SUMMARY OF DOCTRINES

I. NEGOTIABLE INSTRUMENTS IN GENERAL

A negotiable instrument is a written contract for the payment ofmoney which complies with the requirements of Section 1, NIL; which byits form and on its face is intended as a substitute for money and passesfrom hand to hand as money so as to give the holder in due course theright to hold the instrument free from personal defenses available toprior parties.

A. Functions of a negotiable instrument:1. It operates as a substitute for money2. It is a means of creating and transferring credit3. It facilitates the sale of goods4. It increases the purchasing medium in circulation5. It serves as proof of transactions

B. A negotiable instrument is NOT legal tender and the delivery of aninstrument does not generally operate as payment

*Sec.52 of RA 7653 (the New Central Bank Act) defines legal tender asthose notes and coins issued by the Bangko Sentral ng Pilipinas, fullyguaranteed by the government of the Republic of the Philippines for thepayment of debts, both public and private *Art.1249, NCC: xxx The delivery of promissory notes payable to order, orbills of exchange or other mercantile documents shall produce the effectof payment only when they have been cashed, or when through the faultof the debtor they have been impaired.

C. Negotiable Instruments are governed by the NIL, and where the NIL issilent, the provisions of the Code of Commerce, the Law Merchant, andthe Civil Code apply suppletorily.

D. Primary Features of negotiable instruments:1. Negotiability2. Accumulation of Secondary Contracts

II. NEGOTIABILITY

Sec.1 Form of Negotiable Instruments –An instrument to be negotiable must conform to the followingrequirements:(a) It must be in writing, and signed by the maker or drawer;(b) Must contain an unconditional promise or order to pay a sum certainin money;(c) Must be payable on demand, or at a fixed determinable future time;(d) Must be payable to order or to bearer; and(e) Where the instrument is addressed to a drawee, he must be namedtherein with reasonable certainty A. Postal Money Orders are not negotiable instruments. In establishingand operating a postal money order system, the government is notengaged in commercial transactions but is merely exercising agovernmental power for the public benefit. Restrictions upon postalmoney orders imposed by postal laws and regulations are inconsistentwith the character of negotiable instruments as defined under Sec.1, NIL(Phil. Education Co., Inc. v. Soriano, 39 SCRA 587)

B. The negotiability or non-negotiability of an instrument is determinedfrom the writing on the face of the instrument itself. (Caltex-Philippines,Inc v. CA, 212 SCRA 448)

C. The indication of a particular fund as the source of payment makesthe order to pay conditional. An order or promise to pay out of aparticular fund is ‘not unconditional’, as stated in Sec.3, NIL (Metrobankv. CA, 194 SCRA 168)

D. A non-negotiable document may not be negotiated; but it may beassigned or transferred, absent an express prohibition againstassignment or transfer written on the face of the instrument. [A] note,though not negotiable, may be transferred by assignment, the assigneetaking it being subject to the equities between the original parties(Sesbreño v. CA, 222 SCRA 466)

E. Withdrawal slips are not negotiable instruments. The essence ofnegotiability which characterizes a negotiable paper as a creditinstrument lies in its freedom to circulate freely as a substitute formoney. Withdrawal slips lack this character. (Firestone Tire and RubberCo, v. CA, 353 SCRA 601)

III. INSTRUMENTS PAYABLE TO BEARER Sec. 9 When payable to bearer –The instrument is payable to bearer:

(a) When it is expressed to be so payable;(b) When it is payable to a person named therein or to bearer;(c) When it is payable to the order of a fictitious or non-existing person,and such fact was known to the person making it so payable;(d) When the name of the payee does not purport to be the name of anyperson; or(e) When the only or last endorsement is an endorsement in blank.

