Nego Reviewr Selfmade by Nanatong
Nego Reviewr Selfmade by Nanatong
Requisites: (WU-POA)
1. Must be in Writing and signed by the maker or drawer;
2. Must contain an Unconditional promise or order to pay a sum certain in money;
3. Must be Payable on demand, or at a fixed or determinable future time;
4. Must be payable to Order or to bearer; and
5. When the instrument is Addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty (Sec. 1, NIL).
Functions:
1. It operates as a substitute of money.
2. It is a means of creating and transferring credit.
3. It facilitates the sale of goods.
4. It increases the purchasing medium in circulation. (Reviewer on Commercial Law, Jose R.
Sundiang and Timoteo B. Aquino, 2006ed)
Note: A NI although intended to be a substitute for money, is NOT legal tender, hence, delivery
of instrument does not operate as payment.
Note: However, the minor shall be liable under the following exceptions: (1) the minor
actively misrepresents his age and it appears that he is physically of such age (estoppel); (2)
the minor kept the fruits or benefits; and (3) the minor spent the money in good faith (Art.
1427, NCC).
B. Fraud
1. Fraud in Factum (Real Defense)
In case of FRAUD IN FACTUM, the person who signs the instrument lacks knowledge of
the character or essential terms of the instrument. But the defense is not available if the
party involved had reasonable opportunity to obtain such knowledge.
An essential element is that the maker or indorser must have exercised ordinary
diligence and in no manner contributed negligently to the imposition.
c. If the holder of the instrument, after it was filled up, is a holder in due course, the
holder may enforce the instrument as if it has been filled up strictly in accordance with
the authority given and within a reasonable time (Notes and Cases on Banks, Negotiable
Instruments and other Commercial Documents, Aquino, 2006 ed).
Note: If completed and negotiated without authority, not a valid contract against a person
who has signed before delivery of the contract even in the hands of holders in due course
but subsequent indorsers are liable. This is a REAL defense which belongs to the drawer (or
parties, if any, prior to the delivery of the instrument to the payee) against “any holder”.
Reason: The law does not make any distinction between a holder in due course and one
who is not a holder in due course.
F. Material Alteration
It is a “partial” real defense because a holder in due course can enforce it according to its
original tenor.
An alteration is said to be material if it alters the effect of the instrument. In other words, a
material alteration is one which changes the items which are required to be stated under
Sec. 1 of the Negotiable Instruments Law (PNB v. CA GR L-26001, October 29, 1968).
Note: The alteration mentioned herein is under sec. 124 must be distinguished from sec. 23.
The intent to defraud distinguishes forgery from innocent alterations and spoliation. Sec. 23
applies only to forged signatures or signatures made without the authority of the person
whose signature it purports to be. Consequently, if the forgery consists of alteration in the
amount, sec. 124 applies.(Agbayani, pg. 198)
A serial number is an item which is not an essential requisite for negotiability under Sec. 1,
NIL, and which does not affect the rights of the parties, hence its alteration is not material
(PNB v. CA, 256 SCRA 491 cited in; International Corporate Bank v. CA & PNB, GR No.
129910, September 5, 2006).
In his work, “Pandect of Commercial Law and Jurisprudence," Justice Vitug opines that "an
innocent alteration (generally, changes on items other than those required to be stated
under Sec. 1, N.I.L.) and spoliation (alterations done by a stranger) will not avoid the
instrument, but the holder may enforce it only according to its original tenor.
Also, change of name of the payee is NOT considered as a material alteration. This time,
however, it can’t be enforced according to its original tenor.
Effects:
a. Alteration by a party – Avoids the instrument EXCEPT as against the party who (1) made,
(2) authorized, or (3) assented to the alteration and (4) subsequent indorsers. However,
if an altered instrument is negotiated to a holder in due course, he may enforce payment
thereof according to its ORIGINAL tenor regardless of whether the alteration was
innocent or fraudulent.
b. Alteration by a stranger (spoliation)- the effect is the same as where the alteration is
made by a party in which case a holder in due course can recover on the original tenor of
the instrument (Sec. 124).
