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Negotiable instruments are Written contract for the payment of money. Instruments are negotiable when they conform to all the requirements prescribed by the NIL. A CHECK which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash.
Negotiable instruments are Written contract for the payment of money. Instruments are negotiable when they conform to all the requirements prescribed by the NIL. A CHECK which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash.
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Negotiable instruments are Written contract for the payment of money. Instruments are negotiable when they conform to all the requirements prescribed by the NIL. A CHECK which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash.
Drepturi de autor:
Attribution Non-Commercial (BY-NC)
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Descărcați ca DOC, PDF, TXT sau citiți online pe Scribd
The Negotiable Instruments Law was enacted for the Negotiable purpose of facilitating, not hindering or hampering transactions in commercial paper. Thus, the said Instruments Law (Act statute should not be tampered with haphazardly or lightly. Nor should it be brushed aside in order to No. 2031) meet the necessities in a single case.
Chapter I. 3. Life of a Negotiable
Instrument INTRODUCTION 1. issue 1. The Negotiable Instrument 2. negotiation • Written contract for the payment of money, by 3. presentment for acceptance in certain bills its form intended as substitute for money and 4. acceptance intended to pass from hand to hand to give the 5. dishonor by or acceptance HDC the right to hold the same and collect the 6. presentment for payment sum due. 7. dishonor by nonpayment • Instruments are negotiable when they conform 8. notice of dishonor to all the requirements prescribed by the NIL 9. protest in certain cases (Act 2031, 03 February 1911). 10. discharge • Although considered as medium for payment of 4. Kinds of Negotiable obligations, negotiable instruments are not legal tender (Sec. 60, New Central Bank Act, Instruments R.A. 7653); 4.1. Promissory note - a promise to pay • Negotiable instruments shall produce the effect money of payment only when they have been • unconditional promise in writing made by encashed or when through the fault of the one person to another signed by the maker creditor they have been impaired. (Art. 1249, • engaging to pay on demand, or at a fixed or CC) BUT a CHECK which has been cleared and determinable future time a sum certain in credited to the account of the creditor shall be money to order or to bearer equivalent to a delivery to the creditor of cash. • where a note is drawn to the maker’s own Negotiable Non-negotiable order, not complete until indorsed by him Contains all the (Sec. 184, NIL). requisites of Sec. 1 of 4.2. Bill of exchange - an order made by the NIL one Does not contain all the person to another to pay money to a third person. requisites of Sec. 1 of • unconditional order in writing addressed by the NIL one person to another signed by the person Transferred by giving it negotiation • requiring the person to whom it is addressed Transferred by to pay on demand or at a fixed or assignment determinable future time a sum certain in HDC may have better money to order or to bearer (Sec. 126, NIL). rights than transferor → Check: bill of exchange drawn on a Transferee acquires bank payable on demand. rights only of his Promissory Note Bill of Exchange transferor Unconditional promise Unconditional order Prior parties warrant Involves 2 parties Involves 3 parties payment Maker primarily liable Drawer only secondarily Prior parties merely liable warrant legality of title Only 1 presentment - Generally 2 Transferee has right for payment presentments - for of recourse against acceptance and for intermediate parties payment Transferee has no right of recourse 5. Parties 2. Negotiable Instruments 5.1. As regards promissory note: 1. Promissor/maker Law 2. Payee - person to whom the promise to o The NIL applies only to instruments which pay is made. conform with the requisites laid down by Sec1 5.2. As regards bill of exchange: of the law. Should any of said requisites be 1. Drawer - person who gives the order to absent, the instrument would not be negotiable pay. and would therefore not be governed by the 2. Drawee - addressee of the order. NIL but by the general law on contracts. 3. Payee - person to whom the payment is to o TIP: It is advised that one memorizes the two be made. most important provisions of the NIL : Sec. 1 • Indorser - the payee of an instrument who (Forms of negotiable instruments) and Sec. 52 transfers it to another by signing it at the back (What constitutes a holder in due course) thereof • Indorsee - person to whom the indorser • UNCONDITIONAL: Mere negotiates the instrument, who, by such indication of the particular fund negotiation, becomes the holder of the out of which reimbursement is instrument. to be made, or an indication of
Chapter II. a particular account to be
debited with the amount NEGOTIABILITY ii. “A statement of the transaction which gives rise to the instrument. 1 Requisites of Negotiability1 • UNCONDITIONAL: Mere 1.1. Must be in Writing and Signed recital of the transaction or consideration for which the by instrument was issued the Maker • However, the fact that the 1. No person liable on the instrument whose condition appearing on the signature does not appear thereon. instrument has been fulfilled 2. One who signs in a trade or assumed will not convert it into a name liable to same extent as if he had negotiable one. signed in his own name. (Sec. 18, NIL) iii. But an order or promise to pay out of 3. Signature of party may be made by duly a particular fund is not unconditional authorized agent; no particular form of • CONDITIONAL: when appointment necessary. (Sec. 19, NIL) reference to the fund clearly 4. "In writing" - includes print; written or indicates an intention that such typed fund alone should be the source 5. Signature, binding so long it is intended of payment or adopted as the signature of the signer or METROPOLITAN BANK v. CA (1991) made with his authority. The treasury warrants in question are not NIs. They 1.2. Must contain an Unconditional are payable from a particular fund, to wit, Fund 501. The indication of Fund 501 as the source of Order or Promise to Pay the 1 Suggested Mnemonics: UP MaSCoT’S PaWN: payment to be made on the treasury warrants Unconditional order and Promise, payable in makes the order or promise to pay "not unconditional" and the warrants themselves Money, Signed by maker, Certainty as to Time, nonnegotiable. Sum 1.3. Sum Payable must be Certain and Parties, in Writing, include words of 1. Sec. 2, NIL: The sum payable is a sum Negotiability. certain, even if: 1. “ORDER OR PROMISE TO PAY” a. With interest; a. PROMISSORY NOTE: b. By stated installments; i. PROMISE TO PAY: should be c. By stated installments with express on the face of the acceleration clause; instrument d. With exchange, whether at a fixed rate ii. Word "promise" is not absolutely or at the current rate; or necessary. Any expression e. With costs of collection or attorney's equivalent to a promise is sufficient. fee. iii. Mere acknowledgment of a debt 2. A sum is certain if from the face of the insufficient instrument it can be mathematically b. BILLS OF EXCHANGE: computed. i. Order - command or imperative 3. A stipulation to pay a higher rate of direction; the instrument, by its interest if the note is not paid or a lower nature, demanding a right. rate if it is paid on or before maturity does ii. Words which are equivalent to an not render the instrument non-negotiable. order are sufficient. 1.4. Must be Payable in Money iii. A mere request or authority to 1. Capable of being transformed into money. pay does not constitute an order. 2. NON NEGOTIABLE: an instrument which iv. Although the mere use of polite contains an order or promise to do an act words like "please" does not of itself in addition to the payment of money deprive the instrument of its 3. BUT If the order or promise gives the characteristics as an order, its holder an election to require something to language must clearly indicate a be done in lieu of payment of money, an demand upon the drawee to pay. instrument otherwise negotiable would not 2. “UNCONDITIONAL” be affected thereby. (Sec. 5, NIL) a. The promise or order to pay, to be → But if the option is with the maker unconditional, must be unqualified. or person primarily liable, b. Sec. 3, NIL: “An unqualified order or instrument is NOT negotiable. promise to pay is unconditional…though 4. Kind of current money does not affect coupled with: negotiability. Since the value of the note i. “An indication of a particular fund out can by a simple mathematical computation of which reimbursement is to be be expressed in the value of the lawful made, or a particular account to be money of the latter country (Incitti v debited with the amount Ferrante, 1933, US Jur) 5. Obligations in foreign currency may be o Other instances where instrument still discharged in Philippine currency based on NEGOTIABLE: the prevailing rate at the time of payment, When option given to the holder pursuant to RA 8183 (Asia World to accelerate the maturity of an Recruitment v NLRC, 1999). installment note upon failure of 1.5. Time of Payment must be the maker to pay any installment when due. Certain Acceleration, automatic upon • Purpose: Informing the holder of the default. instrument of the date when he may Acceleration by operation of law. enforce payment thereof. 5. Provisions extending time of payment • An instrument may be payable: o General rule: Negotiability not 1. on demand (Sec. 7. NIL) affected. Effect is similar with that of 1.) Expressed to be payable on demand, an acceleration clause at the option of or at sight, or on presentation; the maker. 2.) No time for payment is expressed; Negotiability not affected, even if 3.) Where an instrument is issued, the holder is given the option to accepted, or indorsed when overdue, it extend time of payment by mere is, as regards the person so issuing, inaction or indulgence for an accepting, or indorsing it, payable on indefinite time depending on his demand. will, because with or without this Demand instruments: Holder may call for provision, the holder may always payment any time; maker has an option to choose to be indulgent. pay at any time, and the refusal of the o Exception: Where a note with a fixed holder to accept payment will terminate the running of interest, if any, but the obligation maturity provides that the maker has to pay the note remains. the option to extend time of payment 2. at a fixed time until the happening of contingency, o Only on the stipulated date, and not instrument NOT negotiable. The time for payment may never come at all. before, may the holder demand its payment. 1.6. Must be Payable to Order or to o Should he fail to demand payment, the Bearer/ Must contain Words of instrument becomes overdue but Negotiability remains valid and negotiable. It is • words of negotiability - serve as an merely converted to a demand expression of consent that the instrument. instrument may be transferred. 3. at a determinable future time o But the instrument need not follow o Determinable future time, if the language of the law; any term expressed to be payable (Sec. 4, NIL): which clearly indicates an intention 1.) At a fixed period after date of sight; to conform with the legal 2.) On or before a fixed or determinable requirements is sufficient. future time specified therein; SALAS v CA (1990) 3.) On or at a fixed period after the Among others, the instrument in order to be occurrence of a specified event considered negotiable must contain the so-called which is certain to happen, though "words of negotiability — i.e., must be payable to the time of happening be uncertain. "order" or "bearer"". Under Section 8 of the o If payable upon a contingency, both Negotiable Instruments Law, there are only two negotiable, and the happening of the ways by which an instrument may be made payable event does not cure the defect. to order. There must always be a specified person 4. Effect of acceleration provisions named in the instrument and the bill or note is to o If option (absolute or conditional) to be accelerate maturity is on the maker, paid to the person designated in the instrument or still NEGOTIABLE. to any person to whom he has indorsed and Maker may pay earlier than the date delivered the same. fixed but this option, if exercised, CALTEX v. CA (1992) would be a payment in advance of The negotiability or non-negotiability of an a legal liability to pay. It is still instrument payable on the date fixed, and is determined from the face of the instrument itself. holder has no right to enforce The duty of the court in such case is to ascertain, payment against the maker not before such date. what the parties may have secretly intended but o If option to accelerate is on the holder: what If option can be exercised only after is the meaning of the words they have used. the happening of a specified Traders Royal Bank v. CA (1997) event/act over which he has no The language of negotiability which characterize a control (conditional), still negotiable paper as a credit instrument is its NEGOTIABLE. freedom If option is unconditional, time of to circulate as a substitute for money. Hence, payment is rendered uncertain, freedom of negotiability is the touchtone relating to NOT negotiable. the protection of holders in due course, and the freedom of negotiability is the foundation for the certainty. protection which the law throws around a holder in • If it is not clear in what capacity the person due course. signed, said person is considered an • Postal money order, not negotiable, indorser because it does not contain words of negotiability. 2 Provisions Not Affecting • Where words "or bearer" printed on a Negotiability, (Sec. 5)2 check are cancelled by the drawer, 1. Authorizes sale of collateral securities; instrument not negotiable. • Bearer instrument may be negotiated by 2. Authorizes confession of judgment if instrument mere delivery. not paid at maturity; o When instrument is payable to bearer 3. Waives the benefit of any law intended for the (Sec. 9, NIL): advantage or protection of the obligor; or a. Expressed to be so payable - ex: "I 4. Gives holder election to require something to promise to pay the bearer the be done in lieu of payment of money. (if in sum…." addition to money – not NI) b. Payable to a person named therein • Negotiability affected, when instrument or bearer – ex. "Pay to A or contains a promise or order to do any bearer." act in addition to the payment of c. Payable to the order of a fictitious money. person or non-existing person, and PNB v. MANILA OIL REFINING (1922) such fact was known to the person In this case, the note contains a provision that in making it so payable - ex: "Pay to case that it would not be paid at maturity, the John Doe or order." "maker authorizes any attorney to appear and d. Name of payee does not purport to confess judgment thereon." be the name of any person - ex: The Court ruled that said judgment note is illegal "Pay to cash;" "Pay to sundries." and inoperative as such is against public policy. It e. Only or last indorsement is an noted that it is in derogation of the constitutional indorsement in blank. safeguards (a day in court). Such judgment note ANG TEK LIAN v. CA (1950) 2Suggested Mnemonic: WEJy S: Waives, gives A check drawn payable to the order of cash is a holder Election, confession of Judgment, Sale of check payable to bearer, and the bank may pay it to the person presenting it for payment Securities can only be valid if given express legislative without the drawer's indorsement. sanction. A check payable to bearer is authority for In common law, two kinds of judgment by payment to the holder. Where the check is in confession: the ordinary form and is payable to bearer, so Judgment by cognovit actionem that no indorsement is required, a bank, to which it is presented for payment, need not Confession relicta verificatione have the holder identified, and is not negligent 3. Omissions Not Affecting in failing to do so. • Order Instrument, negotiation requires Negotiability (Sec. 6) delivery and indorsement of the transferor. A. Non-dating of the instrument o When instrument is payable to order: B. Non-specification of value given, or that any Drawn payable to the order of a value had been given specified person or to him or his order C. Non-specification of place where it is drawn or (Sec. 8, NIL). place where it is payable o Without the words "to order" or "to the D. Bears a seal order of," the instrument is payable E. Designation of particular kind of currency in only to the person designated therein which payment is to be made and is therefore non-negotiable. 4. Rules of Construction (Campos, as cited in Consolidated Plywood Industries v IFC Leasing, (Sec.17) 1987) A. Sum expressed in words takes precedence over 1.7. Parties must be designated sum in numbers; BUT where words are so ambiguous or uncertain, reference to the figures with should be made Certainty B. Where interest is stipulated, without specification a. Maker and drawer of the starting date, the interest runs from the • Sign the instrument at the lower date of the instrument, and if undated, from the right-hand corner. issue thereof b. Payee C. An undated instrument is considered dated as of • When negotiating, sign at the back; time issued. same with indorsers. D. Written provisions prevail over printed provisions a. Drawee E. Where the instrument is ambiguous as to • Name usually at the lower left-hand whether it is a note or a bill, the holder may treat corner, or across the top. it as either at his election • If instrument addressed to F. When the capacity of signatory is not clear, he is drawee, he must be named or to be deemed an indorser indicated with reasonable G. “I promise to pay” when signed by two or more persons is deemed to be jointly and severally • The indorsement must be written on the signed instrument itself or on a paper attached thereto Chapter III. (allonge). The signature of the indorser, without additional words, is sufficient indorsement. TRANSFER (Sec.31, NIL)
1. Delivery and Issuance • Indorser generally enters into two contracts