A. Where a check is made payable to the order of ‘cash’, the word ‘cash’does not purport to be the name of any person and hence theinstrument is payable to bearer. The drawee-bank may pay it to theperson presenting it without need of obtaining any endorsement (AngTek Lian v. CA, 87 SCRA 383)

IV. COMPLETE BUT UNDELIVERED INSTRUMENTS

Sec. 16 Delivery; when effectual; when presumed – Every contract on a negotiable instrument is incomplete andrevocable until delivery of the instrument for the purpose of giving effectthereto. As between immediate parties and as regards a remote party

other than a holder in due course, the delivery, in order to be effectual,must be made either by or under authority of the party making, drawing,accepting or endorsing, as the case may be; and, in such case, the deliverymay be shown to have been conditional, or for a special purpose only,and not for the purpose of transferring the property in the instrument.But where the instrument is in the hands of a holder in due course, a validdelivery thereof by all parties prior to him so as to make them liable tohim is conclusively presumed. And there the instrument is no longer inthe possession of a party whose signature appears thereon, a valid andintentional delivery is presumed until the contrary is proven.

The payee of a negotiable instrument acquires no interest thereto untilits delivery to him. Delivery of an instrument means transfer ofpossession, actual or constructive, from one person to another withintent of transferring title thereto. However, it does not follow that thedrawer of an undelivered instrument is freed from the liability of theprincipal contract which gave rise thereto (Development Bank of Rizal v.Sima Wei, 219 SCRA 383)

V. LIABILITY OF PERSONS SIGNING AS AGENT

Sec.20 Liability of persons signing as agent, and so forth – Where the instrument contains or a person adds to his signaturewords indicating that he signs for or on behalf of a principal or in arepresentative capacity, he is not liable on the instrument if he was dulyauthorized; but the mere addition of words describing him as an agent,or as filling a representative character, without disclosing his principal,

does not exempt him from personal liability

A. A party who signs a bill of exchange as an agent, but failed to disclosehis principal becomes personally liable for the drafts he accepted. (Phil.Bank of Commerce v. Aruego, 102 SCRA 530)

B. The NIL provides that where any person is under obligation toendorse in a representative capacity, he may endorse in such terms as tonegative personal liability. An agent, when so signing, should indicatethat he is merely signing on behalf of the principal and must disclose thename of his principal; otherwise he shall be held personally liable.(Francisco v. CA, 319 SCRA 354)

VI. FORGERY

Sec.23 Forged Signature, effect of –When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative and noright to retain the instrument, or give a discharge therefor, or to enforcepayment thereof against any party thereto, can be acquired through orunder such signature, unless the party against whom it is sought toenforce such right is precluded from setting up the forgery or want ofauthority.

A. The collecting bank which endorsed the checks to the drawee-bankfor clearing, should be liable to the latter for reimbursement becausethe endorsement of the checks had been forged prior to delivery. Thepayments made by the drawee-bank to the collecting bank on accountof the forged checks were ineffective because the creditor-debtorrelationship between the depositor and the collecting bank had notbeen validly effected (Jai Alai v. BPI, 66 SCRA 29)

B. It is only the negotiation predicated on the forged instrument thatshould be declared inoperative. The negotiation of the check in questionbetween the parties after the immediate parties to the forgery shouldbe considered valid and enforceable, barring any claim of forgery.(Republic Bank v. Ebrada, 65 SCRA 681)

C. Petitioner MWSS was guilty of gross negligence in the printing of itspersonalized checks. The drawee-bank PNB cannot be faulted for nothaving detected the fraudulent encashment of the checks because theprinting of MWSS’s personalized checks was not done under itssupervision and control. MWSS was in a better position to detect andprevent the fraudulent encashment. (MWSS v. CA, 143 SCRA 20)

D. Having stamped its guarantee of ‘all prior endorsements and/or lackof endorsements’, the collecting bank is estopped from claimingotherwise. Whenever any bank treats the signature at the back of the check as an endorsement, and thus guarantees the same, it is liable. Thedrawer cannot be held liable for the negligence of the collecting bank.There is no privity between the drawer and the collecting bank. (Bancode Oro v. Equitable Banking Corp., 157 SCRA 189)

E. As a rule, a drawee bank who has paid a check on which anendorsement has been forged cannot charge the drawer’s account forthe amount of said check. An exception to the rule is where the draweris guilty of such negligence which causes the bank to honor such a checkor checks. (Gempesaw v. CA, 218 SCRA 683)

