Case Doctrines on Negotaible Instruments Law

Philippine Education Co. vs. Soriano

The government, in establishing and operating a postal money order system, merely exercises its
power for the common good and public welfare and not for the purpose of profit-making. Thus,
postal money orders are not negotiable instruments. There are also provisions on postal laws
which are inconsistent with the conditions which make an instrument negotiable which includes
payment of money orders may be withheld under a variety of circumstances; the laws and
regulations usually provide for not more than one endorsement.

Caltex Phil. vs. Court of Appeals

A negotiable instrument that is payable to bearer may be negotiated by mere delivery. There is
no other indispensable requirement needed order to negotiate the instrument and to make the
transferee a holder.

Metrobank vs. Court of Appeals

In order for an instrument to be negotiable, it must contain an unconditional promise or order to
pay a sum certain in money. An unqualified order or promise to pay is unconditional although it
is incorporated with, as provided for in Negotiable Instrument Law section 3, an indication of a
particular fund out of which reimbursement is to be made or a particular account to be debited
with the amount; or a statement of the transaction which give rise to the instrument. Nonetheless,
order to promise to pay out of particular fund is not unconditional.

Sesbreno vs. Court of Appeals

A negotiable instrument may be negotiated by indorsement completed by delivery or by delivery
itself for a bearer instrument. Aside from negotiation, it may also be assigned or transferred but
the legal consequences of the latter is different from the former. Furthermore, the negotiable
instrument without an express prohibition against assignment or transfer on its face, may be
assigned or transferred though not negotiated.

Firestone Tire & rubber Co. vs. Court of Appeals

Withdrawal slips are non-negotiable instruments. Withdrawal slips are restricted from freely
circulating in the market to function as a substitute for money, a character which is essential the
negotiability of the instrument.

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 for payment without the drawer’s indorsement. However, if the bank
is not sure of the bearer’s identity or financial solvency, it has the right to demand identification
or assurance against possible complication. But where the bank is satisfied of the identity or
economic standing of the bearer who tenders the check for collection, it will pay the instrument
without further 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 transfer of possession, actual or constructive, from one
person to another. Without the initial delivery of the instrument from the drawer to the payee,
there can be no liability on the instrument. Moreover, such delivery must be intended to give
effect to the instrument.

Philippine Bank of Commerce vs. Aruego

There is a difference between a qualified indorser and a person negotiating by mere delivery.
While a qualified indorser warrants to all subsequent holders, the warranties of the person
negotiating by mere delivery extends only in favor of his immediate transferee.

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 from the drawee bank by presenting it for 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 from the
drawee of the check the corresponding proceeds.

Republic Bank vs. Ebreda

Where the signature on a negotiable instrument is forged, the negotiation of the check is without
force or effect. However, where a check has several indorsersment on it, it is only the negotiation
based on the forged 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 forgery must prove such fact. 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
payee’s or indorser’s signature is forged. 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 for 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 suffers the loss with regard to forged indorsements
because it had the duty to ascertain the genuineness of all prior indorsements considering
that the act of presenting the check for 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 forged signature is wholly inoperative, no one can gain title to the instrument through such
forged insdorsement. Such indorsement prevents any subsequent partyfrom acquiring any right
as against parties prior to the forgery. Although rights may exist between and among parties
subsequent to the forged instrument, not one of the can acquire rights agasint parties prior to the
forgery. Such forged instrument cuts-off the rights of all subsequent parties as against parties
prior to the forgery. However, the law makes an exception to these rules where party is precluded
from setting up forgery as a defense.

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 for checks deposited by its customers. It is important to
mention that Payee whose signature was forged may directly proceed against the collecting bank.
However, the drawer cannot opt to recover from 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
office” 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 after 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 for the changing of the name of the payee and the amount on the face 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 forged. But the
unqualified 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 fails to return a
forged or altered check to the collecting bank is absolved from liability. Unless an alteration is
attributable to the fault or negligence of the drawer himself, the remedy of the drawee bank that
negligently clears a forged and/or honor altered check for payment is against the party
responsible for the forgery 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 afterwards diverted to the hands of a third party.

Ramon Illusorio vs. Court of Appeals

The collecting bank or last endorser generally suffers the loss because it has the duty to ascertain
the genuineness of all prior indorsements considering that the act of presenting the check for
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 forger. In cases involving a forged check, where the
drawer’s is forged, drawer can recover from the drawee bank. No drawee bank has a right to pay
a forged 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 drawer’s
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 forgery. Aside from 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 for being a client thereof. Thus, it is in a better
position to detect forgery 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 effect of the instrument. It means an
unauthorized change in an instrument that purports to modify 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 maker—who made payment—has the right to
contribution, from his co-accomodation maker, in the absence of agreement to the contrary
between them, subject to conditions imposed
by law. This right springs from an implied promise to share equally the
burdens thay may ensue from 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 for
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 for 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 for value if it does not meet the essential requisites
prescribed by the law. He must become the holder of it before it was overdue, and without notice
that it had previously dishonored,” and he took the check in good faith and for value before he
can be considered as a holder of the check for value.

Travel-On BPI vs. Court of Appeals

Check which is regular on its face is deemed prima facie to have been issued for a valuable
consideration and every person whose signature appears thereon is deemed to have become a
party thereto for value. Further the rule is quite settled that a negotiable instrument is presumed
to have been given or indorsed for a sufficient 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 full 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 faith 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 faith.

Mesina vs. IAC

The holder of a cashier’s check who is not a holder in due course
cannot enforce payment against the issuing bank which dishonors the same. If a payee of a
cashier’s check obtained it from the issuing bank by
fraud, 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 refuse payment of the check
when presented by payee.

Metropol vs. Sambok

A qualified indorserment constitutes the indorser a mere assignor of the title to the instrument. It
may be made by adding to the indorser’s 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 from warranties on the instrument as
provided by section 65 of NIL.

Recourse means resort to a person who is secondarily liable after the default of the person who is
primarily liable. A person who indorses without qualification 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 qualification, 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 unqualified or absolute. If the drawee intends toqualify 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 for payment within a reasonable time after its issue or the drawer will
be discharged from liability thereon to the extent of the loss caused by the delay. By current
banking practice, a check becomes stale after 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 for payment within a reasonable time after its
issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an
instrument not payable on demand must be presented for payment on the day it falls due. When
the instrument is payable on demand, presentment must be made within a reasonable time after
its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable
time after the last negotiation thereof. A check must be presented for payment within a
reasonable time after 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 facts of the particular case. The test is whether the payee employed suchdiligence as a
prudent man exercises in his own affairs. 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 from 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 face of the instrument; there is an
implied representation that funds or credit are available for 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 following effects: (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
for a definite 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
one’s name than merely relying on numbers which are difficult to remember. Numbers are for
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 cashier’s 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

After more than 10 years from 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 for 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 facie to have been issued for a valuable
consideration; every person whose signature appears thereon to have become a party thereto for
value. Therefore, it is up to the party who alleges that there was absence of consideration to
prove such fact.
The presumption will operate only if there was negotiation. Consideration is not presumed if
there was transfer without indorsement.