Professional Documents
Culture Documents
(Sgd) Bella
NO TIME
Baguio City
19 November 2001
P40,000.00
Pay to the order of Juana forty thousand pesos.
To: Clara (drawee)
(Sgd)
Bella
No time for payment so it is payable on demand.
NB: A CHECK has NO TIME OF PAYMENT therefore it is payable on demand.
Sec. 185 A check is a bill of exchange drawn on a bank payable on demand
Instrument is OVERDUE
Ex:
At the outset bill of exchange/promissory note was issued at 1 May 2001 and payable on 7 August 2001.
Fictitious
Expressly made payable
Not named
Indorsement in blank
Specified (named)
BLANK INDORSEMENT
- signature affix, written at the back of the instrument
- made by the payee who is first to indorse
CLASSIFICATIONS OF INDORSEMENT
1. Blank indorsement
- an indorsement that does not specify the indorsee
Ex:
Baguio City
22 November 2001
P50,000.00
I promise to pay to the order of Ruby the sum of fifty
thousand pesos.
(Sgd) Harry Potter
At the back
To:
Ruby
(Sgd)
2. Special indorsement
- one that specifies the indorsee
Ex:
Face of instrument (same as above)
At the back
To: Rosanna
(Sgd) Ruby
To:
(Sgd)
Rosanna
(blank indorsement)
-This is payable to bearer because last indorsement is in blank, hence the whole instrument is converted to payable to
bearer(blank indorsement)
-Last indorsement matters
-not permitted to alter the instrument (that is: in words) to make it payable to bearer.
-impossible and illegal to make an instrument payable to bearer to become payable to order.
(Sgd) Harry
(Sgd) Harry
4. EXCHANGE
-difference in value of same amount of money by different countries
Ex
US$1 and Canadian$1
(here, the US dollar is more valuable. Their difference is called EXCHANGE)
Exchange must be at:
1. Fixed rate
-by agreement of the parties
2. Current rate
-average rate that will be prevailing at the time of the transaction during a particular date.
Ex: of an instrument payable with an EXCHANGE
California USA
26 November 2001
US$2,000.00
Pay to the order of Jose the sum of two thousand US
dollar in Philippine peso at a rate of P51.00 per dollar
on 25 December 2001.
To: Maria
Potter
(Sgd) Harry
POST-DATED
-date later than the actual date of issuance or
drawing the instrument
effect: before encashing, wait for the arrival of post
date
ILLUSTRATION:
FACE
P80,000.00
Pay to the order of Mr. ____________________
the sum of eighty thousand pesos .
(Sgd) RUA
To: PNBank
Facts:
Because of his gross negligence, RUA lost his incomplete instrument. Amado was the finder. He (Amado) placed
his name as payee unknown to RUA.
Thereafter, Amado negotiated the check to Lito.
BACK (after completion)
To: Lito
(Sgd) Amado (indorser)
Nb: from Amado to Lito = there is a valid delivery BUT from RUA to Amado = no valid delivery.
-Lito cannot enforce the instrument against RUA if the instrument is dishonored by the bank.
any holder includes holder in due course
Lito cannot enforce the instrument against RUA because the check cannot be valid in the hands of ANY HOLDER. Even if
Lito is a holder in due course he cannot enforce it against RUA considering that RUA was a person who place the
signature in the instrument before delivery.
INCOMPLETE INSTRUMENT
Can be enforced by a holder in due course
Harry is still an IMMEDIATE PARTY as long as he is aware that the instrument was not deliverd by Pedro (NOT
PROXIMITY)
BUT, If Harry is NOT AWARE but the check is overdue, then Harry is a REMOTE PARTY OTHER THAN HOLDER IN
DUE COURSE
Question #1
Q: As a holder in due course what may Harry do with the check?
A: Harry can 1) present the check to Land Bank for payment, or 2) indorse if further.
Question #2
Q: If Harry presents the check to the Land Bank for payment but the bank refuses to pay, what should Harry do so that he
may be able to recover?
A: Harry shall give a notice of dishonor to Pedro and Juan.
Question #3
Q: If Harry is not a HOLDER IN DUE COURSE can he require Pedro to pay P80,000.00?
A: NO.
Reason: There is no effectual delivery because the check was not delivered by or under the authority of Pedro.
BACK
To: Ruby
(Sgd) Juan
To: Clara
(Sgd) Ruby
Question #1
Q: If Clara is not a holder in due course can she require Pedro to pay after giving him notice of dishonor?
