Sec. 65. Warranty; where negotiation by delivery and so forth.
– Every person
CHAPTERV: Liabilities of Parties
Sec. 60. Maker:
- engages that he will pay it according to its tenor
- admits the existence of the payee and his then capacity to indorse.
Sec. 61. Drawer:
- admits the existence of the payee and his then capacity to indorse;
- engages that, on due presentment, the instrument will be accepted
or paid, or both, 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.
- But the drawer may insert in the instrument an express stipulation
negativing or limiting his own liability to the holder.
Sec. 62. Acceptor
- engages that he will pay it according to the tenor of his acceptance;
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.
Sec. 63. When a person deemed indorser. – A person placing his signature
upon an instrument otherwise than as maker or acceptor, is deemed to be
an indorser, unless he clearly indicates by appropriate words his intention to
be bound in some other capacity.
Sec. 64. Liability of irregular indorser. – Where a person, not otherwise a
party to an instrument, places thereon his signature in blank before delivery,
he is liable as indorser, in accordance with the following rules:
(a) If the instrument is payable to the order of a third person, he is
liable to the payee and to all subsequent parties.
(b) If the instrument is payable to the order of the maker or drawer,
or is payable to bearer, he is liable to all parties subsequent to the
maker or drawer.
(c) If he signs for the accommodation of the payee, he is liable to all
parties subsequent to the payee.
negotiating an instrument by delivery or by a qualified indorsement,
warrants:
(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 had capacity to contract;
(d) That he has no knowledge of any fact which would impair the
validity of the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of
no holder other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to persons
negotiating public or corporation securities, other than bills and notes.
Sec. 66. Liability of general indorser. – Every indorser who indorses without
qualification, warrants, to all subsequent holders in due course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c)
of the next preceding section; and
(b) That the instrument is, at the time of his indorsement, valid and
subsisting;
And, in addition, he engages that, on due presentment, it 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. 67. Liability of indorser where paper negotiable by delivery. – Where a
person places his indorsement on an instrument negotiable by delivery, he
incurs all the liability of an indorser.
Sec. 68. Order in which indorsers are liable. – As respects one another,
indorsers are liable prima facie in the order in which they indorse; but
evidence is admissible to show that, as between or among themselves, they
have agreed otherwise. Joint payees or joint indorsees who indorse are
deemed to indorse jointly and severally.
Sec. 69. Liability of an agent or broker. – Where a broker or other agent
negotiates an instrument without indorsement, he incurs all the liabilities
1
prescribed by Sec. 65 of this Act, unless he discloses the name of his principal,
and the fact that he is acting only as agent.
Allied Banking Corp. vs. Lim Sio Wan, Metrobank, et. al.,
FACTS: Respondent Lim Sio Wan deposited with petitioner Allied Banking
Corporation (Allied) a money market placement of PhP 1,152,597.35 for a term of 31 days as
evidenced by Provisional Receipt No. 1356.
A person claiming to be Lim Sio Wan called up to an officer of Allied, and instructed the latter to
pre-terminate Lim Sio Wan's money market placement, to issue a manager's check representing
the proceeds of the placement, and to give the check to one Deborah Dee Santos who would
pick up the check. Lim Sio Wan described the appearance of Santos so that So could easily
identify her.
Later, Santos arrived at the bank and signed the application form for a manager's check to be
issued.The bank issued Manager's Check No. 035669 for PhP 1,158,648.49, representing the
proceeds of Lim Sio Wan's money market placement in the name of Lim Sio Wan, as payee. The
check was cross-checked "For Payee's Account Only" and given to
Santos.
Thereafter, the manager's check was deposited in the account of Filipinas Cement Corporation
(FCC) at respondent Metrobank with the forged signature of Lim Sio Wan as indorser.
Earlier, FCC had deposited a money market placement for PhP 2million with respondent
Producers Bank. Santos was the money market trader assigned to handle FCC's account. Such
deposit is evidenced by Official Receipt No. 317568 and a Letter of Santos addressed to Angie
Lazo of FCC, acknowledging receipt of the placement.The placement matured and was
rolledover.
When the placement matured, FCC demanded the payment of the proceeds of the placement.
So received the phone call instructing her to preterminate Lim Sio Wan's placement, the
manager's check in the name of Lim Sio Wan was deposited in the account of FCC, purportedly
representing the proceeds of FCC's money market placement with Producers Bank. In other
words, the Allied check was deposited with Metrobank in the account of FCC as Producers Bank's
payment of its obligation to FCC. To clear the check and in compliance with the requirements of
the Philippine Clearing House Corporation (PCHC) Rules and Regulations, Metrobank stamped a
guaranty on the check, which reads: "All prior endorsements and/or lack of endorsement
guaranteed."
The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied
funded the check even without checking the authenticity of Lim Sio Wan's purported
indorsement. Thus, the amount on the face of the check was credited to the account of FCC.
Lim Sio Wan deposited with Allied a second money market placement.
On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio
Wan went to Allied to withdraw it. She was then informed that the placement had been pre-
terminated upon her instructions. She denied giving any instructions and receiving the proceeds
thereof. She desisted from further complaints when she was assured by the bank's manager that
her money would be recovered.
When Lim Sio Wan's second placement matured So called Lim Sio Wan
to ask for the latter's instructions on the second placement. Lim Sio Wan instructed So to roll-
over the placement for another 30 days.On January 24, 1984, Lim Sio Wan, realizing that the
promise that her money would be recovered would not materialize, sent a demand letter to
Allied asking for the payment of the first placement. Allied refused to pay Lim Sio Wan, claiming
that the latter had authorized the pre-termination of the placement and its subsequent release
to Santos.
ISSUE: Whether or not Metrobank (collecting bank) is liable to Lim Sio Wan
1. HELD: Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:
"Section 66. Liability of general indorser. - Every indorser who indorses without
qualification, warrants to all subsequent holders in due course;
a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next
preceding section; and
b) That the instrument is at the time of his indorsement valid and subsisting;
And in addition, he engages that on due presentment, it 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.
Section 65. Warranty where negotiation by delivery, so forth.- Every person
negotiating an instrument by delivery or by a qualified indorsement, warrants:
a) That the instrument is genuine and in all respects what it purports to be;
b) That he has a good title of it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no
holder other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to persons
negotiating public or corporation securities, other than bills and notes."
2. The warranty “that the instrument is genuine and in all respects what it purports to
be” covers all the defects in the instrument affecting the validity thereof, including a
forged indorsement. Thus, the last indorser will be liable for the amount indicated in
the negotiable instrument even if a previous indorsement was forged.
a. The general rule is that 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 itself, and
ultimately should be held liable therefor.
2
 b. Exception to the general rule: when the issuance of the check itself was
attended with negligence. So when there is negligence, the bank issuing
the check is just as liable as or more liable than the collecting bank
3. Liability of Allied: Allied is negligent in issuing the manager’s check and in transmitting
it to Santos without even a written authorization. In fact, Allied did not even ask for
the certificate evidencing the money market placement or call up Lim Sio Wan at her
residence or office to confirm her instructions. Both actions could have prevented
the whole fraudulent transaction from unfolding. Allied’s negligence must be
considered as the proximate cause of the resulting loss. Had Allied exercised the
diligence due from a financial institution, the check would not have been issued and
no loss of funds would have resulted. In fact, there would have been no issuance of
indorsement had there been no check in the first place.
4. Liability of Metrobank: When Metrobank indorsed the check in compliance with the
PCHC Rules and Regulations without verifying the authenticity of Lim Sio Wan’s
indorsement and when it accepted the check despite the fact that it was cross-
checked payable to payee’s account only, its negligent and cavalier indorsement
contributed to the easier release of Lim Sio Wan’s money and perpetuation of the
fraud.
Metrobank vs. BA Finance Corp. and Malayan Ins. Co., Inc.,
FACTS: Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA
Finance) a loan to secure which, he mortgaged his car to respondent BA Finance.The mortgage
contained the following stipulation:
The MORTGAGOR covenants and agrees that he/it will cause the property(ies) hereinabove
mortgaged to be insured against loss or damage by accident, theft and fire for a period of one
year from date hereof with an insurance company or companies acceptable to the MORTGAGEE
in an amount not less than the outstanding balance of mortgage obligations and that he/it will
make all loss, if any, under such policy or policies, payable to the MORTGAGEE or its assigns as
its interest may appear x x x.
Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co., Inc. (Malayan
Insurance) which issued a policy stipulating that, inter alia, Loss, if any shall be payable to BA
FINANCE CORP. as its interest may appear.
It is hereby expressly understood that this policy or any renewal thereof, shall not be cancelled
without prior notification and conformity by BA FINANCE CORPORATION.
The car was stolen. On Bitanga's claim, Malayan Insurance issued a check payable to the order
of "B.A. Finance Corporation and Lamberto Bitanga" for P224,500, drawn against China Banking
Corporation (China Bank). The check was crossed with the notation "For Deposit Payees' Account
Only."
Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check
to his account with the Asianbank Corporation (Asianbank), now merged with herein petitioner
Metropolitan Bank and Trust Company (Metrobank). Bitanga subsequently withdrew the entire
proceeds of the check.
In the meantime, Bitanga's loan became past due, but despite demands, he failed to settle it. BA
Finance eventually learned of the loss of the car and of Malayan Insurance's issuance of a crossed
check payable to it and Bitanga, and of Bitanga's depositing it in his account at Asianbank and
withdrawing the entire proceeds thereof.
BA Finance thereupon demanded the payment of the value of the check from Asianbank but to
no avail, prompting it to file a complaint before the RTC for sum of money and damages against
Asianbank and Bitanga alleging that, inter alia, it is entitled to the entire proceeds of the check.
HELD: Petitioner's argument is flawed.
To be sure, a collecting bank, Asianbank in this case, where a check is deposited and which
indorses the check upon presentment with the drawee bank, is an indorser.
This is because in indorsing a check to the drawee bank, a collecting bank stamps the back of the
check with the phrase "all prior endorsements and/or lack of endorsement guaranteed" and, for
all intents and purposes, treats the check as a negotiable instrument, hence, assumes the
warranty of an indorser.
Without Asianbank's warranty, the drawee bank (China Bank in this case) would not have paid
the value of the subject check.
Petitioner, as the collecting bank or 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.
Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is
liable in conversion to the non-indorsing payee for the entire amount of the check.
It bears noting that in petitioner's cross-claim against Bitanga, the trial court ordered Bitanga to
return to petitioner the entire value of the check ─ P224,500.00 ─ with interest as well
as damages and cost of suit. Petitioner never questioned this aspect of the trial court's
disposition, yet it now prays for the modification of its liability to BA Finance to only one-half
of said amount. To pander to petitioner's supplication would certainly amount to unjust
enrichment at BA Finance's expense. Petitioner's remedy--which is the reimbursement for the
full amount of the check from the perpetrator of the irregularity -- lies with Bitanga.
Moreover, granting petitioner's appeal for partial liability would run counter to the existing
principles on the liabilities of parties on negotiable instruments, particularly on Section 68 of the
Negotiable Instruments Law which instructs that joint payees who indorse are deemed to
indorse jointly and severally.[36] Recall that when the maker dishonors the instrument, the
holder thereof can turn to those secondarily liable -- the indorser -- for recovery. And since the
law explicitly mandates a solidary liability on the part of the joint payees who indorse the
instrument, the holder thereof (assuming the check was further negotiated) can
3
turn to either Bitanga or BA Finance for full recompense.
Respecting petitioner's challenge to the award by the appellate court of exemplary damages to
BA Finance, the same fails. Contrary to petitioner's claim that no moral, temperate,
liquidated or compensatory damages were awarded by the trial court,[38] the RTC did in fact
award compensatory or actual damages of P224,500, the value of the check, plus interest
thereon.
BPI vs. CA, CBC. and Philippine Clearing House Corp.,
FACTS: A phone call to BPI's Money Market Department by a woman who identified herself as
Eligia G. Fernando who had a money market placement as evidenced by a promissory note with
a maturity value of P2,462,243.19. The caller wanted to preterminate the placement, but
Reginaldo Eustaquio, Dealer Trainee in BPI's Money Market Department, who received the call
and who happened to be alone in the trading room at the time, told her ‘trading time’ was over
for the day, which was a Friday, and suggested that she call again the following week. The
promissory note that the caller wanted to preterminate was a roll-over of in earlier 50-day
money market placement that had matured. Eustaquio conveyed the request for pretermination
to the officer who before had handled Eligia G. Fernando's account, Penelope Bulan, but
Eustaquio was left to attend to the pretermination process.
The next Monday, October 12, 1981, in the morning, the caller of the previous Friday followed
up with Eustaquio, merely by phone again, on the pretermination of the placement. Although
not familiar with the voice of the real Eligia G. Fernando, Eustaquio ‘made certain' that the caller
was the real Eligia G. Fernando by ‘verifying’ that the details the caller gave about the placement
tallied with the details in 'the ledger/folder’ of the account. Eustaquio knew the real Eligia G.
Fernando to be the Treasurer of Philamlife since he was handling Philamlife's corporate money
market account.
But neither Eustaquio nor Bulan who originally handled Fernando's account, nor anybody else at
BPI, bothered to call up Fernando at her Philamlife office to verify the request for
pretermination.
Informed that the placement would yield less than the maturity value because of its
pretermination, the caller insisted on the pretermination just the same and asked that two
checks be issued for the proceeds, one for P1,800,000.00 and the second for the balance, and
that the checks be deliverd to her office at Philamlife. Eustaquio, thus, proceeded to prepare the
'purchase order slip' for the requested pretermination as required by office procedure, and from
his desk, the papers, following the processing route, passed through the position analyst,
securities clerk, verifier clerk and documentation clerk, before the two cashier's checks,
respectively, both payable to Eligia G. Fernando, covering the preterminated placement, were
prepared. The two cashier's checks, together with the papers consisting of the purchase order
slip indicating that the money market placement was to be preterminated and the promissory
note (no. 35623) to be preterminated, were sent to Gerlanda E. de Castro and Celestino
Sampiton, Jr., Manager and Administrative Assistant, respectively, in BPI's Treasury Operations
Department, both authorized signatories for BPI, who signed the two checks that very morning.
Having been signed, the checks now went to the dispatcher for delivery.
‘Later in the same morning, however, the same caller changed the delivery instructions; instead
of the checks being delivered to her office at Philamlife, she would herself pick up the checks or
send her niece, Rosemarie Fernando, to pick them up. Eustaquio then told her that if it were her
niece who was going to get the checks, her niece would have to bring a written authorization
from her to pick up the checks. This telephone conversation ended with the caller's statement
that 'definitely' it would be her niece, Rosemarie Fernando, who would pick up the checks. Thus,
Eustaquio had to hurriedly go to the dispatcher, Bernardo Laderas, to tell him of the new delivery
instructions for the checks; in fact, he changed the
delivery instruction on the purchase order slip, writing thereon 'Rosemarie Fernando release
only with authority to pick up.'
It was, in fact, Rosemarie Fernando who got the two checks from the dispatcher,
as shown by the delivery receipt. Actually, as it turned out, the same impersonated both Eligia
G. Fernando and Rosemarie Fernando. Although the checks represented the termination
proceeds of Eligia G. Fernando's placement, not just a roll-over of the placement, the dispatcher
failed to get or to require the surrender of the promissory note evidencing the placement. There
is also no showing that Eligia G. Fernando's purported signature on the letter requesting the
pretermination and the letter authorizing Rosemarie Fernando to pick up the two checks, both
of which letters were presumably handed to the dispatcher by Rosemarie Fernando, was
compared or verified with Eligia G. Fernando's signature in BPI's file. Such purported signature
has been established to be forged although
it has a 'close similarity' to the real signature of Eligia G. Fernando.
The story's scene now shifted when, a woman who represented herself to be Eligia G. Fernando
applied at CBC's Head Office for the opening of a current account.
She was accompanied and introduced to Emily Sylianco Cuaso, Cash Supervisor, by Antonio
Concepcion whom Cuaso knew to have opened, earlier that year, an account upon the
introduction of Valentin Co, a long-standing ‘valued client’ of CBC. What Cuaso indicated in the
application form, however, was that the new client was introduced by Valentin Co, and with her
initials on the form signifying her approval, she referred the application to the New Accounts
Section for processing. As finally processed, the application form shows the signature of ‘Eligia
G. Fernando’, 'her' date of birth, sex, civil status, nationality, occupation ('business woman'), tax
account number, and initial deposit of P10,000.00. The final approval of the new current account
is indicated on the application form by the initials of Regina G. Dy, Cashier, who did not interview
the new client but affixed her initials on the application form after reviewing it. The new current
account was given the number: 26310-3. The following day, October 14, 1981, the woman
holding herself out as Eligia G. Fernando deposited the two checks in controversy with Current
Account No. 126310-3. Her endorsement on the two checks was found to conform with the
depositor's specimen signature. CBC's guaranty of prior endorsements and/or lack of
endorsement was then stamped on the two checks, which CBC forthwith sent to clearing and
which BPI cleared on the same day.
Two days after, withdrawals began on Current Account which the woman holding herself out as
Eligia G. Fernando encashed over the counter, and Check payable to 'cash' which was received
through clearing from PNB by means of Check No. 240006 the same day for P1,000,000.00,
4
payable to 'cash,' which the woman identifying, herself as Eligia G. Fernando encashed over the
counter;
All these withdrawals were allowed on the basis of the verification of the drawer's signature with
the specimen signature on file and the sufficiency of the funds in the account. However, the
balance shown in the computerized teller terminal when a withdrawal is serviced at the counter,
unlike the ledger or usual statement prepared at month-end, does not show the account's
historical data such as the
account's opening date, the amounts and dates of deposits and withdrawals. The
last withdrawal on November 4, 1981 left Current Account No. 26310-3 with a
balance of only P571.61.
The day of reckoning came on November 11, 1981, the maturity date of Eligia G. Fernando's
money market placement with BPI, when the real Eligia G. Fernando went to BPI for the roll-over
of her placement. She disclaimed having preterminated her placement on October 12, 1981. She
executed an affidavit stating that while she was the payee of the two checks in controversy, she
never received nor endorsed them and that her purported signature on the back of the checks
was not hers but forged. With her surrender of the original of the promissory note (no. 35623
with maturity value of P2,462,243.19) evidencing the placement which matured that day, BPI
issued her a new promissory note to evidence a roll-over of the placement.
On November 12, 1981, supported by Eligia G. Fernando's affidavit, BPI returned the two checks
in controversy to CBC for the reason ‘Payee’s endorsement forged’. A ping-pong started when
CBC, in turn, returned the checks for reason 'Beyond Clearing Time', and the stoppage of this
ping-pong, as we mentioned at the outset, prompted the filing of this case.
Investigation of the fraud by the Presidential Security Command led to the filing of criminal
action for 'Estafa Thru Falsification of Commercial Documents' against four employees of BPI.
ISSUE: When a bank (in this case CBC) presents checks for clearing and payment, what is the
extent of the bank's warranty of the validity of all prior endorsements stamped at the back of
the checks? In the event that the payee's signature is forged, may the drawer/drawee bank (in
this case BPI) claim reimbursement from the collecting bank [CBC]) which earlier paid the
proceeds of the checks after the same checks were cleared by petitioner BPI through the PCHC?
HELD: In presenting the checks for clearing and for payment, the defendant made an express
guarantee on the validity of 'all prior endorsements.' Thus, stamped at the back of the checks
are the defendant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF
ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not have paid on the
checks. The principle of estoppel, effectively prevents the defendant from denying liability for
any damage sustained by the plaintiff which, relying upon an action or declaration of the
defendant, paid on the checks. The same principle of estoppel effectively prevents the defendant
from denying the existence of the checks.
Anent the first issue, petitioner BPI contends that respondent CBC’s clear warranty, that "all prior
endorsements and/or lack of endorsements guaranteed" stamped at the back of the checks was
an unrestrictive clearing guaranty that all prior endorsements in the checks are genuine. Under
this premise petitioner BPI asserts that the presenting or collecting bank,
respondent CBC, had an unquestioned liability when it turned out that the payee's signature on
the checks were forged. With these circumstances, petitioner BPI maintains that considerations
of relative negligence becomes totally irrelevant.
