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Case Doctrines on Negotaible Instruments Law
Philippine Education Co. vs. Soriano
The Weight of authority in the United States is that postal money orders are not negotiable instruments, the
reason being that in establishing and operating a postal money order system, the government is not engaged
in commercial transactions but merely exercises a governmental power f or the public benef it. Moreover, some
of the restrictions imposed upon money orders by postal laws and regulations are inconsistent with the
character of negotiable instruments. For instance, such laws and regulations usually provide f or not more than
one endorsement; payment of money orders may be withheld under a variety of circumstances.
Caltex Phil. vs. Court of Appeals
A negotiable instrument that is payable to bearer may be negotiated by mere delivery. No f urther act other than
delivery is necessary in order to negotiate the instrument and to make the transf eree a holder.
Metrobank vs. Court of Appeals
An instrument to be negotiable instrument must contain an unconditional promise or orders to pay a sum
certain in money. As provided by Sec 3 of NIL an unqualif ied order or promise to pay is unconditional though
coupled with: 1
st
, an indication of a particular f und out of which reimbursement is to be made or a particular
account to be debited with the amount; or 2
nd
, a statement of the transaction which give rise to the instrument.
But an order to promise to pay out of particular f und is not unconditional.
Sesbreno vs. Court of Appeals
Only an instrument qualif ying as a negotiable instrument under the relevant statute may be negotiated either by
indorsement thereof coupled with delivery, or by delivery alone if it is in bearer f orm. A negotiable instrument,
instead of being negotiated, may also be assigned or transf erred. The legal consequences of negotiation and
assignment of the instrument are dif f erent. A negotiable instrument may not be negotiated but may be
assigned or transf erred, absent an express prohibition against assignment or transf er written in the f ace of
the instrument.
Firestone Tire & rubber Co. vs. Court of Appeals
Withdrawal slips are non negotiable instruments. The essence of negotiability which characterizes a negotiable
paper as a credit instrument lies in its f reedom to circulate f reely as a substitute f or money. The withdrawal
slips lacked this character.
Ang Tek Lian vs. Court of Appeals
A check drawn payable to the order of cash is a check payable to bearer and the bank may pay it to the
person presenting it f or payment without the drawers indorsement. However, if the bank is not sure of the
bearers identity or f inancial solvency, it has the right to demand identif ication or assurance against possible
complication. But where the bank is satisf ied of the identity or economic standing of the bearer who tenders
the check f or collection, it will pay the instrument without f urther question; and it would incur no liability to the
drawer in thus acting.
Development Bank of the Phils. vs. Sima Wei
The payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Delivery
of an instrument means transf er of possession, actual or constructive, f rom one person to another. Without
the initial delivery of the instrument f rom the drawer to the payee, there can be no liability on the instrument.
Moreover, such delivery must be intended to give ef f ect to the instrument.
Philippine Bank of Commerce vs. Aruego
There is a dif f erence between a qualif ied indorser and a person negotiating by mere delivery. While a qualif ied
indorser warrants to all subsequent holders, the warranties of the person negotiating by mere delivery extends
only in f avor of his immediate transf eree.
Francisco vs. Court of Appeals
The negotiable Instruments Law provides that when a person is under obligation to indorse in a
representative capacity, he may indorse in such terms as to negative personal liability. An agent, when so
signing, should indicate that he is merely signing as an agent in behalf of the principal and must disclose
the name of his principal. Otherwise, he will be held liable personally
Jail-Alai vs. Bank of the Philippine Islands
Holders of checks may obtain payment f rom the drawee bank by presenting it f or payment directly with the
bank or by depositing it in his account in another bank known as the collecting bank or depositary bank. When
the holder deposits his check with the collecting bank, the nature of the relationship created at that stage is
one of agency, that is the bank is to collect f rom the drawee of the check the corresponding proceeds.
Republic Bank vs. Ebreda
Where the signature on a negotiable instrument is f orged, the negotiation of the check is without f orce or
ef f ect. However, where a check has several indorsersment on it, it is only the negotiation based on the f orged
or unauthorized signature is inoperative. It will not render void all the other negotiations of the check with
respect to other parties whose signatures are genuine.
