Commercial Law

NEGOTIABLE INSTRUMENTS LAW
By Atty. Mary Ann L. Reyes
COURSE OUTLINE
I. INTRODUCTION
1) History, Governing Laws (Act 2031, Code of Commerce, New Civil Code)
2) Applicability of the Negotiable Instruments Law

Read:
158) Kauffman vs. PNB, 42 Phil 182, Sept. 29 1921 (GR No. 16454, Sept. 29, 1921)
Facts:
Herein plaintiff was entitled to P98,000 of the Philippine Fiber and Produce Company’s dividend for the year 1917.
George B. Wicks, treasurer of the Company, requested that a telegraphic transfer of $45,000 to the plaintiff in New
York City. Wicks drew and delivered a check for the amount of P90,355.50, total cost of said transfer, including
exchange and cost of message which was accepted by the officer selling the exchange in payment of the transfer in
question. As evidence of this transaction a document was made out and delivered to Wicks, which is referred to
by the bank's assistant cashier as its official receipt. On the same day the Philippine National Bank dispatched to its
New York agency a cablegram for $45,000. However, the bank's representative in New York replied suggesting the
advisability of withholding this money from Kauffman. The PNB dispatched to its New York agency another
message to withhold the Kauffman payment as suggested. Meanwhile, upon advice of Wicks that the money has
been placed to his credit, Kauffman presented himself at the office of the Philippine National Bank in New York and
demanded the money. By this time, however, the message from the Philippine National Bank directing the
withholding of payment had been received in New York, and payment was therefore refused. Thus the present
complaint to recover said sum, with interest and costs.
ISSUE: WON Act No. 2031 is applicable in the above case?
HELD:
NO. The provisions of the Negotiable Instruments Law to come into operation, there must be a document in
existence of the character described in section 1 of the Law; and no rights properly speaking arise in respect to said
instrument until it is delivered. In the case before us there was an order transmitted by the defendant bank to its
New York branch, for the payment of a specified sum of money to George A. Kauffman. But this order was not
made payable "to order or "to bearer," as required in Section 1(d) of that Act; and inasmuch as it never left the
possession of the bank, or its representative in New York City, there was no delivery in the sense intended in
Section 16 of the same Law. In this connection it is unnecessary to point out that the official receipt delivered by
the bank to the purchaser of the telegraphic order, and already set out above, cannot itself be viewed in the light
of a negotiable instrument, although it affords complete proof of the obligation actually assumed by the bank.
159) GSIS vs. CA, 170 SCRA 533, February 23, 1989 (GR No. L - 40824, Feb. 23, 1989)
Facts:
Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the Lagasca spouses, executed a deed of
mortgage in favor of petitioner GSIS. Subsequently, another deed of mortgage was executed in connection with
earlier two loans granted. A parcel of land, co-owned by said mortgagor spouses, was given as security under the
aforesaid two deeds and they also executed a "promissory note". The Lagasca spouses executed an instrument
denominated "Assumption of Mortgage" under which they obligated themselves to assume obligation to the GSIS.
This undertaking was not fulfilled. Upon failure of the mortgagors to comply with the conditions of the mortgage,
particularly the payment of the amortizations due, GSIS extra-judicially foreclosed the mortgage and caused the
mortgaged property to be sold at public auction. Private respondents filed a complaint against the petitioner and
the Lagasca spouses praying that the extrajudicial foreclosure be declared null and void. In their aforesaid
complaint, they alleged that they signed the mortgage contracts not as sureties or guarantors for the Lagasca
spouses but they merely gave their common property to the said co-owners who were solely benefited by the
loans from the GSIS. Trial court dismissed the case. CA reversed decision stating that the respondents are that only
of an accommodation party.
ISSUE: WON the NIL is applicable to the promissory note and mortgage deed?
Mary Michelle T. Ong 146
HELD:
No. Both parties relied on the provisions of Section 29 of Act No. 2031, otherwise known as the Negotiable
Instruments Law, which provide that an accommodation party is one who has signed an instrument as maker,
drawer, acceptor of indorser without receiving value therefor, but is held liable on the instrument to a holder for
value although the latter knew him to be only an accommodation party. This approach of both parties appears to
be misdirected and their reliance misplaced. The promissory note hereinbefore quoted, as well as the mortgage
deeds subject of this case, are clearly not negotiable instruments. These documents do not comply with the fourth
requisite to be considered as such under Section 1 of Act No. 2031 because they are neither payable to order nor
to bearer. The note is payable to a specified party, the GSIS. Absent the aforesaid requisite, the provisions of Act
No. 2031 would not apply, governance shall be afforded, instead, by the provisions of the Civil Code and special
laws on mortgages.
