NEGOTIABLE INSTRUMENTS LAW

Case Assignments

FORM AND INTERPRETATION:

1. The instrument in order to be considered negotiable, it must contain the so-called words of negotiability. What
are these words? Salas vs. Court of Appeals, 181 SCRA 296 (1990)

-It must be payable to order or bearer. Under Section 8 of the NIL, there are only two ways by which an instrument may be made
payable to order. There must always be a specified person named in the instrument and the bill or note is to be paid to the person
designated in the instrument or to any person to whom he has indorsed and delivered the same.

Without the words or order or to order of , the instrument is payable only to the person designated therein and is therefore non-
negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument, but will
merely step into the shoes of the person designated in the instrument and will thus be open to all defenses available against the
latter. Such being the situation in the above-cited case, it was held that therein private respondent is not a holder in due course but a
mere assignee against whom all defenses available to the assignor may be raised.

2. How is the negotiability or non-negotiability of an instrument determined?

- On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is,
from the face of the instrument itself. 9 In the construction of a bill or note, the intention of the parties is to control, if it can be legally
ascertained. 10 While the writing may be read in the light of surrounding circumstances in order to more perfectly understand the
intent and meaning of the parties, yet as they have constituted the writing to be the only outward and visible expression of their
meaning, no other words are to be added to it or substituted in its stead.
Where the holder has a lien on the instrument arising from contract, he is deemed a holder for value up to what extent?

- The pertinent law on this point is that where the holder has a lien on the instrument arising from contract, he is deemed a holder for
value to the extent of his lien.

How does one negotiate an instrument, and in what manner? Caltex Phils. Inc. vs Court of Appeals, 212 SCRA
448.

Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred from one person to another in such a
manner as to constitute the transferee the holder thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof.
In the present case, however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner
in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as
security for the purchases of Angel de la Cruz (and we even disregard the fact that the amount involved was not disclosed) could at
the most constitute petitioner only as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be
effected by mere delivery of the instrument since, necessarily, the terms thereof and the subsequent disposition of such security, in
the event of non-payment of the principal obligation, must be contractually provided for.

3. How are persons writing their names on the face of the promissory notes treated? Astro Electronics Corp. vs
Phil. Export and Foreign Loan Guarantee Corporation, 141 SCRA 462 (2003)

Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers, [10] promising
that they will pay to the order of the payee or any holder according to its tenor. [11] 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. Under Section 29 of the NIL, 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. [33] 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.[34]

1
 Is a note payable to a specific person covered by the Negotiable Instruments Law? Garcia vs Llamas, 417 SCRA
292 (2003)

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.

5. What is the effect of a forged signature? Does payment made through or under such signature discharge the
instrument? Samsung Construction Company Philippines, Inc. vs. Far East Bank and Trust Company. 436
SCRA 402 (2004).

Section 23 of the Negotiable Instruments Law states:

When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative,
and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto,
can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority. (Emphasis supplied)

The general rule is to the effect that a forged signature is wholly inoperative, and payment made through or under such
signature is ineffectual or does not discharge the instrument.[21]

If payment is made, the drawee cannot charge it to the drawers account. The traditional justification for the result is that
the drawee is in a superior position to detect a forgery because he has the makers signature and is expected to know and compare
it.[22] The rule has a healthy cautionary effect on banks by encouraging care in the comparison of the signatures against those on the
signature cards they have on file. Moreover, the very opportunity of the drawee to insure and to distribute the cost among its
customers who use checks makes the drawee an ideal party to spread the risk to insurance.[

6. Why is a forged signature considered as a real or absolute defense? BPI vs Casa Montessori Internationale,
430 SCRA 261, (2004).

Section 23 of the NIL provides:

Section 23. Forged signature; effect of. -- When a signature is forged or made without the authority of the person whose signature
it purports to be, it is wholly inoperative, and no right x x x 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.[12]

Under this provision, a forged signature is a real [13] or absolute defense,[14] 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.[15]

CONSIDERATION:

7. In actions based upon a negotiable instrument, is it necessary to aver or prove consideration? Ong vs People,
346 SCRA 117.