G. Prescription
Refers to extinctive prescription and may be raised even against a holder in due course.
Under the Civil Code, the prescriptive period of an action based on a written contract is 10
years from accrual of cause of action.
In case of checks, the action of the depositor against his drawee bank commences to run
from the time he is given notice of payment (Philippine Commercial International Bank v.
CA, GR No. 121413, January 29, 2001).
The failure of the payee to encash a check for more than 10 years “undoubtedly resulted in
the impairment of the check through his unreasonable and unexplained delay.” (Myron C.
Papa v. A. U. Valencia et. al., GR No. 105188, January 23, 1998).
Note: This is contrary to NAMARCO vs F.U.N.D. (GR No. L-22578, January 31, 1973). In this
case, the SC held that the delivery of promissory notes payable to order, or bills of exchange
or drafts or other mercantile document shall produce the effect of payment only when
realized, or when by the fault of the creditor, the privileges inherent in their negotiable
character have been impaired. The clause of Article 1249 is applicable ONLY to instruments
executed by THIRD PERSONS and delivered by the debtor to the creditor, and does NOT
apply to instruments executed by the debtor himself and delivered to the creditor.
HOLDER IN DUE COURSE (HDC): A holder who has taken the instrument under the
following conditions: (COVI)
1. That the instrument is complete and regular upon its face;
2. That he has become a holder of it before it was overdue and without notice that it
had been previously dishonored, if such were the case;
A holder who takes an overdue instrument is put on inquiry although he is not actually
aware of any existing defense of a prior party. A person taking an overdue instrument
should certainly question why the instrument is still in circulation even if it is overdue
(Notes and Cases on Banks, Negotiable Instruments and Other Commercial Documents,
Timoteo Aquino, 2006ed).
On the date of maturity, the instrument is not overdue and a holder who acquires the
instrument on that date is a holder in due course because the principal debtor has the
whole day to pay.
Installment Instruments
A purchaser after maturity of the first installment with notice that it was unpaid takes the
paper as overdue paper. Consequently, a purchaser of an installment note after an
installment is overdue may be a holder in due course as to the balance if he has NO notice
of the failure to pay the first installment.
Interest
Where by the terms of the instrument, the principal was to become due upon the default of
the payment of interest, one who takes the instrument upon which the interest is overdue
is NOT a holder in due course.
Demand Instruments (Sec. 53, NIL)
Where an instrument payable on demand is negotiated on an unreasonable length of time
after its issue, the holder is NOT deemed a holder in due course.
In determining what is unreasonable length of time regard must be given to the NATURE of
the instrument, the USAGE OF TRADE OR BUSINESS with respect to such instruments, and
the FACTS of the particular case (Sec. 193, NIL).
Although good faith on the part of the holder is presumed, such presumption is destroyed if
the payee or the indorsee acquired possession of the instrument under circumstances that
should have put him to inquiry as to the title of the holder who negotiated the instrument.
The burden now is on the part of the holder to show that notwithstanding the suspicious
circumstances, it acquired the check in actual good faith (De Ocampo vs. Gatchalian, et al.,
GR No. L-15126, November 30, 1961).
“Good faith” refers to the indorsee or transferee, not to the indorser or transferor of the
instrument.
Value
Any consideration sufficient to support a simple contract (Sec. 25, NIL).
It includes:
1. An antecedent or pre-existing debt;
2. Value previously given (Sec. 25, NIL);
3. Lien arising from contract or by operation of law but the holder is deemed a holder for
value to the extent of his lien (Sec. 27, NIL).
4. That at the time of its negotiation to him, he has had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it (Sec. 52, NIL).
“Notice” to holder covers only situations where the holder had actual or chargeable
knowledge of the infirmity or defect or must have acted in bad faith (Sec.56, NIL).
”Defects” in the title results from the acquisition or the negotiation of the instrument.
In the acquisition thereof, the title of a person becomes defective when he obtains the
instrument or any signature thereto by (1) fraud; (2) force, duress or fear; (3) other unlawful
means; (4) for an illegal consideration.
