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FORM AND INTERPRETATION (Sec. 1-13)

TRADERS ROYAL BANK V CA (1997) (certificate of indebtedness, payable only to Filriters and no other)
A certificate of indebtedness pertains to certificates for the creation and maintenance of a permanent improvement
revolving fund, and is similar to a bond, and is properly understood as an acknowledgement of an obligation to
pay a fixed sum of money.
The language of negotiability which characterize a negotiable paper as accredit instrument is its freedom to
circulate as a substitute for money.
Hence, freedom of negotiability is the touchstone relating to the protection of holders in due course, and the
freedom of negotiability is the foundation for the protection which the law throws around a holder in due course.
This freedom in negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to pay a
sum of money to a specified person or entity for a period of time.
Caltex v CA the negotiability or non-negotiability of an instrument is determined from the writing, that is, from
the face of the instrument itself. In the construction of a bill or note. The intention of the parties is to control, if it
can be legally ascertained. xxx [A]s they have constituted the writing to be the only outward and visible
expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of the court
in such a case is to ascertain, not what the parties may gave secretly intended as contradistinguished from what
their words express, but what is the meaning of the words they have used. What the parties meant must be
determined by what they said.
(On its face, the subject certificates states that it is registered in the name of Filriters. This should have put the
petitioner on notice, and prompted it to inquire from Filriters as to Philfinances title over the same or its authority
to assign the certificate. As it is, there is no showing to the effect that petitioner had any dealing whatsoever with
Filriters, nor did it make inquiries as to the ownership of the certificate.)
CALTEX V CA (1992)
Cited: Section 1 of the NIL
The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing,
that is, from the face of the instrument itself
While the writing may be read in the light of surrounding circumstances in order to more perfectly understand the
intent and meaning of the parties, yet as they have constituted the writing to be the only outward and visible
expression of their meaning, no other words are to be to it or substituted in its stead.
(The documents provide that the amounts deposited shall be repayable to the depositor. And who, according to the
document, is the depositor? It is the bearer. xxx Rather, the amounts are to be repayable to the bearer of the
documents or, for that matter, whosoever may be the bearer at the time of presentment.
The need to resort to extrinsic evidence is what is sought to be avoided by the NIL and calls for the application of
the elementary rule that the interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity.
METROPOLITAN BANK & TRUST COMPANY V CA (1991)
(A no less important consideration is the circumstance that the treasury warrants in question are not negotiable
instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal
significance, it is indicated that they are payable from a particular fund, to wit, Fund 501)
Section 3 of the NIL on when promise is unconditional provides that [b]ut an order or promise to pay out of a
particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or
promise to pay "not unconditional" and the warrants themselves non-negotiable. There should be no question that
the exception on Section 3 of the Negotiable Instruments Law is applicable in the case at bar.
Abubakar v General Auditor For one thing, the document bearing on its face the words "payable from the
appropriation for food administration, is actually an Order for payment out of "a particular fund," and is not
unconditional and does not fulfill one of the essential requirements of a negotiable instrument (and thus person is
not a holder in due course).
PHILIPPINE NATIONAL BANK V SIMA WEI (1962)
SEC. 17. Construction where instrument is ambiguous. Where the language of the instrument is ambiguous or
there are omissions therein, the following rules of construction apply: (g) Where an instrument containing the
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word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable
thereon.
[A]s the promissory note was executed jointly and severally by the same parties, namely, Concepcion Mining
Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the payee of the promissory note had the right to hold
any one or any two of the signers of the promissory note responsible for the payment of the amount of the note.
This judgment of the lower court should be affirmed.

FORM AND INTERPRETATION (SEC. 14-23)

DEVELOPMENT BANK OF RIZAL V SIMA WEI (1993)
The normal parties to a check are the drawer, the payee and the drawee bank.
A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species
of property, and thus it needs to be delivered to the payee in order to evidence its existence as a binding contract.
Section 16 of the NIL provides that a negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto.
The payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him.
Deliver 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.
(Without the delivery of said checks to petitioner-payee, the former did not acquire any right or interest therein
and cannot therefore assert any cause of action, founded on said checks, whether against the drawer Sima Wei or
against the Producers Bank or any of the other respondents.)
LIM V CA (1995) (Section 16: delivery when effectual)
The receipt of the checks by the collector of LINTON is not the issuance and delivery to the payee in
contemplation of law.
The collector was not the person who could take the checks as a holder, i.e., as a payee or indorsee thereof, with
the intent to transfer title thereto.
Neither could the collector be deemed an agent of LINTON with respect to the checks because he was a mere
employee.
People v Yabut - And there appears to be no contract of agency between Yambao and Andan so as to bind the
latter for the acts of the former. Andan declared that Yambao is only a part-time employee." There was no special
fiduciary relationship that permeated their dealings.
o For a contract of agency to exist, the consent of both parties is essential. The principal consents that the
other party, the agent, shall act on his behalf, and the agent consents so as to act. The person alleging it
has the burden of proof to show, not only the fact of its existence, but also its nature and extent.
REPUBLIC PLANTERS BANK V CA (1992) (Sec. 17: Construction; Sec. 20: Liability of agent; Sec. 14: blanks filled)
The promissory notes are negotiable instruments and must be governed by the Negotiable Instruments Law
Under the NIL persons who write their names on the face of promissory notes are makers and are liable as such.
By signing the notes, the maker promises to pay to the order of the payee or any holder according to the tenor
thereof.
Section 17(g) of the NIL provides that: [w]here an instrument containing the words "I promise to pay" is signed
by two or more persons, they are deemed to be jointly and severally liable thereon.
An instrument which begins" with "I" ,We" , or "Either of us" promise to, pay, when signed by two or more
persons, makes them solidarily liable.
T he fact that the singular pronoun is used indicates that the promise is individual as to each other; meaning that
each of the co-signers is deemed to have made an independent singular promise to pay the notes in full.
A joint and several obligation in common law corresponds to a civil law solidary obligation; that is, one of several
debtors bound in such wise that each is liable for the entire amount, and not merely for his proportionate share.
As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or
contracts entered into by officers of the corporation, if duly authorized.
Inasmuch as such officers acted in their capacity as agent of the old corporation and the change of name meant
only the continuation of the old juridical entity, the corporation bearing the same name is still bound by the acts of
its agents if authorized by the Board.
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Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a
representative capacity or the name of the third party for whom he might have acted as agent, the agent is
personally liable to take holder of the instrument and cannot be permitted to prove that he was merely acting as
agent of another and parol or extrinsic evidence is not admissible to avoid the agent's personal liability.
An incomplete instrument which has been delivered to the borrower for his signature is governed by Section 14 of
the Negotiable Instruments Law, which provides that: xxx [w]here the instrument is wanting in any material
particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks
therein. ... In order, however, that any such instrument when completed may be enforced against any person who
became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given
and within a reasonable time.
We take judicial notice of the customary procedure of commercial banks of requiring their clientele to sign
promissory notes prepared by the banks in printed form with blank spaces already filled up as per agreed terms of
the loan, leaving the borrowers-debtors to do nothing but read the terms and conditions therein printed and to sign
as makers or co-makers.
When the notes were given to private respondent Fermin Canlas for his signature, the notes were complete in the
sense that the spaces for the material particular had been filled up by the bank as per agreement. The notes were
not incomplete instruments; neither were they given to private respondent Fermin Canlas in blank as he claims.
Thus, Section 14 of the Negotiable Instruments Law is not applicable.

