negotiable law memo aid

7/30/2019 negotiable law memo aid

1/41

2.Negotiable

Instruments Law (ActNo. 2031)

Chapter I.INTRODUCTION

1. The Negotiable Instrument

Written contract for the payment of money, byits form intended as substitute for money andintended to pass from hand to hand to give theHDC the right to hold the same and collect thesum due.Instruments are negotiable when they conform

to all the requirements prescribed by the NIL(Act 2031, 03 February 1911).Although considered as medium for payment ofobligations, negotiable instruments are notlegal tender (Sec. 60, New Central Bank Act,R.A. 7653);Negotiable instruments shall produce the effectof payment only when they have beenencashed or when through the fault of thecreditor they have been impaired. (Art. 1249,CC) BUT a CHECK which has been cleared andcredited to the account of the creditor shall beequivalent to a delivery to the creditor of cash.

Negotiable Non-negotiableContains all therequisites of Sec. 1 ofthe NIL

Does not contain all therequisites of Sec. 1 ofthe NIL

Transferred bynegotiation

Transferred byassignment

HDC may have betterrights than transferor

Transferee acquiresrights only of histransferor

Prior parties warrantpayment

Prior parties merelywarrant legality of title

Transferee has rightof recourse againstintermediate parties

Transferee has no rightof recourse

2. Negotiable Instruments Lawo The NIL applies only to instruments which

conform with the requisites laid down by Sec1of the law. Should any of said requisites beabsent, the instrument would not be negotiableand would therefore not be governed by theNIL but by the general law on contracts.

o TIP: It is advised that one memorizes the twomost important provisions of the NIL : Sec. 1(Forms of negotiable instruments) and Sec. 52(What constitutes a holder in due course)

MICHAEL A. OSMEA v. CITIBANK (2004)

The Negotiable Instruments Law was enacted for thepurpose of facilitating, not hindering or hamperingtransactions in commercial paper. Thus, the said

statute should not be tampered with haphazardly orlightly. Nor should it be brushed aside in order tomeet the necessities in a single case.

3. Life of a NegotiableInstrument

1. issue2. negotiation3. presentment for acceptance in certain bills4. acceptance5. dishonor by or acceptance6. presentment for payment7. dishonor by nonpayment8. notice of dishonor9. protest in certain cases10. discharge

4. Kinds of NegotiableInstruments

4.1. Promissory note - a promise to paymoney

unconditional promise in writing made byone person to another signed by the makerengaging to pay on demand, or at a fixed ordeterminable future time a sum certain in

money to order or to bearerwhere a note is drawn to the makers ownorder, not complete until indorsed by him(Sec. 184, NIL).

4.2. Bill of exchange - an ordermade by oneperson to another to pay money to a third person.

unconditional order in writing addressed byone person to another signed by the persongiving itrequiring the person to whom it is addressedto pay on demand or at a fixed ordeterminable future time a sum certain inmoney to order or to bearer (Sec. 126, NIL).

Check: bill of exchange drawn on abankpayable on demand.

Promissory Note Bill of ExchangeUnconditional promise Unconditional order

Involves 2 parties Involves 3 parties

Maker primarily liable Drawer only secondarilyliable

Only 1 presentment - Generally 2


2/41

for payment presentments - for

acceptance and forpayment

5. Parties

5.1. As regardspromissory note:1. Promissor/maker

2. Payee - person to whom the promise topay is made.

5.2. As regards bill of exchange:1. Drawer - person who gives the order to

pay.2. Drawee - addressee of the order.3. Payee - person to whom the payment is to

be made.

Indorser - the payee of an instrument whotransfers it to another by signing it at the backthereofIndorsee - person to whom the indorsernegotiates the instrument, who, by suchnegotiation, becomes the holder of theinstrument.

Chapter II.NEGOTIABILITY

1 Requisites of Negotiability1

1.1. Must be in Writing and Signed bythe Maker

1. No person liable on the instrument whose

signature does not appear thereon.2. One who signs in a trade or assumed

name liable to same extent as if he hadsigned in his own name. (Sec. 18, NIL)

3. Signature of party may be made by dulyauthorized agent; no particular form ofappointment necessary. (Sec. 19, NIL)

4. "In writing" - includes print; written ortyped

5. Signature, binding so long it is intendedor adopted as the signature of the signer ormade with his authority.

1.2. Must contain an UnconditionalOrder or Promise to Pay

1Suggested Mnemonics: UP MaSCoTS PaWN:

Unconditional order and Promise, payable in

Money, Signed by maker, Certainty as to Time, Sum

and Parties, in Writing, include words of

Negotiability.

1. ORDER OR PROMISE TO PAYa. PROMISSORY NOTE:

i. PROMISE TO PAY: should beexpress on the face of theinstrument

ii. Word "promise" is not absolutelynecessary. Any expressionequivalent to a promise is sufficient.

iii. Mere acknowledgment of a debt

insufficientb. BILLS OF EXCHANGE:

i. Order - command or imperativedirection; the instrument, by itsnature, demanding a right.

ii. Words which are equivalent to anorder are sufficient.

iii. A mere request or authority topaydoes not constitute an order.

iv. Although the mere use of politewords like "please" does not of itselfdeprive the instrument of itscharacteristics as an order, itslanguage must clearly indicate ademand upon the drawee to pay.

2. UNCONDITIONALa. The promise or order to pay, to be

unconditional, must be unqualified.b. Sec. 3, NIL: An unqualified order or

promise to pay is unconditionalthoughcoupled with:

i. An indication of a particular fund outof which reimbursement is to bemade, or a particular account to bedebited with the amount

UNCONDITIONAL: Mereindication of the particular fundout of which reimbursement isto be made, or an indication ofa particular account to be

debited with the amountii. A statement of the transaction which

gives rise to the instrument.UNCONDITIONAL: Mererecital of the transaction orconsideration for which theinstrument was issuedHowever, the fact that thecondition appearing on theinstrument has been fulfilledwill not convert it into anegotiable one.

iii. But an order or promise to pay out ofa particular fund is not unconditional

CONDITIONAL: whenreference to the fund clearly

indicates an intention that suchfund alone should be the sourceof payment


3/41

METROPOLITAN BANK v. CA (1991)

The treasury warrants in question are not NIs. Theyare payable from a particular fund, to wit, Fund501. The indication of Fund 501 as the source of thepayment to be made on the treasury warrantsmakes the order or promise to pay "notunconditional" and the warrants themselves non-negotiable.

1.3. Sum Payable must be Certain1. Sec. 2, NIL: The sum payable is a sum

certain, even if:a. With interest;b. By stated installments;c. By stated installments with

acceleration clause;d. With exchange, whether at a fixed rate

or at the current rate; ore. With costs of collection or attorney's

fee.2. A sum is certain if from the face of the

instrument it can be mathematicallycomputed.

3. A stipulation to pay a higher rate ofinterest if the note is not paid or a lowerrate if it is paid on or before maturity doesnot render the instrument non-negotiable.

1.4. Must be Payable in Money1. Capable of being transformed into money.2. NON NEGOTIABLE: an instrument which

contains an order or promise to do an actin addition to the payment of money

3. BUT If the order or promise gives theholderan election to require something tobe done in lieu of payment of money, aninstrument otherwise negotiable would notbe affected thereby. (Sec. 5, NIL)

But if the option is with themakeror person primarily liable,

instrument is NOT negotiable.4. Kind of current money does not affect

negotiability. Since the value of the notecan by a simple mathematical computationbe expressed in the value of the lawful

money of the latter country (Incitti vFerrante, 1933, US Jur)

5. Obligations in foreign currency may bedischarged in Philippine currency based onthe prevailing rate at the time of payment,pursuant to RA 8183 (Asia WorldRecruitment v NLRC, 1999).

1.5. Time of Payment must be Certain

Purpose: Informing the holder of theinstrument of the date when he mayenforce payment thereof.An instrument may be payable:

1. on demand (Sec. 7. NIL)1.) Expressed to be payable on demand,

or at sight, or on presentation;

2.) No time for payment is expressed;3.) Where an instrument is issued,

accepted, or indorsed when overdue, itis, as regards the person so issuing,accepting, or indorsing it, payable ondemand.

Demand instruments: Holder may call forpayment any time; maker has an option topay at any time, and the refusal of the

holder to accept payment will terminate therunning of interest, if any, but the obligationto pay the note remains.

2. at a fixed timeo Only on the stipulated date, and not

before, may the holder demand itspayment.

o Should he fail to demand payment, theinstrument becomes overdue butremains valid and negotiable. It ismerely converted to a demandinstrument.

3. at a determinable future time

o Determinable future time, ifexpressed to be payable (Sec. 4, NIL):

1.) At a fixed period after date of sight;2.) On or before a fixed or determinable

future time specified therein;3.) On or at a fixed period after the

occurrence of a specified eventwhich is certain to happen, thoughthe time of happening be uncertain.

o If payable upon a contingency, bothnegotiable, and the happening of theevent does not cure the defect.

4. Effect ofacceleration provisionso If option (absolute or conditional) to

accelerate maturity is on the maker,still NEGOTIABLE. Maker may pay earlier than the date

fixed but this option, if exercised,would be apayment in advance ofa legal liability to pay. It is stillpayable on the date fixed, andholder has no right to enforcepayment against the makerbefore such date.

o If optionto accelerate is on the holder: If option can be exercised onlyafter

the happening of a specifiedevent/act over which he has no

control (conditional), stillNEGOTIABLE.

If option is unconditional, time ofpayment is rendered uncertain,NOTnegotiable.

o Other instances where instrument stillNEGOTIABLE:


4/41

When option given to the holder

to accelerate the maturity of aninstallment note upon failure ofthe maker to pay any installmentwhen due.