F. The drawee-bank cannot debit the account of the drawer because itpaid checks which bore forged endorsements. However, if the drawerwas negligent to the point of contributing substantially to the loss, thenthe drawee-bank can charge the drawer’s account. If both the draweebank

and the drawer were negligent, the loss should be apportionedbetween them (Associated Bank v. CA, 252 SCRA 620)

G. The failure of FNCB as drawee-bank to inform the collecting bank,Metrobank, about the alteration of in question until after the lapse of 9days negates whatever right it might have had against Metrobank in thelight of Central Bank Circular No.9, as amended by Circular No.138, whichrequires all items cleared on a particular clearing to be returned not laterthan 3:30PM on the following business day. While it is true that

Metrobank endorsed the check, such an endorsement must be readtogether with the 24-hour rule on Clearing House Operations of theCentral Bank (Metrobank v. FNCB, 118 SCRA 537)

H. It is true that when an endorsement is forged, the collecting bank orlast endorser, as a general rule, bears the loss. But the unqualifiedendorsement of the collecting bank should be read together with the24-hour rule on clearing house regulations. When the drawee bank failsto return a forged or altered check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability.(Republic Bank v. CA, 196 SCRA 100)

I. The mere fact that the forgery was committed by a drawer-payor’sconfidential employee or agent, who by virtue of his position hadunusual facilities for perpetrating the fraud and imposing the forgedpaper upon the bank, does not entitle the bank to shift the loss to thedrawer-payor, in the absence of circumstances raising estoppel againstthe drawer.

A bank is liable for the fraudulent acts or representations of anoffice or agent acting within the scope of his employment or authority.But in this case, responsibility for negligence does not lie on thecollecting bank’s shoulders alone. Citibank, as drawee-bank was likewisenegligent, and must also answer for the damages suffered by thedrawer because of the contractual relationship between it and thelatter. Thus, invoking the doctrine of comparative negligence, both PCIand Citibank are equally liable. (PCI Bank v. CA, 350 SCRA 446)

J. It is a rule that when a signature is forged or made without theauthority of the person whose signature is forged or made without theauthority of the person whose signature it purports to be, the check iswholly inoperative. However, the rule does provide for an exception,namely: ‘unless the party against whom it is sought to enforce such rightis precluded from setting up the forgery or want of authority.’ In theinstant case, it is the exception that applies. Petitioner is precluded fromsetting up the forgery, assuming there is forgery, due to his ownnegligence in entrusting to his secretary his credit cards and checkbookincluding the verification of his statements of account (Ilusorio v. CA,393 SCRA 89)

K. The bare fact that the forgery was committed by an employee of theparty whose signature was forged cannot necessarily imply that suchparty’s negligence was the cause of the forgery. Employers do not possess the preternatural gift of cognition as to the evil that may lurkwithin the hearts and minds of their employees. (Samsung ConstructionCo. Phils., Inc. v. FEBTC, 436 SCRA 402)VII. MATERIAL ALTERATION

Sec.124 Alteration of instrument; effect of – Where a negotiable instrument is materially altered and without

the assent of all the parties liable thereon, it is avoided, except as againsta party who has himself made, authorized or assented to the alterationand subsequent endorsers. But when an instrument has been materially altered and is in thehands if a holder in due course not a party to the alteration, he mayenforce payment thereof according to its original tenor.

Sec.125 What constitutes a material alteration – Any alteration which changes:(a) The date;(b) The sum payable, either for principal or interest;(c) The time or place of payment;(d) The number or relations of the parties;(e) The medium or currency in which payment is to be made;(f) Or which adds a place of payment where no place of payment isspecified, or any other change or addition which alters the effect of theinstrument in any respect, is a material alteration

A. An alteration is said to be material if it alters the effect of theinstrument. It means an unauthorized change in an instrument thatpurports to modify in any respect the obligation of a party or anunauthorized addition of words or numbers or other change to aninstrument relating to the obligation of a party. In other words, amaterial alteration is one which changes the items which are required to be stated under Sec.1, NIL. The drawee bank cannot refuse to accept acheck on the ground that the serial number of the said check wasaltered, since the serial number is an item which is not an essentialrequisite for negotiability under Sec.1, NIL. The alteration did not changethe relations between the parties. (PNB v. CA, 256 SCRA 491)