ASTRO ELECTRONICS CORP. V PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE (2003) (Sec. 17(g))
Thus, even without the phrase personal capacity, Roxas will still be primarily liable as a joint and several debtor
under the notes considering that his intention to be liable as such is manifested by the fact that he affixed his
signature on each of the promissory notes twice which necessarily would imply that he is undertaking the
obligation in two different capacities, official and personal.
(The three promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly, severally and solidarily,
promise to pay to PHILTRUST BANK or order...)
Section 17(g) of the NIL provides that: [a]n instrument which begins with I, We, or Either of us promise to pay,
when signed by two or more persons, makes them solidarily liable.
Also, the phrase joint and several binds the makers jointly and individually to the payee so that all may be sued
together for its enforcement, or the creditor may select one or more as the object of the suit.
SAN CARLOS MILLING V BANK OF THE PHILIPPINE ISLANDS (1933) (Section 23)
It is an elementary principle both of banking and of NIL thatA bank is bound to know the signatures of its
customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and
cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged.
The signatures to the checks being forged, under Section 23 of the NIL they are not a charge against plaintiff nor
are the checks of any value to the defendant.
GREAT EASTERN LIFE V HSBC (1922) (forged of payees signature, Section 23)
(Here, the forgery was that of Melicor, who was the payee of the check, and the legal presumption is that the bank
would not honor the check without the genuine endorsement of Melicor.)
The money was on deposit in the HSBC, and it had no legal right to pay it out anyone except the plaintiff, or its
order.
(Here, the plaintiff ordered the HSBC to pay the P2000 to Melicor, and the money was actually paid to Maasim
and was never paid to Melicor, and he never personally endorsed the check, or authorized any one to endorse it
for him, and the alleged endorsement was a forgery.) Thus the bank has no defense to this action.
PNB had no license or authority to pay the money to Maasim or anyone else upon a forged signature. It was its
legal duty to know that Melicors endorsement was genuine before cashing the check. Its remedy is against
Maasim to whom it paid the money.
REPUBLIC BANK V EBRADA (1975) (one forged signature, other negotiations valid signatures)
(The signature of the original payee of the check, was a forgery as he was already dead before the check was
issued by the Bureau of Treasury.)
It is clear from the provision that where the signature on a negotiable instrument if forged, the negotiation of the
check is without force or effect.
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Does one forged signature in a negotiable instrument render void all other negotiations as to other parties? Beam
v Farrel - it is only the negotiation based on the forged or unauthorized signature which is inoperative.
It can be safely concluded that it is only the negotiation predicated on the forged indorsement that should be
declared inoperative.

GEMPESAW V CA (1993) (payee indorsements forged, negligence by drawer)

(Rather, it is the drawer, whose signature is genuine, who instituted this action to recover from the drawee bank
the money value of eighty-two (82) checks paid out by the drawee bank to holders of those checks where the
indorsements of the payees were forged.)
Under the aforecited provision, forgery is a real or absolute defense by the party whose signature is forged.
Since his signature does not appear in the instrument, he cannot be held liable thereon by anyone, not even by a
holder in due course.
Section 23 covers also a forged indorsement, i.e., the forged signature of the payee or indorsee of a note or check.
Since under said provision a forged signature is "wholly inoperative", no one can gain title to the instrument
through such forged indorsement. Such an indorsement prevents any subsequent party from acquiring any right as
against any party whose name appears prior to the forgery.
Although rights may exist between and among parties subsequent to the forged indorsement, not one of them can
acquire rights against parties prior to the forgery. Such forged indorsement cuts off the rights of all subsequent
parties as against parties prior to the forgery.
However, the law makes an exception to these rules where a party is precluded from setting up forgery as a
defense.
As a matter of practical significance, problems arising from forged indorsements of checks may generally be
broken into two types of cases: (1) where forgery was accomplished by a person not associated with the drawer
for example a mail robbery; and (2) where the indorsement was forged by an agent of the drawer
For his negligence or failure either to discover or to report promptly the fact of such forgery to the drawee, the
drawer loses his right against the drawee who has debited his account under a forged indorsement. In other words,
he is precluded from using forgery as a basis for his claim for re-crediting of his account.
As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge the
drawer's account for the amount of said check. An exception to this rule is where the drawer is guilty of such
negligence which causes the bank to honor such a check or checks.
The negligence of a depositor which will prevent recovery of an unauthorized payment is based on failure of the
depositor to act as a prudent businessman would under the circumstances.
(Petitioner's failure to make such adequate inquiry constituted negligence which resulted in the bank's honoring of
the subsequent checks with forged indorsements.)
A depositor may not sit idly by, after knowledge has come to her that her funds seem to be disappearing or that
there may be a leak in her business, and refrain from taking the steps that a careful and prudent businessman
would take in such circumstances and if taken, would result in stopping the continuance of the fraudulent scheme.
And since it was her negligence which caused the respondent drawee Bank to honor the forged checks or
prevented it from recovering the amount it had already paid on the checks, petitioner cannot now complain should
the bank refuse to recredit her account with the amount of such checks. Under Section 23 of the NIL, she is now
precluded from using the forgery to prevent the bank's debiting of her account.
The doctrine in the case of Great Eastern Life Insurance Co. vs. Hongkong & Shanghai Bank is not applicable
because the drawer was not found to be negligent in the handling of its business affairs and the theft of the check
by a total stranger was not attributable to negligence of the drawer; neither was the forging of the payee's
indorsement due to the drawer's negligence.
MWSS V CA (1986) (security of printing of checks not done, negligence on MWSS part, Section 23 exception)
Moreover, the petitioner is barred from setting up the defense of forgery under Section 23 of the NIL because it
was guilty of negligence not only before the questioned checks were negotiated but even after the same had
already been negotiated.
(In the exercise of this special privilege (use of personalized checks instead of PBCom blank checks), however,
the petitioner failed to provide the needed security measures and facts show that there was gross negligence in the
printing of its personalized checks.)

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If his negligence should cause the bank to honor a forged check or prevent it from recovering the amount it may
have already paid on such check, he cannot later complain should the bank refuse to recredit his account with the
amount of such check.

