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DEFINITION OF A NEGOTIABLE INSTRUMENT

‣ maximum amount of coins to be considered as legal tender
Negotiable Instrument may be” A bank check, promissory The Civil Code applies suppletorily to cases involving Negotiable is adjusted as follows:
note, bill of exchange, or any other written security document that Instruments. 1. One thousand pesos (P1000) for denominations 1-
can be transferred by indorsement plus delivery, or in some cases Piso, 5-Piso, 10-Piso coins; and
by delivery only. CHARACTERISTICS OF NEGOTIABLE INSTRUMENTS
2. One hundred pesos (P100) for denominations of 1-
1. Negotiability - attribute of an instrument that allows it to be cent, 5-cent, 10-cent, 25-cent coins
passed from one hand to another similar to money so as to give
HISTORICAL BACKGROUND OF NEGOTIABLE INSTRUMENTS the holder in due course the right to hold the instrument free TIBAJIA VS. CA
LAW
from any defect of title of prior parties and free defenses
1. Europe — The merchants of Europe have been using available to prior parties among themselves, and enforce Facts: A writ of attachment was issued by the trial court, against
negotiable instruments. This may be traced back to the payment of the instrument in full amount thereof against all the Tibajia spouses pursuant to a suit for collection of a sum of
beginning of the Christian era. Negotiable instruments were parties liable thereon (Sec. 57) money — Spouses Tibajia made a deposit of P442,750. RTC in
used widely by the merchants of Italy during the medieval 2. Accumulation of Secondary Contracts - secondary contracts its decision ordered Spouses Tibajia to pay Tan an amount in
period. This practice was introduced to France and then into are picked up and carried along with Negotiable Instruments as excess of P300,000. When the decision became final, Tan filed
England where it became part of the Law of Merchant. they are negotiated from one person to another; or in the the corresponding motion for execution. Spouses Tibajia
2. England — The Law of Merchant is the set of rules that was course of negotiation of negotiable instruments, a series of delivered to the deputy sheriff the total money judgement:
applied y courts set up by merchants to settle disputes between juridical ties between the parties thereto arise either by law or cashier’s check (P262,750) + cash (135,733.70) total:
themselves. This was later on absorbed by the Kings Court by privity. The indorsers become secondarily liable to the P398,483.70.
under the direction of Lord MansIield. In the 19th century, the holder.
English Parliament began to enact special statutes to govern the Tan refused to accept the payment made by the Spouses and
use of negotiable instruments. Thus in 1882, it passed the Bills PRINCIPAL FUNCTIONS OF A NEGOTIABLE INSTRUMENT instead insisted that the garnished funds deposited with the
of Exchange Act. cashier of RTC be withdrawn to satisfy the judgement obligation.
3. United States Uniform Negotiable Instruments Act—
Following the English Parliament, the National Conference of ๏ AS A SUBSTITUTE FOR MONEY Spouses Tibajia contends that the cashier’s check of the BPI
Commissions on Uniform State Laws (sponsored by the A person can acquire goods or things or make other business which was a crossed check, payable to Tan, is considered legal
American Bankers Association) drafted the Uniform Negotiable transactions involving money even if he does not have the tender, payment with which operates to discharge their monetary
Instruments Law in 1986. The confusion and lack of uniformity required cash by issuing instead a Negotiable Instrument. obligation — citing New Pacific Timber and Supply Co., Inc. vs.
in court decisions regarding negotiable instruments brought Although a N.I. is not considered a Legal Tender, it is acceptable Señeris where it was held that a cashier’s check is deemed as
about this codiIication. It is based upon and largely copied from as substitute for money. But as previously stated, a Negotiable cash.
the English Bills of Exchange Act of 1882. Instrument will not be considered as full payment as to
4. U.S. Uniform Commercial Code — The Uniform Negotiable extinguish an obligation until it is actually converted into cash. Issue: Whether by means of check (even cashier’s check) is
Instruments Act was replaced by the Uniform Commercial Code considered payment in legal tender as required by the CC, RA
prepared under the RA 8183 repealed RA 529 thus: Section 1 of RA 8183 provides 529 and the Central Bank Act.
5. Act No. 2031 — The Philippines applied provisions Art. that all monetary obligations shall be settled in the Philippine
443-566 of the Code of Commerce.These were later supplanted currency which is legal tender in the Philippines. However, the Ruling: A check, whether a manager’s check or ordinary check,
by Act No. 2031 known as the Negotiable Instrument Law, parties may agree that the obligation or transaction shall be is not legal tender, and an offer of a check in payment of a debt
enacted on February 3, 1911 and became effective on June 2, settled in any other currency at the time of payment. is not a valid tender of payment and may be refused receipt by
1911. Said act is patterned after the Uniform NIL. the obligee or creditor.
MB shall with the approcal of the President of the Philippines
shall prescribe RA 7653
PAL VS. CA
APPLICABILITY BSP Circular No. 537 (issued July 18, 2006)
The Act applies only to Negotiable Instruments or those Facts: Tan under the name and style fo Able Printing Press
‣ pursuant to section 52, of RA 7653 (New Central Bank Act)
instruments which meet the requirements of Section 1 of Act No. and Monetary Board Resolution No. 862 (dated July 6, commenced a complaint for damages against PAL. CFI decided
2031. Any case not covered by the provisions existing legislation or 2006) in favor of Tan and against PAL, ordered the latter to pay Tan.
in default thereof, by the rules of the law merchant. Judgement became final and executory thus led to Tan filing a

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motion praying for the issuance of a writ of execution of the
judgement rendered by the CA. PAL filed an opposition to the
motion for the issuance of an alias writ of execution stating that it
had already fully paid its obligation to Tan through deputy sheriff
as evidenced by cash vouchers. This Alias Writ of Execution was
later on granted. Respondent del Rosario served a notice of
garnishment on the depository bank of PAL, FEBTC. Manager
garnished PAL’s deposit in FEBTC amounting to P64,408. Hence
this petition was filed by PAL.
Issue: Did the payment by PAL by check to the absconding
sheriff by check in his name operate as a satisfaction of the
judgement debt?
Ruling: In general, in order to be effective to discharge an
obligation, must be made to the proper person. Art. 1240 of the
CC provides:
Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in
interest, or any person authorized to receive it.
Under ordinary circumstances, payment by the judgment debtor
in the case at bar, to the sheriff should be valid payment to
extinguish the judgment debt.
offer of a check in payment of a debt is not a valid tender of
payment and may be refused receipt by the obligee or creditor.
Mere delivery of checks does not discharge the obligation under
a judgment. The obligation is not extinguished and remains
suspended until the payment by commercial document is actually
realized (Art. 1249, Civil Code, par. 3).
Knowing as it does that the intended payment was for the
private-party respondent Amelia Tan, the petitioner corporation,
utilizing the services of its personnel who are or should be
knowledgeable about the accepted procedures and resulting
consequences of the checks drawn, nevertheless, in this
instance, without prudence, departed from what is generally
observed and done, and placed as payee in the checks the
name of the errant Sheriff and not the name of the rightful payee.
Petitioner thereby created a situation which permitted the said
Sheriff to personally encash said checks and misappropriate the
proceeds thereof to his exclusive personal benefit. For the
prejudice that resulted, the petitioner himself must bear the fault.
The judicial guideline which we take note of states as follows: As
between two innocent persons, one of whom must suffer the
consequence of a breach of trust, the one who made it possible
by his act of confidence must bear the loss.’
Facts: PBCOM filed complaint involving 22 causes of action
referring to 22 transactions entered into by it and Aruego for the
princting of “World Current Events,” a periodical published by
Aruego. To facilitate the payment of the printing, Aruego obtained
a credit accommodation from PBCOM — he collected costs of
printing by drawing a draft against PBCOM which is later
presented to it for acceptance. Aruego contends that the drafts
signed by him were mere pieces of evidence of indebtedness
because payments were made before acceptance.
Issue: Whether the drafts Aruego signed were bills of exchange?
Ruling: YES. Under the Negotiable Instruments Law, a bill of
exchange is an unconditional order in writing addressed by one
person to another, signed by the person giving it, requiring the
person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to
bearer. As long as a commercial paper conforms with the
definition of a bill of exchange, that paper is considered a bill of
exchange. The nature of acceptance is important only in the
determination of the kind of liabilities of the parties involved, but
not in the determination of whether a commercial paper is a bill
of exchange or not.

It is different however in this case: the payment made by PAL to
the absconding sheriff was not in cash or legal tender but in
checks. The checks were not payable to Tan or Able Printing
Press.
In the absence of agreement, either express or implied, payment
means the dishcarge of a debt or obligation in money and unless
the parties so agree, a debtor has no rights except at his own
peril, to substitute something in lieu of cash as medium of
payment of his debt.
Consequently, unless authorized to do so by law or by consent of
the obligee, a public officer has no authority to accept anything
other than money in payment of an obligation under a judgment
being executed. Strictly speaking, the acceptance by the sheriff
of the petitioner’s checks, in the case at bar, does not, per se,
operate as a discharge of the judgment debt.
Since a negotiable instrument is only a substitute for money and
not money, the delivery of such an instrument does not, by itself,
operate as payment (Sec. 189, NIL) A check, whether a
manager’s check or ordinary check, is not legal tender, and an
PAL is liable for both the lost checks and interest.
RECUERDO VS. PEOPLE
๏ AS A MEDIUM OF CREDIT TRANSACTIONS Facts: Recuerdo for the settlement of the purchase price of a 3-
- increases credit circulation karat diamond stoned worth P420,000 — gave a downpayment
of P40,000 and 9 postdated checks, 8 of which for P40,000 and
An important aspect of a Negotiable Instrument is the extension 1 for P20,000, all drawn against her account in Prudential Bank.
of credit. A person may not have the actual cash required to The remianing 5 checks were dishonored due to closed account.
complete a business deal, but if he is allowed to issue a Negotiable Subsequently Yolanda (seller) filed a complaint against Recuerdo
Instrument, credit transactions may increase as to affect world for violation of BP 22.
trade favorably.
They allow men of undoubted credit (such as those with Petitioner claims that the dishonored checks were not issued for
illiquid properties) to carry on business enterprise upon their deposit and encashment, nor was there consideration therefor.
promissory notes, bills of exchange and checks knowing that
other businessmen will treat these promises as cash. Issue: Are checks issued as an evidence of debt covered by BP
Checks are primarily used for immediate payment 22?
(substitute for money) ; while ordinary bill of exchange and the
promissory note are intended for the circulation of credits (credit Ruling: Yes. A check issued as an evidence of debt, though not
instruments.) intended for encashment, has the same effect like any other
check. It is within the contemplation of B.P. 22, which is explicit
that “any person who makes or draws and issues any check to
PBCOM VS. ARUEGO
apply for an account or for value, knowing at the time of issue
that he does not have sufficient funds in or credit with the drawee