Acceleration, automatic upondefault.

Acceleration by operation of law.

5. Provisions extending time of paymento General rule: Negotiability not

affected. Effect is similar with that ofan acceleration clause at the option ofthe maker. Negotiability not affected, even if

the holder is given the option toextend time of payment by mereinaction or indulgence for anindefinite time depending on hiswill, because with or without thisprovision, the holder may alwayschoose to be indulgent.

o Exception: Where a note with a fixedmaturity provides that the maker has

the option to extend time of paymentuntil the happening of contingency,

instrument NOT negotiable. The timefor payment may never come at all.

1.6. Must be Payable to Order or toBearer/ Must contain Words ofNegotiability

words of negotiability - serve as anexpression of consent that the

instrument may be transferred.o But the instrument need not follow

the language of the law; any termwhich clearly indicates an intentionto conform with the legalrequirements is sufficient.

SALAS v CA (1990)

Among others, the instrument in order to beconsidered negotiable must contain the so-called"words of negotiability i.e., must be payable to"order" or "bearer"". Under Section 8 of theNegotiable Instruments Law, there are only twoways by which an instrument may be made payableto order. There must always be a specified personnamed in the instrument and the bill or note is to bepaid to the person designated in the instrument orto any person to whom he has indorsed anddelivered the same.

CALTEX v. CA (1992)

The negotiability or non-negotiability of an instrumentis determined from the face of the instrument itself.The duty of the court in such case is to ascertain, notwhat the parties may have secretly intended but whatis the meaning of the words they have used.

Traders Royal Bank v. CA (1997)The language of negotiability which characterize anegotiable paper as a credit instrument is its freedomto circulate as a substitute for money. Hence,

freedom of negotiability is the touchtone relating tothe protection of holders in due course, and thefreedom of negotiability is the foundation for theprotection which the law throws around a holder indue course.

Postal money order, not negotiable,because it does not contain words ofnegotiability.Where words "or bearer" printed on acheck are cancelled by the drawer,instrument not negotiable.Bearer instrument may be negotiated bymere delivery.o When instrument is payable to bearer

(Sec. 9, NIL):a. Expressed to be so payable - ex: "I

promise to pay the bearer thesum."

b. Payable to a person named thereinor bearer ex. "Pay to A orbearer."

c. Payable to the order of a fictitiousperson or non-existing person, andsuch fact was known to the personmaking it so payable - ex: "Pay toJohn Doe or order."

d. Name of payee does not purport tobe the name of any person - ex:"Pay to cash;" "Pay to sundries."

e. Only or last indorsement is an

indorsement in blank.

ANG TEK LIAN v. CA (1950)

A check drawn payable to the order of cash is acheck payable to bearer, and the bank maypay it to the person presenting it for paymentwithout the drawer's indorsement.A check payable to bearer is authority forpayment to the holder. Where the check is inthe ordinary form and is payable to bearer, sothat no indorsement is required, a bank, towhich it is presented for payment, need nothave the holder identified, and is not negligentin failing to do so.

Order Instrument, negotiation requiresdelivery and indorsement of the transferor.o When instrument is payable to order:

Drawn payable to the order of aspecified person or to him or his order(Sec. 8, NIL).


5/41

o Without the words "to order" or "to the

order of," the instrument is payableonly to the person designated thereinand is therefore non-negotiable.(Campos, as cited in ConsolidatedPlywood Industries v IFC Leasing,1987)

1.7. Parties must be designated with

Certaintya. Maker and drawer

Sign the instrument at the lowerright-handcorner.

b. PayeeWhen negotiating, sign at the back;same with indorsers.

a. DraweeName usually at the lower left-handcorner, or across the top.If instrument addressed todrawee, he must be named orindicated with reasonablecertainty.

If it is not clear in what capacity the person

signed, said person is considered anindorser

2 Provisions Not AffectingNegotiability, (Sec. 5)2

1. Authorizes sale of collateral securities;

2. Authorizes confession of judgment if instrumentnot paid at maturity;

3. Waives the benefit of any law intended for theadvantage or protection of the obligor; or

4. Gives holder election to require something tobe done in lieu of payment of money. (if inaddition to money not NI)

Negotiability affected, when instrumentcontains a promise or order to do anyact in addition to the payment ofmoney.

PNB v. MANILA OIL REFINING (1922)

In this case, the note contains a provision that incase that it would not be paid at maturity, the"maker authorizes any attorney to appear andconfess judgment thereon."The Court ruled that said judgment note is illegaland inoperative as such is against public policy. It

noted that it is in derogation of the constitutionalsafeguards (a day in court). Such judgment note

2 Suggested Mnemonic: WEJy S: Waives, gives

holder Election, confession of Judgment, Sale of

Securities

can only be valid if given express legislative sanction.

In common law, two kinds of judgment byconfession: Judgment by cognovit actionem Confession relicta verificatione

3. Omissions Not Affecting

Negotiability (Sec. 6)A. Non-dating of the instrumentB. Non-specification of value given, or that any

value had been given

C. Non-specification of place where it is drawn orplace where it is payable

D. Bears a sealE. Designation of particular kind of currency in

which payment is to be made

4. Rules of Construction(Sec.17)

A. Sum expressed in words takes precedence oversum in numbers; BUT where words are soambiguous or uncertain, reference to the figuresshould be made

B. Where interest is stipulated, without specificationof the starting date, the interest runs from thedate of the instrument, and if undated, from theissue thereof

C. An undated instrument is considered dated as oftime issued.

D. Written provisions prevail over printed provisionsE. Where the instrument is ambiguous as to

whether it is a note or a bill, the holder may treatit as either at his election

F. When the capacity of signatory is not clear, he isto be deemed an indorser

G. I promise to pay when signed by two or morepersons is deemed to be jointly and severallysigned

Chapter III.TRANSFER

1. Delivery and Issuance

A. Delivery means transfer of possession ofinstrument by the maker or drawer, with intentto transfer title to the payee and recognize himas holder thereof. (de la Victoria v. Burgos)

B. NI incomplete and revocable until delivery for thepurpose of giving effect thereto as between(Sec. 16, NIL):1. immediate parties


6/41

2. a remote party other than holder in due

courseC. delivery, to be effectual, must be made by or

under the authority of the party making /drawing / accepting/indorsing

D. delivery may be shown to have beenconditional, or for a special purpose only, andnot for the purpose of transferring the propertyin the instrument

E. PRESUMPTION OF DELIVERY

1. Where the instrument is no longer in thepossession of a party whose signatureappears thereon, a valid and intentionaldelivery by him is presumed until thecontrary is proved

2. if it is in the hands of a HDC, thepresumption is conclusive

3. Camposes: Should an undeliveredinstrument come into the hands of a holderin due course, the maker is liable to himregardless of any proof of the lack of validdelivery.

F. PRESUMPTION AS TO DATE1. Date is not an essential element of

negotiability2. An undated instrument is considered to be

dated as of the time it was issued

GEMPESAW v CA (1993)

Every contract on a negotiable instrument isincomplete and revocable until delivery of theinstrument to the payee for the purpose of givingeffect thereto.The first delivery of the instrument,complete in form, to the payee who takes it as aholder, is called issuance of the instrument.Withoutthe initial delivery of the instrument from thedrawer of the check to the payee, there can be novalid and binding contract and no liability on theinstrument.

2. Negotiation

When an instrument is transferred from one

person to another as to constitute thetransferee the holder thereof.

If payable to BEARER, negotiated by delivery; if

payable to ORDER, negotiated by indorsementof holder + delivery (Sec.30, NIL)

SESBREO v. CA (1993)

A NI may, instead of being negotiated, ALSO beassigned or transferred. A non-NI may not be

negotiated; but it may be assigned or transferred,absent an express prohibition against assignmentor transfer written in the face of the instrument.

3. Indorsement

The indorsement must be written on the

instrument itself or on a paper attached thereto(allonge). The signature of the indorser, withoutadditional words, is sufficient indorsement.(Sec.31, NIL)Indorser generally enters into two contracts(Implied contracts by Indorser):1. sale or transfer of instrument2. to pay instrument in case of default of maker

Indorsement must be of entire instrument (cantbe indorsement of only part of amount payable,nor can it be to two or more indorsees severally.But okay to indorse residue of partially paidinstrument) (Sec. 32, NIL)

3.1. Kinds of Indorsements (Sec. 33)

1. as to manner of future method ofnegotiation(Sec. 35, NIL):

a. special specifies the person to whom/towhose order the instrument is to be payable;indorsement of such indorsee is necessary tofurther negotiation.

A special indorser is liable to all

subsequent holders, unless theinstrument is an originally bearerinstrument, in which case he is liableonly to those who take title through hisindorsement (Sec 40, NIL)

b. blank specifies no indorsee, instrument soindorsed is payable to bearer, and may benegotiated by delivery

a person who negotiates by mere

delivery is liable only to his immediatetransferee.

the holder may convert a blank

indorsement into a special indorsementby writing over the signature of theindorser in blank any contract consistent

with the character of the indorsementAn order instrument may be converted into abearer instrument by means of a blankindorsement.

But a bearer instrument remains as suchwhether it has been indorsed specially or inblank. It is the liability of the indorser whichis affected.