ILUSORIO V CA (2002) (entrusted secretary with blank checks and credit cards, Section 23 exception)
Proximate cause is that cause, which, in natural and continuous sequence, unbroken by any efficient intervening
cause, produces the injury, and without which the result would not have occurred.
(In other words, petitioner had sufficient opportunity to prevent or detect any misappropriation by his secretary
had he only reviewed the status of his accounts based on the bank statements sent to him regularly.)
However, Section 23 does provide for an exception, namely: "unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or want of authority." xxx Petitioner is precluded from
setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit
cards and checkbook including the verification of his statements of account.
CONSIDERATION; NEGOTIATION (SEC. 24-50)
PINEDA V DELA RAMA (1983) (debt from a bribe, but no bribe was actually given, Sec 24: presumption of consideration)
The presumption that a negotiable instrument is issued for a valuable consideration is only puma facie. It can be
rebutted by proof to the contrary.
(The terms of the note sustain the version of Pineda that he signed the P9,300.00 promissory note because he
believed Dela Rama's story that these amounts had already been advanced by Dela Rama and given as gifts for
NARIC officials.)
The consideration for the promissory note - to influence public officers in the performance of their duties - is
contrary to law and public policy. The promissory note is void ab initio and no cause of action for the collection
cases can arise from it.
PHILIPPINE BANK OF COMMERCE V ARUEGO (1981) (World Current Events periodical credit accommodation, Sec. 29)
An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving
value therefor and for the purpose of lending his name to some other person.
Such person is 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.
In lending his name to the accommodated party, the accommodation party is in effect a surety for the latter. He
lends his name to enable the accommodated party to obtain credit or to raise money.
He receives no part of the consideration for the instrument but assumes liability to the other parties thereto
because he wants to accommodate another.
(In the instant case, the defendant signed as a drawee/acceptor. Under the Negotiable Instrument Law, a drawee is
primarily liable. Thus, if the defendant who is a lawyer, he should not have signed as an acceptor/drawee. In
doing so, he became primarily and personally liable for the drafts.)
Under the Negotiable Instruments Law, a bill of exchange is an unconditional order in writing addressed by one
person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand
or at a fixed or determinable future time a sum certain in money to order or to bearer.
The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved,
but not in the determination of whether a commercial paper is a bill of exchange or not.
CLARK V SELLNER (1921) (Section 29, accommodation party can be considered a surety)
(And as to whether or not the defendant is an accommodation party, it should be taken into account that by putting
his signature to the note, he lent his name, not to the creditor, but to those who signed with him placing himself
whit respect to the creditor in the same position and with the same liability as the said signers.
Without receiving value therefor without receiving value by virtue of the instrument and not, as it apparently
is supposed to mean, without receiving payment for lend his name.
In reality, the legal situation of the defendant in this case may be properly regarded as that of a joint surety rather
than that of an accommodation party. The defendant, as a joint surety, may, upon the maturity of the note, pay the
debt, demand the collateral security and dispose of it to his benefit; but there is no proof whatsoever that this was
done.

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As a joint surety, the defendant may at any time after the maturity of the note, make payment, thus subrogating
himself in the place of the creditor with the right to enforce the guaranty against the other signers of the note for
the reimbursement of what he is entitled to recover from them.
It should not be lost sight of that the defendants signature on the note is an assurance to the creditor that the
collateral guaranty will remain good, and that otherwise, he, the defendant, will be personally responsible of the
payment.

PNB V MAZA AND MECENAS (1925) (blank checks sent to them and they signed it, Sec. 29)
(But as accommodation parties, the defendants having signed the instruments without receiving value therefor and
for the purpose of lending their names to some other person, are still liable on the instruments.)
The law now is that the accommodation party can claim no benefit as such, but he is liable according to the face
of his undertaking, the same as if he were himself financially interested in the transaction.
It is a fundamental rule that an instrument given without consideration does not create any obligation at law or in
equity in favor of the payee. However, to fasten liability upon an accommodation maker, it is not necessary that
any consideration should move to him.
The consideration which supports the promise of the accommodation maker is that parted with by the person
taking the note and received by the person accommodated.
When the accommodation parties make payment to the holder of the note, they have the right to sue the
accommodated party for reimbursement, since the relation between them is in effect that of principal and sureties,
the accommodation parties being the sureties.
SADAYA V SEVILLA (1967) (co-accommodation parties, but Sadaya paid the full amt., claim reimbursement)
(As such accommodation the makers, the individual obligation of each of them to the bank is no different from,
and no greater and no less than, that contract by Oscar Varona. xxx Their liability to the bank upon the explicit
terms of the promissory note is joint and several. The bank could have pursued its right to collect the balance
against either of them.)
The least that can be said is that, as between Varona and Sadaya, there is an implied contract of indemnity. And
Varona is bound by the obligation to reimburse Sadaya.
On principle, a solidary accommodation maker who made payment has the right to contribution, from his
co-accommodation maker, in the absence of agreement to the contrary between them, and subject to conditions
imposed by law. This right springs from an implied promise between the accommodation makers to share equally
the burdens that may ensue from their having consented to stamp their signatures on the promissory note.
For having lent their signatures to the principal debtor, they clearly placed themselves in so far as payment
made by one may create liability on the other in the category of mere joint grantors of the former.
UNITED GENERAL INDUSTRIES V PALER (1982) (illegal causestop criminal case, not liable on note; Sec. 28)
Arroyo vs. Berwin - an agreement to stifle the prosecution of a crime is manifestly contrary to public policy and
due administration of justice and will not be enforced in a court of law.
Under the law and jurisprudence, there can be no recovery against Jose de la Rama who incidentally appears to
have been an accommodation signer only of the promissory note which is vitiated by the illegality of the cause.
As for Paler who did not pay the TV he bought, he has an obligation to the appellee independently of the
promissory note which was co-signed by Jose de la Rama, pursuant to the principle of unjust enrichment.
PRUDENCIO V CA (1986) (accommodation parties but with stipulation, stipulation not followed)
Unlike in a contract of suretyship, the liability of the accommodation party remains not only primary but also
unconditional to a holder for value such that even if the accommodated party receives an extension of the period
for payment without the consent of the accommodation party, the latter is still 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 co- debtor.
Ang Tiong v Ting as a surety, his liability to a holder for value is not diminished. The liability of the appellant
remains primary and unconditional. To sanction the appellant's theory is to give unwarranted legal recognition to
the patent absurdity of a situation where an indorser, when sued on an instrument by a holder in due course and
for value, can escape liability on his indorsement by the convenient expedient of interposing the defense that he is
a mere accommodation indorse
There is, therefore, no question that as accommodation makers, petitioners would be primarily and
unconditionally liable on the promissory note to a holder for value, regardless of whether they stand as sureties or
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solidary co-debtors since such distinction would be entirely immaterial and inconsequential as far as a holder for
value is concerned.
A holder for value under Section 29 of the Negotiable Instruments Law is one who must meet all the requirements
of a holder in due course under Section 52 of the same law except notice of want of consideration.
If he does not qualify as a holder in due course then he holds the instrument subject to the same defenses as if it
were non-negotiable (Section 58, Negotiable Instruments Law).
As a general rule, a payee may be considered a holder in due course we think that such a rule cannot apply with
respect to the respondent PNB.
(Not only was PNB an immediate party or in privy to the promissory note, that is, it had dealt directly with the
petitioners knowing fully well that the latter only signed as accommodation makers but more important, it was the
Deed of Assignment executed by the Construction Company in favor of PNB which principally moved the
petitioners to sign the promissory note also in favor of PNB.)
(From the foregoing circumstances, PNB can not be regarded as having acted in good faith which is also one of
the requisites of a holder in due course under Section 52 of the Negotiable Instruments Law. The PNB knew that
the promissory note which it took from the accommodation makers was signed by the latter because of full
reliance on the Deed of Assignment, which, PNB had no intention to comply with strictly.)