Since there were lapses by both BPI and CBC, the question is: whose negligence was the graver
and which was the proximate cause of the loss? Even viewing BPI's lapses in the worst light, it
can be said that while its negligence may have introduced the two checks in controversy into the
commercial stream, CBC's lack of care in approving the opening with it of the impostor's current
account, and its allowing the withdrawals of the checks’ proceeds, the aggregate value of which
was grossly disproportionate to the initial cash deposit, so soon after such checks were
deposited, caused the ‘payment’ of the checks. Being closest to the event of loss, therefore,
CBC's negligence must be held to be the proximate cause of the loss.'”
And while we do not apply the last clear chance doctrine as controlling in this case, still the CBC
employees had ample opportunity to avoid the harm which befell both CBC and BPI. They let the
opportunity slip by when the ordinary prudence expected of bank employees would have
sufficed to seize it.
Both banks were negligent in the selection and supervision of their employees resulting in the
encashment of the forged checks by an impostor. Both banks were not able to overcome the
presumption of negligence in the selection and supervision of their employees. It was the gross
negligence of the employees of both banks which resulted in the fraud and the subsequent loss.
While it is true that petitioner BPI's negligence may have been the proximate cause of the loss,
respondent CBC's negligence contributed equally to the success of the impostor in encashing
the proceeds of the forged checks. Under these circumstances, we apply Article 2179 of the Civil
Code to the effect that while respondent CBC may recover its losses, such losses are subject to
mitigation by the courts.
Far East Bank & Trust Co. vs. Gold Palace Jewellery Co.,
FACTS: Samuel Tagoe, purchased from the respondent Gold Palace's store at SM-North EDSA
several pieces of jewelry valued at P258,000.00. In payment of the same, he offered Foreign
Draft No. M-069670 issued by the United Overseas Bank (Malaysia) BHD Medan Pasar, Kuala
Lumpur Branch (UOB), addressed to the Land Bank of the Philippines, Manila (LBP), and payable
to the respondent Gold Palace for P380,000.00.
Before receiving the draft, respondent Judy Yang, the assistant general manager of Gold Palace,
inquired from petitioner Far East Bank & Trust Company's (Far East's) SM North EDSA Branch, its
neighbor mall tenant, the nature of the draft. The teller informed her that the same was similar
to a manager's check, but advised her not to release the pieces of jewelry until the draft had
been cleared. Following the bank's advice, Yang issued Cash Invoice No. 1609 to the foreigner,
asked him to come back, and informed him that the pieces of jewelry would be released when
the draft had already been cleared. Respondent Julie Yang-Go, the manager of Gold Palace,
consequently deposited the draft in the company's account with the aforementioned Far East
branch.
5
When Far East, the collecting bank, presented the draft for clearing to LBP, the drawee bank, the
latter cleared the same--UOB's account with LBP was debited, and Gold Palace's account with
Far East was credited with the amount stated in the draft.
The foreigner eventually returned to respondent's store to claim the purchased goods. After
ascertaining that the draft had been cleared, respondent Yang released the pieces of jewelry to
Samuel Tagoe; and because the amount in the draft was more than the value of the goods
purchased, she issued, as his change, Far East Check No 1730881 for P122,000.00. This check
was later presented for encashment and was, in fact, paid by the said bank.
After around three weeks, LBP informed Far East that the amount in Foreign Draft No. M-069670
had been materially altered from P300.00 to P380,000.00 and that it was returning the same.
Attached to its official correspondence were Special Clearing Receipt No. 002593 and the duly
notarized and consul-authenticated affidavit of a corporate officer of the drawer, UOB. It is noted
at this point that the material alteration was discovered by UOB after LBP had informed it that
its funds were being depleted following the encashment of the subject draft. Intending to debit
the amount from respondent's account, Far East subsequently refunded the P380,000.00 earlier
paid by LBP.
Gold Palace, in the meantime, had already utilized portions of the amount. Thus, as the
outstanding balance of its account was already inadequate, Far East was able to debit only
P168,053.36, but this was done without a prior written notice to the account holder. Far East
only notified by phone the representatives of the respondent company.
Petitioner demanded from respondents the payment of P211,946.64 or the difference between
the amount in the materially altered draft and the amount debited from the respondent
company's account.[20] Because Gold Palace did not heed the demand,
Far East consequently instituted Civil Case No. 99-296 for sum of money and damages.
ISSUE: WoN Gold Palace is liable to FEBTC – NO
HELD: NIL provies that the acceptor, by accepting the instrument, engages that he will pay it
according to the tenor of his acceptance
a. Applies with equal force in case the drawee pays a bill without having
previously accepted it
b. Payment implies not only assent to the order of the drawer but a
recognition of his corresponding obligation to pay the sum and his
compliance
c. Actual payment of drawee is greater than acceptance. Payment includes
acceptance
2. The drawee bank cleared and paid the foreign draft and forwarded the amount to
the collecting bank which the collecting bank credited to GP’s account
a. The payment recognized and complied with its obligation to pay with the
tenor of his acceptance
i. Tenor of acceptance is the terms of a bill as it is when the
drawee accepts
b. LBP was liable on its payment of the check according to the tenor of the
check at the time of payment, which is the raised amount
3. LBP can no longer repudiate that the payment it made was erroneous to a holder in
due course
a. GP is not a participant in the alteration, was not negligent, and is a holder
in due course
4. Where one of two parties must suffer a loss, the law will leave the loss where it finds
it
a. Banking institutions can readily protect htmeselves against liability on
altered instruments either by qualifying their acceptance or certification,
or by relying on forgery insurance and special paper which will make the
atlerations obvious
b. The drawee bank is in a better position, compared to the holder, to verify
with the drawer the matters stated in the instrument
5. A drawee bank, having paid to an innocent holder the amount of an uncertified
altered check in good faith and without negligence which contributed ot the loss
could recover from the person to whom payment was made as for money paid by
mistake
6. Uniform Commercial Code of the USA: if an unaccepted draft is presented to a
drawee for payment or acceptance and the drawee pays or accepts the draft, the
person obtaining payment or acceptance, ath the time of presentment and a
previous transferor of the draft, at the time of transfer, warrant to the drawee
making payment or accepting the draft in good faith, that the draft was not altered
a. No similar provision in our law, cannot extend the preferential treatment
to the paying bank
7. GP is protected by Sec. 62 of NIL, its collecting agent, FEBTC, should not have debited
the money paid by drawee bank deposited in its account
a. When GP deposited the check with FEBTC, FEBTC became an agent of GP
for the collection fo the amount in the draft
b. The subsequent payment by LBP and collection of the amount by FEBTC
closed the transaction insofar as the drawee and the holder of the check
or his agent is concerned.
c. The closure of the transaction converted the check into a mere voucher
8. The closing of the transaction ended the principal-agent relationship between the
payee and collecting bank and the payee bank, in returning the amount to the drawee
bank was already acting on its own and should be held responsible for its actions
9. FEBTC cannot invoke the warranty of the payee/depositor who indorsed the
instrument for collection to shift the burden it brought upon itself
a. The indorsement is only for purposes of collection which is under Sec 36
of the NIL as a restrictive indorsement
b. It did not transfer the title of the instrument to collecting bank as FEBTC
presented the draft for payment
10. The warranties of a general indorser are based on a transfer of title and area vailable
only to holders in due course, these warranties do not attach to the indorsement for
deposit and collection made by GP to FEBTC
11. The collecting bank cannot debit GP’s account for the amount it refunded.
6

CHAPTER VI: Presentment for Payment
Sec. 70. Effect of want of demand on principal debtor. – Presentment for
payment is not necessary in order to charge the person primarily liable on
the instrument; but if the instrument is, by its terms, payable at a special
place, and he is able and willing to pay it there at maturity, such ability and
willingness are equivalent to a tender of payment upon his part. But, except
as herein otherwise provided, presentment for payment is necessary in order
to charge the drawer and indorsers.
Sec. 71. Presentment, where instrument is not payable on demand; and
where payable on demand. – 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 its issue, but 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. 72. What constitutes a sufficient presentment. – Presentment for
payment, to be sufficient, must be made:
(a) By the holder, or by some person authorized to receive payment
on his behalf;
(b) At a reasonable hour on a business day;
(c) At a proper place as herein defined;
(d) To the person primarily liable on the instrument, or if he is absent
or inaccessible, to any person found at the place where the
presentment is made.
Sec. 73. Place of presentment. – Presentment for payment is made at the
proper place :
(a) Where a place of payment is specified in the instrument and it is
there presented;
(b) Where no place of payment is specified but the address of the
person to make payment is given in the instrument and it is there
presented;
(c) Where no place of payment is specified and no address is given
and the instrument is presented at the usual place of business or
residence of the person to make payment;
(d) In any other case if presented to the person to make payment
wherever he can be found, or if presented at his last known place of
business or residence.
Sec. 74. Instrument must be exhibited. – The instrument must be exhibited
to the person from whom payment is demanded, and when it is paid, must
be delivered up to the party paying it.
Sec. 75. Presentment where instrument payable at bank. – Where the
instrument is payable at a bank, presentment for payment must be made
during banking hours, unless the person to make payment has no funds there
to meet it at any time during the day, in which case presentment at any hour
before the bank is closed on that day is sufficient.
Sec. 76. Presentment where principal debtor is dead. – Where the person
primarily liable on the instrument is dead and no place of payment is
specified, presentment for payment must be made to his personal
representative, if such there be, and if, with the exercise of reasonable
diligence, he can be found.
Sec. 77. Presentment to persons liable as partners. – Where the persons
primarily liable on the instrument are liable as partners, and no place of
payment is specified, presentment for payment may be made to any of them,
even though there has been a dissolution of the firm.
Sec. 78. Presentment to joint debtors. – Where there are several persons not
partners, primarily liable on the instrument, and no place of payment is
specified, presentment must be made to them all.
Sec. 79. When presentment not required to charge the drawer. –
Presentment for payment is not required in order to charge the drawer
where he has no right to expect or require that the drawee or acceptor will
pay the instrument.
Sec. 80. When presentment not required to charge the indorser. –
Presentment is not required in order to charge an indorser where the
instrument was made or accepted for his accommodation and he has no
reason to expect that the instrument will be paid if presented.
7
Sec. 81. When delay in making presentment is excused. – Delay in making
presentment for payment is excused when the delay is caused by
circumstances beyond the control of the holder, and not imputable to his
default, misconduct, or negligence. When the cause of delay ceases to
operate, presentment must be made with reasonable diligence.
Sec. 82. When presentment for payment is excused. – Presentment for
payment is excused:
(a) Where after the exercise of reasonable diligence, presentment
as required by this Act, cannot be made;
(b) Where the drawee is a fictitious person;
(c) By waiver of presentment, expressed or implied.
Sec. 83. When instrument dishonored by non-payment. – The instrument is
dishonored by non-payment when:
(a) It is duly presented for payment and payment is refused or
cannot be obtained; or
(b) Presentment is excused and the instrument is overdue and
unpaid.
Sec. 84. Liability of person secondarily liable, when instrument dishonored. –
Subject to the provisions of this Act, when the instrument is dishonored by
non-payment, an immediate right of recourse to all parties secondarily liable
thereon accrues to the holder.
Sec. 85. Time of maturity. – Every negotiable instrument is payable at the
time fixed therein without grace. When the day of maturity falls upon Sunday,
or a holiday, the instrument is payable on the next succeeding business day.
Instruments falling due or becoming payable on Saturday are to be presented
for payment on the next succeeding business day, except instruments
payable on demand which may, at the option of the holder, be presented for
payment before twelve o’clock noon on Saturday when that entire day is not
a holiday.
Sec. 86. Time; how commuted. – When the instrument is payable at a fixed
period after date, after sight, or after that happening of a specified event, the
time of payment is determined by excluding the day from which the time is
to begin to run, and by including the date of payment.
Sec. 87. Rule where instrument payable at bank. – Where the instrument is
made payable at a bank, it is equivalent to an order to the bank to pay the
same for the account of the principal debtor thereon.
Sec. 88. What constitutes payment in due course. – Payment is made in due
course when it is made at or after the maturity of the payment to the holder
thereof in good faith and without notice that his title is defective.
CHAPTER VII: Notice of Dishonor
Sec. 89. To whom notice of dishonor must be given. – Except as herein
otherwise provided, when a negotiable instrument has been dishonored by
non-acceptance or non-payment, notice of dishonor must be given to the
drawer and to each indorser, and any drawer or indorser to whom such
notice is not given is discharged.
Sec. 90. By whom given. – The notice may be given by or on behalf of the
holder, or by or on behalf of any party to the instrument who might be
compelled to pay it to the holder, and who, upon taking it up, would have a
right to reimbursement from the party to whom the notice is given.
Sec. 91. Notice given by agent. – Notice of dishonor may be given by an agent
either in his own name or in the name of any party entitled to give notice,
whether that party be his principal or not.
Sec. 92. Effect of notice given on behalf of holder. – Where notice is given by
or on behalf of the holder, it inures to the benefit of all subsequent holders
and all prior parties who have a right of recourse against the party to whom
it is given.
Sec. 93. Effect where notice is given by party entitled thereto. – Where notice
is given by or on behalf of a party entitled to give notice, it inures to the
benefit of the holder and all parties subsequent to the party to whom notice
is given.
Sec. 94. When agent may give notice. – Where the instrument has been
dishonored in the hands of an agent, he may either himself give notice to the
parties liable thereon, or he may give notice to his principal. If he gives notice
to his principal, he must do so within the same time as if he were the holder,
8
and the principal, upon the receipt of such notice, has himself the same time
for giving notice as if the agent had been an independent holder.
Sec. 95. When notice sufficient. – A written notice need not be signed, and
an insufficient written notice may be supplemented and validated by verbal
communication. A misdescription of the instrument does not vitiate the
notice unless the party to whom the notice is given is in fact misled thereby.
Sec. 96. Form of notice. – The notice may be in writing or merely oral, and
may be given in any terms which sufficiently identify the instrument, and
indicate that it has been dishonored by non-acceptance or non-payment. It
may in all cases be given by delivering it personally or through the mails.
Sec. 97. To whom notice may be given. – Notice of dishonor may be given
either to the party himself or to his agent in that behalf.
Sec. 98. Notice where party is dead. – When any party is dead, and his death
is known to the party giving notice, the notice must be given to a personal
representative, if there be one, and if with reasonable diligence, he can be
found. If there be no personal representative, notice may be sent to the last
residence or last place of business of the deceased.
Sec. 99. Notice of partners. – When the parties to be notified are partners,
notice to any one partner is notice to the firm, even though there has been a
dissolution.
Sec. 100. Notice to persons jointly liable. – Notice to joint parties who are not
partners must be given to each of them, unless one of them has authority to
receive such notice for the others.
Sec. 101. Notice to bankrupt. – Where a party has been adjudged a bankrupt
or an insolvent, or has made an assignment for the benefit of creditors, notice
may be given either to the party himself or to his trustee or assignee.
Sec. 102. Time within which notice must be given. – Notice may be given as
soon as the instrument is dishonored; and unless delay is excused as
hereinafter provided, must be given within the time fixed by this Act.
Sec. 103. Where parties reside in same place. – Where the person giving and
the person to receive notice reside in the same place, notice must be given
within the following times:
(a) If given at the place of business of the person to receive notice,
it must be given before the close of business hours on the day
following.
(b) If sent by mail, it must be deposited in the post-office in time to
reach him in usual course on the day following.
SECTION 104. Where parties reside in different places. – Where the person
giving and the person to receive notice reside in different places, the notice
must be given within the following times:
(a) If sent by mail, it must be deposited in the post office in time to
go by mail the day following the day of dishonor, or if there be no
mail at a convenient hour on that day, by the next mail thereafter.
(b) If given otherwise than through the post-office, then within the
time that notice would have been received in due course of mail, if
it had been deposited in the post-office within the time specified in
the last subdivision.
Sec. 105. When sender deemed to have given due notice. – Where notice of
dishonor is duly addressed and deposited in the post-office, the sender is
deemed to have given due notice, notwithstanding any miscarriage in the
mails.
Sec. 106. Deposit in post-office; what constitutes. – Notice is deemed to have
been deposited in the post-office when deposited in any branch post-office
or in any letter box under the control of the post-office department.
Sec. 107. Notice of subsequent party; time of. – Where a party receives notice
of dishonor, he has, after the receipt of such notice, the same time for giving
notice to antecedent parties that the holder has after the dishonor.
Sec. 108. Where notice must be sent. – Where a party has added an address
to his signature, notice of dishonor must be sent to that address; but if he has
not given such address, then the notice must be sent as follows:
(a) Either to the post-office nearest to his place of residence or to
the post-office where he is accustomed to receive his letters; or
9
 (b) If he lives in one place and has his place of business in another,
notice may be sent to either place; or
(c) If he is sojourning in another place, notice may be sent to the
place where he is sojourning.
But where the notice is actually received by the party within the time
specified in this Act, it will be sufficient though not sent in accordance with
the requirement of this section.
Sec. 109. Waiver of notice. – Notice of dishonor may be waived either before
the time of giving notice has arrived or after the omission to give due notice,
and the waiver may be expressed or implied.
Sec. 110. Whom affected by waiver. – Where the waiver is embodied in the
instrument itself, it is binding upon all parties; but, where it is written above
the signature of an indorser, it binds him only.
Sec. 111. Waiver of protest. – A waiver of protest, whether in the case of a
foreign bill of exchange or other negotiable instrument, is deemed to be a
waiver not only of a formal protest but also of presentment and notice of
dishonor.
Sec. 112. When notice is dispensed with. – Notice of dishonor is dispensed
with when, after the exercise of reasonable diligence, it cannot be given to
or does not reach the parties to be charged.
Sec. 113. Delay in giving notice; how excused. – Delay in giving notice of
dishonor is excused when the delay is caused by circumstances beyond the
control of the holder and not imputable to his default, misconduct, or
negligence. When the cause of delay ceases to operate, notice must be given
with reasonable diligence.
Sec. 114. When notice need not be given to drawer. – Notice of dishonor is
not required to be given to the drawer in either of the following cases:
(a) Where the drawer and drawee are the same person;
(b) When the drawee is fictitious person or a person not having
capacity to contract;
(c) When the drawer is the person to whom the instrument is
presented for payment;
(d) Where the drawer has no right to expect or require that the
drawee or acceptor will honor the instrument;
(e) Where the drawer has countermanded payment.
SECTION 115. When notice need not be given to indorser. – Notice of
dishonor is not required to be given to an indorser in either of the following
cases:
(a) When the drawee is a fictitious person or a person not having
capacity to contract, and the indorser was aware of that fact at the
time he indorsed the instrument;
(b) Where the indorser is the person to whom the instrument is
presented for payment;
(c) Where the instrument was made or accepted for his
accommodation.
Sec. 116. Notice of non-payment where acceptance refused. – Where due
notice of dishonor by non-acceptance has been given, notice of a subsequent
dishonor by non-payment is not necessary, unless in the meantime the
instrument has been accepted.
Sec. 117. Effect of omission to give notice of non-acceptance. – An omission
to give notice of dishonor by non-acceptance does not prejudice the rights of
a holder in due course subsequent to the omission.
Sec. 118. When protest need not be made; when must be made. – Where
any negotiable instrument has been dishonored, it may be protested for non-
acceptance or non-payment, as the case may be; but protest is not required
except in the case of foreign bills of exchange.
Far East Realty Investment, Inc. v. Court of Appeals, et. al.,
FACT: Private respondents approached the petitioner at its office in Manila and asked the latter
to extend to them an accommodation loan in the sum of P4,500.00, Philippine Currency, which
they needed in their business, and which they promised to pay, jointly and severally, in one
month time; that they proposed to pay the petitioner interest thereon at the rate of 14% per
annum, as in fact they delivered to the petitioner the China Banking Corporation Check for
P4,500.00, drawn by Dy Hian Tat, and signed by them at the back of said check, with the
assurance that after one month from September 13, 1960, the said check would be redeemed
by them by paying cash in the sum of P4,500.00, or the said check can be presented for payment
on or immediately after one month and said bank would honor the same; that, in order to
10
accommodate the private respondents, the petitioner agreed and actually extended to the
private respondents an accommodation loan in the sum of P4,500.00 under the aforesaid
conditions proposed by the private respondents, which amount was delivered to the latter; that
on March 5, 1964, the aforesaid check was presented for payment to the China Banking
Corporation, but said check bounced and was not cashed by said bank, for the reason that the
current account of the drawer thereof had already been closed; and that subsequently, the
petitioner demanded from the private respondents the payment of their aforesaid loan
obligation, but the latter failed and refused to pay notwith standing repeated demands therefor.