2. as to kind of title transferred:

a. restrictive such indorsement either:1) prohibits further negotiation of

instrument,o In this kind of restrictive indorsement,

the prohibition to transfer or negotiatemust be written in express wordsat the back of the instrument, sothat any subsequent party may beforewarned that ceases to benegotiable. However, the restrictiveindorsee acquires the right to receive


7/41

payment and bring any actionthereon as any indorser, but he canno longer transfer his rights as suchindorsee where the form of theindorsement does not authorize himto do so. (Gempesaw v CA 1993)

2) constitutes indorsee as agent ofindorser, or

3) vests title in indorsee in trust for

anothero rights of indorsee in restrictive

ind.:a) receive payment of inst.b) Bring any action thereon

that indorser could bringc) Transfer his rights as

such indorsee, but allsubsequent indorseesacquire only title of firstindorsee under restrictiveindorsement

b. non-restrictive

3. as to kind of liability assumed by indorsera. qualified

constitutes indorser as mere assignorof title (eg. without recourse) (Sec.38, NIL).But this does not mean that thetransferee only has the rights of anassignee. Transfer remains anegotiation and transferee can still bea holder capable of acquiring a titlefree from defenses of prior parties.It relieves the qualified indorser of hisliability to pay the instrument shouldthe maker be unable to pay atmaturity.

b. unqualified

4. as to presence/absence of express limitationsput by indorser upon primary obligorsprivileges of paying the holder:

a. conditional additional condition annexedto indorsers liability. (Sec. 39, NIL)

o Where an indorsement is conditional, aparty required to pay the instrumentmay disregard the condition, andmake payment to the indorsee or histransferee, whether condition has beenfulfilled or not

o Any person to whom an instrument soindorsed is negotiated will hold the

same/proceeds subject to rights ofperson indorsing conditionally

b. unconditional

5. other classifications:

a. Absolute One by which the indorser bindshimself to pay, upon no other condition thanthe failure of prior parties to do so, and ofdue notice to him of such failure

b. Joint - Where instrument payable to theorder of two or more payees or indorsees notpartners, all must indorse, unless the oneindorsing has authority to endorse for theothers (Sec. 41, NIL)

c. Irregular - Where a person, not otherwise a

party to the instrument, places thereon hissignature in blank before delivery, he isliable as indorser

3.2. Other Rules on Indorsement

1. Indorsement by Collecting Bank - holderdeposits check with a bank other than thedrawee, would in effect be negotiating the checkto such bank, since he would have to indorse thecheck before the bank will accept it for deposit.In most cases, the bank is acting as a merecollecting agent.

2. Negotiation by Joint or Alternative Payeesor Indorsees - all must indorse, unless the oneindorsing has authority to endorse for the others

3. Unindorsed instruments Sec 49, NIL Whereholder of instrument transfers for value withoutindorsing, transfer vests in transferee:

a. such title as transferor had therein, subjectto defenses and equities available to priorparties

o ex: transferee can sue the transferor,though he does not therebyautomatically become a HDC (Furbee v.Furbee, 1936)

b. right to have indorsement of transferor,

after which, he becomes a holder or possiblya HDCo For purposes of determining whether or

not the transferee becomes a HDC aftersecuring the transferors indorsement,note that Sec. 52 must be met at thetime of the negotiation, i.e., whenindorsement is actuallymade.

BPI vs CA (2007)

The transaction [in Sec. 49, NIL] is an equitableassignment and the transferee acquires theinstrument subject to defenses and equities availableamong prior parties. Thus, if the transferor had legaltitle, the transferee acquires such title and, in

addition, the right to have the indorsement of thetransferor and also the right, as holder of the legaltitle, to maintain legal action against the maker oracceptor or other party liable to the transferor. Theunderlying premise of this provision, however, is thata valid transfer of ownership of the negotiableinstrument in question has taken place.


8/41

Transferees in this situation do not enjoy thepresumption of ownership in favor of holders sincethey are neither payees nor indorsees of suchinstruments Thus, something more than merepossession by persons who are not payees orindorsers of the instrument is necessary toauthorize payment to them in the absence of anyother facts from which the authority to receivepayment may be inferred.

4. Cancellation of Indorsements - Holder maystrike out indorsements not necessary to histitle. The endorser whose endorsement wasstruck out, and all endorsers subsequent tohim, are relieved from liability on theinstrument (Sec. 48, NIL)

5. Indorsement by Agent - agent should makeit plain that he is signing in behalf of a principalotherwise he may be made personally liable(Sec 20, NIL)

o The Negotiable Instruments Law providesthat where any person is under obligation

to indorse in a representative capacity, hemay indorse in such terms as to negative

personal liability. An agent, when sosigning, should indicate that he is merelysigning in behalf of the principal and mustdisclose the name of his principal;otherwise he shall be held personally liable.(FRANCISCO v CA, 1990)

6. Presumption as to Indorsemento Time (Sec.45, NIL) - Every negotiation

deemed prima facie effected beforeinstrument was overdue, except whereindorsement bears date after maturity ofthe instrument.

o Place (Sec.46, NIL) - Every indorsementis presumed prima facie made at place

where instrument is datedo Where instrument drawn or indorsed to

person as cashier (Sec.42, NIL) - deemedprima facie to be payable to the bank orcorporation of which he is such officer;may be negotiated by either theindorsement (1) of the bank or corporationor (2) of the officer.

7. Continuation of Negotiable Character - AnNI, although overdue, retains its negotiabilityunless it has been paid or restrictively indorsedto prevent further negotiation (Sec. 47, NIL)

8. Indorsement of bearer inst.o Where an instrument payable to bearer is

indorsed specially, it may nevertheless befurther negotiated by delivery

o Person indorsing specially liable as indorserto only such holders as make title throughhis indorsement

Chapter IV.HOLDER IN DUE COURSE

1. Holder (Sec. 191)Definition: Payee or indorsee of a bill or note

who is in possession of it, or the bearerthereof.

RIGHTS OF HOLDER (Sec. 51, NIL)1.sue thereon in his own name2.payment to him in due course discharges

instrument

2. Three Kinds of DUE COURSEHolding

a. HDC under Sec 52b. HDC under Sec 58 : A holder who derives

title to the instrument through a HDC has allthe rights of the latter even though hehimself satisfies none of the requirements ofdue course holding (Campos & Campos)

c. HDC under Sec 59 (presumption): every

holder is deemed prima facie to be a holderin due course

3. Requisites to become aholder in due course (Sec.52)3

SALAS v. CA (1990)

The indorsee was a HDC, having taken the instrumentunder the following conditions: (1) it is complete andregular upon its face; (2) it became the holderthereof before it was overdue; (3) it took the same ingood faith and for value; and (4) when it wasnegotiated to the indorsee, the latter had no notice of

any infirmity in the instrument or defect in the title ofthe previous indorser.

HDC is one who has taken the instrument under thefollowing conditions:

3.1. That it is complete and regularupon its face

1. COMPLETEo An instrument is complete if it contains

all the requisites for making it anegotiable one, even if it may haveblanks as to non-essentials.

o It is incomplete when it is wanting inany material particular or particular

3 suggested mnemonics: GROIN: Good faith and

value, complete and Regular, not Overdue, no notice

of Infirmity at time of Negotiation; or GROCI: Good

faith and value, Regular, not Overdue, Complete, no

Infirmity,


9/41

proper to be inserted in a NI withoutw/c the same will not be complete.

2. Material Particularso What are material particulars? A

change in the ff. is considered amaterial alteration (Sec. 125, NIL):i. The date;ii. The sum payable, either for

principal or interest;

iii. The time or place of payment;iv. The number or the relations of the

parties;v. The medium or currency in which

payment is to be made;vi. Or which adds a place of payment

where no place of payment isspecified,

3. Rights of HDC of instrument that has beenmaterially alteredo enforce payment thereof according to

its original tenor IF not a party to the

alteration. (Sec. 124, NIL)

3.2. That he became the holder of itbefore it was overdue and withoutnotice that it had been previouslydishonored, if such was the fact

1. OVERDUEa. The ff. cannot be HDCs: (Sec. 53,

NIL)i. A holder who became such after

the date of maturity of theinstrument (instrument isoverdue);

ii. In case of demand instruments, aholder who negotiates it after anunreasonable length of time afterits issue

b. Instruments with fixed maturity butsubject to acceleration: ultimate dateof maturity is the date of maturity forthe purpose of determining whether apurchaser is a HDC

c. Undated instruments: Prima faciepresumption that it was negotiatedbefore it was overdue (Sec 45)

d. NOTE: An overdue instrument is stillnegotiable, but it is subject to thedefense existing at the time of thetransfer.

2. DISHONORa. Non-acceptance

i. Occurs when drawee refuses toaccept the order of the drawer asstated in the bill

ii. Applicable only to bills ofexchange

iii. May occur before the date ofmaturity of the bill

b. Non-payment

i. Occurs when the party primarilyliable fails to pay at the date ofmaturity

ii. Date of Maturity1) payable after sightdate of

presentment2) Payable on the occurrence of a

specified eventdate is fixedby happening of event

3. An instrument is not invalid for the reason

only that it is ANTE-DATED OR POST-DATEDprovided not done for an illegal or fraudulentpurpose. The person to whom an instrumentso dated is delivered acquires the titlethereto as of the date of delivery. (Sec.12,NIL)

3.3. That he took it in good faith ANDfor value:

1. HOLDER FOR VALUE - (a) Where value hasat any time been given for the instrument,the holder is deemed a HFV in respect to allparties who become such prior to that time(Sec.26, NIL) and (b) Where the holder hasa lien on the instrument, he is deemed a HFV

to the extent of his lien (Sec.27, NIL).a. PRESUMPTION Every NI is deemedprima facie issued for valuableconsideration; and every person whosesignature appears thereon to havebecome a party thereto for value (Sec.24, NIL)i. In actions based upon a negotiable

instrument, it is unnecessary toaver or prove consideration, forconsideration is imported andpresumed from the fact that it is anegotiable instrument. Thepresumption exists whether thewords "value received" appear onthe instrument or not (Ong v

People, 2000)ii. BAYANI VS. PEOPLE (2004)

1) Under Section 28 of theNegotiable Instruments Law(NIL), absence or failure of

consideration is a matter ofdefense only as against anyperson not a holder in duecourse.