B. The insertion of the words ‘Agent, Phil. National Bank’ which convertsthe bank from a mere drawee to a drawer and therefore changes itsliability constitutes a material alteration of the instrument without theconsent of the parties liable thereto, and so discharges the instrument.(Montinola v. PNB, 88 Phil 178)

VIII. ACCOMMODATION PARTY

Sec.29 Liability of Accommodation Party – An accommodation party is one who has signed the instrumentas maker, drawer, acceptor and endorser, without receiving valuetherefor, and for the purpose of lending his name to some other person.Such a person is liable on the instrument to a holder for value,notwithstanding such holder, at the time of taking the instrument, knewhim to be only an accommodation party.

A. a solidary accommodation maker who made payment has the right tocontribution from is co-accommodation makers, in the absence ofagreement to the contrary between them, and subject to conditionsimposed by law (Sadaya v. Sevilla, 19 SCRA 924)

B. Sec.29, NIL does not include nor apply to corporations which areaccommodation parties, because the issue or endorsement ofnegotiable paper by a corporation without consideration and for theaccommodation of another is ultra vires. By way of exception, an officeror agent of a corporation shall have the power to execute or endorse a negotiable paper in the name of the corporation for the accommodationof a third person only if specifically authorized to do so (Crisologo-Josev. CA, 177 SCRA 594)

C. A holder of a check who is not a holder in due course cannot sue thedrawer-accommodation party. The Steelweld check was given by itspresident to R.Y. Lim only by way of accommodation, to be used ascollateral for another obligation. In breach of trust, R.Y. Lim endorsedthe check in payment of an obligation to a third person, Armstrong.When the latter deposited the same, it was dishonored and after thedishonor, Stelco came into possession of it. Stelco’s mere possession ofthe check does not make it a holder for value and gives no rise to liabilityon the part of the accommodation party, Steelweld, under Sec.29, NIL(Stelco Marketing v. CA, 210 SCRA 52)

D. An accommodating party lends his credit to the accommodated partyby issuing or endorsing a check which is held by a payee or endorsee as aholder in due course who gave full value therefor to the accommodatedparty. The accommodated party receives full value, for which he mustthen repay the accommodating party unless of course the latterintended to make a donation to the former. But the accommodatingparty is bound on the check to the holder in due course who isnecessarily a third person and is not the accommodated party (TravelOn,Inc. v. CA 210 SCRA 352)

E.Ordinarily, Napiza having affixed his signature at the dorsal side of the check, should be liable for the amount stated therein in accordance with Sec.66, NIL (i.e.: as a general indorser, and not as an accommodation

maker), however, to hold him liable by the strict application of the law would result in injustice. The proximate cause of the withdrawal and eventual loss on BPI’s part was its own personnel’s negligence inallowing withdrawals in disregard of its own rules and the clearing requirement in the banking system. In so doing, BPI assumed the risk of a forged or counterfeit foreign check and hence, should suffer the resulting damage (BPI v. CA, 326 SCRA 641)

F. An accommodation party has the right, after paying the holder, toobtain reimbursement from the party accommodated, since therelationship between them has in effect become one of principal andsurety, the accommodation party being the surety (AgroConglomerates, Inc. v. CA, 348 SCRA 450)

IX. HOLDERS IN DUE COURSE

Sec.52 What constitutes a holder in due course – A holder in due course is a holder who has taken the instrument

under the following conditions:(a) That it is complete and regular upon its face;(b) That he became the holder of it before it was overdue and withoutnotice that it has previously been dishonored, if such was the fact;(c) That he took it in good faith and for value; and(d) That at the time it was negotiated to him, he had no notice of anyinfirmity in the instrument or defect in the title of the person negotiatingit.