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bank which check is subsequently dishonored shall be punished issuing a worthless check or a check that is dishonored upon (4) drafts (added by jurisprudence)
by imprisonment. presentment for payment. The act effectively declares the (5) certiIicates of time deposit (added by jurisprudence)
offense to be one of malum prohibitum. The only valid query then KINDS OF NEGOTIABLE INSTRUMENTS AND PARTIES THERETO
“BP 22 does not appear to concern itself with what might actually is whether the law has been breached, i.e., by the mere act of
be envisioned by the parties, its primordial intention being to issuing a bad check, without so much regard as to the criminal PROMISSORY BILL OF CHECK
instead ensure the stability and commercial value of checks as intent of the issuer. NOTE EXCHANGE
being virtual substitutes for currency. It is a policy that can be
CRUZ VS. CA "Unconditional “An Unconditional A check is a bill of
easily eroded if one has yet to determine the reason for which
GR 108738, June 17, 1994 promise in writing Order in writing exchange drawn
checks are issued, or the terms and conditions for their issuance,
before an appropriate application of the legislative enactment made by one addressed by one on a bank payable
Consequently, what are important are the facts that the accused
can be made. person to another, person to another, on demand.
had deliberately issued the checks in question to cover accounts
signed by the signed by the (Section 185, NIL)
and that the checks were dishonored upon presentment
maker, engaging to person' giving it,
regardless of whether or not the accused merely issued the
MERIZ VS. PEOPLE pay on demand, or requiring the A check is (1) a
checks as a guarantee.
GR 134498, November 13, 2001 at a fixed or person to whom it draft or order (2)
determinable is addressed to upon a bank or
Facts: Meriz obtained a number of loans from Santos and
future time, a sum pay on demand or banking house, (3)
Summit Financing Corporation. Meriz issued in favor of Santos 4 ๏ AS A MEDIUM OF COMMERCIAL certain in money to at a fixed or purporting to be
Pilipinas Bank checks worth P188,400. The checks were TRANSACTIONS order or to bearer." determinable drawn upon a
dishonored for being DAIF. Four informations for violation of BP
(Sec. 184, NIL) future time a sum deposit of funds (4)
22 were filed against Meriz. Accepted as made of provisional payment and as an extension certain in money to for the payment of
of credit, in the business world, the Negotiable Instrument is now Order or to a certain sum of
Meriz contends there was an absolute lack of consideration for playing an important role in the pursuit of voluminous day to day Bearers" (Sec. money (5) to a
the subject checks which were issued only as a condition for the business transactions. 
 126, NIL). certain person
grant of loan in her favor and that the requisite element of notice
named, or to him
was not complied with.
or to his order, or
PURPOSE OF THE ENACTMENT OF THE NEGOTIABLE to beareer, and (6)
Issue: If the checks were merely issued as an evidence of debt,
is there a violation BP 22? INSTRUMENTS LAW payable instantly
The Negotiable Instruments Law was enacted for the purpose of on demand
Ruling: YES. The Court has consistently declared that the cause facilitating, not hindering or hampering transactions in commercial
Principal Parties: 1. Drawer
or reason for the issuance of the check is inconsequential in paper. Thus, the said statute should not be tampered with
1. Maker 2. Drawee
determining criminal culpability under BP 22. The Court has haphazardly or lightly. Nor should it be brushed aside in order to
2. Payee 3. Payee
since said that a “check issued as an evidence of debt, although meet the necessities in a single case. 

not intended for encashment, has the same effect like any other as to scope of
check” and must thus be held to be “within the contemplation of TYPES OF NEGOTIABLE INSTRUMENTS liability:
BP 22.” Once a check is presented for payment, the drawee US Uniform Currency Act, Section 13-104: speci;ied 4 types of PPL: maker PPL: acceptor
bank gives it the usual course whether issued in payment of an instruments: PSL: payee and PSL: drawer, payee and all succeeding
obligation or just as a guaranty of an obligation. BP 22 does not 1. drafts succeeding indorsers
appear to concern itself with what might actually be envisioned 2. checks indorsers
by the parties, its primordial intention being to instead ensure the 3. certiIicates of deposit
stability and commercial value of checks as being virtual 4. notes
substitutes for currency. It is a policy that can easily be eroded if
one has yet to determine the reason for which checks are issued, In the Philippine Setting: 3 kinds
or the terms and conditions for their issuance, before an (1) promissory notes
appropriate application of the legislative enactment can be made. (2) bills of exchange
The gravamen of the offense under BP 22 is the act of making or (3) checks

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PROMISSORY BILL OF CHECK PROMISSORY BILL OF CHECK PROMISSORY BILL OF CHECK

NOTE EXCHANGE NOTE EXCHANGE NOTE EXCHANGE

as to negotiability: The drawee/acceptor or the drawee presentment for presentment for presentment for presentment must BOE payable on Presentment of a
it is an bank is required by the drawer to pay the acceptance is acceptance is acceptance is not be made: for a P/N d e m a n d , check for payment
unconditionla Payee or Holder a sum certain in money absolutely not necessary only in 3 necessary payable on presentment must must be made
promise by the or maturity. necessary circumstances because a check is demand must be be made within a within a
maker to pay the Section 143, NIL: always payable on made within a reasonable time reasonable time
Payee or Holder (a) Where the bill demand reasonable time after the last after its issue
the sum certain in *ask Ma’am about is payable after after issue indorsement or
money on maturity slide 230 where it sight, or in any negotiation
says that there are other case,
1 presentment for w h e r e in case of death of parties: In a check, drawee
a PN which is for presentment both P/N and BOE, death of any of the bank has the
payment for acceptance principal parties will not affect payment authority to stop
is necessary in because of transmissibility of rights refer payment of the
order to fix the further to Art. 1178 check if it has
maturity of the knowledge of the
instrument; or death of the
(b) Where the bill drawer before
expressly payment
stipulates that
it shall be 2002 BQ:
presented for A. DeIine the following: (3%)
acceptance; or 1) a negotiable promissory note
(c) Where the bill 2) bill of exchange
is drawn 3) check
p a y a b l e B. You are Pedro Cruz. Draft the appropriate contract language for
elsewhere than (1) your negotiable promissory note and (2) your check, each
at the containing the essential elements of a negotiable instrument.
residence or (2%)
place of
business of the
drawee.
Answer:
in all other cases, A:
presentment for 1) Sec. 184, Act, 2031 — it is an unconditional promise in writing
acceptance is not made by one person to another, signed by the maker, engaging
necessary to a bill to pay on demand, or at a Iixed or determinable future time, a
sum certain in money to order or to bearer.
2) Section 126, Act 2031 — is an unconditional order in writing
addressed by one person to another, signed by the person
giving it, requiring the person to whom it is addressed to pay on
demand or at a Iixed or determinable future time a sum certain
in money to order or to bearer.

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3) Section 185, Act 2031 — it is a bill of exchange drawn on a bank promissory notes, signiIicance being given to words of payment as Does the reference to the penalty charges in the promissory
payable on demand. indicating a promise to pay. note constitute substantial compliance with the disclosure
requirement of the Truth in Lending Act?
B. “An acknowledgment may become a promise by the addition of Under Circular 158 of the CB, the lender is required to include the
(1) Sept 1, 2016 words by which a promise of payment is naturally implied, such as, information required by RA 3765 in the contract covering the credit
To pay Pancho Dela Torree, or oder ONE HUNDRED “payable”, “payable on a given day”, “payable on demand”, transaction or any other document to be acknowledged and signed
THOUSAND PESOS (Php 100,000), on December 25, 2016 “paid...when called for,”...(Corpus Juris Secundump p. 523.) by the borrower. In addition, the contract or document shall specify
Sgd Pedro Cruz additional charges, if any, which will be collected in case certain
(2) What is the effect is intimidation was used to execute a stipulations in the contract are not met by the debtor. In this case,
BPI-Malate, Manila promissory note? the promissory notes signed by the Yus contained data, including
September 1, 2016 In a case where an illegitimate child, Carmela, waived her penalty charges, required by the Truth in Lending Act. They cannot
shares over 3 parcels of land in favor of the wife of the deceased, avoid liability based on a rigid interpretation of the Truth in
Pay to the order of Pancho Dela Torre, the amount of ONE Brobio: the latter was allegedly forced to execute a promissory note Lending Act that contravenes its goal. (BPI vs. Spouses Yu)
HUNDRED THOUSAND PESOS (Php 100,000) in exchange for Carmela to sign the Deed of Extrajudicial
Sgd. Pedro Cruz Settlement. When the promissory note fell due, Brobio failed and What are the other forms of a promissory note?
refused to pay despite demand thus an action SpeciIic Performance 1. CertiIicates of Time Deposit
with Damages was Iiled by Carmela. Brobio alleges that the Is it a receipt of a bank or banker for a certain sum of money
MORE ON PROMISSORY NOTES: promissory note was without consideration and thus void. received upon deposit, and it is generally framed in such a form
as to constitute a promissory note, payable to the depositor, or
SC ruled that the situation did not amount to intimidation that to the depositor or order, or to bearer.(The Elements of
PENTACAPITAL INVESTMENT CORPORATION VS. vitiated consent. There is intimidtaion when one of the contracting Negotiable Instruments Law, Daniel, page 16)
MAHINAY
parties is compelled to give his consent by a reasonable and well- In order, however, to be negotiable, a certiIicate of deposit
GR No. 171736, July 5, 2010 grounded fear of an imminent and grave evil upon his person or must possess the requisite features of certainty in respect to
Issue: Give another definition of promissory note other than property, or upon the person or property of his spouses, parties, and time and mode of payment and the same causes
Section 1 and 184 of the NIL?
descendants, or ascendants. Certainly, the payment of penalties for which deprive bills and notes of negotiability would affect it in
delayed payment of taxes would not qualify as a “reasonable and like manner.
Held: A PN is a solemn acknowledgement of a debt and a well-grounded fear of an imminent and grave evil.
formal commitment to repay it on the date and under the Caltex vs. CA — CTDs are negotiable instruments as it satisIies
conditions agreed upon by the borrower and the lender. A Brobio still had a choice to refuse the execute the promissory all the requirements stated under Section 1, of Act 2031. The
person who signs such instrument is bound to honor it as a note and resort to judicial means to obtain Carmela’s signature. A negotiability or non-negotiabilty of an instrument is
legitimate obligation duly assumed by him through the signature contract is presumed to be supported by cause or consideration. determined from the writing — from the fact of the instrument
he affixes thereto as a token of his good faith. If he reneges on The presumption that a contract has sufIicient consideration cannot itself. In the construction of a bill or note, the intention of the
his promise without cause, he forgeits the sympathy and be overthrown by a mere assertion that it has no consideration. To parties is controlling, if it can be legally ascertained. While the
assistance of this Court and deserves instead shapr repudiation. overcome the presumption, the alleged lack of consideration must writing may be read in the light of the surrounding
be shown by preponderance of evidence. The burden to prove lack circumstances in order to prove perfectly understanding the
How do you determine a good promissory note? of consideration rests upon whoever alleges it, which, in the intent and meaning of the parties, yet as they ahve constituted
To constitute a good promissory note, no precise words of present case, is respondent. From her testimony and her assertions the writing to be the only outward and visible expression of
contract are necessary, provided they amount, in legal effect, to in the pleadings, it is clear that the promissory note was issued for a their meaning, other words are to be added to it or substituted
apromise to pay. In other words, if over and above the mere cause or consideration, which, at the very least, was petitioner’s instead. The duty of the court in such case is to ascertain, not
acknowledgment of the debtor there may be collected from signature on the document. It may very well be argued that if such wh a t t h e p a r t i e s m ay h ave s e c re t ly i n te n d e d a s
thewords used a promise to pay it, the instrument may be was the consideration, it was inadequate. Nonetheless, even if the contradistinguished from what their words express, but what is
regardedas a promissory note. (Jimenez vs. Bucoy) consideration is inadequate, the contract would not be invalidated, the meaning of the words they have used. What the parties
unless there has been fraud, mistake, or undue inIluence. As meant must be determined by what they said.
Examples: “Due A. B. $325, payable on demand,” or “I acknowledge previously stated, none of these grounds had been proven present
myself to be indebted to A in $ 109, to be paid on demand, for value in this case. 2. Bonds
received,” or “I.O.U. $85 to be paid on May 5 ,” are held to be