In actions based upon a negotiable instrument, it is unnecessary to aver or prove consideration, for consideration is imported
and presumed from the fact that it is a negotiable instrument. The presumption exists whether the words "value received"
appear on the instrument or not (Agbayani, A.F., Commentaries and Jurisprudence on the Commercial Laws of the Philippines, 1989
Ed., Vol. 1, p. 227, emphasis supplied). Furthermore, such contention is also inconsequential in Batas Pambansa Blg. 22.

8. What is the presumption created under Section 24 of the NIL? Yang vs CA, 409 SCRA 159, (2003).

2
Section 24 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the same for a
consideration or for value.

Thus, the law itself creates a presumption in Davids favor that he gave valuable consideration for the checks in question. In alleging
otherwise, the petitioner has the onus to prove that David got hold of the checks absent said consideration. In other words, the
petitioner must present convincing evidence to overthrow the presumption. Our scrutiny of the records, however, shows that the
petitioner failed to discharge her burden of proof.

9. What kind of relationship exists between an accommodation party and that party accommodated party?
Caneda, Jr. vs CA, 181 SCRA 762, (1990).

Thus, this Court has ruled, that a person who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person is liable on the instrument to a holder for value,
notwithstanding the fact that such holder at the time of taking the instrument knew him to be only an accommodation party.
Nonetheless, after paying the holder, such accommodation party has the right to obtain reimbursement from the party
accommodated, since the relation between them is in effect that of principal and surety, the accommodation party being the surety

10. Can a holder of a check who is not a holder in due course sue the drawer-accommodation party? Stelco
marketing Corporation vs CA, 210 SCRA 51, (1992).

Sec. 29. Liability of accommodation party. An accommodation party is one who has singed the instrument as
maker, drawer, acceptor, or indorser, without receiving valued therefor, and for the purpose of lending his name
to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such
holder, at the time of taking the instrument, knew him to be only an accommodation party.

It is noteworthy that the Trial Court's pronouncement containing reference to said Section 29 did not specify to whom STEELWELD,
as accommodation party, is supposed to be liable; and certain it is that neither said pronouncement nor any other part of the
judgment of acquittal declared it liable to STELCO.

"A holder in due course," says the law, 22 "is a holder who has taken the instrument under the following
conditions:

(a) That 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 persons negotiating it.

To be sure, as regards an accommodation party (such as STEELWELD), the fourth condition, i.e., lack of notice of any infirmity in
the instruments or defect in title of the persons negotiating it, has no application. This is because Section 29 of the law above quoted
preserves the right of recourse of a "holder for value" against the accommodation party notwithstanding that "such holder, at the
time of taking the instrument, knew him to be only an accommodation
party." 23

RIGHTS OF A HOLDER:

11. Who are considered holders in due course of bills, notes, and checks? Vicente R. De Ocampo & Co. vs
Gatchalian, 3 SCRA 596 , (1961).

Sec. 52 defendants defines a holder in due course as "a holder who has taken the instrument under the following conditions:

1. That it is complete and regular on its face.

3
 2. 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.

3. That he took it in good faith and for value.

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

12. Can a holder of a bearer note who is not a holder in due course recover on the checks? Why? What is the
limitation of his rights, if any? Chan Wan vs. Tan Kim, L-15380, Sept. 30, 1960.

The Negotiable Instruments Law does not provide that a holder7 who is not a holder in due course, may not in any case, recover on
the instrument. If B purchases an overdue negotiable promissory note signed by A, he is not a holder in due course; but he may
recover from A,8 if the latter has no valid excuse for refusing payment. The only disadvantage of holder who is not a holder in due
course is that the negotiable instrument is subject to defense as if it were non- negotiable.9

13. What is the weight of evidence required in order to rebut presumption of a holder in due course? Travel-On Inc.,
vs CA, 210 SCRA 351, (1992).

Only evidence of the clearest and most convincing kind.