Sec.53 When person not deemed holder in due course – Where an instrument payable on demand is negotiated on anunreasonable length of time after its issue, the holder is not deemed aholder in due course

Sec.57 Rights of a holder in due course – A holder in due course holds the instrument free from any defectof title of prior parties, and free from defenses available to prior partiesamong themselves, and may enforce payment of the instrument for thefull amount thereof against all parties liable thereon Sec.59 Who is deemed holder in due course – Every holder is deemed prima facie to a holder in due course; butwhen it is shown that the title of any person who has negotiated theinstrument was defective, the burden is on the holder to prove that he orsome person under whom he claims, acquired title as holder in duecourse. But the last-mentioned rule does not apply in favor of a partywho became bound on the instrument prior to the acquisition of suchdefective title.

A. Where a holder’s title is defective or suspicious, it cannot be statedthat the payee acquired the check without the knowledge of suchdefect in holder’s title, and for this reason the presumption that he is aholder in due course or that he acquired the instrument in good faithdoes not exist. Where the payee acquired the check undercircumstances which should have put him on inquiry (i.e.: why the holderhad the check and used it to pay his own personal account) the dutydevolved upon him to prove that he actually acquired the check in goodfaith (de Ocampo v. Gatchalian, 3 SCRA 596)

B. The holder of a cashier’s check who is not a holder in due corusecannot enforce such check against the issuing bank which dishonors thesame. If a payee of a cashier’s check obtained it from the issuing bank byfraud, or if there is some other reason why the payee is not entitled tocollect the check, the bank would, of course, have the right to refusepayment on the check when presented by the payee since the bank wasaware of the facts and circumstances surrounding the check (Mesina v.IAC, 145 SCRA 497)

X. LIABILITY OF THE GENERAL ENDORSER

Sec.63 When a person deemed endorser – A person placing his signature upon an instrument otherwisethan as a maker, drawer, or acceptor, is deemed to be an endorser unlesshe clearly indicates by appropriate words his intention to be bound insome other capacity

Sec.66 Liability of general endorser – Every endorser who endorses without qualification, warrants toall subsequent holders in due course:(a) The matters and things mentioned in subdivisions (a), (b) and (c) ofthe preceding section*, and;(b) That the instrument is, at the time of his endorsement, valid andsubsisting;And, in addition, he engages that, on due presentment, it shall beaccepted, or paid or both, as the case may be, according to its tenor andthat if it be dishonored and the necessary proceedings on dishonor beduly taken, he will pay the amount thereof to the holder, or to anysubsequent endorser who may be compelled to pay it.

*Sec.65 Warranty where negotiation by delivery and so forth –x x x(a) That the instrument is genuine and in all respects what it purports tobe;(b) That he has good title to it;(c) That all prior parties had capacity to contractx x x

Sec.17 Construction where instrument is ambiguous – Where the language of the instrument is ambiguous or there areomissions therein, the following rules of construction apply:x x x(f) Where a signature is so placed upon the instrument that it is not clearin what capacity the person making the same intended to sign, he isdeemed an endorser x x x

A. ‘Recourse’ means resort to a person who is secondarily liable afterthe default if the person who is primarily liable. Sambok, by endorsingthe note ‘with recourse’ does not make itself a qualified endorser but ageneral endorser who is secondarily liable (Metropol v. Sambok, 120SCRA 846)

B. Notwithstanding criminal liability, Imperial is still civilly liable on thechecks, having signed the same as a general endorser. The dispositiveportion acquitting her dealt only with her criminal liability, not her civilliability. (Maralit v. Imperial, 301 SCRA 605)

C. Sec.17, NIL states that where a signature is so placed upon the

instrument that it is not clear in what capacity the person making itintended to sign, he is deemed an endorser. Under Sec.63, NIL, a personplacing his signature other than as maker, drawer, or acceptor, isdeemed to be an endorser unless an intention to be bound in someother capacity can be shown. The liabilities of a general endorser are setforth in Sec.606, NIL. It is undisputed that the 4 checks were signed bypetitioner at the back without any indication as to how she would bebound thereby, and therefore, she is deemed to be an endorser thereof.(Sapiera v, CA, 314 SCRA 370)