MWSS vs. Court of Appeals
It is basic that whoever alleges f orgery must prove such f act. Forgery cannot be presumed, it must be duly
established.
Banco de Oro vs. Equitable Banking Corporation
If the instrument involved is a check, the drawee cannot charge the account of the drawer if the payees or
indorsers signature is f orged. The drawee, in turn has the right of recourse against the collecting bank.
The drawer generally owes no duty of diligence to the collecting bak, the law imposes a duty of diligence on
the collecting bank to scrutinize checks deposited with it f or the purpose of determining their genuineness and
regularity. The collecting bank being primarily engaged in banking holds itself out to the public as the expert and
the law holds it to high standard of conduct.
It is the collecting bank that generally suf f ers the loss with regard to f orged indorsements because it
had the duty to ascertain the genuineness of all prior indorsements considering that the act of
presenting the check f or payment to the drawee is an assertion that the party making the presentment has
done its duty to ascertain the genuineness of the indorsements.
Gempesaw vs. Court of Appeals
A f orged signature is wholly inoperative, no one can gain title to the instrument through such f orged
insdorsement. Such indorsement prevents any subsequent partyf rom acquiring any right as against parties
prior to the f orgery. Although rights may exist between and among parties subsequent to the f orged
instrument, not one of the can acquire rights agasint parties prior to the f orgery. Such f orged instrument cuts-
of f the rights of all subsequent parties as against parties prior to the f orgery. However, the law makes an
exception to these rules where party is precluded f rom setting up f orgery as a def ense.
Associated Bank vs. Court of Appeals
When a check is deposited with the collecting bank, it takes a risk on its depositor. It is only logical that this
bank be held accountable f or checks deposited by its customers. It is important to mention that Payee whose
signature was f orged may directly proceed against the collecting bank. However, the drawer cannot opt to
recover f rom the collecting bank. There is no privity of contract between the drawer and the collecting bank.
Metrobank vs. First National City Bank
When the indorsement itself is very clear when it begins with the words For clearance, clearing of f ice such
indorsement must be read together with the 24-hour rule regulation of the House operations of the Central
Bank. Once that 24-hour period is over, the liability on such indorsement has ceased. Failure of drawee bank to
call the attention of collecting bank to the alteration of the check in question until af ter the lapse of 24 hours
negates whatever right it might have against the collecting bank. Its remedy lies not against collecting bank but
against the party responsible f or the changing of the name of the payee and the amount on the f ace of the
check.
Republic Bank vs. Court of Appeals
The 24-hour clearing house rule is valid rule applicable to commercial banks. As general rule, the collecting bank
or last endorser bears the loss when the indorsement was f orged. But the unqualif ied endorsement of the
collecting bank on the check should be read together with the 24-hour regulation on the clearing house
operation. Thus, when the drawee bank f ails to return a f orged or altered check to the collecting bank is
absolved f rom liability. Unless an alteration is attributable to the f ault or negligence of the drawer himself , the
remedy of the drawee bank that negligently clears a f orged and/or honor altered check f or payment is against
the party responsible f or the f orgery or alteration, otherwise, it bears the loss.
Philippine Commercial International Bank vs. Court of Appeals
A bank (in this case PCIB) which cashes a check drawn upon another bank (in this case Citibank), without
requiring proof as to the identity of persons presenting it, or making inquiries with regard to them, cannot hold
the proceeds against the drawee when the proceeds of the checks were af terwards diverted to the hands of a
third party.
Ramon Illusorio vs. Court of Appeals
The collecting bank or last endorser generally suf f ers the loss because it has the duty to ascertain the
genuineness of all prior indorsements considering that the act of presenting the check f or payment to the
drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness
of the indorsements. As between the drawer and the drawee bank, the drawee bank should bear the loss. The
drawee bank shall have recourse against the collecting bank because such collecting bank guarantees that all
prior endorsements are genuine. The collecting bank then can go against the f orger. In cases involving a
f orged check, where the drawers is f orged, drawer can recover f rom the drawee bank. No drawee bank has a
right to pay a f orged check. If it does, it shall have to recredit the amount of check to the account of the
drawer. The liability chain ends with drawee bank whose responsibility it is to know the drawers signature since
the latter is its customer.
