Negotiable Intruments Sundiang

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NEGOTIABLE INSTRUMENTS LAW

FROM THE CLASSES OF DEAN JOSE R. SUNDIANG

SAN BEDA COLLEGE OF LAW

MENDIOLA, MANILA

SUMMARY OF DOCTRINES

I. NEGOTIABLE INSTRUMENTS IN GENERAL

A negotiable instrument is a written contract for the payment of

money which complies with the requirements of Section 1, NIL; which by

its form and on its face is intended as a substitute for money and passes

from hand to hand as money so as to give the holder in due course the

right to hold the instrument free from personal defenses available to

prior parties.

A. Functions of a negotiable instrument:

1. It operates as a substitute for money

2. It is a means of creating and transferring credit

3. It facilitates the sale of goods

4. It increases the purchasing medium in circulation

5. It serves as proof of transactions

B. A negotiable instrument is NOT legal tender and the delivery of an

instrument does not generally operate as payment

*Sec.52 of RA 7653 (the New Central Bank Act) defines legal tender as

those notes and coins issued by the Bangko Sentral ng Pilipinas, fully

guaranteed by the government of the Republic of the Philippines for the

payment of debts, both public and private

*Art.1249, NCC: xxx The delivery of promissory notes payable to order, or

bills of exchange or other mercantile documents shall produce the effect

of payment only when they have been cashed, or when through the fault

of the debtor they have been impaired.

C. Negotiable Instruments are governed by the NIL, and where the NIL is

silent, the provisions of the Code of Commerce, the Law Merchant, and

the Civil Code apply suppletorily.

D. Primary Features of negotiable instruments:

1. Negotiability

2. Accumulation of Secondary Contracts

E. Negotiable Instruments differ from non-negotiable instruments in the

following respects:

Negotiable

Instruments

Non-Negotiable

Instruments

Re: Governing Laws

NIL

Code of Commerce

Civil Code

Re: Transferrability

By Negotiation

By Assignment

Only by Assignment

Re: Possibility of due

course holding

Transferee may

become a holder in

due course (HDC)

provided all the

requirements under

Sec. 52, NIL are

present

Transferee remains an

Assignee and can

never become a HDC

Re: Defenses against

the holder

Only Real defenses

may be raised against

a HDC

All manner of

defenses – real and

personal – may be

raised against the

assignee/transferee

Re: Nature of the

a HDC acquires clean

By virtue of

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Holder’s title

title to the

instrument, free from

infirmities in the

instrument and

defects in the title of

prior endorses; the

shelter rule may be

invoked

subrogation, the

assignee/transferee

acquires merely a

derivative title to the

instrument

Re: Solvency of the

debtor

In a sense, solvency of

the debtor is

guaranteed by the

endorsements made

by prior endorsers

because they

guarantee that the

instrument will be

accepted, paid or

both and that they

will pay if the same is

dishonored

Solvency of the

debtor is not deemed

guaranteed under

Art.1628, NCC unless

there is an express

stipulation to that

effect

II. NEGOTIABILITY

Sec.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

therein with reasonable certainty

A. Postal Money Orders are not negotiable instruments. In establishing

and operating a postal money order system, the government is not

engaged in commercial transactions but is merely exercising a

governmental power for the public benefit. Restrictions upon postal

money orders imposed by postal laws and regulations are inconsistent

with the character of negotiable instruments as defined under Sec.1, NIL

(Phil. Education Co., Inc. v. Soriano, 39 SCRA 587)

B. The negotiability or non-negotiability of an instrument is determined

from the writing on the face of the instrument itself. (Caltex-Philippines,

Inc v. CA, 212 SCRA 448)

C. The indication of a particular fund as the source of payment makes

the order to pay conditional. An order or promise to pay out of a

particular fund is ‘not unconditional’, as stated in Sec.3, NIL (Metrobank

v. CA, 194 SCRA 168)

D. A non-negotiable document may not be negotiated; but it may be

assigned or transferred, absent an express prohibition against

assignment or transfer written on the face of the instrument. [A] note,

though not negotiable, may be transferred by assignment, the assignee

taking it being subject to the equities between the original parties

(Sesbreño v. CA, 222 SCRA 466)