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There are more elaborate promissory notes, generally for As a matter of fact in the United States the deposit of a check A trade acceptance is a draft or bill of exchange drawn by
bigger amounts of loan payable at longer periods of time. Bonds with a bank is considered a sale (Helvering vs. Stein [CA 4] 115 F 2d the seller of the goods on the purchaser of those goods and
may be deIined as a series of instruments, which represents 468; Burton vs. United States, 196 US 283, 49 L ed 482).” Money accepted (signed) by the purchaser. The purpose of the
units of indebtedness and regarded as parts of one entire orders, also considered as bills of exchange of limited negotiability, transaction is to enable the seller to raise money on the
indebtedness. The bond certiIicates that the issuing party is possess the same attributes as other negotiable instruments. Thus, paper before the purchaser’s obligation matures under the
indebted to the bondholder for a speciIic amount to be paid at a they may, be bought and sold like checks.” sales contract.
speciIic period of time at a speciIic rate of interest per annum. As long as a commercial paper conforms with the deIinition of
a bill of exchange, that paper is considered a bill of exchange. The Example: X corporation has sold goods to Y company. Due to
3. Mortgaged Bonds nature of acceptance is important only in the determination of the the fact that Y company still wishes to utilize the cash
These bonds are secured by a mortgage on corporate property. kind of liabilities of the parties involved, but not in the instead of paying in cash, X corporation (drawer) draws a
Corporate property is conveyed to a trustee who will be determination of whether a commercial paper is a bill of exchange trade acceptance on Y company for the purchase of goods.
answerable to the bondholder in case the issuer defaults in the or not. (PBCOM vs. Aruego) The instrument orders Y company to pay the amount due to
payment of the principal and/or interest. the order of X corporation on a particular future time. It is
Does the bill of exchange operate as an assignment of funds in then presented to an ofIicer of Y company who accepts it by
4. Coupon Bonds the hands of the drawee? signing the same and returns it to X corporation. The
Attached to the bonds issued are coupon notes representing the A bill in itself does not operate as an assignment of the funds in the acceptance in effect, would be a promise of Y company to
amount of interest payable at the end of each year. These hands of the drawee available for the payment thereof. (Section pay X corporation when the same becomes due. It can now
coupons are payable to bearer or to the order of a person. They 127, NIL) be negotiated to a thid person, say X corporation’s bank and
may be detached and presented for payment of interest or receives cash immediately.
maybe negotiated before maturity like a promissory note. What is the doctrine of equitable assignment?
The doctrine of equitable assignment is the creature of courts of 3. Documentary of Exchange
5. Due Bill equity, and the phrase “equitable assignment” is used because, by A bill of exchange to which supporting documents like in
An instrument whereby one person acknowledges his the technicalities of pleadings at law, no legal assignment can be voices or shipping documents are attached when
indebtedness to another and promissory to pay to bearer or to effectuated. It is contended that the bill, whether for the whole of presentment for acceptance or payment is made.
order a sum certain in money the fund or debt, or only a part, may be evidence to show an
assignment; and that with other circumstances indicating that such 4. Bank Acceptance
6. Blank Notes was the inteniton, will vest in the holder an exclusive claim to the A draft drawn on and accepted by a bank. It is a time draft
There are the promissory notes of the issuing bank which are debt or fund, and bind it in the hands of the drawee after notice. across the face of which the drawee has written the cord
payable to bearer on demand and intended to circulate as The bill for the entire amount of debt or fund should operate as an accepted.
money. Regarded as cash and passes from hand to hand without equitable assignment thereof.
any evidence of (except possession). Moreover, it may be regarded as a settled doctrine that an 5. Draft
order founded upon good consideration, given for a speciIic debt or A bill of exchange payable on demand, an order for payment
fund owing by or in the hands of a third person, operates as or of money drawn by one individual on another.
MORE ON BILLS OF EXCHANGE rather is evidence of, an equitable assignment of the demand to the
holder. BPI vs. CIR — A draft is a form of a bill of exchange used
Bastida vs. The Acting Commissioner of Customs — “ bills exchange mainly in transactions between persons physically remote
they are, fundamentally, negotiable instruments. And a negotiable What are the other forms of a bill of exchange? from each other, an order made by one person, say the
instrument “is more like money than a contract right or chose in 1. Clean of Exchange buyer of goods addressed to a person having in his
action.” As such, it may be the “subject of conversion (Knight vs. A bill of exchange to which no document is attached when possession funds of such buyer ordering the addressee to
Seney 290 Ill. 11) or of replevin (Rothwell vs. Taylor 303 Ill. 263.) presentment for acceptance or payment is made. pay the purchase price to the seller of the goods, and where
the order is made by one bank to another, it is referred to as
Can bills be the subject of sale? 2. Trade Acceptance bank draft.
It may also be the “subject of sale, like any other goods or A bill of exchange drawn by the seller of goods on the buyer In order for a draft to work, one of two general
wares.”27 As the Tax Court aptly observed, “checks may be bought for the purchase price and Is subsequently accepted by the conditions must exist. Either the drawee must owe the
and sold like a commodity. buyer. drawer a debt (in which case the drawer is simply telling
the drawee to pay the debt or a portion of it to a third party)

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or some kind of agreement or relationship must exist When can a bill be treated as a note? perfectly correct to say that it is a bill with some peculiarities, or in
between the parties under which the drawee has consented 1. where the instrument is so ambiguous that there is doubt orther words, a species of bill of exchange.
to the drawing of the draft upon him or her. If neither of whether it is a bill or note, the holder may treat it as either at
these conditions existed, obviously the drawee would not his election. (Section 17, NIL) What are the characteristics of a check?
obey the order to pay the amount of the draft to the payee 2. where in a bill the drawer and drawee are the same person A check has the character of negotiability and it constitutes as
or to any subsequent holder of the instrument. (Section 130, NIL) an evidence of indebtedness. By mutual agreement of the parties,
3. where the drawee is a Iictitious person or person not having the negotiable character of a check may be waived and the
6. Inland and foreign bill — an inland bill is a bill which is, or on capacity to contract, (Section 130, NIL) instrument may be treated as simply as proof of an obligation. (Sps.
its face purports to be, both drawn and payable within the Pacheco vs. CA)
Philppines. Any other bill is a foreign bill.
7. Time draft — draft that is payable at a Iixed date A check is a negotiable instrument that serves as a substitute for
8. Sight or demand draft — draft that is payabel when the holder MORE ON CHECKS. money and as a convenient form of payment in Iinancial
presents it for payment transactions and negotiations. The use of checks as payment allows
9. Check — a bill of exchange drawn on a bank payable on demand What are the differences of checks and inland bills of commercial and banking transactions to proceed without the actual
(Sec. 185) exchange? handling of money, thus doing away with the need to physically
Bank checks are not inland bills of exchange, but have many of the count bills and coins whenever payment is made. It permits
What is the difference between a draft and a bill of exchange? properties of such commercial paper, and many of the rules of the commercial banking transactions to be carried out quickly and
A demand draft is a bill of exchange payable on demand. law merchants are alike applicable to both. each is for a speciIied efIiciently. But the convenience afforded by checks is damaged by
Considered as a bill of exchange, a draft is said to be, like the former, sum, payable in money — in both cases, there is a drawer, a drawee, unfunded checks that adversely affect conIidence in our commercial
an open letter of request from, and an order by, one person on and payee. Without acceptance, no action can be maintained by the and banking activities, and ultimately injure public interest. (Mitra
another to pay a sum of money therein mentioned to a third person, holder, upon either, against drawee. vs. People)
on demand or at a future time therein speciIied. As a matter of fact,
the term “draft” is often used, and is the common term, for all bills The chief points of difference are that: As a general rule, checks and other papers deposited in a bank for
of exchange. And the words “draft” and “bill of exchange’ are used (1) a check is always drawn on a bank or banker collection remain the property of the depositor, and the bank
indiscriminately. (2) the drawer is not discharged by the laches of the holder in performs the service of collection as his agent, even though it is
On the other hand, a bill of exchange within the meaning of the presentment, unless he can show that he has sustained some authorized to apply the proceeds on a debt of the owner.
NIL does not operate as an assignment of funds in the hands of the injury by the default;
drawee who is not liable on the instrument until he accepts it. This (3) it is not due until payment is demanded, and the statute of *See whether check is legal tender
is the clear import of Sec. 127. Our law requires that with regard to limitations runs only from that time;
drafts or bills of exchange there is need that they be presented (4) it is, by its fact, that appropriation of so much money of the
whether for acceptance or for payment within a reasonable time drawer, in the hands of the drawee, to the payment of an Is there any difference between a Check and a Promissory
after their issuance or after their last negotiation thereon as the admitted liability of the drawer; note?
case may be (Sec. 71, NIL.) Faillure to make such presentment will (5) it is not necessary that the drawer of a bill should have funds in A check is a form of a bill of exchange wherein it is an unconditional
discharge the drawer from liability or to the extent of the loss the hands of the drawee — a check in such case would be a order in writing addressed by one person to another (usually a
caused by the delay. (Sec. 186.) fraud. (USSC in Merchants Bank vs. State Bank) bank), signed by the person giving it, requiring the person to whom
it is addresssed to pay on demand or at a Iixed or determinable
What is the difference of a demand draft from a cashier’s or Is a check a draft or order? future time a sum certain in money to order or to bearer, whereas,
manager’s check? A bill is also a draft or order; and it is often said that a check is, a promissory note is an unconditional promise to pay made by one
A manager’s check or a cashier’s check is a primary obligation in legal effect, a bill of exchange drawn on a bank or banking house, person addressed to another, on demand or also at a Iixed or
of the bank which issues it and constitutes its written promise to with some peculiarities. In some cases, it is called a bill payable on determinable future time, a sum certain in money to order or to
pay on demand. While a cashier’s check is issued by a bank, it is not demand, and in others an inland bill, or in the nature of an inland bearer.
an ordinary draft. bill, payable on demand; and the expression that a check is “like a A check necessarily involves three individuals, the drawer, the
bill” has been criticized on the ground that “nihil simile est idem,” payee, and the drawee (bank), wheras a promissory note only
A draft is a bill of exchange payable on demand. It is an order upon whereas “checks are bills, or rather bill is the genus, and check is a involves 2 persons, the maker and the payee.
a third party purporting to be drawn upon a deposit of funds. species,” In form, a check is a bill on a banking house, and it is In checks, the liabilty of the drawee bank arises from the
moment the latter accepts the check being presented either for