A: NO.
Pedro has a personal defense that there was no effectual delivery of the instrument considering that delivery was
conditional and the suspensive condition was not fulfilled. (Juan was not acting under the authority of Pedro).
Question #2
Q: Will your answer be the same as in the preceding question if Clara is a holder in due course?
A: NO. My answer is not the same as in the preceding question because Clara can require Pedro to pay because the law
provides that when the instrument is in the hands of a holder in due course a valid and intentional delivery by all
parties prior to him (holder in due course) so as to make them (prior parties) liable to her, is conclusively presumed.
(Clara holds the instrument as though there was a valid delivery from Pedro, Juan and Ruby)
Question #3
Q: As a holder in due course, can Clara require Juan to pay?
A: YES. Clara can require Juan to pay (*warranty of Juan extends beyond Ruby)
[See: Sec. 66, opening sentence (every indorser who indorses without qualification, warrants, to all subsequent
holders in due course ) in relation to Par(b) of Sec. 65 (that he has a good title to it)]
Juan is a general indorser and he warrants ALL SUBSEQUENT HOLDERS IN DUE COURSE that he has a good
title.
Question #4
Q: If Clara fails to find Pedro and Juan, can she require Ruby to pay?
A: YES. Clara can require Ruby to pay because the latter is a general indorser and such she warrants that the check is
genuine.
Sec. 15
1. INCOMPLETE instrument but UNDELIVERED.
Sec. 16
1. COMPLETE instrument but UNDELIVERED
1) If the bank dishonors the check and H gives notice of dishonor to Pedro, is the latter liable?
Ans: No. The forged signature is wholly inoperative. (real defense)
Pedro will never be liable for that signature because Harry did not acquire any right to enforce payment of the
instrument, based on that signature, against the person whose signature was forged. (NB: even if you are a holder in due
course)
2) If Harry gives notice of dishonor to Amado, can Harry recover from the former?
Ans: Yes. Reason: he is a forger and as such he is precluded from setting up forgery or want of authority as a defense.
As a general indorser, he warrants under Art. 66 that the signature is genuine and in all respects what it purports
to be
3) If Harry gives notice of dishonor to Bella, will Bella be liable to pay?
Ans: Yes. Reason: She is a subsequent indorser and precluded from setting forgery as a defense. And by indorsing the
check, she warrants to Harry that the instrument is genuine and in all respects what it purports to be.
Forged instrument in hands of a HOLDER IN DUE COURSE cant be enforced for payment.
Forged signature does not make you liable to the instrument
NB: When the payees signature was ONLY forged, the payee and the drawer can still avail of the real defense. Reason:
No valid indorsement by the payee.
(see: sec. 30 indorsement + delivery)
Illustration (forgery in the signature of the PAYEE)
Face
P80,000.00
Pay to theORDER of Juan eighty thousand pesos.
(Sgd)
Berto
To: Land Bank
Back
To: Pablo
(Sgd
) Juan
To: Harry
(Sgd
) Pablo
This payees (aka orginal indorser) signature is forged by Pablo.
QUESTIONS:
1) If The bank does not pay Harry and Harry gives notice of dishonor (NOD) to Berto, is the latter liable?
Ans: NO. Berto can set up the real defense that the forged signature of Juan (payee) is wholly inoperative (that is using
the payees forged signature as a real defense).
Berto is not made liable even to a HOLDER IN DUE COURSE bec. of lack of valid indorsement by the payee.
2) If Harry gives NOD to Juan, is the latter liable?
Ans: NO. Reason: Forged signature is rendered wholly inoperative. Juan cant be made liable on the basis of that forged
signature.
As a holder (even HDC), Harry did not acquire any right to enforce the instrument against Juan.
3) If Harry gives a NOD to Pablo, is the latter liable?
Ans: YES. Reason: Pablo is the FORGER and SUBSEQUENT INDORSER. As such, he is precluded from setting up
forgery or want of authority. And he warrants that the instrument is genuine and in all respects what it purports to be.
Face
P60,000.00
Pay to REY or BEARER sixty thousand pesos.
(Sgd)
Pablo
To: PNBank
Back
To: Pedro
) REY
To: Harry
(Sgd
NOTE: Under 30, there is no need to indorse the bearer instrument. Negotiation is made by delivery only.
However, under 40, the bearer instrument may be indorsed.
In a bearer instrument, the payee does not need to indorse.
