LIABILITIES OF PARTIES

LIABILITIES OF PARTIES

IV. RIGHTS AND LIABILITIES OF PARTIES Atty. Rene Alexis P. Villarente

Ateneo de Davao University College of Law

Section
Section60
60

MAKER PAYEE A B HOLDER

RIGHTS OF HOLDERS
RIGHTS OF HOLDERS
INDORSERS Sec
Sec 69
69(20,21,44)
(20,21,44)Agent
Agent
Section
Section 51
51 Simple
Simple Holder
Holder

Sec
Sec 64
64Irreg
Irreg Sec
Sec 65
65Del/
Del/ Qual
Qual Sec
Sec 66
66 General
General Sec
Sec 67
67 bearer
bearer
Section
Section 26
26 Holders
Holders for
forValue
Value

Tuazon
Tuazon vs. vs. Heirs
Heirs of
of Ramos
Ramos GR.
GR. No.
No. 156262
156262 July
July 14,
14, 2005;
2005; After
After an
an instrument
instrument isis
dishonored Sec.
Sec.52/58/59
52/58/59 Holders
Holders in
indue
due
dishonored by by non
non payment,
payment, indorsers
indorsers ceases
ceases to
to be
be merely
merely secondarily
secondarily liable;
liable; they
they
become course
course
become principal
principal debtors
debtors whose
whose liability
liability becomes
becomes identical
identical to
to that
that of
of the
the original
original
obligor.
obligor. The
The holder
holder ofof aa negotiable
negotiable instrument
instrument need
need not
not even
even proceed
proceed against
against the
the
maker
maker before
before suing
suing the
the indorser.
indorser. Drawer
Drawer isis not
not indispensable
indispensable party
party in
in an
an action
action To
Tosue,
sue, be
be paid
paid and
andto
to negotiate
negotiate
Section
Section61
61 against
against the
the indorser
indorser of
of checks.
checks.

DRAWER PAYEE A B HOLDER

Order Section
Section Section 191 191 Definition
Definition of of Terms:
Terms: Holder
Holder
Sec. 1 (b) Section62
62 Villanueva
Villanueva vs. vs. Nite
Nite GR.
GR. No. No. 148211
148211 July July 25,25, 2006;
2006; IfIf aa means
means the the payee
payee or
or indorsee
indorsee of of aa bill
bill or
or note,
note,
(drawee)
(drawee) bank
bank refuses
refuses to
to pay
pay aa check
check (with
(with sufficient
sufficient funds),
funds), who
the who isis in
in possession
possession of
of it,
it, or
or the
the bearer
bearer thereof.
thereof.
Acceptor the payee-holder
payee-holder should
should instead
instead sue
sue thethe drawer
drawer who who might
might inin
turn
turn sue
sue the
the bank.
bank. Section
Section 189
189 isis sound
sound law
law based
based on
on logic
logic
DRAWEE and
and established
established legal
legal principles:
principles: no no privity
privity ofof contract
contract exists
exists
between
between thethe drawee-bank
drawee-bank and and the
the payee.
payee. The
The Drawer
Drawer isis an
an BPI
BPI vs.
vs. Roxas
Roxas GR.
GR. No.No. 157833
157833 October
October 15,
15, 2007;
2007;
Not liable indispensable
indispensable party
party when
when drawee
drawee isis sued
suedby by the
the payee.
payee. Under
Under Section
Section 52,
52, as
as aa general
general rule,
rule, every
every holder
holder isis
presumed
presumed prima
prima facie
facie to
to be
be aa holder
holder in
in due
due course.
course.
One
One who
who claims
claims otherwise
otherwise hashas the
the onus
onus probandi
probandi toto
Metro
Metro Bank
Bank vs.
vs. Cabilzo
Cabilzo GR.
GR. No.
No. 154469
154469 December
December 6, 6, 2006;
2006; AAdrawee
drawee whowhodid
did not
not accept
acceptisis not
notliable
liable and
and may
maynot
notbe
be prove
prove that
thatone
one or
or more
more ofofthe
the conditions
conditions are
are lacking.
lacking.
Drawee
Drawee whowho paid
paid under
under aa materially
materially altered
altered instrument,
instrument, such
such sued
sued (Villanueva
(Villanueva vs.
vs. Nite,
Nite, id.)
id.)exception:
exception:
payment
payment isis not
not payment
payment done
done in
in accordance
accordance with
with the
the drawers
drawers
instruction.
instruction. 1.
1. In
In aasuit
suitinitiated
initiated by
bythe
the drawer
drawer (Solid
(SolidBank
Bankvs.
vs.Arieta,
Arieta,G.R.
G.R. BPI
BPI vs.
vs. CA
CAand
and Napiza
Napiza GR.GR. No.
No. 112392
112392 February
February
No.
No.152720,
152720,February
February17,
17,2005)
2005) 29,
29, 2000;
2000; An
An accommodation
accommodation partyparty isis liable
liable on
on the
the
instrument
instrument toto aa holder
holder forfor value,
value, notwithstanding
notwithstanding
Solid
Solid Bank
Bank vs.vs. Arieta
Arieta GR.GR. No.
No. 152720
152720 Feb.
Feb. 17,17, 2005;
2005; AA 2.
2. In
In aasuit
suitby
by the
the payee
payee or
orholder
holderbased
based on
onArticle
Article 19
19 of
of such
such holder
holder at
at the
the time
time of
of taking
taking the
the instrument
instrument knew
knew
(drawee)
(drawee) banks
banks gross
gross negligence
negligence in
in dishonoring
dishonoring aa well-funded
well-funded the
the Civil
Civil Code
Code (HSBC
(HSBCvs.
vs.Catalan,
Catalan,G.R.
G.R.159590,
159590,Oct.
Oct.18,
18,2004)
2004) him
him to
tobe
be only
only an anaccommodation
accommodationparty. party.
check,
check, aggravated
aggravated by by its
its unreasonable
unreasonable delay
delay in
in repairing
repairing the
the error,
error,
calls
calls for
for an
an award
award of of moral
moral and
and exemplary
exemplary damages.
damages. The The 3.
3.Where
Wherethe the instrument
instrumentinvolved
involved isis aa managers
managersoror
resulting
resulting injury
injury to
to the
the check
check writers
writersreputation
reputation and
and peace
peace of
of mind
mind certified
certified check
check (E-PCI
(E-PCIvs.
vs.Ong,
Ong,G.R.
G.R.156207,
156207,September
September15,
15,2004)
2004) Q:
Q:Is
Is aa collecting
collectingbank
bank aa holder
holder for
forvalue
value with
withrights
rights
needs
needs to
tobe
be recognized
recognized and andcompensated.
compensated. or
oraa last
last indorser
indorserwith
withliability
liability(PCHC rule 17)?
(PCHC rule 17)?
 III. FORGERY AND MATERIAL ALTERATION Atty. Rene Alexis P. Villarente
Ateneo de Davao University College of Law