In the negotiation thereof, the title becomes defective when he negotiates it in (5) breach
of faith; or under (6) such circumstances that amount to fraud (Sec. 55, NIL).
“Infirmities” must include things that are wrong with the instrument itself as distinguished
from those things that are lacking in the contracts on the instruments. Such infirmities are
to be found in situations arising under Sec. 13, 14, 15, 16, 21 and 23 of the NIL.
Every holder of a negotiable instrument is deemed prima facie a holder in due course.
However, this presumption arises only in favor of a person who is a holder as defined in Sec.
191 of the NIL.
BUT when it is shown that the title of any person who has negotiated the instrument was
defective, the burden is on the holder to prove that he or some person under whom he claims
acquired the title as holder in due course. (Sec.59,NIL)
The PAYEE may be a holder in due course because Section 191 defines a holder as the payee or
indorsee of a bill or note who is in possession of it or the bearer thereof. Such payee may
either have acquired the note from another holder or he did not deal directly with the maker
thereof.
So if the payee satisfies the requirements of Section 52, that payee can be a HDC (Cely Yang v.
Court of Appeals, GR No. 138074, August 15, 2003).
Note: Even when he holds the instrument merely in a representative capacity; such as a
holder for collection only or a pledgee of a note.
2. May receive payment and if payment is in due course, the instrument is discharged;
3. Holds the instrument free from any defect of title of prior parties and free from personal
defenses available to parties among themselves;
4. May enforce payment of the instrument for the full amount thereof against all parties liable
thereon (Secs. 51 and 57, NIL).
Exceptions:
a. when the holder is a holder for value only to the extent of his lien - HDC only to that
extent (Sec. 27, NIL);
b. when the holder acquired notice of any infirmity in the instrument or defect in the title
of the person negotiating the same before he has paid the full amount agreed to be paid
therefor - HDC only to the extent of the amount paid (Sec.54, NIL);
c. in case of alteration as to amount - HDC may enforce payment only according to its
original tenor (Sec. 124, NIL).
One who became a holder of an instrument without any, some or all of the requisites under
Sec. 52 of the NIL.
General Rule: If a holder is not a holder in due course, he is subject to the same defenses as if it
were non-negotiable. In other words, a holder not in due course is subject to both real and
personal defenses available to parties primarily or secondarily liable.
Exception (Shelter Rule): If he derives his title through a holder in due course and if he is not a
party to any fraud or illegality affecting the instrument, he has all the rights of such former
holder in respect of all parties prior to the latter. (Sec.58,NIL)
Exception to the Exception: The rule under Sec. 58 does not apply if the holder was a previous
holder NOT in due course who had subsequently repurchase the instrument either personally
or through an agent.
Reason: a holder who is not a holder in due course cannot improve his situation by reacquiring
the instrument (Fossum v. Fernandez GR No. L-20080 March 27, 1923).
Note: Thus, prior parties can avail against him any defense available among these prior
parties and prevent the said holder from collecting in whole or in part the amount stated in
the instrument.
4. If he derives his title through a holder in due course and if he is not a party to any fraud or
illegality affecting the instrument, he has all the rights of such former holder in respect of all
parties prior to the latter. (Shelter Rule)
ACCOMODATION
A legal arrangement under which a person called the accommodation party, lends his name and
credit to another called the accommodated party, without any consideration.
Note: “without receiving value therefor,” means without receiving value by virtue of the
instrument (Clark v. Sellner, GR 16477, November 22, 1921).
Liable on the instrument to a holder for value notwithstanding such holder, at the time of the
taking of the instrument, knew him to be only an accommodation party. Hence, as regards, an
accommodation party, the 4th condition, i.e. lack of notice of infirmity in the instrument or
defect in the title of the persons negotiating it, has NO application (Stelco Marketing Corp. v.
Court of Appeals, GR No. 96160, June 17, 1992).