Indorsement by the payee is not necessary to the title of the bearer/holder.
NB: Forgery anent indorsement of the payee is IMMATERIAL or IRRELEVANT (reason: bec. indorsement is not needed in
b.i.).
The bearer/holder acquires title even sans indorsement.
In order instrument, valid indorsement by the payee is necessary to the title of the holder.
QUESTIONS:
1) If the bank does not pay Harry, and Harry gives NOD to Pablo, is the latter liable?
Ans: YES. Pablo is liable to Harry. Pablo cant use forger as a defense bec. the FORGERY is IRRELEVANT.
Sec. 61. Liability of drawer. - The drawer by drawing the instrument 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, 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.
2) If Harry gives a NOD to Rey, can Rey avail of the defense of forgery to defeat the claim of Harry?
Ans: NO. Forgery in the indorsement is IRRELEVANT or IMMATERIAL to the title of Harry bec. Harry acquires title even
with or without indorsement for bearer instrument need not be indorsed.
3) What defense which Rey can raise if Harry is not a HDC?
Ans: Rey can avail of the defense of the LACK OF EFFECTUAL or VALID DELIVERY (under 16) NB: This is a personal
defense in forgery NOT a real defense. [16 as personal defense cant be used against a HDC]
***But Rey cant avail of the defense of forgery as REAL DEFENSE if this is a order instrument.
4) If Harry gives a NOD to Pedro, is the latter liable?
Ans: YES. Reason: Bec. he warrants under 65 that he has a good title in the instrument, and no knowledge of any fact
that would impair the validity of the instrument.
*Harry is an IMMEDIATE TRANSFEREE (see: last sentence of 65).
BEARER INSTRUMENT
Face
P60,000.00
Pay to JUAN or BEARER sixty thousand pesos.
(S
gd) Pedro
To: LandBank
this signature was forged by Juan.
Back
To: Nena
(Deli
vered by) Juan
To: Harry
Ans: YES. She warrants under 65 that the instrument is genuine and in al respects what it purports to be (including
Pedros forged signature), and her warranty extends to Harry as her immediate transferee.
Face
P60,000.00
Pay to JUAN or BEARER sixty thousand pesos.
(S
gd) Pedro
To: LandBank
this signature was forged by Juan
Back
To: Nena
(Sgd)
Juan
To: Harry
(Deliv
ered by) Nena
QUESTIONS:
1) If the bank does not pay and Harry gives NOD to Pedro, is the latter liable?
Ans: NO. Perdo can set up a real defense that the signature is wholly inoperative, and this does not make Pedro liable.
The Holder did not acquire any right to enforce payment of the instrument against Pedro.
2) If Harry give a NOD to Juan, is the latter liable?
Ans: NO. (here, forgery is an incidental matter; the issue is the INDORSEMENT: will the indorsement make him liable?)
Sec. 40. Indorsement of instrument payable to bearer. - Where an instrument, payable to bearer, is indorsed
specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser to
only
such
holders
as
make
title
through
his
indorsement.
Apply 40; do not apply 65 bec. it was NOT negotiated by delivery only; see: 66 is applicable but 40 is MORE
PARTICULAR.
Juan is liable as indorser to ONLY such holder as make title through his indorsement, that is TO NENA ONLY.
40 last sentence vs 65 last paragraph : similarity in immediate transferee but different in reasoning.
3) If Harry gives NOD to Nena, is the latter liable?
Ans: YES. She warrants under 65 that the instrument is genuine and in al respects what it purports to be (including
Pedros forged signature), and her warranty extends to Harry as her immediate transferee.
DOCTRINE IN FORGERY
1) San Carlos Milling Co. vs BPI, 59 P 59
Face
US$10,000.00
Pay to the order of San Carlos Milling Co
(Sg
d) Baldwin
To: BPI
Forged by Dolores
Back
To: Hongkong and Shanghai Bank (HSB)
(Sgd) Dolores in
behalf of SCMC
signature of the drawer was forged
DOCTRINE:
A bank (drawee bank) is BOUND to know the signature of its depositors (ie. The drawers). If it pays a forged check
(forged signature of the drawer), it is considered as making payment out of its own funds and cannot debit the amount so
paid against the account of the depositor(drawer) whose signature was forged.
Eg: BPI cannot debit the amount so paid against Baldwin account.