3) Concept of Negotiable Instruments

a) Negotiable Instruments Defined
b) Functions of Negotiable Instruments
c) What is Legal Tender [Sec. 52, 60, New Central Bank Act; BSP Circular no. 537,
(2006)]
Read:
160) Tibajia vs. CA, 223 SCRA 163 (GR No. 100290, June 4, 1993)
Facts:
A writ of attachment was issued by the trial court in connection to the collection of a sum of money filed by Eden
Tan against the Tibajia spouses. The fund was then on deposit with the cashier of the Regional Trial Court of Pasig.
The Tibajia spouses thereafter delivered to the Deputy Sheriff the total money judgment in the form of Cashier's
Check worth P262,750.00. However, Eden Tan, refused to accept the payment made and instead insisted that the
garnished funds deposited with the cashier of the Regional Trial Court of Pasig be withdrawn to satisfy the
judgment obligation. Petitioners filed a motion to lift the writ of execution on the ground that the judgment debt
had already been paid but was denied by the trial court on the ground that payment in cashier's check is not
payment in legal tender. When the petitioners' motion for reconsideration was denied, the spouses Tibajia filed
herein petition.
ISSUE: WON the delivery of the cashier's check is considered payment in legal tender?
HELD:
No. A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment
of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. ( Philippine
Airlines, Inc. vs. C o u r t o f A p p e als and R o m a n C a t h olic Bis h o p o f M alolo s , I n c . v s . Intermediate
Appellate Court). The ruling in the two (2) abovementioned cases decided by the Supreme Court applies the
statutory provisions which lay down the rule that a check is not legal tender and that a creditor may validly refuse
payment by check, whether it be a manager's, cashier's or personal check.
161) PAL vs. CA, GR 49188, Jan. 30, 1990 (GR No. 49188, Jan. 30, 1990)
Facts:
CFI Manila ruled in favor of Amelia Tan [under the name and style of Able Printing Press] in a complaint for
damages against petitioner Philippine Airlines. On appeal, the CA upheld the decision of the CFI with minor
modifications as to the damages to be awarded. The corresponding writ of execution was duly referred to Deputy
Sheriff Emilio Z. Reyes for enforcement with checks in the name of the latter. Four months later, Amelia Tan
moved for the issuance of an alias writ of execution since the judgment remained unsatisfied. The petitioner filed
an opposition to the motion for the issuance of an alias writ of execution stating that it had already fully paid its
obligation to plaintiff through the deputy sheriff of the respondent court, Emilio Z. Reyes, as evidenced by cash
vouchers properly signed and received by said Emilio Z. Reyes. On March 3,1978, the Court of Appeals denied the
issuance of the alias writ for being premature, ordering the executing sheriff Emilio Z. Reyes to appear with his
return and explain the reason for his failure to surrender the amounts paid to him by petitioner PAL. However, the
order could not be served upon Deputy Sheriff Reyes because he already absconded or disappeared.
ISSUE:
WON the payment rendered through a check made by PAL to the absconding sheriff in his name operate to satisfy
the judgment debt?
HELD:
Under ordinary circumstances, payment by the judgment debtor to the sheriff should be valid payment to
extinguish the judgment debt. There are circumstances, however, which compel a different conclusion such as
when the payment made by the petitioner to the absconding sheriff was not in cash or legal tender but in checks.
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 creditor they
have been impaired. In the meantime, the action derived from the original obligation shall be held in abeyance.
Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument
does not, by itself, operate as payment. A check, whether a manager’s check or ordinary check, is not legal tender,
and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the
obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is
not extinguished and remains suspended until the payment by commercial document is actually realized (Art.
1249, Civil Code, par. 3). PAL created a situation which permitted the said Sheriff to personally encash said checks
and misappropriate the proceeds thereof to his exclusive personal benefit. For the prejudice that resulted, the
petitioner himself must bear the fault. As between two innocent persons, one of whom must suffer the
consequence of a breach of trust, the one who made it possible by his act of confidence must bear the loss.
