2017 PRE-WEEK BAR LECTURE IN NEGOTIABLE INSTRUMENTS LAW The electronic messages are not signed by the investor-clients

ot signed by the investor-clients as supposed drawers of a bill

of exchange; they do not contain an unconditional order to pay a sum certain in money as the
Dean Nilo T. Divina payment is supposed to come from a specific fund or account of the investor-clients; and,
they are not payable to order or bearer but to a specifically designated third party. Thus, the
electronic messages are not bills of exchange. As there was no bill of exchange or order for
A. Forms and Interpretation the payment drawn abroad and made payable here in the Philippines, there could have been
no acceptance or payment that will trigger the imposition of the DST under Section 181 of the
1. Requisites of Negotiability Tax Code. The Hongkong And Shanghai Banking Corporation Limited-Philippine Branches vs.
Commissioner Of Internal Revenue G.R. Nos. 166018 & 167728, June 04, 2014
The language of negotiability which characterizes a negotiable paper as a credit instrument is
its freedom to circulate as a substitute for money. The freedom of negotiability is the 2. Kinds of Negotiable Instruments
touchstone relating to the protection of holders in due course and is the foundation for the
protection which the law thrown around a holder in due course. This freedom in negotiability Withdrawal slips are non-negotiable instruments. Hence, the rules governing the giving of
is totally absent in a certificate of indebtedness which merely acknowledges to pay a sum of immediate notice of dishonor of negotiable instruments do not apply in this case. The essence
money to a specified persons or entity. Since a certificate of indebtedness which is not of negotiability which characterizes a negotiable paper as a credit instrument lies in its
payable to order or bearer but is payable to a specific person is not negotiable, the assignee freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked
takes it subject to the defect in the title of the assignor. Thus, when the person who signed this character. In a case where a client maintained a special savings account with his drawee
the deed of assignment was not authorized by the board of directors, the assignor had no title bank, was allowed to withdraw funds there from through the medium of special withdrawal
to convey to the assignee. Traders Royal Bank vs. Court of Appeals, Filriters Guaranty slips and used the withdrawal slips in payment of certain purchases, as if they were checks,
Assurance Corporation and Central Bank of the Philippines, G.R. No. 93397, March 3, 1997 and the creditor deposited these withdrawal slips to its bank which in turn would send them
for collection to the drawee bank, the fact that other withdrawal slips were honored and paid
Under the fictitious payee rule, a check made expressly payable to a non-fictitious and existing by the drawee bank was no license for the collecting bank to presume that subsequent
person is not necessarily an order instrument if the payee is not the intended recipient of the withdrawal slips would be honored and paid immediately. And the drawee bank was under
proceeds of the check. There is, however, a commercial bad faith exception to this rule which no obligation to give immediate notice that it would make payment on the subject withdrawal
provides that a showing of commercial bad faith on the part of the drawee bank, or any slips. Firestone Tire & Rubber Company of the Philippines vs. Court of Appeals and Luzon
transferee of the check for that matter, will work to strip it of this defense. Philippine National Development Bank, G.R. No. 113236, March 5, 2001
Bank vs. Erlando T. Rodriguez and Norma Rodriguez, G.R. No. 170325, September 26, 2008
A check is “a bill of exchange drawn on a bank payable on demand” which may either be an
Under the Negotiable Instruments Law, a check made payable to cash is payable to the bearer order or a bearer instrument. Under Section 9(c) of the NIL, a check payable to a specified
and could be negotiated by mere delivery without the need of an indorsement. However, the payee may nevertheless be considered as a bearer instrument if it is payable to the order of
drawer of the post-dated check cannot be liable for estafa to the person who did not acquire a fictitious or non-existing person like checks issued to “Prinsipe Abante” or “Si Malakas at si
the instrument directly from drawer but through negotiation of another by mere delivery. Maganda,” who are well-known characters in Philippine mythology. Philippine National Bank
This is because the drawer did not use the check to defraud the holder/private complainant. vs. Erlando T. Rodriguez and Norma Rodriguez, G.R. No. 170325, September 26, 2008
People of the Philippines vs. Gilbert Reyes Wagas, G.R. No. 157943, September 4, 2013
A certificate of deposit is defined as a written acknowledgement by a bank of the receipt of a
sum of money on deposit which the bank promise to pay to the depositor or the order of the
depositor or to some other person or his order whereby the relation of debtor and creditor

©2017 Dean Nilo T. Divina, All Rights Reserved | 1

between the bank and the depositor is created. A document to be considered a certificate of the transaction (purchase of beer products) and in the meantime the drawer was to pay for
deposit need not be in a specific form. Thus, a passbook of an interest-earning deposit the transaction by some other means other than the check. This being so, title to the check