The appellate court, finding that the questioned check was not given as collateral to guarantee
a loan secured by the three private respond ents who allegedly came as a group to the Far East
Realty Investment, Inc., on September 13, 1960, but passed through other hands before
reaching the petitioner and the said check was not presented within a reasonable time after its
issuance, reversed the decision of the Court of First
Instance
ISSUE: whether or not presentment for payment and notice of dishonor of the questioned check
were made within reasonable time
HELD: 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. (Section 71,
Negotiable Instruments Law).
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 (Section 102, Negotiable Instruments Law).
No hard and fast demarcation line can be drawn between what may be considered as a
reasonable or an unreasonable time, because “reasonable time” depends upon the peculiar
facts and circumstances in each 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 reason able 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.
In the instant case, the check in question was issued on September 13, 1960, but was presented
to the drawee bank only on March 5, 1964, and dishonored on the same date.
After dishonor by the drawee bank, a formal notice of dishonor was made by the petitioner
through a letter dated April 27, 1968. Under these circumstances, the petitioner undoubtedly
failed to exercise prudence and diligence on what he ought to do as required by law. The
petitioner likewise failed to show any justification for the unreasonable delay.
Stelco Marketing Corporation vs. Court Of Appeals, et al.,
FACTS: Stelco Marketing Corporation is engaged in the distribution and sale to the public of
structural steel bars. On seven (7) different occasions in September and October, 1980, it sold
to RYL Construction, Inc. quantities of steel bars of various sizes and rolls of G.I. wire.
These bars and wire were delivered at different places at the indication of RYL Construction, Inc.
The aggregate price for the purchases was P126,859.61.
Although the corresponding invoices issued by STELCO stipulated that RYL would pay "COD"
(cash on delivery), the latter made no payments for the construction materials thus ordered
and delivered despite insistent demands for payment by the former.
On April 4, 1981, RYL gave to Armstrong Industries -- described by STELCO as its "sister
corporation" and "manufacturing arm"[2] -- a check drawn against Metrobank in the amount of
P126,129.86, numbered 765380 and dated April 4, 1981. That check was a company check of
another corporation, Steelweld Corporation of the Philippines, signed by its President, Peter
Rafael Limson, and its Vice-President, Artemio Torres.
The check was issued by Limson at the behest of his friend, Romeo Y. Lim, President of RYL.
Romeo Lim had asked Limson for financial assistance, and the latter had agreed to give Lim a
check only by way of accommodation, "only as guaranty but not to pay for anything." Why the
check was made out in the amount of P126,129.86 is not explained. Anyway, the check was
actually issued in said amount of P126,129.86, and as already stated, was given by R.Y. Lim to
Armstrong Industries,[4] in payment of an obligation. When the latter deposited the check at its
bank, it was dishonored because "drawn against insufficient funds." When so deposited, the
check bore two (2) indorsements, that of "RYL Construction," followed by that of "Armstrong
Industries."
On account of the dishonor of Metrobank Check No. 765380, and on complaint of Armstrong
Industries (through a Mr. Young), Rafael Limson and Artemio Torres were charged in the
Regional Trial Court of Manila with a violation of Batas Pambansa Bilang 22.
RYL could no longer be located and could not be served with summons.[12] It never appeared.
Only STEELWELD filed an answer,
ISSUE: whether or not STELCO ever became a holder in due course of Check No. 765380, a bearer
instrument, within the contemplation of the Negotiable Instruments Law. It never did.
HELD: The record does show that after the check had been deposited and dishonored, STELCO
came into possession of it in some way, and was able, several years after the dishonor of the
check, to give it in evidence at the trial of the civil case it had instituted against the drawers of
the check (Limson and Torres) and RLY. But, as already pointed out, possession of a negotiable
instrument after presentment and dishonor, or payment, is utterly
inconsequential; it does not make the possessor a holder for value within the meaning of the
law; it gives rise to no liability on the part of the maker or drawer and indorsers.
It is clear from the relevant circumstances that STELCO cannot be deemed a holder of the check
for value. It does not meet two of the essential requisites prescribed by the statute. It did not
become "the holder of it before it was overdue, and without notice that it had been previously
dishonored," and it did not take the check "in good faith and for value."
11

Neither is there any evidence whatever that Armstrong Industries, to whom R.Y. Lim negotiated
the check, accepted the instrument and attempted to encash it in behalf, and as agent of
STELCO. On the contrary, the indications are that Armstrong was really the intended payee of
the check and was the party actually injured by its dishonor; it was after all its representative (a
Mr. Young) who instituted the criminal prosecution of the drawers, Limson and Torres, albeit
unsuccessfully.
The petitioner has failed to show any sufficient cause for modification or reversal of the
challenged judgment of the Court of Appeals which, on the contrary, appears to be entirely in
accord with the facts and the applicable law.
CHAPTER VIII: Discharge of Negotiable Instrument
Sec. 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.
Sec. 120. When persons secondarily liable on the instrument are discharged. – A person
secondarily liable on the instrument is discharged:
(a) By any act which discharges the instrument;
(b) By the intentional cancellation of his signature by the holder;
(c) By the discharge of a prior party;
(d) By a valid tender or payment made by a prior party;
(e) By a release of the principal debtor, unless the holder’s right of recourse against
the party secondarily liable is expressly reserved;
(f) By any agreement binding upon the holder to extend the time of payment, or to
postpone the holder’s right to enforce the instrument, unless made with the assent
of the party secondarily liable, or unless the right of recourse against such party is
expressly reserved.
Sec. 121. Right of party who discharges instrument. – Where the instrument is paid by a party
secondarily liable thereon, it is not discharged; but the party so paying it is remitted to his former
rights as regard all prior parties, and he may strike out his own and all subsequent indorsements
and against negotiate the instrument, except:
(a) Where it is payable to the order of a third person and has been paid by the drawer;
and
(b) Where it was made or accepted for accommodation and has been paid by the
party accommodated.
Sec. 122. Renunciation by holder. – The holder may expressly renounce his rights against any
party to the instrument before, at, or after its maturity. An absolute and unconditional
renunciation of his rights against the principal debtor made at or after the maturity of the
instrument discharges the instrument. But a renunciation does not affect the rights of a holder
in due course without notice. A renunciation must be in writing, unless the instrument is
delivered up to the person primarily liable thereon.
Anamer Salazar vs. J.Y. Brothers Marketing Corp.,
FACTS: J.Y. Brothers is a corporation engaged in the business of selling sugar, rice and other
commodities. Anamer Salazar, a freelance sales agent, was approached by Isagani Calleja and
Jess Kallos, if she knew a supplier of rice. Answering in the positive, Salazar accompanied the two
to J.Y. Bros. As a consequence, Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans
of rice worth P214,000.00. As payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential
Bank Check issued by Nena Jaucian Timario in the amount of P214,000.00 with the assurance
that the check is good as cash.
On that assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar. However, upon
presentment, the check was dishonored due to "closed account."
Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a
replacement cross Solid Bank Check again issued by Nena Jaucian Timario in the amount of
P214,000.00 but which, just the same, bounced due to insufficient funds. When despite the
demand letter, Salazar failed to settle the amount due J.Y. Bros., the latter charged Salazar and
Timario with the crime of estafa.
ISSUE: Whether Salazar's obligation was extinguished in presenting another check through
novation.
HELD: No.
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.
Petitioner's claim that respondent's acceptance of the Solid Bank check which replaced the
dishonored Prudential bank check resulted to novation which discharged the latter check is
unmeritorious.
Novation is done by the substitution or change of the obligation by a subsequent one which
extinguishes the first, either by changing the object or principal conditions, or by substituting the
person of the debtor, or by subrogating a third person in the rights of the creditor.
In this case, respondent's acceptance of the Solid Bank check, which replaced the dishonored
Prudential Bank check, did not result to novation as there was no express agreement to establish
12
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. As we said, novation is never presumed, there
must be an express intention to novate. In fact, when the Solid Bank check was delivered to
respondent, the same was also indorsed by petitioner which shows petitioner's recognition of
the existing obligation to respondent to pay P214,000.00 subject of the replaced Prudential Bank
check.
Moreover, respondent's acceptance of the Solid Bank check did not result to any incompatibility,
since the two checks − Prudential and Solid Bank checks − were precisely for the purpose of
paying the amount of P214,000.00, i.e., the credit obtained from the purchase of the 300 bags
of rice from respondent. Indeed, there was no substantial change in the object or principal
condition of the obligation of petitioner as the indorser of the check to pay the amount of
P214,000.00. It would appear that respondent accepted the Solid Bank check to give petitioner
the chance to pay her obligation.
Petitioner also contends that the acceptance of the Solid Bank check, a non-negotiable check
being a crossed check, which replaced the dishonored Prudential Bank check, a negotiable check,
is a new obligation in lieu of the old obligation arising from the issuance of the Prudential Bank
check, since there was an essential change in the circumstance of each check.
Among the different types of checks issued by a drawer is the crossed check. The Negotiable
Instruments Law is silent with respect to crossed checks, although the Code of Commerce makes
reference to such instruments. We have taken judicial cognizance of the practice that a check
with two parallel lines in the upper left hand corner means that it could only be deposited and
could not be converted into cash. Thus, the effect of crossing a check relates to the mode of
payment, meaning that the drawer had intended the check for deposit only by the rightful
person, i.e., the payee named therein. The change in the
mode of paying the obligation was not a change in any of the objects or principal condition of
the contract for novation to take place.
Considering that when the Solid Bank check, which replaced the Prudential Bank check, was
presented for payment, the same was again dishonored; thus, the obligation which was secured
by the Prudential Bank check was not extinguished and the Prudential Bank check was not
discharged. Thus, we found no reversible error committed by the CA in holding petitioner liable
as an accommodation indorser for the payment of the dishonored Prudential Bank check.
State Investment House, Inc. vs. CA and Nora B. Moulic,
FACTS: Private respondent Nora B. Moulic issued to Corazon Victoriano, as security for pieces of
jewelry to be sold on commission, 2 post-dated Equitable Banking Corporation checks in the
amount of P50,000.00 each, and the
other, 30 September 1979. Thereafter, the payee negotiated the checks to petitioner State
Investment House, Inc. (STATE).
MOULIC failed to sell the pieces of jewelry, so she returned them to the payee before maturity
of the checks. The checks, however, could no longer be retrieved as they had already been
negotiated. Consequently, before their maturity dates, MOULIC withdrew her funds from the
drawee bank.
Upon presentment for payment, the checks were dishonored for insufficiency of funds. STATE
allegedly notified MOULIC of the dishonor of the checks and requested that it be paid in cash
instead, although MOULIC avers that no such notice was given her.
STATE sued to recover the value of the checks plus attorney's fees and expenses of litigation.
In her Answer, MOULIC contends that she incurred no obligation on the checks because the
jewelry was never sold and the checks were negotiated without her knowledge and consent.
ISSUE: Wheter Moulic's obligation has been discharged
HELD: 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. For, the only grounds are those
outlined in Sec. 119 of the Negotiable Instruments Law:
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 accomodated, where the instrument is made or
accepted for his accomodation;
(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."
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. Since MOULIC failed to get back
possession of the post-dated checks, the intentional cancellation of the said checks is altogether
impossible.
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.
Correspondingly, MOULIC may not unilaterally discharge herself from her liability by the mere
expediency of withdrawing her funds from the drawee bank. She is thus liable as she has no legal
basis to excuse herself from liability on her checks to a holder in due course. Moreover, the fact
that STATE failed to give Notice of Dishonor to MOULIC is of no moment. The need for such
notice is not absolute; there are exceptions under Sec. 114 of the Negotiable Instruments Law:
13
"Sec. 114. When notice need not be given to drawer. - Notice of dishonor is not required to be
given to the drawer in the following cases:
(a) Where the drawer and the drawee are the same person;
(b) When the drawee is a fictitious person or a person not having capacity to contract;
(c) When the drawer is the person to whom the instrument is presented for payment;
(d) Where the drawer has no right to expect or require that the drawee or acceptor will honor
the instrument;
(e) Where the drawer had countermanded payment."
Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve the checks when
she returned the jewelry. She simply withdrew her funds from her drawee bank and transferred
them to another to protect herself. After withdrawing her funds, she could not have expected
her checks to be honored. In other words, she was responsible for the dishonor of her checks,
hence, there was no need to serve her Notice of Dishonor, which is simply bringing to the
knowledge of the drawer or indorser of the instrument, either verbally or by writing, the fact
that a specified instrument, upon proper proceedings taken, has not been accepted or has not
been paid, and that the party notified is expected to pay it.
In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not
hindering or hampering transactions in commercial paper. Thus, the said statute should not be
tampered with haphazardly or lightly. Nor should it be brushed aside in order to meet the
necessities in a single case.
The drawing and negotiation of a check have certain effects aside from the transfer of title or
the incurring of liability in regard to the instrument by the transferor. The holder who takes the
negotiated paper makes a contract with the parties on the face of the instrument. There is an
implied representation that funds or credit are available for the payment of the instrument in
the bank upon which it is drawn. Consequently, the withdrawal of the money from the drawee
bank to avoid liability on the checks cannot prejudice the rights of holders in due course. In the
instant case, such withdrawal renders the drawer, Nora B.
Moulic, liable to STATE, a holder in due course of the checks.
Under the facts of this case, STATE could not expect payment as MOULIC left no funds with the
drawee bank to meet her obligation on the checks, so that Notice of Dishonor would be futile.
Benjamin Evangelista vs. Screenex, Inc., et. al.,
FACTS: Evangelista obtained a loan from respondent Screenex, Inc. which issued 2 checks to
Evangelista.
1. UCPB Check No. 275345 for P1,000,000 and
2. China Banking Corporation Check No. BDO 8159110 for P500,000.
There were also vouchers of Screenex that were signed by the accused evidencing that he
received the 2 checks in acceptance of the loan granted to him.
As security for the payment of the loan, [Evangelista] gave two (2) open dated checks: UCPB
Check Nos. 616656 and 616657, both pay to the order of Screenex, Inc. From the time the checks
were issued by [Evangelista], they were held in safe keeping together with the other documents
and papers of the company by Philip Gotuaco, Sr., father-in -law of respondent Alexander Yu,
until the former's death on 19 November 2004.
Before the checks were deposited, there was a personal demand from the family for
[Evangelista] to settle the loan and likewise a demand letter sent by the family lawyer.
Petitioner was charged with violation of Batas Pambansa (BP) Blg. 22.
Upon its presentment which check when presented for payment within ninety (90) days from
the date thereof, was subsequently dishonored by the drawee bank for the reason "ACCOUNT
CLOSED" and despite
receipt of notice of such dishonor, the said accused failed to pay said payee the face amount of
said checks or to make arrangement for full payment thereof within five (5) banking days after
receiving notice
ISSUE: Whether lower court erred in ordering the accused to pay his alleged civil obligation to
private complainant.
RTC: We rule in favor of petitioner.
HELD: A check is discharged by any other act which will discharge a simple contract for the
payment of money. In BP 22 cases, the action for the corresponding civil obligation is deemed
instituted with the criminal action. The criminal action for violation of BP 22 necessarily includes
the corresponding civil action, and no reservation to file such civil action separately shall be
allowed or recognized.
The rationale for this rule has been elucidated in this wise:
Generally, no filing fees are required for criminal cases, but because of the inclusion of the civil
action in complaints for violation of B.P. 22, the Rules require the payment of docket fees upon
the filing of the complaint. This rule was enacted to help declog court dockets which are filled
with B.P. 22 cases as creditors actually use the courts as collectors. Because ordinarily no filing
fee is charged in criminal cases for actual damages, the payee uses the intimidating effect of a
criminal charge to collect his credit gratis and sometimes, upon being paid, the trial court is not
even informed thereof. The inclusion of the civil action in the criminal case is expected to
significantly lower the number of cases filed before the courts for collection based on dishonored
checks. It is also expected to expedite the disposition of these cases. Instead of instituting two
separate cases, one for criminal and another for civil, only a single suit shall be filed and tried. It
should be stressed that the policy laid down by the Rules is to discourage the separate filing of
the civil action. The Rules even prohibit the reservation of a separate civil action, which means
that one can no longer file a separate civil case after the criminal complaint is filed in court. The
only instance when separate proceedings are allowed is when the civil action is filed ahead of
the criminal case.
Even then, the Rules encourage the consolidation of the civil and criminal cases. We have
previously observed that a separate civil action for the purpose of recovering the amount of the
dishonored checks would only prove to be costly, burdensome and time-consuming for both
14
parties and would further delay the final disposition of the case. This multiplicity of suits must
be avoided.
This notwithstanding, the civil action deemed instituted with the criminal action is treated as an
"independent civil liability based on contract."[
By definition, a check is a bill of exchange drawn on a bank 'payable on demand. It is a negotiable
instrument - written and signed by a drawer containing an unconditional order to pay on demand
a sum certain in money. It is an undertaking that the drawer will pay the amount indicated
thereon. Section 119 of the NIL, however, states that a negotiable instrument like a check may
be discharged by any other act which will discharge a simple contract for the payment of money,
to wit:
Sec. 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 supplied)
A check therefore is subject to prescription of actions upon a written contract. Article 1144 of
the Civil Code provides:
Article 1144. The following actions must be brought within ten years from the time the right of
action accrues:
1) Upon a written contract;
2) Upon an obligation created by law;
3) Upon a judgment. (Emphasis supplied)
Barring any extrajudicial or judicial demand that may toll the 10-year prescription period and any
evidence which may indicate any other time when the obligation to pay is due, the cause
of action based on a check is reckoned from the date indicated on the check.
If the check is undated, however, as in the present petition, the cause of action is reckoned from
the date of the issuance of the check. This is so because regardless of the omission of
the date indicated on the check, Section 17[53] of the Negotiable Instruments Law instructs that
an undated check is presumed dated as of the time of its issuance.
While the space for the date on a check may also be filled, it must, however, be filled up strictly
in accordance with the authority given and within a reasonable time.[54] Assuming
that Yu had authority to insert the dates in the checks, the fact that he did so after a lapse of
more than 10 years from their issuance certainly cannot qualify as changes made within a
reasonable time.
Given the foregoing, the cause of action on the checks has become stale, hence, time-barred.
No written extrajudicial or judicial demand was shown to have been made within 10 years which
could have tolled the period. Prescription has indeed set in.
The delivery of the check produces the effect of payment when through the fault of the creditor
they have been impaired. It is a settled rule that the creditor's possession of the evidence of debt
is proof that the debt has not been discharged by payment. It is likewise an established tenet
that a negotiable instrument is only a substitute for money and not money, and the delivery of
such an instrument does not, by itself, operate as payment. We ruled that despite the lapse of
three years from the time the checks were issued, the obligation still subsisted and was merely
suspended until the payment by commercial document could actually be realized.
However, payment is deemed effected and the obligation for which the check was given as
conditional payment is treated discharged, if a period of 10 years or more has elapsed from the
date indicated on the check until the date of encashment or presentment for payment.
The failure to encash the checks within a reasonable time after issue, or more than 1 0 years in
this instance, not only results in the checks becoming stale but also in the obligation to pay being
deemed fulfilled by operation of law.
Sec. 123. Cancellation; unintentional; burden of proof . – A cancellation made
unintentionally, or under a mistake or without the authority of the holder, is
inoperative, but where an instrument or any signature thereon appears to
have been cancelled, the burden of proof lies on the party who alleges that
the cancellation was made unintentionally, or under a mistake or without
authority.
Sec. 124. Alteration of instrument; effect of . – Where a negotiable
instrument is materially altered without the assent of all parties liable
thereon, it is avoided, except as against a party who has himself made,
authorized, or assented to the alteration and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of a
holder in due course not a party to the alteration, he may enforce payment
thereof according to its original tenor.
Sec. 125. What constitutes a material alteration. – Any alteration which
changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment:
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is specified, or
any other change or addition which alters the effect of the instrument in any
respect is a material alteration.