Note: The corporation is not liable of it acts as an accommodation party. This is because the
issue or indorsement of negotiable paper by a corporation without consideration and for the
accommodation of another is ultra vires. Hence, one who has taken the instrument with
knowledge of the accommodation nature thereof cannot recover against a corporation where it
is only an accommodation party (Crisologo- Jose v. CA, GR No. 80599, September 15, 1989).
Liability of an Accommodated Party
When the accommodation party make payment to the holder of the notes, they have the right
to sue the accommodated party for reimbursement since the relation between them is in effect
of a principal and sureties, the accommodation parties being the sureties.
PAYMENT IN DUE COURSE: 1.made at or after the maturity of the instrument, 2. To the
holder thereof, 3. In good faith and without notice that his title is defective
o On the date of its maturity, the instrument is not overdue, and a holder who
acquires the instrument on that date is a holder in due course (provided that the
other conditions are present) because the principal debtor has the whole day to
pay.
o Good faith means without dishonest purpose (honesty)
A is a holder of a PN of 100k, but he got a bargain or discount of the PN for only 80k, is A a
HIDC as to the entire amount of 100k? Yes. A is still a HIDC as to the entire amount even if
there was a discount or bargain.
Infirmities vs. Defects
o Infirmities – include things which are wrong with the instrument itself such as:
Sec. 13, Wrong insertion of the date, Sec. 14, filling up of a blank
instrument not strictly in acc. with the authority given., sec. 15, filling up
and negotiating w/o authority an incomplete and undelivered
instrument., sec. 16, lack of valid and intentional delivery of mech.
Complete ins., sec. 23, for forgery, sec. 124 &125, Material alteration
o Defects – those that are lacking in the contracts on the instrument such as:
Acquisition of the instrument by fraud, force, duress, unlawful means,
illegal consideration, etc.,
If the purpose for delivering is for safe keeping apply sec. 16 – complete but undelivered ins.
Real defenses those that attach to the instrument itself and can be set up against the whole
world while personal defenses are those which grows out of the agreement or conduct of a
particular person in regard to the instrument which renders it inequitable for him, they
cannot be set up against HIDC, they are available only against that person or a subsequent
holder who stands in privity with him.
o Incapacity is a real defense available only to incapacitated person, it is a SOLO
REAL DEFENSE
o Material Alteration is a special real defense because it does not completely
defeat the right of HIDC to collect, HIDC can still enforce the instrument
according to its original tenor. HIDC can collect as to the original tenor because
there is in fact an instrument but it was only altered, unlike if it is forgery or
undelivered & incomplete instrument no right to collect even if HIDC because
there was no instrument existing in reality.
When are you going to present for payment if the Instrument payable on demand – it is
by human nature that you collect payment as soon as possible, you have to protect your
interest, collect immediately, - as to when you present for payment: immediately
SUNDAY NOTES: made or drawn on Sundays.- it is not a defense against a HIDC where
nothing on the face of the instrument to indicate that fact.
Indorser cannot set up the defense the forgery of the signature of the maker, drawer, or
indorsers prior or subsequent to him because of his warranties.
SHELTER RULE (SEC. 58):Iin the hands of any holder other than a HIDC, a nego. ins. Is
subject to the same defenses as if it were non-negotiable. But a holder who derives his title
through a HIDC, and who is not himself a party to any fraud or illegality affecting the
instrument, has all the rights of such former in respect of all parties prior to the latter.
o In shelter rule, the law protects the right of the HIDC not the holder who derives
his right from HIDC, because without this rule the right of HIDC will be defeated
because eventually the holder will go after the HIDC.
Even if you are a HIDC but you did not give consideration you cannot recover. (this is one of
the question in the midterm exam- about the donation to the orphanage.)
Will the drawer’s liability as soon as the instrument is dishonored for non-payment
attaches? Yes. Provided that a notice of dishonor is send to him, for it is a settled rule of law
that without notice of dishonor no liability.
If the acceptor accepts by qualified acceptance you can treat it as having been dishonored
by non-acceptance and you must send notice of dishonor to the drawer if you want to
collect the original tenor of the instrument.