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 Negotiable Instruments
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acceptance or payment, whereas in promissory notes, liabilty of the It is the duty of the collecting bank to ascertain that the check be What is a check? What is a crossed check? A check is a bill of
maker attaches from the moment the instrument was delivered to deposited in the payee’s account only. It should scrutinize the check exchange drawn on a bank payable on demand. There are different
the payee for the purpose of giving effect thereto. and know its depositors before it could make the clearing kinds of checks. In this case, crossed checks are the subject of the
indorsement “all prior indorsements and/or lack of indorsement controversy. A crossed check is one where two parallel lines are
What is a crossed-check? guaranteed.” (PCIB vs. CA and Ford Phils.) drawn across its face or across the corner thereof. It may be crossed
It is a check with 2 parallel lines in the upper left hand corner. generally or specially.
(Bank of America vs. Associated Citizens Bank) What are the ways of crossing a check? A check is crossed specially when the name of a particular
1. special — wherein between the 2 parallel lines is written the banker or a company is written between the parallel lines drawn. It
Under usual practice, crossing a check is done by placing two name of a bank or business institution. in which case the is crossed generally when only the words “and company” are
parallel lines diagonally on the left portion of the check. The drawee should pay only with the intervention of the bank or written or nothing is written at all between the parallel lines, as in
crossing may be special wherein between the two parallel lines is company this case. It may be issued so that presentment can be made only by
written the name of a bank or a business institution, in which case 2. general — wherein 2 parallel diagonal lines are written the a bank
the drawee should pay only with the intervention of that bank or words “and Co.” or none at atll, in which case drawee should not
company, or crossing may be general wherein between two parallel encash the same but merely accept the same for deposit What are the effects of crossing a check? In Bataan Cigar vs. CA, the
diagonal lines are written the words “and Co.” or none at all as in (Bank of America vs. Associated Citizens Bank) Court has held that the crossing of a check has the following effects:
the case at bar, in which case the drawee should not encash the (a) the check may not be encashed but only deposited in the
same but merely accept the same for deposit. (State Investment What is the liability of depository bank for allowing the bank;
House vs. IAC) deposit of crossed checks in favor of and payable to one (b) the check may be negotiated only once—to one who has
person, and without being indorsed by the former, to the an account with a bank; and
What are the effects of crossing a check? account of another person? (c) the act of crossing the check serves as warning to the
It means that it could only be deposited and could not be holder that the check has been issued for a deIinite
GO VS. METROBANK

converted into cash. Thus, the effect of crossing a check relates to purpose so that he must inquire if he has received the
GR No. 168842, August 11, 2010
the mode of payment, meaning that the drawer had intended the check pursuant to that purpose, otherwise, he is not a
check for deposit only by the rightful person, i.e. the payee named Facts: Go in his pharmacy business, employed Chua as a pharmacist holder in due course.
therein (Bank of America vs. Associated Citizens Bank) and trustee or caretaker of the business while Tabañag took care of
the receipts and invoices in the business operations of Hope Is bank liable for the entire amount? METROBANK SHOULD NOT
Effects as stated in Bataan Cigar vs. CA: Pharmacy. Go Iiled a complaint for a sum of money with preliminay BE HELD LIABLE FOR THE ENTIRE AMOUNT OF THE CHECKS.
(1) The check may not be encashed but only deposited in the against Chua and Tabañag wherein he claimed that unauthorized As the checks were actually given to Chua as payments by Go for
bank; deposits and encashments were made by them amounting to loans obtained from the parents of Chua. Furthermore, petitioner’s
(2) The check may be negotiated only once — to one who has P109,433. Another was Iiled against Metrobank. Go claims that non-inclusion of Chua and Tabañag in the petition before this Court
an account with a bank; and these checks were crossed checks payable to Hope Pharmacy only is, in effect, an admission by the petitioner that Chua, in
(3) The act of crossing the check serves as a warning to the and without the participation and connivance of Metrobank, the representation of her parents, had rightful claim to the proceeds of
holder that the check has been issued for a deIinite checks could not have been accepted for deposit to any other the checks, as payments by petitioner for money he borrowed from
purpose so that he must inquire if he has received the account. the parents of Chua. Therefore, petitioner suffered no pecuniary
check pursuant to that purpose; otherwise, he is not a loss in the deposit of the checks to the account of Chua.
holder in due course. In the instant case, there is no dispute that the subject 32 checks
with the total amount of P1,492,595.06 were crossed checks with SINCE METROBANK IS NEGLIGENT IN PERMITTING THE
The effect therefore of crossing a check relates to the mode of petitioner as the named payee. It is the submission of petitioner DEPOSIT AND ENCASHMENT OF THE CROSSED CHECKS
its presentment for payment. Under Section 72 of NIL, presentment that respondent bank should be held accountable for the entire WITHOUT PROPER INDORSEMENT, IT IS LIABLE FOR MORAL
for payment to be sufIicient must be (a) by the holder, or by some amount of the checks because it accepted the checks for deposit DAMAGES. An indorsement is necessary for the proper negotiation
person authorized to receive payment on his behalf.. As to who the under Chua’s account despite the fact that the checks were crossed of checks specially if the payee named therein or holder thereof is
holder or authoried person will depend on the instructions stated and that the payee named therein was not Chua. not the one depositing or encashing it. Knowing fully well that the
on the face of the check. (State Investment House vs. IAC) subject checks were crossed, that the payee was not the holder and
Issue: What is the liabilty of the Metrobank in depositing that the checks contained no indorsement, respondent bank should
What is the duty of collecting bank when dealing with crossed crossed checks in an account other than the payee or indorsee? have taken reasonable steps in order to determine the validity of
checks? Ruling: the representations made by Chua.

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depositor of the drawee bank, with rights and duties of one in

THE LAW IMPOSES A DUTY OF EXTRAORDINARY DILIGENCE What is the relationship between a bank and its depositor? such situation.
ON THE COLLECTING BANK TO SCRUTINIZE CHECKS Fixed savings and current deposits of money in banks shall be Where a check is certiIied by the bank on which it is
DEPOSITED WITH IT, FOR THE PURPOSE OF DETERMINING governed by the provision of a simple loan. The relationship drawn, the certiIication is equivalent to acceptance. Said
THEIR GENUINENESS AND REGULARITY. As a business affected between the bank and the depositor is that of a debtor (the bank), certiIication “implies that the check is drawn upon sufIicient
with public interest and because of the nature of its functions, the and a creditor (the depositor). funds in the hands of the drawee, that they have been set apart
banks are under obligation to treat the accounts of its depositors By virtue of the contract of deposit, the bank agrees to pay for its satisfaction, and that they shall be so applied whenever
with meticulous care, always having in mind the Iiduciary nature of checks drawn by the depositor provided he has sufIicient funds the check is presented for payment. It is an understanding that
the relationship. The fact that this arrangement had been practiced deposited in the bank. The bank is bound to honor the depositor's the check is good then, and shall continue good, and this
for three years without Mr. Go/Hope Pharmacy raising any checks to the extent of his deposit. Failure of the hank to pay the agreement is as binding on the bank as its notes in circulation, a
objection does not detract from the duty of the bank to exercise check of the depositor, if he has sufIicient funds, will entitle the certiIicate of deposit payable to the order of the depositor, or
extraordinary diligence. depositor (the drawer) to substantial damages without any proof of any other obligation it can assume.
______ actual damages. Conversely, a bank is not liable for its refusal to pay The object of certifying a check, as regards both parties,
a check due to insufIicient funds, notwithstanding the fact that a is to enable the holder to use it as money.” When the holder
deposit may be made later in the day. (Spouses Moran vs. Court of procures the check to be certiIied, “the check operates as an
When should a check be presented for payment? Appeals. GR No. 105836, March 7, 1994). assignment of a part of the funds to the creditors.” Hence, the
A check must be presented for payment within a reasonable period exception to the rule enunciated under Section 63 of the
after its issue or the drawer will be discharged from liability What are the different kinds of check? Central Bank Act to the effect “that a check which has been
thereon to the extent of the loss caused by the delay. (Sec. 186, NIL) 1. Ordinary check - An ordinary check is not a mere undertaking cleared and credited to the account of the creditor shall be
to pay an amount of money. There is an element of certainty or equivalent to a delivery to the creditor in cash in an amount
The present banking practice requires that a check must be issued assurance that it will be paid upon presentation, that is why it is equal to the amount credited to his account” shall apply in this
within 6 months from the date of issuance, otherwise, the check perceived as a convenient substitute for currency in commercial case.” (New PaciIic Timber & Supply Company, Inc. vs. Hon.
becomes stale, and the drawer wil be discharged from liabilty and Iinancial transactions; the basis of the perception being Alberto Seneris)
thereon to the extent of the loss caused by the delay. conIidence. Any practice that destroys that conIidence will
impair the usefulness of the check as a currency substitute and 3. CertiIied check - A personal check made by the drawer and duty
What is a stale check? create havoc in trade circle and the banking community. certiIied by drawee bank to the effect that the bank sufIicient
A stale check is one which has not been presented for payment 2. Cashier’s check - A check drawn by a bank upon itself and funds of the drawer to cover the payment of the check when
within a reasonable time after its issue. It is valueless and, therefore payable to a third person. Persons with or without a bank presented for payment. The word "CertiIied" is stamped or
should not be paid. Under the NIL, an instrument not payable on account may obtain a cashier's check by paying the bank the written across the face of the check and signed by the
demand must be presented for payment on the day it falls due. equivalent amount to be covered by the check plus a minimal authorized ofIicer of the bank.
When the instrument is payable on demand, presentment must be service fee it is a primary obligation of the issuing bank and is
made within a reasonable time after its issue. In the case of a bill of accepted In advance by its mere issuance. By its very nature, a 4. Voucher check - Contains a statement of the account paid by the
exchange, presentment is sufIicient if made within a reasonabel cashier's check is the bank's order to pay drawn upon itself, check and is so drawn that indorsement of the checks a receipt
time after the last negotiation thereof. (International Corporate committing in effect its total resources, integrity and honor for the account stated in the attached voucher.
Bank vs. Spouses Gueco) behind the check. A cashier's check, by its peculiar character
and general use in the commercial world is regarded 5. Traveler’s check - Issued by a bank to a holder who must place
What constitutes reasonable time? substantially to be as good as the money it represents. (Jan vs. his signature upon the instrument at the time it is issued, and
In determining what is a reasonable time, regard is to be had to the Court of Appeals, GR# 108555, December 20,1994.) countersigned by the holder again before it is paid.
nature of the instrument, the usage of trade or business with
respect to such instruments, and the facts of the particular case. When Cashier’s check is deemed as cash: 6. Manager’s check
(Section 193, NIL) It is a well-known and accepted practice in the business Nature of a Manager’s Check
sector that a Cashier’s Check is deemed as cash. Moreover, since Security Bank vs. RCBC — A manager’s check is one drawn by
The test is whether the payee employed such diligence as a prudent the said check had been certiIied by the drawee bank, by the bank’s manager upon the bank itself. It stands on the same
man exercises in his own affairs. This is because the nature and certiIication, the funds represented by the check are footing as a certiIied check, which is deemed to have been
theory behind the use of a check points to its immediate use and transferred from the credit of the maker to that of the payee or accepted by the bank that certiIied it. As the bank’s own
payability. (International Corporate Bank vs. Sps Gueco) holder, and for all intents and purposes, the latter becomes the

