A.
REQUISITES OF NEGOTIABILITY [SECTION 1] [MEMORIZE]
Section 1. Form of negotiable instruments –
An instrument to be negotiable must conform to the following
requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
REQUISITES OF NEGOTIABILITY
HSBC LTD. v. COMMISSIONER OF INTERNAL REVENUE
 Electronic messages were not signed
 They do not contain an order to pay a sum certain in money
 Not payable to order or bearer
 Not signed
SC: The said electronic messages are not negotiable
instruments, the bills of exchange in this case are subject to
documentary stamp tax
APPLICABILITY OF THE NIL
GARCIA v. LLAMAS
 Petitioner Garcia and de Jesus borrowed Php 400,000 from
respondent Llamas
 On the same day, Garcia and de Jesus executed a
promissory note wherein they bound themselves jointly and
severally to pay the loan on or before 23 January 1997 with
a 5% interest per month
 The loan became overdue, despite repeated demands
 A case was filed against petitioner Garcia and de Jesus
 Garcia argued that he assumed no liability under the
promissory note because he signed it merely as an
accommodation party
 RTC ruled in favor of Llamas
 CA reversed the decision of the RTC
ISSUE: WON the said promissory note is in accordance with Sec 1
of the NIL. And WON Garcia can use the accommodated party
defense under the NIL
HELD:
 NO and NO
 First and foremost, the Court herein ruled that the said
promissory note is not a negotiable instrument because the
note was made payable to a specific person rather than
to a bearer or to order.
 Second, with the aforementioned ruling, Garcia cannot
invoke the liabilities and defense of accommodated party
under the NIL simply because the said promissory note is
not a negotiable instrument.
FIRESTONE v. CA
FACTS:
 Forjas-Arca purchased products from Firestone and issued
special withdrawal slips as payment.
 Firestone then deposited the withdrawal slips to their current
account in Citibank.
 Some of the withdrawal slips were dishonored by LDB as
Forjas-Arca’s account did not have sufficient funds.
 Citibank then debited the amount of the dishonored
withdrawal slips from Firestone’s account.
 Firestone is alleging that these withdrawal slips were treated
as checks and should be classified as a negotiable
instrument.
SC: The essence of negotiability which characterizes a negotiable
paper as a credit instrument lies in its freedom to circulate freely as a
substitute for money. The withdrawal slips in question lacked this
character.
KINDS OF NEGOTIABLE INSTRUMENT PNB v. RODRIGUEZ

BEARER INSTRUMENT [SEC 9] SC: The persons whose signatures were forged weren’t fictitious, the
 “Payable to A or bearer” drawee bank bears the loss. Negligence negates the defense that
 Mere delivery would suffice negotiation the names were fictitious.
 Fictitious person: is meant to be one who, though named as
payee in an instrument, has no right to it because the maker ORDER INSTRUMENT [SECTION 8]
or drawer so intended and it matters not, whether the name  “to the order of” “or order”
of the payee used by him be that one living or dead, or one  Delivery + indorsement is required
who never existed (Snyder v. Com. Exch. Nat. Bank) 
o Non-existing person: A. COMPLETION AND DELIVERY
“Pay to the order of the king of Planet Jupiter”
o Name of payee not name of person: COMPLETE AND DELIVERED INCOMPLETE AND DELIVERED
“Pay to cash” or “pay to money”
*Fictitious payee = automatically a bearer instrument  Q: When is there delivery?  Section 14 of the NIL
ANS: when there is delivery  It is important to determine
coupled with intention to be whether or not the person is a
PEOPLE v. WAGAS bound holder in due course
 No defense available for the  Holder in due course – can
FACTS: drawer or maker enforce the instrument
 Wagas, according to Ligaray, ordered 200 sacks of rice from  Not a holder in due course –
him. Wagas assured payment. cannot enforce the instrument
 Personal defense is available
 Ligaray met up with Wagas’ brother-in-law which the latter (NOTE: Personal defense can
gave the former a check worth the agreed price for the sacks only be used if the holder is not
of rice. a holder in due course)
 The check bounced and Ligaray filed a case of Estafa  Refer to: Alvin Patrimonio vs.
against Wagas Napoleon Gutierrez , et.al., G.R.