The International Corporate Bank, Inc. vs. CA and PNB,
15
FACTS: A check with serial number 7-3666-223-3, in the amount of P97,650.00 was issued by the
Ministry of Education and Culture [DECS] payable to F. Abante Marketing. This check was drawn
against Philippine National Bank (herein petitioner). F. Abante Marketing, a client of Capitol
Bank, deposited the questioned check in its savings account with said bank. In turn, Capitol
deposited the same in its account with the Philippine Bank of Communications (PBCom) which,
in turn, sent the check to petitioner for clearing.
Petitioner PNB cleared the check as good and, thereafter, PBCom credited Capitol’s account for
the amount stated in the check. However, petitioner returned the check to PBCom and debited
PBCom’s account for the amount covered by the check, the reason being that there was a
"material alteration" of the check number.
PBCom, as collecting agent of Capitol, then proceeded to debit the latter’s account for the same
amount, and subsequently, sent the check back to petitioner. Petitioner, however, returned the
check to PBCom.
On the other hand, Capitol could not, in turn, debit F. Abante Marketing’s account since the
latter had already withdrawn the amount of the check . Capitol sought clarification from PBCom
and demanded the re-crediting of the amount. PBCom followed suit by requesting an
explanation and re-crediting from petitioner.
Since the demands of Capitol were not heeded, it filed a civil suit with the Regional Trial Court
ISSUE: WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A MATERIAL
ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW.
WHETHER OR NOT A CERTIFICATION HEREIN ISSUED BY THE MINISTRY OF EDUCATION CAN BE
GIVEN WEIGHT IN EVIDENCE.
HELD: 1. No
Sections 124 and 125 of Act No. 2031, otherwise known as the Negotiable Instruments Law,
provide:
SEC. 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially
altered without the assent of all parties liable thereon, it is avoided, except as against a party
who has himself made, authorized, or assented to the alteration and subsequent indorsers. But
when an instrument has been materially altered and is in the hands of a holder in due course,
not a party to the alteration, he may enforce payment
thereof according to its original tenor.
SEC. 125. What constitutes a material alteration. - Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made; or which adds a place of payment
where no place of payment is specified, or any other change or addition which alters the effect
of the instrument in any respect, is a material alteration.
The question on whether an alteration of the serial number of a check is a material alteration
under the Negotiable Instruments Law, this Court ruled that the alteration on the serial number
of a check is not a material alteration. Thus:
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 Instrument[s] Law.
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.
Justice Jose C. Vitug opines that "an innocent alteration (generally, changes on items other than
those required to be stated under Sec. 1, N.I.L.) and spoliation (alterations done by a stranger)
will not avoid the instrument, but the holder may enforce it only according to its original tenor.
The case at the 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. The name of the drawer and the drawee were
not altered. The intended payee was the same. The sum of money due to the payee remained
the same.
The check's serial number is not the sole indication of its origin. As succinctly found by the Court
of Appeals, the name of the government agency which issued the subject check was prominently
printed therein. The check's issuer was therefore sufficiently identified, rendering the referral to
the serial number redundant and inconsequential. x x x
Petitioner, thus cannot refuse to accept the check in question on the ground that the serial
number was altered, the same being an immaterial or innocent one. Likewise, in the present
case the alterations of the serial numbers do not constitute material alterations on the checks.
PNB vs. Court of Appeals, et.. al.,
FACTS: A check with serial number 7-3666-223-3, in the amount of P97,650.00 was issued by the
Ministry of Education and Culture [DECS] payable to F. Abante Marketing. This check was drawn
against Philippine National Bank (herein petitioner). F. Abante Marketing, a client of Capitol
16
Bank, deposited the questioned check in its savings account with said bank. In turn, Capitol
deposited the same in its account with the Philippine Bank of Communications (PBCom) which,
in turn, sent the check to petitioner for clearing.
Petitioner PNB cleared the check as good and, thereafter, PBCom credited Capitol’s account for
the amount stated in the check. However, petitioner returned the check to PBCom and debited
PBCom’s account for the amount covered by the check, the reason being that there was a
"material alteration" of the check number.
PBCom, as collecting agent of Capitol, then proceeded to debit the latter’s account for the same
amount, and subsequently, sent the check back to petitioner. Petitioner, however, returned the
check to PBCom.
On the other hand, Capitol could not, in turn, debit F. Abante Marketing’s account since the
latter had already withdrawn the amount of the check . Capitol sought clarification from PBCom
and demanded the re-crediting of the amount. PBCom followed suit by requesting an
explanation and re-crediting from petitioner.
Since the demands of Capitol were not heeded, it filed a civil suit with the Regional Trial Court
ISSUE: 1. Whether or not an alteration of the serial number of a check is a material alteration
under the negotiable instruments law.
1. Whether or not a certification herein issued by the ministry of education can be given
weight in evidence.
HELD: Section 125. What constitutes a material alteration. - Any alteration which changes:
(a)The date;
(b)The sum payable, either for principal or interest;
(c)The time or place of payment;
(d)The number or the relations of the parties;
(e)The medium or currency in which payment is to be made;
(f)Or which adds a place of payment where no place of payment is specified, or any other
change or addition which alters the effect of the instrument in any respect, is a material
alteration.
Petitioner alleges that there is no hard and fast rule in the interpretation of the
aforequoted provision of the Negotiable Instruments Law. It maintains that under Section
125(f), any change that alters the effect of the instrument is a material alteration.
We do not agree.
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 Instrument Law.
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.
Reproduced hereunder are some examples of material and immaterial alterations:
A.Material Alterations:
(1) Substituting the words "or bearer" for "order."
(2) Writing "protest waived" above blank indorsements.
(3) A change in the date from which interest is to run.
(4) A check was originally drawn as follows: "Iron County Bank, Crystal Falls, Mich. Aug. 5,
1901. Pay to G.L. or order $9 fifty cents CTR." The insertion of the figure 5 before the figure
9, the instrument being otherwise unchanged.
(5) Adding the words "with interest" with or without a fixed rate.
(6) An alteration in the maturity of a note, whether the time for payment is
thereby curtailed or extended.
(7) An instrument was payable "First Nat’l Bank," the plaintiff added the word
"Marion."
(8) Plaintiff, without consent of the defendant, struck out the name of the
defendant as payee and inserted the name of the maker of the original note.
(9) Striking out the name of the payee and substituting that of the person who
actually discounted the note.
(10)Substituting the address of the maker for the name of a co-maker.[10]
B. Immaterial Alterations:
(1) Changing "I promise to pay" to "We promise to pay," where there are two makers.
(2) Adding the word "annual" after the interest clause.
(3) Adding the date of maturity as a marginal notation.
(4) Filling in the date of the actual delivery where the makers of a note gave it with the date
in blank, "July . . ."
(5) An alteration of the marginal figures of a note where the sum stated in words in the
body remained unchanged.
(6) The insertion of the legal rate of interest where the note had a provision for "interest
at . . . per cent."
(7) A printed form of promissory note had on the margin the printed words, "Extended to
. . ." The holder on or after maturity wrote in the blank space the words "May 1, 1913," as
a reference memorandum of a promise made by him to the principal maker at the time
the words were written to extend the time of payment.
(8) Where there was a blank for the place of payment, filling in the blank with the place
desired.
17
(9) Adding to an indorsee’s name the abbreviation "Cash" when it had been agreed that
the draft should be discounted by the trust company of which the
indorsee was cashier.
(10) The indorsement of a note by a stranger after its delivery to the payee at the time the
note was negotiated to the plaintiff.
(11) An extension of time given by the holder of a note to the principal maker, without the
consent of the a surety co-maker.
The case at the 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. The name of the drawer and
the drawee were not altered. The intended payee was the same. The sum of money due
to the payee remained the same.
" paid by Cabilzo to a certain Mr. Marquez, as his sales commission.
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. The identity of the issuing government office or agency was not changed thereby
and the amount of the check was not charged against the account of another government
office or agency which had no liability under
the check. The owner and issuer of the check is boldly and clearly printed on its face,
second line from the top: "MiNiSTRY OF EDUCATiON AND CULTURE," and below the name
of the payee are the rubber-stamped words: "Ministry of Educ. & Culture." These words
are not alleged to have been falsely or fraudulently intercalated into the check. The
ownership of the check is established without the
necessity of recourse to the serial number. Neither is there any proof that the amount of
the check was erroneously charged against the account of a government office or agency
other than the Ministry of Education and Culture.
" Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued
Hence, the alteration in the number of the check did not affect or change the liability of
the Ministry of Education and Culture under the check and, therefore, is immaterial. The
genuineness of the amount and the signatures therein of then Deputy Minister of
Education Hermenegildo C. Dumlao and of the resident Auditor, Penomio C. Alvarez are
not challenged. Neither is the authenticity of the different codes appearing therein
questioned Petitioner, thus cannot refuse to accept the check in question on the ground
that the serial number was altered, the same being an immaterial or innocent one.
We agree with the respondent court.
The one who signed the certification was not presented before the trial court to prove that
the said document was really the document he prepared and that the signature below the
said document is his own signature. Neither did petitioner present an eyewitness to the
execution of the questioned document who could possibly identify it.[16] Absent this
proof, we cannot rule on the authenticity of the contents of the certification. Moreover, as
we previously emphasized, there was no material alteration on the check, the change of
its serial number not being substantial to its negotiability.
Anent the third issue - whether or not the drawee bank may still recover the value of the
check from the collecting bank even if it failed to return the check within the twenty-four
(24) hour clearing period because the check was tampered - suffice it to state that since
there is no material alteration in the check, petitioner has no right to dishonor it and return
it to PBCom, the same being in all respects negotiable.
Metrobank Vs. Renato D. Cabilzo
FACTS: Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobank's clients who maintained
a current account with Metrobank. Cabilzo issued a Metrobank Check payable to "CASH" and
postdated in the amount of One Thousand Pesos (P1,000.00).
The check was drawn against Cabilzo's Account with Metrobank Pasong Tamo Branch uand was
Subsequently, the check was presented to Westmont Bank for payment. Westmont Bank, in
turn, indorsed the check to Metrobank for appropriate clearing. After the entries thereon were
examined, including the availability of funds and the authenticity of the signature of the drawer,
Metrobank cleared the check for encashment in accordance with the Philippine Clearing House
Corporation (PCHC) Rules.
Cabilzo's representative was at Metrobank Pasong Tamo Branch to make some transaction when
he was asked by a bank personnel if Cabilzo had issued a check in the amount of P91,000.00 to
which the former replied in the negative. On the afternoon of the same date, Cabilzo himself
called Metrobank to reiterate that he did not issue a check in the amount of P91,000.00 and
requested that the questioned check be returned to him for verification, to which Metrobank
complied.
on 12 November 1994 in the amount of P1,000.00 was altered to P91,000.00 and the date 24
November 1994 was changed to 14 November 1994.
Hence, Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his account.
Metrobank, however, refused reasoning that it has to refer the matter first to its Legal Division
for appropriate action. Repeated verbal demands followed but Metrobank still failed to re-credit
the amount of P91,000.00 to Cabilzo's account.
Cabilzo, thru counsel, finally sent a letter-demand[8] to Metrobank for the payment of
P90,000.00, after deducting the original value of the check in the amount of P1,000.00. Such
written demand notwithstanding, Metrobank still failed or refused to comply with its obligation.
Consequently, Cabilzo instituted a civil action for damages against Metrobank before the RTC.
ISSUE: THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING METROBANK, AS
DRAWEE BANK, LIABLE FOR THE ALTERATIONS ON THE SUBJECT CHECK BEARING THE
AUTHENTIC SIGNATURE OF THE DRAWER THEREOF.
18
HELD: Yes.
An alteration is said to be material if it changes the effect of the instrument. It means that 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. 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 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.
Also pertinent is the following provision in the Negotiable Instrument Law which states:
Section 125. What constitutes material alteration. – Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relation of the parties;
(e) The medium or currency in which payment is to be made;
other change or addition which alters the effect of the instrument in any respect is a material
alteration.
In the case at bar, the check was altered so that the amount was increased from P1,000.00to
P91,000.00 and the date was changed from 24 November 1994 to 14 November1994.
Apparently, since the entries altered were among those enumerated under Section 1 and 125,
namely, the sum of money payable and the date of the check, the instant controversy therefore
squarely falls within the purview of material alteration.
Now, having laid the premise that the present petition is a case of material alteration, it is now
necessary for us to determine the effect of a materially altered instrument, as well as the rights
and obligations of the parties thereunder. The following provision of the Negotiable Instrument
Law will shed us some light in threshing out this issue:
Section 124. Alteration of instrument; effect of. – Where a negotiable instrument is materially
altered without the assent of all parties liable thereon, it is avoided, except as against a party
who has himself made, authorized, and assented to the alteration and subsequent indorsers.
But when the instrument has been materially altered and is in the hands of a holder in due course
not a party to the alteration, he may enforce the payment thereof according to its original tenor.
Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did he
assent to the alteration by his express or implied acts. There is no showing that he failed to
exercise such reasonable degree of diligence required of a prudent man which could have
otherwise prevented the loss. As correctly ruled by the appellate court, Cabilzo was never remiss
in the preparation and issuance of the check, and there were no indicia of evidence that would
prove otherwise. Indeed, Cabilzo placed asterisks before and after the amount in words and
figures in order to forewarn the subsequent holders that nothing follows before and after the
amount indicated other than the one specified between the asterisks.
The degree of diligence required of a reasonable man in the exercise of his tasks and the
performance of his duties has been faithfully complied with by Cabilzo. In fact, he was wary
enough that he filled with asterisks the spaces between and after the amounts, not only those
stated in words, but also those in numerical figures, in order to prevent any fraudulent insertion,
but unfortunately, the check was still successfully altered, indorsed by the collecting bank, and
cleared by the drawee bank, and encashed by the perpetrator of the fraud, to the damage and
prejudice of Cabilzo.
Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is therefore prevented
from asserting his rights under the doctrine of equitable estoppel when the facts on record are
bare of evidence to support such conclusion. The doctrine of equitable estoppel states that when
one of the two innocent persons, each guiltless of any intentional or moral wrong, must suffer a
loss, it must be borne by the one whose erroneous conduct, either by omission or commission,
was the cause of injury.
Metrobank's reliance on this dictum, is misplaced. For one, Metrobank's representation that it
is an innocent party is flimsy and evidently, misleading. At the same time, Metrobank cannot
asseverate that Cabilzo was negligent and this negligence was the proximate cause[22] of the
loss in the absence of even Or which adds a place of payment where no place of payment is
specified, or any a scintilla proof to buttress such claim. Negligence is not presumed but must be
proven by the one who alleges it.
The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship. The appropriate degree of
diligence required of a bank must be a high degree of diligence, if not the utmost diligence.[27]
In the present case, it is obvious that Metrobank was remiss in that duty and violated that
relationship. As observed by the Court of Appeals, there are material alterations on the check
that are visible to the naked eye.
Thus:
x x x The number "1" in the date is clearly imposed on a white figure in the shape of the number
"2". The appellant's employees who examined the said check should have likewise been put on
guard as to why at the end of the amount in words, i.e., after the word "ONLY", there are 4
asterisks, while at the beginning of the line or before said phrase, there is none, even as 4
asterisks have been placed before and after the word "CASH" in the space for payee. In addition,
the 4 asterisks before the words "ONE THOUSAND PESOS ONLY" have noticeably been erased
with typing correction paper, leaving white marks, over which the word "NINETY" was
superimposed. The same can be said of the numeral "9" in the amount "91,000", which is
superimposed over a whitish mark, obviously an erasure, in lieu of the asterisk which was deleted
19
to insert the said figure. The
appellant's employees should have again noticed why only 2 asterisks were placed before the
amount in figures, while 3 asterisks were placed after such amount.
The word "NINETY" is also typed differently and with a lighter ink, when compared with the
words "ONE THOUSAND PESOS ONLY." The letters of the word "NINETY" are likewise a little
bigger when compared with the letters of the words "ONE THOUSAND PESOS ONLY".
Surprisingly, however, Metrobank failed to detect the above alterations which could not escape
the attention of even an ordinary person. This negligence was exacerbated by the fact that, as
found by the trial court, the check in question was examined by the cash custodian whose
functions do not include the examinations of checks indorsed for payment against drawer's
accounts.[29] Obviously, the employee allowed by Metrobank to examine the check was not
verse and competent to handle such duty. These factual findings of the trial court is conclusive
upon this court especially when such findings was affirmed the appellate court.
Apropos thereto, we need to reiterate that by the very nature of their work the degree of
responsibility, care and trustworthiness expected of their employees and officials is far better
than those of ordinary clerks and employees. Banks are expected to exercise the highest degree
of diligence in the selection and supervision of their employees.
In addition, the bank on which the check is drawn, known as the drawee bank, is under strict
liability to pay to the order of the payee in accordance with the drawer's instructions as reflected
on the face and by the terms of the check. Payment made under materially altered instrument
is not payment done in accordance with the instruction of the drawer.
When the drawee bank pays a materially altered check, it violates the terms of the check, as well
as its duty to charge its client's account only for bona fide disbursements he had made.
Since the drawee bank, in the instant case, did not pay according to the original tenor of the
instrument, as directed by the drawer, then it has no right to claim reimbursement from the
drawer, much less, the right to deduct the erroneous payment it made from the drawer's
account which it was expected to treat with utmost fidelity.
Cesar V. Areza, et. al. vs. Express Savings Bank, Inc.,
FACTS: Petitioners Cesar V. Areza and Lolita B. Areza maintained two bank deposits with
respondent Express Savings Bank’s Biñan branch: 1) Savings Account No. 004-01-000185-5 and
2) Special Savings Account No. 004-02-000092-3.
They were engaged in the business of “buy and sell” of brand new and second-hand motor
vehicles. They received an order from a certain Gerry Mambuay (Mambuay) for the purchase of
a second-hand Mitsubishi Pajero and a brand-new Honda CRV. The buyer, Mambuay, paid
petitioners with nine (9) Philippine Veterans Affairs Office (PVAO) checks payable to different
payees and drawn against the Philippine Veterans Bank (drawee),
each valued at P200,000.00 for a total of P1,800,000.00.
About this occasion, petitioners claimed that Michael Potenciano (Potenciano), the branch
manager of respondent Express Savings Bank (the Bank) was present during the transaction and
immediately offered the services of the Bank for the processing and eventual crediting of the
said checks to petitioners’ account. On the other hand, Potenciano countered that he was
prevailed upon to accept the checks by way of accommodation of petitioners who were valued
clients of the Bank.
Petitioners deposited the said checks in their savings account with the Bank. The Bank, in turn,
deposited the checks with its depositary bank, Equitable-PCI Bank, in Biñan, Laguna. Equitable-
PCI Bank presented the checks to the drawee, the Philippine Veterans Bank, which honored the
checks Potenciano informed petitioners that the checks they deposited with the Bank were
honored. He allegedly warned petitioners that the clearing of the checks pertained only to the
availability of funds and did not mean that the checks were not infirmed. Thus, the entire amount
of P1,800,000.00 was credited to petitioners’ savings account. Based on this information,
petitioners released the two cars to the buyer.
The subject checks were returned by PVAO to the drawee on the ground that the amount on the
face of the checks was altered from the original amount of P4,000.00 to P200,000.00. The
drawee returned the checks to Equitable-PCI Bank by way of Special Clearing Receipts. The Bank
was informed by Equitable-PCI Bank that the drawee dishonored the checks on the ground of
material alterations. Equitable-PCI Bank initially filed a protest with the Philippine Clearing
House. In February 2001, the latter ruled in favor of the drawee Philippine Veterans Bank.
Equitable-PCI Bank, in turn, debited the deposit account of the Bank in the amount of
P1,800,000.00.
The Bank insisted that they informed petitioners of said development in August 2000 by
furnishing them copies of the documents given by its depositary bank. On the other hand,
petitioners maintained that the Bank never informed them of these developments.
Petitioners issued a check in the amount of P500,000.00. Said check was dishonored by the Bank
for the reason “Deposit Under Hold.” According to petitioners, the Bank unilaterally and
unlawfully put their account with the Bank on hold. On 22 March 2001, petitioners’ counsel sent
a demand letter asking the Bank to honor their check. The Bank refused to heed their request
and instead, closed the Special Savings Account of the petitioners with a balance of
P1,179,659.69 and transferred said amount to their savings account. The Bank then withdrew
the amount of P1,800,000.00 representing the returned checks from petitioners’ savings
account.