D. Petitioner contends that that by signing the withdrawal slip, privaterespondent Napiza ‘presented the opportunity for the withdrawal of theamount in question’. Ordinarily, private respondent may be held liable asan endorser of the check or even as an accommodation party, however,to hold him responsible for the amount of the check he deposited by thestrict application of the law and without considering the attendingcircumstances in the case would result in an injustice and in the erosionof the public trust in the banking system. Under petitioner’s own rulesto be able to withdraw from the savings account deposit a duly-fil;led up withdrawal slip and the depositor’s passbook must be presented. Inallowing the withdrawal of private respondent’s deposit in disregard ofits own rules, it is clear that the negligence of BPI was the proximatecause of the loss. (BPI v. CA, 326 SCRA 641)

XI. PRESENTMENT FOR PAYMENT/ACCEPTANCE

Sec.143 When presentment for acceptance must be made – Presentment for acceptance must be made:

(a) Where the bill is payable after sight, or in any other case, wherepresentment for acceptance is necessary in order to fix the maturity ofthe instrument; or(b) Where the bill expressly stipulates that it shall be presented foracceptance; or(c) Where the bill Is drawn payable elsewhere than at the residence orplace of business of the draweeIn no other case is presentment for acceptance necessary in order torender any party to the bill liable

Sec.144 When failure to present releases drawer and endorser – Except as herein otherwise provided, the holder of a bill which isrequired by the next preceding section to be presented for acceptancemust either present it for acceptance or negotiate it within a reasonabletime. If he fails to do so, the drawer and all endorsers are discharged.

A. Presentment for acceptance is necessary only in the cases expresslyprovided for in Sec.143, NIL. Sight draft do not require presentment foracceptance. Corollarily, sight drats, pursuant to sec.7, NIL are payable ondemand. (Prudential Bank v. IAC, 216 SCRA 257)

B. Nowhere in Batas Pambansa 22 is a person required to maintain fundsin his account for only 90 days. That the check must be deposited within 90 days is simply one of the conditions for the prima facie presumptionof knowledge of lack of funds to arise. Corollarily, under Sec.185, NIL, acheck must be presented for payment within a reasonable time after itsissue or the drawer will be discharged from liability thereon to theextent of the loss caused by the delay (Wong v. CA, 357 SCRA 100)

C. While it is true that failure to present for payment within a reasonabletime will result in the discharge of the drawer to the extent of the losscaused by the delay, failure to present on time does not totally wipe outall liability. The original obligation to pay certainly has not been erased.(International Corporate Bank v. Sps. Gueco, 351 SCRA 516)

XII. CHECKS

Sec.185 Check, defined – A check is a bill of exchange drawn on a bank, payable ondemand. Except as herein otherwise provided, the provisions of this Actapplicable to a bill of exchange payable on demand apply to a check.

Sec.186 Within what time a check must be presented – A check must be presented for payment within a reasonabletime after its issue or the drawer will be discharged from liability thereonto the extent of the loss caused by the delay.

A. That State Investment failed to give notice of dishonor to Moulic is ofno moment. The need for such notice is not absolute; there areexceptions under Sec.114, NIL (i.e.: when notice need not be given todrawer). Moulic already knew of the dishonor because, by withdrawingher funds to protect herself, she could not have expected her checks tobe honored. The withdrawal of the money from the drawee bank to avoidliability on the checks cannot prejudice the rights of holders in due course. The drawing and negotiation of a check have certain effectsaside from the transfer of title or the incurring of liability in regard to theinstrument by the transferor. The holder who takes the negotiatedpaper makes a contract with the parties on the face of the instrument.There is an implied representation that funds or credit are available forthe payment of the instrument in the bank upon which it is drawn.Consequently, the withdrawal of money renders Moulic liable to StateInvestment, a holder in due course. (State Investment House, Inc v. CA,217 SCRA 32)

B. The crossing of a check has the following effects: (a) the check maynot be encashed but only deposited in the bank; (b) the check may benegotiated only once – to the one who has an account with the bank; (c)the act of crossing a check serves as a warning to the holder that thecheck has been issued for a definite purpose so that he must inquire ifhe has received the check pursuant to that purpose, otherwise he is nota holder in due course (Bataan Cigar and Cigarette Factory, Inc v. CA, 230SCRA 643)

C. A bank is liable for dishonoring checks which are sufficiently funded,notwithstanding the fact that the depositor wrote down an inaccurateaccount number. The use of numbers is simply for the convenience ofthe bank but was never intended to disregard the real name of thedepositor. (Citytrust Banking Corp. v. IAC, 232 SCRA 559)