CRISOLOGO-JOSE V CA (1989) (signed as agent of corporation, but not authority; Sec. 29)
Consequently, to be considered an accommodation party, a person must (1) be a party to the instrument, signing
as maker, drawer, acceptor, or indorser, (2) not receive value therefor, and (3) sign for the purpose of lending his
name for the credit of some other person.
It is not a valid defense that the accommodation party did not receive any valuable consideration when he
executed the instrument.
From the standpoint of contract law, he differs from the ordinary concept of a debtor therein in the sense that he
has not received any valuable consideration for the instrument he signs.
Nevertheless, he is liable to a holder for value as if the contract was not for accommodation in whatever capacity
such accommodation party signed the instrument, whether primarily or secondarily.
It has been held that in lending his name to the accommodated party, the accommodation party is in effect a surety
for the latter.
Section 29 of the NIL which holds an accommodation party liable on the instrument to a holder for value,
although such holder at the time of taking the instrument knew 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 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. If the form of the instrument, or the nature of the
transaction, is such as to charge the indorsee with knowledge that the issue or indorsement of the instrument by
the corporation is for the accommodation of another, he cannot recover against the corporation thereon.
As an exception an officer or agent of a corporation shall have the power to execute or indorse a negotiable paper
in the name of the corporation for the accommodation of a third person only if specifically authorized to do so.
Corollarily, corporate officers, such as the president and vice-president, have no power to execute for mere
accommodation a negotiable instrument of the corporation for their individual debts or transactions arising from
or in relation to matters in which the corporation has no legitimate concern.
Since such accommodation paper cannot thus be enforced against the corporation, especially since it is not
involved in any aspect of the corporate business or operations, the inescapable conclusion in law and in logic is
that the signatories thereof shall be personally liable therefor, as well as the consequences arising from their acts
in connection therewith.
TRAVEL-ON INC. V CA (1992) (revolving credit line, checks as accommodation but facts show otherwise; Sec. 24)
Section 24 - a check 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. Thus, the mere introduction of the instrument sued on in evidence prima facie entitles the plaintiff to
recovery.
Further, the rule is quite settled that a negotiable instrument is presumed to have been given or indorsed for a
sufficient consideration unless otherwise contradicted and overcome by other competent evidence.
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An accommodating party lends his credit to the accommodated party, by issuing or indorsing a check which is
held by a payee or indorsee as a holder in due course, who gave full value therefor to the accommodated party.
The accommodated party receives full value for the accommodation and the accommodating party is bound on the
check to the holder in due course who is necessarily a third party and is not the accommodated party. The
accommodation party warrants to the holder in due course that he will pay the instrument according to its tenor.

TOWN SAVINGS V CA (1993) (surety: sister-in-law, alleges that they should not be principal parties; Sec. 29)
PBCom v Aruego [i]n lending his name to the accommodated party, the accommodation party is in effect a
surety for the latter. He lends his name to enable the accommodated party to obtain credit or to raise money. He
receives no part of the consideration for the instrument but assumes liability to the other parties thereto because he
wants to accommodate another.
(The Hipolitos accommodated her by signing a promissory note for half of the loan that she applied for because
Town Savings may not lend any single borrower more than the authorized limit of its loan portfolio. Under
Section 29 of the Negotiable Instruments Law, the Hipolitos are liable to the bank on the promissory note that
they signed to accommodate Pilarita.)
BAUTISTA V AUTO PLUS TRADERS (2008) (private respondent not accommodation party; Sec. 29)
Generally, the stockholders and officers are not personally liable for the obligations of the corporation except only
when the veil of corporate fiction is being used as a cloak or cover for fraud or illegality, or to work injustice.
(These situations, however, do not exist in this case. xxx There is no agreement that petitioner shall be held liable
for the corporations obligations in his personal capacity.)
An accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument,
signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for
the purpose of lending his name or credit to some other person.
An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he
receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto.
(The first two elements are present here, however there is insufficient evidence presented in the instant case to
show the presence of the third requisite. There is no showing of when petitioner issued the check and in what
capacity. In the absence of concrete evidence it cannot just be assumed that petitioner intended to lend his name
to the corporation. Hence, petitioner cannot be considered as an accommodation party.)
SIAIN ENTERPRISES V CUPERTINO REALTY (2009) (presumption of valuable consideration, affirmative defense)
(From the foregoing chain of transactions, a presumption has arisen that the loan documents were supported by a
consideration.)
Rule 131, Section 3 of the Rules of Court specifies that a disputable presumption is satisfactory if uncontradicted
and not overcome by other evidence.
SEC. 3.
Disputable presumptions. The following presumptions are satisfactory if uncontradicted, but
may be contradicted and overcome by other evidence:
(r)
That there was sufficient consideration for a contract;
(s)
That a negotiable instrument was given or indorsed for a sufficient consideration;
Section 24 of the NIL provides that:[p]resumption of consideration. [e]very negotiable instrument is deemed
prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to
have become a party thereto for value.
(However, petitioners bare-faced assertion does not even dent, much less, overcome the aforesaid presumptions
on consideration for a contract.)
It is a basic axiom in this jurisdiction that as between the plaintiffs negative evidence of denial and the
defendants affirmative evidence on the existence of the consideration, the latter must be given more weight and
value. xxx By such failure to present rebutting evidence, [Cupertinos] testimony on the existence of the
consideration of the amended real estate mortgage does not only become impliedly admitted by the [petitioner],
more significantly, to the mind of this Court, it is a clear indication that [petitioner] has no counter evidence to
overcome and defeat the [Cupertinos] evidence on the matter.
GONZALES V PHIL. COMMERCIAL AND INTL BANK (2011) (accommodation party, solidarily liable; Sec. 29)
For signing as borrower and co-borrower on the promissory notes with the proceeds of the loans going to the
spouses Panlilio, Gonzales has extended an accommodation to said spouses.
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Ang v Associated Bank an accomodationparty is a person who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other
person.
An accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument,
signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for
the purpose of lending his name or credit 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 merely an accommodation party, as if the contract was not for
accommodation.
An accommodation party is deemed an original promisor and debtor from the beginning; he is considered in law
as the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since their
liabilities are interwoven as to be inseparable.
Although a contract of suretyship is in essence accessory or collateral to a valid principal obligation, the suretys
liability to the creditor is immediate, primary and absolute; he is directly and equally bound with the principal. As
an equivalent of a regular party to the undertaking, a surety becomes liable to the debt and duty of the principal
obligor even without possessing a direct or personal interest in the obligations nor does he receive any benefit
therefrom.