No. 187769, June 04, 2014
 Wagas argued that the check was a bearer instrument
(stated in the check “payable to cash”), therefore it shows COMPLETE BUT UNDELIVERED INCOMPLETE AND UNDELIVERED
that he had no intent to defraud Liagaray.
SC: The check was a bearer instrument. Wagas cannot be guilty of  Section 16 of the NIL  Section 15 of the NIL
estafa due to the fact that the prosecution failed to show intent to  Complete instrument but the  Incomplete instrument and no
defraud on the part of Wagas. The nature of the check, which was a drawer or maker had no intention to be bound
bearer instrument, shows the lack of intent to defraud; the accused, intention to be bound  Not enforceable against the
 Unenforceable drawer or maker
to be guilty of estafa as charged, must have used the check in
 However, if the instrument is  Complete or real defense is
order to defraud the complainant. delivered to a holder in due available
course, the drawer is liable (NOTE: even if the holder is a holder in
Personal defense is available due course, he cannot enforce the
instrument to the drawer or maker)
PATRIMONIO CASE vs. BANK OF AMERICA CASE
Both cases involve incomplete and delivered instruments (Sec 14).
In the Patrimonio case, the Court absolved Alvin Patrimonio of
liability because when he issued the said checks, he gave specific
instructions to Gutierrez in which the latter chose not to follow when
he acquired a loan from Marasigan.
“The petitioner can validly set up the personal defense that
the blanks were not filled up in accordance with the authority
he gave. Consequently, Marasigan has no right to enforce
payment against the petitioner and the latter cannot be
obliged to pay the face value of the check.”
On the other hand, in the Bank of America case, the Court therein
ruled that because of their negligence, Bank of America is liable to
PRCI but only to a certain extent. The Court herein considered the
contributory negligence on the part of the President and Vice
President of PRCI which lead to the unauthorized withdrawal of
funds. The Court found the President and Vice President grossly
negligent in the pre-signing of the checks.
B. SIGNATURE
 General Rule: Only persons whose signatures appear on an
instrument are liable thereon.
 Exceptions:
o Where a person signs in a trade name or assumed
name (Sec. 18, par. 2)
o The principal is liable if a duly authorized agent
sings on his own behalf (Sec. 19)
o Forgery; the forger is liable (Sec. 23)
o Where the acceptor makes his acceptance of a bill
on a separate paper (Sec. 134)
o Where a person makes a written promise to accept
the bill before it is drawn (Sec. 135)
SIGNING IN TRADE NAME [SECTION 18]
Example: a note signed in the business name by the proprietor
SIGNATURE OF AGENT [SECTIONS 19-20]
Agent may escape personal liability when:
o He is duly authorized
o He adds words to his signature indicating that he
signs in as an agent
o He discloses the principal
SIGNATURE BY PROCURATION [SECTION 21]
 Procuration – the act by which a principal gives power to
another to act in his place as he could himself
 Similar to an agent or proxy
 “P.p.” = Per procuration
 Effect: it gives a warning that the agent has but a limited
authority, so that it is the duty of the person dealing with
him to inquire into the extent of his authority
INDORSEMENT BY MINOR OR CORPORATION [SECTION 22]
Minor – contracts entered into by minors are voidable.
Other incapacitated persons – insane, deaf-mutes who do not know
how to write
Corporation – indorsement made by a corporation is considered to
be an ultra vires act or acts beyond its powers.
Note: Minority is a personal defense which may be set up by parties
other than the minor; but it is a real defense available to the minor.
The minor may also disaffirm and recover the instrument from a
holder in due course.
FORGERY [SECTION 23] [MEMORIZE]
Sec. 23. Forged signature; effect of. - When a signature is forged
or made without the authority of the person whose signature it
purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under
such signature, unless the party against whom it is sought to enforce
such right is precluded from setting up the forgery or want of
authority.
