Fossum vs Fernandez

it is a well-known rule of law that if the original payee of a note unenforceable for lack of consideration repurchase
the instrument after transferring it to a holder in due course, the paper again becomes subject in the payee's hands
to the same defenses to which it would have been subject if the paper had never passed through the hands of a
holder in due courseThe same is true where the instrument is retransferred to an agent of the payee.
section 59 of the Negotiable Instrument Law, to the effect that every holder is deemed prima facie to be a holder in
due course. The presumption expressed in that section arise only in favor of a person who is a holder in the sense
defined in section 191 of the same Law, that is, a payee or indorsee who is in possession of the draft, or the bearer
thereof. Under this definition, in order to be a holder, one must be in possession of the note or the bearer thereof.
(Night & Day Bank vs. Rosenbaum, 191 Mo. App., 559, 574.) If this action had been instituted by the bank itself, the
presumption that the bank was a holder in due course would have arisen from the tenor of the draft and the fact
that it was in the bank's possession; but when the instrument passed out of the possession of the bank and into the
possession of the present plaintiff, no presumption arises as to the character in which the bank held the paper. The
bank's relation to the instrument became past history when it delivered the document to the plaintiff; and it was
incumbent upon the plaintiff in this action to show that the bank had in fact acquired the instrument for value and
under such conditions as would constitute it a holder in due course. In the entire absence of proof on this point, the
action must fail.
Dino vs judal-loot
In the case of a crossed check, as in this case, the following principles must additionally be considered: A crossed
check (a) may not be encashed but only deposited in the bank; (b) may be negotiated only once to one who has
an account with a bank; and (c) warns the holder that it 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.14
Based on the foregoing, respondents had the duty to ascertain the indorsers, in this case Lobitanas, 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 Lobitanas title to the check. Failing in this respect,
respondents are guilty of gross negligence amounting to legal absence of good faith,15 contrary to Section 52(c) of
the Negotiable Instruments Law. Hence, respondents are not deemed holders in due course of the subject check.
The effect therefore of crossing a check relates to the mode of its presentment for payment. Under Section 72 of
the Negotiable Instruments Law, presentment for payment to be sufficient must be made (a) by the holder, or by
some person authorized to receive payment on his behalf x x x As to who the holder or authorized person will be
depends on the instructions stated on the face of the check.
Mesina vs intermediate appellate court
Mesina had therefore notice of the defect of his title over the check from the start. The holder of a cashiers check
who is not a holder in due course cannot enforce such check against the issuing bank which dishonors the same.
The check in question suffers from the infirmity of not having been properly negotiated and for value by Jose Go
who is the real owner of said instrument.
De ocampo vs gatchalian
In showing a person had knowledge of facts that his
action in taking the instrument amounted to bad faith need not prove that he knows the exact fraud. It is sufficient
to show that the person had NOTICE that there was something wrong. The bad faith here means bad faith in the
commercial sense obtaining an instrument with no questions asked or no further inquiry upon suspicion.
The presumption of good faith did not apply to de Ocampo because the defect was apparent on the instruments
face it was not payable to Gonzales or bearer. Hence, the holders title is defective or suspicious. Being the case,
de Ocampo had the burden of proving he was a holder in due course, but failed.
FORGERY
Mwss vs CA
The records show that the respondent drawee bank, had taken the necessary measures in the detection of forged
checks and the prevention of their fraudulent encashment. In fact, long before the encashment of the twenty-three
(23) checks in question, the respondent Bank had issued constant reminders to all Current Account Bookkeepers
informing them of the activities of forgery syndicates. The Memorandum of the Assistant Vice-President and Chief
Accountant of the Philippine National Bank dated February 17, 1966 reads in part:
SUBJECT: ACTIVITIES OF FORGERY SYNDICATE

From reliable information we have gathered that personalized checks of current account depositors are now the
target of the forgery syndicate. To protect the interest of the bank, you are hereby enjoined to be more careful in
examining said checks especially those coming from the clearing, mails and window transactions. As a reminder
please be guided with the following:
1.

Signatures of drawers should be properly scrutinized and compared with those we have on file.

2.
The serial numbers of the checks should be compared with the serial numbers registered with the
Cashier's Dept.
3.
The texture of the paper used and the printing of the checks should be compared with the sample we have
on file with the Cashier's Dept.
4.

Checks bearing several indorsements should be given a special attention.

5.

Alteration in amount both in figures and words should be carefully examined even if signed by the drawer.