Acting on the alleged arbitrary and groundless dishonoring of their checks and the unlawful and
unilateral withdrawal from their savings account, petitioners filed a Complaint for Sum of
Money with Damages against the Bank and Potenciano with the RTC of Calamba.
ISSUE: whether the Bank had the right to debit P1,800,000.00 from petitioners’ accounts.
HELD: The fact that material alteration caused the eventual dishonor of the checks issued by
PVAO is undisputed.
20
In this case, before the alteration was discovered, the checks were already cleared by the drawee
bank, the Philippine Veterans Bank. Three months had lapsed before the drawee dishonored the
checks and returned them to Equitable-PCI Bank, the respondents’ depositary bank. And it was
not until 10 months later when petitioners’ accounts were debited. A question thus arises: What
are the liabilities of the drawee, the intermediary banks, and the petitioners for the altered
checks?
LIABILITY OF THE DRAWEE
Section 63 of Act No. 2031 or the Negotiable Instruments Law provides that the acceptor, by
accepting the instrument, engages that he will pay it according to the tenor of his acceptance.
The acceptor is a drawee who accepts the bill. In Philippine National Bank v. Court of Appeals,
the payment of the amount of a check implies not only acceptance but also compliance with the
drawee’s obligation.
In case the negotiable instrument is altered before acceptance, is the drawee liable for the
original or the altered tenor of acceptance? There are two divergent intepretations proffered by
legal analysts.
The first view is supported by the leading case of National City Bank of Chicago v. Bank of the
Republic.[16] In said case, a certain Andrew Manning stole a draft and substituted his name for
that of the original payee. He offered it as payment to a jeweler in exchange for certain jewelry.
The jeweler deposited the draft to the defendant bank which collected the equivalent amount
from the drawee. Upon learning of the alteration, the drawee sought to recover from the
defendant bank the amount of the draft, as money paid by mistake. The court denied recovery
on the ground that the drawee by accepting admitted the existence of the payee and his capacity
to endorse. Still, in Wells Fargo Bank & Union Trust Co. v. Bank of Italy, the court echoed the
court’s interpretation in National City Bank of Chicago, in this wise:
We think the construction placed upon the section by the Illinois court is correct and that it was
not the legislative intent that the obligation of the acceptor should be limited to the tenor of the
instrument as drawn by the maker, as was the rule at common law, but that it should be
enforceable in favor of a holder in due course against the acceptor according to its tenor at the
time of its acceptance or certification.
The foregoing opinion and the Illinois decision which it follows give effect to the literal words of
the Negotiable Instruments Law. As stated in the Illinois case:
"The court must take the act as it is written and should give to the words their natural and
common meaning . . . if the language of the act conflicts with statutes or decisions in force before
its enactment the courts should not give the act a strained construction in order to make it
harmonize with earlier statutes or decisions." The wording of the act suggests that a change in
the common law was intended. A careful reading thereof, independent of any common-law
influence, requires that the words "according to the tenor of his acceptance" be construed as
referring to the instrument as it was at the time it came into the hands of the acceptor for
acceptance, for he accepts no other instrument than the one presented to him — the altered
form — and it alone he engages to pay. This conclusion is in harmony with the law of England
and the continental countries. It makes for the usefulness and currency of negotiable paper
without seriously endangering accepted banking practices, for banking institutions can readily
protect themselves against liability on altered instruments either by qualifying their acceptance
or certification or by relying on forgery insurance and special paper which will make alterations
obvious. All of the arguments advanced against the conclusion herein announced seem highly
technical in the face of the practical facts that the drawee bank has authenticated an instrument
in a certain form, and that commercial policy favors the protection of anyone who, in due course,
changes his position on the faith of that authentication.
The second view is that the acceptor/drawee despite the tenor of his acceptance is liable only
to the extent of the bill prior to alteration. This view appears to be in consonance with Section
124 of the Negotiable Instruments Law which states that a material alteration avoids an
instrument except as against an assenting party and subsequent indorsers, but a holder in due
course may enforce payment according to its original tenor. Thus, when the drawee bank pays
a materially altered check, it violates the terms of the check, as well as its duty to charge its
client’s account only for bona fide disbursements he had made. If the drawee did not pay
according to the original tenor of the instrument, as directed by the drawer, then it has no right
to claim reimbursement from the drawer, much less, the right to deduct the erroneous payment
it made from the drawer’s account which it was expected to treat with utmost fidelity. The
drawee, however, still has recourse to recover its loss. It may pass the liability back to the
collecting bank which is what the drawee bank exactly did in this case. It debited the account of
Equitable-PCI Bank for the altered amount of the checks. an instrument except as against an
assenting party.
TITLE II Bills of Exchange
CHAPTER IX: Form and Interpretation
Sec. 126. Bill of exchange, defined. – 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.
Sec. 127. Bill not an assignment of funds in hands of drawee. – A bill of itself
does not operate as an assignment of the funds in the hands of the drawee
available for the payment thereof, and the drawee is not liable on the bill
unless and until he accepts the same.
Sec. 128. Bill addressed to more than one drawee. – A bill may be addressed
to two or more drawees jointly, whether they are partners or not; but not to
two or more drawees in the alternative or in succession.
21
Sec. 129. Inland and foreign bills of exchange. – An inland bill of exchange is
a bill which is, or on its face purports to be, both drawn and payable within
the Philippines. Any other bill is a foreign bill. Unless the contrary appears on
the face of the bill, the holder may treat it as an inland bill.
Sec. 130. When bill may be treated as promissory note. – Where in a bill the
drawer and drawee are the same person, or where the drawee is a fictitious
person, or a person not having capacity to contract, the holder may treat the
instrument, at his option, either as a bill of exchange or as a promissory note.
Sec. 131. Referee in case of need. – The drawer of a bill and any indorser may
insert thereon the name of a person to whom the holder may resort in case
of need; that is to say, in case the bill is dishonored by non-acceptance or
non-payment. Such person is called a referee in case of need. It is in the
option of the holder to resort to the referee in case of need or not, as he may
see fit.
Sec. 132. Acceptance; how made and so forth. – The acceptance of a bill is
the signification by the drawee of his assent to the order of the drawee. The
acceptance must be in writing and signed by the drawee. It must not express
that the drawee will perform his promise by any other means than the
payment of money.
Sec. 133. Holder entitled to acceptance on face of bill. – The holder of a bill
presenting the same for acceptance may require that the acceptance be
written on the bill, and if such request is refused, may treat the bill as
dishonored.
Sec. 134. Acceptance by separate instrument. – Where an acceptance is
written on a paper other than the bill itself, it does not bind the acceptor
except in favor of a person to whom it is shown and who, on the faith thereof,
receives the bill for value.
Sec. 135. Promise to accept; when equivalent to acceptance. – An
unconditional promise in writing to accept a bill before it is drawn is deemed
an actual acceptance in favor of every person who, upon the faith thereof,
receives the bill for value.
Sec. 136. Time allowed drawee to accept. – The drawee is allowed twenty-
four hours after presentment in which to decide whether or not he will
accept the bill; the acceptance, if given, dates as of the day of presentation.
Sec. 137. Liability of drawee retaining or destroying bill. – Where a drawee to
whom a bill is delivered for acceptance destroys the same, or refuses within
twenty-four hours after such delivery, or within such other period as the
holder may allow, to return the bill accepted or non-accepted to the holder,
he will be deemed to have accepted the same.
Sec. 138. Acceptance of incomplete bill. – A bill may be accepted before it
has been signed by the drawer, or while otherwise incomplete, or when it is
overdue, or after it has been dishonored by a previous refusal to accept, or
by non-payment. But when a bill payable after sight is dishonored by non-
acceptance and the drawee subsequently accepts it, the holder, in the
absence of any different agreement, is entitled to have the bill accepted as
of the date of the first presentment.
Sec. 139. Kinds of acceptance. – An acceptance is either general or qualified.
A general acceptance assents without qualification to the order of the
drawer. A qualified acceptance in express terms varies the effect of the bill
as drawn.
Sec. 140. What constitutes a general acceptance. – An acceptance to pay at
a particular place is a general acceptance unless it expressly states that the
bill is to be paid there only and not elsewhere.
Sec. 141. Qualified acceptance. – An acceptance is qualified which is:
(a) Conditional; that is to say, which makes payment by the acceptor
dependent on the fulfillment of a condition therein stated;
(b) Partial; that is to say, an acceptance to pay part only of the
amount for which the bill is drawn;
(c) Local; that is to say, an acceptance to pay only at a particular
place;
(d) Qualified as to time;
(e) The acceptance of some, one or more of the drawees but not of
all.
22
Sec. 142. Rights of parties as to qualified acceptance. – The holder may refuse HELD: As asserted by PCI Bank under the fourth issue, Ong is not a holder in due course because
the manager's check was drawn against a closed account; therefore, the same was issued
to take a qualified acceptance and if he does not obtain an unqualified
without consideration. to the creditor of cash in an amount equal to the amount credited to his
acceptance, he may treat the bill as dishonored by non-acceptance. Where a account.
qualified acceptance is taken, the drawer and indorsers are discharged from
liability on the bill, unless they have expressly or impliedly authorized the Having cleared the check earlier, PCI Bank, therefore, became liable to Ong and it cannot allege
want or failure of consideration between it and Sarande. Under settled jurisprudence, Ong is a
holder to take a qualified acceptance, or subsequently assent thereto. When
stranger as regards the transaction between PCI Bank and Sarande. PCI Bank next insists that
the drawer or an indorser receives notice of a qualified acceptance, he must, since there was no consideration for the issuance of the manager's check, ergo, Ong is not a
within a reasonable time, express his dissent to the holder or he will be holder in due course.
deemed to have assented thereto.
Easily discernible is that what Ong obtained from PCI Bank was not just any ordinary check but a
manager's check. A manager's check is an order of the bank to pay, drawn upon itself,
Equitable PCI Bank vs. Rowena Ong,
committing in effect its total resources, integrity and honor behind its issuance. By its peculiar
FACTS: Warliza Sarande deposited in her account at PCI Bank a Check in the amount of
character and general use in commerce, a manager's check is regarded substantially to be as
P225,000.00. Upon inquiry by Serande at PCI Bank whether the Check had been cleared, she
good as the money it represents.
received an affirmative answer. Relying on this assurance, she issued two checks drawn against
the proceeds.
A manager's check stands on the same footing as a certified check. The effect of certification is
found in Section 187, Negotiable Instruments Law.
One of these was PCI Bank Check No. 073661 for P132,000.00 which Sarande issued to
Sec. 187. Certification of check; effect of. - Where a check is certified by the bank on which it is
respondent Rowena Ong owing to a business transaction. On the same day, Ong presented to
drawn, the certification is equivalent to an acceptance. The effect of issuing a manager's check
PCI Bank said Check No. 073661, and instead of encashing it, requested PCI Bank to convert the
was incontrovertibly elucidated when we declared that:
proceeds thereof into a manager's check, which the PCI Bank obliged. Whereupon, Ong was
A manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a
issued PCI Bank Manager's Check No. 10983 for the sum of P132,000.00, the value of Check No.
cashier's check both as to effect and use. A cashier's check is a check of the bank's cashier on his
073661.
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
The next day, Ong deposited PCI Bank Manager's Check No. 10983 in her account with Equitable
and may be treated as a promissory note with the bank as a maker. The check becomes the
Banking Corporation. She received a check return-slip informing her that PCI Bank had stopped
primary obligation of the bank which issues it and constitutes its written promise to pay upon
the payment of the said check on the ground of irregular issuance. Despite several demands
demand. The mere issuance of it is considered an acceptance thereof. x x x.
made by her to PCI Bank for the payment of the amount in PCI Bank Manager's Check No. 10983,
the same was met with refusal; thus, Ong was constrained to file a Complaint for sum of money,
By accepting PCI Bank Check No. 073661 issued by Sarande to Ong and issuing in turn a
damages
manager's check in exchange thereof, PCI Bank assumed the liabilities of an acceptor under
and attorney's fees against PCI Bank.
Section 62 of the Negotiable Instruments Law which states:
RTC: Ong
Sec. 62. Liability of acceptor. - The acceptor by accepting the instruments engages that he will
CA: affirmed
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
From PCI Bank's version, TCBT-General Santos City Check No. 0249188 was returned on 5
to draw the instrument; and
December 1991 at 5:00 pm on the ground that the account against which it was drawn was
(b) The existence of the payee and his then capacity to indorse.
already closed. According to PCI Bank, it immediately gave notice to Sarande and Ong about
the return of Check No. 0249188 and requested Ong to return PCI Bank Manager's Check No.
With the above jurisprudential basis, the issues on Ong being not a holder in due course and
10983 inasmuch as the return of Check No. 0249188 on the ground that the account from
failure or want of consideration for PCI Bank's issuance of the manager's check is out of sync.
which it was drawn had already been closed resulted in a failure or want of consideration for
the issuance of PCI Bank Manager's Check No. 10983.

ISSUE: Whether PCIB is liable

Security Bank and Trust Co. vs. RCBC

23
FACTS: Security Bank issued a manager's check for P8 million, payable to "CASH," as proceeds of
the loan granted to Guidon Construction and Development Corporation (GCDC). On the same
day, the P8-million check, along with other checks, was deposited by Continental Manufacturing
Corporation (CMC) in its Current Account with (RCBC). Immediately, RCBC honored the P8-
million check and allowed CMC to withdraw the same.
On the next banking day, GCDC issued a "Stop Payment Order" to SBTC, claiming that the P8-
million check was released to a third party by mistake. Consequently, SBTC dishonored and
returned the manager's check to RCBC. Thereafter, the check was returned back and forth
between the two banks, resulting in automatic debits and credits in each bank's clearing balance.
RCBC filed a complaint for damages against SBTC.
ISSUE: The honorable court of appeals erred gravely in failing to note that The manager's check
in question was accepted for deposit by the rcbc and was not encashed by the payee.
the legal issues for our resolution are:
(1) Is SBTC liable to RCBC for the remaining P4 million? and
(2) Is SBTC liable to pay for lost interest income on the remaining P4 million, exemplary damages
and attorney's fees?
RCBC avers that the manager's check issued by SBTC is substantially as good as the money it
represents because by its peculiar character, its issuance has the effect of an advance
acceptance. RCBC claims that it is a holder in due course when it credited the P8-million
manager's check to CMC's account. Accordingly, RCBC asserts that SBTC's refusal to honor its
obligation justifies RCBC claim for lost interest income, exemplary damages and attorney's fees.
On the other hand, SBTC contends that RCBC violated Monetary Board Resolution No. 2202 of
the Central Bank of the Philippines mandating all banks to verify the genuineness and validity of
all checks before allowing drawings of the same. SBTC insists that RCBC should bear the
consequences of allowing CMC to withdraw the amount of the check before it was cleared
HELD: At the outset, it must be noted that the questioned check issued by SBTC is not just an
ordinary check but a manager's check. A manager's check is one drawn by a bank's manager
upon the bank itself. It stands on the same footing as a certified check, which is deemed to have
been accepted by the bank that certified it.[14] As the bank's own check, a manager's check
becomes the primary obligation of the bank and is accepted in advance by the act of its issuance.
In this case, RCBC, in immediately crediting the amount of P8 million to CMC's account, relied on
the integrity and honor of the check as it is regarded in commercial transactions.
Where the questioned check, which was payable to "Cash," appeared regular on its face, and
the bank found nothing unusual in the transaction, as the drawer usually issued checks in big
amounts made payable to cash, RCBC cannot be faulted in paying the value of the questioned
check.
In our considered view, SBTC cannot escape liability by invoking Monetary Board Resolution
No. 2202 dated December 21, 1979, prohibiting drawings against uncollected deposits. For
we must point out that the Central Bank at that time issued a Memorandum dated July 9,
1980, which interpreted said Monetary Board Resolution No. 2202. In its pertinent portion,
said Memorandum reads:
"MEMORANDUM TO ALL BANKS
July 9, 1980
For the guidance of all concerned, Monetary Board Resolution No. 2202 dated December 31,
1979 prohibiting, as a matter of policy, drawing against uncollected deposit effective July 1,
1980, uncollected deposits representing manager's cashier's/ treasurer's checks, treasury
warrants, postal money orders and duly funded "on us" checks which may be permitted at the
discretion of each bank, covers drawings against demand deposits as well as withdrawals from
savings deposits."
Thus, it is clear from the July 9, 1980 Memorandum that banks were given the discretion to
allow immediate drawings on uncollected deposits of manager's checks, among others.
Consequently, RCBC, in allowing the immediate withdrawal against the subject manager's check,
only exercised a prerogative expressly granted to it by the Monetary Board. Moreover, neither
Monetary Board Resolution No. 2202 nor the July 9, 1980 Memorandum alters the extraordinary
nature of the manager's check and the relative rights of the parties thereto. SBTC's liability as
drawer remains the same − by drawing the instrument, it admits the existence of the payee and
his then capacity to indorse; and engages that on due presentment, the instrument will be
accepted, or paid, or both, according to its tenor.
Concerning RCBC's claim for lost interest income on the remaining P4 million, this is already
covered by the amount of damages in the form of legal interest of 6%, based on Article 2200 and
2209[20] of the Civil Code of the Philippines, as awarded by the Court of Appeals in its decision.
In addition to the above-mentioned award of compensatory damages, we also find merit in the
need to award exemplary damages in order to set an example for the public good. The banking
system has become an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized society. Whether as mere passive entities for the safe-keeping
and saving of money or as active instruments of business and commerce.
The International Corporate Bank (now Union Bank of the Phils.) vs. Sps. Francis S.
Gueco and Ma. Luz E. Gueco, G.R. No. 141968. February 12, 2001
FACTS: The respondents Gueco Spouses obtained a loan from petitioner International Corporate
Bank (now Union Bank of the Philippines) to purchase a car - a Nissan Sentra 1600 4DR, 1989
Model. In consideration thereof, the Spouses executed promissory notes which were payable in
monthly installments and chattel mortgage over the car to serve as security for the notes.
The Spouses defaulted in payment of installments. Consequently, the Bank filed a civil action for
Sum of Money with Prayer for a Writ of Replevin. Desi Tomas, the Bank's Assistant Vice President
demanded payment of the amount of P184,000.00 which represents the unpaid balance for the
car loan. After some negotiations and computation, the amount was lowered to P154,000.00.
However, as a result of the non-payment of the reduced amount on that date, the car was
detained inside the bank's compound.
24
Dr. Gueco went to the bank and talked with its Administrative Support, Auto Loans/Credit Card
Collection Head, Jefferson Rivera. The negotiations resulted in the further reduction of the
outstanding loan to P150,000.00.
Dr. Gueco delivered a manager's check in the amount of P150,000.00 but the car was not
released because of his refusal to sign the Joint Motion to Dismiss. It is the contention of the
Gueco spouses and their counsel that Dr. Gueco need not sign the motion for joint dismissal
considering that they had not yet filed their Answer. Petitioner, however, insisted that the joint
motion to dismiss is standard operating procedure in their bank to effect a compromise and to
preclude future filing of claims, counterclaims or suits for damages.
After several demand letters and meetings with bank representatives, the respondents Gueco
spouses initiated a civil action for damages.
The Metropolitan Trial Court: dismissed the complaint for lack of merit
RTC: reversed.
ISSUE: whether the document evidencing the order to hold payment of the check was formally
offered as evidence by petitioners, it appears from the pleadings that said check has not been
encashed
HELD: Respondents would make us hold that petitioner should return the car or its value and
that the latter, because of its own negligence, should suffer the loss occasioned by the fact that
the check had become stale. It is their position that delivery of the manager's check produced
the effect of payment and, thus, petitioner was negligent in opting not to deposit or use said
check. Rudimentary sense of justice and fair play would not countenance respondents' position.
A stale check is one which has not been presented for payment within a reasonable time after
its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law,
an instrument not payable on demand must be presented for payment on the day it falls due.
When the instrument is payable on demand, presentment must be made within a reasonable
time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a
reasonable time after the last negotiation thereof.
A check must be presented for payment within a reasonable time after its issue, and 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.[24] This is because the nature and theory behind the use of a check points to its
immediate use and payability. In a case, a check payable on demand which was long overdue by
about two and a half (2-1/2) years was considered a stale check.