4) Characteristics of Negotiable Instruments
5) Incidents in the Life of Negotiable Instruments
6) Kinds of Negotiable Instruments
a) Negotiable Promissory Notes (Sec. 184, NIL)

i. parties to a negotiable promissory note
ii. kinds of negotiable promissory note
b) Bills of Exchange (Sec. 126, 185, NIL)

iii. parties to a bill of exchange
iv. kinds of bills of exchange
7) When Bill Treated as Notes (Sec. 17e, 130, NIL)
8) Bills and Notes Distinguished
9) Negotiable Instruments Compared with other Papers

Read:
162) Sesbreno vs. CA, GR 89252, May 24, 1993 (GR No. 89252, May 24, 1993)
Facts:
Petitioner Sesbreno made a money market placement in the amount of P300,000 with the Philippine Underwriters
Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance issued to Sesbreno (1) the Certificate of
Confirmation of Sale of a Delta Motor Corporation Promissory Note, (2) the Certificate of Securities Delivery
Receipt indicating the sale of the note with notation that said security was in the custody of Pilipinas Bank, and (3)
post-dated checks drawn against the Insular Bank of Asia and America for P304,533.33 payable on March 13, 1981.
The checks were dishonored for having been drawn against insufficient funds. Pilipinas Bank never released the
note, nor any instrument related thereto, to Sesbreno; but Sesbreno learned that the Delta Promissory Note
maturing on 6 April 1981, has a face value of P2,300,833.33 with PhilFinance as payee and Delta Motors as maker;
and was stamped “non-negotiable” on its face. PhilFrance was later on placed under the custody of the Securities
and Exchange Commission. As Sesbreno was unable to collect his investment and interest thereon, he filed an
action for damages against Delta Motors and Pilipinas Bank. Delta Motors contends that said promissory note was
not intended to be negotiated or otherwise transferred by Philfinance as manifested by the word "non-negotiable"
stamped across the face of the Note. The trial court and the CA dismissed petitioner’s complaint and appeal,
respectively, for lack of cause of action. If anything, petitioner has a cause of action against Philfrance, which,
however, was not impleaded.
ISSUE: WON the non-negotiability of a promissory note prevents its assignment?
HELD:
No. A negotiable instrument, instead of being negotiated, may also be assigned or transferred. The legal
consequences of negotiation and assignment of the instrument are different. A nonnegotiable instrument may not
be negotiated but may be assigned or transferred, absent an express prohibition against assignment or transfer
written in the face of the instrument. The subject promissory note, while marked "non-negotiable," was not at the
same time stamped "non-transferable" or "non-assignable." It contained no stipulation which prohibited
Philfinance from assigning or transferring such note, in whole or in part.
10) Some Non-Negotiable Instruments
a) Documents of Title
b) Letters of Credit
c) Certificates of Stock
d) Postal Money Order
Read:
163) Philippine Education Co. vs. Soriano, GR L-22405, June 30, 1971
Facts:
Enrique Montinola sought to purchase from the Manila Post Office 10 money orders (P200 each), offering to pay
for them with a private check. Montinola was able to leave the building with his check and the 10 money orders
without the knowledge of the teller. Upon discovery, message was sent to all postmasters and banks involving the
unpaid money orders. One of the money orders was received by the Philippine Education Co. as part of its sales
receipt. It was deposited by the company with the Bank of America, which cleared it with the Bureau of Post. The
Postmaster, through the Chief of the Money Order Division of the Manila Post Office informed the bank of the
irregular issuance of the money order. The bank debited the account of the company. The company moved for
reconsideration.
ISSUE: WON postal money orders are negotiable instruments?
HELD:
No. Philippine postal statutes are patterned from those of the United States, and the weight of authority in said
country is that Postal money orders are not negotiable instruments inasmuch as the establishment of a postal
money order is an exercise of governmental power for the public’s benefit. Furthermore, some of the restrictions
imposed upon money order by postal laws and regulations are inconsistent with the character of negotiable
instruments. For instance, postal money orders may be withheld under a variety of circumstances, and which are
restricted to not more than one indorsement
e) Treasury Warrants
Read:
164) Metropolitan Bank vs. CA, 194 SCRA 169, (GR No. 88866; Feb. 18, 1991)
Facts:
Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38 treasury
warrants. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General
Manager and counter-signed by its Auditor. Six of these were directly payable to Gomez while the others appeared
to have been indorsed by their respective payees, followed by Gomez as second indorser. On various dates all
these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its
Savings Account in the Metrobank. They were then sent for clearing by the branch office to the principal office of
Metrobank, which forwarded them to the Bureau of Treasury for special clearing. After being told to wait several
times, Gloria Castillo and Gomez made subsequent withdrawals at Metrobank with the impression that the
treasury warrants had been cleared. Metrobank informed Golden Savings that 32 of the warrants had been
dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had
previously withdrawn, to make up the deficit in its account. The demand was rejected.