RIGHTS OF A HOLDER (SEC. 51-59)

DE OCAMPO V GATCHALIAN (1961) (optical shop, payment for car used to pay wifes medical bills; Sec. 52, 59)
(All these circumstances should have put the plaintiff-appellee to inquiry as to the why and wherefore of the
possession of the check by Manuel Gonzales, and why he used it to pay Matilde's account.)
It was payee's duty to ascertain from the holder Manuel Gonzales what the nature of the latter's title to the check
was or the nature of his possession, and not having done so, was guilty of gross neglect in not finding out the
nature of the title and possession of Manuel Gonzales, amounting to legal absence of good faith, and it may not be
considered as a holder of the check in good faith.
Paika v Perry - it is not necessary to prove that the defendant knew the exact fraud that was practiced upon the
plaintiff by the defendant's assignor, it being sufficient to show that the defendant had notice that there was
something wrong about his assignor's acquisition of title, although he did not have notice of the particular wrong
that was committed.
Ozark Motor v Horton - it is not necessary that he should know the particulars or even the nature of the fraud,
since all that is required is knowledge of such facts that his action in taking the note amounted bad faith.
Morris v Muir - although gross negligence does not of itself constitute bad faith, it is evidence from which bad
faith may be inferred. The circumstances thrust the duty upon the defendants to make further inquiries and they
had no right to shut their eyes deliberately to obvious facts.
In the case at bar the rule that a possessor of the instrument is prima facie a holder in due course does not apply
because there was a defect in the title of the holder (Manuel Gonzales), because the instrument is not payable to
him or to bearer.
As holder's title was defective or suspicious, it cannot be stated that the payee acquired the check without
knowledge of said defect in holder's title, and for this reason the presumption that it is a holder in due course or
that it acquired the instrument in good faith does not exist.
In other words, under the circumstances of the case, instead of the presumption that payee was a holder in good
faith, the fact is that it acquired possession of the instrument under circumstances that should have put it to
inquiry as to the title of the holder who negotiated the check to it.
The burden was, therefore, placed upon it to show that notwithstanding the suspicious circumstances, it acquired
the check in actual good faith.
(In the case at bar as the payee acquired the check under circumstances which should have put it to inquiry, why
the holder had the check and used it to pay his own personal account, the duty devolved upon it, plaintiffappellee, to prove that it actually acquired said check in good faith.)
GREEN V LOPEZ (1917) (knowledge of equitable defenses not proven)
Any allegation which sets forth the existence of a valuable consideration for the transfer by indorsement is
sufficient, notwithstanding the failure to allege expressly the amount which was in fact paid by the indorser.

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There was nothing on the face of the note to put the purchasers on notice of the existence of such equitable
defenses. It was entirely regular in form and came into their possession in the usual course of business.
Under these circumstances the burden of proof was manifestly upon the makers of the note to establish the fact if
the knowledge of these equitable defenses before they could be permitted to rely upon such defenses as against
the purchasers.
Equitable defenses of this nature can in no event defeat the right of the holders of a negotiable note by
indorsement and for valuable consideration, until and unless knowledge of the existence of such equitable
defenses is brought home to them, or until it appears that the holders had such knowledge of the existence of
defects in the instrument as to charge them with bad faith in acquiring it under all the attendant circumstances.

BATAAN CIGAR V CA (1994) (failure to deliver consideration, effect on second indorser; Sec. 52, 59)
However, 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.
A check is defined by law as a bill of exchange drawn on a bank payable on demand.
It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to
ascertain the indorser's title to the check or the nature of his possession.
Failing in this respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith,
contrary to Sec. 52(c) of the Negotiable Instruments Law, and as such the consensus of authority is to the effect
that the holder of the check is not a holder in due course.
The only disadvantage of a holder who is not a holder in due course is that the instrument is subject to defenses as
if it were non-negotiable.
CHAN WAN V TAN KIM (1960) (clearance written on the back of the checks)
(He got them after they had been thus returned, because he presented them in court with such "account closed"
stamps, without bothering to explain.)
Naturally and rightly, the lower court held him not to be a holder in due course under the circumstances, since he
knew, upon taking them up, that the checks had already been dishonored.
If it were true that the checks had been issued in payment for shoes that were never made and delivered, Tan Kim
would have a good defense as against a holder who is not a holder in due course.
CONSOLIDATED PLYWOOD V IFC LEASING (1987) (tractors sold but broke down, payment delayed; Sec. 52, 56, 58)
It is patent then, that the seller-assignor is liable for its breach of warranty against the petitioner.
This liability as a general rule, extends to the corporation to whom it assigned its rights and interests unless the
assignee is a holder in due course of the promissory note in question, assuming the note is negotiable, in which
case the latter's rights are based on the negotiable instrument and assuming further that the petitioner's defenses
may not prevail against it.
Without the words "or order" or "to the order of, "the instrument is payable only to the person designated therein
and is therefore non-negotiable.
Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument but
will merely "step into the shoes" of the person designated in the instrument and will thus be open to all defenses
available against the latter."
Considering that the subject promissory note is not a negotiable instrument, it follows that the respondent can
never be a holder in due course but remains a mere assignee of the note in question.
(Thus, the petitioner may raise against the respondent all defenses available to it as against the seller-assignor
Industrial Products Marketing.)
Moreover, the respondent had actual knowledge of the fact that the seller-assignor's right to collect the purchase
price was not unconditional, and that it was subject to the condition that the tractors -sold were not defective.
Even assuming for the sake of argument that the promissory note is negotiable, the respondent, which took the
same with actual knowledge of the foregoing facts so that its action in taking the instrument amounted to bad
faith, is not a holder in due course.
The respondent failed to present any evidence to prove that it had no knowledge of any fact, which would justify
its act of taking the promissory note as not amounting to bad faith.