Failure of a payee to encash a check for more than ten (10) years undoubtedly resulted in the
check becoming stale. Thus, even a delay of one (1) week[27] or two (2) days, under the specific
circumstances of the cited cases constituted unreasonable time as a matter of law.
In the case at bar, however, the check involved is not an ordinary bill of exchange but a manager's
check. 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.
Even assuming that presentment is needed, failure to present for payment within a reasonable
time will result to the discharge of the drawer only to the extent of the loss caused by the delay.
Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation
amounts to an acknowledgment of liability in the sum stated in the check. In this case, the Gueco
spouses have not alleged, much less shown that they or the bank which issued the manager's
check has suffered damage or loss caused by the delay or non-presentment. Definitely, the
original obligation to pay certainly has not been erased.
It has been held that, if the check had become stale, it becomes imperative that the
circumstances that caused its non-presentment be determined.
In the case at bar, there is no doubt that the petitioner bank held on the check and refused to
encash the same because of the controversy surrounding the signing of the joint motion to
dismiss. We see no bad faith or negligence in this position taken by the Bank.
Sps. Gil and Noelli Gardose vs. Reynaldo S. Tarroza, G.R. No. 130570. May 19, 1998
Myron C. Papa, et. al. vs. A. U. Valencia and Co. Inc., et. al.,
FACTS: Myron C. Papa, acting as attorney-infact of Angela M. Butte, sold to respondent
Peñarroyo, through respondent Valencia, a parcel of land, consisting of 286.60 square meters,
located at corner Retiro and Cadiz Streets, La Loma, Quezon City, and covered by Transfer
Certificate of Title No. 28993 of the Register of Deeds of Quezon City;
that prior to the alleged sale, the said property, together with several other parcels of land
likewise owned by Angela M. Butte, had been mortgaged by her to the Associated Banking
Corporation (now Associated Citizens Bank); that after the alleged sale, but before the title to
the subject property had been released, Angela M. Butte passed away;
25
that despite representations made by herein respondents to the bank to release the title to the
property sold to respondent Peñarroyo, the bank refused to release it unless and until all the
mortgaged properties of the late Angela M. Butte were also redeemed; that in order to protect
his rights and interests over the property, respondent Peñarroyo caused the annotation on the
title of an adverse claim as evidenced by Entry No. P.E. - 6118/T-28993, inscribed on 18 January
1977.
only upon the release of the title to the property, sometime in April 1977, that respondents
Valencia and Peñarroyo discovered that the mortgage rights of the bank had been assigned to
one Tomas L. Parpana (now deceased), as special administrator of the Estate of Ramon Papa, Jr.,
on 12 April 1977; that since then, herein petitioner had been collecting monthly rentals in the
amount of P800.00 from the tenants of the property, knowing that said property had already
been sold to private respondents on 15 June 1973; that despite repeated demands from said
respondents, petitioner refused and failed to deliver the title to the property. Thereupon,
respondents Valencia and Peñarroyo filed a complaint for specific performance, praying that
petitioner be ordered to deliver to respondent Peñarroyo the title to the subject property (TCT
28993); to turn over to the latter the sum of P72,000.00 as accrued rentals as of April 1982, and
the monthly rental of P800.00 until the property is delivered to respondent Peñarroyo; to pay
respondents the sum of P20,000.00 as attorney’s fees; and to pay the costs of the suit.
RTC: in favor of defendant
*** Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals, alleging
among others that the sale was never “consummated” as he did not encash the check (in the
amount of P40,000.00) given by respondents Valencia and Peñarroyo in payment of the full
purchase price of the subject lot. He maintained that what said respondents had actually paid
was only the amount of P5,000.00 (in cash) as earnest money.
ISSUE:
HELD: We find no merit in petitioner’s arguments.
It is an undisputed fact that respondents Valencia and Peñarroyo had given petitioner Myron C.
Papa the amounts of Five Thousand Pesos (P5,000.00) in cash on 24 May 1973, and Forty
Thousand Pesos (P40,000.00) in check on 15 June 1973, in payment of the purchase price of the
subject lot. Petitioner himself admits having received said amounts,[9] and having issued
receipts therefor.[10] Petitioner’s assertion that he never encashed the aforesaid check is not
subtantiated and is at odds with his statement in his answer that “he can no longer recall the
transaction which is supposed to have happened 10 years ago.” After more than ten (10) years
from the payment in part by cash and in part by check, the presumption is that the check had
been encashed. As already stated, he even waived the presentation of oral evidence.
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 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 non-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.
Considering that respondents Valencia and Peñarroyo had fulfilled their part of the contract of
sale by delivering the payment of the purchase price, said respondents, therefore, had the right
to compel petitioner to deliver to them the owner’s duplicate of TCT No. 28993 of Angela M.
Butte and the peaceful possession and enjoyment of the lot in question. With regard to the
alleged assignment of mortgage rights, respondent Court of Appeals has found that the
conditions under which said mortgage rights of the bank were assigned are not clear. Indeed, a
perusal of the original records of the case would show that there is nothing there that could shed
light on the transactions leading to the said assignment of rights; nor is there any evidence on
record of the conditions under which said mortgage rights were assigned. What is certain is that
despite the said assignment of mortgage rights, the title to the subject property has remained in
the name of the late Angela M. Butte.
This much is admitted by petitioner himself in his answer to respondents’ complaint as well
as in the third-party complaint that petitioner filed against respondent-spouses Arsenio B. Reyes
and Amanda Santos.[15] Assuming arquendo that the mortgage rights of the Associated Citizens
Bank had been assigned to the estate of Ramon Papa, Jr., and granting that the assigned
mortgage rights validly exist and constitute a lien on the property, the estate may file the
appropriate action to enforce such lien. The cause of action for specific performance which
respondents Valencia and Peñarroyo have against petitioner is different from the cause of action
which the estate of Ramon Papa, Jr. may have to enforce whatever rights or liens it has on the
property by reason of its being an alleged assignee of the bank’s
Bank of America, NT & SA vs. Asso. Citizens Bank,
FACTS: BA-Finance Corporation (BA-Finance) entered into a transaction with Miller Offset Press,
Inc. (Miller), through the latter's authorized representatives, i.e., Uy Kiat Chung, Ching Uy Seng,
and Uy Chung Guan Seng. BA-Finance granted Miller a credit line facility through which the latter
could assign or discount its trade receivables with the former.
Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng executed a Continuing Suretyship
Agreement with BA-Finance whereby they jointly and severally guaranteed the full and prompt
payment of any and all indebtedness which Miller may incur with BA-Finance. Miller discounted
and assigned several trade receivables to BA-Finance by executing Deeds of Assignment in favor
of the latter. In consideration of the assignment, BA-Finance issued four checks payable to the
"Order of Miller Offset Press, Inc." with the notation "For Payee's Account Only."
26

The four checks were deposited by Ching Uy Seng (a.k.a. Robert Ching), then the corporate
secretary of Miller, in Account No. 989 in Associated Citizens Bank (Associated Bank). Account
No. 989 is a joint bank account under the names of Ching Uy Seng and Uy Chung Guan Seng.
Associated Bank stamped the checks with the notation "all prior endorsements and/or lack of
endorsements guaranteed," and sent them through clearing. Later, the drawee bank, Bank of
America, honored the checks and paid the proceeds to Associated Bank as the collecting bank.
Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables.
Consequently, BA-Finance filed a Complaint against Miller for collection of the amount of
P731,329.63 which BA-Finance allegedly paid in consideration of the assignment, plus
interest at the rate of 16% per annum and penalty charges.
RTC: rendered against
defendant Bank of America
CA: affirm
ISSUE: Whether the Court of Appeals erred in rendering judgment finding
(1) Bank of America liable to pay BA-Finance the amount of the four checks;
(2) Associated Bank liable to reimburse Bank of America the amount of the four checks; and
(3) Ching Uy Seng and/or Uy Chung Guan Seng liable to pay Associated Bank the amount of the
four checks.
HELD: 1. The Court of Appeals did not err in finding Bank of America liable to pay BA-Finance the
amount of the four checks.
The bank on which a check is drawn, known as the drawee bank, is under strict liability, based
on the contract between the bank and its customer (drawer), to pay the check only to the payee
or the payee's order. The drawer's instructions are reflected on the face and by the terms of the
check. When the drawee bank pays a person other than the payee named on the check, it does
not comply with the terms of the check and violates its duty to charge the drawer's account only
for properly payable items.
The crossing may be "special" wherein between the two parallel lines is written the name of a
bank or a business institution, in which case the drawee should pay only with the intervention
of that bank or company, or "general" wherein between two parallel diagonal lines are written
the words "and Co." or none at all, in which case the drawee should not encash the same but
merely accept the same for deposit. In Bataan Cigar v. Court of Appeals,[16] we enumerated the
effects of crossing a check as follows: (a) the check may not be encashed but only deposited in
the bank; (b) the check may be negotiated only once - to one who has an account with a bank;
and (c) the act of crossing the check serves as a warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he has received the check pursuant to
that purpose; otherwise, he is not a holder in due course.
In this case, the four checks were drawn by BA-Finance and made payable to the "Order of Miller
Offset Press, Inc." The checks were also crossed and issued "For Payee's Account Only." Clearly,
the drawer intended the check for deposit only by Miller Offset Press, Inc. in the latter's bank
account. Thus, when a person other than Miller, i.e., Ching Uy Seng, a.k.a. Robert Ching,
presented and deposited the checks in his own personal account (Ching Uy Seng's joint account
with Uy Chung Guan Seng), and the drawee bank, Bank of America, paid the value of the checks
and charged BA-Finance's account therefor, the drawee Bank of America is deemed to have
violated the instructions of the drawer, and therefore, is liable for the amount charged to the
drawer's account.
2. The Court of Appeals did not err in finding Associated Bank liable to reimburse Bank of America
the amount of the four checks. collecting bank where a check is deposited, and which endorses
the check upon presentment with the drawee bank, is an endorser.
Under Section 66 of the Negotiable Instruments Law, an endorser warrants "that the instrument
is genuine and in all respects what it purports to be; that he has good title to it; that all prior
parties had capacity to contract; and that the instrument is at the time of his endorsement valid
and subsisting." This Court has repeatedly held that in check transactions, the collecting bank or
last endorser generally suffers the loss because it has the duty to ascertain the genuineness of
all prior endorsements considering that the act 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.
When Associated Bank stamped the back of the four checks with the phrase "all prior
endorsements and/or lack of endorsement guaranteed," that bank had for all intents and
purposes treated the checks as negotiable instruments and, accordingly, assumed the warranty
of an endorser.
Far East Bank & Trust Co. vs. Gold Palace Jewellery Co. et. al
Ruling:
Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that the acceptor,
by accepting the instrument, engages that he will pay it according to the tenor of his acceptance.
This provision applies with equal force in case the drawee pays a bill without having previously
accepted it. His actual payment of the amount in the check implies not only his assent to the
order of the drawer and a recognition of his corresponding obligation to pay the aforementioned
sum, but also, his clear compliance with that obligation. Actual payment by the drawee is greater
than his acceptance, which is merely a promise in writing to pay. The payment of a check includes
its acceptance.
Unmistakable herein is the fact that the drawee bank cleared and paid the subject foreign draft
and forwarded the amount thereof to the collecting bank. The latter then credited to Gold
Palace's account the payment it received. Following the plain language of the law, the drawee,
by the said payment, recognized and complied with its obligation to pay in accordance with the
tenor of his acceptance. The tenor of the acceptance is determined by the terms of the bill as it
is when the drawee accepts.[36] Stated simply, LBP was liable on its payment of the check
according to the tenor of the check at the time of payment, which was the raised amount.
Because of that engagement, LBP could no longer repudiate the payment it erroneously made
to a due course holder. We note at this point that Gold Palace was not a participant in the
alteration of the draft, was not negligent, and was a holder in due course--it received the draft
27
complete and regular on its face, before it became overdue and without notice of any dishonor,
in good faith and for value, and absent any knowledge of any infirmity in the instrument or defect
in the title of the person negotiating it.[37] Having relied on the drawee bank's clearance and
payment of the draft and not being negligent (it delivered the purchased jewelry only when the
draft was cleared and paid), respondent is amply protected by the said Section 62. Commercial
policy favors the protection of any one who, in due course, changes his position on the faith of
the drawee bank's clearance and payment of a check or draft.
This construction and application of the law gives effect to the plain language of the NIL[39]
and is in line with the sound principle that where one of two innocent parties must suffer a loss,
the law will leave the loss where it finds it. It further reasserts the usefulness, stability and
currency of negotiable paper without seriously endangering accepted banking practices. Indeed,
banking institutions can readily protect themselves against liability on altered instruments either
by qualifying their acceptance or certification, or by relying on forgery insurance and special
paper which will make alterations obvious. This is not to mention, but we state nevertheless for
emphasis, that the drawee bank, in most cases, is in a better position, compared to the holder,
to verify with the drawer the matters stated in the instrument. As we have observed in this case,
were it not for LBP's communication with the drawer that its account in the Philippines was being
depleted after the subject foreign draft had been encashed, then, the alteration would not have
been discovered. What we cannot understand is why LBP, having the most convenient means to
correspond with UOB, did not first verify the amount of the draft before it cleared and paid the
same. Gold Palace, on the other hand, had no facility to ascertain with the drawer, UOB Malaysia,
the true amount in the draft. It was left with no option but to rely on the representations of LBP
that the draft was good.
In arriving at this conclusion, the Court is not closing its eyes to the other view espoused in
common law jurisdictions that a drawee bank, having paid to an innocent holder the amount of
an uncertified, altered check in good faith and without negligence which contributed to the loss,
could recover from the person to whom payment was made as for money paid by mistake.
However, given the foregoing discussion, we find no compelling reason to apply the principle to
the instant case.
CHAPTER X: Presentment for Acceptance
Sec. 143. When presentment for acceptance must be made. – Presentment
for acceptance must be made:
(a) Where the bill is payable after sight, or in any other case, where
presentment for acceptance is necessary in order to fix the maturity
of the instrument; or
(b) Where the bill expressly stipulates that it shall be presented for
acceptance; or
(c) Where the bill is drawn payable elsewhere than at the residence
or place of business of the drawee.
In no other case is presentment for acceptance necessary in order
to render any party to the bill liable.
Sec. 144. When failure to present releases drawer and indorser. – Except as
herein otherwise provided, the holder of a bill which is required by the next
preceding section to be presented for acceptance must either present it for
acceptance or negotiate it within a reasonable time. If he fails to do so, the
drawer and all indorsers are discharged.
Sec. 145. Presentment; how made. – Presentment for acceptance must be
made by or on behalf of the holder at a reasonable hour, on a business day
and before the bill is overdue, to the drawee or some person authorized to
accept or refuse acceptance on his behalf; and
(a) Where a bill is addressed to two or more drawees who are not
partners, presentment must be made to them all, unless one has
authority to accept or refuse acceptance for all, in which case
presentment may be made to him only;
(b) Where the drawee is dead, presentment may be made to his
personal representative;
(c) Where the drawee has been adjudged a bankrupt or an insolvent,
or has made an assignment for the benefit of creditors,
presentment may be made to him or to his trustee or assignee.
Sec. 146. On what days presentment may be made. – A bill may be presented
for acceptance on any day on which negotiable instruments may be
presented for payment under the provisions of Sections 72 and 85 of this Act.
When Saturday is not otherwise a holiday, presentment for acceptance may
be made before twelve o’clock, noon, on that day.
Sec. 147. Presentment; where time is insufficient. – Where the holder of a
bill drawn payable elsewhere than at the place of business, or the residence
of the drawee has no time, with the exercise of reasonable diligence, to
present the bill for acceptance before presenting it for payment on the day
that it falls due, the delay caused by presenting the bill for acceptance before
presenting it for payment is excused, and does not discharge the drawers and
indorsers.
28
Sec. 148. Where presentment is excused. – Presentment for acceptance is
excused, and a bill may be treated as dishonored by non-acceptance, in either
of the following cases:
(a) Where the drawee is dead, or has absconded, or is a fictitious
person or a person not having capacity to contract by bill.
(b) Where, after the exercise of reasonable diligence, presentment
can not be made.
(c) Where, although presentment has been irregular, acceptance
has been refused on some other ground.
Sec. 149. When dishonored by non-acceptance. – A bill is dishonored by non-
acceptance :
(a) When it is duly presented for acceptance and such an acceptance
as is prescribed by this Act is refused or can not be obtained;
(b) When presentment for acceptance is excused, and the bill is not
accepted.
Sec. 150. Duty of holder where bill not accepted. – Where a bill is duly
presented for acceptance and is not accepted within the prescribed time, the
person presenting it must treat the bill as dishonored by non-acceptance or
he loses the right of recourse against the drawer and indorsers.
Sec. 151. Right of holder where bill not accepted. – When a bill is dishonored
by non-acceptance, an immediate right of recourse against the drawer and
indorsers accrues to the holder and no presentment for payment is
necessary.
CHAPTER XI: Protest
Sec. 152. In what cases protest necessary. – Where a foreign bill appearing
on its face to be such is dishonored by non-acceptance, it must be duly
protested for non-acceptance, and where such bill which has not previously
been dishonored by non-acceptance is dishonored by non-payment, it must
be duly protested for non-payment. If it is not so protested, the drawer and
indorsers are discharged. Where a bill does not appear on its face to be a
foreign bill, protest thereof in case of dishonor is unnecessary.
Sec. 153. Protest; how made. – The protest must be annexed to the bill, or
must contain a copy thereof, and must be under the hand and seal of the
notary making it, and must specify:
(a) The time and place of presentment;
(b) The fact that presentment was made and the manner thereof;
(c) The cause or reason for protesting the bill;
(d) The demand made and the answer given, if any, or the fact that
the drawee or acceptor could not be found.
SECTION 154. Protest, by whom made. – Protest may be made by:
(a) A notary public; or
(b) By any respectable resident of the place where the bill is
dishonored, in the presence of two or more credible witnesses.
Sec. 155. Protest; when to be made. – When a bill is protested, such protest
must be made on the day of its dishonor unless delay is excused as herein
provided. When a bill has been duly noted, the protest may be subsequently
extended as of the date of the noting.
Sec. 156. Protest; where made. – A bill must be protested at the place where
it is dishonored, except that when a bill drawn payable at the place of
business or residence of some person other than the drawee has been
dishonored by non-acceptance, it must be protested for non-payment at the
place where it is expressed to be payable, and no further presentment for
payment to, or demand on the drawee is necessary.
Sec. 157. Protest both for non-acceptance and non-payment. – A bill which
has been protested for non-acceptance may be subsequently protested for
non-payment.
Sec. 158. Protest before maturity where acceptor insolvent. – Where the
acceptor has been adjudged a bankrupt or an insolvent, or has made an
assignment for the benefit of creditors before the bill matures, the holder
may cause the bill to be protested for better security against the drawer and
indorsers.
Sec. 159. When protest dispensed with. – Protest is dispensed with by any
circumstances which would dispense with notice of dishonor. Delay in noting
or protesting is excused when delay is caused by circumstances beyond the
29
control of the holder and not imputable to his default, misconduct, or
negligence. When the cause of delay ceases to operate, the bill must be
noted or protested with reasonable diligence.
Sec. 160. Protest where bill is lost and so forth. – When a bill is lost or
destroyed or is wrongly detained from the person entitled to hold it, protest
may be made on a copy or written particulars thereof.
Allied Banking Corp. vs. CA, G.G. Sportswear Mfg. Corp.,
FACTS: Petitioner ALLIED purchased Export Bill No. BDO- 81-002 in the amount of US $20,085.00
from respondent G.G. Sportswear Mfg. Corporation (GGS). The bill, drawn under a letter of credit
No. BB640549 covered Men's Valvoline Training Suit that was in transit to West Germany (Uniger
via Rotterdam) under Cont.#73/S0299. The export bill was issued by Chekiang First Bank Ltd.,
Hongkong. With the purchase of the bill, ALLIED credited GGS the peso equivalent of the
aforementioned bill amounting to P151,474.52 and the receipt of which was acknowledged by
the latter in its letter.