Page 9 of 18
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check, a manager’s check becomes the primary obligation of 8. Memorandum check - A memorandum check is in the form of In check transactions, the collecting bank or last endorser generally
the bank and is accpeted in advance by the act of its issuance. an ordinary check, with the word “memorandum,” or “memo” or suffers the loss because it has the duty to ascertain the genuineness
“mem” written across its face, signifying that the maker or of all prior endorsements considering that the act of presenting the
Citibank s. Sabeniano — A manager’s check is an order of the drawer engages to pay the bona ;ide holder absolutely, without check for payment to the drawee is an assertion that the party
bank to pay, drawn upon itself, committing in effect its total any condition concerning its presentment. (People vs. Nitafan) making the presentment has done its duty to ascertain the
resources, integrity and honor behind its issuance, and by its genuineness of the endorsements. (Bank of America vs. Associated
peculiar character and general use in commerce, a amnager’s Such a check is an evidence of debt against the drawer and Citizens Bank)
chek is regarded substantially to be as good as the money it although may not be intended to be presented, has the same
represents. effect of an ordinary check, and if passed to the third person,
will be valid in his hands like any other check. If a bank refuses to pay a check, can the payee-holdee thereof
Equitable PCI vs. Ong — A manager’s check stands on the sue the bank?
same footing as a certiifed check. The effect of certiIication is Feature of Memorandum Check: No. If a bank refuses to pay a check (notwithstanding sufIiciency of
found in Sectino 187, NIL. The effect of issuing a manager’s A memorandum check may carry with it the understanding funds), the payee-holder cannot sue the bank — the payee-holder
check was incontrovertibly elucidated when it was declared that it is not to be presented at the bank but will be redeemed should instead sue the drawer who might in turn sue the bank.
that a manager’s check is one drawn by the bank’s manager by the maker himself when the loan falls due. This Section 189 of NIL is sound law based on logic and established legal
upon the bank itself. It is similar to a cashier’s check both as understanding may be manifested by writing across the check principles: no privity of contract between the drawee-bank and the
to the effect and use. A cashier’s check is a check of the bank’s “Memorandum” “memo” or “mem.” payee. (Villanueva vs. Nite)
cashier on his own or another check. In effect, it is a bill of It presents all the features of other negotiable
exchange drawn by the cashier of a bank upon the bank itslef, instruments when transferred or indorsed to a bona Iide Does a collecting bank, over the objections of the depositor,
and accepted in advance by the act of its issuance. It is really holder for value. It is a contract by which the maker engages to have the authority to withdraw unilaterally from such
the bank’s won check and may be treated as a promissory pay the bona Iide holder absolutely, and not upon a condition depositor’s account the amount it had previously paid upon
note with the bank as a maker. The check becomes the to pay if the bank upon which it be drawn should not pay upon certain unindorsed order instruments deposited by the
primary obligation of the bank which issued it and constitutes presentation at maturity, and if due notice of the presentation depositor to another account that she later closed?
its written promise to pay upon demand. The mere issuance and nonpayment should be given. BPI vs. CA et al — The collecting bank had the right to debit the
of it is considered an acceptance thereof. depositor’s account for the value of the checks it previously
Given that a check is more than just an instrument of credited in her favor. It is of no moment that the account debited by
credit used in commercial transactions for it also serves as a LIABILITIES OF A DRAWEE BANK the collecting bank was different from the original account to which
receipt or evidence for the drawee bank of the cancellation of The bank of which a check is drawn, known as the drawee bank, is the proceeds of the check were credited because both admittedly
the said check due to payment, then the possession by the under strict liability, based on the contract between the bank and belonged to depositor.
drawee bank of the said Manager’s Check, duly stamped ‘paid” its customer (drawer), to pay the check only to the payee or the The right to set-off was explained in Associated Bank vs. Tan:
gives rise to the presumption that the said Manager’s checks payee’s order. The drawer’s instructions are reIlected on the face A bank generally has a right to set-off over the deposits
were already paid out to the intended payee. and by the terms of the check. thereon for the payment of any withdrawals on the part of a
When the drawee bank pays a person other than the payee depositor. The right of a collecting bank to debit a clients account
7. Crossed check - see page 6 named on the check, it does not comply with the terms of the check, for the value of a dishonored check that has previously been
Effects of crossing a check: it does not comply with the terms of the check and violates its duty credited has fairly been established by jurisprudence. To being
1) the check may not be encashed but only deposited in the to charge the drawer’s account only for properly payable items. with, Article 1980 of the CC provides that “Iixed savings, and
bank Thus the SC ruled in PNB vs. Rodriguez, that a drawee should current deposits of money in banks and similar institutions shall be
2) the check may be negotiated only once — to one who has charge to the drawer’s account only the payables authorized by the governed by the provisions concerning simple loan.”
an account with a bank; and latter; otherwise, the drawee will be violating the instructions of Hence the relationship between banks and depositors has
3) the act of crossing check serves as warning to the holder the drawer and shall be liable for the amount charged to the been held to be that of creditor and debtor. Thus legal
that the check has been issued for a deIinite purpose, so drawer’s account. (Bank of America vs. Associated Citizens Bank) compensation under Article 1278 of the CC may take place “when al
that he must inquire if he has received the check pursuant the requisites mentioned in Article 1279 are present. “
to that purpose, otherwise, he is not a holder in due While, however, it is conceded that petitioner had the right to
LIABILITIES OF AN ENDORSER BANK UNDER SEC. 66 OF THE
course. set-off the amount it paid to Templonuevo against the deposit of
NIL Salazar, the issue of whether it acted judiciously is an entirely
different matter. As businesses affected with public interest, and

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ATTY. FABRERO SLIDES
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because of the nature of their functions, banks are under obligation the drawee bank is a local one even though the check in question is 1. Documents of title - any written instrument, such as a bill of
to treat the accounts of their depositors with meticulous care, a manager’s check. lading, a warehouse receipt, or an order for the delivery of
always having in mind the Iiduciary nature of their relationship. In goods, that in the usual course of business or Iinancing is
this regard, petitioner was clearly remiss in its duty to private considered sufIicient proof that the person who possesses it is
respondent Salazar as its depositor. What is the difference between “Drawn Against Insufeicient entitled to receive, hold, and dispose of the instrument and the
To being with, the irregularity appeared plainly on the face of F u n d s ” ( D A I F ) a n d “ D r a w n A g a i n s t U n c o l l e c t e d goods that it covers.
the checks. Despite the obvious lack of indorsement thereon, Deposit” (DAUD)? 2. Letters of Credit - a written instrument from a bank or
petitioner permitted the encashment of these checks three times on merchant in one location that requests that anyone or a
DAIF DAUD
three separate occasions. This negates petitioner’s claim that it speciIically named party advance money or items on credit to
merely made a mistake in crediting the value of the checks to the party holding or named in the document.
Salazar’s account and instead bolsters the conclusion of th CA that Is a condition in which a It means that the account 3. CertiIicates of Stock - a printed document which states the
petitioner recognized Salazar’s claim of ownership of the checks depositor’s balance is has, on its face, sufficient name, incorporation state, and date of incorporation, the
and deliberately in paying the same, contrary to ordinary banking inadequate for the bank to funds but not yet available to registered number of the certiIicate, the number of shares of
policy and practice. It must be emphasized that the law imposes a pay a check the drawer because the stock in a corporation the certiIicate represents, the name of
duty of diligence on the collecting bank to scrutinizze checks deposit, usually a check, had the shareholder, the date of issuance, and the number of shares
deposited with it, for the purpose of determining their genuineness not yet been cleared. authorized in the particular issue of stock, signed by the
adn regularity. The collecting bank, being primarily engaged in President and Secretary of the corporation (or with facsimile
It subjects the depositor to It does not expose the
banking, holds itself out to the public as the expert on this Iield, and signatures). On the reverse side of the certiIicate is a form for
possible prosecution for depositor to estafa and BP
the law thus holds it to a high standard or conduct. The taking and transfer of the certiIicate to another person. After trnasfer the
estafa and BP 22 22.
collection of a bank without the proper indorsement amount to a new owner should register the change of ownership with the
conversion of the check by the bank. corporation.
4. Postal Money Order - An order for the payment of a speciIied
In depositing the check under his name, the depositor does not PRESCRIPTIVE PERIOD TO BRING ACTION amount of money, usually issued an payable at a bank or post
automatically become the owner of the amount deposited. ofIice
PCIB vs. CA and Ford Phils. — The statute of limitations begins to
In BPI vs. CA and Napiza, CA correctly held that in depositing the Phil. Education Co. Inc vs. Soriano — Since our postal
run when the bank gives the depositor notice of the payment, which
check in Napiza’s name, he did not become the outright owner of statutes were patterned after those in the US, the
is ordinarily when the check is returned to the alleged drawer as a
the amount stated therein. Under the above rule, by depositing the construction regarding postal statutes are generally
voucher with a statement of his account, and an action upon a
check with BPI, Napiza was, in a way, merely designating BPI as the applicable here., in the absence of of any special reason
check is ordinarily governed by the statutory period applicable to
collecting bank. This is in consonance with the rule that a jusitifying a departure from the policy or practice. The
the instruments in writing,
negotiable instrument, such as a check, whether a manager’s check weight of authority in the US is that postal money orders
Our laws on the matter provide that the action upon a written
or ordinary check, is not legal tender. As such, after receiving the are not negotiable instruments, the reason behind this rule
contract must be brought within 10 years from the time the right of
deposit, under its own rules, BPI shall credit the amount in Napiza’s being that, in establishing and operating postal money
action accrues. Hence the reckoning time for the prescriptive period
account or infuse value thereon only after the drawee bank shall order system, the government is not engaging in
begins when the instrument was issued and the corresponding
have paid the amount of the check or the check has been cleared for commercial transactions but merely exercises a
check was returned by the bank to its depositor (normally a month
deposit. governmental power for the public beneIit.
thereafter). Applying the same rule, the cause of aciton for the
5. Treasury Warrants - an order in the form of a cehck that
recovery of the proceeds of Citibank check No. SN 04867 would
Again, this is is in accordance with ordinary banking practices and government disbursements are paid. With the treasury
normally be a month after December 19, 1977, when Citibank paid
with this Court’s pronouncement that “the collecting bank or last warrant, a drawer authorizes someone to pay a particular sum
the face value of the check in the amount of P4,746,114,41. Since
endorser generally suffers the loss because it has the duty to of money to another.
the original complaint for the cause of action was Iiled on January
ascertain the genuineness of all prior endorsements considering 20, 1984, barely 6 years had lapsed. Thus Ford’s cause of action to
that the act of presenting the check for payment to the drawee is an recover the amount of Citibank Check No SN 04867 was seasonably
assertion that the party making the presentment has done its duty Iiled within the period provided by law. PHILIPPINE CLEARING HOUSE CORPORATION
to ascertain the genuineness of the endorsements. The rule Iinds Who falls under the jurisdiction of the PCHC?
more meaning in this case where the check involved is drawn on a
foreign bank and therefore collection is more difIicult than when
SOME NON NEGOTIABLE INSTRUMENTS Those who participate in the clearing operations of the PCHC. Such
particiipation has been held by the Court in BDO vs. Equitable as a
manifestation of its submission to its jurisdiction.