E. Withdrawal slips are not negotiable instruments. The essence of

negotiability which characterizes a negotiable paper as a credit

instrument lies in its freedom to circulate freely as a substitute for

money. Withdrawal slips lack this character. (Firestone Tire and Rubber

Co, v. CA, 353 SCRA 601)

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Sec. 9 When payable to bearer –

The instrument is payable to bearer:

(a) When it is expressed to be so payable;

(b) When it is payable to a person named therein or to bearer;

(c) When it is payable to the order of a fictitious or non-existing person,

and such fact was known to the person making it so payable;

(d) When the name of the payee does not purport to be the name of any

person; or

(e) When the only or last endorsement is an endorsement in blank.

A. Where a check is made payable to the order of ‘cash’, the word ‘cash’

does not purport to be the name of any person and hence the

instrument is payable to bearer. The drawee-bank may pay it to the

person presenting it without need of obtaining any endorsement (Ang

Tek Lian v. CA, 87 SCRA 383)

IV. COMPLETE BUT UNDELIVERED INSTRUMENTS

Sec. 16 Delivery; when effectual; when presumed –

Every contract on a negotiable instrument is incomplete and

revocable until delivery of the instrument for the purpose of giving effect

thereto. As between immediate parties and as regards a remote party

other than a holder in due course, the delivery, in order to be effectual,

must be made either by or under authority of the party making, drawing,

accepting or endorsing, as the case may be; and, in such case, the delivery

may be shown to have been conditional, or for a special purpose only,

and not for the purpose of transferring the property in the instrument.

But where the instrument is in the hands of a holder in due course, a valid

delivery thereof by all parties prior to him so as to make them liable to

him is conclusively presumed. And there the instrument is no longer in

the possession of a party whose signature appears thereon, a valid and

intentional delivery is presumed until the contrary is proven.

The payee of a negotiable instrument acquires no interest thereto until

its delivery to him. Delivery of an instrument means transfer of

possession, actual or constructive, from one person to another with

intent of transferring title thereto. However, it does not follow that the

drawer of an undelivered instrument is freed from the liability of the

principal contract which gave rise thereto (Development Bank of Rizal v.

Sima Wei, 219 SCRA 383)

V. LIABILITY OF PERSONS SIGNING AS AGENT

Sec.20 Liability of persons signing as agent, and so forth –

Where the instrument contains or a person adds to his signature

words indicating that he signs for or on behalf of a principal or in a

representative capacity, he is not liable on the instrument if he was duly

authorized; but the mere addition of words describing him as an agent,

or as filling a representative character, without disclosing his principal,

does not exempt him from personal liability

A. A party who signs a bill of exchange as an agent, but failed to disclose

his principal becomes personally liable for the drafts he accepted. (Phil.

Bank of Commerce v. Aruego, 102 SCRA 530)

B. The NIL provides that where any person is under obligation to

endorse in a representative capacity, he may endorse in such terms as to

negative personal liability. An agent, when so signing, should indicate

that he is merely signing on behalf of the principal and must disclose the

name of his principal; otherwise he shall be held personally liable.

(Francisco v. CA, 319 SCRA 354)

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Sec.23 Forged Signature, effect of –

When a signature is forged or made without the authority of the

person whose signature it purports to be, it is wholly inoperative and no

right to retain the instrument, or give a discharge therefor, or to enforce

payment thereof against any party thereto, can be acquired through or

under such signature, unless the party against whom it is sought to

enforce such right is precluded from setting up the forgery or want of

authority.

A. The collecting bank which endorsed the checks to the drawee-bank

for clearing, should be liable to the latter for reimbursement because

the endorsement of the checks had been forged prior to delivery. The

payments made by the drawee-bank to the collecting bank on account

of the forged checks were ineffective because the creditor-debtor

relationship between the depositor and the collecting bank had not

been validly effected (Jai Alai v. BPI, 66 SCRA 29)

B. It is only the negotiation predicated on the forged instrument that

should be declared inoperative. The negotiation of the check in question

between the parties after the immediate parties to the forgery should

be considered valid and enforceable, barring any claim of forgery.