On the same date, respondents Nari Gidwani and Alcron International Ltd. (Alcron) executed
their respective Letters of Guaranty, holding themselves liable on the export bill if it should be
dishonored or retired by the drawee for any reason. Subsequently, the spouses Leon and Leticia
de Villa and Nari Gidwani also executed a Continuing Guaranty/Comprehensive Surety (surety,
for brevity), guaranteeing payment ofany and all such credit accommodations which ALLIED may
extend to GGS. When ALLIED negotiated the export bill to Chekiang, payment was refused due
to some material discrepancies in the documents submitted by GGS relative to the exportation
covered by the letter of credit. Consequently, ALLIED demanded payment from all the
respondents based on the Letters of Guaranty and Surety executed in favor of ALLIED. However,
respondents refused to pay, prompting ALLIED to file an action for a sum of money.
In their joint answer, respondents GGS and Nari Gidwani admitted the due execution of the
export bill and the Letters of Guaranty in favor of ALLIED, but claimed that they signed blank
forms of the Letters of Guaranty and the Surety, and the blanks were only filled up bALLIED after
they had affixed their signatures. They also added that the documents did not cover the
transaction involving the subject export bill.
On the other hand, the respondents, spouses de Villa, claimed that they were not aware of the
existence of the export bill; they signed blank forms of the surety; and averred that the guaranty
was not meant to secure the export bill.
ISSUE: Can respondents, in their capacity as guarantors and surety, be held jointly and severally
liable under the Letters of Guaranty and Continuing Guaranty/Comprehensive Surety, in the
absence of protest on the bill in accordance with Section 152 of the Negotiable Instruments Law?
HELD: Yes.
In this case, the Letters of Guaranty and Surety clearly show that respondents undertook and
bound themselves as guarantors and surety to pay the full amount of the export bill.
Respondents claim that the petitioner did not protest upon dishonor of the export bill by
Chekiang First Bank, Ltd. According to respondents, since there was no protest made upon
dishonor of the export bill, all of them, as indorsers were discharged under Section 152 of the
Negotiable Instruments Law.
Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied on by respondents,
is not pertinent to this case. There are well-defined distinctions between the contract of an
indorser and that of a guarantor/surety of a commercial paper, which is what is involved in this
case. The contract of indorsement is primarily that of transfer, while the contract of guaranty is
that of personal security.[14] The liability of a guarantor/surety is broader than that of an
indorser. Unless the bill is promptly presented for payment at maturity and due notice of
dishonor given to the indorser within a reasonable time, he will be discharged from liability
thereon.[15] On the other hand, except where required by the provisions of the contract of
suretyship, a demand or notice of default is not required to fix the surety's liability.[16] He cannot
complain that the creditor has not notified him in the absence of a special agreement to that
effect in the contract of suretyship.[17] Therefore, no protest on the export bill is necessary to
charge all the respondents jointly and severally
liable with G.G. Sportswear since the respondents held themselves liable upon demand in case
the instrument was dishonored and on the surety, they even waived notice of dishonor as
stipulated in their Letters of Guarantee.
As to respondent Alcron, it is bound by the Letter of Guaranty executed by its representative
Hans-Joachim Schloer. As to the other respondents, not to be overlooked is the fact that, the
"Suretyship Agreement" they executed, expressly contemplated a solidary obligation, providing
as it did that "... the sureties hereby guarantee jointly and severally the punctual payment of any
and all such credit accommodations, instruments, loans, ... which is/are now or may hereafter
become due or owing ... by the borrower".[18] It is a cardinal rule that if the terms of a contract
are clear and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulation shall control.[19] In the present case, there can be
no mistaking about respondents' intent, as sureties, to be jointly and severally obligated with
respondent G.G. Sportswear.
Marlou L. Velasquez vs. Solidbank Corporation
FACTS: Petitioner Velasquez is engaged in the export business operating a sale of dried sea
cucumber for export to South Korea under the name Wilderness Trading with Goldwell. To
30
facilitate payment of the products, Goldwell Trading opened a letter of credit in favor of
Wilderness Trading in the amount of US$87,500.00 with the Bank of Seoul, Pusan, Korea.
Petitioner Velasquez applied for credit accommodation with Solidbank for pre-shipment
financing. The credit accommodation was granted. Petitioner was successful in his first two
export transactions both drawn on the letter of credit. The third export shipment, however,
yielded a different result.
Wanting to be paid the value of the shipment in advance, petitioner negotiated for a
documentary sight draft to be drawn on the letter of credit, chargeable to the account of Bank
of Seoul. The sight draft represented the value of the shipment in the amount of US$59,640.00.
As a condition for the issuance of the sight draft, petitioner executed a letter of undertaking in
favor of respondent. Under the terms of the letter of undertaking, petitioner promised that the
draft will be accepted and paid by Bank of Seoul according to its tenor. Petitioner also held
himself liable if the sight draft was not accepted. The letter of undertaking provided:
In consideration of your negotiating the above described draft(s), we hereby warrant that the
above referred to draft(s) and accompanying documents are genuine and accurately represent
the facts stated therein and that the draft(s) will be accepted and paid in accordance with
its/their tenor. We further undertake and agree, jointly and severally, to hold you free and
harmless from and to defend all actions, claims and demands whatsoever, and to pay on demand
all damages, actual or compensatory, including attorney’s fees, in case of suit, at least equal to
__% of the amount due, which you may suffer arising by reason of or on account
of your negotiating the above draft(s) because of the following discrepancies or reasons or any
other discrepancy or reason whatever:
By virtue of the letter of undertaking, respondent advanced the value of the shipment which, at
the current rate of exchange at that time was P1,495,115.16, less bank charges, to petitioner.
Respondent then sent all the documents pertinent to the export transaction to the Bank of Seoul.
Respondent failed to collect on the sight draft as it was dishonored by nonacceptance by the
Bank of Seoul. The reasons given for the dishonor were late shipment, forged inspection
certificate, and absence of countersignature of the negotiating bank on the inspection
certificate.[6] Goldwell Trading likewise issued a stop payment order on the sight
draft because most of the bags of dried sea cucumber exported by petitioner contained soil.
Due to the dishonor of the sight draft and the stop payment order, respondent demanded
restitution of the sum advanced.
Issue: Whether or not petitioner should be held liable to respondent under the sight draft or the
letter of undertaking. There is no dispute that petitioner duly signed and executed these
documents. It is likewise admitted that the sight draft was dishonored by non acceptance by the
Bank of Seoul
HELD: Petitioner is not liable under the sight draft but he is liable under his letter of undertaking;
liability under the letter of undertaking was not extinguished by nonprotest of the dishonor of
the sight draft.
Petitioner argues that he cannot be held liable under either the sight draft or the letter of
undertaking. He claims that the failure of respondent to protest the dishonor of the sight draft
under Section 152 of the NIL discharged him from liability under the negotiable instrument. It is
also contended that his liability under the letter of undertaking is that of a mere guarantor; that
the letter of undertaking is only an accessory contract to the sight draft. Since he was discharged
from liability under the sight draft, he cannot be held liable under the letter of undertaking.
For its part, respondent counters that petitioner’s liability springs from the letter of undertaking,
independently of the sight draft. It would not have advanced the amount without the letter of
undertaking. According to respondent, the letter of undertaking is an independent agreement
and not merely an accessory contract. To permit petitioner to escape liability under the letter of
undertaking would result in unjust enrichment.
Admittedly, petitioner was discharged from liability under the sight draft when respondent failed
to protest it for non-acceptance by the Bank of Seoul. A sight draft made payable outside the
Philippines is a foreign bill of exchange.[19] When a foreign bill is dishonored by non-acceptance
or non-payment, protest is necessary to hold the drawer and indorsers liable. Verily,
respondent’s failure to protest the non-acceptance of the sight draft resulted in the discharge
of petitioner from liability under the instrument. Section 152 of the NIL is explicit:
Section 152. In what cases protest necessary. – Where a foreign bill appearing on its face to be
such is dishonored by non-acceptance, it must be duly protested for non- acceptance, and where
such a bill which has not been previously dishonored by non- acceptance, is dishonored by non-
payment, it must be duly protested for non-payment. If it is not so protested, the drawer and
indorsers are discharged.
Where a bill does not appear on its face to be a foreign bill, protest thereof in case of dishonor
is unnecessary.
Petitioner, however, can still be made liable under the letter of undertaking. It bears stressing
that it is a separate contract from the sight draft. The liability of petitioner under the letter of
undertaking is direct and primary. It is independent from his liability under the sight draft.
Liability subsists on it even if the sight draft was dishonored for non-acceptance or non-payment.
Respondent agreed to purchase the draft and credit petitioner its value upon the undertaking
that he will reimburse the amount in case the sight draft is dishonored. The bank would certainly
not have agreed to grant petitioner an advance export payment were it not for the
31
letter of undertaking. The consideration for the letter of undertaking was petitioner’s promise
to pay respondent the value of the sight draft if it was dishonored for any reason by the Bank
of Seoul.
We cannot accept petitioner’s thesis that he is only a mere guarantor under the letter of
credit. Petitioner cannot be both the primary debtor and the guarantor of his own debt. This
is inconsistent with the very purpose of a guarantee which is for the creditor to proceed
against a third person if the debtor defaults in his obligation. Certainly, to accept such an
argument would make a mockery of commercial transactions.
Petitioner bound himself liable to respondent under the letter of undertaking if the sight draft
is not accepted. He also warranted that the sight draft is genuine; will be paid by the issuing
bank in accordance with its tenor; and that he will be held liable for the full amount of the
draft upon demand, without necessity of proceeding against the drawee bank.[20] Petitioner
breached his undertaking when the Bank of Seoul dishonored the sight draft and Goldwell
Trading ordered a stop payment order on it for discrepancies in the export documents.
Producers Bank of the Phils. vs. Excelsa Industries, Inc.,
FACTS: Respondent obtained a loan from petitioner in the form of a bill discounted and secured
credit accommodation in the amount of P200,000.00, secured by a real estate mortgage over
real estate properties registered in its name. The mortgage secured also loans that might be
extended in the future by petitioner in favor of respondent. Respondent thereafter applied for
a packing credit line or a credit export advance with petitioner supported by a letter of credit
issued by Kwang Ju Bank, Ltd. of Seoul, Korea, through Bank of the Philippine Islands. The
application was approved. When respondent presented for negotiation to petitioner drafts
drawn under the letter of credit and the corresponding export documents in consideration for
its drawings in the amount of US$5,739.76 and US$4,585.79, petitioner purchased the drafts
and export documents by paying respondent the peso equivalent of the drawings. The Korean
buyer, however, refused to pay the export documents prompting petitioner to demand from
respondent the payment of the peso equivalent of said export documents together with its due
and unpaid loans. For failure of respondent to heed the demand, petitioner moved for the
extrajudicial foreclosure of the real estate mortgage. At the public auction, petitioner emerged
as the highest bidder. The corresponding certificate of sale was later issued and eventually
registered. For failure of respondent to redeem the properties, the titles were consolidated in
favor of petitioner and new certificates of title were issued in its name.
Respondent instituted an action for the annulment of extrajudicial foreclosure with prayer for
preliminary injunction and damages against petitioner and the Register of Deeds of Marikina.
The case was docketed as Civil Case No. 1587-A which was raffled to Branch 73 of the RTC of
Antipolo, Rizal. On April 5, 1990, petitioner filed a petition for the issuance of a writ of possession,
docketed as LR Case No. 90-787 before the same court. The RTC thereafter ordered the
consolidation of the two cases, Civil Case No. 1587-A and LR Case No. 90-787.
ISSUE:
HELD:
CHAPTER XII
Acceptance for Honor
Sec. 161. When bill may be accepted for honor. – When a bill of exchange has been protested
for dishonor by non-acceptance or protested for better security and is not overdue, any person
not being a party already liable thereon may, with the consent of the holder, intervene and
accept the bill supra protest for the honor of any party liable thereon, or for the honor of the
person for whose account the bill is drawn. The acceptance for honor may be for part only of
the sum for which the bill is drawn; and where there has been an acceptance for honor for one
party, there may be a further acceptance by a different person for the honor of another party.
Sec. 162. Acceptance for honor; how made. – An acceptance for honor supra protest must be in
writing and indicate that it is an acceptance for honor, and must be signed by the acceptor for
honor.
Sec. 163. When deemed to be an acceptance for honor of the drawer. – Where an acceptance
for honor does not expressly state for whose honor it is made, it is deemed to be an acceptance
for the honor of the drawer.
Sec. 164. Liability of the acceptor for honor. – The acceptor for honor is liable to the holder and
to all parties to the bill subsequent to the party for whose honor he has accepted.
Sec. 165. Agreement of acceptor for honor. – The acceptor for honor, by such acceptance,
engages that he will, on due presentment, pay the bill according to the terms of his acceptance
provided it shall not have been paid by the drawee and provided also that is shall have been duly
presented for payment and protested for non-payment and notice of dishonor given to him.
Sec. 166. Maturity of bill payable after sight; accepted for honor. – Where a bill payable after
sight is accepted for honor, its maturity is calculated from the date of the noting for non-
acceptance and not from the date of the acceptance for honor.
Sec. 167. Protest of bill accepted for honor, and so forth. – Where a dishonored bill has been
accepted for honor supra protest or contains a referee in case of need, it must be protested for
non-payment before it is presented for payment to the acceptor for honor or referee in case of
need.
Sec. 168. Presentment for payment to acceptor for honor; how made. – Presentment for
payment to the acceptor for honor must be made as follows:
(a) If it is to be presented in the place where the protest for non-payment was made, it must be
presented not later than the day following its maturity.
32
(b) If it is to be presented in some other place than the place where it was protested, then it
must be forwarded within the time specified in Sec. 104.
Sec. 169. When delay in making presentment is excused. – The provisions of Sec. 81 apply where
there is delay in making presentment to the acceptor for honor or referee in case of need.
Sec. 170. Dishonor of bill by acceptor for honor. – When the bill is dishonored by the acceptor
for honor, it must be protested for non-payment by him.
CHAPTER XIII
Payment for Honor
Sec. 171. Who may make payment for honor. – Where a bill has been protested for non-
payment, any person may intervene and pay it supra protest for the honor of any person liable
thereon, or for the honor of the person for whose account it was drawn.
Sec. 172. Payment for honor; how made. – The payment for honor supra protest, in order to
operate as such and not as a mere voluntary payment, must be attested by a notarial act of
honor which may be appended to the protest or form an extension to it.
Sec. 173. Declaration before payment for honor. – The notarial act of honor must be founded
on a declaration made by the payer for honor, or by his agent in that behalf, declaring his
intention to pay the bill for honor and for whose honor he pays.
Sec. 174. Preference of parties offering to pay for honor. – Where two or more persons offer to
pay a bill for the honor of different parties, the person whose payment will discharge most
parties to the bill is to be given the preference.
Sec. 175. Effect on subsequent parties where bill is paid for honor. – Where a bill has been paid
for honor, all parties subsequent to the party for whose honor it is paid are discharged, but the
payer for honor is subrogated for, and succeeds to, both the rights and duties of the holder as
regards the party for whose honor he pays and all parties liable to the latter.
Sec. 176. Where holder refuses to receive payment supra protest. – Where the holder of a bill
refuses to receive payment supra protest, he loses his right of recourse against any party who
would have been discharged by such payment.
Sec. 177. Rights of payer for honor. – The payer for honor, on paying to the holder the amount
of the bill and the notarial expenses incidental to its dishonor, is entitled to receive both the bill
itself and the protest.
CHAPTER XIV
Bills in a Set
Sec. 178. Bills in set constitute one bill. – Where a bill is drawn in a set, each part of the set being
numbered and containing a reference to the other parts, the whole of the parts constitutes one
bill.
Sec. 179. Rights of holders where different parts are negotiated. – Where two or more parts of
a set are negotiated to different holders in due course, the holder whose title first accrues is, as
between such holders, the true owner of the bill. But nothing in this section affects the rights of
a person who, in due course, accepts or pays the parts first presented to him.
Sec. 180. Liability of holder who indorses two or more parts of a set to different persons. – When
the holder of a set indorses two or more parts to different persons he is liable on every such
part, and every indorser subsequent to him is liable on the part he has himself indorsed, as if
such parts were separate bills.
Sec. 181. Acceptance of bills drawn in sets. – The acceptance may be written on any part and it
must be written on one part only. If the drawee accepts more than one part and such accepted
parts negotiated to different holders in due course, he is liable on every such part as if it were a
separate bill.
Sec. 182. Payment by acceptor of bills drawn in sets. – When the acceptor of a bill drawn in a set
pays it without requiring the part bearing his acceptance to be delivered up to him, and the part
at maturity is outstanding in the hands of a holder in due course, he is liable to the holder
thereon.
Sec. 183. Effect of discharging one of a set. – Except as herein otherwise provided, where any
one part of a bill drawn in a set is discharged by payment or otherwise, the whole bill is
discharged.
CHAPTER XV
Promissory Notes and Checks
Sec. 184. Promissory note, defined. – A negotiable promissory note, within the meaning of this
Act, is an unconditional promise in writing made by one person to another, signed by the maker,
engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money
to order or to bearer. Where a note is drawn to the maker’s own order, it is not complete until
indorsed by him.
Sec. 185. Check, defined. – A check is a bill of exchange drawn on a bank payable on demand.
Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange
payable on demand apply to a check.
Sec. 186. Within what time a check must be presented. – A check must be presented for payment
within a reasonable time after its issue or the drawer will be discharged from liability thereon to
the extent of the loss caused by the delay.
Sec. 187. Certification of check; effect of . – Where a check is certified by the bank on which it is
drawn, the certification is equivalent to an acceptance.
Sec. 188. Effect where the holder of check procures it to be accepted or certified. – Where the
holder of a check procures it to be accepted or certified, the drawer and all indorsers are
discharged from liability thereon.
Sec. 189. When check operates as an assignment. – A check of itself does not operate as an
assignment of any part of the funds to the credit of the drawer with the bank, and the bank is
not liable to the holder, unless and until it accepts or certifies the check.