ISSUE: WON treasury warrants are negotiable instruments?
HELD:
No. The treasury warrants in question are not negotiable instruments. Clearly stamped on their face is the word
"non-negotiable." Moreover, it is indicated that they are payable from a particular fund, to wit, Fund 501. Sections
1 and 3 of the Negotiable Instruments Law especially underscored this requirement. The indication of Fund 501 as
the source of the payment to be made on the treasury warrants makes the order or promise to pay "not
unconditional" and the warrants themselves non-negotiable. Metrobank cannot contend that by indorsing the
warrants in general, Golden Savings assumed that they were "genuine and in all respects what they purport to be,"
in accordance with Section 66 of the Negotiable Instruments Law. The simple reason is that this law is not
applicable to the non-negotiable treasury warrants. The indorsement was made by Gloria Castillo not for the
purpose of guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for clearing.
II. FORMS AND INTERPETATION OF NEGOTIABLE INSTRUMENTS
1) How Negotiability is Determined

Read:
165) Caltex (Philippines) vs. CA, 212 SCRA 448, Aug. 10, 1992
Facts:
Respondent bank issued 280 certificates of time deposit (CTDs) in favor of Angel dela Cruz who delivered the same
to herein petitioner in connection with his purchased fuel products. Eventually, dela Cruz executed and delivered
an Affidavit of Loss for the reissuance of the CTDs. Dela Cruz later on obtained a loan from respondent bank and
negotiated the said CTDs, executing a Deed of Assignment of Time Deposit which stated, among others, that the
bank has full control of the indicated time deposits from and after date of the assignment and may set-off such
and apply the same to the payment of amount or amounts that may be due on the loan upon maturity.
Petitioner then went to the Sucat branch for verification of the CTDs declared lost, alleging that the same were
delivered to herein petitioner as “security for purchases made with Caltex Philippines, Inc.” and requested that the
CTDs be pre-terminated, which was refused by the respondent bank due to the failure of petitioner to present
requested documents to prove such allegation. Petitioner then filed a complaint in the RTC, which was dismissed.
On appeal, the CA affirmed the decision of the RTC. Thus, the present petition.
ISSUE: WON the CTDs are considered negotiable?
HELD: Yes. A sample text of the certificates of time deposit is reproduced below:
SECURITY BANK AND TRUST COMPANY 6778 Ayala Ave., Makati No. 90101 Metro Manila,
Philippines SUCAT OFFICE P4,000.00 CERTIFICATE OF DEPOSIT Rate 16% Date of Maturity FEB. 23,
1984 FEB 22, 1982, 19____ This is to Certify that B E A R E R has deposited in this Bank the sum of
PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine
Currency, repayable to said depositor 731 days. after date, upon presentation and surrender of
this certificate, with interest at the rate of 16% per cent per annum. (Sgd. Illegible) (Sgd. Illegible)
AUTHORIZED SIGNATURES
Section 1, of Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an
instrument to become negotiable. The CTDs in question undoubtedly meet the requirements of the law for
negotiability. The accepted rule is that the negotiability or nonnegotiability of an instrument is determined from
the writing, that is, from the fact of the instrument itself. Contrary to what respondent court held (that the CTDs
are payable to the “depositor” which is Angel dela Cruz), the documents provide that the amounts deposited shall
be repayable to the depositor. And who, according to the document is the depositor? It is the “bearer”. The
documents do not say that the depositor is Angel dela Cruz and that the amounts deposited are repayable
specifically to him. Rather, the amounts are to be repayable to the bearer of the documents or, for that matter,
whosoever may be the bearer at the time of presentment.