6.
Checks issued in substantial amounts particularly by depositors who do not usually issue checks in big
amounts should be brought to the attention of the drawer by telephone or any fastest means of communication for
purposes of confirmation.
and your attention is also invited to keep abreast of previous circulars and memo instructions issued to
bookkeepers.
We cannot fault the respondent drawee Bank for not having detected the fraudulent encashment of the checks
because the printing of the petitioner's personalized checks was not done under the supervision and control of the
Bank. There is no evidence on record indicating that because of this private printing the petitioner furnished the
respondent Bank with samples of checks, pens, and inks or took other precautionary measures with the PNB to
safeguard its interests.
Under the circumstances, therefore, the petitioner was in a better position to detect and prevent the fraudulent
encashment of its checks.
MATERIAL ALTERATION
PNB vs CA
It is a well-settled maxim of law and equity that when one of two (2) innocent persons must suffer by the wrongful
act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or
who put it into the power of the third person to perpetrate the wrong.14
Then, again, it has, likewise, been held that, where the collecting (PCIB) and the drawee (PNB) banks are equally at
fault, the court will leave the parties where it finds them.15
Lastly, Section 62 of Act No. 2031 provides:
The acceptor by accepting the instrument engages that he will pay it according to the tenor of his acceptance; and
admits:
(a)
The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the
instrument; and
(b)

The existence of the payee and his then capacity to indorse.

The prevailing view is that the same rule applies in the case of a drawee who pays a bill without having previously
accepted it.
COMPLETE BUT UNDELIVERED
Development bank of rizal vs Sima

The payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. 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. Here, non-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 any of the other respondents.
San Miguel corp. vs Puzon
The CA found that the postdated checks were issued by Puzon merely as a security for the payment of his
purchases and that these were not intended to be encashed. It thus concluded that SMC did not acquire ownership
of the checks as it was duty bound to return the same checks to Puzon after the transactions covering them were
settled. The CA agreed with the prosecutor that there was no theft, considering that a person cannot be charged
with theft for taking personal property that belongs to himself.
LIABILITY OF GENERAL INDORSERS
Metropol financing and investment corp. vs sambak motors
No. A qualified indorserment constitutes the indorser a mere assignor of the title to the instrument. It may be made
by adding to the indorsers 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 65 of NIL. However, Sambok indorsed the
note with recourse and even waived the notice of demand, dishonor, protest and presentment.
Recourse means resort to a person who is secondarily liable after the default of the person who is primarily liable.
Sambok 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 Villaruel fails to pay the not the holder can go
after it. The effect of such indorsement is that the note was indorsed witout qualification. A person who indorses
without qualification 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. The words added by Sambok do
not limit his liability, but rather confirm his obligation as general indorser.
BPI vs CA
The general rule shall apply in this case. Since the payees indorsement has been forged, the
instrument is wholly inoperative.
However, underlying circumstances of the case show that the general rule
on forgery isnt applicable. The issue as to who between the parties should bear the
loss in the payment of the forged checks necessitates the determination of the rights and liabilities of the
parties involved in the controversy in relation to the forged checks.
The acts of the employees of BPI were tainted with more negligence if not criminal than the acts of CBC. First, the
act of disclosing information about the money market placement over the phone is a violation of the General
Banking Law. Second, there was failure on the banks part to even compare the signatures during the
termination of the placement, opening of a new account with the specimen signature in file of Fernando.
And third, there was failure to ask the surrender of the promissory note evidencing the placement.
The acts of BPI employees was the proximate cause to the loss. Nevertheless, the negligence of the
employees of CBC should be taken also into consideration. They closed their eyes to the suspicious large amount
withdrawals made over the counter as well as the opening of the account.
LIABILITY OF PERSON SIGNING AS AN AGENT
Solidbank vs Mindanao ferroalloy corp
Consistent with the foregoing principles, we sustain the CAs ruling that Respondent Guevara was not personally
liable for the contracts. First, it is beyond cavil that he was duly authorized to act on behalf of the corporation; and
that in negotiating the loans with petitioner, he did so in his official capacity. Second, no sufficient and specific
evidence was presented to show that he had acted in bad faith or gross negligence in that negotiation. Third, he did
not hold himself personally and solidarily liable with the corporation. Neither is there any specific provision of law
making him personally answerable for the subject corporate acts.
Promissory Note in question is a negotiable instrument. Under Section 19 of the Negotiable Instruments Law, agents
or representatives may sign for the principal. Their authority may be established, as in other cases of agency.
Section 20 of the law provides that a person signing "for and on behalf of a [disclosed] principal or in a
representative capacity x x x is not liable on the instrument if he was duly authorized."
ACCOMODATION PARTY
Pbcom vs aruego
nowhere has he disclosed that he was signing as a representative of the Philippine Education Foundation Company