2) Moreover, Section 24 of the NILprovides the presumption ofconsideration. Suchpresumption cannot beovercome by the petitionersbare denial of receipt of the[consideration].

3) Only evidence of the clearestand most convincing kind willsuffice for that purpose.(Travel-On Inc v CA, 1992)

b. VALUE - any consideration sufficient tosupport a simple contract. An


10/41

antecedent or pre-existing debtconstitutes value, whether theinstrument is payable on demand or ata future time. (Sec.25, NIL)

i. MERCHANTS NATIONAL BANKOF ST. PAUL v. STA. MARIASUGAR CO. (1914)The mere discounting of the noteand placing the amount of said

discount to the credit of the HFVwould not then have constituted atransfer for value. But if the sumhad subsequently been checkedout, then value would havepassed.The general rule as to theapplication of payments, therebeing no special facts to interfere,is that the first payments apply tothe oldest debts.The first debits are to be chargedagainst the first credits. It followstherefore, upon the facts as

found, that the bank was a bonafide HFV without notice, and, in

accordance with the stipulation,judgment should be entered forthe plaintiff upon the note.Judgment reversed.

ii. Bank credit as value - When theholder of a check deposits it withhis bank (assuming it is not thedrawee bank) and the bankcredits it to his account, is thebank at this stage a HFV?o Majority View first money

in is presumed to be the firstmoney paid out

o Minority View as long asthe balance in the depositors

account equals or exceeds theamount of the instrumentdeposited, the latter cannotbe considered as withdrawnfor the purpose of treatingthe bank as a HFV.

o (So far, there has been nodecision by the SC on thisissue.)

2. GOOD FAITHa. Holder must have taken the

instrument in good faith and that atthe time it was negotiated to him hehad no notice of any infirmity in the

instrument or defect in the title of theperson negotiating it.

b. NOT a Holder in GOOD FAITH

i. Holder acted in bad faithii. Holder had NOTICE OF DEFECT

1) ACTUAL KNOWLEDGE SEC 56. WHAT

CONSTITUTES

NOTICE OF DEFECTTo constitute notice ofan infirmity in theinstrument or defect inthe title of the personnegotiating the same,the person to whom itis negotiated musthave had actualknowledge of the

infirmity or defect, orknowledge of suchfacts that his action intaking the instrumentamounted to bad faith.

It is thereforesufficient that thebuyer of a note hadnotice or knowledgethat the note was insome way tainted withfraud. It is notnecessary that heshould know the

particulars of thefraud.

2) SUSPICIOUSCIRCUMSTANCESa. BAD FAITH - does

not require actualknowledge of theexact fraud that waspracticed; knowledgethat there wassomething wrongabout the assignorsacquisition of title issufficient.

b. The burden is upon thedefendant to showthat notwithstandingthe SUSPICIOUSCIRCUMSTANCES, itacquired the check inactual good faith. (DeOcampo & Co. v.Gatchalian)

o Purchase of aninstrument at aDISCOUNT does not,of itself, constitute badfaith. However, if theinstrument ispruchased at a heavydiscount, this facttogether with otherfacts, may be taken

into account indeciding the issue ofpurchase in good faith.(Ham v. Meritt)

VICENTE R. DE OCAMPO & CO. v. GATCHALIAN,ET. AL. (1961)


11/41

In order to show that the defendant had knowledgeof such facts that his action in taking the instrumentamounted to bad faith, it is not necessary to provethat the defendant knew the exact fraud that waspracticed upon the plaintiff by the defendantsassignor, it being sufficient to show that thedefendant had notice that there wassomething wrong about the assignorsacquisition of title, although he did not havenotice of the particular wrong that was committed.

The fact is that it acquired possession of theinstrument under circumstances that should haveput it to inquiry as to the title of the holder whonegotiated the check to it. The burden was,therefore, placed upon it to show thatnotwithstanding the suspicious circumstances, itacquired the check in actual good faith.One line of cases had adopted the test of thereasonably prudent man and the other that ofactual good faith. It would seem that it was theintent of the Negotiable Instruments Act toharmonize this disagreement by adopting the lattertest. Negligence on the part of the plaintiff, orsuspicious circumstances sufficient to put a prudent

man on inquiry, will not of themselves prevent arecovery, but are to be considered merely as

evidence bearing on the question of bad faith.

STATE INVESTMENT HOUSE v. IAC (1989)

A check with 2 parallel lines in the upper left handcorner means that it could only be deposited andmay not be converted to cash. Consequently, suchcircumstance should put the payee on inquiry andupon him devolves the duty to ascertain theholders title to the check or the nature of hispossession. Failing in this respect, the payee isdeclared guilty of gross negligence amounting tolegal absence of good faith and as such theconsensus of authority is to the effect that theholder of the check is not a holder in good faith.

YANG v. CA (2003)

in accepting the cross checks and paying cash forthem, despite the warning of the crossing, thesubsequent holder could not be considered in goodfaith and thus, not a holder in due course.

iii. FINANCING COMPANY1) Consolidated Plywood v.

IFC: A FINANCINGCOMPANY that is theindorsee of a note issuedby a buyer payable to theseller of goods is NOT a

holder in good faith asto the buyer. In case thegoods sold turn out to bedefective, it cannotrecover the purchaseprice of the goods fromthe buyer.

2) In installment sales, thebuyer usually issues a notepayable to the seller tocover the purchase price.

3) Many times, pursuant to aprevious arrangement withthe seller, a financecompany pays the full priceof the property sold andthe note is indorsed to it by

the seller, subrogating it tothe right to collect theprice from the buyer.

4) RULE In such cases, thetendency of the courts is toprotect the buyer againstthe finance company in theevent that the goods soldturn out to be defective.The finance company willbe subject to the defense

of failure of considerationand cannot recover thepurchase price from thebuyer. NOTE:Consolidated Plywood v.

IFC rule applied; Salasv. CA rule not applied

3.4. That at time it was negotiated tohim, he had no notice of :

o any infirmity in instrumento any defect in title of person

negotiating;1. title DEFECTIVE when (Sec. 55, NIL):

a. instrument / signature obtained byfraud, duress, force or fear or otherunlawful means OR for an illegalconsideration; or

b. instrument is negotiated in breach of

faith, or fraudulent circumstances

2. NOTICE of infirmity or defect a. actual knowledge of the infirmity or

defect OR knowledge of such facts thathis action in taking the instrumentamounted to bad faith (Sec.56, NIL)

b. Notice to an AGENT is chargeableagainst the principal.

c. INSUFFICIENT NOTICEi. CONSTRUCTIVE NOTICE (ex.

notice of defenses disclosed bypublic records, doctrine of lispendens) is insufficient to charge apurchaser of a NI with notice.

Just as a purchaser of a

negotiable instrument isnot put on inquiry, neitheris he charged with notice ofdefenses or equitiesdisclosed by public records,nor is he affected by thedoctrine of lis pendens.


12/41

However, notice to anagent is chargeableagainst the principal.

ii. Notice of an ACCOMODATIONPARTY is not notice of a defect.

Thus, an accomodationparty (one who hassigned the instrument asmaker, drawer, acceptoror endorser, without

receiveing value therefor,and for the purpose oflending his name to someother person) is liable onthe instrument,notwithstanding the factthat the holder knew himto be an accomodationparty.

d. RIGHT of a transferee who receivesNOTICE of any infirmity or defectBEFORE he has PAID THE FULLamount for the instrument

i. He will be deemed a HDC only to

the extent of the amounttherefore paid by him (Sec.54,

NIL)

4. Effect of Qualified,Conditional and RestrictiveIndorsements

A. The status of a holder as a HDC is notaffected by his taking under a qualifiedindorsement.

B. A conditional indorsement does notdeprive the conditional indorsee orsubsequent holder of the rights of a HDC.If he fulfills all the requisites in Sec. 52then he is immune from all the personal

defense.C. A restrictive indorsement which prohibits

further negotiation will not prevent theindorsee from being a HDC. BUT, if hefurther indorses the instrument, then thesubsequent indorsee will not be a duecourse holder.

5. Who is Deemed HDC(burden of proof) (Sec.59)

A. General Rule: Prima facie presumption infavor of holder

B. Exception: Burden is reversed (burden onholder to prove that he or some personunder whom he claims acquired title asHDC) when it is shown that the title of anyperson who has negotiated instrument wasdefective

C. Exception to exception: There will be noreversal if the party being made liablebecame bound prior to the acquisition of

such defective title (i.e., where defense isnot his own) presumption in favor of holder

6. Rights of Holder in DueCourse

6.1. Under the NIL41. to sue on the instrument in his own

name (Sec. 51, NIL)2. to receive payment on the instrument

discharges the instrument (Sec. 51,NIL)

3. holds instrument free of any defect oftitle of prior parties (Sec. 57, NIL)

4. free from defenses available to priorparties among themselves (Sec.57,NIL)

5. may enforce payment of instrumentfor full amount, against all parties liable(Sec.57, NIL)

6.2. JUR: BPI v. ALFRED BERWIN & CO.Only a HDC may enforce payment on the PN.In CAB, it is not clear whether A (the payee) is

still the HDC since D (the maker) believed that Amay have negotiated it. Thus, to compel D topay would expose him to pay a second time tothe HDC (in case A was no longer one).