Liability of indorser and assignor compared. Qualified indorser- limited liability
o Like qualified indorser or person negotiating by delivery, but not like the general
indorser, an assignor is not responsible for the insolvency of the principal debtor
and will not be liable to the assignee if for that reason the assignee can not
collect from the principal debtor.
o On the other hand, unlike the qualified indorser, the assignor warrants the
existence and legality of the credit assigned and will therefore, be liable to the
assignee in case the assignee can not collect from the principal debtor where the
credit assigned is illegal or non-existent.
Presentment- The production of a BE to the drawee for his acceptance, or to the drawee or
acceptor for payment or the production of a PN to the party liable for the payment of the
same (Sec. 70, NIL).
Presentment for Payment Consists of:
o Personal demand for payment at the proper place; and
o Readiness to exhibit the instrument, if required, and
o To receive payment and to surrender the instrument if the debtor is willing to
pay.
Requisites:
o Made by the holder or any person authorized to receive payment on his behalf;
o At a reasonable hour on a business day;
o At a proper place;
o To the person primarily liable, or if he is absent or inaccessible, to any person
found at the place where the presentment is made (Sec. 72, NIL).
Mere informal talk not accompanied by presentment is not sufficient. Demand on phone is
also not sufficient unless maker waives exhibition (implied or express) (Gilpin vs. Savage,
201 NY 167, 94 N.E. 656).
If you will not present it for payment to party primarily liable you will not know if they will
pay it or not, if is not paid only then you can sent a notice of dishonor to party secondarily
liable in order to charge them. You cannot charge the party secondarily liable unless you
present it for payment.
General Rule: Presentment for payment is NOT necessary in order to charge the person
primarily liable (Maker/Acceptor) but it is necessary in order to charge the drawer and
indorser, except as otherwise provided.
When not Required:
In order to charge the drawer - Where he has no right to expect or
require that the drawee or acceptor will pay the instrument (Sec. 79)
such as in case of a check where payment has been stopped;
In order to charge an indorser- When the instrument was made or
accepted for his accommodation and he has no reason to expect that the
instrument will be paid if presented (Sec. 80, NIL). (ACCOMODATED
INDORSER the PAYEE in an Order instrument)
Note: Only the drawer and the indorser referred to in these sections are not discharged but
all other parties secondarily liable are relieved of their liability.
When to present for payment? (sec. 71)
o if payable on a fixed period – present it on the date of maturity, presentment
before maturity is not proper
o if PN payable on demand – present it w/n reasonable time after issue
o if BE payable on demand – present it for payment w/n reasonable time after last
negotiation (last transfer for value)
Requisite of a sufficient presentment? It must be made-
o By the holder, or by some persons authorized to receive payment on his behalf;
o At a reasonable hour on a business day;
o At a proper place
o To the person primarily liable (MAKER if PN or ACCEPTOR if BE) on the
instrument, or if he is absent or inaccessible, to any person found at the place
where the presentment is made.
If you will not know if there is a proper dishonor, you cannot send a proper notice of
dishonor to charge party secondarily liable. No proper presentment there can be no proper
notice of dishonor.
Q: If you have the picture of the instrument or the photocopy of the instrument which is
almost completely the same replica of the instrument and you exhibited the picture or
copy of the instrument, will this comply with the exhibition of the instrument? No. You
need to present the original for purposes not only to determine the genuineness of the
instrument but for purposes of surrendering it in order for the other party to reclaim
possession upon payment.
Sec. 79 (when presentment not required to charge the drawer)
o example:
Pay to the order of B P100K - C – D – E-holder
(sgd) A
To: X bank
A withdraw his funds, E need not present for payment to X to charge A because
A has a constructive notice/knowledge of dishonor, but E must present it to X in order to
charge the party secondarily liable, bcoz as to B,C&D the rule of notice of dishonor will
apply and still necessary to charge them.