SECTION 23 FORGED SECTION 15 INCOMPLETE
SIGNATURE AND UNDELIVERED
 Material details:  No material detail
available  Signature is present and
 No signature VALID
 There is an exception  No exception
EFFECTS
 Real defenses (available against any holder)
 Frees the owner of the instrument from liability
SAMSUNG CONSTRUCTION v. FAR EAST BANK
FACTS:
 Samsung Construction Company Phils. (Samsung
Construction) maintained a current account with Far East
Bank and Trust Company (FEBTC). Jong Kyu Lee, its Project
Manager, was the sole signatory to the bank’s accounts. The
company’s accountant, Kyu Yong Lee, kept the checks.
 A certain Roberto Gonzaga presented for payment an
FEBTC Check amounting to P999,500.
 After making sure that there were enough funds to cover the
check, the bank teller (Justiani) compared the signature
appearing on the check with the signature card of Jong with
the bank.
 Justiani was satisfied that the signature was authentic.
 The same was done by the senior assistant cashier (Velez),
and another bank officer (Syfu).
 Syfu then noticed that Jose Sempio III was also in the bank.
 Sempio was well known to Syfu and the other bank officers
because he is the assistant accountant of Samsung
Construction.
 Sempio vouched for the genuineness of Jong’s signature.
Satisfied with the genuineness of the signature of Jong, Syfu
authorized the bank’s encashment of the check to
Gonzaga.
 Kyu, discovered the encashment. Kyu examined the
checkbook and found that the last blank check was missing.
 Jong learned of the encashment of the check, and realized
that his signature had been forged. Samsung Construction
filed a Complaint for violation of Section 23 of the NIL.
 Both sides presented expert witnesses to determine the
genuineness of the signatures.
 Samsung: NBI Document Expert, Rhoda Flores (FORGED)
 FEBTC: Rosario C. Perez, a document examiner from the
PNP Crime Laboratory (GENUINE)
SC: Forged signature is wholly inoperative and payment made
through or under such signature is ineffectual. FEBTC was liable
because as a bank, it had the duty to determine whether or not a
signature on a check is forged
ASSOCIATED BANK v. CA
SC: Although the indorsement on the instrument is forged, 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.
The act of Associated Bank of stamping the words ―all indorsement
/ lack of indorsement are guaranteed is actually an admission of the
instrument‘s validity, hence the defense of forgery is unavailable to it.
Negligence negates the defense of forgery
TRADERS ROYAL BANK v. RADIO PHILIPPINES NETWORK
• SC: By encashing in favor of unknown persons checks which were
on their face payable to the BIR, a government agency which can
only act only through its agents, petitioner did so at its peril and
must suffer the consequences of the unauthorized or wrongful
endorsement.

BPI v. CASA MONTESSORI
SC: Banks must observe the highest level of diligence
MWSS v. CA
SC: Forgery cannot be presumed. It must be established by clear,
positive, and convincing evidence. This was not done in the present
case.
C. CONSIDERATION
EFFECT OF WANT OF CONSIDERATION [SECTION 28]
 Absence of consideration – void contract
 Lack of consideration is a personal defense
 Knowledge of lack of consideration disqualifies a person to
be a holder in due course.
 Partial payment entitles the person holding the instrument to
the partially paid amount only.
 Pro tanto – to the extent
CAYANAN v. NORTH STAR
SC: Upon the issuance of a check, in the absence of evidence to the
contrary, it is presumed that it was issued for valuable consideration.
BAYANI v. PEOPLE
FACTS:
 Alicia Rubia arrived at the grocery store of Dolores
Evangelista and subsequently asked the latter to rediscount
her PSBank check amounting to Php 55,000
 The check was drawn by Leodegario Bayani, petitioner
herein, against his account with PSBank and then post-
dated August 29, 1992
 Considering that both Rubia and Bayani were long-time
customers and knowing the fact that Bayani is a good man,
Evangelista agreed to rediscount the check
 However, when Evangelista deposited the check in her
account with the Far East Bank and Trust company on
September 11, 1992, the check was dishonored for the
reason that Bayani had closed the said account with PSBank
 The dishonoring of the check was evidenced by a stamp at
its dorsal portion
 Evangelista then informed Rubia that the said check was
dishonored and demanded the return of her Php 55,000
 Rubia, in her reply, stated that she was only requested by
Bayani to have the check rediscounted
 A series of finger pointing ensued but ultimately it led to
Evangelista filing a case against Bayani for violating BP22
 Bayani, in his defense stated that there was no valuable
consideration when Evangelista issued the check. He did not
receive the Php 55,000.