account issued by a bank is a certificate of deposit drawing interest because it is considered a did not transfer to the payee; it remained with the drawer. The second element of the felony
written acknowledgment by a bank that it has accepted a deposit of a sum of money from a of theft was therefore not established. Hence, there is no probable cause for theft. San
depositor. Thus, it is subject to documentary stamp tax. Prudential Bank vs. Commissioner Miguel Corporation vs. Puzon, Jr. G.R. No. 167567, September 22, 2010
of Internal Revenue (CIR) G.R. No. 180390, July 27, 2011
The fact that a person, other than the named payee of the crossed check, was presenting it
B. Completion and Delivery for deposit should have put the bank on guard. It should have verified if the payee authorized
the holder to present the same in its behalf or indorsed it to him. The bank’s reliance on the
1. Insertion of Date holder’s assurance that he had good title to the three checks constitutes gross negligence
even though the holder was related to the majority stockholder of the payee. While the check
Both courts below relied so much on the fact that Mrs. Vicencios husband is a former Judge was not delivered to the payee, the suit may still prosper because the payee did not assert a
who knows the law. He should have known, then, that he need not even ask the petitioners right based on the undelivered check but on quasi-delict. Equitable Banking Corporation vs.
to place a date on the check, because as holder of the check, he could have inserted the date Special Steel Products, June 13, 2012
pursuant to Section 13 of the Negotiable Instruments Law (NIL). Moreover, as stated in
Section 14 thereof, complainant, as the person in possession of the check, has prima C. Signature
facie authority to complete it by filling up the blanks therein. Besides, pursuant to Section 12 1. Liability of persons whose signature does not appear on the instrument
of the same law, a negotiable instrument is not rendered invalid by reason only that it is 2. Indorsement by Minor or Corporation
antedated or postdated. Pacheco vs. Court of Appeals, G.R. No. 126670, December 2, 1999
The indorsement or assignment of the instrument by a corporation or by a minor passes the
2. Incomplete and Undelivered Instruments property therein, notwithstanding that from want of capacity, the corporation or minor may
incur no liability thereon.
The CA emphasized that the P20,000,000.00 check was never delivered by respondent Nicdao
to petitioner Ching. As such, the said check without the details as to the date, amount and 3. Forgery
payee, was an incomplete and undelivered instrument when it was stolen and ended up in
petitioner Chings hands. On this point, the CA applied Sections 15 and 16 of the Negotiable While its manager forged the signature of the authorized signatories of clients in the
Instruments Law. Its finding relative to the P20,000,000.00 check that it was a stolen check application for manager’s checks and forged the signatures of the payees thereof, the drawee
necessarily absolved respondent Nicdao of any civil liability thereon as well. Ching vs. Nicdao, bank also failed to exercise the highest degree of diligence required of banks in the case at
G.R. No. 141181, April 27, 2007 bar. It allowed its manager to encash the Manager’s checks that were plainly crossed
checks. A crossed check is one where two parallel lines are drawn across its face or across its
3. Complete but Undelivered Instruments corner. Based on jurisprudence, the crossing of a check has the following effects: (a) the check
may not be encashed but only deposited in the bank; (b) the check may be negotiated only
If the post-dated check was given to the payee in payment of an obligation, the purpose of once — to the one who has an account with the bank; and (c) the act of crossing the check
giving effect to the instrument is evident, thus title or ownership the check was transferred serves as a warning to the holder that the check has been issued for a definite purpose and
to the payee. However, if the PDC was not given as payment, then there was no intent to give he must inquire if he received the check pursuant to this purpose; otherwise, he is not a holder
effect to the instrument and ownership was not transferred. The evidence proves that the in due course. In other words, the crossing of a check is a warning that the check should be
check was accepted, not as payment, but in accordance with the policy of the payee to cover deposited only in the account of the payee. When a check is crossed, it is the duty of the

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collecting bank to ascertain that the check is only deposited to the payee’s account. Philippine Further, since the liability of an accommodation party remains not only primary but also
Commercial International Bank vs. Balmaceda, G.R. No. 158143, September 21, 2011 unconditional to a holder for value, even if the accommodated party receives an extension of
the period for payment without the consent of the accommodation party, the latter is still
D. Consideration liable for the whole obligation and such extension does not release him because as far as a
holder for value is concerned, he is a solidary debtor. xxx The insolvency of the accommodated
party will not relieve the accommodation party from his obligation to the payee of the note.