14. What are the warranties of a person negotiating an instrument by delivery or by qualified indorsement? BPI vs
CA, 326 SCRA 641, (2000).

Section 65, on the other hand, provides for the following warranties of a person negotiating an instrument by delivery or by qualified
indorsement: (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it, and (c) that
all prior parties had capacity to contract.

15. To constitute sufficient presentment for payment, who should make the presentment? -- Associated Bank vs CA,
208 SCRA 465, (1992).

The effects therefore of crossing a check relate to the mode of its presentment for payment. Under Sec. 72 of the Negotiable
Instruments Law, presentment for payment, to be sufficient, must be made by the holder or by some person authorized to receive
payment on his behalf. Who the holder or authorized person is depends on the instruction stated on the face of the check.

NOTICE OF DISHONOR:

16. Under what instances when a notice of dishonor is not required?

What is the effect of delay in notice of dishonor? Great Asian Sales Center Corp. vs. CA, 381 SCRA 557, (2002).

- Under the NIL, notice of dishonor is not required if the drawer has no right to expect or require the bank to honor the
check, or if the drawer has countermanded payment. In the instant case, all the checks were dishonored for any of
the following reasons: account closed, account under garnishment, insufficiency of funds, or payment
stopped. In the first three instances, the drawers had no right to expect or require the bank to honor the checks,
and in the last instance, the drawers had countermanded payment.

- Under common law, delay in notice of dishonor, where such notice is required, discharges the drawer only to the
extent of the loss caused by the delay. This rule finds application in this jurisdiction pursuant to Section 196 of the
NIL which states, Any case not provided for in this Act shall be governed by the provisions of existing legislation, or
in default thereof, by the rules of the Law Merchant. Under Section 186 of the NIL, delay in the presentment of
checks discharges the drawer. However, Section 186 refers only to delay in presentment of checks but is silent on
delay in giving notice of dishonor. Consequently, the common law or Law Merchant can supply this gap in
accordance with Section 196 of the NIL.

4
 17. Under the provisions of the NIL regarding the liability of a general indorser and the procedure for a notice of
dishonor, what is the obligation of the drawee bank? Associated Bank vs Tan, 446 SCRA 282 ,( 2004)

Under the provisions of the NIL regarding the liability of a general indorser and the procedure for a notice of dishonor, it
was incumbent on the bank to give proper notice to respondent. In Gullas v. National Bank, the Court emphasized:

x x x [A] general indorser of a negotiable instrument engages that if the instrument the check in this
case is dishonored and the necessary proceedings for its dishonor are duly taken, he will pay the
amount thereof to the holder (Sec. 66) It has been held by a long line of authorities that notice of dishonor
is necessary to charge an indorser and that the right of action against him does not accrue until the notice
is given.

x x x. The fact we believe is undeniable that prior to the mailing of notice of dishonor, and without waiting
for any action by Gullas, the bank made use of the money standing in his account to make good for the
treasury warrant. At this point recall that Gullas was merely an indorser and had issued checks in good
faith. As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor of a
third party, it has been held that he has a right of action against the bank for its refusal to pay such a check
in the absence of notice to him that the bank has applied the funds so deposited in extinguishment of past
due claims held against him. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.) However this may
be, as to an indorser the situation is different, and notice should actually have been given him in order that
he might protect his interests.

18. To whom, and by whom, should notice of dishonor of a check be sent, and in what form? Rigor vs People, 442
SCRA 450,( 2004).

- The notice of dishonor of a check may be sent to the drawer or maker by the drawee bank, the holder of the check,
or the offended party either by personal delivery or by registered mail. The notice of dishonor to the maker of a check
must be in writing.

19. What is the effect of failure to send the notice of dishonor of an assigned check? Nyco Sales Corp. vs BA
Finance Corporation, 200 SCRA 637 (1991).

The dishonor of an assigned check simply stresses its liability and the failure to give a notice of dishonor will not
discharge it from such liability. This is because the cause of action stems from the breach of the warranties embodied
in the Deed of Assignment, and not from the dishonoring of the check alone (See Art. 1628, Civil Code).