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 Negotiable Instruments
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What is the extent of the jurisdiction of the Philippine Clearing Section 36. ARBITRATIONS to submit their disputes to arbitration under the rules of the
House Corporation? 36.1 Any dispute or controversy between two or more PCHC?
Insular Savings Bank vs. FEBTC — Among the member banks of clearing participants involving any check/item thru PCHC Third party complaints as a general rule, a trial court that has
the PCHC exists a compromissoire or an arbitration agreement shall be submitted to the Arbitration Committee, upon established jurisdiction over the main action also acquires
embedded in their contract wherein they consent that any future written complaint of any involved participant by Iiling the jurisdiction over a third-party complaint, even if it could not have
dispute or controvery between its PCHC participants involving any same with the PCHC serving the same upon the other party done so had the latter been Iiled as an independent action. This
check would be submitted to the Arbitration Committee for or parties, who shall within Iifteen (15) days after receipt rule, however, does not apply to banks that have agreed to submit
arbitration. thereof, Iile with the Arbitration Committee its written their disputes over check clearings to arbitration under the rules of
The PCHC has its own Rules and Procedure for Arbitration answer to such written complaint and also within the same the Philippine Clearing House Corporation. In that event, primary
(PCHC Rules). However, this is governed by RA 876, also known as period serve the same upon the complaining participant. recourse should be to the PCHC Arbitration Committee, without
the Arbitration Law and supplemneted by the Rules of Court. This period of Iifteen (15) days may be extended by the prejudice to an appeal to the trial courts. In other words, without
Committee not more than once for another period of Iifteen Iirst resorting to the PCHC, the third- party complaint would be
Moreover, take note that, since the PCHC Rules came about (15) days, but upon agreement in writing of the premature. (Allied Banking Corporation vs. Court of Appeals and
only as a result of an agreement between and among member complaining party, said extension may before such period Bank of the Philippine Islands, Inc., G.R. No. 123871, August 31,
banks of PCHC and not by law, it cannot confer jurisdiction to the as the latter may agree to. 1998, [Panganiban, J.])
RTC. Thus, the portion of the PCHC Rules granting jurisdiction to
the RTC review arbitral awards, only on questions of law, cannot be 36.6 The fact that a bank participates in the clearing What is the purpose of the creation of the PCHC?
given effect. operations of PCHC shall be deemed its written and The PCHC was created to facilitate the clearing of checks among
subscribed consent to the binding effect of this arbitration member banks. (Insular Savings Bank vs. FEBTC)
In Associated Bank vs. CA et al, it was held that “under the rules agreement as if it had done so in accordance with Section 4 Under its Articles of Incorporation, the PCHC provides, “an
and regulations of the PCHC, there mere act of paritcipation of of the Republic Act No. 876 otherwise known as the effective, convenient, efIicient, economical and relevant exchange
agreement by the parties to abide by its rules and regulations. And Arbitration Law. Thus, not only do the parties manifest by and facilitate services limited to check processing and sorting by
as a consequence of such participation, a party cannot invoke the mere participation their consent to these rules, but such way of assisting member banks, entites, in clearing checks and
jurisdiction of the courts over disputes and controversies which fall participation is deemed (their) written and subscribed other clearing items as deIined and existing in future Central Bank
under the PCHC Rules and Regulations without Iirst going through consent to the binding effect of arbitration agreements of the Philippine Circulars, memoranda, circular letters rules and
the arbitration processes laid out by the body. Since claims relating under the PCHC rules. regulations and policies in pursuance of Section 107 of RA 265.
to the regularity of checks cleared by banking institutions are
among those claims which should Iirst be submitted for resolution Pursuant to its function involving the clearing of checks and other
by the PCHC’s Arbitration Committee, Associated Bank, having Moreover, a participant subject to the Clearing House Rules and clearing items, the PCHC has adopted rules and regulations
voluntarily bound itself to abide by such rules and regulations, is Regulations of the PCHC may go on appeal to any RTC.. where the designed to provide member banks with a procedure whereby
estopped from seeking relief from the RTC on the coattails of a head ofIice of any of the parties is located only after a decision or disputes involving the clearance of checks and other negotiable
private claim and in the guise of a third party complaint without award has been rendered by the arbitration committee or instruments undergo a process of arbitration prior to submission to
Iirst having obtained a decision adverse to its claim from the said arbitrator on questions of law. courts below. This procedure not only ensures a uniformity of rules
body. It cannot bypass the arbitration process on the basis of its relating to factual disputes involving checks and other negotiable
averment that its third party complaint is inextricably linked to the Clearly therefore, Associated Bank, by its voluntary participation instruments but also provides a mechanism for setting minor
original complaint in the RTC. and its conesnt to the arbitration rules cannot go directly to the RTC disputes among participating and member banks who would
when it Iinds it convenient to do so. The jurisdiction of the PCHC otherwise go directly to the trial courts. While the PCHC rules and
What are the applicable provisions of the PCHC Rules on the under the rules and regulations is clear, undeniable and is Regulations alllow appeal to the RTC only on questions of fact
question of jurisdiction? particularly applicable to all the parties in the third party complant already decided by the PCHC arbitration when warranted and
Section 3. AGREEMENT TO THESE RULES. — It is the under their obligation to Iirst seek redress of their disputes and appropriate.
general agreement and understanding, that any participant grievances with the PCHC before going to the RTC.
in the PCHC MICR clearing operations, by the mere act of
participation, thereby manifest agreement to these Rules Does the rule that the trial court that has established
ALLIED BANKING CORP VS. CA

and Regulations, and its subsequent amendments. xxx xxx jurisdiction over the main action also acquires jurisdiction
GR No. 123871, Aug 31, 1998
xxx over a third-party complaint apply to banks that have agreed

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J. Panganiban: As a general rule, a trial court that has established checks cleared under PCHC before recourse to a 3rd party By participating in the clearing operations of the PCHC, petitioner
jurisdiction over the main action also acquires jurisdiction over a complaint? agreed to submit disputes of this nature to arbitration. Accordingly,
third-party complaint, even if it could not have done so had the Held: BDO case and Associated case are clear and unequivocal: a it cannot invoke the jurisdiction of the trial courts without a prior
latter been Iiled as an independent action. This rule, however, does third-party complaint of one bank against another involving a check recourse to the PCHC Arbitration Committee. Having given its free
not apply to banks that have agreed to submit their disputes over cleared through PCHC is unavailing, unless the third-party claimant and voluntary consent to the arbitration clause, petitioner cannot
check clearings to arbitration under the rules of the Philippine has Iirst exhausted the arbitral authority of teh PCHC Arbitration unilaterally take it back according to its whim. In the world of
Clearing House Corporation. In that event, primary recourse should Committee and obtained a decision rom said body adverse to its commerce, especially in the Iield of banking, the promised word is
be to the PCHC Arbitration Committee, without prejudice to an claim. crucial. Once given, it may no longer be broken.
appeal to the trial courts. In other words, without Iirst resorting to Recognizing the role of the PCHC in the arbitration of disputes
the PCHC, the third-party complaint would be premature. between participating banks, the Court in Associated bank further Upon the other hand, arbitration as an alternative method of
held: “Pursuant to its funcitons involving the clearing of checks and dispute resolution is encouraged by this Court. Aside from
Facts: Hyatt Baguio issued two crossed checks drawn against Allied other clearing items, the PCHC has adopted rules and regulations unclogging judicial dockets, it also hastens solutions, especially of
in favor of Meszellen. The checks were deposited with Comtrust. designed to provide member banks with a procedure whereby commercial disputes.
Thereafter, Comtrust stamped at the back of the checks “All prior disputes involving the clearance of checks and other negotiable
endorsements and/or lack of endorsements guaranteed.” After the insturments undergo a process of arbitration prior to submission to Does PCHC’s jurisdiction extend to non-negotiable checks?
checks were cleared through the PCHC, Allied paid the proceeds of the courts below. This procedure not only ensures a uniformity of As the articles of incorporation of PCHC provide that its operation
said checks to Comtest as the collecting bank. rules relating to fatual disputes involving checks and other extends to clearing checks and other clearing items, no doubt
negotiable insturments but also provides a mechanism for settling transactions on non-negotiable checks arewithin the ambit of its
Meszellen sued drawee, Alllied for damages which is allegedly minor disputes among participating and member banks which jurisdiction.
suffered when the value of the checks were not paid to it but to would otherwise go directly to the trial courts.
some other person. The term checks used in the said Articles of Incorporation of PCHC
The Court deferred the case to the primary authority of the PCHC can only connote checks in general use in commercial and business
10 years later, Meszellen Iiled a third party complaint against BPI as over the present dispute, because its technical expertise in this Iield activities. It cannot be conceived to be limited to negotiable checks
successor-in-interest of Comtrust for reimbursement in the event enables it to better resolve questions of this nature. This is not only. Checks are used between banks and bankers and their
that it would be adjudged liable in the main case to pay Meszellen. prejudicial to the intersest of any party, since primary recourse to customers, and are designed to facilitate banking operations. It is of
This was granted by the RTC of Pasig. BPI Iiled a motion to dismiss the PCHC does not preclude an appeal to the RTC. the essence to be payable on demand, because the contract
the third party complaint on the ground that the court had no Sec.13. The Iindings of facts of the decision or award between the banker and the customer is that the money is needed
jurisdiction over the nature of the action. rendered by the Arbitration Committee or by the sole on demand.139 (Banco de Oro Savings and Mortgage Bank vs.
Arbitrator as the case may be shall be Iinal and conclusive Equitable Banking Corporation, G.R. No. 74917, January 20, 1988,
Before the court, Private Respodnent BPI contends that Allied’s upon all the parties in said arbitration dispute. The decision [Gancayco, J.])
remedy rests with the PCHC of which both Allied and BPI are or award of the Arbitration Committee or of the Sole
members pursuant with the Clearing House Rules and Regulations Arbitrator shall be appealabele only on questions of law to Viewing these provisions (Sec. 3 and 36.6 PCHC-CHRR clearing
which states: any of the RTC in the National Capital Judicial Region where rules and regulations; Sec. 2 Arbitration Law; Sec. 21 of the same
Sec. 38 – Arbitration te Head OfIice of any of the parties islocated. the appellant rules), the conclusion is clear that the PCHC Rules and Regulations
Any dispute or controversy between 2 or more clearing shall perfect his appeal by Iiling a notice of appeal to the should not be interpreted to be applicable only to checks which are
participants involving any check/item cleared thru PCHC Arbitration Secretariat and Iiling a Petition with the RTC of negotiable instruments but also to nonnegotiable instruments and
sleyl be submitted to the Arbitration Committee, upon the NCR. that the PCHC has jurisdiction over this case even as the checks
written complaint of any involved participant by Iling the subject of this litigations are admittedly non-negotiable. (supra)
same with the PCHC serving the same upon the other party Notwithstanding the rule that a trial court which has jurisdiction What may be some of the judicial remedies available.
or parties, who shall within 15 days after receipt to such over the main action, also has jurisdiction over the third-party
written complaint and also within the same period serve complaint, even if the said court would have had no jurisdiction What may be some of the judicial remedies available to the
the same upon the complaining participant… over it had it been Iiled as an independent action. However, this losing party in case the PCHC Arbitration Committee denies its
doctrine does not apply in the case of banks, which have given motion for reconsideration? Insular Savings Bank vs. FEBTC
Issue: What is the mandatory recourse to the PCHC? What is the written and subscribed consent to arbitration under the auspices of 1) It may petition the proper RTC to issue an order vacating the
exhaustion of arbitral authority of the PCHC in cases involving the PCHC. award on the grounds provided for under Section 24 of the
Arbitration Law;