6.3. DISADVANTAGE of being aNON HDC:

o The Negotiable Instruments Law doesnot provide that a holder not in duecourse can not recover on theinstrument. The disadvantage of notbeing a holder in due course is that thenegotiable instrument is subject todefenses as if it were non-negotiable.One such defense is absence or failure

of consideration. (Atrium Mgt v de Leon,2001)

7. Rights of Purchaser fromHolder in Due Course (Sec.58)

7.1. General Rule: In the hands of anyholder other than a HDC, NI is subject to samedefenses as if it were non-negotiable.

7.2. Exception: A holder who derives titlethrough a HDC and who is NOT himself A PARTYTO ANY FRAUD or illegality has all rights of suchformer holder in respect to all parties prior to thelatter EVEN though he himself does not satisfySec.52

4 Suggested Mnemonics: REFS: Receive and Enforce

payment, Free from any defect of title and defenses,

Sue


13/41

8. Presumption in Favor of DueCourse Holding

A. Every holder is deemed prima facie to be aholder in due course;1. BURDEN SHIFTS when it is shown that

the title of any person who hasnegotiated the instrument wasdefective. Holder MUST PROVE that heor some person under whom he claimsacquired the title as a holder in duecourse.

2. But the last mentioned rule does notapply in favor of a party who becamebound on the instrument prior to theacquisition of such defective title.(Sec.59., NIL)

B. However, this presumption arises only infavor of a person who is a holder asdefined in Section 191 of the NegotiableInstruments Law, meaning a payee orindorsee of a bill or note, who is in

possession of it, or the bearer thereof.(Yang v CA, 2003)

Chapter V.DEFENSES & EQUITIES

1. Defenses in General

1.1. REAL defense attaches toinstrument on the principle that there was nocontract at all; available against ALL holdersincluding holders in due course. They are thosewhich attach to the instrument itself andgenerally, disclose an absence of one of theessential elements of a contract.

1.2. PERSONAL defense grows out ofthe agreement or conduct of a particular personin regard to the instrument which renders itinequitable FOR HIM, though holding the legaltitle, to enforce it against the party sought tobe made liable; not available against a HDC.canbe raised only against holders not on duecourse. Here, the true contract appears , butfor some reason , the defendant is excusedfrom the obligation to perform.

1.3. Equities or Claims ofOwnership are of 2 Kinds

1. Legal one who has legal title to theinstrument may recover possessionthereof even from holder in due course

2. Equitable may only recover from aholder not in due course

2. Real Defenses

2.1. Incapacity: REAL defense butavailable only to the incapacitated party (ex.minor or corporation); the indorsement orassignment of the instrument by a corp. or by aninfant passes the property therein,notwithstanding that from want of capacity, the

corp. or infant may incur no liability thereon.(Sec.22, NIL)

2.2. Incomplete, UndeliveredInstrument

1. Instrument will not, if completed andnegotiated without authority, be a validcontract in the hands of ANY holder, asagainst any person whose signature wasplaced thereon before delivery. (Sec.15, NIL)

2. Who may be estopped from raising thereal defense under Sec 15? A draweebank whose negligent custody of the

checks, after partial execution,contributed to its escape

3. Personal Defenses

3.1. Complete, UndeliveredInstrument

a. CONCLUSIVE presumption of a validdelivery where the instrument is in thehands of a HDCb. PRIMA FACIE presumption of a validdelivery where the instrument is no longerin the possession of a party whose sigappears thereon (Sec. 16, NIL)

3.2. Incomplete, Delivered (sec.14)

1. This is a personal defense only becauseprovision states that if any instrumentso completed is negotiated to a holder indue course, it is valid and effectual forall purposes

2. 2 Kinds of Writings:i. Where instrument is wanting in

any material particular: person inpossession has prima facieauthority to complete it by filing upblanks therein

ii. Signature on blank paperdelivered by person making thesignature IN ORDER that the papermay be CONVERTED into a NI

operates as prima facie authority tofill up as such for any amount

3. The authority to fill up is limited by thefollowing:


14/41

a. When completed, it may be

enforced upon the parties theretoonly if it was filled strictly inaccordance with the authoritygiven

b. The filling up must be within areasonable time

NOTE: If the signature on a paper isgiven only for autograph purposes

and the same is converted into a NI,this will amount to forgery,constituting thus a valid defenseeven against a HDC

4. This provision contemplates deliveredinstruments, so the person inpossesion cannot be a thief or a finderbut a person in lawful possession- oneto whom the instrument has beendelivered.

5. In order that any such instrument,when completed, may be enforcedagainst any person who became a

party thereto prior to its completion:a. must be filled up strictly in

accordance w/ AUTHORITY givenb. within a REASONABLE TIME in

determining what is reasonabletime, regard is to be had to the(1) nature of the instrument, (2)usage of trade or business (if any)with respect to such instruments,and 3) the facts of the particularcase

6. BUT if negotiated to HDC, may enforceit as if it had been filled up properly

7. What details may be filled up?a. Amount, as to a signed blank

paperb. Date (Sec 13 The insertion of a

wrong date does not void theinstrument in the hands of asubsequent holder in duecourse)

c. Place of paymentd. Name of payee

3.3. Lack of Consideration(Sec.28)

1. ABSENCE or failure of consideration is amatter of defense as against any personnot a HDC.2. PARTIAL FAILURE of consideration is adefense pro tanto whether the failure is anascertained and liquidated amount orotherwise .

3.4. Illegality1. In general, a PERSONAL defense even ifCC1409 provides that a contract with anillegal cause is void.

2. REAL when the law expressly provides forillegality as a real defense (Statutorydeclaration of illegality

RODRIGUEZ v MARTINEZ (1905)

Maker cannot be relieved from the obligation ofpaying the holder the amount of the note alleged tohave been executed for an unlawful consideration.(Illegality is personal, so defense only against a

holder not in due course)The holder paid the value of the note to its formerholder. He did so without being aware of the factthat the note had an unlawful origin. He acceptednote in good faith, believing the note was valid andabsolutely good. The maker even assured theholder before the purchase that the note was goodand that he would pay it at a discount .

3.5. Duress1. In general, PERSONAL defense.2. REAL if duress so serious as to giverise to a real defense for lack ofcontractual intent3. CAMPOS: There may be cases wherethe duress employed is so serious that itwill give rise to a real defense becauseof the lack of contractual intent .Although the signer may know what heis signing, there may be wanting theintent or willingness to be bound. Thenit becomes a real defense.

4. Sometimes Real, SometimesPersonal

4.1. Forgery (Sec. 23): made withoutauthority of person whose signature it purports to

be

1. In general, a REAL defense: Effect

a. signature is wholly inoperativeb. no right to retain instrument, or

give discharge, or enforce paymentagainst any party thereto, can beacquired through or under suchsignature (unless forged signatureunnecessary to holders title)

c. No subsequent party can acquirethe right against any party thereto(prior to the forgery) to:i. Retain the instrumentii. Give a discharge there foriii. Enforce payment thereof

2. PERSONAL if the party against whom itis sought to enforce such right isPRECLUDED from setting upforgery/want of authority;


15/41

a. Who are PRECLUDED?

i. parties who make certainwarranties, like a generalindorser or acceptor afterforgery (Sec. 62, NIL)

ii. estopped / negligent partiesiii. parties who ratify (BUT there

are conflicting views whetherprecluded includesratification)

b. One view holds that a forgedsignature cannot be ratifiedbecause ratification involves therelation of agency and a forgerdoes not assume to act foranother.

3. ACCEPTANCE AND PAYMENT of aforged instrumentWhen there is acceptance and

payment of a forged instrument, therights and liabilities of the partiesdepend on whether the forgery

pertains to the drawer/makerssignature or merely of an

indorsement.a. Drawer/Makers signature

i. PRICE v NEAL, The draweewho had paid an accepted billas well as a non-accepted bill,each of which was forged,could NOT recover the moneypaid out on the bill. Theneglect was on the part of thedrawee.

PNB v QUIMPO (1988)

A bank is bound to know the signatures of itsdepositors. If bank pays a forged check it must beconsidered as making the payment out of its ownfunds and cannot charge the account of thedepositor whose signature was forged.

SAMSUNG CONSTRUCTION CO., INC. VS. FAREAST BANK AND TRUST CO. AND CA (2004)

Consequently, if a bank pays a forged check, itmust be considered as paying out of its funds andcannot charge the amount so paid to the accountof the depositor. A bank is liable, irrespective ofits good faith, in paying a forged check.

ii. Extensions Of The Price vNeal Doctrine: The bar torecovery (Price v Neal

doctrine) is extended tooverdrafts and stop paymentorders

1) Overdraftoccurs when acheck is issued for anamount more than whatthe drawer has in deposit

with the drawee bank.RULE: The drawee who

pays the holder of the billcannot recover from theholder what he paid undermistake

2) Stop Payment Order isone issued by the drawerof a check countermandinghis first order to the

drawee bank to pay thecheck. RULE: The draweebank is bound to follow theorder, provided it isreceived prior to itscertification or payment ofthe check

3) SOME EXCEPTIONS:

o If the payment to holder isa legitimate debt of thedrawer which the holder indue course could haverecovered from the draweranyway.

o If the stop order comesafter the bank has certified

or accepted the check, thebank is under the legalduty to pay the holder andwill not be liable to thedrawer for doing so.

iii. Effect Of Negligence OfDepositor - If proximate causeof loss, the bank (drawee) isnot liable

1) It is the duty of thedepositor/drawer tocarefully examine banksstatements, cancelled

checks, his check stubs,and other pertinent recordswithin a reasonable timeand to report any errorswithout unreasonabledelay.