 It must be noted that Bayani merely stated the fact that he
did not receive the money from Evangelista; no further effort
was given by Bayani to prove so.
 RTC: ruled against Bayani
 CA: confirmed the decision by the RTC
ISSUE: Whether or not Bayani’s defense of lack of valuable
consideration is valid
HELD:
 NO
 Petitioner cannot evade criminal liability by merely
stating that he did not receive the money
 It was shown during the trial that Evangelista rediscounted
the check and gave the Php 55,000 to Rubia after the latter
endorsed the same; therefore, it must be considered that
Evangelista is a holder in due course
  According to Section 28 of the NIL, absence or failure of
consideration is a matter of defense only as against any
person not in due course
 Moreover in Section 24 of the NIL, it is presumed that there
is a valid consideration; mere denial of receipt of the money
cannot overcome this presumption
MANGAHAS v. BRIOBIO
FACTS:
 Pacifico Brobio died intestate, leaving 3 parcels of land. He
was survived by his wife, 4 legitimate children and 3
illegitimate children.
 PETITIONER Carmela Brobio Mangahas is one of the
illegitimate children of Pacifico.
 May 12, 2002: DEED OF EXTRAJUDICIAL SETTLEMENT
OF ESTATE of the Late Pacifico Brobio with Waiver was
executed by the heirs. The heirs, in consideration of their
love and affection to RESPONDENT (Eufrocina Brobio) and
the sum of P150,000, waived and ceded their respective
shares over the 3 parcels of land to EUFROCINA.
 CARMELA said that EUFROCINA promised to give her an
additional amount for her share in her father’s estate.
 After signing the Deed, CARMELA demanded from
respondent the promised additional amount, but
EUFROCINA refused to pay because she had no money.
 A year later, EUFRONICA was required to submit an original
copy of the Deed for tax declarations with BIR. Since she did
not have a copy, she asked CARMELA to countersign a
copy of the Deed. CARMELA refused; she demanded
Eufrocina to give the additional amount she (Eufrocina)
promised.
 CARMELA asked for 1 Million, but EUFROCINA begged to
lower the amount. It was settled at P600,000. Since
EUFRONICA did not have the money that time, she
executed a promissory note.
 When the promissory note fell due, EUFROCINA failed and
refused to pay despite demand. Thus, CARMELA filed a
Complaint for Specific Performance with Damages against
EUFROCINA. EUFROCINA answered that she was forced
to sign the promissory note and claimed that the undertaking
was nit supported by any consideration.
RTC: ruled in favor of CARMELA. There was no undue influence
constituted on the part of Eufrocina’s consent. In fact, Eufrocina
acted in bad faith and took advantage of the trust and confidence
Carmela had reposed in her.
CA: reversed RTC. There was a complete absence of consideration
in the execution of the promissory note, note, which made it
inexistent and without any legal force and effect. The real reason
why Eufrocina executed the promissory note was to secure
Carmela’s signature. The waiver of Carmela’s share in the properties
may not be considered as the consideration of the promissory note,
since Carmela signed the Deed way back in 2002 and she had
already received the consideration of P150,000 for signing the same.
The CA also found that intimidation attended the signing of the
promissory note. Eufrocina needed the signature of Carmela in order
to comply with a BIR requirement, hence, Eufrocina was forced to
sign the promissory note to assure Carmela that the money
promised to her would be paid.
ISSUE: WON the CA erred when it found that the promissory note
was without consideration.
HELD:
YES. Section 24 of the NIL provides that “A contract is presumed to
be supported by cause or consideration.” The presumption that a
contract has sufficient consideration cannot be overthrown by a mere
assertion that it has no consideration.
To overcome the presumption, the alleged lack of consideration
must be shown by preponderance of evidence. The burden to
prove lack of consideration rests upon whoever alleges it,
which, in the present case, is Eufrocina. She failed to prove that
the promissory note was not supported by any consideration.