For failure to disclose his principal, Aruego is personally liable for the drafts he accepted
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
he signed as a drawee/acceptor
Under the Negotiable Instrument Law, a drawee is primarily liable
As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of
exchange
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

CHECKS
FACTS:
Bataan Cigar & Cigarette Factory, Inc. vs CA
Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing of cigarettes purchased
from King Tim Pua George (George King) 2,000 bales of tobacco leaf to be delivered starting October 1978.
July 13, 1978: it issued crossed checks post dated sometime in March 1979 in the total amount of P820K
George represented that he would complete delivery w/in 3 months from Dec 5 1978 so BCCFI agreed to purchase
additional 2,500 bales of tobacco leaves, despite the previous failure in delivery
It issued post dated crossed checks in the total amount of P1.1M payable sometime in September 1979.
July 19, 1978: George sold to SIHI at a discount check amounting to P164K, post dated March 31, 1979, drawn by
BCCFI w/ George as payee.
December 19 and 26, 1978: George sold 2 checks both in the amount of P100K, post dated September 15 & 30,
1979 respectively, drawn by BCCFI w/ George as payee
Upon failure to deliver, BCCFI issued on March 30, 1979 and September 14 & 28, 1979 a stop payment order for all
checks
SIHI failing to claim, filed a claim against BCCFI
RTC: SIHI = holder in due course. Non-inclusion of Gearoge as party is immaterial to the case
Tan vs CA
The so-called incontestability clause precludes the insurer from raising the defenses of false representations or
concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in
force for at least two years during the insureds lifetime. The phrase during the lifetime found in Section 48 of the
Insurance Law simply means that the policy is no longer considered in force after the insured has died. The key
phrase in the second paragraph of Section 48 is for a period of two years. The policy was issued on November 6,
1973 and the insured died on April 26, 1975. The policy was thus in force for a period of only one year and five
months. Considering that the insured died before the two-year period has lapsed, respondent company is not,
therefore, barred from proving that the policy is void ab initio by reason of the insureds fraudulent concealment or
misrepresentation. Moreover, respondent company rescinded the contract of insurance and refunded the premiums
paid on November 11, 1975, previous to the commencement of this action on November 27, 1975. WHEREFORE,
the petition is hereby DENIED for lack of merit. The questioned decision of the Court of Appeals is AFFIRMED.
DISCHARGE
Samsung construction vs far east bank
Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law states that a forged signature
makes the instrument wholly inoperative. If payment is made the drawee (Far East) cannot charge it to the
drawers account (Samsung). The fact that the forgery is clever is immaterial. The forged signature may so closely
resemble the genuine as to defy detection by the depositor himself. And yet, if the bank pays the check, it is paying
out with its own money and not of the depositors. This rule of liability can be stated briefly in these words: A bank
is bound to know its depositors signature. The accusation of negligence on the part of Samsung was not clearly
proven. Absence of proof to the contrary, the presumption is that the ordinary course of business was followed.
Salazar vs JY brothers

. Extinctive Novation is never presumed, it must be explicitly stated and declared in unequivocal terms 2. The old
and the new obligations must be incompatible on every point. The obligation to pay a sum of money is not novated
by an instrument that expressly recognizes the old changes only the terms of payment, adds other obligations
not incompatible with the old ones or the new contract merely supplements the old one.13 Salazar contends that
the issuance of the Solid Bank check AND Acceptance thereof by JY Bros. , in replacement of the dishonored
Prudential Bank check = amounted to novation which discharged the check JYs acceptance of the Solid Bank
check, notwithstanding its eventual dishonor by the drawee bank, had the effect of erasing whatever criminal
responsibility, under Article 315 of the Revised Penal Code, the drawer or indorser of the Prudential Bank check
would have incurred Check is a contract susceptible the effects of novation SECTION 119. Instrument; how
discharged. A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal
debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for
his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act which will
discharge a simple contract for the payment of money; (e) When the principal debtor becomes the holder of the
instrument at or after maturity in his own right. (Emphasis ours) Acceptance of Solid Bank Check, w/c replaced PB
check which was dishonoured is NOT equal to novation reason: there was no express agreement to establish that
petitioner was already discharged from his liability to pay respondent the amount of P214,000.00 as payment for
the 300 bags of rice. In fact, when Salazar delivered the SB check, he even indorsed it, which shows his recognition
of his existing obligation to pay the P214K There is no incompatibility of obligation since the 2 checks were
precisely for the purpose of paying the amount of P214,000.00, obtained from purchase of 300 bags of rise no
substantial change in the object or principal condition Petitioner also contends that the acceptance of the Solid
Bank check non negotiable, crossed chec