(Implied contracts by Indorser): A. Delivery means transfer of possession of 1. sale or transfer of instrument instrument by the maker or drawer, with intent 2. to pay instrument in case of default of maker to transfer title to the payee and recognize him as holder thereof. (de la Victoria v. Burgos) • Indorsement must be of entire instrument (can’t B. NI incomplete and revocable until delivery for be indorsement of only part of amount payable, the nor can it be to two or more indorsees severally. purpose of giving effect thereto as between But okay to indorse residue of partially paid (Sec. 16, NIL): instrument) (Sec. 32, NIL) 1. immediate parties 3.1. Kinds of Indorsements (Sec. 2. a remote party other than holder in due course 33) 1. as to manner of future method of C. delivery, to be effectual, must be made by or negotiation(Sec. 35, NIL): under the authority of the party making / a. special – specifies the person to whom/to drawing / accepting/indorsing whose order the instrument is to be payable; D. delivery may be shown to have been indorsement of such indorsee is necessary to conditional, or for a special purpose only, and further negotiation. not for the purpose of transferring the property in the instrument • A special indorser is liable to all E. PRESUMPTION OF DELIVERY subsequent holders, unless the 1. Where the instrument is no longer in the instrument is an originally bearer possession of a party whose signature instrument, in which case he is liable appears thereon, a valid and intentional only to those who take title through his delivery by him is presumed until the indorsement (Sec 40, NIL) contrary is proved b. blank – specifies no indorsee, instrument so 2. if it is in the hands of a HDC, the indorsed is payable to bearer, and may be presumption is conclusive negotiated by delivery 3. Camposes: Should an undelivered • a person who negotiates by mere instrument come into the hands of a holder delivery is liable only to his immediate in due course, the maker is liable to him transferee. regardless of any proof of the lack of valid • the holder may convert a blank delivery. indorsement into a special indorsement F. PRESUMPTION AS TO DATE by writing over the signature of the 1. Date is not an essential element of indorser in blank any contract consistent negotiability with the character of the indorsement 2. An undated instrument is considered to be dated as of the time it was issued • An order instrument may be converted into a GEMPESAW v CA (1993) bearer instrument by means of a blank Every contract on a negotiable instrument is indorsement. incomplete and revocable until delivery of the • But a bearer instrument remains as such instrument to the payee for the purpose of giving whether it has been indorsed specially or in effect thereto. The first delivery of the instrument, blank. It is the liability of the indorser which complete in form, to the payee who takes it as a is affected. holder, is called issuance of the instrument. Without 2. as to kind of title transferred: the initial delivery of the instrument from the a. restrictive – such indorsement either: drawer of the check to the payee, there can be no 1) prohibits further negotiation of valid and binding contract and no liability on the instrument, instrument. o In this kind of restrictive indorsement, 2. Negotiation the prohibition to transfer or negotiate must be written in express words • When an instrument is transferred from one at the back of the instrument, so person to another as to constitute the that any subsequent party may be transferee the holder thereof. forewarned that ceases to be • If payable to BEARER, negotiated by delivery; if negotiable. However, the restrictive payable to ORDER, negotiated by indorsement indorsee acquires the right to receive of holder + delivery (Sec.30, NIL) payment and bring any action SESBREÑO v. CA (1993) thereon as any indorser, but he can A NI may, instead of being negotiated, ALSO be no longer transfer his rights as such assigned or transferred. A non-NI may not be indorsee where the form of the negotiated; but it may be assigned or transferred, indorsement does not authorize him absent an express prohibition against assignment to do so. (Gempesaw v CA 1993) or transfer written in the face of the instrument. 2) constitutes indorsee as agent of indorser, or 3. Indorsement 3) vests title in indorsee in trust for another 3. Unindorsed instruments – Sec 49, NIL Where o rights of indorsee in restrictive holder of instrument transfers for value without ind.: indorsing, transfer vests in transferee: a) receive payment of inst. a. such title as transferor had therein, subject b) Bring any action thereon to defenses and equities available to prior that indorser could bring parties c) Transfer his rights as o ex: transferee can sue the transferor, such indorsee, but all though he does not thereby subsequent indorsees automatically become a HDC (Furbee v. acquire only title of first Furbee, 1936) indorsee under restrictive b. right to have indorsement of transferor, indorsement after which, he becomes a holder or possibly b. non-restrictive a HDC 3. as to kind of liability assumed by indorser o For purposes of determining whether or a. qualified not the transferee becomes a HDC after • constitutes indorser as mere assignor securing the transferor’s indorsement, of title (eg. “without recourse”) (Sec. note that Sec. 52 must be met at the 38, NIL). time of the negotiation, i.e., when • But this does not mean that the indorsement is actually made. transferee only has the rights of an BPI vs CA (2007) assignee. Transfer remains a The transaction [in Sec. 49, NIL] is an equitable negotiation and transferee can still be assignment and the transferee acquires the a holder capable of acquiring a title instrument subject to defenses and equities free from defenses of prior parties. available • It relieves the qualified indorser of his among prior parties. Thus, if the transferor had liability to pay the instrument should legal the maker be unable to pay at title, the transferee acquires such title and, in maturity. addition, the right to have the indorsement of the b. unqualified transferor and also the right, as holder of the legal 4. as to presence/absence of express limitations title, to maintain legal action against the maker or put by indorser upon primary obligor’s acceptor or other party liable to the transferor. The privileges of paying the holder: underlying premise of this provision, however, is a. conditional – additional condition annexed that to indorser’s liability. (Sec. 39, NIL) a valid transfer of ownership of the negotiable o Where an indorsement is conditional, a instrument in question has taken place. party required to pay the instrument Transferees in this situation do not enjoy the may disregard the condition, and presumption of ownership in favor of holders since make payment to the indorsee or his they are neither payees nor indorsees of such transferee, whether condition has been instruments… Thus, something more than mere fulfilled or not possession by persons who are not payees or o Any person to whom an instrument so indorsers of the instrument is necessary to authorize payment to them in the absence of any indorsed is negotiated will hold the other facts from which the authority to receive same/proceeds subject to rights of payment may be inferred. person indorsing conditionally 4. Cancellation of Indorsements - Holder may b. unconditional strike out indorsements not necessary to his 5. other classifications: title. The endorser whose endorsement was a. Absolute – One by which the indorser binds struck out, and all endorsers subsequent to himself to pay, upon no other condition than him, are relieved from liability on the the failure of prior parties to do so, and of instrument (Sec. 48, NIL) due notice to him of such failure 5. Indorsement by Agent - agent should make b. Joint - Where instrument payable to the it plain that he is signing in behalf of a principal order of two or more payees or indorsees not otherwise he may be made personally liable partners, all must indorse, unless the one (Sec 20, NIL) indorsing has authority to endorse for the o The Negotiable Instruments Law provides others (Sec. 41, NIL) c. Irregular - Where a person, not otherwise a that where any person is under obligation party to the instrument, places thereon his to indorse in a representative capacity, he signature in blank before delivery, he is may indorse in such terms as to negative liable as indorser personal liability. An agent, when so signing, should indicate that he is merely 3.2. Other Rules on Indorsement signing in behalf of the principal and must 1. Indorsement by Collecting Bank - holder disclose the name of his principal; deposits check with a bank other than the otherwise he shall be held personally liable. drawee, would in effect be negotiating the check (FRANCISCO v CA, 1990) to such bank, since he would have to indorse the 6. Presumption as to Indorsement check before the bank will accept it for deposit. o Time (Sec.45, NIL) - Every negotiation In most cases, the bank is acting as a mere deemed prima facie effected before collecting agent. instrument was overdue, except where 2. Negotiation by Joint or Alternative Payees indorsement bears date after maturity of or Indorsees - all must indorse, unless the one the instrument. indorsing has authority to endorse for the others o Place (Sec.46, NIL) - Every indorsement all the requisites for making it a is presumed prima facie made at place negotiable one, even if it may have where instrument is dated blanks as to non-essentials. o Where instrument drawn or indorsed to o It is incomplete when it is wanting in any material particular or particular person as cashier (Sec.42, NIL) - deemed prima facie to be payable to the bank or 3suggested mnemonics: GROIN: Good faith and corporation of which he is such officer; value, complete and Regular, not Overdue, no may be negotiated by either the notice indorsement (1) of the bank or corporation or (2) of the officer. of Infirmity at time of Negotiation; or GROCI: 7. Continuation of Negotiable Character - An Good NI, although overdue, retains its negotiability faith and value, Regular, not Overdue, Complete, unless it has been paid or restrictively indorsed no to prevent further negotiation (Sec. 47, NIL) 8. Indorsement of bearer inst. Infirmity, o Where an instrument payable to bearer is proper to be inserted in a NI without w/c the same will not be complete. indorsed specially, it may nevertheless be 2. Material Particulars further negotiated by delivery o What are material particulars? A o Person indorsing specially liable as indorser change in the ff. is considered a to only such holders as make title through material alteration (Sec. 125, NIL): his indorsement i. The date; Chapter IV. ii. The sum payable, either for principal or interest; HOLDER IN DUE COURSE iii. The time or place of payment; iv. The number or the relations of the 1. Holder (Sec. 191) parties; • Definition: Payee or indorsee of a bill or note v. The medium or currency in which who is in possession of it, or the bearer payment is to be made; thereof. vi. Or which adds a place of payment where no place of payment is • RIGHTS OF HOLDER (Sec. 51, NIL) specified, 1. sue thereon in his own name 3. Rights of HDC of instrument that has been 2. payment to him in due course discharges materially altered instrument o enforce payment thereof according to 2. Three Kinds of DUE COURSE its original tenor IF not a party to the Holding alteration. (Sec. 124, NIL) a. HDC under Sec 52 3.2. That he became the holder of b. HDC under Sec 58 : A holder who derives it title to the instrument through a HDC has all before it was overdue and without the rights of the latter even though he himself satisfies none of the requirements of notice that it had been previously due course holding (Campos & Campos) dishonored, if such was the fact c. HDC under Sec 59 (presumption): every 1. “OVERDUE” holder is deemed prima facie to be a holder a. The ff. cannot be HDCs: (Sec. 53, in due course NIL) 3. Requisites to become a i. A holder who became such after the date of maturity of the holder in due course (Sec.52)3 instrument (instrument is SALAS v. CA (1990) overdue); The indorsee was a HDC, having taken the ii. In case of demand instruments, a instrument holder who negotiates it after an under the following conditions: (1) it is complete unreasonable length of time after and its issue regular upon its face; (2) it became the holder b. Instruments with fixed maturity but thereof before it was overdue; (3) it took the same subject to acceleration: ultimate date in of maturity is the date of maturity for good faith and for value; and (4) when it was the purpose of determining whether a negotiated to the indorsee, the latter had no notice purchaser is a HDC of c. Undated instruments: Prima facie any infirmity in the instrument or defect in the title presumption that it was negotiated of before it was overdue (Sec 45) the previous indorser. d. NOTE: An overdue instrument is still HDC is one who has taken the instrument under the negotiable, but it is subject to the following conditions: defense existing at the time of the 3.1. That it is complete and regular transfer. 2. DISHONOR upon its face a. Non-acceptance 1. COMPLETE i. Occurs when drawee refuses to o An instrument is complete if it contains accept the order of the drawer as stated in the bill constitutes value, whether the ii. Applicable only to bills of instrument is payable on demand or at exchange a future time. (Sec.25, NIL) iii. May occur before the date of i. MERCHANTS’ NATIONAL BANK maturity of the bill OF ST. PAUL v. STA. MARIA b. Non-payment SUGAR CO. (1914) i. Occurs when the party primarily The mere discounting of the note liable fails to pay at the date of and placing the amount of said maturity discount to the credit of the HFV ii. Date of Maturity would not then have constituted a 1) “payable after sight”—date of transfer for value. But if the sum presentment had subsequently been checked 2) Payable on the occurrence of a out, then value would have specified event—date is fixed passed. by happening of event The general rule as to the 3. An instrument is not invalid for the reason application of payments, there only that it is ANTE-DATED OR POST-DATED being no special facts to interfere, provided not done for an illegal or fraudulent is that the first payments apply to purpose. The person to whom an instrument the oldest debts. so dated is delivered acquires the title The first debits are to be charged thereto as of the date of delivery. (Sec.12, against the first credits. It follows NIL) therefore, upon the facts as 3.3. That he took it in good faith found, that the bank was a bona fide HFV without notice, and, in AND accordance with the stipulation, for value: judgment should be entered for 1. HOLDER FOR VALUE - (a) Where value has the plaintiff upon the note. at any time been given for the instrument, Judgment reversed. the holder is deemed a HFV in respect to all ii. Bank credit as value - When the parties who become such prior to that time holder of a check deposits it with (Sec.26, NIL) and (b) Where the holder has his bank (assuming it is not the a lien on the instrument, he is deemed a HFV drawee bank) and the bank to the extent of his lien (Sec.27, NIL). credits it to his account, is the a. PRESUMPTION – Every NI is deemed bank at this stage a HFV? prima facie issued for valuable o Majority View first money consideration; and every person whose in is presumed to be the first signature appears thereon to have money paid out become a party thereto for value (Sec. o Minority View as long as 24, NIL) the balance in the depositor’s i. In actions based upon a negotiable account equals or exceeds the instrument, it is unnecessary to amount of the instrument aver or prove consideration, for deposited, the latter cannot consideration is imported and be considered as withdrawn presumed from the fact that it is a for the purpose of treating negotiable instrument. The the bank as a HFV. presumption exists whether the words "value received" appear on o (So far, there has been no the instrument or not (Ong v decision by the SC on this People, 2000) issue.) ii. BAYANI VS. PEOPLE (2004) 2. GOOD FAITH 1) Under Section 28 of the a. Holder must have taken the Negotiable Instruments Law instrument in good faith and that at (NIL), absence or failure of the time it was negotiated to him he consideration is a matter of had no notice of any infirmity in the defense only as against any instrument or defect in the title of the person not a holder in due person negotiating it. course. b. NOT a Holder in GOOD FAITH 2) Moreover, Section 24 of the NIL i. Holder acted in bad faith provides the presumption of ii. Holder had NOTICE OF DEFECT consideration. Such 1) ACTUAL KNOWLEDGE presumption cannot be SEC 56. WHAT overcome by the petitioner’s CONSTITUTES bare denial of receipt of the NOTICE OF DEFECT— [consideration]. To constitute notice of 3) Only evidence of the clearest an infirmity in the and most convincing kind will instrument or defect in suffice for that purpose. the title of the person (Travel-On Inc v CA, 1992) negotiating the same, b. VALUE - any consideration sufficient to the person to whom it support a simple contract. An is negotiated must antecedent or pre-existing debt have had actual knowledge of the notwithstanding the suspicious circumstances, it infirmity or defect, or acquired the check in actual good faith. knowledge of such One line of cases had adopted the test of the facts that his action in reasonably prudent man and the other that of taking the instrument actual good faith. It would seem that it was the amounted to bad faith. intent of the Negotiable Instruments Act to It is therefore harmonize this disagreement by adopting the latter sufficient that the test. Negligence on the part of the plaintiff, or buyer of a note had suspicious circumstances sufficient to put a prudent notice or knowledge man on inquiry, will not of themselves prevent a that the note was in recovery, but are to be considered merely as some way tainted with evidence bearing on the question of bad faith. fraud. It is not STATE INVESTMENT HOUSE v. IAC (1989) necessary that he A check with 2 parallel lines in the upper left hand should know the corner means that it could only be deposited and particulars of the may not be converted to cash. Consequently, such fraud. circumstance should put the payee on inquiry and 2) SUSPICIOUS upon him devolves the duty to ascertain the CIRCUMSTANCES holders’ title to the check or the nature of his a. BAD FAITH - does possession. Failing in this respect, the payee is not require actual declared guilty of gross negligence amounting to knowledge of the legal absence of good faith and as such the exact fraud that was consensus of authority is to the effect that the practiced; knowledge holder of the check is not a holder in good faith. that there was YANG v. CA (2003) something wrong … in accepting the cross checks and paying cash for about the assignor’s them, despite the warning of the crossing, the acquisition of title is subsequent holder could not be considered in good sufficient. faith and thus, not a holder in due course. b. The burden is upon the iii. FINANCING COMPANY defendant to show 1) Consolidated Plywood v. that notwithstanding IFC: A FINANCING the SUSPICIOUS COMPANY that is the CIRCUMSTANCES, it indorsee of a note issued acquired the check in by a buyer payable to the actual good faith. (De seller of goods is NOT a Ocampo & Co. v. holder in good faith as Gatchalian) to the buyer. In case the o Purchase of an goods sold turn out to be instrument at a defective, it cannot DISCOUNT does not, recover the purchase of itself, constitute bad price of the goods from faith. However, if the the buyer. instrument is 2) In installment sales, the pruchased at a heavy buyer usually issues a note discount, this fact payable to the seller to together with other cover the purchase price. facts, may be taken 3) Many times, pursuant to a into account in previous arrangement with deciding the issue of the seller, a finance purchase in good faith. company pays the full price (Ham v. Meritt) of the property sold and VICENTE R. DE OCAMPO & CO. v. the note is indorsed to it by GATCHALIAN, the seller, subrogating it to ET. AL. (1961) the right to collect the In order to show that the defendant had knowledge price from the buyer. of such facts that his action in taking the 4) RULE In such cases, the instrument tendency of the courts is to amounted to bad faith, it is not necessary to prove protect the buyer against that the defendant knew the exact fraud that was the finance company in the practiced