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Case Doctrines on Negotaible Instruments Law Philippine Education Co. vs.

Soriano The Weight of authority in the United States is that postal money orders are not negotiable instruments, the reason being that in establishing and operating a postal money order system, the government is not engaged in commercial transactions but merely exercises a governmental power for the public benefit. Moreover, some of the restrictions imposed upon money orders by postal laws and regulations are inconsistent with the character of negotiable instruments. For instance, such laws and regulations usually provide for not more than one endorsement payment of money orders may be withheld under a variety of circumstances. Caltex Phil. vs. Court of Appeals ! negotiable instrument that is payable to bearer may be negotiated by mere delivery. "o further act other than delivery is necessary in order to negotiate the instrument and to ma#e the transferee a holder. Metrobank vs. Court of Appeals !n instrument to be negotiable instrument must contain an unconditional promise or orders to pay a sum certain in money. !s provided by Sec $ of "%& an un'ualified order or promise to pay is unconditional though coupled with( )st, an indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount or *nd, a statement of the transaction which give rise to the instrument. +ut an order to promise to pay out of particular fund is not unconditional. Sesbreno vs. Court of Appeals ,nly an instrument 'ualifying as a negotiable instrument under the relevant statute may be negotiated either by indorsement thereof coupled with delivery, or by delivery alone if it is in bearer form. ! negotiable instrument, instead of being negotiated, may also be assigned or transferred. The legal conse'uences of negotiation and assignment of the instrument are different. ! negotiable instrument may not be negotiated but may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument. Firestone Tire & rubber Co. vs. Court of Appeals Withdrawal slips are non negotiable instruments. The essence of negotiability which characteri-es a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal slips lac#ed this character. Ang Tek ian vs. Court of Appeals ! chec# drawn payable to the order of .cash/ is a chec# payable to bearer and the ban# may pay it to the person presenting it for payment without the drawer0s indorsement. 1owever, if the ban# is not sure of the bearer0s identity or financial solvency, it has the right to demand identification or assurance against possible complication. +ut where the ban# is satisfied of the identity or economic standing of the bearer who tenders the chec# for collection, it will pay the instrument without further 'uestion and it would incur no liability to the drawer in thus acting. !evelop"ent #ank of the Phils. vs. Si"a $ei The payee of a negotiable instrument ac'uires no interest with respect thereto until its delivery to him. 2elivery of an instrument means transfer of possession, actual or constructive, from one person to another. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument. Philippine #ank of Co""erce vs. Aruego There is a difference between a 'ualified indorser and a person negotiating by mere delivery. While a 'ualified indorser warrants to all subse'uent holders, the warranties of the person negotiating by mere delivery extends only in favor of his immediate transferee. Francisco vs. Court of Appeals The negotiable %nstruments &aw provides that when a person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. !n agent, when so signing, should indicate that he is merely signing as an agent in behalf of the principal and must disclose the name of his principal. ,therwise, he will be held liable personally

%ail&Alai vs. #ank of the Philippine 'slands 1olders of chec#s may obtain payment from the drawee ban# by presenting it for payment directly with the ban# or by depositing it in his account in another ban# #nown as the collecting ban# or depositary ban#. When the holder deposits his chec# with the collecting ban#, the nature of the relationship created at that stage is one of agency, that is the ban# is to collect from the drawee of the chec# the corresponding proceeds. (epublic #ank vs. Ebreda Where the signature on a negotiable instrument is forged, the negotiation of the chec# is without force or effect. 