NEGOTIABLE INSTRUMENTS Case Doctrines—ATTY.
BUSMENTE SBCA 2017-2018
PHILIPPINE EDUCATION Co., Inc. v. MAURICIO SORIANO (G.R. No. L-22405—June 30, 1971)
Postal money orders are non-negotiable because in establishing and operating a postal money order
system, the government is not engaging in commercial transactions but merely exercises a
governmental power for the public benefit. Furthermore, postal money orders do not conform to Sec.
1 of the NIL as postal laws and regulations limit the negotiability of such instruments as it only allows
one indorsement, thus, it cannot freely circulate and accumulate secondary contracts.
CALTEX, Inc. v. CA and SECURITY BANK AND TRUST COMPANY (G.R. No. 97753—August 10, 1992)
The CTDs are negotiable instruments because it conforms with Sec. 1 of the NIL and it is payable to
bearer as indicated on the face of the instrument. The negotiability or non-negotiability of an
instrument is determined from the writing, that is, from the face of the instrument itself.
Security Bank has a better right over the CTDs because they were not validly negotiated on the ground
that the intention of Angel de la Cruz was to give the instruments as a pledge to Caltex. The CTDs were
only delivered but not indorsed to Caltex. The mere delivery did not legally vest in Caltex any right
effective against and binding upon Security Bank. On the other hand, Security bank was able to
provide proof that a Deed of Assignment was signed by both parties.
METROBANK v. CA and GOLDEN SAVINGS (G.R. No. 88866—February 18, 1991)
The treasury warrants are non-negotiable as it says so on its face. The instrument indicated that the
source of payment was a particular fund thus negating the requirement of Sec. 1 of the NIL that the
instrument must contain an unconditional promise or order to pay a sum certain in money. Sec. 3 of
NIL provides that an order or promise to pay out of a particular fund is not unconditional.
SESBRENO v. CA (G.R. No. 89252—May 24, 1993)
A non-negotiable instrument cannot be negotiated but it may be assigned or transferred, absent an
express prohibition against assignment or transfer on the face of the instrument. Although the
promissory note is marked “NON-NEGOTIABLE,” it contained no stipulation which prohibited
PhilFinance from assigning or transferring, in whole or in part, that note; thus, it can still be assigned
to a person called an assignee. The difference between an assignment and a negotiable instrument is
that the latter may be freely circulated whereas the former cannot.
FIRESTONE TIRE & RUBBER CO. v. CA (G.R. No. 113236—March 5, 2001)
The special withdrawal slip are not negotiable instruments as it lacked the essence of negotiability of
the freedom to circulate freely as a substitute for money. Special withdrawal slips do not conform to
Sec. 1 (b), (c), and (d) of the NIL.
Respondent bank was under no obligation to give immediate notice that it would not make payment
on the subject withdrawal slips as the rules governing the giving of immediate notice of dishonor of
negotiable instruments do not apply in this case since they are non-negotiable instruments.
ANG TEK LIAN v. CA (G.R. No. L-2516—September 25, 1950)
Under Sec. 9(d) of the NIL, a check drawn payable to the order of “cash” is a check payable to bearer,
and the bank may pay it to the person presenting it for payment without the drawer’s indorsement.
Where a check is made payable to the order of “cash,” the word cash does not purport to be the name
of any person, and hence the instrument is payable to bearer. The drawee bank need not obtain any
indorsement of the check, but may pay it to the person presenting it without any indorsement. Mere
delivery is sufficient.
DEVELOPMENT BANK OF RIZAL v. SIMA WEI (G.R. No. 85419—March 9, 1993)
There is no right over the instrument if there was no delivery even though the name was indicated as
payee in the instrument.
A negotiable instrument must be delivered to the payee in order to evidence its existence as a binding
contract. Section 16 of the NIL, which governs checks, provides in part: “every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of giving
effect thereto…” There must be an intention of transferring title. In this case, there was no such
intention because respondent Sima Wei did not deliver it all.
The payee of a negotiable instrument acquires no interest with respect thereto until its delivery to
him. Delivery of an instrument means transfer of possession, actual or constructive, from one person
to another. Without the initial delivery of the instrument from the drawer to the payee, there can be
no liability on the instrument. Moreover, such delivery must be intended to give effect to the
instrument.
PHILIPPINE BANK OF COMMERCE v. ARUEGO (G.R. No. L-25836-37—January 31, 1981)
According to Sec. 20 of the NIL, a person signing in a representative capacity should disclose his
principal or else he is personally liable.
Where the instrument contains or a person adds to his signature words indicating that he signs for or
on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was
duly authorized; but the mere addition of words describing him as an agent or as filling a
representative character, without disclosing his principal, does not exempt him from personal
liability.
An inspection of the drafts accepted by Aruego shows that nowhere has he disclosed that he was
signing as representative of the Philippine Education Foundation Company. For failure to disclose his
principal, defendant Aruego is personally liable for the drafts he accepted.
FRANCISCO v. CA (G.R. No. 116320—November 29, 1999)
He who signs as an agent must disclose the name of his principal. In the absence of such disclosure,
the person claiming to be an agent shall be personally liable.
RMD 1
 NEGOTIABLE INSTRUMENTS Case Doctrines—ATTY. BUSMENTE SBCA 2017-2018