2) Effect of Estoppel
Read:
166) Banco de Oro vs. Equitable Banking Corp., 157 SCRA 188 (GR No. 74917, Jan. 20, 1988)
Facts:
Manager's checks (Checks) having an aggregate amount of P45,982.23 and payable to certain member
establishments of Visa Card. Subsequently, the Checks were deposited with the defendant (respondent Equitable)
to the credit of its depositor (Aida Trencio’s account). Following normal procedures, and after stamping at the back
of the Checks the usual endorsements (All prior and/or lack of endorsement guaranteed), Equitable sent the
checks for clearing through the Philippine Clearing House Corporation (PCHC). Accordingly, BDO paid the Checks;
its clearing account was debited for the value of the Checks and defendant's clearing account was credited for the
same amount. Thereafter, BDO discovered that the endorsements appearing at the back of the Checks, purporting
to be that of the payees, were forged and/or unauthorized or otherwise belong to persons other than the payees.
Pursuant to the PCHC Clearing Rules and Regulations, it presented the Checks directly to Equitable for the purpose
of claiming reimbursement from the latter. However, Equitable refused to do so. After an exhaustive investigation
and hearing, the Arbiter rendered a decision in favor of BDO and against Equitable ordering the PCHC to debit the
clearing account of the defendant (E), and to credit the clearing account of the plaintiff (B) of the foregoing
amount with interest at the rate of 12% per annum from date of the complaint. The Board of Directors of the PCHC
affirmed the decision of the Arbiter. Hence this petition.
ISSUE 1:
Were the subject checks nonnegotiable and if not, does it fall under the ambit of the power of the PCHC? OR Does
the PCHC has jurisdiction over the controversy involved in view of petitioner’s claim that the subject matter of the
case (the Checks) was not negotiable.
HELD:
Yes. As provided in the articles of incorporation of PCHC, its operation extend to "clearing checks and other
clearing items." No doubt transactions on non-negotiable checks are within the ambit of its jurisdiction. The term
check as used in the said Articles of Incorporation of PCHC can only connote checks in general use in commercial
and business activities. It cannot be conceived to be limited to negotiable checks only. Checks are used between
banks and bankers and their customers, and are designed to facilitate banking operations. It is of the essence to be
payable on demand, because the contract between the banker and the customer is that the money is needed on
demand. Further, the participation of the two banks, petitioner and private respondent, in the clearing operations
of PCHC is a manifestation of their submission to its jurisdiction.
ISSUE 2: How does principle of estoppel apply?
HELD:
Petitioner is estopped from raising the defense of nonnegotiability of the checks in question. It stamped its
guarantee on the back of the checks and subsequently presented these checks for clearing and it was on the basis
of these endorsements by the petitioner that the proceeds were credited in its clearing account. The principle of
estoppel effectively prevents the defendant from denying liability for any damages 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. The petitioner by its own acts and
representation cannot now deny liability because it assumed the liabilities of an endorser by stamping its
guarantee at the back of the checks. The petitioner having stamped its guarantee of "all prior endorsements
and/or lack of endorsements" (Exh. A-2 to F-2) is now estopped from claiming that the checks under consideration
are not negotiable instruments. The checks were accepted for deposit by the petitioner stamping thereon its
guarantee, in order that it can clear the said checks with the respondent bank. By such deliberate and positive
attitude of the petitioner it has for all legal intents and purposes treated the said cheeks as negotiable instruments
and accordingly assumed the warranty of the endorser when it stamped its guarantee of prior endorsements at
the back of the checks. It led the said respondent to believe that it was acting as endorser of the checks and on the
strength of this guarantee said respondent cleared the checks in question and credited the account of the
petitioner. Petitioner is now barred from taking an opposite posture by claiming that the disputed checks are not
negotiable instrument.
167) Phil. Bank of Commerce vs. Aruego, 102 SCRA 530, (GR No. L - 25836 - 37, Jan. 31, 1981)
Facts:
Herein plaintiff instituted against an action against defendant for the recovery of the total sum of money plus
interests and attorney’s fees. The complaint filed by the Philippine Bank of Commerce contains twenty-two (22)
causes of action referring to twenty-two (22) transactions entered into by the said Bank and Aruego on different
dates. The sum sought to be recovered represents the cost of the printing of "World Current Events," a periodical
published by the defendant. To facilitate the payment of the printing the defendant obtained a credit
accommodation from the plaintiff. Thus, for every printing of the "World Current Events," the printer collected the
cost of printing by drawing a draft against the plaintiff, said draft being sent later to the defendant for acceptance.