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2) File a petition for review under Rule 43 of the Ruels of Court to reform and rehabilitate him, adn to maintain social order. The current account where the subject checks were drawn before
with the CA on questions of fact, of law, or mixed questions of penalty is stiff. BP 22 imposes the penalty of imprisonment for at liabilty attaches to the signatories.
fact and law; or least 20 days or a Iine of up to double the amount of the check or
3) File a petition for certiorari under Rule 45 of the Rules of Court both imprisonment and Iine (Mitra vs. People) Ruling: A check is a negotiable instrument that serves as a
on the ground that the Arbitrator Committee acted without or substitute for money and as a convenient form of payment in
in excess of jurisdiction or with grave abuse of discretion Iinancial transactions and obligations. The use of checks as
amounting to lack or excess of jurisdiction. What are the elements of violation of Section 1, BP 22? payment allows commercial and banking transactions to proceed
First Paragraph without the actual handling of money, thus, doing away with the
What are the grounds under Sec 24 of the Arbitration Law for 1) That a person makes or draws and issues any check. need to physically count bills and coins whenever payment is made.
the issuance of the RTC of an order to vacata the award granted 1) That the check is made or drawn and issued to apply on It permits commercial and banking transactions to be carried out
by the PCHC Arbitration Committee? account or for value; quickly and efIiciently. But the convenience afforded by checks is
SEC. 24. Grounds for vacating award. – In any one of the following 2) That the person who makes or draws and issues the check damaged by unfunded checks that adversely affect conIidence in
cases, the court must make an order vacating the award upon the knowing at the time of issue that he does not have our commercial and banking activities, and ultimately injure public
petition of any party to the controversy when such party proves sufIicient funds in or credit with the drawee bank for the interest.
afIirmatively that in the arbitration proceedings: payment of such check in full upon its presentment.
(a) The award was procured by corruption, fraud or other undue 3) That the check is subsequently dishonored by the drawee BP 22 or the Bouncing Checks Law was enacted for the speciIic
means; or bank for insufIiciency of funds or credit, or would have purpose of addressing the problem of the continued issuance and
(b) That there was evident partiality or corruption in the been dishonored for the same reason had not the drawer, circulation of unfunded checks by irresponsible persons. To stem
arbitrators or any of them; or without any valid reason, ordered the bank to stop the harm caused by these bouncing checks to the community, BP 22
(c) That the arbitrators were guilty of misconduct in refusing to payment. considers the mere act of issuing an unfunded check as an offense
postpone the hearing upon sufIicient cause shown, or in not only against property but also against public order.7 The
refusing to hear evidence pertinent and material to the Second Paragraph purpose of BP 22 in declaring the mere issuance of a bouncing
controversy; that one or more of the arbitrators was 1) That a person has sufIicient funds in or credit with the check as malum prohibitum is to punish the offender in order to
disqualiIied to act as such under section nine hereof, and drawee bank when he makes or draws and issues a check deter him and others from committing the offense, to isolate him
willfully refrained from disclosing such disqualiIication or of 2) That he fails to keep sufIicient funds or to maintain a from society, to reform and rehabilitate him, and to maintain social
any other misbehavior by which the rights of any party have credit to cover the full amount of the check if presented
order.8 The penalty is stiff. BP 22 imposes the penalty of
been materially prejudiced; or within a period of 90 days from the date appearing
imprisonment for at least 30 days or a Iine of up to double the
(d) That the arbitrators exceeded their powers, or so imperfectly thereon.
amount of the check or both imprisonment and Iine
executed them, that a mutual, Iinal and deIinite award upon the 3) That the check is dishonored by the drawee bank.
subject matter submitted to them was not made. x x x x
BP 22 Sec. 1. Checks Without Suf;icient Funds.—Any person who
makes or draws and issues any check to apply on account or for
(Insular Savings Bank vs. Far Eastern Bank and Trust Company, G.R.
value, knowing at the time of issue that he does not have sufIicient
No. 141818, June 22, 2006, [Ynares-Santiago, J.]) MITRA VS. PEOPLE AND TARCELO
funds in or credit with the drawee bank for the payment of such
GR No. 191404, July 5, 2010 check in full upon its presentment, which check is subsequently
Facts: Mitra was the Treasurer of Lucky Nine Credit Corporation dishonored by the drawee bank for insufIiciency of funds or credit
BP 22 or would have been dishonored for the same reason had not the
which is engaged in money lending activities. Tarcelo invested
What is the rationale for the Bouncing Checks Law? drawer, without any valid reason, ordered the bank to stop
money in LNCC. He was issued checks equivalent to the amounts he
BP 22 or the Bouncing Checks Law was enacted for the speciIic payment, shall be punished by imprisonment of not less than thirty
invested plus the interest on his investments. However these were
purpose of addressing the problem of the continued issuance and days but not more than one (1) year or by a Iine of not less than but
dishonored for the reason “account closed.” He caused the Iiling of 7
circulation of unfunded checks by irresponsible persons. To stem not more than double the amount of the check which Iine shall in
informations for violation of BP22 in the total amount of P925,000
the harm caused by these bouncing checks to the community, BP 22 no case exceed Two Hundred Thousand Pesos, or both such Iine
with the MTCC in Batangas.
considers the mere act of issuing an unfunded check as an offense and imprisonment at the discretion of the court.

not only against property but also against public order. The purpose The same penalty shall be imposed upon any person
Issue: Whether the elements of violation of BP 22 must be proved
of BP 22 of declaring the mere issuance of a bouncing check as who, having sufIicient funds in or credit with the drawee bank
beyond reasonable doubt as against the corporation who owns the
malum prohibitum is to punish the offender in order to deter him when he makes or draws and issues a check, shall fail to keep
and others from committing the offense, to isolate him from society, sufIicient funds or to maintain a credit to cover the full amount of
Page 14 of 18
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the check if presented within a period of ninety (90) days from the notice thereof. That the check must be deposited within 90 days is while the original text of Cabinet Bill No. 9 had contianed a proviso
date appearing thereon, for which reason it is dishonored by the simply one of the conditions for the prima facie presumption of excluding from the coverage of the law a check issued as a mere
drawee bank. knowledge of lcak of funds to arise. It is not an element of the guarantee, the Iinal version of the bill as approved and enacted by
Where the check is drawn by a corporation, company or offense. Neither does it discharge petitioner from his duty to the Committee on the Revision of Laws in the Batansan deleted the
entity, the person or persons who actually signed the check in maintain sufIicient funds in the account within a reasonable time abovementioned qualifying proviso deliberately for the purpose of
behalf of such drawer shall be liable under this Act. thereof. (Wong vs. CA) making the enforcement of the act more effective.

SEC. 2. Evidence of Knowledge of Insuf;icient Funds.— The making, What is the gravamen of the violation of BP 22? What if the drawer did not know the insufeiciency of funds in
drawing and issuance of a check payment of which is refused by the The lack of criminal intent on the part of the accused is irrelevant. his account?
drawee because of insufIicient funds in or credit with such bank, The law has made the mere act of issuing a worthless check a The knowledge of the payee of the insufIiciency or lack of material
when presented within ninety (90) days from the date of the check, malum prohibitum, an act proscribed by legislature for being funds of the drawer with the drawee bank is immaterial as deceit is
shall be prima facie evidence of knowledge of such insufIiciency of deemed pernicious and inimical to public welfare. In fact, even in not an essential element of an offense penalized by BP 22. The
funds or credit unless such maker or drawer pays the holder cases where there had been payment, through compensation or gravament of the offense if the issuance of a bad check, hence,
thereof the amount due thereon, or makes arrangements for some other means, there could still be prosecution for violation BP malice and intent in the issuance thereof is inconsequential.
payment in full by the drawee of such check within Iive (5) banking 22. The gravamen of the offense under this law is the act of issuing
days after receiving notice that such check has not been paid by the a worthless check that is dishonored upon its presentment for An essential element of the offense is “knowledge” on the part of
drawee. payment, not the non-payment of the obligation. (Lunaria vs. the maker or drawer of the check of the insufIiciency of his funds in
People) or credit with the bank to cover the check upon its presentment.
There is no dispute that Mitra signed the checks and that the bank Since this involves a state of mind difIicult to establish, the statute
dishonored the checks because the account had been closed. Notice Congress, in the exercise of police power, enacted BP 22 in order to itself creates a prima facie presumption of such knowledge where
of dishonor was properly given, but Mitra failed to pay the checks maintain public conIidence in commercial transactions. (Spouses payment of the check “is refused by the drawee because of
or make arrangements for their payment within Iive days from Yap vs. First e-bank Corporation) insufIicient funds in or credit with such bank when presented
notice. With all the above elements duly proven, Mitra cannot within 90 days from the date of the check.” To mitigate the
escape the civil and criminal liabilities that BP 22 imposes for its Does BP 22 cover cases where the checks were merely issued harshness of the law in its application, the statute provides that
breach. in the form or a deposit or a guarantee? such presumption shall not arise if within 5 banking days from the
Yes. It is now settled that BP 22 applies even in cases where receipt of the notice of dishonor, the maker or drawer makes
dishonored checks are issued merely in the form of a deposit or a arrangements for payment of the check by the bank. or pays the
What are the 2 ways of violating BP 22? guarantee. The enactment in question does not make any holder the amount of the check. (Wong vs. CA)
1. by making or drawing and issuing a check to apply on account distinction as to whether the checks within its contemplation are
or for value knowing at the time of issue that the check is not issued in payment of an obligation or merely to guarantee the said Does a violation of BP 22 give rise to civil liability?
sufIiciently funded obligation. In accordance with the pertinent rule of statutory There is no independent civil action to recover civil liability arising
2. by having sufIicient funds in or credit with the drawee bank at construction, inasmuch as the law has not made any distinction in from the issuance of an unfunded check prohibited and punished
the time of issue but failing to keep sufIicient funds therein or this regard, no such distinction can be made by means of under BP 22 (Heirs of Eduardo Simon vs. Chan)
credit with said bank to cover the full amount of the check interpretation or application.
when presented to the drawee bank within a period of 90 days. The SC has settled the issue of whether a vilation of BP 22 can give
(Wong vs. CA) The history of the enactment of subject statute evinces the deIinite rise to civil liabilty in Banal vs. Judge Tadeo Jr.:
legislative intent to make the prohibition all-embracing, without Art. 20 of CC provides:
What if the account holder failed to maintain funds in the bank making any exception from the operation thereof in favor of a Every person who contrary to law, willfully or negligently
over the 90 days? guarantee. This intent may be gathererd from the statement of the causes damages to another, shall indemnify the latter for
Nowhere in the said provision does the law require a maker a sponsor of the bill (Cabinet Bill No. 9) which was enacted later inot the same.
maintain funds in his account for only 90 days. Rather, the clear BP 22, when it was introduced before the Batansan Pambansa, that
import of the law is to establish a prima facie presumption of the bill was introduced to discourage the issuance of bouncing Regardless therefore, of whether a special law so provides,
knowledge of such insufIiciency of funds under the following checks, to prevent checks from becoming “useless scraps or paper” indemniIication of the offended party may be had on account of the
conditions (1) presentment within 90 days from the date of the and to restore respectability to checks, all without distinction as to damages, loss or injury directly suffered as a consequence of the
check, and (2) the dishonor of the check and failure of the maker to the purpose of the issuance of the cheks. The legislative intent as wrong act of another. The indemnity which a person is sentenced to
make arrangements for payment in full within 5 banking days after above said is made all the more clear when it is considered that pay forms an integral part of the penalty imposed by law for the