1owever, where a chec# has several indorsersment on it, it is only the negotiation based on the forged or unauthori-ed signature is inoperative. %t will not render void all the other negotiations of the chec# with respect to other parties whose signatures are genuine. M$SS vs. Court of Appeals %t is basic that whoever alleges forgery must prove such fact. Forgery cannot be presumed, it must be duly established. #anco de )ro vs. E*uitable #anking Corporation %f the instrument involved is a chec#, the drawee cannot charge the account of the drawer if the payee0s or indorser0s signature is forged. The drawee, in turn has the right of recourse against the collecting ban#. The drawer generally owes no duty of diligence to the collecting ba#, the law imposes a duty of diligence on the collecting ban# to scrutini-e chec#s deposited with it for the purpose of determining their genuineness and regularity. The collecting ban# being primarily engaged in ban#ing holds itself out to the public as the expert and the law holds it to high standard of conduct. %t is the collecting ban# that generally suffers the loss with regard to forged indorsements because it had the duty to ascertain the genuineness of all prior indorsements considering that the act of presenting the chec# for payment to the drawee is an assertion that the party ma#ing the presentment has done its duty to ascertain the genuineness of the indorsements. +e"pesa, vs. Court of Appeals ! forged signature is wholly inoperative, no one can gain title to the instrument through such forged insdorsement. Such indorsement prevents any subse'uent partyfrom ac'uiring any right as against parties prior to the forgery. !lthough rights may exist between and among parties subse'uent to the forged instrument, not one of the can ac'uire rights agasint parties prior to the forgery. Such forged instrument cuts3off the rights of all subse'uent parties as against parties prior to the forgery. 1owever, the law ma#es an exception to these rules where party is precluded from setting up forgery as a defense. Associated #ank vs. Court of Appeals When a chec# is deposited with the collecting ban#, it ta#es a ris# on its depositor. %t is only logical that this ban# be held accountable for chec#s deposited by its customers. %t is important to mention that 4ayee whose signature was forged may directly proceed against the collecting ban#. 1owever, the drawer cannot opt to recover from the collecting ban#. There is no privity of contract between the drawer and the collecting ban#. Metrobank vs. First -ational Cit. #ank When the indorsement itself is very clear when it begins with the words .For clearance, clearing office/ such indorsement must be read together with the *53hour rule regulation of the 1ouse operations of the 6entral +an#. ,nce that *53hour period is over, the liability on such indorsement has ceased. Failure of drawee ban# to call the attention of collecting ban# to the alteration of the chec# in 'uestion until after the lapse of *5 hours negates whatever right it might have against the collecting ban#. %ts remedy lies not against collecting ban# but against the party responsible for the changing of the name of the payee and the amount on the face of the chec#. (epublic #ank vs. Court of Appeals The *53hour clearing house rule is valid rule applicable to commercial ban#s. !s general rule, the collecting ban# or last endorser bears the loss when the indorsement was forged. +ut the un'ualified endorsement of the collecting ban# on the chec# should be read together with the *53hour regulation on the clearing house operation. Thus, when the drawee ban# fails to return a forged or altered chec# to the collecting ban# is absolved from liability. Unless an

alteration is attributable to the fault or negligence of the drawer himself, the remedy of the drawee ban# that negligently clears a forged and7or honor altered chec# for payment is against the party responsible for the forgery or alteration, otherwise, it bears the loss. Philippine Co""ercial 'nternational #ank vs. Court of Appeals ! ban# 8in this case 46%+9 which cashes a chec# drawn upon another ban# 8in this case 6itiban#9, without re'uiring proof as to the identity of persons presenting it, or ma#ing in'uiries with regard to them, cannot hold the proceeds against the drawee when the proceeds of the chec#s were afterwards diverted to the hands of a third party. (a"on 'llusorio vs. Court of Appeals The collecting ban# or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements considering that the act of presenting the chec# for payment to the drawee is an assertion that the party ma#ing the presentment has done its duty to ascertain the genuineness of the indorsements. !s between the drawer and the drawee ban#, the drawee ban# should bear the loss. The drawee ban# shall have recourse against the collecting ban# because such collecting ban# guarantees that all prior endorsements are genuine. The collecting ban# then can go against the forger. %n cases involving a forged chec#, where the drawer0s is forged, drawer can recover from the drawee ban#. "o drawee ban# has a right to pay a forged chec#. %f it does, it shall have to recredit the amount of chec# to the