Samsung Construction Co. Phils, Inc vs. FEBTC and CA
Under Sec. 62 of NIL, among the warranties to be assumed by the acceptor is it admits the existence of the
drawer, the genuineness of his signature, and his capacity and authority to draw the instrument. It is incumbent
upon the drawee bank to ascertain the genuineness of the signature of its depositor. The respondent bank in
this case did not exercise the degree of diligence required to enable it to detect the f orgery. Aside f rom the
warranties as an indorser, the collecting bank is made liable because it is privy to the depositor who negotiated
the check because it knows him, his address and history f or being a client thereof . Thus, it is in a better
position to detect f orgery or irregularity in the indorsement aka Doctrine of Comparative Negligence
Philippine National Bank vs. Court of Appeals
An alteration is said to be material if it alters the ef f ect of the instrument. It means an unauthorized change in
an instrument that purports to modif y in any respect the obligation of a party or an unauthorized addition of
words or numbers or other change to an incomplete instrument relating to the obligation of a party. In other
words, material alteration is one which changes the items which is required to be stated under Sec 1 of NIL.
Sadaya vs. Sevilla
On principle, a solidary accommodation makerwho made paymenthas the right to contribution, f rom his
co-accomodation maker, in the absence of agreement to the contrary between them, subject to conditions
imposed by law. This right springs f rom an implied promise to share equally the burdens thay may
ensue f rom their having consented to stamp their signatures on the promissory note.
Crisologo-Jose vs. Court of Appeals
The provision of NIL which holds an accommodation party liable on the instrument to holder f or value, although
such holder at the time of taking the instrument knew him to be only an accommodation party, does not include
nor apply to corporations which are accommodation parties. This is because the issue or indorsement of
negotiable paper by a corporation without consideration and f or accommodation of another is ultra vires.
Hence, one who has taken the instrument with knowledge of the accommodation nature thereof cannot
recover against a corporation where it is only a accommodation party.
Stelco Marketing vs. Court of Appeals
A person cannot be holder of the check f or value if it does not meet the essential requisites prescribed by the
law. He must become the holder of it bef ore it was overdue, and without notice that it had previously
dishonored, and he took the check in good f aith and f or value bef ore he can be considered as a holder of the
check f or value.
Travel-On BPI vs. Court of Appeals
Check which is regular on its f ace is deemed prima f acie to have been issued f or a valuable consideration and
every person whose signature appears thereon is deemed to have become a party thereto f or value. Further
the rule is quite settled that a negotiable instrument is presumed to have been given or indorsed f or a
suf f icient consideration unless otherwise contradicted and overcome by another evidence.
In the accommodation transactions recognized by the NIL, an accommodating party lends his credit to
the accommodated party, by issuing or indorsing a check which is held by the payee or indorsee as a holder in
due course, who gave f ull value which the accommodated party must repay the accommodating party, unless of
course the accommodating party intended to make a donation to the accommodated party. But the
accommodating party is bound on the check to the holder in due course who is necessarily a third party and is
not the accommodated party. Having issued or indorsed the check, the accommodating party has warranted to
the holder in due course that he will pay the same according to its tenor.
De Ocampo vs. Gatchalian
Good f aith on the part of the holder is presumed, such presumption is destroyed if the payee or indorsee
acquired possession of the instrument under circumstances that should have put it to inquiry as to the title of
the holder who negotiated the instrument. The burden is now on the part of the holder to show that
notwithstanding the suspicious circumstances, it acquired in the actual good f aith.
Mesina vs. IAC
The holder of a cashiers check who is not a holder in due course cannot enf orce payment against
the issuing bank which dishonors the same. If a payee of a cashiers check obtained it f rom the issuing
bank by f raud, or if there is some other reason why the payee is not entitled to collect the check,
the bank would of course have the right to ref use payment of the check when presented by payee.
Metropol vs. Sambok
A qualif ied indorserment constitutes the indorser a mere assignor of the title to the instrument. It may be made
by adding to the indorsers signature the words without recourse or any words of similar import. Such
indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of
the liability arising f rom warranties on the instrument as provided by section 65 of NIL.