2) If a drawer/depositorsnegligence and delayshould cause a bank tohonor a forged check,drawer cannot latercomplain should bankrefuse to recredit hisaccount.

ILUSORIO vs CA (2002)

True, it is a rule that when a signature is forged or

made without the authority of the person whosesignature it purports to be, the check is whollyinoperative.However, the rule does provide for an exception,namely: unless the party against whom it is


16/41

sought to enforce such right is precludedfrom setting up the forgery or want ofauthority. In the instant case, it is theexception that applies. Petitioner is precludedfrom setting up the forgery, assuming there isforgery, due to his own negligence in entrustingto his secretary his credit cards and checkbookincluding the verification of his statements ofaccount.

SAMSUNG CONSTRUCTION CO., INC. VS. FAREAST BANK AND TRUST CO. AND CA (2004)

The general rule remains that the drawee whohas paid upon the forged signature bears the loss.The exception to this rule arises only whennegligence can be traced on the part of thedrawer whose signature was forged, and the needarises to weigh the comparative negligencebetween the drawer and the drawee to determinewho should bear the burden of loss.Still, even if the bank performed with utmostdiligence, the drawer whose signature was forgedmay still recover from the bank as long as he or

she is not precluded from setting up the defenseof forgery. After all, Section 23 of the Negotiable

Instruments Law plainly states that no right toenforce the payment of a check can arise out of aforged signature. Since the drawer, SamsungConstruction, is not precluded by negligence fromsetting up the forgery, the general rule shouldapply.

b. Indorsement:i. When it is the signature of

the indorser that is forged,the drawee and drawer CANrecover vs holder1) The drawee can recover

the amount paid by himin cases where only anindorsement has beenforged . This is becausedrawee makes nowarranty as to thegenuineness of anyindorsement.

2) Generally, the draweemay only recover fromthe holder. Should he failto do so(for instance dueto insolvency) he cannotrecoup his loss bycharging it to thedrawers account

3) Although adepositor/drawer owes a

duty to his drawee bankto examine his cancelledchecks, he has nosimilar duty as to forgedindorsements.

4) The drawer, as soon ashe comes to know of thea forged indorsement

should promptly notify thedrawee bank

REPUBLIC v EBRADA

Drawee can recover. It is not supposed to be theduty of the drawee to ascertain whether thesignatures of the payee or indorsers are genuine ornot.

ii. When drawee may recoverfrom DRAWER

1) Where the instrument isoriginally a bearerinstrument, because theindorsement can bedisregarded as beingunnecessary to the holderstitle

2) Indorsement forged by anemployee or agent of thedrawer

3) If due to the drawers

negligence/delay, theforgery is not discovered

until it is too late for thebank to recover from theholder or the forger

GEMPESAW v CA, PBC

While there is no duty resting on the drawer to lookfor forged indorsements on his cancelled checks, adepositor is under a duty to set up anaccounting system and business procedure asare reasonably calculated to prevent or renderthe forgery of indorsements difficult, particularlyby the depositors own employees.As a rule the drawee bank who has paid the checkwith forged indorsement, cannot charge the drawersaccount for the amount of the said check. Anexception to this rule is where the drawer is guilty ofsuch negligence which causes the bank to honor thecheck.

iii. When drawee may notrecover from holder

1) Where the instrument isoriginally a bearerinstrument , because theindorsement can bedisregarded as beingunnecessary to the holderstitle

2) If drawee fails to act

promptly , if he delays ininforming the holder whomhe paid

iv. Between Drawee Bank andCollecting Bank1) Collecting bank only liable

for forged indorsements


17/41

and not forgeries of thedrawer or makerssignature. (PNB v CA,1968)

2) The collecting bank orlast indorser generallysuffers the loss becauseit has the duty toascertain thegenuineness of all prior

indorsements consideringthat the act of presentingthe check for payment tothe drawee is anassertion that the partymaking the presentmenthad done its duty toascertain thegenuineness of theindorsements. (BPI v CA,1992)

3) In presenting the checksfor clearing the collectingagent, made an express

guarantee on the validityof all the prior

endorsements. ( BDO vEquitable bank)

4) The drawee bank is notsimilarly situated as thecollecting bank becausethe former makes nowarranty as to thegenuineness of anyindorsement. The draweebanks duty is but toverify the genuineness ofthe drawers signatureand not of theindorsement because thedrawer is its client.

5) Where the negligence ofthe drawee bank is theproximate cause of thecollecting bankspayment of a check witha forged indorsement,the drawee bank may beheld liable to thecollecting bank .

6) When both are guilty ofnegligence, the degree ofnegligence of each will beweighed in consideringthe amount of loss whicheach should bear. (referto BPI v CA, 1992)

GREAT EASTERN LIFE v HONGKONG &SHANGHAI BANK (1922)

Where a check is drawn payable to the order ofone person and is presented to a bank by anotherand purports upon its face to have been dulyindorsed by the payee of the check , it is the duty of

the bank to know that the check was duly indorsed bythe original payee and where the bank pays theamount of the check to a 3rd person , who has forgedthe signature of the payee , the loss falls upon thebank who cashed the check , and its remedy isagainst the person to whom it paid the money.

BPI v CA (1992)

Section 23 of the NIL has 2 parts. The first part states

the general rule that a forged signature is whollyinoperative and payment made through or under suchsignature is ineffectual. The second part admits ofexception. In this jurisdiction, the negligence of theparty invoking the forgery is an exception to thegeneral rule.Both drawee and collecting bank were negligentin the selection and supervision of their employeesresulting in the encashment of the checks by theimpostor. Both banks were not able to overcome thepresumption of negligence in the selection andsupervision of their employeesConsidering the comparative negligence of theparties, the demands of substantive justice are

satisfied by allocating the loss and the costs on a 60-40 ratio.

ASSOCIATED BANK v CA (1996)

By reason of the statutory warranty of a generalindorser in Section 66 of the Negotiable InstrumentsLaw, a collecting bank which indorses a check bearinga forged indorsement and presents it to the draweebank guarantees all prior indorsements, including theforged indorsement. It warrants that the instrumentis genuine, and that it is valid and subsisting at thetime of his indorsement. Because the indorsement isa forgery, the collecting bank commits a breach ofthis warranty and will be accountable to the draweebank. This liability scheme operates without regard tofault on the part of the collecting/presenting bank.Even if the latter bank was not negligent, it would stillbe liable to the drawee bank because of itsindorsement.

PCIB v. CA (2001)

A bank which cashes a check drawn upon anotherbank, without requiring proof as to the identity ofpersons presenting it, or making inquiries with regardto them, cannot hold the proceeds against the draweewhen the proceeds of the checks were afterwardsdiverted to the hands of a third party. In such casesthe drawee bank has a right to believe that thecashing bank (or the collecting bank) had, by theusual proper investigation, satisfied itself of theauthenticity of the negotiation of the checks.

Thus, one who encashed a check which had beenforged or diverted and in turn received paymentthereon from the drawee, is guilty of negligencewhich proximately contributed to the success of thefraud practiced on the drawee bank.


18/41

4.2. Material Alteration (Sec.124)

1. As a DEFENSE:a. PERSONAL defense when used to

deny liability according to thetenor of the instrument

b. REAL defense when relied on todeny liability according to thealtered terms.

2. What constitutes material alteration?a. Statutory: Review Sec.125, NIL

i. change dateii. sum payable, either for

principal or interestiii. time or place of paymentiv. number/relations of partiesv. medium/currency of

payment,vi. adds place of payment where

none specified,vii. other change/addition altering

effect ofviii. instrument in any respect

b. Jurispridencei. An alteration is said to be

material if it changes theeffect of the instrument. Itmeans that an unauthorizedchange in an instrument thatpurports to modify in anyrespect the obligation of aparty or an unauthorizedaddition of words or numbersor other change to anincomplete instrumentrelating to the obligation of aparty. (PNB v CA, 1996)

ii. A material alteration is onewhich changes the itemswhich are required to bestated under Section 1 of the

Negotiable Instruments Law.(Metrobank v Cabilzo, 2006)

3. IMMATERIAL ALTERATIONa. Campos: Any other alteration

would be non-material and wouldnot affect the liability of any priorparty . Note that #7 is a catch-allprovision such that sec 125 maystill have broad applicability.

b. Alterations of the serial numbersdo not constitute materialalterations on the checks... [It] isnot an essential requisite fornegotiability under Section 1 ofthe Negotiable Instruments Law.

The aforementioned alteration didnot change the relations betweenthe parties. The name of thedrawer and the drawee were notaltered. The intended payee wasthe same. The sum of money dueto the payee remained the same.

(PNB v CA, 1996; Intl CorporateBank v CA, 2006)

c. EFFECT: an innocent alteration(generally, changes on items otherthan those required to be statedunder Sec. 1, N. I. L.) andspoliation (alterations done by astranger) will not avoid theinstrument, but the holder mayenforce it only according to its

original tenor. (PNB v CA, citing J.Vitug)

4. EFFECT OF MATERIAL ALTERATION

a. General Rule: Where NI materiallyaltered w/o the assent of all partiesliable thereon it is AVOIDED,except as against:i. party who has himself made,

authorized or assented toalteration

ii. subsequent indorser becauseby indorsement he warrants

that the instrument is in allrespects what it purports to be

and that it was valid andsubsisting at the time of hisindorsement (Secs. 65 and66, NIL)

b. As to a HOLDER in DUE COURSEi. When an instrument that has

been materially altered is in thehands of a HDC not a party tothe alteration, HDC mayenforce payment thereofaccording to orig. tenor

ii. Alteration must NOT beapparent on the face of theinstrument for the holder thenwould not be a holder in duecourse

iii. Where the interest rate isaltered , the holder in duecourse can recover the principalsum with the original rate ofinterest

c. When alteration is of the amount orthe interest rate is altered, theholder can recover the ORIGINALAMOUNT/interest rate.