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commission of a crime (Quemel vs. CA) Every crime gives rise to a been notiIied in writing of the fact of dishonor. This is consistent payment of the value of the check either byt he drawer or by the
penal or criminal action for the punishment of the guilty party, and with the rule that penal statues must be construed strictly against drawee bank within 5 banking days from notice of the dishonor
also to civil action for the restitution of the thing, repair the the state and liberally in favor of the accused. x x x given by the drawer. The payment thus become a complete defense
damage, and indemniIication for the losses (US vs. Bernardo) regardless of the strength of the evidence offered by the
In Iine, the failure of the prosecution to prove the existence and prosecution. It must be presupposed, then, that the issuer received
Civil liability to the offended party cannot thus be denied. The receipt by petitioner of the requisite written notice of dishonor and a notice of dishonor and that, within 5 days from receipt thereof,
payee of the check is entitled to for which the worthless check was that he was given at least Iive banking days within which to settle the failed to pay the amount of the check or to make arrangement
issued. Having been caused the damage, she is entitled to his account constitutes sufIicient ground for his acquittal.” for its payment.
recompense. Surely, it could not have been the intendment of the
framer of Batas Pambansa Blg. 22 to leave the offended party In the case at bar, Court held here that the prosecution failed to In Caras vs. CA, we note that the law provides for a prima facie rule
defrauded and empty-handed by excluding the civil liability of the prove the 2nd element. While the registry receipt, which is said to of evidence. Knowledge of insufIiciency of funds in or credit with
offender, giving her only the remedy, which in many cases results in cover the letter-notice of dishonor and of demand sent to petitioner, the bank is presumed from the act of making, drawing, and issuing
a Pyrrhic Victory, of having to Iile a separate civil suit. To do so may was presented, there is no proof that he or a duly authorized agent a check payment of which is refused by the drawee bank for
leave the offended party unable to recover even the face value of the received the same. Receipts for registered letters including return insufIiciency of funds when presented within 90 days from the date
check due her, thereby unjustly enriching the errant drawer at the receipts do not themselves prove receipt; they must be properly of issue. However, this presumption is rebutted when it is shown
expense of the payee. The protection which the law seeks to authenticated to serve as proof of receipt of the letters. that the maker or drawer pays or makes arrangements for the
provide would, therefore, be brought to naught.” (supra)receive the payent of the check wihin 5 banking days after receiving notice that
payment of money. Thus in Ting vs. CA, this Court observed: All that we have on record such check had been dishonored. Thus, it is essential for the maker
is an illegible signature on the registry receipt as evidence that or drawer to be notiIied of the dishonor of her check, so he could
Is the notice of dishonor essential in the elements of violation someone received the letter. As to whether this signature is that of pay the value thereof or make arrangements for its payment within
of BP 22? YES. In Rico vs. People, (cited in Svendsen vs. People) the one of the petitioners or of their authorized agent remains a the period prescribed by law.
Court held: mystery. From the registry receipt alone, it is possible that
“[I]f x x x notice of non-payment by the drawee bank is not sent to petitioners or their authorized agent did not receive the demand In Grif;ith vs. CA, we held that: While we agree with the private
the maker or drawer of the bum check, or if there is no proof as to letter. Possibilities, however, cannot replace proof beyond respondent that the gravamen of violation of BP 22 is the issuance
when such notice was received by the drawer, then the reasonable doubt. However, apparently, a contrary ruling was laid of worthless checks that are dishonored upon their presentment for
presumption of knowledge as provided in Section 2 of B.P. 22 down in the subsequent case of Eumelia Mitra vs. People of the payment, we should not apply penal laws mechanically. We must
cannot arise, since there would simply be no way of reckoning the Philippines (G.R. No. 191404, July 5, 2010), wherein it was held Iind if the application of the law is consistent with the purpose and
crucial ;ive-day period. that: “positive allegation of the prosecution that a demand letter the reason for the law. Ratione cessat lex, et cessat law (when the
was served upon the accused prevails over the denial made by the reason for the law ceases, the law ceases.) It is not the letter alone
Mitra vs. People accused. but the spirit of the law also that give it life. This is especially so in
In recent cases, we had the occasion to emphasize that not only this case where a debtor’s criminalization would not erve the ends
must there be a written notice of dishonor or demand letters The court accepts the prosecution’s narrative that the accused of justice but in fact subvert it. The creditor having collected already
actually received by the drawer of a dishonored check, but there refused to sign to evidence their receipt thereof. To require the more than a sufIicient amount to cover the value of the checks for
must also be proof of receipt thereof that is properly authenticated, prosecution to produce the signature of the accused on said payment of rentals, via auction sale, we Iind that holding the
and not mere registered receipt and/or return receipt. demand letter would be imposing an undue hardship on it. debtor’s president to answer for a criminal offense under BP 22,
two years after said collection, is no longer tenable nor justiIied by
Thus, as held in Domagsang vs. Court of Appeals, while Section 2 of As well actual receipt acknowledgment is not and has never been law or equitable consideration.
B.P. 22 indeed does not state that the notice of dishonor be in required of the prosecution either by law or jurisprudence.” As the
writing, this must be taken in conjunction with Section 3 of the law, rule now stands, the Mitra case is controlling. What are the matters to be proven by the prosecution in BP 22
i.e., “that where there are no sufIicient funds in or credit with such cases?
drawee bank, such fact shall always be explicitly stated in the notice Matters to be proved by the prosecution in BP 22 cases Under Batas
of dishonor or refusal.” A mere oral notice or demand to pay would Pambansa Bilang 22 (BP 22), the prosecution must prove not only
Payment as a defense in BP 22 cases
appear to be insufIicient for conviction under the law. In our view, that the accused issued a check that was subsequently dishonored.
In the Abarquez case, the SC laid down the following doctrines:
both the spirit and letter of the Bouncing Checks Law require for It must also [be] established that the accused was actually notiIied
The prima facie presumption that the drawer has knowledge
the act to be punished thereunder not only that the accused issued that the check was dishonored, and that he or she failed, within Iive
of the insufIiciency of funds or credit at the time of the issuance, or
a check that is dishonored, but also that the accused has actually banking days from receipt of notice to pay the holder of the check
on the payment for presentment, of the check may be rebutted by

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 Negotiable Instruments
ATTY. FABRERO SLIDES
del rosario

the amount due therein or to make arrangement for its payment. Estafa BP 22 FORMS AND INTERPRETATION
Absent proof that the accused received such notice, a prosecution
for violation of the Bouncing Check Law cannot prosper. (Betty King
deceit and damage are deceit and damage are not
vs. People of the Philippines, G.R. No. 131540, December 2, 1999, Section 1. Form of negotiable instruments. — An
essential elements of the essential nor required; an
[Panganiban, J.]) instrument to be negotiable must conform to the following
offense have to be essential element of this requirements:
established with satisfactory offense is knowledge on the
Does the eiling of the BP 22 and estafa cases against an acused
proof to warrant conviction part of the maker or drawer of
amount to double jeopardy? (a) It must be in writing and signed by the maker or drawer;
the check of the insufficiency
While the Iiling of both offenses refer to identical acts committed by (b) Must contain an unconditional promise or order to pay a
of funds
an accused, the prosecution thereof cannot be limited to one sum certain in money;
offense, because a single criminal act may give rise to a multiplicity (c) Must be payable on demand, or at a fixed or
scope was deemed to makes the mere act of issuing
of offenses and where there is a variance or differences between the determinable future time;
exclude checks issued in a worthless check a special
elements of an offense is one law and another law. There will be no (d) Where the instrument is addressed to a drawee, he
payment of pre-existing offense punishable
double jeopardy because what the rule on double jeopardy must be named or otherwise indicated therein with
obligations as the deceit must thereunder
prohibits refers to identity of elements in the 2 offenses. reasonable certainty.
be prior to or simultaneous
withthe commission of the
Prosecution for the same act is not prohibited. What is forbidden is
fraud 1. The instrument must be in writing signed by the maker or
prosecution for the same offense. drawer
What is being punished is the The gravamen of the offense ‣ no particular language or writing instrument is request
While a BP 22 case and an estafa case may be rooted from an deceit is the issuance of the check, ‣ signing must be made with intent to be bound; the
identical set of facts, they nevertheless present different causes of not the non-payment of an signature may be afIixed anywhere
action, which, under the law, are considered “separate, distinct, and obligation ‣ Section 191, NIL “Written” includes printed, and “writing”
independent” from each other. Therefore, both cases can proceed to includes print.
their Iinal adjudication — both as to their criminal and civil aspects ‣ Signature of the maker or drawer is usually written,
— subject ot the prohibition on double recovery. Thus, a ruling in a preferably with the full name or a least the surname.
BP 22 case concerning the criminal and civi liabilties of the accused skipped 203 -207 (more on BP 22)
However, initials or any mark will be sufIicient, provided
cannot be given any bearing whatsoever in the criminal and civil that such signature be used as a substitute and the maker
aspects of a related estafa case. (Rimando vs. Spouses Aldaba and or drawer intends to be bound by it.
People) LIFE OF A NEGOTIABLE INSTRUMENT ‣ Signature is presumed valid, thus the person denying and to
1. Preparation and signing whom the signature operates must provide evidence of its
What is the difference between Estafa by Postdating a bad 2. Issuance (to the payee) invalidity.
check and the Bouncing Checks Law? 3. Negotiation
4. Presentment for acceptance Can someone who did not afeix his signature on the NI be
Estafa BP 22
5. Acceptance held liable?
6. Dishonor by non-acceptance Yes. To be charged under the NIL, a person’s signature
accused issues an unfunded when accused issues an 7. Presentment for payment must appear thereon; exceptionally, one whose signature does
check with fraudulent intent in unfunded check whether it is 8. Payment not appear may still be held liabel thereunder in the following
consideration of something of for an obligation you 9. Dishonor by Non-Payemtn cases:
value he received contracted prior to the 10. Notice of dishonor/protest a) A forger’s primary liablity
issuance of the check or not 11. Discharge b) liability of a signatory (in the capacity he signs) one a
separate piece of paper (allonge) attached to the
instrument
c) liabilty of warranties of a holder who negotiates by
mere deliery in favor of the immediate party
d) liabilty of a drawee who destroys the instrument
when presented to him or who fails to act generally

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 Negotiable Instruments
ATTY. FABRERO SLIDES
del rosario

within 24 hours from presentation (equivalent to absent of the words of negotiabiliyy. However, the mere use of
acceptance) polite word like “ Please” does not convert the order into
e) liability of a principal for whose behalf and under request.
whose authority an agent signs.
NOTE: A mere acknowledgement of a debt, like “ I.O.U.”, due X
P1,000,” “ for value received, “ are not sufIicient to impart a
2. Must contain an unconditional promise to pay a sum certain promise to pay. 

in money
‣ a statement that payment will be made “when debtor’s An order is a command or imperative direction and therefore a
means would permit him to do so” is deemed to be one with mere request supplication or authority (like “I request you to
a period under Art. 1180 of the CC — it is still conditional pay,” or “I hope you will pay” or “I authorize you to pay”) is not
within the meaning of the NIL, and the fulIillment of the sufIicient. However, the use of polite words like “please” does
condition does not cure the defect (Section 4, NIL) not convert an order to a request.
‣ an instrument payable upon the death of a person since <go back to slide 257>
death is certain may qualify as a negotiable instrument
‣ “Promise or Order to Pay (Section 10) — any terms are 3. must be payable on demand, or at a Iixed or determinable
sufIicient which clearly indicate an intention to conform to future time
the requirements of the Act
‣ “Clear intention of the parties” — the substance of the 4. where the instrument is addresed to a drawee, he must be
transaction rather than the form is the criterion of named or otherwise indicated therein, with reasonable
negotiability. Instead of “promise” the words “bind myself” certainty.
may be used; instead of “on demand,” the words “on call”
may be used and insead of “bearer”, the word “holder” may
be used.
‣ defect in grammer does not render the instrument
‣ there are two kinds of condition: resolutory and
suspensive; one with a period = NI should be unconditional

Is it necessary that the word “promise” or “order” be used

to satisfy the requirement?
No. The following words or statements amount to a promise or
order to pay:
“Payable” or “to be paid”
I agree to pay;
Good for;
Due X or order;
let the bearer have
W (drawee) will much oblige R (drawer) to pay P or
order
Bare acknowledgements like “IOU” “Due P1000” or “for value
received” do not constitute promise to pay and are non-
negotiable. unless words constituting a promise to pay is
added, like IOU (or due) P1000 to be paid on Jan 8.”

A mere request or authorization to pay, like “ I request you to

pay” or I authorize you to pay” does not constitute an order

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