Upon issuance of a negotiable check, in the absence of evidence to the contrary, it is He may obtain a security from the party accommodated to protect himself from the danger
presumed that the same was issued for valuable consideration which may consist either in of insolvency in the event that he is eventually sued by the payee. But whether or not he
some right, interest, profit or benefit accruing to the party who makes the contract, or some obtains security can not affect his liability to the payee as the said remedy is a matter of
forbearance, detriment, loss or some responsibility, to act, or labor, or service given, suffered concern exclusively between him and the accommodated party. Ang vs. Associated Bank,
or undertaken by the other side. Under the Negotiable Instruments Law, it is presumed that 532 SCRA 244 (2007)
every party to an instrument acquires the same for a consideration or for value. As petitioner
alleged that there was no consideration for the issuance of the subject checks, it devolved A person who signed a promissory note as a co-maker for the purpose of lending his name to
upon him to present convincing evidence to overthrow the presumption and prove that the his co-maker but without receiving value on the note is an accommodation party. An
checks were in fact issued without valuable consideration. Petitioner, however, has not accommodation party who lends his name to enable the accommodated party to obtain credit
presented any credible evidence to rebut the presumption, as well as North Star’s assertion, or raise money is liable on the instrument to a holder for value even if he receives no part of
that the checks were issued as payment for the US$85,000 petitioner owed to the corporation the consideration. He assumes the obligation to the other party and binds himself to pay the
and not to the manager who facilitate the fund transfer. Cayanan vs. North Star International note on its due date. By signing the note, Co thus became liable for the debt even if he had
Travel Inc. G.R. No. 172954, October 5, 2011 no direct personal interest in the obligation or did not receive any benefit therefrom. Henry
dela Rama vs. Admiral United Savings Bank, 551 SCRA 472 (2008)
E. Accommodation Party
While a maker who signed a promissory note for the benefit of his co-maker (who received
An accommodation party who acted as a co-maker of a promissory note issued in favor of a the loan proceeds) is considered an accommodation party, he is, nevertheless, entitled to a
bank cannot validly set up the defense that he did not receive any consideration therefor as written notice on the default and the outstanding obligation of the party accommodated.
the fact that the loan was granted to the principal debtor already constitutes sufficient There being no such written notice, the Bank is grossly negligent in terminating the credit line
consideration. The accommodation party is one who meets all the three requisites: 1) he must of the accommodation party for the unpaid interest dues from the loans of the party
be a party to the instrument, signing as maker, drawer, acceptor or indorser; 2) he must not accommodated and in dishonoring a check drawn against such credit line. Gonzales vs.
receive any value therefor; and 3) he must sign for the purpose of lending his name or credit Phillippine Commercial and International Bank, GR No. 180257, February 23, 2011
to some other person. The accommodation party is liable on the instrument to a holder for
value even though the holder, at the time of taking the instrument, knew him or her to be F. Negotiation
merely an accommodation party, as if the contract was not for accommodation. The relation 1. Distinguished from Assignment
between an accommodation party and the accommodated party is one of principal and surety 2. Modes of Negotiation
- the accommodation party being the surety. As an equivalent of a regular party to the 3. Kinds of Indorsements
undertaking, a surety becomes liable to the debt and duty of the principal obligor even
without possessing a direct or personal interest in the obligation not does he receive any G. Rights of the Holder
benefit therefrom. xxx It is completely immaterial if the payee of the promissory note would
opt to proceed only against the accommodation party or the accommodated party. xxx 1. Holder in Due Course

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Where cashier’s checks were issued merely as financial assistance to the payee with While under the law, the one in possession had a prima facie authority to complete the check,
instruction that the checks were strictly endorsed for payee’s account only and not to be such prima facie authority does not extend to its use (i.e., subsequent transfer or negotiation)
further negotiated, the party in whose favor the checks were negotiated could not qualify as once the check is completed. In other words, only the authority to complete the check is
a holder in due course. However, it does not follow as a legal proposition that simply because presumed. Further, the law used the term "prima facie" to underscore the fact that the
the holder was not a holder in due course for having taken the checks with notice that the authority which the law accords to a holder is a presumption juris tantum only; hence, subject
same were for deposit only to the account of another that it was altogether precluded from to contrary proof. Thus, evidence that there was no authority or that the authority granted
recovering on the instrument. The Negotiable Instruments Law does not provide that a holder has been exceeded may be presented by the maker in order to avoid liability under the
not in due course cannot recover on the instrument. The disadvantage of the holder in not instrument.