From her testimony and her assertions in the pleadings, it is clear
that the promissory note was issued for a cause or consideration,
which, at the very least, was Carmela’s signature on the document.
It may very well be argued that if such was the consideration, it was
inadequate. Nonetheless, even if the consideration is inadequate,
the contract would not be invalidated, unless there has been
fraud, mistake, or undue influence (none of which was proven in
the case).
SC: No vitiated consent. Mangahas merely took advantage of the
situation because she already experienced being on the short end of
the deal.
 Upon presentment of the aforesaid checks for payment, they
were dishonored by the bank for having been drawn against
insufficient funds or closed account.
 Santia thus demanded payment from PLCC and Aglibot of the
face value of the checks, but neither of them heeded his
demand.
SC: By issuing her own post-dated checks, Aglibot thereby
bound herself personally and solidarily to pay Santia, and
dismissed her claim that she issued her said checks in her official
capacity as PLCC’s manager merely to guarantee the investment of
Santia.
It noted that she could have issued PLCC’s checks, but instead she
chose to issue her own checks, drawn against her personal account
with Metrobank.
LIM v. SABAN

E. ACCOMMODATION PARTY [SECTION 29] SC: In order to be an accommodation party, one must meet all three
 Exception to SECTION 28 regarding pro tanto. requisites, viz:
 The holder in due course can ask for the full payment. (1) He signed the instrument as maker, drawer, acceptor, or
 An accommodation party acts like a surety. indorser;
 An accommodation party signs on behalf of another for the (2) He did not receive value for the signature; and
purpose of lending his name. (3) He signed for the purpose of lending his name to some other
 When the accommodation party makes payment to the person.
holder of a note, he has the right to sue the accommodated
party for reimbursement. F. NEGOTIATION

AGLIBOT v. SANTIA NEGOTIATION v. ASSIGNMENT

FACTS: 1. NEGOTIATION [SECTION 30]

 Private respondent-complainant Engr. Ingersol L. Santia SITUATION:
(Santia) loaned the amount of P2,500,000.00 to Pacific Php 10,000.00 Promissory Note
Lending & Capital Corporation (PLCC), through its Manager, Maker: A
petitioner Fideliza J. Aglibot (Aglibot). Holder: E
 The loan was evidenced by a Promissory Note dated July 1,
2003, issued by Aglibot in behalf of PLCC, payable in one year ABCDE
subject to interest at 24% per annum.
 E can collect from A because he possesses the rights of a Php 10,000.00 Promissory Note dated December 30,
holder 2017
Maker: A
2. ASSIGNMENT Holder: F obtained the instrument December 15, 2017
SITUATION:
Php 10,000.00 Non-Negotiable Promissory Note ABCDEF
Maker: A
Holder: E
*F rediscounted the money to A for Php 9,800.00
ABCDE on December 16, 2017 (needed money ASAP)

According to Section 50 of the NIL, reacquiring of

E cannot collect from A. Notification is needed.
In this case, A had no prior notification regarding the
assignment of D to E. There is no privity of contract
between A and E.
3. STRIKING OUT INDORSEMENTS [SECTION 48]
SITUATION:
Php 10,000.00 Promissory Note
Maker: A
Holder: F
ABCDEF
*F strikes out the indorsement of C
MODES OF NEGOTIATION
A  B  C (x)  D (x)  E (x)  F
According to Section 48 of the NIL, the subsequent indorses
after C will not be liable anymore as to the instrument.
4. WHEN PRIOR PARTY MAY NEGOTIATE INSTRUMENT
[SECTION 50]
SITUATION:
original party is ALLOWED and can still be negotiated
provided that the instrument itself has not yet matured.
*A re-issues the check to X, X issues the
instrument to Y, Y to Z
A  B  C  D  E  F  A maker; re-issues it
to  X  Y  Z
Z can ask payment from A upon maturity of the
instrument.
A cannot go after the prior indorsers for it will result to a
multiplicity of actions [SECTION 50]
 PRESUMPTION OF DELIVERY
o Where the instrument is no longer in the possession
of a party whose signature appears thereon, a valid
and intentional delivery by him is presumed until the
contrary is proven
o If it is in the hands of a holder in due course, the
presumption is conclusive.