5. DRAWERS NEGLIGENCEa. The general rule is that the drawee

cannot charge against the drawersaccount the amount of an altered

check.b. BUT, the drawers negligence,

before or after the alteration, mayestop him from setting up alterationas a defense.

c. However, the drawer is not boundto so prepare the check that nobodyelse can successfully tamper with it


19/41

(ex. a drawer cannot be expectedto foresee that his clerk will useacid to alter his checks, Critten v.Chemical Natl Bank)

d. Where the negligence of thedrawer consists in failing todiscover alterations previouslymade which he could havediscovered by a comparison of thecancelled checks and check stubs

or by diligent observation of hisrecords and could thus haveprevented the drawee bank fromsubsequently cashing otheraltered checks , the drawee cancharge the subsequent checkagainst the negligent drawersaccount.

6. EFFECT OF DRAWEES ACCEPTANCEOF ALTERED CHECKSa. Where the interest rate is altered,

the HDC can recover the principalsum with the original rate of

interest.i. EXCEPT: A subsequent

indorser, because by theindorsement he warrantsthat the instrument is in allrespects what it purports tobe and that it was valid andsubsisting at the time of hisindorsement (Sec 65 and66)

b. RECOVERY after acceptance orpayment by the drawee banki. FROM HOLDER

1) Prevailing view - Yes,bec. of (1) paymentunder mistake, (2) Sec.124 and (3) Sec.62 inrelation to Sec. 132

2) Minority view No, bec.of (1) estoppel, (2)stability of transactionsand (3) bank is in abetter position toshoulder the loss.

3) SC:a. adopted the

minority viewbut on adifferent basisthe Central BankCircularregulatingclearing of

checks andlimiting theperiod withinwhich a draweebank may returna spurious check

b. but if holder isguilty of

negligence whichproximatelycontributed to theerroneouspayment bydrawee, holderliable (PCIB v CA,2001)

MONTINOLA v PNB (1951)

The insertion of the words Agent PhilippineNational Bank converted the bank from a meredrawee to a drawer and therefore changes itsliability, constitutes material alteration of theinstrument without consent of the parties liablethereon and so discharges the instrument. Draweebank is not liable.

HONGKONG & SHANGHAI BANK v PEOPLESBANK (1970)5

The failure of the drawee bank to call the attentionof the collecting bank as to such alteration until

after the lapse of 27 days would negate whateverright it might have had. The remedy of the drawee

bank is against the party responsible for the forgeryor alteration.

REPUBLIC BANK v CA (1991)

The collecting bank is protected by the24-hourclearing house rule from the liability to refund theamount paid by the drawee bank. [Note: A muchrecent Circular changed the point of reckoning forthe return of the altered check from within 24hours from the clearing to within 24 hours from thediscovery of the alteration]

ASSOCIATED BANK v CA (1996)The rule mandates that the checks be returnedwithin twenty-four hours after discovery of theforgery but in no event beyond the period fixed bylaw for filing a legal action. The rationale of the ruleis to give the collecting bank (which indorsed thecheck) adequate opportunity to proceed against theforger. If prompt notice is not given, the collectingbankmaybe prejudiced and lose the opportunity togo after its depositor.

ii. FROM DRAWER: drawee has noright to seek reimbursementfrom drawer for its erroneouspayment

METROBANK v CABILZO (2006)

In addition, the bank on which the check is drawn,known as the drawee bank, is under strict liability topay to the order of the payee in accordance with thedrawers instructions as reflected on the face and by

5Affirmed the minority view that drawee cannot recover


20/41

the terms of the check. Payment made undermaterially altered instrument is not payment donein accordance with the instruction of the drawer.When the drawee bank pays a materially alteredcheck, it violates the terms of the check, as well asits duty to charge its clients account only for bonafide disbursements he had made. Since the draweebank, in the instant case, did not pay according tothe original tenor of the instrument, as directed bythe drawer, then it has no right to claim

reimbursement from the drawer, much less, theright to deduct the erroneous payment it made fromthe drawers account which it was expected to treatwith utmost fidelity.

BPI v BUENAVENTURA (2005)

It [the bank] should be able to detect alterations,erasures, superimpositions or intercalationsthereon, for these instruments are prepared,printed and issued by itself, it has control of thedrawer's account, and it is supposed to be familiarwith the drawer's signature. It should possessappropriate detecting devices for uncovering

forgeries and/or alterations on theseinstruments

There is nothing inequitable in such a rule for if inthe regular course of business the check comes tothe drawee bank which, having the opportunity toascertain its character, pronounces it to be validand pays it, as in this case, it is not only a questionof payment under mistake, but payment in neglectof duty which the commercial law places upon it,and the result of its negligence must rest upon it.

c. REMEDY: Unless a forgery oralteration is attributable to thefault or negligence of the drawerhimself, the remedy of the draweebank that negligently clears aforged and/or altered check forpayment is against the partyresponsible for the forgery oralteration, otherwise, it bears theloss. (BPI v Buenaventura, 2005)

4.3. Fraud

1. REAL DEFENSEa. fraud in execution / fraud in

factum: did not know that paperwas a NI when it was signed

b. not liable to ANY holder2. PERSONAL DEFENSE

a. Fraud in inducement: knows it isNI but deceived as to value/terms

i. Available as a defense againstnon-HDC

b. Fraud in factum accompanied byNEGLIGENCE of maker or signeri. Where the signor does not

know the nature of theinstrument he signs, but

where, by the exercise ofordinary care, he could havediscovered it.

ii. Three factors are typically usedin determining the existence ofnegligence:1) legal character of the

instrument which thesigner thinks he is signing

2) the physical condition of

the signer and his ability toread

3) whether the signer had theopportunity at the time ofsigning, to ascertain thelegal nature of the paperhe is executing

Chapter VI.LIABILITY OF PARTIES

1. In General

1.1. Parties primarily liable:1. person who by the terms of the instrument isabsolutely required to pay the same.a. Maker of promissory noteb. Acceptor of bill of exchange

2. unconditionally liable; duty bound to pay theholder at date of maturity, WON holderdemands payment from him, and he is notrelieved from liability even if the instrumentshould become overdue due to failure ofholder to make such demand.

1.2. Parties secondarily liable:1. SECONDARY PARTIES:

a. Indorsers, both note and billb. Drawer of bill

2. Conditionally liable; not bound to pay unlessthe following has been fulfilled

a. Due presentment or demand from primaryparty for payment or acceptance;b. Dishonor by such party; andc. Taking of proceedings required by law

after dishonor.

2. Primary Parties

2.1. PAYMENT: Presentment andTender

1. Presentment for payment not necessaryto charge primary party

2. if the instrument is, by its terms, payable ata special place, and he is able and willing topay it there at maturity, such ability andwillingness are equivalent to a tender ofpayment upon his part. (Sec. 70, NIL)

2.2. Liability of MAKER1. Promises to pay it according to its tenor


21/41

2. Admits existence of payee and his thencapacity to indorse.

a. Therefore, PRECLUDED from setting upthe following defenses:i. the payee is a fictitious personii. the payee was insane, a minor, or

a corporation acting ultra vires

2.3. DRAWEE and ACCEPTOR1. Drawee

a. A person on whom a bill ofexchange or check is drawn and

who is ordered to pay itb. Liability of DRAWEE to:

2. Holder1) Not liable on the instrument

until he accepts it and even aholder in due course cannotsue him on the instrumentbefore his acceptance

2) A bill/check of itself doesnot operate as an assignmentof the funds in the hands ofthe drawee/bank (Sec 189,NIL), and the drawee/bank isNOT LIABLE on the billunless and UNTIL he/itACCEPTS (or certifies) thesame. (Sec. 127, NIL)

3. Drawer1) Payment despite Stop PaymentOrder

a) Before payment orcertification by the bank,the drawer maycountermand the order,and payment thereafterto the payee by the bankis wrongful.

b) Since a check is not anassignment of the

drawers fund, the bankis liable for paying it indisregard of thecountermand.

c) Moreover, drawee can nolonger recover what itvoluntarily paid to theholder of the uncertifiedand unacceptedinstrument.

2) Refusal to Accepta) Under somecircumstances, the draweewho refuses to accept may bemade liable for breach ofcontract or for damages

based on a tort either to thedrawer (refer to Araneta v.Bank of America) or to theholder (refer to HSBC v.Catalan)

ARANETA V. BANK OF AMERICA(1971)

This was an action by a depositor against a bank fordamages resulting from the wrongful dishonor of thedepositor's checks. HELD: Araneta's claim fortemperate damages is legally justified because of theadverse reflection on the financial credit of abusinessman, a prized and valuable asset, w/cconstitutes material loss.

HSBC VS. CATALAN (2004)

HSBC is not being sued on the value of the checkitself but for how it acted in relation to Catalans claimfor payment despite the repeated directives of thedrawer Thomson to recognize the check the latterissued.Her allegations in the complaint that the grossinaction of HSBC on Thomsons instructions, as wellas its evident failure to inform Catalan of the reasonfor its continued inaction and non-payment of thechecks, smack of insouciance on its part, aresufficient statements of clear abuse of right for whichit may be held liable under Article 19 of the Civil Codefor any damages she incurred resulting therefrom.

HSBANKs actions, or lack thereof, prevented Catalanfrom seeking further redress with Thomson for the

recovery of her claim while the latter was alive.