The NIL provides that where any person is under obligation to indorse in a representative capacity,
he may indorse in such terms as to negate 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.
JAI-ALAI CORPORATION OF THE PHILIPPINES v. BANK OF THE PHILIPPINE ISLANDS (G.R. No. L-
29432—August 6, 1975)
The general rule is that a collecting bank is not liable on the payment of a forged instrument. The
power to collect does not carry with it the power to negotiate.
The depositor of a check as indorser warrants that it is genuine and in all respects what it purports to
be. Considering that petitioner Jai-Alai indorsed the subject checks when it deposited them with
respondent BPI, the former, as an indorser, guaranteed the genuineness of all prior indorsements
thereon. Having received the checks merely for collecting and deposit, respondent BPI cannot be
expected to know or ascertain the genuineness of all prior indorsements. Respondent BPI, as a
collecting bank which relied upon petitioner Jai-Alai’s warranty, is not liable for the resulting loss.
REPUBLIC BANK v. EBRADA (G.R. No. L-40796—July 31, 1975)
The existence of a forged signature in the check will not render void all the other negotiations of the
check with respect to the other parties whose signatures are genuine. It is only the negotiation
predicated on the forged indorsement that should be declared inoperative.
MWSS v. CA & THE PHILIPPINE NATIONAL BANK (G.R. No. L-62943—July 14, 1986)
Generally, a forged signature is wholly inoperative and so no right can be acquired through such
signature, unless the person against whom it is sought to enforce such right is precluded from setting
up the forgery or want of authority. Such persons are those who warrant the genuineness of the
signatures in questions and those who by their acts, silence, or negligence are estopped from setting
up the defense of forgery.
Failure to provide appropriate security measures over its own personalized checks and records, as
well as the laxity and poor control that it exercised with regards to its transactions, render petitioner
MWSS grossly negligent as these were the proximate causes of the failure to discover the forgery, and
is, therefore, barred from setting up the defense of forgery under Sec. 23 of the NIL.
BDO v. EQUITABLE BANKING CORPORATION (G.R. No. 74917—January 20, 1988)
The general rule is that a collecting bank is not liable on a forged instrument. However, an exception
to this rule is when the collecting bank is the last indorser and had a warranty stamped providing “all
prior indorsement or lack of indorsement guaranteed.” Such a situation renders the collecting bank
estopped from setting up the defense of forgery and will be held liable.
In the present case, petitioner collecting bank BDO having stamped its guarantee is now estopped
from claiming that the checks under consideration are non-negotiable instruments. By such
deliberate and positive act of the petitioner BDO, it has for all legal intents treated the checks as
negotiable instruments and accordingly assumed the warranty of a general endorser when it stamped
its guarantee at the back of the checks, which thus led respondent EB to believe that it was acting as
an indorser of the checks, and on the strength of such guarantee, respondent EB credited petitioner
BDO’s clearing account.
GEMPESAW v. CA & PHILIPPINE BANK OF COMMUNICATIONS (G.R. No. 92244—February 9, 1993)
The general rule is that a drawee bank (PBC) who has paid a forged check on which an indorsement
has been forged cannot charge the drawer’s account for the amount of said check. However, the
exception to this rule is where the drawer (petitioner Gempesaw) is guilty of such negligence which
causes the bank to honor such check.
ASSOCIATED BANK v. CA (G.R. No. 107382—January 31, 1996)
The exception to the general rule that a collecting bank is not liable on a forged instrument is when it
is the last indorser and had a warranty stamped providing “all prior indorsement or lack of
indorsement guaranteed.” Such a situation renders the collecting bank estopped from setting up the
defense of forgery and will be held liable.
Further, the drawee bank is under strict liability to pay the check to the order of the payee. Payment
under a forged indorsement is not in accordance to the drawer’s order. The general rule then is that
the drawee bank may not debit the drawer’s account and is not entitled to indemnification from the
drawer if the drawee had paid on a forged instrument. The risk of loss must perforce fall on the
drawee bank. However, an exception to this rule is if the drawee bank can prove a failure by the
drawer to exercise ordinary care that substantially contributed to the making of the forgery, then the
drawer is precluded for setting up the defense of forgery. If more than one party is responsible for the
loss, then such loss shall be divided proportionately to their degrees of fault or negligence.
METROBANK v. FIRST NATIONAL CITY BANK & CA (G.R. No. L-55079—November 19, 1982)
The exception to the general rule that a collecting bank is not liable on a forged instrument is when it
is the last indorser and had a warranty stamped providing “all prior indorsement or lack of
indorsement guaranteed.” However, an exception to this exception arises when, despite having a
warranty stamp, the collecting bank is absolved from liability upon the drawee bank’s failure to return
the forged check within 24 hours.
REPUBLIC BANK v. CA & FNCB (G.R. No. L42725—April 22, 1991)
When an indorsement is forged, the collecting bank or last endorser, as a general rule, bears the loss.
But the unqualified indorsement of the collecting bank should be read together with the 24-hour
regulation on clearing house operation. Thus, when the drawee bank (respondent FNCB) fails to
RMD 2
 NEGOTIABLE INSTRUMENTS Case Doctrines—ATTY. BUSMENTE SBCA 2017-2018