being a holder in due course is that the instrument is subject to defense as if it were non-
negotiable. One such defense is absence or failure of consideration (the defense raised by the In the present case, no evidence is on record that the one to whom the check was delivered
drawer since the checks had no consideration and was issued merely as a form of financial ever secured prior approval from the petitioner to fill up the blank or to use the check. In his
assistance to the payee). Atrium Management Corporation vs. Court of Appeals, et al., G.R. testimony, petitioner asserted that he never authorized nor approved the filling up of the
No. 109491, February 28, 2001 blank checks. Alvin Patrimonio vs. Napoleon Gutierrez III G.R. No. 187769, June 04, 2014

The weight of authority sustains the view that a payee may be a holder in due course. Hence, 2. Defenses Against the Holder
the presumption that he is a prima facie holder in due course applies in his favor. However,
said presumption may be rebutted and vital to the resolution of this issue is the concurrence H. Liabilities of Parties
of all the requisites provided for in Section 52 of the Negotiable Instruments Law. Cely Yang 1. Maker
vs. Hon. Court of Appeals, Philippine Commercial International Bank, Far East Bank & Trust 2. Drawer
Co., Equitable Banking Corporation, Prem Chandiramani and Fernando David, G.R. No. 3. Acceptor
138074, August 15, 2003
If a bank refuses to pay a check (notwithstanding sufficiency of funds), the payee holder
In order however that one who is not a holder in due course can enforce the instrument cannot sue the drawee bank - the payee should instead sue the drawer who might in turn sue
against a party prior to the instrument’s completion, two requisites must exist: (1) that the the drawee bank. Under Section 189 of the Negotiable Instruments law, a check by itself does
blank must be filled strictly in accordance with the authority given; and (2) it must be filled up not operate as an assignment of any part of the funds to the credit of the drawer with the
within a reasonable time. If it was proven that the instrument had not been filled up strictly bank, and the bank is not liable to the holder, unless and until it accepts or certifies the check.
in accordance with the authority given and within a reasonable time, the maker can set this Section 189 is sound law based on logic and established legal principles: no privity of contract
up as a personal defense and avoid liability. However, if the holder is a holder in due course, exists between the drawee – bank and the payee. Villanueva vs. Nite 496 SCRA 459 (2006)
there is a conclusive presumption that authority to fill it up had been given and that the same
was not in excess of authority. If instruments payable to named payees or to their order have not been indorsed in blank,
only such payees or their indorsees can be holders and entitled to receive payment in their
Yet, it does not follow that simply because he is not a holder in due course, he is already totally own right. The presumption that a negotiable instrument was given for a sufficient
barred from recovery. The NIL does not provide that a holder who is not a holder in due course consideration will not inure to the benefit of someone who is merely the transferee of the
may not in any case recover on the instrument. The only disadvantage of a holder who is not physical possession of the instrument. Thus, the collecting bank has the right to deduct from
in due course is that the negotiable instrument is subject to defenses as if it were non- such transferee’s account the amount it had previously paid upon certain unendorsed order
negotiable. Among such defenses is the filling up blank not within the authority.