upon the plaintiff by the defendant’s event that the goods sold assignor, it being sufficient to show that the turn out to be defective. defendant had notice that there was The finance company will something wrong about the assignor’s be subject to the defense acquisition of title, although he did not have of failure of consideration notice of the particular wrong that was committed. and cannot recover the …The fact is that it acquired possession of the purchase price from the instrument under circumstances that should have buyer. NOTE: put it to inquiry as to the title of the holder who Consolidated Plywood v. negotiated the check to it. The burden was, IFC rule applied; Salas therefore, placed upon it to show that v. CA rule not applied 3.4. That at time it was negotiated deprive the conditional indorsee or subsequent holder of the rights of a HDC. to If he fulfills all the requisites in Sec. 52 him, he had no notice of : then he is immune from all the personal o any infirmity in instrument defense. o any defect in title of person C. A restrictive indorsement which prohibits negotiating; further negotiation will not prevent the 1. title DEFECTIVE when (Sec. 55, NIL): indorsee from being a HDC. BUT, if he a. instrument / signature obtained by further indorses the instrument, then the fraud, duress, force or fear or other subsequent indorsee will not be a due unlawful means OR for an illegal course holder. consideration; or 5. Who is Deemed HDC b. instrument is negotiated in breach of faith, or fraudulent circumstances (burden of proof) (Sec.59) 2. NOTICE of infirmity or defect – A. General Rule: Prima facie presumption in a. actual knowledge of the infirmity or favor of holder defect OR knowledge of such facts that B. Exception: Burden is reversed (burden on his action in taking the instrument holder to prove that he or some person amounted to bad faith (Sec.56, NIL) under whom he claims acquired title as b. Notice to an AGENT is chargeable HDC) when it is shown that the title of any against the principal. person who has negotiated instrument was c. INSUFFICIENT NOTICE defective i. CONSTRUCTIVE NOTICE (ex. C. Exception to exception: There will be no notice of defenses disclosed by reversal if the party being made liable public records, doctrine of lis became bound prior to the acquisition of pendens) is insufficient to charge a such defective title (i.e., where defense is purchaser of a NI with notice. not his own) – presumption in favor of holder Just as a purchaser of a 6. Rights of Holder in Due negotiable instrument is not put on inquiry, neither Course is he charged with notice of 6.1. Under the NIL4 defenses or equities 1. to sue on the instrument in his own disclosed by public records, name (Sec. 51, NIL) nor is he affected by the 2. to receive payment on the instrument doctrine of lis pendens. – discharges the instrument (Sec. 51, However, notice to an NIL) agent is chargeable 3. holds instrument free of any defect of against the principal. title of prior parties (Sec. 57, NIL) ii. Notice of an ACCOMODATION 4. free from defenses available to prior PARTY is not notice of a defect. parties among themselves (Sec.57, Thus, an accomodation NIL) party (one who has 5. may enforce payment of instrument signed the instrument as for full amount, against all parties liable maker, drawer, acceptor (Sec.57, NIL) or endorser, without receiveing value therefor, 6.2. JUR: BPI v. ALFRED BERWIN & CO. and for the purpose of Only a HDC may enforce payment on the PN. lending his name to some In CAB, it is not clear whether A (the payee) is other person) is liable on still the HDC since D (the maker) believed that A the instrument, may have negotiated it. Thus, to compel D to notwithstanding the fact pay would expose him to pay a second time to that the holder knew him the HDC (in case A was no longer one). to be an accomodation 6.3. DISADVANTAGE of being a party. NON HDC: d. RIGHT of a transferee who receives o The Negotiable Instruments Law does NOTICE of any infirmity or defect not provide that a holder not in due BEFORE he has PAID THE FULL course can not recover on the amount for the instrument instrument. The disadvantage of … not i. He will be deemed a HDC only to being a holder in due course is that the the extent of the amount negotiable instrument is subject to therefore paid by him (Sec.54, defenses as if it were non-negotiable. NIL) One such defense is absence or failure 4. Effect of Qualified, of consideration. (Atrium Mgt v de Leon, 2001) Conditional and Restrictive 7. Rights of Purchaser from Indorsements A. The status of a holder as a HDC is not Holder in Due Course (Sec.58) affected by his taking under a qualified 7.1. General Rule: In the hands of any indorsement. holder other than a HDC, NI is subject to same B. A conditional indorsement does not defenses as if it were non-negotiable. 7.2. Exception: A holder who derives title 2.1. Incapacity: REAL defense but through a HDC and who is NOT himself A PARTY available only to the incapacitated party (ex. TO ANY FRAUD or illegality has all rights of such minor or corporation); the indorsement or former holder in respect to all parties prior to the assignment of the instrument by a corp. or by an latter EVEN though he himself does not satisfy infant passes the property therein, Sec.52 notwithstanding that from want of capacity, the 4Suggested Mnemonics: REFS: Receive and corp. or infant may incur no liability thereon. (Sec.22, NIL) Enforce payment, Free from any defect of title and 2.2. Incomplete, Undelivered defenses, Instrument 1. Instrument will not, if completed and Sue negotiated without authority, be a valid 8. Presumption in Favor of contract in the hands of ANY holder, as against any person whose signature was Due placed thereon before delivery. (Sec. Course Holding 15, NIL) A. Every holder is deemed prima facie to be a 2. Who may be estopped from raising the holder in due course; real defense under Sec 15? A drawee 1. BURDEN SHIFTS when it is shown that bank whose negligent custody of the the title of any person who has checks, after partial execution, negotiated the instrument was contributed to its escape defective. Holder MUST PROVE that he 3. Personal Defenses or some person under whom he claims acquired the title as a holder in due 3.1. Complete, Undelivered course. Instrument 2. But the last mentioned rule does not a. CONCLUSIVE presumption of a valid apply in favor of a party who became delivery – where the instrument is in the bound on the instrument prior to the hands of a HDC acquisition of such defective title. b. PRIMA FACIE presumption of a valid (Sec.59., NIL) delivery – where the instrument is no longer B. However, this presumption arises only in in the possession of a party whose sig favor of a person who is a holder as appears thereon (Sec. 16, NIL) defined in Section 191 of the Negotiable 3.2. Incomplete, Delivered Instruments Law, meaning a “payee or indorsee of a bill or note, who is in (sec.14) 1. This is a personal defense only because possession of it, or the bearer thereof.” provision states that if any instrument (Yang v CA, 2003) so completed is negotiated to a holder in Chapter V. due course, it is valid and effectual for all purposes DEFENSES & EQUITIES 2. 2 Kinds of Writings: i. Where instrument is wanting in 1. Defenses in General any material particular: person in 1.1. REAL defense – attaches to possession has prima facie instrument on the principle that there was no authority to complete it by filing up contract at all; available against ALL holders blanks therein including holders in due course. They are those ii. Signature on blank paper which attach to the instrument itself and delivered by person making the generally, disclose an absence of one of the signature IN ORDER that the paper essential elements of a contract. may be CONVERTED into a NI 1.2. PERSONAL defense – grows out of operates as prima facie authority to the agreement or conduct of a particular person fill up as such for any amount in regard to the instrument which renders it 3. The authority to fill up is limited by the inequitable FOR HIM, though holding the legal following: title, to enforce it against the party sought to a. When completed, it may be be made liable; not available against a HDC.can enforced upon the parties thereto be raised only against holders not on due only if it was filled strictly in course. Here, the true contract appears , but accordance with the authority for some reason , the defendant is excused given from the obligation to perform. b. The filling up must be within a reasonable time 1.3. Equities or Claims of NOTE: If the signature on a paper is Ownership are of 2 Kinds given only for autograph purposes 1. Legal – one who has legal title to the and the same is converted into a NI, instrument may recover possession this will amount to forgery, thereof even from holder in due course constituting thus a valid defense 2. Equitable – may only recover from a even against a HDC holder not in due course 4. This provision contemplates delivered 2. Real Defenses instruments, so the person in possesion cannot be a thief or a finder but a person in lawful possession- one intent or willingness to be bound. Then to whom the instrument has been it becomes a real defense. delivered. 5. In order that any such instrument, 4. Sometimes Real, when completed, may be enforced Sometimes against any person who became a party thereto prior to its completion: Personal a. must be filled up strictly in 4.1. Forgery (Sec. 23): made without accordance w/ AUTHORITY given authority of person whose signature it purports to b. within a REASONABLE TIME – in be determining what is reasonable 1. In general, a REAL defense: … Effect time, regard is to be had to the a. signature is wholly inoperative (1) nature of the instrument, (2) b. no right to retain instrument, or usage of trade or business (if any) give discharge, or enforce payment with respect to such instruments, against any party thereto, can be and 3) the facts of the particular acquired through or under such case signature (unless forged signature 6. BUT if negotiated to HDC, may enforce unnecessary to holder’s title) it as if it had been filled up properly c. No subsequent party can acquire 7. What details may be filled up? the right against any party thereto a. Amount, as to a signed blank (prior to the forgery) to: paper i. Retain the instrument b. Date (Sec 13 “… The insertion of a ii. Give a discharge there for wrong date does not void the iii. Enforce payment thereof instrument in the hands of a 2. PERSONAL if the party against whom it subsequent holder in due is sought to enforce such right is course…”) PRECLUDED from setting up c. Place of payment forgery/want of authority; d. Name of payee a. Who are PRECLUDED? 3.3. Lack of Consideration(Sec. i. parties who make certain warranties, like a general 28) indorser or acceptor after 1. ABSENCE or failure of consideration is a forgery (Sec. 62, NIL) matter of defense as against any person ii. estopped / negligent parties not a HDC. iii. parties who ratify (BUT there 2. PARTIAL FAILURE of consideration is a are conflicting views whether defense pro tanto whether the failure is an “precluded” includes ascertained and liquidated amount or ratification) otherwise . b. One view holds that a forged 3.4. Illegality signature cannot be ratified 1. In general, a PERSONAL defense even if because ratification involves the CC1409 provides that a contract with an relation of agency and a forger illegal cause is void. does not assume to act for 2. REAL when the law expressly provides for another. illegality as a real defense (Statutory 3. ACCEPTANCE AND PAYMENT of a declaration of illegality forged instrument RODRIGUEZ v MARTINEZ (1905) When there is acceptance and Maker cannot be relieved from the obligation of payment of a forged instrument, the paying the holder the amount of the note alleged to rights and liabilities of the parties have been executed for an unlawful consideration. depend on whether the forgery (Illegality is personal, so defense only against a pertains to the drawer/maker’s holder not in due course) signature or merely of an The holder paid the value of the note to its former indorsement. holder. He did so without being aware of the fact a. Drawer/Maker’s signature that the note had an unlawful origin. He accepted i. PRICE v NEAL, The drawee note in good faith, believing the note was valid and who had paid an accepted bill absolutely good. The maker even assured the as well as a non-accepted bill, holder before the purchase that the note was good each of which was forged, and that he would pay it at a discount . could NOT recover the money 3.5. Duress paid out on the bill. The 1. In general, PERSONAL defense. neglect was on the part of the 2. REAL if duress so serious as to give drawee. rise to a real defense for lack of PNB v QUIMPO (1988) contractual intent A bank is bound to know the signatures of its 3. CAMPOS: There may be cases where depositors. If bank pays a forged check it must be the duress employed is so serious that it considered as making the payment out of its own will give rise to a real defense because funds and cannot charge the account of the of the lack of contractual intent . depositor whose signature was forged. Although the signer may know what he SAMSUNG CONSTRUCTION CO., INC. VS. FAR is signing, there may be wanting the EAST BANK AND TRUST CO. AND CA (2004) Consequently, if a bank pays a forged check, it must be considered as paying out of its funds and signature it purports to be, the check is wholly cannot charge the amount so paid to the account inoperative. of the depositor. A bank is liable, irrespective of However, the rule does provide for an exception, its good faith, in paying a forged check. namely: “unless the party against whom it is ii. Extensions Of The Price v sought to enforce such right is precluded Neal Doctrine: The bar to from setting up the forgery or want of recovery (Price v Neal authority.” In the instant case, it is the doctrine) is extended to exception that applies. Petitioner is precluded overdrafts and stop payment from setting up the forgery, assuming there is orders forgery, due to his own negligence in entrusting 1) Overdraft occurs when a to his secretary his credit cards and checkbook check is issued for an including the verification of his statements of amount more than what account. the drawer has in deposit SAMSUNG CONSTRUCTION CO., INC. VS. FAR with the drawee bank. EAST BANK AND TRUST CO. AND CA (2004) RULE: The drawee who The general rule remains that the drawee who pays the holder of the bill has paid upon the forged signature bears the loss. cannot recover from the The exception to this rule arises only when holder what he paid under negligence can be traced on the part of the mistake drawer whose signature was forged, and the need 2) Stop Payment Order is arises to weigh the comparative negligence one issued by the drawer between the drawer and the drawee to determine of a check countermanding who should bear the burden of loss. his first order to the Still, even if the bank performed with utmost drawee bank to pay the diligence, the drawer whose signature was forged check. RULE: The drawee may still recover from the bank as long as he or bank is bound to follow the she is not precluded from setting up the defense order, provided it is of forgery. After all, Section 23 of the Negotiable received prior to its Instruments Law plainly states that no right to certification or payment of enforce the payment of a check can arise out of a the check forged signature. Since the drawer, Samsung 3) SOME EXCEPTIONS: Construction, is not precluded by negligence from o If the payment to holder is setting up the forgery, the general rule should a legitimate debt of the apply. drawer which the holder in b. Indorsement: due course could have i. When it is the signature of recovered from the drawer the indorser that is forged, anyway. the drawee and drawer CAN o If the stop order comes recover vs holder 1) The drawee can recover after the bank has certified the amount paid by him or accepted the check, the in cases where only an bank is under the legal indorsement has been duty to pay the holder and forged . This is because will not be liable to the drawee makes no drawer for doing so. warranty as to the iii. Effect Of Negligence Of genuineness of any Depositor - If proximate cause indorsement. of loss, the bank (drawee) is 2) Generally, the drawee not liable may only recover from 1) It is the duty of the the holder. Should he fail depositor/drawer to to do so(for instance due carefully examine bank’s to insolvency) he cannot statements, cancelled recoup his loss by checks, his check stubs, charging it to the and other pertinent records drawer’s account within a reasonable time 3) Although a and to report any errors depositor/drawer owes a without unreasonable duty to his drawee bank delay. to examine his cancelled 2) If a drawer/depositor’s checks, he has no negligence and delay similar duty as to forged should cause a bank to indorsements. honor a forged check, 4) The drawer, as soon as drawer cannot later he comes to know of the complain should bank a forged indorsement refuse to recredit his should promptly notify the account. drawee bank ILUSORIO vs CA (2002) REPUBLIC v EBRADA True, it is a rule that when a signature is forged or Drawee can recover. It is not supposed to be the made without the authority of the person whose duty of the drawee to ascertain whether the signatures of the payee or indorsers are genuine or ascertain the not. genuineness of the ii. When drawee may recover indorsements. (BPI v CA, from DRAWER 1992) 1) Where the instrument is 3) In presenting the checks originally a bearer for clearing the collecting instrument, because the agent, made an express indorsement can be guarantee on the validity disregarded as being of “all the prior unnecessary to the holder’s endorsements”. ( BDO v title Equitable bank) 2) Indorsement forged by an 4) The drawee bank is not employee or agent of the similarly situated as the drawer collecting bank because 3) If due to the drawer’s the former makes no negligence/delay, the warranty as to the forgery is not discovered genuineness of any until it is too late for the indorsement. The drawee bank to recover from the bank’s duty is but to holder or the forger verify the genuineness of GEMPESAW v CA, PBC the drawer’s signature While there is no duty resting on the drawer to look and not of the for forged indorsements on his cancelled checks, a indorsement because the depositor is under a duty to set up an drawer is its client. accounting system and business procedure as 5) Where the negligence of are reasonably calculated to prevent or render the drawee bank is the the forgery of indorsements difficult, proximate cause of the particularly collecting bank’s by the depositor’s own employees. payment of a check with As a rule the drawee bank who has paid the check a forged indorsement, with forged indorsement, cannot charge the the drawee bank may be drawer’s held liable to the account for the amount of the said check. An collecting bank . exception to this rule is where the drawer is guilty 6) When both are guilty of of negligence, the degree of such negligence which causes the bank to honor the negligence of each will be check. weighed in considering iii. When drawee may not the amount of loss which recover from holder each should bear. (refer 1) Where the instrument is to BPI v CA, 1992) originally a bearer GREAT EASTERN LIFE v HONGKONG & instrument , because the