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We subscribe to the view of Campos and Campos that a financing company is not a holder in good faith as to the
buyer. xxx Where the goods sold turn out to be defective, the finance company will be subject to the defense of
failure of consideration and cannot recover the purchase price from the buyer.
When a finance company actively participates in a transaction of this type from its inception, it cannot be
regarded as a holder in due course of the note given in the transaction.
It follows that the respondent's rights under the promissory note involved in this case are subject to all defenses
that the petitioners have against the seller-assignor, Industrial Products Marketing. (following Sec. 58)

STATE INVESTMENT HOUSE V IAC (1989) (conditional loanget money after a few monthsnot paid)
Furthermore, his failure to inquire from the holder, party defendant New Sikatuna Wood Industries, Inc., the
purpose for which the three checks were cross despite the warning of the crossing, prevents him from being
considered in good faith and thus he is not a holder in due course.
Being not a holder in due course, plaintiff is subject to personal defenses, such as lack of consideration between
appellants and New Sikatuna Wood Industries.
The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not in any
case recover on the instrument for in the case at bar, petitioner may recover from the New Sikatuna Wood
Industries, Inc. if the latter has no valid excuse for refusing payment.
The only disadvantage of a holder who is not in due course is that the negotiable instrument is subject to defenses
as if it were non-negotiable.
SPOUSES VIOLAGO V BA FINANCE (2008) (car bought but previously sold already; Sec. 59, 58, 57)
The law presumes that a holder of a negotiable instrument is a holder thereof in due course (Sec. 59).
In the hands of one other than a holder in due course, a negotiable instrument is subject to the same defenses as if
it were non-negotiable (Sec. 58).
A holder in due course, however, holds the instrument free from any defect of title of prior parties and from
defenses available to prior parties among themselves, and may enforce payment of the instrument for the full
amount thereof (Sec. 57)
(Since BA Finance is a holder in due course, petitioners cannot raise the defense of non-delivery of the object and
nullity of the sale against the corporation.)
The NIL considers every negotiable instrument prima facie to have been issued for a valuable consideration (Sec.
24)
Salas v CA - we held that a party holding an instrument may enforce payment of the instrument for the full
amount thereof. As such, the maker cannot set up the defense of nullity of the contract of sale.
DINO V JUDAL-LOOT (2010) (syndicate got loan by posing as owner of land)
T he act of crossing a check serves as a warning to the holder that the check has been issued for a definite purpose
so that the holder thereof must inquire if he has received the check pursuant to that purpose; otherwise, he is not a
holder in due course.
Based on the foregoing, respondents had the duty to ascertain the indorser's, in this case Lobitana's, title to the
check or the nature of her possession. This, respondents failed to do. Respondents' verification from Metrobank
on the funding of the check does not amount to determination of Lobitana's title to the check.
Failing in this respect, respondents are guilty of gross negligence amounting to legal absence of good faith,
contrary to Section 52(c) of the Negotiable Instruments Law. Hence, respondents are not deemed holders in due
course of the subject check.
LIABILITIES OF PARTIES (SECTION 60-69)
PNB V PICORNELL (1922) (instrument accepted but payment denied; Sec. 62, 61)
The Hyndman, Tavera & Ventura Company accepted the bill of exchange unconditionally, but did not pay it at its
maturity; wherefore its responsibility, or that of its successor, Tavera to pay the same is clear (Sec. 62).
The drawee by acceptance becomes liable to the payee or his indorsee, and also to the drawer himself.
But the drawer and acceptor are the immediate parties to the consideration, and if the acceptance be without
consideration, the drawer cannot recover from the acceptor.

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In a suit by the payee against the acceptor, the question as to the consideration between the drawer and the
acceptor cannot be inquired into. The payee or holder gives value to the drawer, and if he is ignorant of the
equities between the drawer and the acceptor, he is in the position of a bona fide indorsee.
It is no defense to a suit against the acceptor of a draft which has been discounted, and upon which money has
been advanced by the plaintiff, that the draft was accepted for the accommodation of the drawer.
As to Picornell, he warranted as a drawer of the bill, that it would be accepted upon proper presentment and paid
in due course, and as it was not paid, he became liable to the payment of its value to the holder thereof, which is
PNB.

PEOPLE V MANIEGO (1987) (public funds, malversation; Sec. 66)

Under the law, the holder or last indorsee of a negotiable instrument has the right to enforce payment of the
instrument for the full amount thereof against all parties liable thereon. (Sec. 57)
Among the parties liable thereon, is an indorser of the instrument i.e., a person placing his signature upon an
instrument otherwise than as maker, drawer or acceptor ** unless he clearly indicates by appropriate words his
intention to be bound in some other capacity.
Such an indorser "who indorses without qualification," inter alia "engages that on due presentment, ** (the
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 the amount thereof to the
holder, or to any subsequent indorser who may be compelled to pay it." (Sec. 66)
Maniego may also be deemed an "accommodation party" in the light of the facts, i.e., a person "who has signed
the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person." (Sec. 29)
As such, she is under the law "liable on the instrument to a holder for value, notwithstanding such holder at the
time of taking the instrument knew ** (her) to be only an accommodation party," although she has the right, after
paying the holder, to obtain reimbursement from the party accommodated, "since the relation between them is in
effect that of principal and surety, the accommodation party being the surety."
ANG TIONG V TING (1968) (indorsement on the back, bank dishonored check; Sec. 63, 66)
Having arisen from a bank check which is indisputably a negotiable instrument, the present case is, therefore, in
so far as the indorsee is concerned vis-a-vis the indorser, governed solely plaintiff the Negotiable Instruments
Law (see secs. 1 and 185).
We are in agreement with the trial judge that nothing in the check in question indicates that the appellant is not a
general indorser within the purview of section 63 of the Negotiable Instruments Law which makes "a person
placing his signature upon an instrument otherwise than as maker, drawer or acceptor" a general indorser,
"unless he clearly indicates plaintiff appropriate words his intention to be bound in some other capacity," which
he did not do.
And section 66 ordains that "every indorser who indorses without qualification, warrants to all subsequent holders
in due course" (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has a good
title to it; (c) that all prior parties have capacity to contract; and (d) that the instrument is at the time of his
indorsement valid and subsisting. In addition, "he engages that on due presentment, it shall be accepted or paid, or
both, as the case may be, and that if it be dishonored, he will pay the amount thereof to the holder."
BDO V EQUITABLE BANKING CORP. (1988) (crossed checks to be paid to Visa, but diverted to EBC, Sec. 66)
By such deliberate and positive attitude of the petitioner it has for all legal intents and purposes treated the said
cheeks as negotiable instruments and accordingly assumed the warranty of the endorser when it stamped its
guarantee of prior endorsements at the back of the checks. It led the said respondent to believe that it was acting
as endorser of the checks and on the strength of this guarantee said respondent cleared the checks in question and
credited the account of the petitioner. Petitioner is now barred from taking an opposite posture by claiming that
the disputed checks are not negotiable instrument.
This Court has succinctly emphasized that 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 of presenting the check
for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the
genuineness of the endorsements.
PNV v National City Bank - If a drawee bank pays a forged check which was previously accepted or certified by
the said bank, it can not recover from a holder who did not participate in the forgery and did not have actual

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notice thereof. The payment of a check does not include or imply its acceptance in the sense that this word is used
in Section 62 of the Negotiable Instruments Act.
American Exchange v Yorkville Bank - "the drawer owes no duty of diligence to the collecting bank (one who
had accepted an altered check and had paid over the proceeds to the depositor) except of seasonably discovering
the alteration by a comparison of its returned checks and check stubs or other equivalent record, and to inform the
drawee thereof."
We hold that while the drawer generally owes no duty of diligence to the collecting bank, the law imposes a duty
of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their
genuineness and regularity.
The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law
holds it to a high standard of conduct.
These checks have been made the subject of contracts of endorsement wherein the defendant made expressed
warranties to induce payment by the drawer of the checks; and the defendant cannot now refuse liability for
breach of warranty as a consequence of such forged endorsements.
The defendant has falsely warranted in favor of plaintiff the validity of all endorsements and the genuineness of
the checks in all respects what they purport to be.