(Republic Bank v. Ebrada, 65 SCRA 681)

C. Petitioner MWSS was guilty of gross negligence in the printing of its

personalized checks. The drawee-bank PNB cannot be faulted for not

having detected the fraudulent encashment of the checks because the

printing of MWSS’s personalized checks was not done under its

supervision and control. MWSS was in a better position to detect and

prevent the fraudulent encashment. (MWSS v. CA, 143 SCRA 20)

D. Having stamped its guarantee of ‘all prior endorsements and/or lack

of endorsements’, the collecting bank is estopped from claiming

otherwise. Whenever any bank treats the signature at the back of the

check as an endorsement, and thus guarantees the same, it is liable. The

drawer cannot be held liable for the negligence of the collecting bank.

There is no privity between the drawer and the collecting bank. (Banco

de Oro v. Equitable Banking Corp., 157 SCRA 189)

E. As a rule, a drawee bank who has paid a check on which an

endorsement has been forged cannot charge the drawer’s account for

the amount of said check. An exception to the rule is where the drawer

is guilty of such negligence which causes the bank to honor such a check

or checks. (Gempesaw v. CA, 218 SCRA 683)

F. The drawee-bank cannot debit the account of the drawer because it

paid checks which bore forged endorsements. However, if the drawer

was negligent to the point of contributing substantially to the loss, then

the bank can charge the drawer’s account. If both the

drawee-bank and the drawer were negligent, the loss should be apportioned

between them (Associated Bank v. CA, 252 SCRA 620)

G. The failure of FNCB as drawee-bank to inform the collecting bank,

Metrobank, about the alteration of in question until after the lapse of 9

days negates whatever right it might have had against Metrobank in the

light of Central Bank Circular No.9, as amended by Circular No.138, which

requires all items cleared on a particular clearing to be returned not later

than 3:30PM on the following business day. While it is true that

Metrobank endorsed the check, such an endorsement must be read

together with the 24-hour rule on Clearing House Operations of the

Central Bank (Metrobank v. FNCB, 118 SCRA 537)

H. It is true that when an endorsement is forged, the collecting bank or

last endorser, as a general rule, bears the loss. But the unqualified

endorsement of the collecting bank should be read together with the

24-hour rule on clearing house regulations. When the drawee bank fails

to return a forged or altered check to the collecting bank within the

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hour clearing period, the collecting bank is absolved from liability.

(Republic Bank v. CA, 196 SCRA 100)

I. The mere fact that the forgery was committed by a drawer-payor’s

confidential employee or agent, who by virtue of his position had

unusual facilities for perpetrating the fraud and imposing the forged

paper upon the bank, does not entitle the bank to shift the loss to the

drawer-payor, in the absence of circumstances raising estoppel against

the drawer.

A bank is liable for the fraudulent acts or representations of an

office or agent acting within the scope of his employment or authority.

But in this case, responsibility for negligence does not lie on the

collecting bank’s shoulders alone. Citibank, as drawee-bank was likewise

negligent, and must also answer for the damages suffered by the

drawer because of the contractual relationship between it and the

latter. Thus, invoking the doctrine of comparative negligence, both PCI

and Citibank are equally liable. (PCI Bank v. CA, 350 SCRA 446)

J. It is a rule that when a signature is forged or made without the

authority of the person whose signature is forged or made without the

authority of the person whose signature it purports to be, the check is

wholly inoperative. However, the rule does provide for an exception,

namely: ‘unless the party against whom it is sought to enforce such right

is precluded from setting up the forgery or want of authority.’ In the

instant case, it is the exception that applies. Petitioner is precluded from

setting up the forgery, assuming there is forgery, due to his own

negligence in entrusting to his secretary his credit cards and checkbook

including the verification of his statements of account (Ilusorio v. CA,

393 SCRA 89)

K. The bare fact that the forgery was committed by an employee of the

party whose signature was forged cannot necessarily imply that such

party’s negligence was the cause of the forgery. Employers do not

possess the preternatural gift of cognition as to the evil that may lurk

within the hearts and minds of their employees. (Samsung Construction

Co. Phils., Inc. v. FEBTC, 436 SCRA 402)

VII. MATERIAL ALTERATION

Sec.124 Alteration of instrument; effect of –

Where a negotiable instrument is materially altered and without

the assent of all the parties liable thereon, it is avoided, except as against

a party who has himself made, authorized or assented to the alteration

and subsequent endorsers.