SHANGHAI BANK (1922) indorsement can be “Where a check is drawn payable to the order of disregarded as being one person and is presented to a bank by another unnecessary to the holder’s and purports upon its face to have been duly title indorsed by the payee of the check , it is the duty 2) If drawee fails to act of promptly , if he delays in the bank to know that the check was duly indorsed informing the holder whom by he paid the original payee and where the bank pays the iv. Between Drawee Bank and amount of the check to a 3rd person , who has Collecting Bank forged 1) Collecting bank only liable the signature of the payee , the loss falls upon the for forged indorsements bank who cashed the check , and its remedy is and not forgeries of the against the person to whom it paid the money.” drawer or maker’s BPI v CA (1992) signature. (PNB v CA, Section 23 of the NIL has 2 parts. The first part 1968) states 2) The collecting bank or the general rule that a forged signature is wholly last indorser generally inoperative and payment made through or under suffers the loss because such it has the duty to signature is ineffectual. The second part admits of ascertain the exception. In this jurisdiction, the negligence of the genuineness of all prior party invoking the forgery is an exception to the indorsements considering general rule. that the act of presenting Both drawee and collecting bank were the check for payment to negligent the drawee is an in the selection and supervision of their employees assertion that the party resulting in the encashment of the checks by the making the presentment impostor. Both banks were not able to overcome had done its duty to the presumption of negligence in the selection and i. An alteration is said to be supervision of their employees material if it changes the Considering the comparative negligence of the effect of the instrument. It parties, the demands of substantive justice are means that an unauthorized satisfied by allocating the loss and the costs on a change in an instrument that 60- purports to modify in any 40 ratio. respect the obligation of a ASSOCIATED BANK v CA (1996) party or an unauthorized By reason of the statutory warranty of a general addition of words or numbers indorser in Section 66 of the Negotiable or other change to an Instruments incomplete instrument Law, a collecting bank which indorses a check relating to the obligation of a bearing party. (PNB v CA, 1996) a forged indorsement and presents it to the drawee ii. A material alteration is one bank guarantees all prior indorsements, including which changes the items the which are required to be forged indorsement. It warrants that the instrument stated under Section 1 of the is genuine, and that it is valid and subsisting at the Negotiable Instruments Law. time of his indorsement. Because the indorsement (Metrobank v Cabilzo, 2006) is 3. IMMATERIAL ALTERATION a forgery, the collecting bank commits a breach of a. Campos: Any other alteration this warranty and will be accountable to the drawee would be non-material and would bank. This liability scheme operates without regard not affect the liability of any prior to party . Note that #7 is a catch-all fault on the part of the collecting/presenting bank. provision such that sec 125 may Even if the latter bank was not negligent, it would still have broad applicability. still b. Alterations of the serial numbers be liable to the drawee bank because of its do not constitute material indorsement. alterations on the checks... [It] is PCIB v. CA (2001) not an essential requisite for … A bank which cashes a check drawn upon another negotiability under Section 1 of bank, without requiring proof as to the identity of the Negotiable Instruments Law. persons presenting it, or making inquiries with The aforementioned alteration did regard not change the relations between to them, cannot hold the proceeds against the the parties. The name of the drawee drawer and the drawee were not when the proceeds of the checks were afterwards altered. The intended payee was diverted to the hands of a third party. In such cases the same. The sum of money due the drawee bank has a right to believe that the to the payee remained the same. cashing bank (or the collecting bank) had, by the (PNB v CA, 1996; Int’l Corporate usual proper investigation, satisfied itself of the Bank v CA, 2006) authenticity of the negotiation of the checks. c. EFFECT: an innocent alteration Thus, one who encashed a check which had been (generally, changes on items other forged or diverted and in turn received payment than those required to be stated thereon from the drawee, is guilty of negligence under Sec. 1, N. I. L.) and which proximately contributed to the success of the spoliation (alterations done by a fraud practiced on the drawee bank. stranger) will not avoid the 4.2. Material Alteration (Sec.124) instrument, but the holder may 1. As a DEFENSE: enforce it only according to its a. PERSONAL defense when used to original tenor. (PNB v CA, citing J. deny liability according to the Vitug) tenor of the instrument 4. EFFECT OF MATERIAL ALTERATION b. REAL defense when relied on to a. General Rule: Where NI materially deny liability according to the altered w/o the assent of all parties altered terms. liable thereon it is AVOIDED, 2. What constitutes material alteration? except as against: a. Statutory: Review Sec.125, NIL i. party who has himself made, i. change date authorized or assented to ii. sum payable, either for alteration principal or interest ii. subsequent indorser because iii. time or place of payment by indorsement he warrants iv. number/relations of parties that the instrument is in all v. medium/currency of respects what it purports to be payment, and that it was valid and vi. adds place of payment where subsisting at the time of his none specified, indorsement (Secs. 65 and vii. other change/addition altering 66, NIL) effect of b. As to a HOLDER in DUE COURSE viii. instrument in any respect i. When an instrument that has b. Jurispridence been materially altered is in the hands of a HDC not a party to the alteration, HDC may of (1) estoppel, (2) enforce payment thereof stability of transactions according to orig. tenor and (3) bank is in a ii. Alteration must NOT be better position to apparent on the face of the shoulder the loss. instrument for the holder then 3) SC: would not be a holder in due a. adopted the course minority view iii. Where the interest rate is but on a altered , the holder in due different basis— course can recover the principal the Central Bank sum with the original rate of Circular interest regulating c. When alteration is of the amount or clearing of the interest rate is altered, the checks and holder can recover the ORIGINAL limiting the AMOUNT/interest rate. period within 5. DRAWER’S NEGLIGENCE which a drawee a. The general rule is that the drawee bank may return cannot charge against the drawer’s a spurious check account the amount of an altered b. but if holder is check. guilty of b. BUT, the drawer’s negligence, negligence which before or after the alteration, may proximately estop him from setting up alteration contributed to the as a defense. erroneous c. However, the drawer is not bound payment by to so prepare the check that nobody drawee, holder else can successfully tamper with it liable (PCIB v CA, (ex. a drawer cannot be expected 2001) to foresee that his clerk will use MONTINOLA v PNB (1951) acid to alter his checks, Critten v. The insertion of the words “Agent Philippine Chemical Natl Bank) National Bank” converted the bank from a mere d. Where the negligence of the drawee to a drawer and therefore changes its drawer consists in failing to liability, constitutes material alteration of the discover alterations previously instrument without consent of the parties liable made which he could have thereon and so discharges the instrument. Drawee discovered by a comparison of the bank is not liable. cancelled checks and check stubs HONGKONG & SHANGHAI BANK v PEOPLES or by diligent observation of his BANK (1970)5 records and could thus have The failure of the drawee bank to call the attention prevented the drawee bank from of the collecting bank as to such alteration until subsequently cashing other after the lapse of 27 days would negate whatever altered checks , the drawee can right it might have had. The remedy of the drawee charge the subsequent check bank is against the party responsible for the forgery against the negligent drawer’s or alteration. account. REPUBLIC BANK v CA (1991) 6. EFFECT OF DRAWEE’S ACCEPTANCE The collecting bank is protected by the24-hour OF ALTERED CHECKS clearing house rule from the liability to refund the a. Where the interest rate is altered, amount paid by the drawee bank. [Note: A much the HDC can recover the principal recent Circular changed the point of reckoning for sum with the original rate of the return of the altered check from within 24 interest. hours from the clearing to within 24 hours from the i. EXCEPT: A subsequent discovery of the alteration] indorser, because by the ASSOCIATED BANK v CA (1996) indorsement he warrants The rule mandates that the checks be returned that the instrument is in all within twenty-four hours after discovery of the respects what it purports to forgery but in no event beyond the period fixed by be and that it was valid and law for filing a legal action. The rationale of the rule subsisting at the time of his is to give the collecting bank (which indorsed the indorsement (Sec 65 and check) adequate opportunity to proceed against the 66) forger. If prompt notice is not given, the collecting b. RECOVERY after acceptance or bankmaybe prejudiced and lose the opportunity to payment by the drawee bank go after its depositor. i. FROM HOLDER ii. FROM DRAWER: drawee has no 1) Prevailing view - Yes, right to seek reimbursement bec. of (1) payment from drawer for its erroneous under mistake, (2) Sec. payment 124 and (3) Sec.62 in METROBANK v CABILZO (2006) relation to Sec. 132 In addition, the bank on which the check is drawn, 2) Minority view – No, bec. known as the drawee bank, is under strict liability in determining the existence of to negligence: pay to the order of the payee in accordance with 1) legal character of the the instrument which the drawer’s instructions as reflected on the face and signer thinks he is signing by 2) the physical condition of 5 Affirmed the minority view that drawee cannot recover the signer and his ability to the terms of the check. Payment made under read materially altered instrument is not payment done 3) whether the signer had the in accordance with the instruction of the drawer. opportunity at the time of When the drawee bank pays a materially altered signing, to ascertain the check, it violates the terms of the check, as well as legal nature of the paper its duty to charge its client’s account only for bona he is executing fide disbursements he had made. Since the drawee bank, in the instant case, did not pay according to Chapter VI. the original tenor of the instrument, as directed by the drawer, then it has no right to claim LIABILITY OF PARTIES reimbursement from the drawer, much less, the 1. In General right to deduct the erroneous payment it made from 1.1. Parties primarily liable: 1. person who by the terms of the instrument is the drawer’s account which it was expected to treat absolutely required to pay the same. with utmost fidelity. a. Maker of promissory note BPI v BUENAVENTURA (2005) b. Acceptor of bill of exchange …It [the bank] should be able to detect alterations, 2. unconditionally liable; duty bound to pay the erasures, superimpositions or intercalations holder at date of maturity, WON holder thereon, for these instruments are prepared, demands payment from him, and he is not printed and issued by itself, it has control of the relieved from liability even if the instrument drawer's account, and it is supposed to be familiar should become overdue due to failure of with the drawer's signature. It should possess holder to make such demand. appropriate detecting devices for uncovering forgeries and/or alterations on these 1.2. Parties secondarily liable: instruments… 1. SECONDARY PARTIES: There is nothing inequitable in such a rule for if in a. Indorsers, both note and bill the regular course of business the check comes to b. Drawer of bill the drawee bank which, having the opportunity to 2. Conditionally liable; not bound to pay unless ascertain its character, pronounces it to be valid the following has been fulfilled and pays it, as in this case, it is not only a question a. Due presentment or demand from primary of payment under mistake, but payment in neglect party for payment or acceptance; of duty which the commercial law places upon it, b. Dishonor by such party; and and the result of its negligence must rest upon it. c. Taking of proceedings required by law c. REMEDY: Unless a forgery or after dishonor. alteration is attributable to the 2. Primary Parties fault or negligence of the drawer himself, the remedy of the drawee 2.1. PAYMENT: Presentment and bank that negligently clears a Tender forged and/or altered check for 1. Presentment for payment not necessary payment is against the party to charge primary party responsible for the forgery or 2. if the instrument is, by its terms, payable at alteration, otherwise, it bears the a special place, and he is able and willing to loss. (BPI v Buenaventura, 2005) pay it there at maturity, such ability and 4.3. Fraud willingness are equivalent to a tender of 1. REAL DEFENSE payment upon his part. (Sec. 70, NIL) a. fraud in execution / fraud in 2.2. Liability of MAKER factum: did not know that paper 1. Promises to pay it according to its tenor was a NI when it was signed 2. Admits existence of payee and his then b. not liable to ANY holder capacity to indorse. 2. PERSONAL DEFENSE a. Therefore, PRECLUDED from setting up a. Fraud in inducement: knows it is the following defenses: NI but deceived as to value/terms i. the payee is a fictitious person i. Available as a defense against ii. the payee was insane, a minor, or non-HDC a corporation acting ultra vires b. Fraud in factum accompanied by 2.3. DRAWEE and ACCEPTOR NEGLIGENCE of maker or signer 1. Drawee i. Where the signor does not a. A person on whom a bill of know the nature of the exchange or check is drawn and instrument he signs, but who is ordered to pay it where, by the exercise of b. Liability of DRAWEE to: ordinary care, he could have 2. Holder discovered it. 1) Not liable on the instrument ii. Three factors are typically used until he accepts it and even a holder in due course cannot for any damages she incurred resulting therefrom. sue him on the instrument HSBANK’s actions, or lack thereof, prevented before his acceptance Catalan 2) A bill/check of itself does from seeking further redress with Thomson for the not operate as an assignment recovery of her claim while the latter was alive. of the funds in the hands of 3. Acceptor: Liability the drawee/bank (Sec 189, a. (Sec.62, NIL) Drawee is not liable NIL), and the drawee/bank is unless he accepts the bill and in doing NOT LIABLE on the bill so, he engages to pay the bill according unless and UNTIL he/it to the tenor of his acceptance, and ACCEPTS (or certifies) the admits the following: same. (Sec. 127, NIL) i. existence of drawer 3. Drawer ii. genuineness of his signature 1) Payment despite Stop Payment iii. his capacity and authority to draw Order the instrument a) Before payment or iv. existence of payee and his then certification by the bank, capacity to endorse the drawer may b. Meaning of "according to the tenor of countermand the order, his acceptance" and payment thereafter i. Majority and prevailing view: to the payee by the bank Where alteration consists in raising is wrongful. the amount payable, acceptor liable b) Since a check is not an to HDC only as to its original assignment of the amount; if the alteration of payee's drawer’s fund, the bank name, paying banks cannot charge is liable for paying it in drawer's account with the amount disregard of the of the check because its duty is to countermand. pay only “according to the order of c) Moreover, drawee can no the drawer.” longer recover what it ii. Common law rule: Acceptor of voluntarily paid to the altered check not liable to innocent holder of the uncertified holder except for the original and unaccepted amount instrument. 2.4. Acceptance 2) Refusal to Accept 1. IN GENERAL: a) Under some a. Definition: circumstances, the drawee i. "Acceptance" means an acceptance who refuses to accept may be completed by delivery or notification made liable for breach of (Sec. 19, NIL) contract or for damages ii. The signification by the drawee of based on a tort either to the his assent to the order of the drawer drawer (refer to Araneta v. (Sec 132, NIL) Bank of America) or to the b. REQUISITES for a valid acceptance holder (refer to HSBC v. (Sec 132, NIL) Catalan) i. It must be in writing and signed by ARANETA V. BANK OF AMERICA(1971) the drawee; This was an action by a depositor against a bank for 1) Thus there is no valid or damages resulting from the wrongful dishonor of implied acceptance except as the provided by Sec. 137 relating depositor's checks. HELD: Araneta's claim for to constructive acceptance temperate damages is legally justified because of ii. It must not express that the drawee the will perform his promise by any other adverse reflection on the financial credit of a means than the payment of money. businessman, a prized and valuable asset, w/c iii. does not change the implied constitutes material loss. promise of acceptor to pay only in HSBC VS. CATALAN (2004) money HSBC is not being sued on the value of the check c. MANNER of acceptance itself but for how it acted in relation to Catalan’s i. Campos: Usually made by writing claim the word “accepted” and signing for payment despite the repeated directives of the immediately below drawer Thomson to recognize the check the latter 1) BUT, drawee’s signature issued. alone is sufficient (Campos Her allegations in the complaint that the gross citing Lawless v. Temple) inaction of HSBC on Thomson’s instructions, as well ii. Sec 133, NIL: The holder of a bill as its evident failure to inform Catalan of the reason presenting the same for for its continued inaction and non-payment of the acceptance may require that the checks, smack of insouciance on its part, are acceptance be written on the bill sufficient statements of clear abuse of right for and if such request is denied, may which treat the bill as dishonored it may be held liable under Article 19 of the Civil 1) Effect: holder may go against Code the party’s secondarily Sec.137, NIL uses the word "refuses" liable—the drawer and the d. Acceptance, if given, will retroact to date indorsers of presentation. iii. Acceptance of an INCOMPLETE bill SUMCAD v. PROVINCE OF SAMAR (1956) (Sec 138, NIL) There was implied acceptance in view of the 1) A bill may be accepted: circumstances of the case (furnishing of a) before it has been signed photostatic copies, presentment for certification) by the drawer, or by voluntary assuming the obligation of holding b) while otherwise so much deposit as would be sufficient to cover incomplete, or the amount of the check. c) when it is overdue, or 3. ACCEPTANCE ON A SEPARATE d) after it has been INSTRUMENT dishonored by a previous e. Extrinsic acceptance - acceptance is refusal to accept, or by written on a paper other than the bill non payment itself; doesn’t bind the acceptor except 2) But when a bill payable after in