ASSOCIATED BANK V CA (1996) (forged endorsements, checks for hospital but diverted by hospitals cashier, Sec. 66)
Section 23 does not avoid the instrument but only the forged signature. Thus, a forged indorsement does not
operate as the payee's indorsement.
An exception to the Section 23 is when parties who warrant or admit the genuineness of the signature in question
and those who, by their acts, silence or negligence are estopped from setting up the defense of forgery, are
precluded from using this defense.
Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness of the signatures on the
instrument
BEARER instruments: When the indorsement is a forgery, only the person whose signature is forged can raise the
defense of forgery against a holder in due course (since signature of payee or holder unnecessary to pass title to
instrument).
ORDER instrument at TIME of forgery: When the holder's indorsement is forged, all parties prior to the forgery
may raise the real defense of forgery against all parties subsequent thereto (since signature of rightful holder
essential to transfer title to the same instrument).
An indorser of an order instrument warrants "that the instrument is genuine and in all respects what it purports to
be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time
of his indorsement valid and subsisting." He cannot interpose the defense that signatures prior to him are forged.
So even if the indorsement on the check deposited by the bank's client is forged, the collecting bank (considered
an indorser in this case) is bound by his warranties as an indorser and cannot set up the defense of forgery as
against the drawee bank.
The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the
order of the payee.
When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and
violates its duty to charge its customer's (the drawer) account only for properly payable items.
Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to
reimbursement from the drawer. The general rule then is that the drawee bank may not debit the drawer's account
and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank.
EXCEPTION: However, if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care
that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the
forgery. If at the same time the drawee bank was also negligent to the point of substantially contributing to the
loss, then such loss from the forgery can be apportioned between the negligent drawer and the negligent bank.
Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee bank. The
former must necessarily return the money paid by the latter because it was paid wrongfully.
Also, under Sec. 66 of the NIL, a collecting bank which indorses a check bearing a forged indorsement and
presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants
that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the
indorsement is a forgery, the collecting bank commits a breach of this warranty and will be accountable to the

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drawee bank. This liability scheme operates without regard to fault on the part of the collecting/presenting bank.
Even if the latter bank was not negligent, it would still be liable to the drawee bank because of its indorsement.
The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the
genuineness of any indorsement. The drawee bank's duty is but to verify the genuineness of the drawer's signature
and not of the indorsement because the drawer is its client.
Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The
bank knows him, his address and history because he is a client. It has taken a risk on his deposit. The bank is also
in a better position to detect forgery, fraud or irregularity in the indorsement.

PCIB V CA (2001) (Ford checks for payment of taxes diverted)

On record, PCIB failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of PCIB
employees to verify whether his letter requesting for the replacement of the Citibank Check No. SN-04867 was
duly authorized, showed lack of care and prudence required in the circumstances.
It is the duty of the collecting bank PCIB to ascertain that the check be deposited in payee's account only.
Therefore, it is the collecting bank (PCIB) which is bound to scrutinize the check and to know its depositors
before it could make the clearing indorsement "all prior indorsements and/or lack of indorsement guaranteed."
For this reason, a bank which cashes a check drawn upon another bank, without requiring proof as to the identity
of persons presenting it, or making inquiries with regard to them, cannot hold the proceeds against the drawee
when the proceeds of the checks were afterwards diverted to the hands of a third party.
In such cases the drawee bank has a right to believe that the cashing bank (or the collecting bank) had, by the
usual proper investigation, satisfied itself of the authenticity of the negotiation of the checks.
PRESENTMENT FOR PAYMENT (SEC. 70-88)
FAR EAST REALTY V CA (1988) (4 years from issue check presented but dishonored; Sec. 71)
Where the instrument is not payable on demand, presentment must be made on the day it falls due.
Where it is payable on demand, presentment must be made within a reasonable time after issue, except that in the
case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after the
last negotiation thereof (Sec. 71).
Notice may be given as soon as the instrument is dishonored; and unless delay is excused must be given within
the time fixed by the law (Sec. 102).
Reasonableness depends on the facts of the case.
(It is obvious in this case that presentment and notice of dishonor were not made within a reasonable time.)
"Reasonable time" has been defined as so much time as is necessary under the circumstances for a reasonable
prudent and diligent man to do, conveniently, what the contract or duty requires should be done, having a regard
for the rights, and possibility of loss, if any, to the other party
PNB V SEETO (1952) (negotiation: 20 March 48, presentment: 9 April 48, unreasonable delay, Sec. 84)
SEC. 84. Liability of person secondarily liable, when instrument dishonored. Subject to the provisions of this
Act, when the instrument is dishonored by nonpayment, as immediate right of recourse to all parties secondarily
liable thereon accrues to the holder.
It is also true that Section 84 is applicable, but its application is subject to the condition imposed by Section 186,
to the effect that the check must be presented for payment within a reasonable time after its issue.
The silence of Section 186 as to the indorser is due to the fact that his discharge is already expressly covered by
the provision of Section 84, the indorser being a person secondarily liable on the instrument. The reason for the
difference between the liability of the indorser and that of the drawer in case of dishonor is that the drawer is not
probably or necessarily prejudiced thereby, while an indorser is, actually or by legal presumption.
We have been unable to find any authority sustaining the proposition that an indorser of a check is not discharged
from liability for an unreasonable delay in presentation for payment. This is contrary to the essential nature and
character of negotiable instruments their negotiability. They are supposed to be passed on with promptness in
the ordinary course of business transactions; not to be retained or kept for such time as the holder may want,
otherwise the smooth flow of commercial transactions would be hindered.

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CRYSTAL V CA (1976) (redemption of property, check became stale)