Landmark case on Section 23:

MAKER PAYEE A B HOLDER
Associated Bank vs. Court of
Appeals, Province of Tarlac and e
Philippine National Bank, G.R.
107382, January 31, 1996. a c
d Collecting Bank

Forgery (F) vs. Material Alteration DRAWER PAYEE A B HOLDER

(MA)

1. F (Sec. 23) refers to the signature

of maker or drawer (Sec 1 [a]) or
indorser (Sec 31) while MA refers to
those mentioned in Sec 125.
2. F of indorsement is immaterial to a
bearer instrument (Sec 48) while MA
is always material regardless as to
whether the instrument is payable to
order or bearer.
3. F: done by a stranger (forger) or
person without authority while MA:
may be made by a party or stranger
(spoliation).
4. F: signature is wholly inoperative
(even against holder in due course)
and no right to retain the instrument,
give discharge or enforce payment
can be acquired through such
signature while in MA: instrument is
avoided but holder in due course
may enforce payment thereof
according to its original tenor.
5. F: except those precluded by
estoppel or warranty while MA:
except party who has himself made,
authorized or assented to the
alteration and subsequent indorsers.
g
b c
DRAWEE
1 Associated vs CA id. A forged
signature, whether it be that of the
drawer (b) or payee (c), is wholly
inoperative and no one can gain
title to the instrument through it.
A person whose signature to the
instrument was forged was never a
party and never consented to the
contract which allegedly gave rise
to such instrument.
2 Associated vs CA id. Except:
(1) parties who warrant or admit
the genuineness of the signature
(indorsers, persons negotiating by
delivery and acceptors)
(2) those who by their acts, silence
or negligence are estopped from
setting up the defense of forgery
3 Associated vs CA id. In bearer
instruments, the signature of the
payee or holder is unnecessary to
pass title to the instrument. Hence
when the indorsement is a forgery,
only the person whose signature is
forged can raise the defense of
forgery against a holder in due
course
4 Associated vs CA id. In order
instruments the signature of its
holder is essential to transfer title.
If the holders (c) (d) indorsement
is forged all parties prior to the
forger may raise the real defense
of forgery against all parties
subsequent thereto. An indorser
(Sec 65/66) can not alleged that
prior signatures are forged.
d
5 Associated vs CA id.; MBTC
vs. BA Finance GR 179952, Dec.
27, 2009. A collecting (e) bank
where a check is deposited and
which indorses the check upon
presentment with the drawee
bank, is such an indorser. So even
if the indorsement on the check
deposited by the banks client is
forged, the collecting bank is
bound by his warranties as an
indorser and cannot set up the
defense of forgery against the
drawee bank (PCHC rule 17).
6 E-PCI vs. Ong, G.R. 156207,
Sep. 15, 2006 A managers check
may be treated as a promissory
note with the bank as maker (a).
f
7 Associated vs CA id.;
Ilusorio vs. CA MBC, G.R.
139130, Nov. 27, 2002 If
drawee proves customer-
drawer (g) contributed to the
forgery the drawer is
precluded from asserting
forgery. If the drawee was
also negligent then such loss
can be apportioned between
the negligent drawer and the
negligent drawee bank. Else
dw (accptor) is liable ( 62)
8 Allied vs. Lim Sio Wan,
G.R. 133197, March 27,
2008 The liability of Allied
(a) (b) is concurrent with
Metro (f) as the last indorser
so the 60:40 ratio of liability
 II.
I. SECTION
SECTIONS
1 and
14, 15
allied
andsections
16/ INDORSEMENT Atty. ReneAtty.
Alexis
Rene
P. Villarente
Alexis P. Villarente
Ateneo deAteneo
Davao de
University
Davao University
College ofCollege
Law of Law