favor of a person to whom it is shown sight is dishonored by nonacceptance and who, on the faith thereof, receives and drawee the bill for value. (Sec. 134, NIL); subsequently accepts it, the acceptance of an existing bill holder, in the absence of diff f. Virtual acceptance - unconditional agreement, is entitled to have promise in writing to accept a bill bill accepted as of date of the before it is drawn; deemed an actual 1st presentment. acceptance in favor of every person a) Sec. 138, NIL allows who, upon the faith thereof, receives acceptance to be made the bill for value. (Sec. 135, NIL); while the bill is acceptance of future bill incomplete. g. In both cases, the acceptance must b) The bill may be accepted clearly and unequivocally identify even after it is overdue the bill to which the acceptance or dishonored, since an refers. instrument DOES NOT 4. KINDS OF ACCEPTANCE: An LOSE ITS acceptance is either (1) general or (2) NEGOTIABILITY by the qualified. mere fact that its a. GENERAL - assents without maturity date has passed qualification to the order of the or the drawee’s refusal to drawer. (Sec.139, NIL); Includes accept or pay it. acceptance to pay at a particular d. PERIOD within which to accept place; unless expressly states that bill i. The drawee is allowed 24 hours is to be paid there only and not after presentment to decide WON elsewhere. (Sec. 140, NIL) he will accept the bill; the b. QUALIFIED - in express terms varies acceptance, if given, dates as of the the effect of the bill as drawn. (Sec. day of presentation. (Sec. 136, NIL) 139, NIL) ii. Effect of non-acceptance within the i. Conditional; payment by the prescribed period acceptor dependent on the 1) Where bill is duly presented fulfillment of a condition therein and is not accepted within stated; prescribed time, the person ii. Partial; to pay part only of the presenting it must treat the bill amount for which the bill is as dishonored by nonacceptance drawn; or he loses right of iii. Local; to pay only at a particular recourse against the drawer place; and indorsers. (Sec. 150, NIL) iv. Qualified as to time; 2. CONSTRUCTIVE ACCEPTANCE: occurs in the v. The acceptance of some, one or following circumstances more of the drawees but not of a. SEC 137, NIL: Where the drawee all. (Sec. 141, NIL) i. destroys the bill, or 1) The holder may refuse to ii. refuses within 24hrs or such other take a qualified acceptance; period as the holder may allow, to may treat the bill as return the bill accepted or non-accepted dishonored by nonacceptance. to the holder 2) Where a qualified acceptance b. Under the clearing house rules, the is taken, the drawer and drawee bank’s failure to return within the indorsers are discharged prescribed time will be deemed payment or from liability on the bill acceptance of the check. unless they have c. If there is not demand for the return of authorized the holder to the bill and the drawee keeps it until after take a qualified acceptance, the expiration of said period without or subsequently assent expressly accepting or refusing it; two views: thereto. i. Constitutes constructive notice 3) When the drawer or an ii. Constitutes dishonor because indorser receives notice of a qualified acceptance, he RP v. PNB (1961) must, within a reasonable Demand drafts have not been presented either for time, express his dissent to acceptance or for payment, thus the bank never the holder or he will be had deemed to have assented any chance of accepting or rejecting them; as such, thereto. (Sec. 142, NIL) these cannot be subject of escheat. c. TRADE - a draft or bill of exchange Cashier's check is the substantial equivalent of a with a definite maturity, drawn by a certified check and is thus subject to escheat. seller on a buyer for the purchase Telegraphic transfers are likewise subject to price of goods, bearing across its face escheat because upon making payment complete the acceptance of the buyer; always the transaction insofar as he is concerned, though states upon its face the transaction insofar as the remitting bank is concerned, the from which it arose. contract is executory until the credit is established. d. BANKER'S acceptance - a negotiable PAL V. CA (1990) time draft or bill of exchange drawn on A check, whether a manager's check or ordinary and accepted by a commercial bank. check, and an offer of a check in payment of a debt 2.5. CHECKS : acceptance and is not a valid tender of payment and may be refused receipt by the obligee or creditor. certification The issuance of the check to a person authorized to 1. Definition: A check is an instrument in the receive it operates to release the judgment debtor form and nature of a BE, but an unlike an from any further obligations on the judgment. ordinary bill, always payable on demand and INTERNATIONAL CORPORATE BANK v GUECO always drawn on a bank. (2001) 2. Kinds: A manager’s check is one drawn by the bank’s a. Cashier's or manager's - drawn by a manager upon the bank itself. It is similar to a bank on itself and its issuance has the effect cashier’s check both as to effect and use. A of acceptance; since the drawer and drawee cashier’s check is a check of the bank’s cashier on are the same, the holder may treat it is his own or another check. In effect, it is a bill of either a BE or PN. exchange drawn by the cashier of a bank upon the b. Memorandum check - where the word bank itself, and accepted in advance by the act of "memorandum" or "memo" is written across its issuance. It is really the bank’s own check and its face, signifying that the drawer will pay may be treated as a promissory note with the bank the holder absolutely, without need of as a maker. The check becomes the primary presentment. obligation of the bank which issues it and c. Traveler's check - upon which the constitutes its written promise to pay upon holder's signature must appear twice -- first demand. The mere issuance of it is considered when it is issued, and again when it is an acceptance thereof. If treated as promissory cashed. note, the drawer would be the maker and in which d. Crossed – when the name of a particular case the holder need not prove presentment for banker or a company is written between the payment or present the bill to the drawee for parallel lines drawn. acceptance STATE INVESTMENT HOUSE V. IAC EPCIB v ONG (2006) Crossed check should put the payee on inquiry to A manager’s check is an order of the bank to pay, ascertain the holders’ title to the check or the drawn upon itself, committing in effect its total nature resources, integrity and honor behind its issuance. of his possession. Failing this, the payee is declared By its peculiar character and general use in guilty of gross negligence to the effect that the commerce, a manager’s check is regarded holder substantially to be as good as the money it of the check is not a holder in good faith. Effects of represents. a 3. Clearing crossed check: a. Clearing - check collection process (a) the check may not be encashed but only b. Clearing house - where deposited in the bank; representatives of different banks meet (b) the check may be negotiated only once – to every afternoon of every business day to one who has an account with the bank; and receive the envelopes containing checks (c) the act serves as a warning to the holder drawn against the bank he represents for that the check has been issued for a definite examination and clearance. purpose so that he must inquire if he has 4. Certification received the check pursuant to that purpose, a.Definition otherwise, he is not a HDC. i. an agreement by which a bank BATAAN CIGAR & CIGARETTE FACTORY, INC. promises to pay the check at any v. time it is presented for payment CA ii. When check certified by bank on The negotiability of a check is not affected by its which it is drawn, equivalent to being crossed, whether specially or generally. It acceptance may b. Requisites for a Valid Certification legally be negotiated as long as the one who i. Must be in writing encashes the check with the drawee bank is ii. Made on the check or another another instrument bank, or if it is especially crossed, by the bank iii. Check must be payable mentioned between the parallel lines. 1) Checks cannot be certified before payable i. The delivery of the check by the c. Liability holder to the drawee bank upon i. Bank which certifies its payment is not negotiation. By 1) Becomes liable as an acceptor paying the check, the drawee 2) REFUSAL to certify a check bank extinguishes it as a doesn’t constitute dishonor; the negotiable instrument and holder at that stage cannot exercise converts it into a mere voucher. his right of recourse against the ii. In the case of a deposit of a check drawer and the indorsers by the holder thereof in a bank ii. If procurement by: other than the drawee bank, the 1)Holder signature at the back of the check a) The bank becomes the would constitute an indorsement, solidary debtor, and unless otherwise indicated. The b) The drawer and all holder in negotiating the check to indorsers discharged from the depositary bank, which in turn all liability (versus ordinary will collect on the check from the bill of exchange – not drawee bank, through the discharged) clearinghouse. 2) Drawer BPI vs CA (2000) a) secondary parties not In depositing the check in his name, private released respondent did not become the outright owner of ROMAN CATHOLIC BISHOP V. IAC (1990) the amount stated therein. He was merely A certified personal check is not legal tender nor is designating petitioner as the collecting bank. This is it in consonance with the rule that a negotiable the currency stipulated, and therefore cannot instrument, such as a check, whether a manager’s constitute valid tender of payment. check or ordinary check, is not legal tender. NEW PACIFIC TIMBER v. SENERIS (1980) As such, after receiving the deposit, under its own (as cited in EPCIB v. Ong, Sept. 2006) rules, petitioner shall credit the amount in private [S]ince the said check had been certified by the respondent’s account or infuse value thereon only drawee bank, by the certification, the funds after the drawee bank shall have paid the amount represented by the check are transferred from the of credit of the maker to that of the payee or holder, the check or the check has been cleared for deposit. and for all intents and purposes, the latter becomes Again, this is in accordance with ordinary banking the depositor of the drawee bank, with rights and practices and with this Court’s pronouncement that duties of one in such situation. Where a check is "the collecting bank or last endorser generally certified by the bank on which it is drawn, the suffers the loss because it has the duty to ascertain certification is equivalent to acceptance. Said 6 “SEC. 63. Legal character . – Checks representing certification “implies that the check is drawn upon deposit money do not have legal tender power and their sufficient funds in the hands of the drawee, that acceptance in the payment of debts, both public and they private, is at the option of the creditor: Provided, however, have been set apart for its satisfaction, and that that a check which has been cleared and credited to they the shall be so applied whenever the check is presented account of the creditor shall be equivalent to a delivery for payment. It is an understanding that the check to the creditor of cash in an amount equal to the amount credited to his account. is the genuineness of all prior endorsements good then, and shall continue good, and this considering agreement is as binding on the bank as its notes that the act of presenting the check for payment to circulation, a certificate of deposit payable to the the drawee is an assertion that the party making order of depositor, or any other obligation it can the assume. The object of certifying a check, as presentment has done its duty to ascertain the regards both parties, is to enable the holder to genuineness of the endorsements." The rule finds use it as money.” When the holder procures the more meaning in this case where the check check to be certified, “the check operates as an involved assignment of a part of the funds to the is drawn on a foreign bank and therefore collection creditors.” Hence, the exception to the rule is enunciated under Section 636 of the Central Bank more difficult than when the drawee bank is a local Act to the effect “that a check which has been one even though the check in question is a cleared and credited to the account of the creditor manager’s shall be equivalent to a delivery to the creditor in check cash in an amount equal to the amount credited to his account” shall apply in this case x x x. 3. Secondary Parties 5. Surrender of Check 3.1. Liability of DRAWER a. The surrender of the check by the 1. Sec. 61, NIL holder to the drawee bank upon its a. Admits existence of payee and his then payment is not negotiation. By capacity to endorse paying the check, the drawee bank b. Engages that on due presentment extinguishes it as a negotiable instrument will be accepted, or paid, or instrument and converts it into a mere both, according to its tenor voucher. c. That if it be dishonored + necessary b. Distinction between surrender of check proceedings on dishonor duly taken, will upon payment thereof and negotiation pay the amount thereof to the holder or a. Under BP 22 to a subsequent indorser who may be PEOPLE v NITAFAN(1992) compelled to pay it Lim issued a memorandum check which was 2. Limiting Liability: drawer may insert in the subsequently dishonored for insufficiency of funds. instrument an express stipulation negativing A memorandum check has the same effect as an / limiting his own liability to holder ordinary check and within the ambit of BP 22. PNB v. PICORNELL (1922) What Picornell obtained money from PNB Cebu to the law punishes is the issuance itself of a bouncing purchase check & not the purpose for which it was issued nor tobacco to be shipped to Manila. Picornell then drew the terms & conditions relating to its issuance. a bill of exchange drawn against his principal, b. Estafa under the RPC Hyndman, Tavera & Ventura (HTV), in favor of PNB PACHECO v CA (1999) or The essential elements in order to sustain a his order. Upon presentation of the bill, HTV conviction under the above paragraph are: accepted 1. that the offender postdated or issued a check in it. However, HTV subsequently refused to pay the payment of an obligation contracted at the time the bill check was issued; because some of the tobacco shipped were 2. that such postdating or issuing a check was done damaged. when the offender had no funds in the bank, or his HELD: funds deposited therein were not sufficient to cover A. Liability of Acceptor (HTV) the amount of the check; PNB is a holder in due course and the partial 3. deceit or damage to the payee thereof. want of consideration does not exist with PEOPLE v REYES (2005) respect to the bank who paid full value for There is no estafa through bouncing checks when it the bill of exchange. is shown that private complainant knew that the The want of consideration between the drawer did not have sufficient funds in the bank at acceptor and drawer does not affect the the time the check was issued to him. Such rights of the payee who is a remote party. knowledge negates the element of deceit and The payee or holder gives value to the constitutes a defense in estafa through bouncing drawer, and if he is ignorant of the equities checks. between the drawer and acceptor, his is in 3.2. Liability of INDORSERS: the position of a bona fide indorsee. 1. Indorser B. Liability of Drawer (Picornell) a. Sec. 63, NIL: A person placing his As drawer of the bill, he warranted that it signature upon an instrument other than as would be accepted upon proper presentment a maker, drawer, or acceptor unless he & paid in due course. As it was not paid, he indicates by appropriate words his intention became liable to the payment of its value to to be bound in some other capacity PNB. i SAPIERA vs CA (1999). It is The fact that Picornell was an agent of HTV undisputed that the four (4) checks in the purchase of the tobacco does not issued by de Guzman were signed necessarily make him an agent of HTV in by petitioner at the back without drawing the bill of exchange. These are 2 any indication as to how she should different contracts. He cannot claim be bound thereby and, therefore, exemption from liability by invoking the she is deemed to be an indorser existence of agency. thereof. Drawer received notice of protest in b. Sec. 67, NIL: A person, who places his fulfillment of the condition set by law for signature on an instrument negotiable by his liability to arise. delivery, incurs all the liabilities of an Drawer's liability is only secondary as the indorser. liability of the acceptor is primary. c. Sec 64, NIL: Irregular Indorser BANCO ATLANTICO v AUDITOR GENERAL i When a person not otherwise a (1978) party to an instrument, places B fraudulently altered checks payable to her drawn thereon his signature in blank by the Embassy by increasing the amounts. B before delivery, he is liable as an negotiated these checks by indorsement to BA w/c indorser, in accordance w/ these paid the full amount of the checks without first rules: clearing with the drawee bank, contrary to normal 1) Instrument payable to order of banking practice. HELD: Drawer (embassy) not 3rd person: liable to payee and liable. BA is guilty of negligence in giving B special to all subsequent parties treatment as a privileged client, in disregard of 2) Instrument payable to the elementary principles of prudence that should order of maker/drawer, or attend banking transactions. Hence, it should suffer payable to bearer: liable to all the loss. BA could not have been a HDC. parties subsequent to NOTE: The Camposes note that the drawer maker/drawer was not held liable because the decision was 3) Signs for accommodation of based on §23 on forgery instead of §124 on payee, liable to all parties material alteration. If BA had been a HDC, subsequent to payee the Embassy could have been held liable for 2. WARRANTIES: the original amount of the checks a. Every person negotiating an instrument by 3. CRIMINAL LIABILITY FOR BOUNCING delivery or by a qualified indorsement CHECK warrants: (Sec. 65, NIL) when he executed the instrument. Nor is it correct ii Instrument genuine, in all respects to say that the holder for value is not a holder in what it purports to be due course merely because at the time he acquired iii He has good title to it the instrument, he knew that the indorser was only iv All prior parties had capacity to an accommodation party. contract The fact that the accommodation party stands only v He has no knowledge of any fact as w/c would impair validity of a surety in relation to the maker is a matter of instrument or render it valueless concern exclusively between accommodation vi in case of negotiation by delivery indorser only, warranty only extends in favor & accommodated party. It is immaterial to the of immediate transferee claim b. General or Unqualified Indorser: of a holder for value. The liability of the Every person who indorses without accommodation party remains primary & qualification, warrants to all subsequent unconditional. HDCs: (Sec. 66, NIL) SADAYA v. SEVILLA (1967) i. instrument genuine, good title, The solidary accommodation maker who made capacity of prior parties payment has the right of contribution from his ii. instrument is at time of indorsement coaccommodation valid and subsisting maker. This right springs from an iii. eon