( Sgd)A
If A signed for the accommodation of B, E, the holder need not present the instrument
to A in order to charge B, because B is in truth and in fact is the party primarily liable, he is the
principal debtor and as such he is already charged even if no present is made (he is the
accommodated indorser (payee in an order instrument) he has no reason to expect that the
note will be paid upon presentment ). But E, the holder needs to present the instrument to A in
order to charge C&D.
But sec. 80 will not apply if the party accommodated is not the first indorser(the
accommodated payee).
Q: When delay for presentment for payment results to excuse for presentment for
payment? When the reason for the delay never ceased and when the presentment is
waived.
Excuse vs. delay, delay in presentment for payment it is only the delay in presentment that
is excused, if the reason for the delay ceased you must present the instrument for payment.
When presentment is excused you need not have to present the instrument at all.
Time of Maturity Time of Maturity- Every negotiable instrument is payable at the time
fixed therein without grace.
o When the day of maturity falls upon Sunday or a holiday- Instruments falling
due on Saturday(when it is payable on Saturday) or becoming payable on
Saturday(if date payable is Friday but it is holiday, the bill become payable on
Sat) are to be presented for payment on the next succeeding business day
Exception: The instruments which is payable on demand may, at the option of the holder, be
presented for payment before twelve o'clock noon on a Saturday when that entire day is not a
holiday (Sec. 85, NIL).
You cannot present the instrument on Saturday except if it is payable on demand it can
be presented on Saturday but not after 12 noon, except if that Saturday is a holiday you
have to wait for the next business day. REASON: if you present it on Saturday it is an
improper presentment for payment and as such improper notice of dishonor, it will
discharge parties secondarily liable.
Q: when can you be said to hold an instrument which is already dishonored by non-
payment even when the presentment for payment is excused? When you are holding an
instrument which is overdue and unpaid. (Sec. 83) to charge party secondary liable you have
to send him notice of dishonor.
NB: Notice of Dishonor must be given to the DRAWER and to each INDORSER in order to
charged them, no notice of dishonor it will discharge them. (sec. 89)
When Notice of Dishonor is not Required to be Given to –
Drawer Indorser
(Sec. 114) (Sec. 115)
Drawer and drawee are the same Drawee is a fictitious person or does not have
the capacity to contract, and indorser was
aware of that fact at the time he indorsed the
instrument
Drawee is a fictitious person or not having the Indorser is the person to whom the
capacity to contract instrument is presented for payment
Drawer is the person to whom the instrument Instrument was made or accepted for his
is presented for payment accommodation (Sec. 115).
NB: While notice of dishonor inures to the benefit of all of them it does not mean that they
are not discharged of their liability it is settled NO NOTICE OF DISHONOR NO LIABILITY, they
can be charged only if they have been sent notice of dishonor.
Persons primarily liable need not be notified because they are the very ones who dishonor
the instrument.
Persons secondarily liable after having sent notice of dishonor, they are charged and they
become principal debtors, as to the holder all of them are principal debtors to him. The
holder can sue any one of them not necessarily in the order of their endorsement.
NB: Where presentment for payment is waived, notice of dishonor is also waived because
they are already charged. If B or C, the indorsers, waived notice of dishonor, that’s the only
time they can be charged without sending them notice of dishonor. But where notice of
dishonor is waived, presentment for payment is not waived. Reason: Bcoz the party
secondarily liable is not yet charge.?
The holder cannot charge the party secondarily liable if there is no actual notice of
dishonor, you cannot be made liable if you have no actual notice of dishonor.
A release of all parties, whether primary or secondary, from the obligations arising thereunder.
It renders the instrument without force and effect and, consequently, it can no longer be
negotiated (The Law on Negotiable Instruments with Documents of Title, Hector de Leon, 2000
ed).
Instances:
By whom made:
1. By maker or acceptor; or (selected accommodation party)
2. Surety, if a primary party; or
3. By an agent on behalf of the principal
C. Cancellation
It includes the act of tearing, erasing, obliterating, or burning. It is not limited to writing of
the word “cancelled”, or “paid”, or drawing of criss-cross lines across the instrument (Sec.