Negotiable*Blondeau
Instrument arise from
Doctrine: Promissory Note (PN) Maker Section Payee
30 A B Holder
ACT OF WRITING Negotiation
INDORSEMENT
Section 1 of the NIL (Section 184)

PAYABLE TO:
The rule: where one of
DELIVERY

two persons must suffer If payable to bearer, it

by the bad faith of
Drawer is negotiated byPayee A B Holder
Section
Section 11 Form
Form ofof Negotiable
Negotiable
another, the loss must Bill of Exchange (BE) delivery; if payable to
order, it is negotiated by
fall upon the one who
Instruments.
Instruments. AnAn instrument
instrument to
to be
be
first reposed confidence (Section 126) the indorsement of the
COMPLETE INCOMPLETE holder completed by BLANK SPECIAL
and made it possible for
negotiable
negotiable must
must conform
conform to
to the
the delivery Figure of relationship of parties to NI
DELIVERED

the loss to occur Drawee

BEARER
following
following requirements:
requirements: Checks (Ch)
(Section 185) Section 9 (a-e) Section 40
Liability on Negotiable
Section 65 Instrument
or 66 Section 9(a-d)
(a)
(a) ItIt must
must be
be in
in writing
writing and
and signed
signed SECTION Section 65 or 66
by
by the
the maker
maker or
or drawer;
drawer; O. K. Section 3 When
14* promise (or
is extinguished (discharge)
NI can be negotiated
NI can be negotiated
order) is unconditional by delivery
by delivery without
UNDELIVERED

A. Section 119 Instruments; how discharged A negotiable instrument is

indorsement
(b)
(b) Must
Must contain
contain an
an unconditional
unconditional discharged