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instruments deposited by the latter to his account after the bank has discovered the obligor.The holder of the negotiable instrument need not even proceed against the drawer
erroneous payment to such transferee. BPI vs. Court of Appeals 512 SCRA 620 (2007) before suing the indorser. Maria Tuazon vs. Heirs of Bartolome Ramos, 463 SCRA 408 (2005)

When the drawee bank pays a person other than the payee named on the check despite the Where the beneficiary of the letter of credit negotiated the draft payable to its order in favor
latter’s lack of endorsement, it does not comply with the terms of the check and violates its of a bank which required the execution by certain corporate officers of the beneficiary of a
duty to charge the drawer’s account only for properly payable items and shall be liable for the surety agreement in favor of the negotiating bank, the dishonor of the draft makes the surety
amount charged to the drawer. However, the drawee bank may recover from the collecting liable despite the lack of notice of dishonor or protest to the surety. The liability of a guarantor
bank. A collecting bank where a check is deposited, and which endorses the check upon or surety is broader than that of an indorser. Unless the bill is promptly presented for payment
presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable at maturity and due notice of dishonor given to the indorser within a reasonable period, he
Instruments Law, an endorser warrants "that the instrument is genuine and in all respects will be discharged from liability thereon. On the other hand, except where required by the
what it purports to be; that he has good title to it; that all prior parties had capacity to provisions of the contract of suretyship, demand or notice of default is not required to fix the
contract; and that the instrument is at the time of his endorsement valid and subsisting." In surety’s liability. Allied Banking Corporation vs. Court of Appeals 494 SCRA 467 (2006)
check transactions, the collecting bank or last endorser generally suffers the loss because it
has the duty to ascertain the genuineness of all prior endorsements considering that the act A bank which paid the monetary value of a foreign check as a special accommodation to its
of presenting the check for payment to the drawee is an assertion that the party making the employee on the basis of the latter’s endorsement, as well as that of her mother who is the
presentment has done its duty to ascertain the genuineness of the endorsements. When the payee thereof, is considered an irregular indorser if one of its officers who approved the bills
collecting bank stamped the back of the check with the phrase “all prior and/or lack of purchase indicated at the back of the check “up to a certain amount only.” Where the drawee
endorsements guaranteed”, that bank had for all intents and purposes treated the check as a bank refused to honor the check because of the irregular endorsement, the collecting bank
negotiable instrument and accordingly assumed the warranty of an endorser. The collecting cannot pass the liability to its employee and her mother despite their endorsement. A
bank, on the other hand, can obtain reimbursement from the person who deposited the check subsequent party which caused the defect in the instrument cannot have any recourse against
and received the proceeds thereof, in line with the principle that no one should unjustly enrich any of the prior endorsers in good faith. Section 66 of the Negotiable Instruments Law which
himself at the expense of another. Bank of America, NT and SA vs. Associated Citizens bank states that the general indorser additionally engages that, on due presentment, the
588 SCRA 51 (2009). Please see also PNB vs. Rodriguez 566 SCRA 513 (2008), supra. instrument shall be accepted or paid, or both, as the case may be, according to its tenor, and
that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay
4. Indorser the amount thereof to the holder, or to any subsequent endorser who may be compelled to
pay it, must be read in the light of the rule in equity requiring that those who come to court
A corporation, which endorsed checks on a “with recourse” basis to secure a loan obtained should come with clean hands. The holder or subsequent indorser who tries to claim under
from a financing company, is liable in case the checks are dishonored despite the absence of the instrument which had been dishonored for “irregular indorsement” must not be the
notice of dishonor to the endorser. The “with recourse “ stipulation enlarges the liability of irregular indorser himself who gave cause for the dishonor. Otherwise, a clear injustice results
the endorser beyond that of a mere endorser under the Negotiable Instruments Law. The when any subsequent party to the instrument may simply make the instrument defective and
holder has the option to enforce it, under the Negotiable Instruments law or for breach of later claim from prior indorsers who have no knowledge or participation in causing or
contract under the Civil Code of the Philippines. Great Asian Sales Corporation vs. Court of introducing said defect to the instrument, which thereby caused its dishonor. Gonzales vs.
Appeals, 381 SCRA 557 (2002) Rizal Commercial Banking Corporation, 508 SCRA 459 (2006)

After an instrument is dishonored by non-payment, indorsers cease to be merely secondarily The collecting bank which accepted a post-dated check for deposit and sent it for clearing and
liable; they become principal debtors whose liability becomes identical to that of the original the drawee bank which cleared and honored the check are both liable to the drawer for the

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entire face value of the check. Allied Banking Corporation vs. Bank of the Philippine Islands, treat with utmost fidelity. The drawee, however, still has recourse to recover its loss. The
GR. 188363, February 27, 2013 collecting banks are ultimately liable for the amount of the materially altered check. It cannot
further pass the liability back to Cesar and Lolita absent any showing in the negligence on the
L. Material Alteration part of Cesar and Lolita which substantially contributed to the loss from alteration. Cesar V.
Areza and Lolita B. Areza vs. Express Savings Bank, Inc., and Michael Potenciano, G.R. No.