2) GELAC vs HK and Shanghai Bank, 43 Phil 711
Face
P2,000.00
(Sgd)
MELICOR
To: HSB
(Sgd)
Maasim
This was forged by Maasim
this check was drawn by GELAC involving payment of insurance proceeds for MELICOR.
This check was lost and Maasim had possession of the check and tried to make it appear that it was indorsed to him by
MELICOR.
The practice of GELAC is to send the check by mail.
8: order instrument payee must be named.
Maasim deposited the check to HSB and the amount was allowed to be credited in Maasims account, and so he was
allowed to withdraw amount.
HSB presented to PNB. PNB paid.
Now, PNB wants to debit against the deposit account of GELAC.
DOCTRINE:
When a check is payable to the order of a person and it is presented for payment BY ANOTHER it is the duty of
the bank to see to it that the check was duly indorsed by the original payee. (Reason: no valid indorsement)
So, PNB should see to it that MELICOR made a valid indorsement. It cannot debit against the account of
GELAC.
***Forgery in the signature of the payee is a real defense by the drawer.
PNB can go against HSB; HSB can go against Maasim.
3) PNB vs Motor Service, 63 Phil 693
Face
Pay to the order of International Auto-repair Shop
(IARS) or ORDER.
(Sgd) J.
Klar
in behalf of
the PANTRANCO
To: PNB
This was forged
Back
To: Motor Service
(Sgd)
IARS
by
unknown person
To: Natl City Bank of New York (NCBNY)
(Sgd)
Motor Service
When PANTRANCO had repairs it went to IARS
There were two checks involved in this case.
NCBNY presented to PNB for payment then PNB paid NCBNY; PNB wanted to debit the amount against the account of
PANTRANCO.
PNB waived its rights to sue NCBNY thats why it sued Motor Service.
There was negligence on the part of PNB bec. it failed to see to it that the signature of J. Klar is GENUINE. So, PNB is
guilty of CONSTRUCTIVE NEGLIGENCE by not ascertaining of its drawers/depositors signature is genuine or forged.
Motor Service was negligent bec. it accepted indorsement of UNKNOWN PERSON. It should ascertain his identity. So, it
was guilty of ACTUAL NEGLIGENCE in accepting check from persons whose identity remains unknown.
Q: Who shall bear the loss then?
A: The one guilty of actual negligence.
SC: PNB can go against Motor Service and let Motor Service to go against the unknown person.
4) PNB vs CA, 25 SCRA
Face
Pay to the order of Mariano Pulido
(Sgd)
GSIS
To: PNBank
Back
To: Manuel Go
(Sgd)
M. Pulido
To: Lim
(Sgd)
M. Go
To: PCIB
(Sgd)
Lim
PCIB said: all prior indorsements guaranteed
Signatories of GSIS check are manager and auditor
Managers and Auditors signature were forged (this check was lost)
2 months before PCIB went to PNB. GSIS has already notified PNB to stop payment bec. GSIS said that the check was
forged (lost).
But PNB still paid bec. of the ANNOTATION: PCIB guaranteed that the indorsement were GENUINE but not the
signature.
SO, GSIS is not liable bec. its signature is wholly inoperative.
There was GREATER or ACTUAL NEGLIGENCE by PNB.
DOCTRINE OF JUS TERTIIS
When one of the two innocent persons must suffer from a wrongful act of a third person, the one guilty of actual
negligence or who put it into the power of a 3rd person to perpetrate the wrong shall bear the loss.
Here, the 3rd person is the GSIS.
5) Republic Bank vs. Mauricia Ebrada, 65 SCRA 693
Signature of payee (original indorser) was forged.
Ebrada also raised the issue that she was only an accommodation pary (29)
Check payable to the order of a specified person.
DOCTRINE
a person who takes a check or purchases draft is bound to satisfy himself that the check he is taking is genuine,
and by putting it into circulation, or by presenting it for payment or by indorsing it, he impliedly asserts that he has
performed his duty.
Face (GENUINE)
Pay to A or ORDER
(Sgd)
Y
To: Bank
Back (FORGED)
To: B
(Sgd)
A
(Sgd)
B
B presented this to the BANK.
B is the holder.
if B purchases a draft, B should believe in good faith that the check in his possession is genuine.
Drawee bank cannot debit account of Y.
Bank can go against B (basis: one who purchases a draft must satisfy himself that such draft is genuine)
Doctrine in GELAC is not applicable but the doctrine in Rep Bank vs Ebrada does not mean abandonment of ruling in
GELAC case.