ORDER
promise
promise or order to pay aa sum
or order to pay sum Section 2 Certainty as to sum (a) By payment in due course by or onSection
behalf 34
of the principal debtor;
Section 34
certain
certain in
in money;
money; what constitutes (RA 8183) (b) By payment in due course by the party accommodated,
Section 9(e) where the instrument
Section 8 is
SECTION SECTION made or accepted for accommodation;Section 65 or 66 Section 65 or 66
(c) By the intentional cancellation thereof by the holder;
(c)
(c) Must
Must be
be payable
payable on
on demand,
demand, or 15 payable on
or 16* Section 7 When NI issimple
(d) By any other act which will discharge payable to
contract for theNIpayment
is payable
of to
bearer until indorsed order, indorsement
at demand money;
at aa fixed
fixed or
or determinable
determinable future
future specially
(e) When the principal debtor becomes the holder of the instrument
necessary to further
at or after
negotiate
time;
time; maturity in his own right.
Section 4 Determinable future
(d)
(d) Must
Must be
Section
payable
Section
beSps.
payable
14:
14: to order or to
to order or to No. 142074, time; what constitutes NI
NI payable
payable to
B. Other provision
to bearer
bearer and and delivered
delivered without
of the NIL other than Section 119
without indorsement:
indorsement: (ok, (ok, asas required
required by by
Sps. Ojeda
Ojeda vs.vs. Orbeta
Orbeta G.R.
G.R. No. 142074, July
July 10,
10, 2006.
2006. The
The law
law merely
merely section
section 30)30)
bearer;
bearer; and
andrequires
requires the
the instrument
instrument be
be in
in possession
possession of
of aa person
person other
other than
than the
the drawer
drawer or
or
1) 89 (notice of dishonor) 7) 152 (failure to protest)
maker,
maker, and
and from
from such
such possession,
possession, together Section
together with
with the fact8that
the fact When
that the payable
instrumentto
the instrument isis 2) 120 (discharge of secondarily liable) 8) 175 (payment for honor)
order 3) 122 (renunciation
NI byorder
holder) 9) without
without
176 (refuse payment(Sectionsupra protest)
wanting
wanting in
in aa material
material particular,
particular,the
the law
law presumes
presumes agency
agency to
to fill
fill up
up the
the blanks.
blanks. NI payable
payable to to order and
and delivered
delivered indorsement:
indorsement: (Section 49);
49);
(e)
(e) Where
Where the
the
The
instrument
instrument is
is absenceofofauthority 4) 124 (alteration
BPI
BPI vs. of instrument)
vs. CA GR.
GR. No. 136202 10)
No. 136202 183 25,
January (discharge
25, 2007; of
2007; Section one set)49
49 NILNIL where
where the
The burden
burdenof of proving
proving absence authorityisison
onthetheperson
person questioning
questioningit. it. CA January Section the
addressed
addressed toto aa drawee,
drawee, he he must
must be
be 5) 142 (qualified
holder
holder of acceptance)
of anan instrument
instrument payable 11)
payable to 186
to his (checks
his order time
order transfers of presentment)
transfers itit for for value
value without
without
Section 9 When payable to 6) 144 (failure
indorsing to present)
it,
it, the
the transfer
transfer vests
vests in 12)
the transferee
188 (checksuch
accepted/certified)
title
title as
as the
the transferor
transferor had
named
named oror otherwise
otherwise indicated
indicated indorsing in the transferee such had
bearer therein,
therein, andand the the transferee
transferee acquires
acquires in in addition,
addition, the the right
right to to have
have thethe
therein
therein with reasonable
withSection
reasonable
Section 15
15and certainty.
certainty.
and 16:
16: indorsement
indorsement of
of the transferor.
theObligations
transferor.are But for
for the
the purpose
Butextinguished: purpose of of determining
determining whetherwhether thethe
Ching C. Civil Code: Article 1231
Ching vs.
vs. Nicdao
Nicdao and
and CACA GR.
GR. No.No. 141181
141181 April
April 27,
27, 2007;
2007; InIn as
as much
much asas the
the transferee
transferee isis aa holder
holder in in due
due course
course negotiation
negotiation takes
takeseffect
effectasas ofof the
the time
time when
when
check
check was
was incomplete
incomplete and
and undelivered
undelivered in in the
the hands
hands ofof complainant
complainant Ching,
Ching, he he the
the indorsement
indorsement isis actually
actually made.
made. The
The weight
weight of
of authority
authority isis that
that the
the mere
mere
ORDER
did
did not
not acquire
acquire any
any right
right or
or interest
interest therein Section
therein and cannot,128
and cannot, Bill assert
therefore, addressed
any to (1) By payment or performance; (2) By the loss of the thing due; (?) (3) By the
possession of
therefore, assert any
condonationpossession
or remission of aa of
negotiable
negotiable instrument does
the debt; instrument does not
(4) By the confusion not in
in itself conclusively
or itself
merger conclusively
of the rights
establish
establish
1) Sec 1 (b): order
cause of
cause of drawer
of action to drawee
action founded
founded on to
on said
said stolen
stolen check. more
check. Nicdao than
Nicdao has no one drawee.
no obligation to
to make A bill either the right
has obligation make either
of the creditor and right of
thedebtor; of(5)possessor
possessor to
to receive
receive payment,
By compensation; payment,
(6)
or
or of
By novation; of the
the right of
of one
rightcauses
Other oneofwho
who has
has
pay; good
good the
the stolen
stolen check
check and
and isis not
nottherefore
thereforeliable
liable of
mayof BP Blg.
BPbe 22
Blg.addressed
22 to two or made
made payment
payment to
to be
be discharge
discharge from
from liability.
liability.
2) Sec 1 (d): order of payee or holder for extinguishment of obligations, such as annulment, rescission, fulfillment of
more drawees jointly but not in resolutory condition, and prescription are governed elsewhere in the Civil Code.
person primarily liable to pay another
alternative or succession.