Surely, for a check to the dishonored upon presentment on the one hand, and to be state for not being presented at
all in time, on the other, are incompatible developments that naturally have variant legal consequences.
Thus, if needed the check in question had been dishonored, then there can be no doubt that petitioner's redemption
was null and void. On the other hand, if it had only become stale, then it becomes imperative that the
circumstances that caused its non-presentment be determined, for if this was not due to the fault of the petitioner,
then it would be unfair to deprive him of the rights he had acquired as redemptioner, particularly, the value of the
check has otherwise been received or realized by the party concerned.
PAPA V AU VALENCIA (1998) (alleged: non-consummation of sale due to check not encash)
(Granting that petitioner had never encashed the check, his failure to do so for more than ten (10) years
undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay.)
While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Art.
1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditor's unreasonable delay in
presentment.
The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he from
whom it is received sustains loss by want of such diligence, it will be held to operate as actual payment of the debt
or obligation for which it was given.
It has, likewise, been held that if no presentment is made at all, the drawer cannot be held liable irrespective of
loss or injury 12 unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code
under which payment by way of check or other negotiable instrument is conditioned on its being cashed, except
when through the fault of the creditor, the instrument is impaired. The payee of a check would be a creditor under
this provision and if its no-payment is caused by his negligence, payment will be deemed effected and the
obligation for which the check was given as conditional payment will be discharged.
INTL CORP. BANK V GUECO (2001) (car loan default, conditions not stipulated during loan reduction, stale check)
A stale check is one which has not been presented for payment within a reasonable time after its issue.
Sec. 71 of the NIL provides that 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. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last
negotiation thereof.
In determining what is a "reasonable time," 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 such diligence as a prudent man exercises in his own affairs.
A manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a cashier's check both
as to effect and use. A cashier's check is a check of the bank's cashier on his own or another check.
In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by
the act of its issuance. It is really the bank's own check and may be treated as a promissory note with the bank as a
maker.
The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay
upon demand. The mere issuance of it is considered an acceptance thereof. 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.
PNB V CA (1968) (signatures forged, recovery sum, 2 months passes before PNB returned check)
In general, "acceptance", in the sense in which this term is used in the Negotiable Instruments Law is not required
for checks, for the same are payable on demand.
Indeed, "acceptance" and "payment" are, within the purview of said Law, essentially different things, for the
former is "a promise to perform an act," whereas the latter is the "actual performance" thereof. In the words of the
Law, "the acceptance of a bill is the signification by the drawee of his assent to the order of the drawer," which, in
the case of checks, is the payment, on demand, of a given sum of money. Upon the other hand, actual payment of
the amount of a check implies not only an assent to said order of the drawer and a recognition of the drawer's
obligation to pay the aforementioned sum, but, also, a compliance with such obligation.

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It is undeniable, however, that the PNB has, also, been negligent, with the particularity that the PNB had been
guilty of a greater degree of negligence, because it had a previous and formal notice from the GSIS that the check
had been lost, with the request that payment thereof be stopped.
Just as important, if not more important and decisive, is the fact that the PNB's negligence was the main or
proximate cause for the corresponding loss.

NOTICE OF DISHONOR (SEC 89-118)

METROPOL FINANCING V SAMBOK MOTORS (maker defaulted, Sambok wrote with recourse)
A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by
adding to the indorser's signature the words "without recourse" or any words of similar import.
Such an 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 in Section 65 of the NIL.
However, appellant Sambok indorsed the note "with recourse" and even waived the notice of demand, dishonor,
protest and presentment and this confirms that he was a general indorser.
"Recourse" means resort to a person who is secondarily liable after the default of the person who is primarily
liable.
Appellant, by indorsing the note "with recourse" does not make itself a qualified indorser but a general indorser
who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails to pay the note,
plaintiff-appellee can go after said appellant.
A person who indorses without qualification engages that on due presentment, the note shall be accepted or paid,
or both as the case may be, and that if it be dishonored, he will pay the amount thereof to the holder.
After an instrument is dishonored by non-payment, the person secondarily liable thereon ceases to be such and
becomes a principal debtor. His liability becomes the same as that of the original obligor.
LOPEZ V PEOPLE (2008) (appeal: knowledge that no funds, therefore no deceit; Sec. 114d)
The receipt by the drawer of the notice of dishonor is not an element of the offense. The presumption only
dispenses with the presentation of evidence of deceit if such notification is received and the drawer of the check
failed to deposit the amount necessary to cover his check within three (3) days from receipt of the notice of
dishonor of the check.
Under these circumstances, the notice of dishonor would have served no useful purpose as no deposit could be
made in a closed bank account.
Since petitioners bank account was already closed even before the issuance of the subject check, he had no right
to expect or require the drawee bank to honor his check. By virtue of the aforequoted provision of law, petitioner
is not entitled to be given a notice of dishonor.
DISCHARGE (SEC. 119-125)
PNB V CA (1996) (changing serial number is not a material alteration because can still be identified on its face)
An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in an
instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or
numbers or other change to an incomplete instrument relating to the obligation of a party.
In other words, a material alteration is one which changes the items which are required to be stated under Section
1 of the Negotiable Instruments Law.
The case at bench is unique in the sense that what was altered is the serial number of the check in question, an
item which, it can readily be observed, is not an essential requisite for negotiability under Section 1 of the
Negotiable Instruments Law. The aforementioned alteration did not change the relations between the parties.
If the purpose of the serial number is merely to identify the issuing government office or agency, its alteration in
this case had no material effect whatsoever on the integrity of the check.
AMERICAN BANK V MACONDRAY (1905) (indorsement written without permission waiving protest, etc.)
Protest, demand, and notice of nonpayment waived was added by some person after the signature of the
defendant.

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The liability of an indorser of a bill of exchange, after due protest and notice of nonpayment and dishonor, is the
same as that of the original obligors on such a contract by the holder of the same, and any material alteration by
the holder of the same without consent of the obligor, will relieve such obligor from all liability thereon.
Also, his indorsement thereon was merely for the identification of the person, and not for the purpose of incurring
any liability thereon.

MONTINOLA V PNB (1951) (USAFFE cash advance, check almost destroyed, indorsement written on back of the check)
As to what was really written at the back of the check which Montinola claims to be a full indorsement of the
check, we agree with trial court that the original writing of Ramos on the back of the check was to the effect that
he was assigning only P30,000 of the value of the document and that he was instructing the bank to deposit to his
credit the balance. This writing was in some mysterious way obliterated, and in its place was placed the present
indorsement appearing thereon.
The insertion of the words "Agent, Phil. National Bank" which converts the bank from a mere drawee to a drawer
and therefore changes its liability, constitutes a material alteration of the instrument without the consent of the
parties liable thereon, and so discharges the instrument.
Also, Montinola did not take the instrument in good faith, among others. At most, he is a mere assignee. As a
mere assignee Montinola is subject to all the defenses available against assignor Ramos.
STATE INVESTMENT HOUSE, INC V CA (1993) (check issued for jewelry, returned jewelry but check already negotiated)
That the post-dated checks were merely issued as security is not a ground for the discharge of the instrument as
against a holder in due course (See Sec. 119).
Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge of the
instrument.
But, the intentional cancellation contemplated under paragraph (c) is that cancellation effected by destroying the
instrument either by tearing it up, burning it, or writing the word "cancelled" on the instrument. The act of
destroying the instrument must also be made by the holder of the instrument intentionally. It is impossible for
Moulic to intentionally cancel the instrument.
On the other hand, the acts which will discharge a simple contract for the payment of money under paragraph (d)
are determined by other existing legislations since Sec. 119 does not specify what these acts are, e.g., Art. 1231 of
the Civil Code which enumerates the modes of extinguishing obligations.
Again, none of the modes outlined therein is applicable in the instant case as Sec. 119 contemplates of a situation
where the holder of the instrument is the creditor while its drawer is the debtor. In the present action, the payee,
Corazon Victoriano, was no longer MOULIC's creditor at the time the jewelry was returned.

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