Manager’s Checks
1) Metrobank vs. Wilfred N. Chiok, G.R. No. 172652, Nov. 26, 2014
2) BPI vs. Gregorio Roxas, G.R. No. 157833, Oct. 15, 2007
3) RCBC Savings Bank vs. Noel Odrada, G.R. No. 219037, Oct.19, 2016
Crossed Checks
1) Vicente Go vs. Metrobank., G.R. No. 168842, August 11, 2010
FACTS:
1. Vicente Go filed 2 separate cases was filed agaisnt Ma. Teresa Chua and Glyndah
Tabañag for a sum of money with damages against Metrobank and Chua
a. Go alleged that he was doing business under the name “Hope Pharmacy”
which sells medicine and other pharmaceutical products in Cebu
b. Go employed Chua as his pharmacist and trustee or caretaker of the
business while Tabañag took care of the receipts and invoices and assisted
Chua in making depoists for Go’s accounts ni the business operations of
Hope Pharmacy
c. Go claimed that there were unauthorized deposits and encashments
33
 made by Chua and Tabañag in the amount of 109,433.30 b. May be issued so that presentment can be made only by a bank
i. He questioned: 13. Effects of a crossed check:
1. FEBTC check dated Apr 29, 1990 which was issued a. The check may not be encashed bot only deposited in the bank
by Go’s customer Loy Libron in payment of stocks b. The check may be negotiated only once—to the one who has an account
purchased was deposited under Metrobank with a bank
belonging to Chua c. The act of crossing the check serves as warning to the holder that the
2. RCBC Checks which were in blank but presigned by check has been issued for a definite purpose so that he must inquire if he
Go for convenience and intended for payment to has received the check pursuant to that purpose, otherwise, he is not a
Go’s suppliers were filled up and dated Sep 22, holder in due course
1990 and Sep 7, 1990 (P30l and P50k) and were 14. It is the duty of the collecting bank to ascertain that the check be deposited to the
deposited with Chua’s Metrobank account payee’s account only
3. PBC check drawn by Elizabeth Enriquez payable to 15. CAB: there is no dispute that th e32 checks were crossed checks with Go as the
Hope Pharmacy encashed by Tabañag named payee
4. 32 checks in the amount of P1,492,595.06 that a. Go contends that Metrobank should be held accountable for the entire
were not endorsed by him but were deposited amount of the checks because it accepted the checks for deposit under
under Chua’s personal account with Metrobank Chua’s account despite the fact that the checks were crossed and that the
2. Go claims that the said checks were crossed checks payable to Hope Pharmacy only payee named therein was not Chua
and that without the participation and connivance of Metrobank, the checks could b. Metrobank countered that Go is not entitled to reimbursement because
not have been accepted for deposit to any other account except Go’s account Go was not damaged
3. RTC: 16. Metrobank’s contention is meritorious
a. Dismissed the complaint against Chua and Tabañag a. Metrobank is not liable for the entire amount of the checks
b. Metrobank is to pay damages to Go b. The checks were given to Chua as payments by Go for loans obtained from
c. The subject checks were payments for Go of his loans or borrowings from Chua’s parents
the parents of Chua, through Chua, who was given the total discretion by c. Go’s non-inclusion of Chua and Tabañag in the petition is an admission by
Go to transfer money from the offices of Hope Pharmacy to pay the Go that Chua had rightful cliam to the proceeds of the checks as payment
advances and other obligations of the drugstore for the money Go borrowed
i. Chua was also given the full discretion where to source the 17. Affirm RTC finding that Metrobank was negligent in allowing the deposit and
funds to cover the daily overdrafts, even to the extent of encashment of the crossed check without proper indorsement
borrowing money with interest form other persons a. Indorsement is necessary for the proper negotiation of checks specially if
d. Declared Metrobank liable for being negligent in allowing the deposit of the payee named therein or holder thereof is not the one depositing or
crossed checks without the proper indorsement encashing it
4. CA: b. Metrobank should have taken reasonable steps in order to determine the
a. Affirmed RTC decision except for the damages validity of the representations made by Chua
c. Metrobank was amiss in its duty as an agent of the payee as it should not
ISSUE: have merely relied on the assurances of Chua
2. WoN CA erred in not holding Metrobank liable for allowing the deposit of crossed d. Davis, the officer in charge and ranked second to the assistant vice
checks without being indorsed by Go? – YES/NO president of the bank testified that he allowed the deposit based on trust
and confidence. That for every check Chua deposited, it would be credited
RULING: CA decision affirmed to her account immediately and this went on for 3 years without any
complaint from Go. Chua made the assurance that she would reimburse
RATIO: the amount if Go had any complaint
18. Negligence was committed by Metrobank in accepting for deposit the crossed checks
First Issue without indorsement and in not verifying the authenticity of the negotiation of the
12. A check is crossed specially when the name of a particular banker or a company is checks
written between the parallel lines drawn a. The law imposes a duty of extraordinary diligence on the collecting bank
a. Crossed generally when only the words “and company” are written or to scrutinize checks deposited with it for the purposes of determining
nothing is written at all between the parallel lines, as in this case their genuineness and regularity

34

Traders Royal Bank vs. Radio Phils. Network, Inc., et. al.,
FACTS:
1. BIR assessed the plaintiffs (three corporations): RPN, IBC and BBC for their tax obligation for
1978-1983.
2. The comptroller of the three corporations, Lourdes Vera, sent a letter to BIR requesting
settlement of their tax, which BIR granted.
3. They purchased three Manager’s checks from Traders Royal Bank as payment for their tax.
4. TRB through their Branch Manager, Nuñez, gave the 3 MCs to Vera who was supposed to
deliver them to BIR for the payment of the taxes.
5. 2 years after, BIR again assessed the three corporations for the years 1979-1982, it was then
they discovered that Vera never delivered the MCs. In fact, the MCs were presented for payment
by unknown persons to defendant Security Bank and Trust Company (at the back of the checks,
there was the bank’s routing symbol transit number or clearing code stamp).
6. Since the taxes were never paid, BIR issued warrants of levy, distraint and garnishment against
them. So, they were forced to pay BIR P18.9.
7. The plaintiffs sent letters to both Traders Royal Bank and Security Bank for reimbursement,
but both defendant banks refuse to pay. So, the plaintiffs filed a case against them.
8. TC: TRB to pay the full amount of the 3 MCs and Security Bank to reimburse all. In addition to
that, both banks were ordered to pay for damages
9. CA: Modified the ruling of TC: TRB to pay for everything and damages. Security Bank is
absolved from any liability
TRB’s contentions:
1. That RPN, IBC and BBC are negligent and should be barred from recovering anything
2. That Security Bank should not be absolved because it endorsed the three MCs
3. There should no payment for damages
Security Bank’s contention:
1. Denies liability because it had no participation in the negotiation of the checks. The BRSTN
imprints at the back of the check cannot be considered as proof that SBTC accepted the disputed
checks and presented them to PCHC for clearing
ISSUES:
1. WoN TRB should be held solely liable when it paid the amount of the
checks in question to a person other than the payee indicated on the
face of the check, the Bureau of Interal Revenue -YES
a. (RELATED ISSUE) WoN Security Bank is deemed as an
indorser – NO
2. (Side issue) WoN TRB should pay exemplary damages - No
RULING: CA Ruling affirmed but removed the exemplary damages
Why TRB is liable:
1. The 3 checks were payable to BIR, but they were not delivered or paid
to BIR. It was shown that the unknown persons forged the name of the payee. Since TRB paid
the 3 checks despite the fraud, they are liable.
a. The only remedy of TRB is against the person whom it paid the money
2. Another reason is that one of the 3 checks was crossed. The crossing of one of the subject
checks should have put TRB on guard. It was duty-bound to ascertain the indorser’s title to the
check or the nature of his possession
a. Effects of cross-check
i. The check may not be encashed but only deposited in the bank
ii. The check may be negotiated only once to one who has an account with a bank
iii. The act of crossing a check serves as a warning to the holder that the check has been issued
for a definite purpose so that he must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course
b. 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, TRB did so at its peril and must
suffer the consequences of the unauthorized or wrongful endorsement.
c. “A bank is engaged in a business impressed with public interest and it is its duty to protect its
many clients and depositors who transact business with it. It is under the obligation to treat the
accounts of the depositors and clients with meticulous care, whether such accounts consist only
of a few hundreds or millions of pesos.”
Why Security Bank is not an indorser:
1. It is important to determine if Security Bank is an indorser to hold it liable.
Section 63 of the NIL provides: “When person deemed indorser.—A person placing his signature
upon an instrument otherwise than as maker, drawer, or acceptor, is deemed to be an indorser
unless he clearly indicates by appropriate words his intention to be bound in some other
capacity.”
Section 17 of the Philippine Clearing House Corporation (PCHC) also provides: BANK
GUARANTEE. All checks cleared through the PCHC shall bear the guarantee affixed thereto by
the Presenting Bank/Branch which shall read as follows:
“Cleared thru the Philippine Clearing House Corporation. All prior endorsements and/or lack of
endorsement guaranteed. NAME OF BANK/BRANCH BRSTN (Date of clearing).”
2. No checks bear the requisite endorsement of Security Bank. What appears to be a guaranteed
stamp at the back of the checks is that of PNB, indicating that it was PNB which received the
checks.
3. It was established during the trial that whenever Security Bank receives a check for deposit,
its practice is to stamp on its face the words, “non-negotiable.” It was shown that the words
“non-negotiable” do not appear on the checks.
4. It is also shown that the amounts of the checks do not reflect in the clearing documents of
Security Bank. 5. Another reason is that the add-list presented by Security Bank on the supposed
dates of presentment does not show that the checks were among those that passed for clearing
with the PCHC.
6. 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 itself, and
ultimately should be held liable therefor. However, it is doubtful if the subject checks were ever
presented to and accepted by Security Bank so as to hold it liable as a collecting bank.
35
Second Issue: Side Issue
TRB should not be held liable for exemplary damages because its wrongful act was not done in
bad faith, and it did not act in a wanton, fraudulent, reckless or malevolent manner.
Equitable Banking Corp. vs. Special Steel Products, Inc., et. al.,
FACTS: Special Steel Products Inc. (SSPI) is a private domestic corporation selling steel products,
with co-respondent Augusto Pardo as its President and major stockholder. International Copra
Export Corp. (Interco) is SSPI’s regular customer. Jolly Uy (Uy) is an Interco employee and son-
in-law of Interco’s majority stockholder. Equitable Bank is the depository bank of Interco and of
Uy.
SSPI sold welding electrodes to Interco. As payment, Interco issued 3 checks payable
to the order of SSPI. Each check was crossed with the notation “account payee only” and drawn
against Equitable.
The records do not explain how Uy came into possession of the checks. Uy presented
each crossed check to Equitable and claimed that he had good title thereto. He demanded the
deposit of the checks to his personal accounts in Equitable, which Equitable did. Equitable relied
on the assumption that Uy, as son-in-law of Interco’s majority stockholder, was acting pursuant
to Interco’s orders, and that Uy is a valued client of the bank. Uy then withdrew the proceeds of
the checks.
Uy, and not SSPI, received the proceeds of the 3 checks payable to SSPI. Interco finally
paid the value of the 3 checks to SSPI plus a portion of the accrued interests.
SSPI and Pardo filed a complaint for damages with application for writ of preliminary
attachment against Uy and Equitable. They prayed for an award of actual damages consisting of
unrealized interest income from the proceeds of the checks for the period that the defendants
withheld the proceeds from them. Pardo in his personal capacity claimed 3M worth of moral
damages (anxiety, sleepless nights, etc.). In support of their application for writ of preliminary
attachment, SSPI alleged that Uy and Equitable are guilty of fraud in incurring the obligation.
Equitable argued that it accepted the checks in good faith, and that the attachment
of its properties was unnecessary. Uy claimed that the checks were negotiated to him; that he is
a holder for value of the checks and that he had good title thereto (no proof tho).
The RTC ruled in favor of SSPI and ordered Uy and Equitable solidarily liable to pay
actual damages, exemplary damages, moral damages, and attorney’s fees. The RTC clarified that
SSPI’s cause of action against Uy and Equitable is based on quasi-delict and not for the payment
of the value of the checks. CA affirmed.
ISSUE:
1. (syllabus topic) W/N SSPI has a cause of action against Equitable for quasi-delict due
to the latter’s negligence – YES
2. W/N SSPI can recover, as actual and moral damages, interest from Equitable –
REDUCED AMOUNT
3. W/N Uy should reimburse Equitable – YES
4. W/N the attachment of Equitable’s personal properties was wrongful - YES
RULING:
SC affirmed CA ruling but reduced actual and moral damages. Uy is ordered to
reimburse Equitable the amounts the latter will pay to SSPI. SSPI is ordered to pay to Equitable
damages for the wrongful preliminary attachment.
RATIO:
1. (important) SSPI’s cause of action is not based on the 3 checks. SSPI does not ask
Equitable or Uy to deliver to it the proceeds of the checks. SSPI does not assert a right
based on the undelivered checks or for a breach of contract, but for quasi-delict. A
quasi-delict is an act or omission, there being fault or negligence, which causes
damage to another. Quasi-delicts exist even without a contractual relation between
the parties.
The checks that Interco issued in favor of SSPI were all crossed, made payable to
SSPI’s order, and contained the notation “account payee only.” This creates a
reasonable expectation that the payee alone would receive the proceeds of the
checks and that the diversion of the checks would be averted. Thus, the highest
degree of diligence is expected from banks. Equitable did not observe the required
degree of diligence expected of a bank in this case.
The fact that a person, other than the named payee of the crossed check, was
presenting it for deposit should have put the bank on guard. It should have verified if
SSPI or Interco authorized the holder Uy to present the same in its behalf, or indorsed
it to him. The bank knowingly assumed the risk of relying solely on Uy’s word that he
had a good title to the 3 checks. The checks bear nothing on its face that supports
the belief that the drawer gave the checks to Uy. Such is tantamount to gross
negligence. Thus, Equitable is solidarily liable with Uy to compensate SSPI for the
damages it suffered.
2. SC ruled that SSPI should only recover interest at the legal rate of 6% per annum
instead of 36% (actual damages), and; 50,000 instead of 3M (moral damages).
3. SC ruled that between Equitable and Uy, Uy must reimburse Equitable the amount
the latter may pay to SSPI. Equitable is correct in saying that Uy will be unjustly
enriched if the court will not allow Equitable to be reimbursed. The fraudulent
scheme concocted by Uy allowed him to improperly receive the proceeds of the three
crossed checks and enjoy the pro ts from these proceeds during the entire time that
it was withheld from SSPI. Equitable, through its gross negligence and mislaid trust
on Uy, became an unwitting instrument in Uy's scheme.
4. SC ruled that SSPI must pay Equitable damages for the wrongful attachment of the
latter’s properties. SSPI admits its uncertainty whether Equitable’s participation in
the transaction involved fraud. A writ of preliminary attachment is too harsh based
on mere abstractions of fraud. No proof was adduced to show that Equitable had a
preconceived plan not to pay SSPI or had knowingly participated in Uy’s scheme.
Cases for Bouncing Checks Law
Eumelia R. Mitra vs. PP and Felicisimo S. Tarcelo, G.R. NO. 191404, July 5, 2010
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Amada Resterio vs. People of the Phils.,
FACTS:
Amada Resterio was charged with a violation of Batas Pambansa Blg. 22. Draw and issue
ChinaBank Check in the amount of P50,000.00 payable to the order of Bernardo T. Villadolid to
apply on account or for value which check when presented for encashment was dishonored by
the drawee bank for the reason “ACCT. CLOSED” or would have been dishonored for the same
reason had not the drawer, without any valid reason ordered the bank to stop payment, and
despite notice of dishonor and demands for payment, said accused failed and refused and still
fails and refuses to redeem the check or to make arrangement for payment in full by the drawee
of such check within five (5) banking days after receiving the notice of dishonor.
ISSUE:
Whether or not the knowledge of the petitioner Resterio as the issuer of the check that at the
time of issue there were no sufficient funds in or credit with the drawee bank for the payment
of such check in full upon its presentment,
was existent. - No
RULING:
The proof of the guilt of the petitioner for a violation of Batas Pambansa Blg. 22 for issuing to
Villadolid the unfunded Chinabank Check in the amount of P50,000.00 did not satisfy the
quantum of proof beyond reasonable doubt.
To establish the existence of knowledge of the petitioner, the State should present the giving of
a written notice of the dishonor to the drawer, maker or issuer of the dishonored check. To hold
a person liable under B.P. Blg. 22, the prosecution must not only establish that a check was issued
and that the same was subsequently dishonored, it must further be shown that accused knew
at the time of the issuance of the check that he did not have sufficient funds or credit with the
drawee bank for the payment of such check in full upon its presentment. This element involves
a state of mind of the person making, drawing or issuing the check which is difficult to prove,
Section 2 of B.P. Blg. 22 creates a prima facie presumption of such knowledge. For this
presumption to arise, the prosecution must prove the following: (a) the check is presented within
ninety (90) days from the date of the check; (b) the drawer or maker of the check receives notice
that such check has not been paid by the drawee; and (c) the drawer or maker of the check fails
to pay the holder of the check the amount due thereon, or make arrangements for payment in
full within five (5) banking days after receiving notice that such check has not been paid by the
drawee. In other words, the presumption is brought into existence only after it is proved that
the issuer had received a notice of dishonor and that within five days from receipt thereof, he
failed to pay the amount of the check or to make arrangements for its payment. The
presumption or prima facie evidence as provided in this section cannot arise, if such notice of
nonpayment by the drawee bank is not sent to the maker or drawer, or if there is no proof as to
when such notice was received by the drawer, since there would simply be no way of reckoning
the crucial 5-day period.
A notice of dishonor received by the maker or drawer of the check is thus indispensable before
a conviction can ensue. The notice of dishonor may be sent by the offended party or the drawee
bank. The notice must be in writing. A mere oral notice to pay a dishonored check will not suffice.
The lack of a written notice is fatal for the prosecution.
The giving of the written notice of dishonor does not only supply the proof for the second
element arising from the presumption of knowledge the law puts up but also affords the
offender due process. The law thereby allows the offender to avoid prosecution if she pays the
holder of the check the amount due thereon or makes arrangements for the payment in full of
the check by the drawee within five banking days from receipt of the written notice that the
check had not been paid. The Court cannot permit a deprivation of the offender of this statutory
right by not giving the proper notice of dishonor.
To prove that he had sent the written notice of dishonor to the petitioner by registered mail,
Villadolid presented the registry return receipt for the first notice of dishonor dated June 17,
2002 and the registry return receipt for the second notice of dishonor dated July 16, 2002.
However, the petitioner denied receiving the written notices of dishonor.
The mere presentment of the two registry return receipts was not sufficient to establish the fact
that written notices of dishonor had been sent to or served on the petitioner as the issuer of the
check. Considering that the sending of the written notices of dishonor had been done by
registered mail, the registry return receipts by themselves were not proof of the service on the
petitioner without being accompanied by the authenticating affidavit of the person or persons
who had actually mailed the written notices of dishonor, or without the
testimony in court of the mailer or mailers on the fact of mailing. The authentication by affidavit
of the mailer or mailers was necessary in order for the giving of the notices of dishonor by
registered mail to be regarded as clear proof of the giving of the notices of dishonor to predicate
the existence of the second element of the offense.
In the instant case, the prosecution failed to present the testimony, or at least the affidavit, of
the person mailing that, indeed, the demand letter was sent.
Petitioner, during the pre-trial, denied having received the demand letter. Given petitioners’
denial of receipt of the demand letter, it behooved the prosecution to present proof that the
demand letter was indeed sent through registered mail and that the same was received by
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petitioners. This, the prosecution miserably failed to do. Instead, it merely presented the
demand letter and registry return receipt as if mere presentation of the same was equivalent to
proof that some sort of mail matter was received by petitioners. Receipts for registered letters
and return receipts do not prove themselves; they must be properly authenticated in order to
serve as proof of receipt of the letters. for notice by mail, it must appear that the same was
served on the addressee or a duly authorized agent of the addressee. In fact, the registry return
receipt itself provides that “[a] registered article must not be delivered to anyone but the
addressee, or upon the addressee’s written order, in which case the authorized agent must write
the addressee’s name on the proper space and then affix legibly his own signature below it.”
In the case at bar, no effort was made to show that the demand letter was received by
petitioners or their agent. All that the record has is an illegible signature on the registry receipt
as evidence that someone received the letter. As to whether this signature is that of one of the
petitioners or of their authorized agent remains a mystery. From the registry receipt alone, it is
possible that petitioners or their authorized agent did receive the demand letter. Possibilities,
however, cannot replace proof beyond reasonable doubt. There being insufficient proof that
petitioners received notice that their checks had been dishonored, the presumption that they
knew of the insufficiency of the funds therefor cannot arise.
Resterio was aquitted.
RATIO:
For notice by mail, it must appear that the same was served on the addressee or a duly
authorized agent of the addressee. In fact, the registry return receipt itself provides that “[a]
registered article must not be delivered to anyone but the addressee, or upon the addressee’s
written order, in which case the authorized agent must write the addressee’s name on the
proper space and then affix legibly his own signature below it.
Ma. Rosario Campos vs. People of the Phils. Et. al.,
CHAPTER XVI: General Provisions
Sec. 190. Short title. – This Act shall be known as the Negotiable Instruments
Law.
Sec. 191. Definition and meaning of terms. – In this Act, unless the context
otherwise requires:
“Acceptance” means an acceptance completed by delivery or notification;
“Action” includes counterclaim and set-off;
“Bank” includes any person or association of persons carrying on the business
of banking, whether incorporated or not;
“Bearer” means the person in possession of a bill or note which is payable to
bearer;
“Bill” means bill of exchange, and “note” means negotiable promissory note;
“Delivery” means transfer of possession, actual or constructive, from one
person to another;
“Holder” means the payee or indorsee of a bill or note who is in possession
of it, or the bearer thereof;
“Indorsement” means an indorsement completed by delivery;
“Instrument” means negotiable instrument;
“Issue” means the first delivery of the instrument, complete in form, to a
person who takes it as a holder;
“Person” includes a body of persons, whether incorporated or not;
“Value” means valuable consideration;
“Written” includes printed, and “writing” includes print.
Sec. 192. Persons primarily liable on instrument. – The person “primarily”
liable on an instrument is the person who, by the terms of the instrument, is
absolutely required to pay the same. All other parties are “secondarily” liable.
Sec. 193. Reasonable time, what constitutes. – In determining what is a
“reasonable time” or an “unreasonable 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.
Sec. 194. Time, how computed; when last day falls on holiday. – Where the
day, or the last day for doing any act herein required or permitted to be done
falls on a Sunday or on a holiday, the act may be done on the next succeeding
secular or business day.
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