account of the drawer. The liability chain ends with drawee ban# whose responsibility it is to #now the drawer0s signature since the latter is its customer. Sa"sung Construction Co. Phils/ 'nc vs. FE#TC and CA Under Sec. :* of "%&, among the warranties to be assumed by the acceptor is it admits the existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument. %t is incumbent upon the drawee ban# to ascertain the genuineness of the signature of its depositor. The respondent ban# in this case did not exercise the degree of diligence re'uired to enable it to detect the forgery. !side from the warranties as an indorser, the collecting ban# is made liable because it is privy to the depositor who negotiated the chec# because it #nows him, his address and history for being a client thereof. Thus, it is in a better position to detect forgery or irregularity in the indorsement a#a .2octrine of 6omparative "egligence/ Philippine -ational #ank vs. Court of Appeals !n alteration is said to be material if it alters the effect of the instrument. %t means an unauthori-ed change in an instrument that purports to modify in any respect the obligation of a party or an unauthori-ed addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. %n other words, material alteration is one which changes the items which is re'uired to be stated under Sec ) of "%&. Sada.a vs. Sevilla ,n principle, a solidary accommodation ma#er;who made payment;has the right to contribution, from his co3accomodation ma#er, in the absence of agreement to the contrary between them, sub<ect to conditions imposed by law. This right springs from an implied promise to share e'ually the burdens thay may ensue from their having consented to stamp their signatures on the promissory note. Crisologo&%ose vs. Court of Appeals The provision of "%& which holds an accommodation party liable on the instrument to holder for value, although such holder at the time of ta#ing the instrument #new him to be only an accommodation party, does not include nor apply to corporations which are accommodation parties. This is because the issue or indorsement of negotiable paper by a corporation without consideration and for accommodation of another is ultra vires. 1ence, one who has ta#en the instrument with #nowledge of the accommodation nature thereof cannot recover against a corporation where it is only a accommodation party. Stelco Marketing vs. Court of Appeals ! person cannot be holder of the chec# for value if it does not meet the essential re'uisites prescribed by the law. 1e must become the holder of it before it was overdue, and without notice that it had previously dishonored,/ and he too# the chec# in good faith and for value before he can be considered as a holder of the chec# for value. Travel&)n #P' vs. Court of Appeals

6hec# which is regular on its face is deemed prima facie to have been issued for a valuable consideration and every person whose signature appears thereon is deemed to have become a party thereto for value. Further the rule is 'uite settled that a negotiable instrument is presumed to have been given or indorsed for a sufficient consideration unless otherwise contradicted and overcome by another evidence. %n the accommodation transactions recogni-ed by the "%&, an accommodating party lends his credit to the accommodated party, by issuing or indorsing a chec# which is held by the payee or indorsee as a holder in due course, who gave full value which the accommodated party must repay the accommodating party, unless of course the accommodating party intended to ma#e a donation to the accommodated party. +ut the accommodating party is bound on the chec# to the holder in due course who is necessarily a third party and is not the accommodated party. 1aving issued or indorsed the chec#, the accommodating party has warranted to the holder in due course that he will pay the same according to its tenor. !e )ca"po vs. +atchalian =ood faith on the part of the holder is presumed, such presumption is destroyed if the payee or indorsee ac'uired possession of the instrument under circumstances that should have put it to in'uiry as to the title of the holder who negotiated the instrument. The burden is now on the part of the holder to show that notwithstanding the suspicious circumstances, it ac'uired in the actual good faith. Mesina vs. 'AC The holder of a cashier0s chec# who is not a holder in due course cannot enforce payment against the issuing ban# which dishonors the same. %f a payee of a cashier0s chec# obtained it from the issuing ban# by fraud, or if there is some other reason why the payee is not entitled to collect the chec#, the ban# would of course have the right to refuse payment of the chec# when presented by payee. Metropol vs. Sa"bok ! 