123, NIL). It may be made by any other means by which the intention to cancel the
instrument may be evident.
Intentional Cancellation
Requisites:
1. Intentionally done;
2. By the holder thereof; and
3. By writing the word “cancelled” or “paid” on the face of the instrument; or if the
instrument is torn up, burned, mutilated or destroyed.
Note: The instrument must be surrendered to the payor. If the instrument is not
surrendered, it may fall in the hands of a holder in due course who may have the right to
enforce the instrument despite the previous payment.
5. By the release of the principal debtor, unless the holder’s right of recourse against the
party secondarily liable is expressly reserved;
6. By any agreement binding upon the holder to extend the time of payment or to
postpone the holder’s right to enforce the instrument (Sec. 120, NIL).
Instances when the agreement to extend the time of payment does NOT discharge a party
secondarily liable:
1. where the extension of time is consented to by such party;
2. where the holder expressly reserves his right of recourse against such party.
It must be with written declaration to that effect and if oral, must be accompanied by surrender
of the instrument to the person primarily liable thereon.
Requisites:
1. Absolute and unconditional;
Effects:
1. A renunciation in favor of a secondary party may be made by the holder before, at or after
maturity of the instrument. The effect is to discharge only such secondary party and all
parties subsequent to him but the instrument itself remain in force.
2. A renunciation in favor of the principal debtor may be effected at or after maturity. The
effect is to discharge the instrument and all parties thereto provided the renunciation is
made unconditionally and absolutely.
In either case, renunciation does not affect the rights of a holder in due course without
notice.
NB: The only time you go to a respectable resident at the presence of two credible
witnesses to make a protest is when no notary public is available.
Is a crossed check negotiable instrument? Yes. It can be negotiated because if not it
defeats section 1 of NIL. It can only indorse once- it pertains to the last indorsement to the
bank which is suppose to make collection to the drawee bank.
TYPES OF CHECK
1. Cashier’s Check
One drawn by the cashier of a bank, in the name of the bank against the bank itself payable
to a third person. It is a primary obligation of the issuing bank and accepted in advance
upon issuance (Tan v. CA, GR No. 108555, December 20, 1994).
2. Manager’s Check
A check drawn by the manager of a bank in the name of the bank itself payable to a third
person. It is similar to the cashier’s check as to the effect and use.
Note: In issuing a manager’s check, the bank assumed the liabilities of an acceptor under
Section 62 of the Negotiable Instruments Law (Equitable PCI Bank v. Rowena Ong, GR No.
156207, September 15, 2006).
3. Memorandum Check
A check given by a borrower to a lender for the amount of a short loan, with the
understanding that it is not to be presented at the bank, but will be redeemed by the
maker himself when the loan falls due and which understanding is evidenced by writing the
word “memorandum”, “memo” or “mem” on the check.
4. Certified Check
An agreement whereby the bank against whom a check is drawn undertakes to pay it at
any future time when presented for payment (Sec. 187, NIL).
5. Traveler’s Check
It is one upon which the holder’s signature must appear twice; one to be affixed by him at
the time it is issued and the second, for counter-signature, to be affixed by him in the
presence of the payee before it is paid, otherwise, it is incomplete (Commercial Law
Review, Villanueva, 2004ed).
Certification of Checks
An agreement whereby the bank against whom a check is drawn, undertakes to pay it at any
future time when presented for payment
Effects:
1. Equivalent to acceptance (Sec. 187, NIL) and is the operative act that makes banks liable;
2. Assignment of the funds of the drawer in the hands of the drawee (Sec. 189, NIL);
3. If obtained by the holder, discharges the persons secondarily liable thereon (Sec. 188, NIL).
Where the holder of a check procures it to be accepted or certified, the drawer and all
indorsers are discharged from liability thereon (Sec. 186, NIL).
Reason: No privity of contract exists between the drawee-bank and the payee (Sincere
Villanueva v. Marlyn Nite, GR No. 148211, July 25, 2006).