BILLS OF EXCHANGE:

20. Are Letters of Credit and Trust Receipts considered as negotiable instruments? Lee vs CA, 375 SCRA 579
(2002)

- Negotiable instruments include promissory notes, bills of exchange and checks. Letters of credit and trust receipts
are, however, not negotiable instruments. But drafts issued in connection with letters of credit are negotiable
instruments.

21. When the bank pays a forged check, can said bank charge the amount so paid to the depositor?

What is the liability of a collecting bank which indorses a check bearing a forged indorsement and presents it to
the drawee bank? Why? Traders Royal Bank vs Radio Philippines Network, Inc., 390 SCRA 608 (2002)

- 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. 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.
- 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 in the instant case, 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, as held by the CA.

5
 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.

PROMISSORY NOTES AND CHECKS:

22. For allowing payment on the checks to a wrongful and fictitious payee, what is the liability of the drawee bank
towards its depositor? BPI vs Cassa Montessori Internationale, 430 SCRA 261 (2004)

- 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.

Proximate cause is determined by the facts of the case. It 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.

Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-depositors on checks
being encashed, BPI is expected to use reasonable business prudence. In the performance of that obligation, it is
bound by its internal banking rules and regulations that form part of the contract it enters into with its depositors.

23. A bank which cashes a check drawn upon another bank, without requiring proof as to the identity of persons
presenting it, or making inquiries with regard to them, can it hold the proceeds against the drawee when the
proceeds of the checks were afterwards diverted to the hands of a third party? Why? PCIB vs CA , 350 SCRA
446 (2001)

Ans.: Banking business requires that the one who first cashes and negotiates the check must take some precautions to
learn whether or not it is genuine. And if the one cashing the check through indifference or the circumstance assists the
forger in committing the fraud, he should not be permitted to retain the proceeds of the check from the drawee whose sole
fault was that it did not discover the forgery or the defect in the title of the person negotiating the instrument before paying
the check. For this reason, a bank which cashes a check drawn upon another bank, without requiring proof as to the
identity of persons presenting it, or making inquiries with regard to them, cannot hold the proceeds against the drawee
when the proceeds of the checks were afterwards diverted to the hands of a third party. In such cases the drawee bank
has a right to believe that the cashing bank (or the collecting bank) had, by the usual proper investigation, satisfied itself of
the authenticity of the negotiation of the checks. Thus, one who encashed a check which had been forged or diverted and
in turn received payment thereon from the drawee, is guilty of negligence which proximately contributed to the success of
the fraud practiced on the drawee bank. The latter may recover from the holder the money paid on the check. Hence,
PCIB is liable for the amount of the embezzled check.

24. Is failure of depositor to make prompt reconciliation of the monthly bank statements furnished by the bank
constituting negligence? What is the recourse of said depositor against the bank in case depositors checks are
forged? MWSS vs CA, 143 SCRA 20 (1986)

Ans.: (Dili ko sure sa akong answer ani, medyo nalibog ko. Sorry guys. )

MWSS requested the PNB to discontinue the practice of mailing the bank statements, but instead to deliver it to Mr.
Emiliano Zaporteza. However, he was unreasonably delayed in taking prompt deliveries of the bank statements and credit
and debit memos. As a consequence, Mr. Zaporteza failed to reconcile the bank statements. If Mr. Zaporteza had not
been remiss in his duty of taking the bank statements and reconciling them with the petitioner's records, the fraudulent
encashments of the first checks should have been discovered, and further frauds prevented. This negligence was,
therefore, the proximate cause of the failure to discover the fraud.

(diri gyud ko na part dili sigurado. Shutaka keei )

The depositors recourse against the bank is to set up the defense of forgery under Section 23 of the Negotiable
Instruments Law .

SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the 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.