6)
Face
P10,000.00
Pay to the order of Inter Island Gas Services, Corp
(IGSP)
(Sg
d) DD
To: VB
10 different drawers in various drawee banks
Back
To: Jai Alai
(Sgd)
IGSCorp
(by A.
Ramirez)
To: BPI
(Sgd)
Jai Alai
BPI credited amount of checks to the account of Jai Alai; VB does not pay.
Signature of Alfredo Ramirez was NOT AUTHORIZED (therefore, forgery)
NOTE: The payee is corporation a corporation can act only through its Board of Directors. The Board can authorize any
of the corporate employees or officers to act for in its behalf.
DOCTRINE:
A person taking a check of corporation (which can act only through its Board of Directors) does so on his own peril when
the one who indorses in behalf of the corporation was in fact not authorized.
If you are the holder, you cannot compel the drawee to pay BUT go against the indorsee, or the person who appear to
be secondarily liable.
bec. VB does not pay, BPI sued Jai Alai.
When Ramirez signed the checks in favor of Jai Alai, the latter should have verified the validity (ie. Authorization of
Ramirez) of the formers signature.
When Jai Alai accepted the checks from Ramirez, he did so in his own peril.\
7) PNB vs CA (1997)
Face
P80,000.00
Pay to the order of Ana eighty thousand pesos.
(Sg
d) Pedro
To: X Bank
HDC
in
cannot
some
Banco Atlantico presented this for payment by the PNB (before this BA allowed AP to withdraw the amount even without
clearing.
PNB was informed that the checks were altered.
BA sued PNB, impleading AG
BA should have waited for the clearing.
In Internationa banking practice, the collecting bank should wait for the clearing of the check, esp. if the check
involves large amount.
SC: BA cannot recover bec.since the 3 checks were fraudulently altered they are rendered wholly inoperative. (acc. to
AD wholly inoperative is for forgery, so this is a wrong reasoning)
Sec. 29 ACCOMMODATION PARTY
He becomes a party to the instrument without receiving a valuable consideration therefore.
He may be a accommodation maker/drawer/indorser/acceptor.
He lends his name or credit to another. He does not receive anything for becoming a party to the instrument.
He may receive payment for lending his name.
Eg. One borrowed money from you but you have none, instead you drew a check in his favor.
Accommodation indorser
Accommodation acceptor eg. A bank who pays your payee even if you do not have any deposit in the bank but you have
a good credit. Reason: bank did not receive any valuable consideration.
One remains an AP even if he receives payment bec. of the good name he lends.
What matters is he received nothing for being a drawer.
lending name or good credit
NB: An accommodation party is liable to a HOLDER FOR VALUE (HFV)
Illustration:
Without receiving valuable consideration from Nena, the drawer Pedro issued a check to the former. Nena
indorsed this check to Clara for payment of services rendered by Clara (HFV) to Nena. The amount of the check is
P10,000.00.
Clara presented the check for payment by the drawee bank but was dishonored. As consequence, Clara gave
NOD to Pedro and another notice to Nena.
QUESTIONS:
1) Can Clara require Pedro to pay P10,000.00?
Ans: YES. Pedro is liable to a HFV.
2) Suppose Nena paid P3.00 to Pedro for the latters good credit which he lent to the former, will your answer be the same
as in the answer in question number 1?
Ans: YES. See: 29 - notwithstanding such holder at a time of taking the instrument knew him to be an accommodation
party.
Sec. 28 WANT OF CONSIDERATION
1. Want of consideration
2. Failure of consideration
3. Partial failure of consideration
***all of them are PERSONAL DEFENSES
Want of consideration
- the parties did not contemplate of intend a value or valuable consideration for the issuance or indorsement of the
instrument.
Failure of consideration
- If the parties agreed on a consideration for the issuance or indorsement of instrument but that, which was stipulated, did
not materialize then this is called failure of consideration.
Partial failure of consideration
- If parties agreed on a particular consideration or specific amount but ONLY part of it was satisfied or delivered then this
is called partial failure of consideration (this is a defense PRO TANTO or reduced or mitigated liability)
Illustration:
Juana was a drawer of a check containing the amount of P100,000.00 which is made payable to the order of
Jose. Juana issued this check to Kose with the understanding that Jose will deliver 10 carabaos to Juana. Jose indorsed
the check to Harry who is a HDC.
The drawee bank PNB did not pay the check upon presentment by Harry.