due presentment, it shall be implied promise between the accommodation accepted or paid, or both, according to makers tenor to share equally the burdens that may ensue from iv. if it is dishonored, and necessary their having consented to stamp their signatures on proceedings on dishonor be duly the promissory note. The following are the rules on taken, he will pay the amt. To holder, reimbursement: or to any subsequent indorser who 1. A solidary accommodation maker of a note may may be compelled to pay it demand from the principal debtor reimbursement 3. Order of Liability among Indorsers (Sec. 68, for the amount he paid to the payee; and NIL): 2. A solidary accommodation maker who pays on a. among themselves: liable prima facie in the note may directly demand reimbursement the order they indorse, but proof of from his co-accommodation maker without first another agreement admissible directing his action against the principal debtor b. but holder may sue any of the indorsers, provided that : regardless of order of indorsement (a) he made the payment by virtue of a c. joint payees/indorsees deemed to judicial demand or indorse jointly and severally (b) the principal debtor is insolvent. TUAZON v RAMOS (2005) TRAVEL-ON, INC. v. CA After an instrument is dishonored by nonpayment, Travel-On was entitled to the benefit of the indorsers cease to be merely secondarily liable; statutory they become principal debtors whose liability presumption that it was a HDC, that the checks becomes identical to that of the original obligor. were The holder of a negotiable instrument need not supported by valuable consideration. The only even proceed against the maker before suing the evidence private respondent offered was his own indorser. testimony that he had issued the checks to Travel- 3.3. Accomodation Party On 1. Accomodation Party: one who signed as payee to "accommodate" its General Manager; instrument as maker/drawer/acceptor/ indorser this w/o receiving value thereof, for the purpose of claim was in fact a claim that the checks were lending his name to some other person merely 2. Liability : Liable on the instrument to HFV simulated, that private respondent did not intend to even if holder knew he was only an AP bind himself thereon. Only evidence of the clearest MAULINI v. SERRANO (1914) and most convincing kind will suffice for that In accommodation indorsement, the indorser makes purpose. the indorsement for the accommodation of the CRISOLOGO-JOSE v. CA. maker. Such an indorsement is generally for the Section 29 of the NIL does not apply to corporations purpose of better securing the payment of the note, which are accommodation parties because the issue i.e. he lends his name to the maker not to the or indorsement of negotiable paper by a corporation holder. An accommodation note is one which the without consideration is ultra vires. Hence, one who accommodation party has put his name, without has taken the instrument with knowledge of the consideration, for the purpose of accommodation accommodation cannot recover against a some other party who is to use it and is expected to corporation - accommodation party EXCEPT if the pay it. officer or agent of the corp. was specifically Note: Campos disagrees with this ruling, referring authorized to execute or indorse the paper for the to the case of Goodman v Gaul where an accommodation of a third person. accommodation indorsement may be made for the Corporate officers, such as the president and accommodation of the payee or holder. vicepresident, ANG TIONG v. TING (1968) have no power to execute for mere It is not a valid defense that the accommodation accommodation a NI of the corporation for their party did not receive any valuable consideration individual debts or transactions in which the corporation has no legitimate concern. It is the signatories thereof that shall be personally liable such holder, at the time of the taking of the therefor. instrument knew him to be only an accommodation AGRO CONGLOMERATES v CA (2000) party. Aruego signed as a drawee/acceptor. As An accommodation party is a person who has drawee, he is primarily liable for the drafts. signed the instrument as maker, acceptor, or indorser, without receiving value therefor, and for 4. Presentment the purpose of lending his name to some other 4.1. Definition: person and is liable on the instrument to a holder 1. the production of a BE to the drawee for his for value, notwithstanding such holder at the time ACCEPTANCE, or to the drawer or acceptor of taking the instrument knew (the signatory) to be for PAYMENT; or an accommodation party. He has the right, after 2. the production of a PN to the party liable for paying the holder, to obtain reimbursement from payment the party accommodated, since the relation 4.2. Presentment for Acceptance between them has in effect become one of 1. When necessary (Sec. 143, NIL) principal and surety, the accommodation party a. bill payable after sight, or in other cases being the surety. where presentment for acceptance 3.4. Liability of an AGENT necessary to fix maturity 1. AGENCY: b. where bill expressly stipulates that it a. Signature of any party may be made by shall be presented for acceptance duly authorized agent, established as in c. where bill is drawn payable elsewhere ordinary agency than at residence / place of business of b. Signature per procuration operates as drawee notice that the agent has limited authority d. In no other case is presentment for to sign, and the principal is bound only in acceptance necessary in order to render case the agent in so signing acted within any party to the bill liable. the actual limits of his authority 2. Effect of non-presentment [w/in reasonable 2. LIABILITY time] (Sec. 144, NIL) - discharges the drawer a. GEN RULE: Where person adds to his and all indorsers. signature words indicating that he signs on a. Reasonable Time: considerations behalf of a principal, not liable if he was i nature of instrument duly authorized ii usage of trade or business with b. WHEN LIABLE: respect to instrument i. mere addition of words describing iii facts of each case him as an agent without disclosing his 3. How made (Sec. 145, NIL) principal a. BY or ON BEHALF of the holder ii. Where a broker or agent negotiates b. AT a reasonable hour, an instrument without indorsement, he c. ON a business day and before the bill incurs all liabilities in Sec. 65, unless is overdue, he discloses name of principal and fact d. TO the drawee or some person that he’s only acting as agent. (Sec. authorized to accept or refuse 69, NIL) acceptance on his behalf; and INSULAR DRUG v. PNB i bill addressed to drawees not The right of an agent to indorse commercial paper partners, MUST be made to them will not be lightly inferred. A salesman with all unless one has authority to authority to collect money does not have the accept or refuse acceptance for implied all; authority to indorse checks received in payment. ii drawee is dead, MAY be made to Any his personal representative; person taking checks made payable to a corporation iii drawee has been adjudged a does so at his peril & must abide by the bankrupt or an insolvent or has consequences made an assignment for the if the agent who indorses the same is without benefit of creditors, MAY be made: authority. 1) to him or PBC v ARUEGO (1981) 2) to his trustee or assignee. Aruego obtained a credit accommodation from PBC. 4. When made (Sec. 146, NIL) on any day For every printing of the publication, the printer on which NIs may be presented for collected the cost of printing by drawing a draft payment under: against PBC, which will later be sent to Aruego for a. Sec. 72, NIL – at a reasonable hour acceptance. PBC seeks recovery on these drafts. on a business day Aruego invokes the defense that he signed the i Instruments falling due or document in his capacity as President of the Phil. becoming payable on Saturday - Education Foundation & only as an accommodation next succeeding business day party. ii EXCEPT instruments payable on HELD: Aruego is personally liable because nowhere demand [at the option of the in holder] – before twelve o'clock the draft did he disclose that he was signing as a noon on Saturday WHEN that representative of the Phil Education Foundation. entire day is not a holiday. Neither did he disclose his principal. b. Sec. 85, NIL – As an accommodation party, Aruego is liable on the i at the time fixed therein without instrument to a holder for value, notwithstanding grace. c. Where the holder has no time, with the exercise of reasonable diligence, to person; present the bill for acceptance before 3) By waiver of presentment, presenting it for payment, delay is express or implied. excused and doesn’t discharge the v. when a bill is dishonored by drawers and indorsers. (Sec. 147, nonacceptance – immediate right to NIL) recourse accrues to holder (Sec. 151, 5. When Excused (Sec. 148, NIL) Bill may NIL) be treated as dishonored by nonacceptance: vi. in case of waiver of protest, whether a. Where the drawee is (1) dead, (2) in the case of a foreign bill of exchange absconded, (3) fictitious, (4) does not or other NI – deemed to be a waiver not have capacity to contract by bill. only of a formal protest but also of b. Where, after the exercise of presentment and notice of dishonor. reasonable diligence, presentment can (Sec. 111, NIL) not be made. 2. Date and time of presentment c. Where, although presentment has a. bearing fixed maturity / not payable been irregular, acceptance has been on demand – on the day it falls due refused on some other ground. iii if day of maturity falls on Sunday 6. Dishonor and Effects or a holiday, the instruments a. Dishonor by nonacceptance: falling due or becoming payable i When duly presented for on Saturday are to be presented acceptance – acceptance is for payment on the next refused or can not be obtained; or succeeding business day (Sec.85, ii When presentment for acceptance NIL) is excused – bill is not accepted. b. payable on demand – within a (Sec. 149, NIL) reasonable time after its issue, b. NON ACCEPTANCE of the bill iv at the option of the holder, may i Duty of holder: must treat the bill be presented for payment before as dishonored by nonacceptance or twelve o'clock noon on Saturday he loses the right of recourse when that entire day is not a against the drawer and indorsers. holiday (Sec. 85, NIL) (Sec. 150, NIL) c. demand bill of exchange – within a ii Right of holder: immediate right reasonable time after the last negotiation. of recourse against the drawer and (Sec. 71, NIL) (NOTE: though reasonable indorsers and no presentment for time from last negotiation, it may be payment is necessary. (Sec. 151, unreasonable time from issuance thus NIL) holder may not be HDC under sec. 71) c. NOTICE OF DISHONOR d. Check - must be presented for payment i Recipient- (Sec.89, NIL) Except within reasonable time after its issue or as herein otherwise provided, drawer will be discharged from liability 1) to the drawer and thereon to extent of loss caused by delay 2) to each indorser, i.How time computed. — When ii Effect of omission to give notice payable at a (1) fixed period after of non-acceptance date, (2) after sight, or (3) after that 1) any drawer or indorser to happening of a specified event, whom such notice is not given exclude day from which the time is to is discharged begin to run, include date of payment. 2) does not prejudice the rights of (Sec. 86, NIL) a HDC subsequent to the ii.Where the day, or the last day for omission. (Sec. 117, NIL) payment falls on a Sunday or on a 4.3. Presentment for Payment holiday – may be done on the next 1. IN GENERAL succeeding secular or business day. a. NECESSARY in order to charge the (Sec. 194, NIL) drawer and indorsers(Sec. 70, NIL) PNB v. SEETO (1952) b. NOT necessary On 13 March, Seeto indorsed to PNB-Surigao a i. to charge the person primarily liable bearer check dated 10 March drawn against on the instrument (Sec. 70, NIL) PBCCebu. ii. to charge the drawer where he has PNB-Surigao mailed the check to its Cebu no right to expect or require that the branch on 20 March & was presented to the drawee drawee or acceptor will pay the bank on 09 April. The check was dishonored for instrument. (Sec. 79, NIL) insufficient funds because the delay in presentment iii. to charge an indorser where the cause the exhaustion of the drawer's funds. instrument was made or accepted for his Indorser Seeto asked that the suit be deferred while accommodation and he has no reason to he made inquiries. He assured PNB that he would expect that the instrument will be paid if refund the value in case of dishonor. presented. (Sec. 80, NIL) HELD: The indorser is discharged from liability by iv. Excused: reason of the delay in the presentment for 1) Where, after the exercise of payment, reasonable diligence, under §84. presentment cannot be made; Drawer had enough funds when he issued the check 2) Where the drawee is a fictitious because his subsequent checks drawn against the same bank had been encashed. The assurances of refund by the indorser are the should have been presented for payment by that ordinary obligation of an indorser which are bank, not by Chan Wan. Inasmuch as Chan Wan discharged by the unreasonable delay in presented them for payment himself, there was no presentation of the check. proper presentment & the liability did not attach to NOTE: Camposes note that the discharge of the the drawer. indorser should have been based on §§ 66 & 71 on But there was due presentment as clearance presentment as a condition to the indorser's liability endorsements by China Bank can be found at the & presentment for payment of a demand bill made back of the checks. However, some of the checks within a reasonable time from its last negotiation. were stamped account closed. PAPA v A.U. VALENCIA (1998) As Chan Wan failed to indicate how the checks Granting that petitioner had never encashed the reached his hands, the court held him not to be a check, his failure to do so for more than ten (10) holder in due course who can still recover on the years undoubtedly resulted in the impairment of the checks but subject to personal defenses, such as check through his unreasonable and unexplained lack of consideration. delay. NOTE: Camposes note that despite the addition of While it is true that the delivery of a check produces the words "non-negotiable" on the specially crossed the effect of payment only when it is cashed, the checks, the Court considered the checks as rule negotiable instruments. A check on its face is otherwise if the debtor is prejudiced by the normally has all the requisites of negotiability, and creditor’s unreasonable delay in presentment. The the addition of the above words should not change acceptance of a check implies an undertaking of its character as a negotiable instrument. due ASSOCIATED BANK v. CA & REYES (1992) diligence in presenting it for payment, and if he Different department stores issued crossed checks from bearing "for payee's account only" payable to whom it is received sustains loss by want of such Melissa's RTW. Sayson, acting without authority, diligence, it will be held to operate as actual deposited & encashed the checks with Associated payment Bank. of the debt or obligation for which it was given. HELD: Citing State Invt House v IAC, the effects of It has, likewise, been held that if no presentment is crossing a check are: made at all, the drawer cannot be held liable 1. check may not be encashed but only irrespective of loss or injury unless presentment is deposited in the bank; otherwise excused. This is in harmony with Article 2. check may be negotiated only one -- to 1249 of the Civil Code under which payment by way one who has an account with a bank; and of check or other negotiable instrument is 3. the act of crossing the check serves as a conditioned warning to the holder that the check has on its being cashed, except when through the fault been issued for a definite purpose so that of he must inquire if he has received the the creditor, the instrument is impaired. The payee check pursuant to that purpose. of The effects of crossing a check relate to the mode a check would be a creditor under this provision of and if presentment for payment. its non-payment is caused by his negligence, The law imposes a duty of diligence on the payment will be deemed effected and the obligation collecting bank to scrutinize checks deposited with for which the check was given as conditional it, for the purpose of determining their genuineness payment & regularity. will be discharged. ii. TIME: reasonable hour on a 3. Where DELAY excused - when the delay is business day; caused by circumstances beyond the control of 1) where instrument payable at the holder and not imputable to his default, bank. — must be made misconduct, or negligence; when the cause of during banking hours, delay ceases to operate, presentment must be UNLESS the person to make made with reasonable diligence (Sec. 81,NIL) payment has no funds there 4. Manner of Presentment to meet it at any time during a. The instrument must be exhibited; when the day, in which case paid, must be delivered up to the party presentment at any hour paying it. (Sec. 74, NIL) before the bank is closed on b. What constitutes a sufficient that day is sufficient (Sec. presentment. (Sec. 72, NIL) 75, NIL) i.BY WHOM: the holder, or by some iii. PLACE: proper place as herein person authorized to receive payment defined: (Sec. 73, NIL) on his behalf; 1) place of payment specified – CHAN WAN v. TAN KIM(1960) at place of payment; Tan Kim drew specially crossed checks payable to 2) no place of payment specified bearer. Chan Wan presented the checks for but address of the person to payment make payment is given in the to the drawee bank but they were dishonored due instrument – at the address to given; insufficient funds. Chan Wan seeks recovery on 3) no place of payment and no these address is given – at the checks. usual place of business or HELD: Checks crossed specially to China Banking residence of the person to make payment; a. Drawer 1) in any other case – b. Indorser wherever person to make c. Accomodation Indorsers payment can be (1) found, i Joint maker excluded if not an or if presented (2) at his indorser last known place of 3. Acceleration Clause business or residence a. If clause is optional on holder: 2) where principal debtor is i The bringing of an action against dead and no place of the maker and indorsers payment is specified – to constitutes a valid exercise of his personal option and a valid notice of representative, IF any AND dishonor IF he can be found with the b. Clause is automatic: exercise of reasonable i Notice of dishonor must be givem diligence (Sec. 76, NIL) at once 3) where persons primarily ii Not sufficient to give it upon liable are partners and no commencement of action place of payment is GULLAS v. PNB (1935) specified, presentment for A notice of dishonor is necessary to charge an - to any one of them, even indorser & that the right of action against him does though there has been a not accrue until the notice is given. dissolution of the firm. As a general rule, a bank has a right of set off of (Sec. 77, NIL) the 4) joint debtors and no deposits in its hands for the payment of any place of payment is indebtedness to it on the part of a depositor. specified - to them all However, prior to the mailing of notice of dishonor (Sec. 78, NIL) & iv. TO WHOM: (1) person primarily without awaiting any action by Gullas, the bank liable on the instrument, or if he is made use of