 PRESUMPTION AS TO DATE
o Date is not an essential element of negotiability
 oAn undated instrument is considered to be dated as
of the time it was issued
 PAYABLE TO ORDER
o Delivery + indorsement is required
o If it cannot be indorsed anymore more specifically, it
is already impossible to sign or indorse the
instrument due to the number of indorsers, the
holder must attach a piece of paper (alonge) if he
wants to negotiate the instrument futher
o The alonge must be permanently attached to the
instrument for it to be valid
 PAYABLE TO BEARER
o Delivery alone would suffice
CALTEX v. CA (supra)
SC: In the present case, however, there was no negotiation in the
sense of a transfer of the legal title to the CTDs in favor of petitioner
in which situation, for obvious reasons, mere delivery of the bearer
CTDs would have sufficed. Here, the delivery thereof only as security
for the purchases of Angel de la Cruz (and we even disregard the
fact that the amount involved was not disclosed) could at the most
constitute petitioner only as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be effected by
mere delivery of the instrument since, necessarily, the terms thereof
and the subsequent disposition of such security, in the event of non-
payment of the principal obligation, must be contractually provided
for.
SESBREÑO v. CA
FACTS:
 Petitioner Raul Sesbreño made a money market placement in
the amount of P300,000.00 with the Philippine Underwriters
Finance Corporation ("Philfinance"), Cebu Branch; the
placement, with a term of thirty-two (32) days, would mature
on 13 March 1981, Philfinance, also on 9 February 1981,
issued a Certificate of Confirmation of Sale, Certificate of
Securities delivery receipt, and post-dated checks payable on
March 13, 1981.
 On 13 March 1981, petitioner sought to encash the postdated
checks issued by Philfinance. However, the checks were
dishonored for having been drawn against insufficient funds.
 On 26 March 1981, Philfinance delivered to petitioner the
DCR No. 10805 issued by private respondent Pilipinas Bank.
 Petitioner approached Ms. Elizabeth de Villa of private
respondent Pilipinas, Makati Branch, and handed her a
demand letter informing the bank that his placement with
Philfinance had remained unpaid and outstanding, and that
he in effect was asking for the physical delivery of the
underlying promissory note.
 Petitioner also made a written demand on 14 July 1981 upon
private respondent Delta for the partial satisfaction of DMC
PN No. 2731.
 Delta, however, denied any liability to petitioner on the
promissory note, and explained in turn that it had previously
agreed with Philfinance to offset its DMC PN No. 2731 (along
with DMC PN No. 2730) against Philfinance PN No. 143-A
issued in favor of Delta.
 Philfinance, on 18 June 1981, was placed under the joint
management of the Securities and Exchange Commission
("SEC") and the Central Bank. Pilipinas delivered to the SEC
DMC PN No. 2731.
 As petitioner had failed to collect his investment and interest
thereon, he filed on 28 September 1982 an action for
damages with the Regional Trial Court ("RTC") of Cebu City,
Branch 21, against private respondents Delta and Pilipinas.
Complaint was dismissed.
 Petitioner appealed to respondent Court of Appeals. The
Court of Appeals denied the appeal.
ISSUE: WON a non-negotiable promissory note is assigned
HELD:
 Yes.
 It is important to bear in mind that the negotiation of a
negotiable instrument must be distinguished from the
assignment or transfer of an instrument whether that be
 negotiable or non-negotiable. Only an instrument
qualifying as a negotiable instrument under the relevant
statute may be negotiated either by indorsement thereof
coupled with delivery, or by delivery alone where the
negotiable instrument is in bearer form. A negotiable
instrument may, however, instead of being negotiated,
also be assigned or transferred. The legal consequences
of negotiation as distinguished from assignment of a
negotiable instrument are, of course, different. A non-
negotiable instrument may, obviously, not be
negotiated; but it may be assigned or transferred,
absent an express prohibition against assignment or
transfer written in the face of the instrument.
 DMC PN No. 2731, while marked "non-negotiable," was not
at the same time stamped "non-transferable" or "non-
assignable." It contained no stipulation which prohibited
Philfinance from assigning or transferring, in whole or in part,
that Note.