Recourse means resort to a person who is secondarily liable af ter the def ault of the person who is primarily
liable. A person who indorses without qualif ication engages that on due presentment, the note shall be
accepted or paid, or both as the case maybe, and that if it be dishonored, he will pay the amount thereof to the
holder.
Sepiera vs. Court of Appeals
Every indorser who indorses without qualif ication, warrants to all subsequent holders in due course that, on
due presentment, it shall be accepted or paid or both, according to its tenor, and that if it be dishonored and
the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any
subsequent indorser who may be compelled to pay it.
Prudencial Bank vs. IAC
Acceptance is presumed to be unqualif ied or absolute. If the drawee intends toqualif y his acceptance, he must
do so distinctly and unmistakably or else the acceptance will be taken as absolute.
Wong vs. Court of Appeals
A check must be presented f or payment within a reasonable time af ter its issue or the drawer will be discharged
f rom liability thereon to the extent of the loss caused by the delay. By current banking practice, a check
becomes stale af ter more than six (6) months, or 180 days.
The International Corporate Bank vs. Francis S. Gueco and Ma. Luz E Gueco
A stale check is one which has not been presented f or payment within a reasonable time af ter its issue. It is
valueless and, theref ore, should not be paid. Under the negotiable instruments law, an instrument not payable
on demand must be presented f or payment on the day it f alls due. When the instrument is payable on demand,
presentment must be made within a reasonable time af ter its issue. In the case of a bill of exchange,
presentment is suf f icient if made within a reasonable time af ter the last negotiation thereof . A check must be
presented f or payment within a reasonable time af ter its issue, and in determining what is a "reasonable time,"
regard is to be had to the nature of the instrument, the usage of trade or business with respect to such
instruments, and the f acts of the particular case. The test is whether the payee employed suchdiligence as a
prudent man exercises in his own af f airs. This is because the nature and theory behind the useof a check
points to its immediate use and payability.
State Investment House Inc. vs. CA
The withdrawal of the money f rom the drawee bank to avoid liability on the checks cannot prejudice the rights
of holders in due course. For the reason that the holder who takes the negotiated paper makes a contract with
the parties on the f ace of the instrument; there is an implied representation that f unds or credit are available
f or the payment of the instrument in the bank upon which it is withdrawn.
Bataan Cigar and Cigarette Factory, Inc. vs. CA
In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing a check
should have the f ollowing ef f ects: (1) check may not be encashed but only deposited in the bank; (2) the check
may be negotiated only once, to one who has an account with a bank; (3) and the act of crossing the check
serves as a warning to the holder that the check has been issued f or a def inite purpose so that he must
inquire if he has received the check pursuant to that purpose, otherwise he is not a holder in due course.
Citytrust banking Corp., vs. Intermediate Appellate Court
Even there was error on the account number the controlling in determining in whose account the deposit is
name of the account owner. This is so because it is not likely to commit an error in ones name than merely
relying on numbers which are dif f icult to remember. Numbers are f or the convenience of the bank but was
never intended to disregard the real name of its depositors. The bank is engaged in business impressed with
public trust, and it is its duty to protect in return its clients and depositors who transact business with it.
Tan vs. Court of Appeals
A cashiers check is a primary obligation of the issuing bank and accepted in advance by its mere issuance, and
by its peculiar character and general use in the commercial world is regarded substantially to be as good as the
money which it represents.
Papa vs. A.U. Valencia
Af ter more than 10 years f rom the payment in part by cash and in part by check, the presumption is that the
check had been encashed. Failure of the payee to encash a check f or more than 10 years undoubtedly resulted
in the impairment of the check through his unreasonable and unexplained delay.
Bank of the Philippine Islands vs. Court of Appeals
Every negotiable instrument is deemed prima f acie to have been issued f or a valuable consideration; every
person whose signature appears thereon to have become a party thereto f or value. Theref ore, it is up to the
party who alleges that there was absence of consideration to prove such f act.
The presumption will operate only if there was negotiation. Consideration is not presumed if there was
transf er without indorsement.