D. A cashier’s check is a primary obligation of the issuing bank andaccepted in advance by its issuance. By its very nature, a cashier’s checkis a bank’s order to pay, drawn upon itself, committing in effects its totalresources, integrity and honor behind the check (Tan v. CA, 239 SCRA310)

E. While it is true that the delivery of a check produces the effect ofpayment only when it is cashed pursuant to article 1249 of the civil code, the rule is otherwise if the debtor is prejudiced by the creditor’sunreasonable delay in presentment (Papa v. A.U. Valencia, 284 SCRA643)

XIII. ADDITIONAL DOCTRINES

A. There are well-defined distinctions between the contract of anendorser and that of a guaranty/surety of a commercial paper. Thecontract of endorsement is primarily that of transfer, while the contractof guaranty is that of personal security. The liability of an endorser is notas broad as that of a guarantor or surety (Allied Banking Corp. v. CA, 494SCRA 467)

B. A check of itself does not operate as an assignment of any part of the

funds to the credit of the drawer with the bank, and the bank is notliable to the holder unless and until it accepts or certifies the check. If abank refuses to pay a check, the payee-holder cannot sue the bank. Thepayee should instead sue the drawer, who might in turn sue the bank.(Villanueva v. Nite, 496 SCRA 459)

C. The term ‘bill of exchange’ denotes checks, drafts and all other kindsof orders for the payment of money, payable at sight or on demand, orafter a specific period after sight or from a stated date. A bill of exchange and letter of credit may differ as to theirnegotiability, and as to who owns the funds used for the payment of theinstrument at the time presentment is made. However, in both cases, aperson orders another to pay money to a third person. (BPI v. CIR, 496SCRA 601)

D. Manager’s Checks are drawn by the bank’s manager upon the bankitself and regarded to be as good as the money they represent. The crossing of a check with the phrase ‘Payee’s Account Only’is a warning that the check should only be deposited in the payee’saccount, and such is the duty of the collecting bank. (Citibank v.Sabeniano, 504 SCRA 378)

E. A check which has been cleared and credited to the account of thecreditor shall be equivalent to a delivery to the creditor of cash in anamount equal to the amount credited to his account. A manager’s check stands on the same footing as a certifiedcheck. Under Sec.187, NIL, where a check is certified by the bank onwhich it is drawn, the certification is equivalent to acceptance.(Equitable PCI Bank v. Ong, GR. No. 156207, Sept. 15, 2006)

F. Discrepancies in the serial numbers of checks cannot be said to bematerial alterations. A material alteration is one which changes theitems which are required under Sec.1, NIL; as well as those items underSec.125, NIL (International Corp. Bank v. CA and PNB, 501 SCRA 20)

G. Sec.66, NIL regarding the liabilities of a general endorser cannot beused by the party which introduced a defect on the instrument. Sec.66must be read in the light of the rule in equity requiring that those whocome to court should come with clean hands (Gonzales v. RCBC, 508SCRA 459)

H. The drawee bank cannot shift liability to the collecting bank withrespect to a material alteration where the drawer and drawee were notgrossly negligent. The drawee bank cannot rely on the collecting bank’sendorsement in clearing the check. The corollary liability of suchendorsement is separate and independent from the liability of thedrawee to the drawer (Metrobank v. Cabilzo, 510 SCRA 259)

I. Only a full payment of the face value of a check at the time ofpresentment or during the 5-day grace period granted by Batas

Pambansa 22 could exonerate a person so charged from criminalliability. A contrary interpretation would defeat the purpose of BP 22 asthe drawer could very well have himself exonerated by the mereexpediency of paying a minimal fraction of the face value of the check(Macalalag v. People of the Philippines, 511 SCRA 400)

J. The transaction referred to in Sec.49, NIL is an equitable assignmentwhere the transferor acquires the instrument subject to defenses andequities available among prior parties. The underlying premise of theprovision is that a valid transfer of ownership of the negotiableinstrument in question has taken place. (BPI v. CA, 512 SCRA 620)