KINDS OF INDORSEMENTS
1. Special Indorsement
 Where the name of the payee is specified
 Also known as “specific indorsement” or
“indorsement in full”
 Unqualified indorsements
2. Blank Indorsement
 Specifies no particular indorsee
 Payable to bearer
 Checked payable to the order of a named person
and indorsed by him in blank makes it a bearer
instrument
3. Restrictive Indorsement
 Worded that it either restricts or prohibits entirely the
further negotiation of an instrument, or modifies the
rights of the holder or the liabilities of the indorser
 Limits the rights of indorsee
 Destroyes the negotiability of instrument
4. Qualified Indorsement
Constitutes the indorser as a mere assignor of the
title to the instrument
5. Conditional Indorsement
 The indorser imposes some other condition to his
liability, or on the indorsee’s right to collect the
proceeds of the instrument
 Does not prohibit future negotiation regardless of
whether the condition has been fulfilled or not
PCIB v. CA
FACTS:
Ford Philippines drew and issued Citibank Check. No. SN 04867 on
October 19, 1977, Citibank Check No. SN 10597 on July 19, 1978
and Citibank Check No. SN-16508 on April 20, 1979, all in favor of
the Commissioner of Internal Revenue (CIR) for payment of its
percentage taxes. The checks were crossed and deposited with the
IBAA, now PCIB, BIR's authorized collecting bank. The first check
was cleared containing an indorsement that "all prior indorsements
and/or lack of indorsements guaranteed." The same, however, was
replaced with two (2) IBAA's managers' checks based on a call and
letter request made by Godofredo Rivera, Ford's General Ledger
Accountant, on an alleged error in the computation of the tax due
without IBAA verifying the authority of Rivera. These manager's
checks were later deposited in another bank and misappropriated by
the syndicate. The last two checks were cleared by the Citibank but
failed to discover that the clearing stamps do not bear any initials.
The proceeds of the checks were also illegally diverted or switched
by officers of PCIB — members of the syndicate, who eventually
encashed them. Ford, which was compelled to pay anew the
percentage taxes, sued in two actions for collection against the two
banks on January 20, 1983, barely six years from the date the first
check was returned to the drawer. The direct perpetrators of the
crime are now fugitives from justice. In the first case, the trial court
held that Citibank and IBAA were jointly and severally liable for the
checks, but on review by certiorari, the Court of Appeals held only
IBAA (PCIB) solely liable for the amount of the first check. In the
second case involving the last two checks, the trial court absolved
PCIB from liability and held that only the Citibank is liable for the
checks issued by Ford. However, on appeal, the Court of Appeals
held both banks liable for negligence in the selection and supervision
of their employees resulting in the erroneous encashment of the
checks. These two rulings became the subject of the present
recourse.
SC: The relationship between a holder of a commercial paper and
the bank to which it is sent for collection is that of a principal and an
agent and the diversion of the amount of the check is justified only by
proof of authority from the drawer; that in crossed checks, the
collecting bank is bound to scrutinize the check and know its
depositors before clearing indorsement; that as a general rule, banks
are liable for wrongful or tortuous acts of its agents within the scope
and in the course of their employment; that failure of the drawee
bank to seasonably discover irregularity in the checks constitutes
negligence and renders the bank liable for loss of proceeds of the
checks; that an action upon a check prescribes in ten (10) years; and
that the contributory negligence of the drawer shall reduce the
damages he may recover against the collecting bank.
Indeed, the crossing of the check with the phrase "Payee's Account
Only," is a warning that the check should be deposited only in the
account of the CIR. Thus, it is the duty of the collecting bank
PCIBank to ascertain that the check be deposited in payee's account
only. Therefore, it is the collecting bank (PCIBank) 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."
METROBANK v. BA FINANCE
SC: The last indorser, generally suffers the loss because it has the
duty to ascertain the genuineness of all prior indorsements
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 prior indorsements.
CREDITS:
1. The Law on Negotiable Instruments by Hector De Leon
(2016)
2. UP College of Law BOC (Commercial Law Reviewer 2015)
3. Digests and Lecture notes from Negotiable Instruments G03
1ST SEM, AY-2017-2018 DLSU College of Law