1. Concept 176697, September 10, 2014
2. Effect of Material Alteration
M. Acceptance
Payment made under materially altered instrument is not payment done in accordance with
the instruction of the drawer. When the drawee bank pays a materially altered check, it While indeed, it cannot be said that manager’s and cashier’s checks are pre-cleared, clearing
violates the terms of the check, as well as its duty to charge its client's account only for bona should not be confused with acceptance. Manager’s and cashier’s checks are still the subject
fide disbursements he had made. Since the drawee bank, in the instant case, did not pay of clearing to ensure that the same have not been materially altered or otherwise completely
according to the original tenor of the instrument, as directed by the drawer, then it has no counterfeited. However, manager’s and cashier’s checks are pre-accepted by the mere
right to claim reimbursement from the drawer, much less, the right to deduct the erroneous issuance thereof by the bank, which is both its drawer and drawee. Thus, while manager’s
payment it made from the drawer's account which it was expected to treat with utmost and cashier’s checks are still subject to clearing, they cannot be countermanded for being
fidelity. Metropolitan Bank and Trust Company vs. Renato D. Cabilzo, G.R. No. 154469, drawn against a closed account, for being drawn against insufficient funds, or for similar
December 6, 2006 reasons such as a condition not appearing on the face of the check. Long standing and
accepted banking practices do not countenance the countermanding of manager’s and
Payment made under a materially altered instrument is not payment done in accordance with cashier’s checks on the basis of a mere allegation of failure of the payee to comply with its
the instructions of the drawer. Where the drawee bank pays a materially altered check, (as obligations towards the purchaser. On the contrary, the accepted banking practice is that such
when the amount was increased from P 1,000 to P 91,000), it violates the terms of the check., checks are as good as cash. Metropolitan Bank and Trust Company vs. Wilfred N. Chiok G.R.
as well as its duty to charge its client’s account only for bona fide disbursements he had made. No. 172652 November 26, 2014
Since the drawee bank did not pay according to the tenor of the instrument, then it has no
right to claim reimbursement from the drawer much less the right to deduct the erroneous Where a manager’s check made payable to “cash” and appearing regular on its face, was
payment it made from the drawer’s account. The drawee bank can not rely on the presented to another bank that immediately honors it – no fault may be attributed to such
endorsement of the collecting bank to negate liability. The corollary liability of such bank in relying upon the integrity of the check, even if payment thereon was later ordered
indorsement, if any, is separate and independent from the liability of the drawee bank to the stopped by the drawer-bank because the one who encashed the check was actually not the
drawer. Such reliance is also offensive to the dictum that being impressed with public interest, intended payee. In other words, as between the bank that honored the manager’s check and
banks should exercise the highest degree of diligence and should therefore lightly rely on the the drawer-bank, it is the latter that should bear the loss. Security Bank and Trust Company
judgment of other banks on occasions where its clients money were involved. Metropolitan vs. Rizal Commercial Banking Corporation, G.R. No. 170984, January 30, 2009
Bank and Trust Company vs. Cabilzo 510 SCRA 259 (2006)
Clearing should not be confused with acceptance. Manager’s and cashier’s checks are still the
When the drawee bank pays a materially altered check, it violates the terms of the check, as subject of clearing to ensure that the same have not been materially altered or otherwise
well as its duty to charge its client’s account only for bona fide disbursements he had made. completely counterfeited. However, manager’s and cashier’s checks are pre-accepted by the
If the drawee did not pay according to the original tenor of the instrument, as directed by the mere issuance thereof by the bank, which is both its drawer and drawee. Thus, while
drawer, then it has no right to claim reimbursement from the drawer, much less, the right to manager’s and cashier’s checks are still subject to clearing, they cannot be countermanded
deduct the erroneous payment it made from the drawer’s account which it was expected to for being drawn against a closed account, for being drawn against insufficient funds, or for

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similar reasons such as a condition not appearing on the face of the check. Long standing and In a case where the Bank and the defendant entered into a compromise agreement to settle
accepted banking practices do not countenance the countermanding of manager’s and the unpaid obligation of the defendant and that pursuant thereto, the defendant delivered a
cashier’s checks on the basis of a mere allegation of failure of the payee to comply with its manager’s check but which the Bank held because of the refusal of the defendant to execute