Exception: If the drawer himself ordered the bank to pay and such drawer has sufficient funds
therein
Crossed Check
A check which in addition to the usual contents of an ordinary check contains also the name of
a certain banker or business entity through whom it must be presented for payment.
Kinds:
Effects:
1. It may not be encashed, but may only be deposited with the bank (Associated Bank v. CA,
GR No. 89802, May 7, 1992).
2. It may be negotiated only once to a person who has an account with the bank; and
3. It serves as a warning to the holder that the check has been issued for a definite purpose
(Bataan Cigar v. CA, GR No. 93048, March 3, 1994).
The NIL is silent with respect to crossed checks, although the Code of Commerce makes
reference to such instrument. Nonetheless, this Court has taken judicial cognizance of the
practice that a check with 2 parallel lines in the upper left hand corner means that it could only
be deposited and not converted into cash. The effects of crossing a check thus, relates to the
mode of payment, meaning that the drawer had intended the check for deposit only by the
rightful person, i.e., the payee named therein (Cely Yang v. Court of Appeals, GR No. 138074,
August 15, 2003).
Note: The holder must be a holder in due course so that the stop-payment order may not be
successfully invoked against him (Mesina v. IAC, GR No. 70145, November 13, 1986).
Check Kiting
It is the wrongful practice of taking advantage of the float, the time that elapses between the
deposit of the check in one bank and its collection at another.
Note: In anticipation of the dishonor of the check that was deposited, the conspirators will
replace the original check with another worthless check (Notes and Cases on Banks, Negotiable
Instruments and other Commercial Documents, Aquino, 2006ed).
2. The drawer’s deposit is insufficient or he has no account with the bank or said account had
been closed or garnished;
A bank is under no obligation to make partial payment on a check up to the amount of the
drawer’s funds as where the check is drawn for an amount larger than what the drawer
has on deposit. In case of partial payment, the check holder could not be called upon to
surrender the check and the bank would be without a voucher affording a certain means
of showing payment (Moran v. CA, GR No. 105836, March 1994).
Rules on Forgery
1. Promissory Notes
b. Indorsers subsequent to b. Indorsers may be made liable to those persons who obtain title
forgery are liable because of through their indorsements.
their warranties.
c. Party who made the forgery is c. Party who made the forgery is liable.
liable.
b. Indorsers subsequent to b. Indorsement is not necessary to title and the maker engages to pay
forgery are liable. holder.
c. Party who made the forgery is c. Party who made the forgery is liable.
liable.
a. Maker, payee and indorser a. Maker is liable. (indorsement is not necessary to title and the maker
whose signature was forged is engages to pay the holder).
not liable..
c. Party who made the forgery is c. Party who made the forgery is liable.
liable.
2. Bills of Exchange
Order Instrument Bearer Instrument
a. Drawer is not liable because he was never a party to the a. Drawer is not liable.
instrument.
b. Drawee is liable if it paid (no recourse to drawer) because he b. Drawee is liable if it paid.
admitted the genuiness of the drawer’s signature. Drawee cannot recover from the
collecting bank because it is
Drawee cannot recover from the collecting bank because there is
bound to know the drawer’s
no privity between the collecting bank and the drawer. The latter
does not give any warranty regarding the signature of the drawer signature since the latter is its
(Associated Bank v. CA, 208 SCRA 465). depositor.
d. Party who made the forgery is liable c. Party who made the forgery is
liable.
a. Drawer, drawee and payee not liable. Cut-off Rule applies a. Drawer is liable (his indorsement
is not necessary to pass title).
b. Indorsers subsequent to forgery are liable (such as collecting b. Collecting bank is liable because
bank). of warranty.
c. Party who made the forgery is liable. c. Party who made the forgery is
liable.
a. Drawer, payee and indorser whose signature was forged not a. Drawer is liable (indorsement not
liable. (Cut off rule does NOT apply) necessary to title).
c. Indorsers subsequent to forgery are liable (such as collecting c. Indorser whose signature was
bank). forged is liable because
indorsement is not necessary to
title.
d. Party who made the forgery is liable. d. Party who made the forgery is
liable.