3. Acceptor: Liabilitya. (Sec.62, NIL) Drawee is not liable

unless he accepts the bill and in doingso, he engages to pay the bill accordingto the tenor of his acceptance, andadmits the following:i. existence of drawerii. genuineness of his signatureiii. his capacity and authority to draw

the instrumentiv. existence of payee and his then

capacity to endorseb. Meaning of"according to the tenor of

his acceptance"i. Majority and prevailing view:

Where alteration consists in raisingthe amount payable, acceptor liableto HDC only as to its originalamount; if the alteration of payee'sname, paying banks cannot chargedrawer's account with the amountof the check because its duty is topay only according to the order ofthe drawer.

ii. Common law rule: Acceptor ofaltered check not liable to innocentholder except for the originalamount

2.4. Acceptance1. IN GENERAL:

a. Definition:i. "Acceptance" means an acceptancecompleted by delivery or notification(Sec. 19, NIL)


22/41

ii. The signification by the drawee ofhis assent to the order of the drawer(Sec 132, NIL)

b. REQUISITES for a valid acceptance(Sec 132, NIL)

i. It must be in writing and signed bythe drawee;

1) Thus there is no valid orimplied acceptance except asprovided by Sec. 137 relating

to constructive acceptanceii. It must not express that the draweewill perform his promise by any othermeans than the payment of money.iii. does not change the implied

promise of acceptor to pay only inmoney

c. MANNER of acceptancei. Campos: Usually made by writing

the word accepted and signingimmediately below1) BUT, drawees signature

alone is sufficient (Camposciting Lawless v. Temple)

ii. Sec 133, NIL: The holder of a billpresenting the same for

acceptance may require that theacceptance be written on the billand if such request is denied, maytreat the bill as dishonored1) Effect: holder may go against

the partys secondarilyliablethe drawer and theindorsers

iii. Acceptance of an INCOMPLETE bill(Sec 138, NIL)1) A bill may be accepted:

a) before it has been signedby the drawer, or

b) while otherwiseincomplete, or

c) when it is overdue, ord) after it has been

dishonored by a previousrefusal to accept, or bynon payment

2) But when a bill payable aftersight is dishonored by non-acceptance and draweesubsequently accepts it, theholder, in the absence of diffagreement, is entitled to havebill accepted as of date of the1st presentment.a) Sec. 138, NIL allows

acceptance to be madewhile the bill is

incomplete.b) The bill may be acceptedeven after it is overdueor dishonored, since aninstrument DOES NOTLOSE ITSNEGOTIABILITY by themere fact that its

maturity date has passedor the drawees refusal toaccept or pay it.

d. PERIOD within which to accepti. The drawee is allowed 24 hours

after presentment to decide WONhe will accept the bill; theacceptance, if given, dates as of theday of presentation. (Sec. 136, NIL)

ii. Effect of non-acceptance within the

prescribed period1) Where bill is duly presented

and is not accepted withinprescribed time, the personpresenting it must treat the billas dishonored by non-acceptance or he loses right ofrecourse against the drawerand indorsers. (Sec. 150, NIL)

2. CONSTRUCTIVE ACCEPTANCE: occurs in thefollowing circumstances

a. SEC 137, NIL: Where the draweei. destroys the bill, or

ii. refuses within 24hrs or such otherperiod as the holder may allow, to

return the bill accepted or non-acceptedto the holder

b. Under the clearing house rules, thedrawee banks failure to return within theprescribed time will be deemed payment oracceptance of the check.c. If there is not demand for the return ofthe bill and the drawee keeps it until afterthe expiration of said period withoutexpressly accepting or refusing it; two views:

i. Constitutes constructive noticeii. Constitutes dishonor becauseSec.137, NIL uses the word "refuses"

d. Acceptance, if given, will retroact to dateof presentation.

SUMCAD v. PROVINCE OF SAMAR (1956)

There was implied acceptance in view of thecircumstances of the case (furnishing ofphotostatic copies, presentment for certification)by voluntary assuming the obligation of holdingso much deposit as would be sufficient to coverthe amount of the check.

3. ACCEPTANCE ON A SEPARATEINSTRUMENT

e. Extrinsic acceptance - acceptance iswritten on a paper other than the billitself; doesnt bind the acceptor exceptin favor of a person to whom it is shown

and who, on the faith thereof, receivesthe bill for value. (Sec. 134, NIL);acceptance of an existing bill

f. Virtual acceptance - unconditionalpromise in writing to accept a billbefore it is drawn; deemed an actualacceptance in favor of every person


23/41

who, upon the faith thereof, receivesthe bill for value. (Sec. 135, NIL);acceptance of future bill

g. In both cases, the acceptancemustclearly and unequivocally identifythe bill to which the acceptancerefers.

4. KINDS OF ACCEPTANCE: Anacceptance is either (1) general or (2)

qualified.a. GENERAL - assents without

qualification to the order of thedrawer. (Sec.139, NIL); Includesacceptance to pay at a particularplace; unless expressly states that billis to be paid there only and notelsewhere. (Sec. 140, NIL)

b. QUALIFIED - in express terms variesthe effect of the bill as drawn. (Sec.139, NIL)i. Conditional; payment by the

acceptor dependent on thefulfillment of a condition therein

stated;ii. Partial; to pay part only of the

amount for which the bill isdrawn;

iii. Local; to pay only at a particularplace;

iv. Qualified as to time;v. The acceptance of some, one or

more of the drawees but not ofall. (Sec. 141, NIL)1) The holder may refuse to

take a qualified acceptance;may treat the bill asdishonored by non-acceptance.

2) Where a qualified acceptanceis taken, the drawer andindorsers are dischargedfrom liability on the billunless they haveauthorized the holder totake a qualified acceptance,or subsequently assentthereto.

3) When the drawer or anindorser receives notice of aqualified acceptance, hemust, within a reasonabletime, express his dissent tothe holder or he will bedeemed to have assentedthereto. (Sec. 142, NIL)

c. TRADE - a draft or bill of exchange

with a definite maturity, drawn by aseller on a buyer for the purchaseprice of goods, bearing across its facethe acceptance of the buyer; alwaysstates upon its face the transactionfrom which it arose.

d. BANKER'S acceptance - a negotiabletime draft or bill of exchange drawn onand accepted by a commercial bank.

2.5. CHECKS : acceptance andcertification

1. Definition: A check is an instrument in theform and nature of a BE, but an unlike anordinary bill, always payable on demand andalways drawn on a bank.2. Kinds:

a. Cashier's or manager's - drawn by abank on itself and its issuance has the effectof acceptance; since the drawer and draweeare the same, the holder may treat it iseither a BE or PN.b. Memorandum check - where the word"memorandum" or "memo" is written acrossits face, signifying that the drawer will paythe holder absolutely, without need ofpresentment.c. Traveler's check - upon which theholder's signature must appear twice -- firstwhen it is issued, and again when it iscashed.

d. Crossed when the name of a particularbanker or a company is written between theparallel lines drawn.

STATE INVESTMENT HOUSE V. IAC

Crossed check should put the payee on inquiry toascertain the holders title to the check or the natureof his possession. Failing this, the payee is declaredguilty of gross negligence to the effect that the holderof the check is not a holder in good faith. Effects of acrossed check:

(a) the check may not be encashed but onlydeposited in the bank;

(b) the check may be negotiated only once toone who has an account with the bank; and

(c) the act serves as a warning to the holderthat the check has been issued for a definitepurpose so that he must inquire if he hasreceived the check pursuant to that purpose,otherwise, he is not a HDC.

BATAAN CIGAR & CIGARETTE FACTORY, INC. v.CA

The negotiability of a check is not affected by itsbeing crossed, whether specially or generally. It maylegally be negotiated as long as the one whoencashes the check with the drawee bank is anotherbank, or if it is especially crossed, by the bankmentioned between the parallel lines.

RP v. PNB (1961)

Demand drafts have not been presented either foracceptance or for payment, thus the bank never hadany chance of accepting or rejecting them; as such,these cannot be subject of escheat.


24/41

Cashier's check is the substantial equivalent of acertified check and is thus subject to escheat.Telegraphic transfers are likewise subject toescheat because upon making payment completethe transaction insofar as he is concerned, thoughinsofar as the remitting bank is concerned, thecontract is executory until the credit is established.

PAL V. CA (1990)

A check, whether a manager's check or ordinarycheck, and an offer of a check in payment of a debtis not a valid tender of payment and may berefused receipt by the obligee or creditor.The issuance of the check to a person authorized toreceive it operates to release the judgment debtorfrom any further obligations on the judgment.

INTERNATIONAL CORPORATE BANK v GUECO(2001)

A managers check is one drawn by the banksmanager upon the bank itself. It is similar to acashiers check both as to effect and use. A

cashiers check is a check of the banks cashier onhis own or another check. In effect, it is a bill of

exchange drawn by the cashier of a bank upon thebank itself, and accepted in advance by the act ofits issuance. It is really the banks own check andmay be treated as a promissory note with the bankas a maker. The check becomes the primaryobligation of the bank which issues it andconstitutes its written promise to pay upondemand. The mere issuance of it is consideredan acceptance thereof. If treated as promissorynote, the drawer would be the maker and in whichcase the holder need not prove presentment forpayment or present the bill to the drawee foracceptance

EPCIB v ONG (2006)

A managers check is an order of the bank to pay,drawn upon itself, committing in effect its totalresources, integrity and honor behind its issuance.By its peculiar character and general use incommerce, a managers check is regardedsubstantially to be as good as the money itrepresents.

3. Clearinga. Clearing - check collection processb. Clearing house - whererepresentatives of different banks meetevery afternoon of every business day toreceive the envelopes containing checks

drawn

negotiable law memo aid

Documents

Transcript of negotiable law memo aid