obligations towards the purchaser. On the contrary, the accepted banking practice is that such a joint motion to dismiss, the fact that the manager’s check had become stale did not
checks are as good as cash. However, in view of the peculiar circumstances of the case at extinguish the obligation of the defendant. Even assuming that presentment is needed, failure
bench, We are constrained to set aside the foregoing concepts and principles in favor of the to present for payment within a reasonable time will result to the discharge of the drawer
exercise of the right to rescind a contract upon the failure of consideration thereof. only to the extent of the loss caused by the delay. Failure to present on time, thus, does not
Metropolitan Bank and Trust Company vs. Wilfred N. Chiok, G.R. No. 172652, G.R. No. totally wipe out all liability. In fact, the legal situation amounts to an acknowledgement of
175302, G.R. No. 175394, November 26, 2014 liability in the sum stated in the check. In this case, the debtors have not alleged, much less
shown that they or the bank which issued the manager’s check has suffered damage or loss
A stale check is one which has not been presented for payment within a reasonable time after caused by the delay or non presentment. Definitely, the original obligation to pay certainly
its issue. It is valueless and, therefore, should not be paid. Under the Negotiable Instruments has not been erased. International Corporate Bank vs. Gueco, 351 SCRA 516 (2001)
Law, an instrument not payable on demand must be presented for payment on the day it falls
due. When the instrument is payable on demand, presentment must be made within a Thus, where a manager’s check, made payable to “cash” and appearing regular on its face,
reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if was presented to another bank that immediately honors it—no fault may be attributed to
made within a reasonable time after the last negotiation thereof. such bank in relying upon the integrity of the check, even if payment thereon was later
ordered stopped by the drawer-bank because the one who encashed the check was actually
A check must be presented for payment within a reasonable time after its issue, and in not the intended payee. In other words, as between the bank that honored the manager’s
determining what is a “reasonable time”, regard is to be had to the nature of the instrument, check and the drawer-bank, it is the latter that should bear the loss. Security Bank and Trust
the usage of trade or business with respect to such instruments and the facts of the particular Company vs. Rizal Commercial Banking Corporation 577 SCRA 407 (2009)
case. The test is whether the payee employed such diligence as a prudent man exercise in his
own affairs. This is because the nature and theory behind the use of a check points to its A party aggrieved by an arbitral award of the PCHC may choose among any of the following
immediate use and payability. In a case, a check payable on demand which was long overdue remedies: a.) filing a petition to vacate arbitral award in the Regional Trial Court, pursuant to
by about two and a half years was considered a stale check. Also, failure of a payee to encash the Arbitration Law, b.) filing a petition for review in the Court Appeals, under Rule 43 of the
a check for more than 10 years undoubtedly resulted in the check becoming stale. Rules of Court, and c) filing a petition for certiorari under Rule 65 before the Court of Appeals,
in case the arbitral award is impressed with grave abuse of discretion. The filing of a petition
In the case at bar, however, the check involved is not an ordinary bill of exchange but a for review with the RTC, albeit provided by the PCHC Rules on Arbitration, is not the
manager’s check. A manager’s check is one drawn by the bank’s manager upon the bank itself. appropriate remedy. Since the Rules of Procedure for Arbitration of the Philippine Clearing
It is similar to a cashier’s check both as to effect and use. A cashier’s check is a check of the House Corporation (PCHC) only came about as a result of a mere agreement between and
bank’s cashier on his own or another check. In effect, it is a bill of exchange drawn by a cashier among member banks of the PCHC—such rules cannot validly confer jurisdiction on the
of a bank upon the bank itself, and accepted in advance by the act of its issuance. It is really Regional Trial Courts to review arbitral awards of the former. It is a well settled principle that
the bank’s own check and may be treated as a promissory note with the bank as a maker. The jurisdiction over the subject matter can only be conferred by law, and can never be
check becomes the primary obligation of the bank which issues it and constitutes its written determined by consent or acquiescence of the parties Metropolitan Bank & Trust Company
promise to pay upon demand. The mere issuance of it is considered as acceptance thereof. vs. Court of Appeals, 579 SCRA (2009)
If treated as promissory note, the drawer would be the maker and in which case the holder
need not prove presentment for payment or present the bill to the drawee for acceptance.
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