the money standing in his account to absent or inaccessible, (2) to any make good for the treasury warrant. Gullas was person found at the place where the merely an indorser & notice should actually have presentment is made. been given to him in order that he might protect his 5. Dishonor by Nonpayment interests. a. Sec 83, NIL The instrument when: 5.3. Form and Contents (Sec 96) i. duly presented for payment and 1. Form of Notice: payment refused or cannot be obtained; a. may either be in writing, or oral or b. Campos: must be in a language that will ii. presentment is excused and the inform the addressed party that the instrument is overdue and unpaid. instrument has been duly presented b. Effect:: [subject to NIL provs] an 2. Contents – must contain any terms which immediate right of recourse to all parties sufficiently secondarily liable accrues to the holder. a.identify the instrument, and (Sec. 84, NIL) b. indicate that it has been dishonored by i. Dishonor is a condition precedent to non-acceptance or non-payment; the enforcement of the liability of 3.Mode of delivery secondary parties. a. Personal service ii. This is conditioned upon the giving of i. There must be actual personal due notice of dishonor service, or iii. An indorser whose liability has ii. An ordinary intelligent and diligent become fixed by demand and notice is, effort to make personal service as to holder, a principal debtor. b. Through the mails 5. Notice of Dishonor c. Campos: Through the telephone i Party to be notified must be fully 5.1.Definition identified as the party at the 1. To bring either verbally or by writing, to the receiving end of the line knowledge of the drawer or indorser of an 4.The ff. notice still sufficient: (Sec. 95, NIL) instrument, the fact that a specified NI, upon a. a written notice, not signed proper proceedings taken, has not been b. insufficient written notice, supplemented accepted or has not been paid, and that and validated by verbal communication the party notified is expected to pay it c. instrument suffering from misdescription 2. General rule: MUST be given to drawer UNLESS the party to whom the notice is and to each indorser, and any drawer or given is in fact misled thereby. indorser to whom such notice is not given is discharged 5.4.Time and Place 1. Notice may be given as soon as the instrument 5.2. When necessary is dishonored and within the time fixed by NIL, 1. Sec 89, NIL Except as herein provided, unless delay excused (Sec. 102, NIL) when a negotiable instrument has been 2. NOTICE to SUBSEQUENT PARTY: Each party dishonored by non-acceptance or nonpayment, who receives a notice is given the same period of notice of dishonor must be given to time within which to notify prior indorsers that the drawer and to each indorser… the last holder had. (Sec. 107) 2. Parties entitled to notice: 3. TIME FIXED BY THE NIL: b. any party to the instrument who may be a. Where parties reside in same place (Sec. compelled to pay it to the holder, and who, 103, NIL): Must be given w/in the ff. times: upon taking it up, would have a right to ii If given at the place of business of reimbursement from the party to whom the the person to receive notice - notice is given before the close of business hours 2. Agent on the day following a. Notice of dishonor may be given by an iii If given at his residence - before the agent either in his own name or in the usual hours of rest on the day name of any party entitled to give notice, following whether that party be his principal or not iv If sent by mail - deposited in the (Sec. 91, NIL) post office in time to reach him in b. Where instrument has been dishonored usual course on the day following. in hands of agent, he may either himself b. Where parties reside in different places give notice to the parties liable thereon, or (Sec. 104, NIL).: he may give notice to his principal (within i. If sent by mail - deposited in the post the same time as if agent were holder) office in time to go by mail the day (Sec. 94, NIL) following the day of dishonor, or if there 5.6. To whom notice MAY be given be no mail at a convenient hour on last 1. If given by an agent day, by the next mail thereafter a. to his principal, in case of an ii. Convenient hour: depends on the instrument dishonored in the hands of usual hours of opening of business an agent (Sec. 94, NIL), or houses and the post-office b. to the parties liable thereon iii. If given otherwise - within the time c. ex: collecting bank that notice would have been received in 2. IN GENERAL (Sec. 97) due course of mail, if it had been a. Party himself deposited in the post office within the b. Or his agent in that behalf time specified above 3. If party is dead and death known to the c. Delay (Sec. 113, NIL) party giving notice (Sec. 98, NIL) i. Excused: when the delay is caused by a. MUST be given to a personal circumstances beyond the control of the representative, if there be one, and if holder and not imputable to his default, with reasonable diligence, he can be misconduct, or negligence found; ii. But, when the cause of delay ceases b. If no personal representative – MAY be to operate, notice must be given with sent to the last residence or last place of reasonable diligence. business of the deceased. 4. Sender deemed to have given due notice 4. To partners : to any one partner, even (Sec. 105, NIL) though there has been a dissolution. (Sec. a. Where notice of dishonor is duly 99, NIL) addressed and deposited in the post office, 5. To joint parties(Sec. 100, NIL) i. “deposit in post office” — when a. to each of the party deposited in any branch post office or b. unless one of them has authority to in any letter box under the control of receive such notice for the others. the post-office department. (Sec. 6. to bankrupt (Sec. 101, NIL) 106, NIL) a. to the party himself or b. notwithstanding any miscarriage in the b. to his trustee or assignee mails 4. Place where notice must be sent (Sec. 5.7. In whose favor notice 108, NIL) operates a. to the address, if any, added by the 1. when given by/on behalf of holder: inures to party to his signature; if address not benefit of (Sec. 92, NIL) given: a. all subsequent holders and i to the post-office nearest to his b. all prior parties who have a right of place of residence or where he is recourse vs. the party to whom it’s given accustomed to receive his letters; 2. where notice given by/on behalf of a party or entitled to give notice: inures for benefit (Sec. ii If he lives in one place and has his 93, NIL) place of business in another, to a. holder either place; or b. all parties subsequent to party to whom iii If he is sojourning in another notice given place, to the place where he is so 5.8. When rule requiring notice not sojourning. b. Notice sent to place not in accord with applied NIL, still SUFFICIENT 1. In general i Where the notice is actually a. Sec 112: notice of dishonor is dispensed received by the party within the with when after the exercise of reasonable time specified in this Act, diligence, it cannot be given to or does not reach the parties sought to be charged 5.5. By Whom Given b. Reasonable diligence depends upon the 1. Sec. 90, NIL circumstance of the case a. By or on behalf of the holder or 2. When notice of non-acceptance is already given 3. protest for nonpayment if not previously a. Sec 116: Where due notice of dishonor by dishonored by nonpayment. non-acceptance has been given, notice of a 4. Effect of failure to protest: the drawer and subsequent debtor by non-payment is not indorsers are discharged. (Sec. 152, NIL) necessary, unless in the meantime the C. Form instrument has been accepted 1. annexed to the bill or must contain a copy b. Ratio for the rule: dishonor by nonacceptance thereof, and confers upon the holder an 2. must be under the hand and seal of the immediate right against all secondary parties notary making it; 3. Waiver D. Contents a. Waiver of notice may be made either: 1. The time and place of presentment; i before the time of giving notice has 2. The fact that presentment was made and the arrived or manner thereof; ii after the omission to give due 3. The cause or reason for protesting the bill; notice; may be expressed or 4. The demand made and the answer given, if implied. (Sec. 109, NIL) any, or the fact that the drawee or acceptor b. Parties affected by waiver could not be found. (Sec. 153, NIL). i. Dependent upon where the waiver is E. By whom written 1. A notary public; or ii. Where the waiver is embodied in the 2. any respectable resident of the place where instrument itself - binding upon all the bill is dishonored, in the presence of two parties; or more credible witnesses. (Sec. 154, NIL) iii. where written above the signature F. Time of an indorser - binds him only. (Sec. 1. on the day of its dishonor unless delay is 110, NIL) excused; 5.9. When Notice Not Necessary 2. when duly noted, the protest may be 1.When not necessary to charge drawer subsequently extended as of the date of the (Sec. 114, NIL) noting. (Sec. 155, NIL); a. drawer/drawee same person G. Place b. drawee fictitious, incapacitated 1. at the place where it is dishonored, c. drawer is person to whom instrument is 2. EXCEPT bill drawn payable at the place of presented for payment business or residence of person other than d. drawer has no right to expect/require the drawee has been dishonored by that drawee/acceptor will honor instrument nonacceptance, e. drawer countermanded payment a. it must be protested for non-payment at STATE INVESTMENT HOUSE v CA (1993) the place where it is expressed to be Moulic issued 2 checks to Victoriano as security for payable, and pieces of jewelry to be sold on commission. b. no further presentment for payment to, Victoriano negotiated these checks to State or demand on, the drawee is necessary. Investment. As Moulic failed to sell the jewelry, she (Sec. 156, NIL) returned them to Victoriano. However, she failed to H. Protest for better security against the drawer retrieve her checks. Moulic withdrew her funds and indorsers — where the acceptor has been from the drawee bank. Upon presentment, the adjudged a bankrupt or an insolvent or has made checks were dishonored. an assignment for the benefit of creditors before HELD: State Investment is a holder in due course & the bill matures (Sec. 158, NIL) is not subject to the personal defense of lack of I. Delay excused consideration. 1. Requisites: There is no need to serve the drawer a notice a. when caused by circumstances beyond of dishonor because she was responsible for the control of the holder, and the dishonor of her checks. After withdrawing b. not imputable to his default, her funds, she could not have expected her checks misconduct, or negligence. to be honored. 2. When the cause of delay ceases to operate, 2. Where not necessary to charge indorser the bill must be noted or protested with (Sec. 115, NIL) reasonable diligence.; a. drawee fictitious, incapacitated, and J. When protest dispensed with - by any indorser aware of the fact at time of circumstances which would dispense with notice indorsement of dishonor. (Sec. 159, NIL) b. indorser is person to whom instrument K. Waiver of protest: deemed to be a waiver not presented for payment only of a formal protest but also of presentment c. instrument made/accepted for his and notice of dishonor. (Sec. 111, NIL) accommodation TAN LEONCO v GO INQUI(1907) In exchange for the abaca from Tan Leonco's 7. Protest plantations, Go Inqui drew a bill of exchange A. Definition: testimony of some proper person against Lim Uyco. Upon presentment of the that the regular legal steps to fix the liability of draft, it was refused payment due to a stop drawer and indorsers have been taken order from the drawer. The bill was not B. When necessary: protested. 1. In case of a FOREIGN BILL appearing on its HELD: The action is not brought upon the bill face to be such; of exchange which was used only as evidence 2. protest for non-acceptance if dishonored by of the indebtedness. Under these conditions, nonacceptance & protest & notice of nonpayment are unnecessary in order to render the drawer generally, even liable. though a place of NOTE: The ruling of the Court on protest is payment merely obiter dictum. payment at the place 8. Acceptance or Payment for where it is payable at a reasonable time Honor discharges the A. Acceptance drawer from liability 1. Practice of accepting for honor is obsolete to the extent he is 2. When bill may be accepted for honor. — damaged by the When a BE has been (1) protested for breach. dishonor by non-acceptance or protested 9. Bills in Set for better security and (2) is not overdue A. composed of various parts being numbered, any person not being a party already and containing a reference to the other liable may, with the CONSENT of the parts, all of which parts constitute one bill of holder, intervene and accept the bill supra lading protest for the honor of any party liable B. Bills in set constitute one bill. (Sec. 178, thereon or for the honor of the person for NIL) whose account the bill is drawn. C. Right of HDCs where different parts are 3. The acceptance for honor may be for part negotiated. — the holder whose title first only of the sum for which the bill is drawn; accrues is the true owner of the bill. But 4. where there has been an acceptance for nothing in this section affects the right of a honor for one party, there may be a further person who, in due course, accepts or pays acceptance by a different person for the the parts first presented to him. (Sec. 179., honor of another party. (Sec. 161, NIL) NIL) 5. Referee in case of need — person whose D. Liability of holder who indorses two or name is inserted by the drawer of a bill and more parts of a set to different persons. — any indorser to whom the holder may liable on every such part, and every indorser resort in case bill is dishonored by nonacceptance subsequent to him is liable on the part he or non-payment; option of the has himself indorsed, as if such parts were holder to resort to the referee (Sec. 131, separate bills. (Sec. 180, NIL) NIL) E. Acceptance - may be written on any part B. PAYMENT FOR HONOR - any person may and it must be written on one part only. If intervene and pay bill protested for nonpayment the drawee accepts more than one part and supra protest (Sec. 171, NIL) such accepted parts negotiated to different 6.3 INSTRUMENTS PAYABLE AT BANK holders in due course, he is liable on every Sec 87: Where the instrument is made payable at a such part as if it were a separate bill. (Sec. bank, it is equivalent to an order to the bank ton 181, NIL) pay the same for the account of the principal debtor F. Payment - When the acceptor of a bill therein drawn in a set pays it without requiring the BINGHAMPTON PHARMACY v FIRST NATIONAL part bearing his acceptance to be delivered BANK (1915) up to him, and the part at maturity is There is a distinction between the drawer of a check outstanding in the hands of a holder in due & the maker of a note payable at a bank: course, he is liable to the holder thereon. Note payable at (Sec. 182, NIL) bank G. Effect of discharging one of a set. — Except Check as herein otherwise provided, the whole bill maker of a note is is discharged. (Sec. 183, NIL) primarily liable on the instrument Chapter VII. drawer of a check is only liable after DISCHARGE dishonor Law excuses 1. Definition: Discharge presentment of the The release of all parties, whether primary or instrument secondary, from the obligation on the instrument; requires presentment renders the instrument non-negotiable within a reasonable 2. Discharge of the time at the peril of discharging the INSTRUMENT drawer 2.1. How discharged: (Sec 119)7 obligation of the 1. By Payment in due course maker of a note is a. Sec. 88: Payment is made in due not a conditional course when it is made: Breach of the duty of i at or after the maturity of the the holder of a check payment to present for o if payment is made before promise to pay maturity and the note is only at a special negotiated to a HDC, the place, but is a latter may recover on the promise to pay instrument. ii to the holder thereof subsequent indorsers) o payment to one of several 3. OF SECONDARY PARTIES payees or indorsees in the alternative discharges the (Sec. 120, NIL)8 instrument, A. by discharge of instrument o but payment to one of several B. intentional cancellation of signature by holder joint payees or joint indorsers C. discharge of prior party is not a discharge. The party D. valid tender of payment by prior party receiving payment must have E. release of principal debtor, unless holder’s right been authorized by others to of recourse vs. 2ndary party reserved receive payment. F. any agreement binding upon holder to extend iii in good faith and without notice time of payment, or to postpone holder’s right to that his title is defective enforce instrument, UNLESS b. By whom made: 1. made with assent of party secondarily liable, i payment in due course by or on or behalf of principal debtor 2. right of recourse reserved. ii payment in due course by party G. Failure to make due presentment (Secs. 70, 144, accommodated where party is NIL) made/ accepted for H. failure to give notice of dishonor accommodation I. certification of check at instance of holder c. When check deemed paid by drawee J. reacquisition by prior party bank 1. where instrument negotiated back to a prior i Once the holder receives the cash party, such party may reissue and further ii If the bank credits the amt of the negotiate, but not entitled to enforce check to the depositor’s account payment vs. any intervening party to whom iii Where the drawee bank charges he was personally liable the check to the account, 2. where instrument is paid by party indicating intention to honor the secondarily liable, it’s not discharged, but check a. the party so paying it is remitted to his 2. intentional cancellation by holder former rights as regard to all prior a. if unintentional or under mistake or parties without authority of holder, 8Suggested Mnemonics: CuPID CRRAFFT: inoperative; intentional Cancellation, Prior Party and b. where instrument or signature appears to have been cancelled, burden of Instrument proof on party which alleges it was Discharge, Certification, Release, Reacquisition, unintentional, etc. (Sec. 123, NIL) any 3. any other act which discharges a simple contract for payment of money Agreement, Failure to make due presentment, a. ex. issuance of a renewal note— Failure novation to give notice of dishonor, valid Tender of b. Refer to Art 1231 of the Civil Code payment. 7Suggested Mnemonics: PICk ROAD: Payment b. and he may strike out his own and all in subsequent indorsements, and again due course, Intentional Cancellation, negotiate instrument, except i where it’s payable to order of 3rd Renunciation, party and has been paid by any Other Act, Debtor becomes holder. drawer 4. principal debtor becomes holder of ii where it’s made/accepted for instrument at or after maturity in his own accommodation and has been paid right by party accommodated 5. renunciation of holder: (Sec. 122, NIL) a. holder may expressly renounce his Chapter VIII. rights vs. any party to the instrument, before or after its maturity OTHER FORMS OF b. absolute and unconditional renunciation of his rights against PRINCIPAL DEBTOR COMMERCIAL PAPER made at or after maturity discharges the 1. In General instrument 1.1. Commercial papers – c. renunciation does not affect rights of 1. also Negotiable instruments; HDC w/o notice. 