But when an instrument has been materially altered and is in the

hands if 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 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

A. 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

instrument relating to the obligation of a party. In other words, a

material alteration is one which changes the items which are required to

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be stated under Sec.1, NIL. The drawee bank cannot refuse to accept a

check on the ground that the serial number of the said check was

altered, since the serial number is an item which is not an essential

requisite for negotiability under Sec.1, NIL. The alteration did not change

the relations between the parties. (PNB v. CA, 256 SCRA 491)

B. The insertion of the words ‘Agent, Phil. National Bank’ which converts

the bank from a mere drawee to a drawer and therefore changes its

liability constitutes a material alteration of the instrument without the

consent of the parties liable thereto, and so discharges the instrument.

(Montinola v. PNB, 88 Phil 178)

VIII. ACCOMMODATION PARTY

Sec.29 Liability of Accommodation Party –

An accommodation party is one who has signed the instrument

as maker, drawer, acceptor and endorser, without receiving value

therefor, and for the purpose of lending his name to some other person.

Such a person is liable on the instrument to a holder for value,

notwithstanding such holder, at the time of taking the instrument, knew

him to be only an accommodation party.

A. a solidary accommodation maker who made payment has the right to

contribution from is co-accommodation makers, in the absence of

agreement to the contrary between them, and subject to conditions

imposed by law (Sadaya v. Sevilla, 19 SCRA 924)

B. Sec.29, NIL does not include nor apply to corporations which are

accommodation parties, because the issue or endorsement of

negotiable paper by a corporation without consideration and for the

accommodation of another is ultra vires. By way of exception, an officer

or agent of a corporation shall have the power to execute or endorse a

negotiable paper in the name of the corporation for the accommodation

of a third person only if specifically authorized to do so (Crisologo-Jose

v. CA, 177 SCRA 594)

C. A holder of a check who is not a holder in due course cannot sue the

drawer-accommodation party. The Steelweld check was given by its

president to R.Y. Lim only by way of accommodation, to be used as

collateral for another obligation. In breach of trust, R.Y. Lim endorsed

the check in payment of an obligation to a third person, Armstrong.

When the latter deposited the same, it was dishonored and after the

dishonor, Stelco came into possession of it. Stelco’s mere possession of

the check does not make it a holder for value and gives no rise to liability

on the part of the accommodation party, Steelweld, under Sec.29, NIL

(Stelco Marketing v. CA, 210 SCRA 52)

D. An accommodating party lends his credit to the accommodated party

by issuing or endorsing a check which is held by a payee or endorsee as a

holder in due course who gave full value therefor to the accommodated

party. The accommodated party receives full value, for which he must

then repay the accommodating party unless of course the latter

intended to make a donation to the former. But the accommodating

party is bound on the check to the holder in due course who is

necessarily a third person and is not the accommodated party

(Travel-On, Inc. v. CA 210 SCRA 352)

E. Ordinarily, Napiza having affixed his signature at the dorsal side of the

check, should be liable for the amount stated therein in accordance with

Sec.66, NIL (i.e.: as a general indorser, and not as an accommodation

maker), however, to hold him liable by the strict application of the law

would result in injustice. The proximate cause of the withdrawal and

eventual loss on BPI’s part was its own personnel’s negligence in

allowing withdrawals in disregard of its own rules and the clearing

requirement in the banking system. In so doing, BPI assumed the risk of

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a forged or counterfeit foreign check and hence, should suffer the

resulting damage (BPI v. CA, 326 SCRA 641)

F. An accommodation party has the right, after paying the holder, to

obtain reimbursement from the party accommodated, since the

relationship between them has in effect become one of principal and

surety, the accommodation party being the surety (Agro

Conglomerates, Inc. v. CA, 348 SCRA 450)

IX. HOLDERS IN DUE COURSE

Sec.52 What constitutes a holder in due course –

A holder in due course is a holder who has taken the instrument

under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue and without

notice that it has previously been dishonored, if such was the fact;

(c) That he took it in good faith and for value; and

(d) That at the time it was negotiated to him, he had no notice of any

infirmity in the instrument or defect in the title of the person negotiating

it.