6
25. What is the effect of failure to present a managers check for payment within a reasonable time? International
Corporate Bank vs. Gueco, 351 SCRA 516 (2001)

Ans.: Failure to present for payment within a reasonable time will result to the discharge of the drawer only to the extent of
the loss caused by the delay. Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal
situation amounts to an acknowledgment of liability in the sum stated in the check.

26. Does delivery of a check produce the effect of payment? Is it the same if the debtor is prejudiced by the delayed
acceptance of a check? Pio Barreto Realty Development Corporation vs CA, 360 SCRA 127 (2001)

Ans.: While delivery of a check produces the effect of payment only when it is encashed, 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.

27. What are the effects of crossing a check? Associated Bank vs CA , 208 SCRA 465 (1992)

Ans.: "The effects of crossing a check are: (1) that the check may not be encashed but only deposited in the bank; (2) that
the check may be negotiated only once to one who has an account with a bank; and (3) that 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." (State Investment House vs. IAC)

The effects therefore of crossing a check relate to the mode of its presentment for payment. Under Sec. 72 of the
Negotiable Instruments Law, presentment for payment, to be sufficient, must be made by the holder or by some person
authorized to receive payment on his behalf. Who the holder or authorized person is depends on the instruction stated on
the face of the check.

28. Does a memorandum check fall within the ambit of BP Blg. 22? People vs Nitafan, 215 SCRA 79 (1992)
Ans.: A memorandum check is in the form of an ordinary check, with the word "memorandum", "memo" or "mem" written
across its face, signifying that the maker or drawer engages to pay the bona fide holder absolutely, without any condition
concerning its presentment. Such a check is an evidence of debt against the drawer, and although may not be intended
to be presented, has the same effect as an ordinary check, and if passed to the third person, will be valid in his hands
like any other check.

From the above definition, it is clear that a memorandum check, which is in the form of an ordinary check, is still drawn
on a bank and should therefore be distinguished from a promissory note, which is but a mere promise to pay.

Verily, a memorandum check comes within the meaning of Sec. 185 of the Negotiable Instruments Law which defines a
check as "a bill of exchange drawn on a bank payable on demand." A check is also defined as " [a] written order or
request to a bank or persons carrying on the business of banking, by a party having money in their hands, desiring them
to pay, on presentment, to a person therein named or bearer, or to such person or order, a named sum of money,".
Another definition of check is that is "[a] draft drawn upon a bank and payable on demand, signed by the maker or
drawer, containing an unconditional promise to pay a sum certain in money to the order of the payee,".

A memorandum check must therefore fall within the ambit of B.P. 22 which does not distinguish but merely provides that
"[a]ny person who makes or draws and issues any check knowing at the time of issue that he does not have sufficient
funds in or credit with the drawee bank . . . which check is subsequently dishonored . . . shall be punished by
imprisonment . . ."

29. Is a check, whether a managers check or an ordinary check, a legal tender? Does an offer of a check in payment of a
debt considered as a valid tender of payment? Can the oblige or creditor refuse its receipt? PAL Inc. vs CA, 181 SCRA
557 (1990)
Ans.: In the absence of an agreement, either express or implied, payment means the discharge of a debt or
obligation in money and unless the parties so agree, a debtor has no rights, except at his own peril, to substitute
something in lieu of cash as medium of payment of his debt. Consequently, unless authorized to do so by law or by
consent of the obligee a public officer has no authority to accept anything other than money in payment of an
obligation under a judgment being executed.

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 (See. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon Co. v.
American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's check
or ordinary cheek, 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. Mere delivery of checks does not discharge the obligation

7
 under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial
document is actually realized (Art. 1249, Civil Code, par. 3).

30. Under Section 193 of the NIL, how does one determine what is a reasonable time with respect to a negotiable
instrument? International Corporate Bank vs Gueco, 351 SCRA 516 (2001).
Ans.: 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 two and a half (2-1/2) years was considered a stale check. Failure of a payee to encash
a check for more than ten (10) years undoubtedly resulted in the check becoming stale. Thus, even a delay of one
(1) week[27] or two (2) days,[28] under the specific circumstances of the cited cases constituted unreasonable time
as a matter of law.