'ualified indorserment constitutes the indorser a mere assignor of the title to the instrument. %t may be made by adding to the indorser0s signature the words .without recourse/ or any words of similar import. Such indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument as provided by section :> of "%&. ?ecourse means resort to a person who is secondarily liable after the default of the person who is primarily liable. ! person who indorses without 'ualification engages that on due presentment, the note shall be accepted or paid, or both as the case maybe, and that if it be dishonored, he will pay the amount thereof to the holder. Sepiera vs. Court of Appeals @very indorser who indorses without 'ualification, warrants to all subse'uent holders in due course that, on due presentment, it shall be accepted or paid or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly ta#en, he will pay the amount thereof to the holder or to any subse'uent indorser who may be compelled to pay it. Prudencial #ank vs. 'AC !cceptance is presumed to be un'ualified or absolute. %f the drawee intends to'ualify his acceptance, he must do so distinctly and unmista#ably or else the acceptance will be ta#en as absolute. $ong vs. Court of Appeals ! chec# must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. +y current ban#ing practice, a chec# becomes stale after more than six 8:9 months, or )AB days. The 'nternational Corporate #ank vs. Francis S. +ueco and Ma. u0 E +ueco ! stale chec# is one which has not been presented for payment within a reasonable time after its issue. %t is valueless and, therefore, should not be paid. Under the negotiable instruments 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 reasonable time after its issue. %n the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof. ! chec# must be presented for payment within a

reasonable time after its issue, and in determining what is a Creasonable time,C regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case. The test is whether the payee employed suchdiligence as a prudent man exercises in his own affairs. This is because the nature and theory behind the useof a chec# points to its immediate use and payability. State 'nvest"ent 1ouse 'nc. vs. CA The withdrawal of the money from the drawee ban# to avoid liability on the chec#s cannot pre<udice the rights of holders in due course. For the reason that the holder who ta#es the negotiated paper ma#es a contract with the parties on the face of the instrument there is an implied representation that funds or credit are available for the payment of the instrument in the ban# upon which it is withdrawn. #ataan Cigar and Cigarette Factor./ 'nc. vs. CA %n order to preserve the credit worthiness of chec#s, <urisprudence has pronounced that crossing a chec# should have the following effects( 8)9 chec# may not be encashed but only deposited in the ban# 8*9 the chec# may be negotiated only once, to one who has an account with a ban# 8$9 and the act of crossing the chec# serves as a warning to the holder that the chec# has been issued for a definite purpose so that he must in'uire if he has received the chec# pursuant to that purpose, otherwise he is not a holder in due course. banking Corp./ vs. 'nter"ediate Appellate Court @ven there was error on the account number the controlling in determining in whose account the deposit is name of the account owner. This is so because it is not li#ely to commit an error in one0s name than merely relying on numbers which are difficult to remember. "umbers are for the convenience of the ban# but was never intended to disregard the real name of its depositors. The ban# is engaged in business impressed with public trust, and it is its duty to protect in return its clients and depositors who transact business with it. Tan vs. Court of Appeals ! cashier0s chec# is a primary obligation of the issuing ban# and accepted in advance by its mere issuance, and by its peculiar character and general use in the commercial world is regarded substantially to be as good as the money which it represents. Papa vs. A.2. 3alencia !fter more than )B years from the payment in part by cash and in part by chec#, the presumption is that the chec# had been encashed. Failure of the payee to encash a chec# for more than )B years undoubtedly resulted in the impairment of the chec# through his unreasonable and unexplained delay. #ank of the Philippine 'slands vs. Court of Appeals @very negotiable instrument is deemed prima facie to have been issued for a valuable consideration every person whose signature appears thereon to have become a party thereto for value. Therefore, it is up to the party who alleges that there was absence of consideration to prove such fact. The presumption will operate only if there was negotiation. 6onsideration is not presumed if there was transfer without indorsement.