Sec.53 When person not deemed holder in due course –

Where an instrument payable on demand is negotiated on an

unreasonable length of time after its issue, the holder is not deemed a

holder in due course

Sec.57 Rights of a holder in due course –

A holder in due course holds the instrument free from any defect

of title of prior parties, and free from defenses available to prior parties

among themselves, and may enforce payment of the instrument for the

full amount thereof against all parties liable thereon

Sec.59 Who is deemed holder in due course –

Every holder is deemed prima facie to a holder in due course; but

when it is shown that the title of any person who has negotiated the

instrument was defective, the burden is on the holder to prove that he or

some person under whom he claims, acquired title as holder in due

course. But the last-mentioned rule does not apply in favor of a party

who became bound on the instrument prior to the acquisition of such

defective title.

A. Where a holder’s title is defective or suspicious, it cannot be stated

that the payee acquired the check without the knowledge of such

defect in holder’s title, and for this reason the presumption that he is a

holder in due course or that he acquired the instrument in good faith

does not exist. Where the payee acquired the check under

circumstances which should have put him on inquiry (i.e.: why the holder

had the check and used it to pay his own personal account) the duty

devolved upon him to prove that he actually acquired the check in good

faith (de Ocampo v. Gatchalian, 3 SCRA 596)

B. The holder of a cashier’s check who is not a holder in due coruse

cannot enforce such check against the issuing bank which dishonors the

same. If a payee of a cashier’s check obtained it from the issuing bank by

fraud, or if there is some other reason why the payee is not entitled to

collect the check, the bank would, of course, have the right to refuse

payment on the check when presented by the payee since the bank was

aware of the facts and circumstances surrounding the check (Mesina v.

IAC, 145 SCRA 497)

X. LIABILITY OF THE GENERAL ENDORSER

Sec.63 When a person deemed endorser –

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A person placing his signature upon an instrument otherwise

than as a maker, drawer, or acceptor, is deemed to be an endorser unless

he clearly indicates by appropriate words his intention to be bound in

some other capacity

Sec.66 Liability of general endorser –

Every endorser who endorses without qualification, warrants to

all subsequent holders in due course:

(a) The matters and things mentioned in subdivisions (a), (b) and (c) of

**the preceding section*, and;**

(b) That the instrument is, at the time of his endorsement, 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 endorser who may be compelled to pay it.

*Sec.65 Warranty where negotiation by delivery and so forth –

x x x

(a) That the instrument is genuine and in all respects what it purports to

be;

(b) That he has good title to it;

(c) That all prior parties had capacity to contract

x x x

Sec.17 Construction where instrument is ambiguous –

Where the language of the instrument is ambiguous or there are

omissions therein, the following rules of construction apply:

x x x

(f) Where a signature is so placed upon the instrument that it is not clear

in what capacity the person making the same intended to sign, he is

deemed an endorser

x x x

A. ‘Recourse’ means resort to a person who is secondarily liable after

the default if the person who is primarily liable. Sambok, by endorsing

the note ‘with recourse’ does not make itself a qualified endorser but a

general endorser who is secondarily liable (Metropol v. Sambok, 120

SCRA 846)

B. Notwithstanding criminal liability, Imperial is still civilly liable on the

checks, having signed the same as a general endorser. The dispositive

portion acquitting her dealt only with her criminal liability, not her civil

liability. (Maralit v. Imperial, 301 SCRA 605)

C. Sec.17, NIL states that where a signature is so placed upon the

instrument that it is not clear in what capacity the person making it

intended to sign, he is deemed an endorser. Under Sec.63, NIL, a person

placing his signature other than as maker, drawer, or acceptor, is

deemed to be an endorser unless an intention to be bound in some

other capacity can be shown. The liabilities of a general endorser are set

forth in Sec.606, NIL. It is undisputed that the 4 checks were signed by

petitioner at the back without any indication as to how she would be

bound thereby, and therefore, she is deemed to be an endorser thereof.