return a forged or altered check to the collecting bank (petitioner Republic Bank) within the 24-hour
clearing period, the collecting bank is absolved from liability.

The exception to the general rule that a collecting bank is not liable on a forged instrument is when it
is the last indorser and had a warranty stamped providing “all prior indorsement or lack of
indorsement guaranteed.” However, an exception to this exception arises when, despite having a
warranty stamp, the collecting bank is absolved from liability upon the drawee bank’s failure to return
the forged check within 24 hours.

PHILIPPINE COMMERCIAL INTERNATIONAL BANK v. CA (G.R. No. 121413—January 29, 2001)

The crossing of 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 received the check pursuant to that purpose; otherwise, he is
not a holder in due course.

When the need arises to weigh the comparative negligence between the parties to determine who
should bear the burden of loss, then on the basis of the doctrine of comparative negligence, the
responsible parties shall bear the burden of loss proportionately to the degree of their fault or
negligence, which was the proximate cause that facilitated the forgery.

ILUSORIO v. CA & THE MANILA BANKING CORPORATION (G.R. No. 139130—November 27, 2002)

Under Sec. 23 of the NIL, those who by their acts, silence, or negligence are estopped from setting up
the defense of forgery. Petitioner Ilusorio 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, and
his inaction in verifying the bank statements of his account.

Further, negligence and forgery are never presumed, but must be proven by the person who alleges
it.

SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC. v. FAR EAST BANK AND TRUST COMPANY
& CA (G.R. No. 129015—August 13, 2004)

The general rule is that if a drawee 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 drawer. A bank is liable,
irrespective of its good faith, in paying a forged check.

The justification of the distinction between the forgery of the signature of the drawer and the forgery
of an indorsement is that the drawee is in a position to verify the drawer’s signature by comparison
with one in his hands, but has ordinarily no opportunity to verify an indorsement. Thus, a drawee
bank is generally liable to its depositor in paying a check which bears either a forgery of the drawer’s
signature or a forged indorsement. But the drawee bank, may as a general rule, recover back the
money which it has paid on a check bearing a forged indorsement, whereas it does not have this right
to the same extent with reference to a check bearing a forgery of the drawer’s signature.

RMD 3