2. merely special forms of either PNs or BEs; d. Renunciation must be in writing unless 3. also governed by the NIL instrument delivered up to person primarily liable thereon 1.2. Quasi-negotiable includes material alteration – review Sec. commercial 125, NIL: what constitutes material paper which though not governed by the NIL, have alteration (Sec. 124, NIL: material certain attributes of negotiability. alteration w/o assent of all parties 2.1. Bonds liable avoids instrument except as 1. evidences of indebtedness, in the nature of against party to alteration and a PNs 2. usually accompanied by a mortgage of the contract(s) is included in the credit. property of the issuer Consequently, the undertaking of a bank to 3. issued by the government (municipal & pay, accept and pay draft(s) or negotiate other public corporations) & private and/or fulfill any other obligation under the corporations; credit is not subject to claims or defenses by a. though not to mature for a long time, the applicant resulting from his relationships assure some regular income to with the issuing bank or the beneficiary. A bondholders in the form of interest*, beneficiary can in no case avail himself of usually payable annually the contractual relationships existing b. bonds and interest coupons (evidences between the banks or between the applicant interest obligations)* and the issuing bank. may be negotiable in form, a. Thus, the engagement of the issuing therefore governed by NIL bank is to pay the seller or beneficiary of (Sec 65); the credit once the draft and the both are actually promissory required documents are presented to it. notes c. they run for long periods of time, and 2. Bonds and Debentures This principle assures the seller or the are often sold to the public in general beneficiary of prompt payment d. funds generated by such bonds are independent of any breach of the main used to finance corporate projects and contract and precludes the issuing public works; bank from determining whether the e. there is no warranty on the part of main contract is actually accomplished such indorser or negotiator that prior or not. Under this principle, banks parties had capacity to contract. The assume no liability or responsibility for qualified indorser & negotiator by the form, sufficiency, accuracy, delivery of a bond do not warrant genuineness, falsification or legal therefore that the corporation which effect of any documents, or for the issued the bonds has any judicial general and/or particular conditions capacity to act. A general indorser stipulated in the documents or thereof however would be liable for such superimposed thereon, nor do they want of capacity. assume any liability or responsibility 2.2. Debentures for the description, quantity, weight, 1. similar to bonds except that they are usually quality, condition, packing, delivery, for a shorter tem and may or may not be value or existence of the goods accompanied by a mortgage. represented by any documents, or for 2. they are often issued on the general credit of the good faith or acts and/or the issuer corporation omissions, solvency, performance or Drafts and Letters of 3. standing of the consignor, the carriers, or the insurers of the goods, or any Credit other person whomsoever. 3.1. Drafts and Letters of Credit - b. The independent nature of the letter of The credit may be: (a) independence in draft and the letter of credit are generally used toto where the credit is independent together to effect payment in international from the justification aspect and is a transactions. separate obligation from the underlying agreement like for instance 3.2. Draft a form of BE generally used to a typical standby; or (b) independence facilitate may be only as to the justification the transactions between persons physically remote aspect like in a commercial letter of from each other. credit or repayment standby, which is 3.3. Letters of Credit identical with the same obligations 1. one person requests some other person to under the underlying agreement. In advance money or give credit to a third both cases the payment may be person, and promises that he will repay the enjoined if in the light of the purpose same to the person making the of the credit the payment of the credit advancement, or accept bills drawn upon would constitute fraudulent abuse of himself for the like amount. the credit. (Transfield vs. Luzon 2. must be issued in favor of a definite person, Hydro) and not to order. 5. Pertinent Code of Commerce provisions: 3. under our law, a letter of credit cannot be a a. Art 567. Letters of credit - issued by negotiable instrument because (a) it may not one merchant to another for the contain the words of negotiability; (b) may purpose of attending to a commercial be issued for an undetermined amount. See transaction. Art 568 Code of Commerce. b. Art 568. The essential conditions of 4. “INDEPENDENCE PRINCIPLE”: Credits, by letter of credit shall be: their nature, are separate transactions from i issued in favor of a definite the sales or other contract(s) on which they person, and not to order. may be based and banks are in no way ii limited to a fixed and specified concerned with or bound by such contract(s), amount, or to one or more even if any reference whatsoever to such undetermined amount, but all within a maximum the limit of drafts. Expansion in the use of letters of credit was which has to be stated exactly. a Note: Those which do not have any of natural development in commercial banking. Parties these last circumstances shall be to a commercial letter of credit include: considered as mere letters of (a) the buyer or the importer, recommendation. (b) the seller, also referred to as beneficiary, c. Art 569. The drawer of a letter of (c) the opening bank which is usually the credit shall be liable to the person on buyer’s bank which actually issues the whom it was issued, for the amount letter of credit, paid by virtue thereof, within the (d) the notifying bank which is the maximum fixed therein. correspondent bank of the opening bank Letters of credit may not be protested through which it advises the beneficiary of even if not be paid; bearer cannot the letter of credit, acquire any right of action by reason of (e) negotiating bank which is usually any non-payment against the person who bank in the city of the beneficiary. The issued it. services of the notifying bank must always The person paying has right to demand be utilized if the letter of credit is to be the proof of the identity of the person in advised to the beneficiary through cable, whose favor the letter of credit was (f) the paying bank which buys or issued. discounts the drafts contemplated by the d. Art 570. The drawer of a letter of credit letter of credit, if such draft is to be drawn may annul it, informing the bearer and on the opening bank or on another the person to whom it is addressed designated bank not in the city of the e. Art 571. The bearer of a letter or credit beneficiary. As a rule, whenever the shall pay the amount received to the facilities of the opening bank are used, the drawer without delay. Should he not do beneficiary is supposed to present his so, an action involving execution may be drafts to the notifying bank for negotiation brought to recover it, with legal interest and and the current exchange in the place (g) the confirming bank which, upon the where it is repaid. request of the beneficiary, confirms the f. Art 572. If the bearer of a letter of letter of credit issued by the opening bank. credit does not make use thereof within TRANSFIELD VS. LUZON HYDRO (2004) the (1) period agreed upon with the Can the beneficiary invoke the independence drawer, or in default of a period fixed, principle? Yes. (2) within 6 months, counted from its To say that the independence principle may only be date, in any point in the Philippines, and invoked by the issuing banks would render within 12 months anywhere outside nugatory thereof, it shall be void in fact and in the purpose for which the letters of credit are used law. in commercial transactions. As it is, the BPI v. DE RENY FABRIC (1970) independence doctrine works to the benefit of both The company and its officers cannot shift the the issuing bank and the beneficiary. 4. Certificate of Stock burden of loss to the bank because of the terms of their A. or share certificate is the customary and Commercial Letter of Credit Agreement with the convenient evidence of the holder’s interest in bank the corporation which issues it. provides that latter shall not be responsible for the B. not a NI, but is included in the term “securities” any difference in character or condition of the bec does not contain any promise or order to property. Furthermore, the bank was able to prove pay money; the existence of a custom in international banking C. described as Quasi-Negotiable bec and oftentimes, by application of the principles of financing circles negating any duty of the bank to estoppel, and to effectuate the ends of justice verify whether what has been described in letters of and the intention of the parties, the courts credits or drafts or shipping documents actually decree a better title to the transferee than tallies with what was loaded aboard ship. Banks, in actually existed in his transferor, and is the providing financing in international business same as would be reached if the certificate transactions do not deal with the property to be were negotiable. exported or shipped to the importer, but deal only D. When the shareholder signs the back of with documents. certificates of stock without filling in the blanks LEE v CA (2002) (for the name of the transferee and attorneyin- Modern letters of credit are usually not made fact) and the certificate is delivered to between another, the latter appears to be the owner natural persons. They involve bank to bank thereof. A bona fide purchaser of value without transactions. Historically, the letter of credit was notice, will be protected in his acquisition, developed to facilitate the sale of goods between, although such third person has diverted the distant and unfamiliar buyers and sellers. It was an certificate from the purpose for which he was arrangement under which a bank, whose credit was entrusted therewith. (Principle of Estoppel) acceptable to the seller, would at the instance of E. The same rule is applicable if the certificate is in the bearer form. buyer agree to pay drafts drawn on it by the seller, F. The rule is applicable where the certificate is lost provided that certain documents are presented such or stolen while signed in blank. Even a purchaser as bills of lading accompanied the corresponding in good faith cannot acquire title as against the or by delivery, goods represented by such true owner. (?) document. G. At common law, stock certificates are given the 4. Documents of title negotiable when goods attributes of negotiability only where the owner represented thereby are deliverable to a thereof has entrusted the wrongdoer with the specified person , to order or to bearer. possession of such certificate and clothed him 5. valuable in commerce because it facilitates with apparent ownership thereof. the sale and delivery of goods. SANTAMARIA v HONGKONG & SHANGHAI 5.2. Kinds BANK 1. Warehouse receipts an agreement by a (1951) warehouseman to store goods and deliver Plaintiff, in failing to take the necessary precaution them to a named person or his order or to upon delivering the certificate of stock to her bearer. broker, 2. Bill of Lading a similar contract by a was chargeable with negligence in the transaction carrier to ship goods and deliver them to which resulted to her own prejudice, and as such, the person named therein or his order or to she bearer; negotiable bill of lading is useful is estopped from asserting title to it as against the not only as evidence of the receipt of the defendant bank. goods by the carrier but as evidencing title A certificate of stock, indorsed in blank, is deemed to goods covered by it. It also facilitates quasi-negotiable, and as such the transferee the purchase of goods by one person from thereof another who is physically remote and is justified in believing that it belongs to the holder probably unknown to him. and transferor. a. “straight” bill where the goods are to DE LOS SANTOS, McGRATH (1955) be delivered to a specified person, it is Although a stock certificate is sometimes regarded not negotiable and is called a as “straight” bill. Otherwise, it is referred quasi-negotiable, in the sense that it may be to as an “order” bill. transferred by endorsement, coupled with delivery 3. Certificate of Deposita receipt of a bank for it certain sum of money received upon is well settled that the instrument is non- deposit; generally framed in such FORM as negotiable, to constitute a promissory note, payable to because the holder thereof takes it without the depositor, or to the depositor or order, prejudice or to bearer. to such rights or defense as the registered owner or a. it is taken when depositor does not credit may have under the law, except in so far as need his money for some extended such rights or defenses are subject tot eh period of time and wants it to earn limitations interest; more of an investment paper imposed by the principles governing estoppel. than a commercial paper because it is CAPCO v. MACASAET (1990) not attendant to a commercial Certificates of stocks are considered as transaction the way a check or a quasinegotiable promissory note is. instruments. When the owner or b. it is negotiable if it meets all the shareholder signs the printed form of sale or requirements of Sec 1 NIL assignment at the back of every stock certificates without filling in the blanks provided for the name 5.3. Negotiation - same as those used in of NIs; the transferee as well as for the name of the to order=delivery + indorsement, to bearer = attorney-in-fact, the said owner or shareholder, in delivery effect, confers on another all the indicia of 1. The means of negotiating a document of title ownership are the same as those used in negotiable of the said stock certificates. instruments. 2. If by the terms of the document, the goods 5.Negotiable Documents of are deliverable to the order of a specified Title person, then it should be indorsed by such person, either specially or in blank. 5.1. In General 3. If the goods are deliverable to bearer, or the 1. as distinguished from negotiable document has been indorsed in blank, then instruments, refer to goods and not to negotiation may be by mere delivery. money; the sale of goods covered is effected by the transfer of said document 5.4. Rights of a Holder 2. not governed by the NIL but by the Civil 1. When free from personal defense Code. a. Under Art 1518 Civil Code, a holder of 3. includes any bill of lading, dock warrant, a negotiable document of title in good “quedan”, or warehouse receipt or order for faith, for value and without notice is the delivery of goods, or any other placed on the same level as a HDC of a document used in the ordinary course of negotiable instrument – i.e., personal business in the sale or transfer of goods, defenses enumerated in said article are as proof of the possession or control of the not available against him. Personal goods, or authorizing or purporting to defenses include: negotiation was a authorize the possessor of the document to breach of duty on the part of the person transfer or receive, either by indorsement making the negotiation, owner of the document was deprived of the possession of the same by loss, theft, v The bailee’s delivery to the legal fraud, accident, mistake, duress or holder of the document would conversion. relieve him of any further b. Note Art 1518’s conflict with Art 1512. responsibility for the goods. (see p 915) 5.5. Liability of Indorser 2. What title acquired (NOTE: see Arts 1513, 1. The indorsement of a negotiable document of 1514 and 1519 Civil Code) title carries with it certain implied warranties by a. A person to whom a negotiable the indorser. document of title has been duly 2. As to the document, his warranty covers its negotiated acquires the title of the genuineness, his legal right to negotiate it and person NEGOTIATING it as well as the his lack of knowledge of any fact which would title of the ORIGINAL BAILOR or impair its validity. depositor of the goods. 3. As to the goods, he warrants that he has ex. if the original bailor had no authority the right to transfer title thereto and that they from such owner to deposit the goods, are merchantable. then the holder of the negotiable 4. However, unlike the indorser of a NI who is document, even if the negotiation to him liable if the primary party fails to pay, the was valid, cannot acquire title to the indorser of a negotiable document of title is not goods; AND even if the original bailor liable for the failure of the bailee to fulfill his had authority, if the negotiation to the obligation to deliver the goods. present holder’s transferor was not ROMAN v ASIA BANKING CORP. (1922) valid, such holder, even if in good faith A warehouse receipt must be interpreted and for value, does not acquire any right according to its evident intent and it is obvious to the goods. the holder’s remedy if that the deposit evidenced by the receipt in this any, is against his transferor and/or the case was intended to be made subject to the guilty party. order of the depositor and therefore negotiable. i Thus, if the original bailor or The indorsement in blank of the receipt with its depositor of the goods was not the delivery which took place on the date of the owner thereof or had no authority issuance of the receipt demonstrate the intent to from such owner to deposit the make the receipt negotiable. Furthermore, the goods, then the holder of the receipt was not marked “non-negotiable.” negotiable document, even if the SIY CONG BIENG v. HSBC negotiation to him was valid, cannot If the owner of the goods permits another to have acquire title to the goods. the possession or custody of negotiable ii On the other hand, even if the warehouse receipts running to the order of the original bailor or depositor was the latter, or to bearer, it is a representation of title owner or had authority from the upon which bona fide purchasers for value are owner, if the negotiation to the entitled to reply, despite breaches of trust or present holder’s transferor was not violations of agreement on the part of the apparent valid, such holder, even if in good owner. faith and for value, does not acquire any right to the goods. iii In both cases, the holder’s remedy if any, is against his transferor and/or the guilty party. b. The person to whom the document has been negotiated acquires the obligation of the bailee to make delivery to him, as if they had contracted directly with each other. i By issuing a negotiable document of title, such bailee had given in advance his consent to hold the goods for any person to whom such document is negotiated. ii If document non-negotiable, notice of any transfer should be given to the bailee otherwise bailee or any other person other than the transferor not bound iii Thus, the transferee’s rights may be defeated by a levy of attachment on the goods or by a notification to the bailee of a sale of the goods to another purchaser. iv A sale of the goods without the document will not prejudice a subsequent purchaser who takes the document in good faith and for value.
Marinka Peschmann's 2nd Opposition To Hagmann 2nd Motion To Dismiss 1-17-Cv-0259 Judge Cathy Bissoon, Magistrate Judge Susan P. Baxter, Western District of Pennsylvania