(Sapiera v, CA, 314 SCRA 370)

D. Petitioner contends that that by signing the withdrawal slip, private

respondent Napiza ‘presented the opportunity for the withdrawal of the

amount in question’. Ordinarily, private respondent may be held liable as

an endorser of the check or even as an accommodation party, however,

to hold him responsible for the amount of the check he deposited by the

strict application of the law and without considering the attending

circumstances in the case would result in an injustice and in the erosion

of the public trust in the banking system. Under petitioner’s own rules

to be able to withdraw from the savings account deposit a duly-fil;led up

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withdrawal slip and the depositor’s passbook must be presented. In

allowing the withdrawal of private respondent’s deposit in disregard of

its own rules, it is clear that the negligence of BPI was the proximate

cause of the loss. (BPI v. CA, 326 SCRA 641)

XI. PRESENTMENT FOR PAYMENT/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 endorser –

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 endorsers are discharged.

A. Presentment for acceptance is necessary only in the cases expressly

provided for in Sec.143, NIL. Sight draft do not require presentment for

acceptance. Corollarily, sight drats, pursuant to sec.7, NIL are payable on

demand. (Prudential Bank v. IAC, 216 SCRA 257)

B. Nowhere in Batas Pambansa 22 is a person required to maintain funds

in his account for only 90 days. That the check must be deposited within

90 days is simply one of the conditions for the prima facie presumption

of knowledge of lack of funds to arise. Corollarily, under Sec.185, NIL, 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 (Wong v. CA, 357 SCRA 100)

C. While it is true that failure to present for payment within a reasonable

time will result in the discharge of the drawer to the extent of the loss

caused by the delay, failure to present on time does not totally wipe out

all liability. The original obligation to pay certainly has not been erased.

(International Corporate Bank v. Sps. Gueco, 351 SCRA 516)

XII. CHECKS

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.

A. That State Investment 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, NIL (i.e.: when notice need not be given to

drawer). Moulic already knew of the dishonor because, by withdrawing

her funds to protect herself, she could not have expected her checks to

be honored.

The withdrawal of the money from the drawee bank to avoid

liability on the checks cannot prejudice the rights of holders in due

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course. 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 money renders Moulic liable to State

Investment, a holder in due course. (State Investment House, Inc v. CA,

217 SCRA 32)

B. The crossing of a check has the following effects: (a) the check may

not be encashed but only deposited in the bank; (b) the check may be

negotiated only once – to the one who has an account with the bank; (c)

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 (Bataan Cigar and Cigarette Factory, Inc v. CA, 230

SCRA 643)

C. A bank is liable for dishonoring checks which are sufficiently funded,

notwithstanding the fact that the depositor wrote down an inaccurate

account number. The use of numbers is simply for the convenience of

the bank but was never intended to disregard the real name of the

depositor. (Citytrust Banking Corp. v. IAC, 232 SCRA 559)

D. A cashier’s check is a primary obligation of the issuing bank and

accepted in advance by its issuance. By its very nature, a cashier’s check

is a bank’s order to pay, drawn upon itself, committing in effects its total

resources, integrity and honor behind the check (Tan v. CA, 239 SCRA

310)

E. While it is true that the delivery of a check produces the effect of

payment only when it is cashed pursuant to article 1249 of the civil code,

the rule is otherwise if the debtor is prejudiced by the creditor’s

unreasonable delay in presentment (Papa v. A.U. Valencia, 284 SCRA

643)

XIII. ADDITIONAL DOCTRINES

A. There are well-defined distinctions between the contract of an

endorser and that of a guaranty/surety of a commercial paper. The

contract of endorsement is primarily that of transfer, while the contract

of guaranty is that of personal security. The liability of an endorser is not

as broad as that of a guarantor or surety (Allied Banking Corp. v. CA, 494

SCRA 467)

B. 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. If a

bank refuses to pay a check, the payee-holder cannot sue the bank. The

payee should instead sue the drawer, who might in turn sue the bank.

(Villanueva v. Nite, 496 SCRA 459)

C. The term ‘bill of exchange’ denotes checks, drafts and all other kinds

of orders for the payment of money, payable at sight or on demand, or

after a specific period after sight or from a stated date.

A bill of exchange and letter of credit may differ as to their

negotiability, and as to who owns the funds used for the payment of the

instrument at the time presentment is made. However, in both cases, a

person orders another to pay money to a third person. (BPI v. CIR, 496

SCRA 601)

D. Manager’s Checks are drawn by the bank’s manager upon the bank

itself and regarded to be as good as the money they represent.

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