

ISSUE: In case of forgery of the signature of the drawer without negligence on its part, who bears the loss? HELD: The general rule remains that the drawee who has paid upon the forged signature bears the loss. The exception to this rule arises only when negligence can be traced on the part of the drawer whose signature was forged, and the need arises to weigh the comparative negligence between the drawer and the drawee to determine who should bear the burden of loss. The Court finds no basis to conclude that Samsung Construction was negligent in the safekeeping of its checks. For one, the settled rule is that the mere fact that the depositor leaves his check book lying around does not constitute such negligence as will free the bank from liability to him, where a clerk of the depositor or other persons, taking advantage of the opportunity, abstract some of the check blanks, forges the depositors signature and collect on the checks from the bank. And for another, in point of fact Samsung Construction was not negligent at all since it

reported the forgery almost immediately upon discovery. ISSUE: What are the factual findings as to the negligence of the drawee bank? HELD: It might be so that the bank complied with its own internal rules prior to paying out on the questionable check. Yet, there are several troubling circumstances that lead us to believe that the bank itself was remiss in its duty. The fact that the check was made out in the amount of nearly one million pesos is unusual enough to require a higher degree of caution on the part of the bank. Indeed, FEBTC confirms this through its own internal procedures. Checks below P 25,000 require only the approval of the teller; those between P 25,000 to P 100,000 necessitate the approval of one bank officer; and should the amount exceed P 100,00, the concurrence of two bank officers is required. In this case, not only did the amount in the check nearly total one million pesos, it was also payable to cash. That latter circumstance should have aroused the suspicion of the bank, as it is not ordinary business practice for a check for such large amount to be made payable to cash or to bearer, instead of to the order of a specified person. Moreover, the check was presented for payment by one Roberto Gonzaga, who was not designated as the payee of the check, and who did not carry with him any written proof that he was authorized by Samsung Construction to encash the check. Gonzaga, a stranger to FEBTC, was not even an employee of Samsung Construction. These circumstances are already suspicious if taken independently, much more so if they are evaluated in concurrence. It was not sufficient for FEBTC to have merely complied with its internal procedures, but mandatory that all earnest efforts be undertaken to ensure the validity of the check, and of the authority of Gonzaga to collect payment therefor. According to FEBTC Senior Assistant Cashier Gemma Velez, the bank tried, but failed, to contact Jong over the phone to verify the check. She added that calling the issuer or drawer of the check to verify the same was not part of the standard procedure of the bank, but an "extra effort." Even assuming that such personal verification is tantamount to extraordinary diligence, it cannot be denied that FEBTC still paid out the check despite the absence of any proof of verification from the drawer. Instead, the bank seems to have relied heavily on the say-so of Sempio, who was present at the bank at the time the check was presented. FEBTC alleges that Sempio was well-known to the bank officers, as he had regularly transacted with the bank in behalf of Samsung Construction. It was even claimed that everytime FEBTC would contact Jong about problems with his account, Jong would hand the phone over to Sempio. However, the only proof of such allegations is the testimony of Gemma Velez, who also testified that she did not know Sempio personally, and had met Sempio for the first time only on the day the check was encashed. Velez had no personal knowledge as to the past relationship between FEBTC and Sempio, and any averments of her to that effect should be deemed hearsay evidence. Even assuming that FEBTC had a standing habit of dealing with Sempio, the irregular circumstances attending the presentment of the forged check should have put the bank on the highest degree of alert. The Court recently emphasized that the highest degree of care and diligence is required of banks.

10. BPI FAMILY BANK V. BUENAVENTURA

ISSUE: Since bank deposits are considered loan, can banks unilaterally freeze an account? HELD: BPI-FB has no unilateral right to freeze the current account of Buenaventura, et al. based on the suspicion that the funds in the latters account are illegal or unauthorized having been sourced from the unlawful transfer of funds from the account of FMIC to Tevesteco and disallow any withdrawal therefrom to allegedly protect its interest. ISSUE: What are the liabilities of banks on forgery? HELD: Every bank that issues checks for the use of its customers should know whether or not the drawer's signature thereon is genuine, whether there are sufficient funds in the drawers account to cover checks issued, and it should be able to detect alterations, erasures, superimpositions or intercalations thereon, for these instruments are prepared, printed and issued by itself, it has control of the drawer's account, and it is supposed to be familiar with the drawer's signature. It should possess appropriate detecting devices for uncovering forgeries and/or alterations on these instruments. Unless a forgery or alteration is attributable to the fault or negligence of the drawer himself, the remedy of the drawee bank that negligently clears a forged and/or altered check for payment is against the party responsible for the forgery or alteration, otherwise, it bears the loss. ISSUE: Is there a need for Buenaventura et al. to ascertain the right of Franco on the check? HELD: Having been negligent in detecting the forgery prior to clearing

the check, BPI-FB should bear the loss and cant shift the blame to Buenaventura, et al. having failed to show any participation on their part in the forgery. BPI-FB fails to point any circumstance which should have put Buenaventura, et al. on inquiry as to the why and wherefore of the possession of the check by Amado Franco. Buenaventura, et al. were not privies to any transaction involving FMIC, Tevesteco or Franco. They thus had no obligation to ascertain from Franco what the nature of the latters title to the checks was, if any, or the nature of his possession. They cannot be guilty of gross neglect amounting to legal absence of good faith, absent any showing that there was something amiss about Francos acquisition or possession of the check, which was payable to bearer. ISSUE: What is the nature of a banks relationship with its depositor? HELD: The contract between a bank and its depositor is governed by the provisions of the Civil Code on simple loan. Thus, there is a debtorcreditor relationship between a bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings or current deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties.

11. ALLIED BANKING V. LIM SIO WAN

ISSUE: Give the liabilities of the parties by reason of forgery. HELD: We held in a line of cases that "a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement itself, and ultimately should be held liable therefor." However, this general rule is subject to exceptions. One such exception is when the issuance of the check itself was attended with negligence. In isolated cases where the checks were deposited in an account other than that of the payees on the strength of forged indorsements, we held the collecting bank solely liable for the whole amount of the checks involved for having indorsed the same. The liability of Allied, however, is concurrent with that of Metrobank as the last indorser of the check. ISSUE: What is the effect of the negligence of Allied and Metrobank? HELD: When Metrobank indorsed the check in compliance with the PCHC Rules and Regulations without verifying the authenticity of Lim Sio Wan's indorsement and when it accepted the check despite the fact that it was cross-checked payable to payee's account only, its negligent and cavalier indorsement contributed to the easier release of Lim Sio Wan's money and perpetuation of the fraud. Given the relative participation of Allied and Metrobank to the instant case, both banks cannot be adjudged as equally liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the CA, must be upheld. ISSUE: Who is ultimately liable and under what grounds? HELD: there is no reason that the proceeds of Lim Sio Wans' placement should be deposited in FCC's account purportedly as payment for FCC's money market placement and interest in Producers Bank. With such payment, Producers Bank's indebtedness to FCC was extinguished, thereby benefitting the former. Clearly, Producers Bank was unjustly enriched at the expense of Lim Sio Wan. Based on the facts and circumstances of the case, Producers Bank should reimburse Allied and Metrobank for the amounts the two latter banks are ordered to pay Lim Sio Wan.