As an added security for the payment of the amounts advanced to printer, the plaintiff bank also required
defendant Aruego to execute a trust receipt in favor of said bank wherein said defendant undertook to hold in
trust for plaintiff the periodicals and to sell the same with the promise to turn over to the plaintiff the proceeds of
the sale of said publication to answer for the payment of all obligations arising from the draft. Defendant filed an
answer interposing for his defense that he signed the drafts in a representative capacity, that he signed only as
accommodation party and that the drafts signed by him were not really bills of exchange but mere pieces of
evidence of indebtedness because payments were made before acceptance.
ISSUE1: WON the drafts Aruego signed were bills of exchange?
HELD:
YES. Under the Negotiable Instruments Law, 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. As long as a
commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange.
The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved,
but not in the determination of whether a commercial paper is a bill of exchange or not.
ISSUE2: WON Aruego is personally liable?
HELD:
YES. Firstly, Section 20 of the Negotiable Instruments Law provides that "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 filing a representative character, without disclosing his principal, does not exempt him from
personal liability." An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that
he was signing as a representative of the Philippine Education Foundation Company. He merely signed as follows:
"JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his principal, Aruego is personally liable for
the drafts he accepted. Secondly, an accommodation party is one who has signed the instrument as maker,
drawer, indorser, without receiving value therefor and for the purpose of lending his name to some other person.
Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking
of the instrument knew him to be only an accommodation party. In lending his name to the accommodated party,
the accommodation party is in effect a surety for the latter. He lends his name to enable the accommodated party
to obtain credit or to raise money. He receives no part of the consideration for the instrument but assumes liability
to the other parties thereto because he wants to accommodate another. In the instant case, the defendant signed
as a drawee/acceptor. Under the Negotiable Instrument Law, a drawee is primarily liable. Thus, if the defendant
who is a lawyer, he should not have signed as an acceptor/drawee. In doing so, he became primarily and
personally liable for the drafts.
3) Requisites of Negotiability (Sec. 1, NIL)
a) must be in writing and signed by the maker or drawer (Sec. 191, NIL)
b) must contain an unconditional promise or order to pay a sum certain in money
i. Promise or Order to Pay (Sec. 10, NIL)

ii. Promise or Order Must Be Unconditional
1) resolutory and suspensive condition (Art. 1173, 1181, NCC)

2) period
3) when is promise unconditional (Sec. 3, 39, NIL)
4) sum certain in money (Sec. 2, 5d, 6e, NIL; CB Circular 799, July 1, 2013; Art.
2209, Civil Code; acceleration, insecurity, extension clauses)
Read:
168) Metropolitan Bank vs. CA, 194 SCRA 169, (GR No. 88866; Feb. 18, 1991)
(supra, p. 148)
Facts:
Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38 treasury
warrants. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General
Manager and counter-signed by its Auditor. Six of these were directly payable to Gomez while the others appeared
to have been indorsed by their respective payees, followed by Gomez as second indorser. On various dates all
these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its
Savings Account in the Metrobank. They were then sent for clearing by the branch office to the principal office of
Metrobank, which forwarded them to the Bureau of Treasury for special clearing. After being told to wait several
times, Gloria Castillo and Gomez made subsequent withdrawals at Metrobank with the impression that the
treasury warrants had been cleared. Metrobank informed Golden Savings that 32 of the warrants had been
dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had
previously withdrawn, to make up the deficit in its account. The demand was rejected.
ISSUE: WON the promise is unconditional?
HELD:
No. The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order
or promise to pay "not unconditional" and the warrants themselves non-negotiable. There should be no question
that the exception on Section 3 of the Negotiable Instruments Law is applicable in the case at bar. This conclusion
conforms to Abubakar vs. Auditor General where the Court held:
The petitioner argues that he is a holder in good faith and for value of a negotiable instrument
and is entitled to the rights and privileges of a holder in due course, free from defenses. But this
treasury warrant is not within the scope of the negotiable instrument law. For one thing, the
document bearing on its face the words "payable from the appropriation for food administration,
is actually an Order for payment out of "a particular fund," and is not unconditional and does not
fulfill one of the essential requirements of a negotiable instrument (Sec. 3 last sentence and
section [1(b)] of the Negotiable Instruments Law)..
Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is unconditional within the
meaning of this Act though coupled with —
(a) An indication of a particular fund out of which reimbursement is to be made or a
particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument judgment.
But an order or promise to pay out of a particular fund is not unconditional.
c) must be payable on demand or at a fixed or determinable future time

Read:
169) Pay vs. Palanca, 57 SCRA 618, [G.R. No. L-29900. June 28, 1974]
Facts:
The promissory note indicated payment “upon demand”. Petitioner relied on this to mean that prescription would
not lie unless there is demand from them. The petition was filed fifteen years after its issuance.
ISSUE:
Whether or not a promissory note to be paid “upon demand” is immediately due and demandable.
RULING:
YES. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event
unknown to the parties, is demandable at once (Art. 1179 of the New Civil Code). The obligation being due and
demandable in this case, it would appear that the filing of the suit after fifteen years was much too late.
d) must be payable to order or bearer (Sec. 8, 9, 184, NIL)

Read:
170) AngTekLian vs. CA, 87 Phil 383, (GR No. L - 2516; Sept. 25, 1950)
Facts:
Petitioner Ang Tek Lian approached Lee Hua and asked him if he could give him P4,000.00. He said that he is
supposed to withdraw from the bank but his bank was already closed. In exchange, he gave respondent Lee Hua a
check which is “ payable to the order of ‘cash”. When Lee Hua presented the check for payment the next day, he
discovered that it has an insufficient funds, hence, was dishonored by the bank. In his defense, Ang Tek Lian
argued that he did not indorse the check to Lee Hua when the latter accepted the check without his indorsement.
ISSUE:
WON Ang Tek Lian’s indorsement of the said check is necessary to hold him liable for the dishonored check?
HELD:
No. Under Section 9 of the Negotiable Instruments Law, a check drawn payable to the order of “cash” is a check
payable to bearer and the bank may pay it to the person presenting it for payment without drawer’s indorsement.
Consequently, the form of the check was totally unconnected with its dishonor. The check was returned
unsatisfied because the drawer had insufficient funds and not because the drawer’s indorsement was lacking .
Hence, Ang Tek Lian may be held liable for estafa because under article 315, paragraph d, subsection 2 of the
Revised Penal Code, one who issues a check payable to cash to accomplish deceit and knows that at the time he
had no sufficient deposit with the bank to cover the amount of the check and without informing the payee of such
circumstances is guilty of estafa.
e) drawee must be named or indicated with reasonable certainty (Sec. 1e, 130, NIL)
4) Omissions and Provisions That Do Not Affect Negotiability
5) Interpretation of Instruments
III. TRANSFER AND NEGOTIATION
1) Issuance/Delivery of Negotiable Instruments (Sec. 15, 16, 191, NIL)

Read:
171) Dela Victoria vs. Burgos, 245 SCRA 374, June 27, 1995
Facts:
Private respondent filed a complaint for damages against certain Fiscal Mabanto, Jr., whose judgment is favorable
to the former. The decision became final and executory and notice of garnishment was served on petitioner to
withhold Mabanto’s salary checks.
ISSUES
Whether or not a check in the hands of the drawer is already owned by the payee.
RULING
NO. Section 16 of the Negotiable Instruments Law is clear that “…where the instrument is no longer in the
possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until
the contrary is proved.” Proof to the contrary is its own finding that the checks were in the custody of petitioner. In
this case, as said checks had not yet been delivered to Mabanto, Jr., they did not belong to him and still had the
character of public funds.
2) Negotiation Defined (Sec. 30, NIL)
3) Assignment and Negotiation Distinguished; Liability of Assignor (Art. 348, Code of Commerce)
Read:
172) Casabuena vs. CA, 286 SCRA 594 (GR No. 115410; Feb. 27, 1998)
Facts:
Ciriaco Urdaneta was a grantee of a parcel of land purchased by the City of Manila and conveyed to its less
privileged inhabitants, through its land reform program. Subsequently, he assigned his rights and interests in 1/2 of
the lot to Arsenia Benin covering full payment of his indebtedness in the amount of P500. A deed of sale with
mortgage was executed, with Urdaneta undertaking to pay the City the amount figured for a period of forty years
in 480 equal installments. Another deed of assignment involving the whole lot, with assignee Benin agreeing to
shoulder all obligations including the payment of amortization to the City, in accordance with the contract
between it and Urdaneta. As stated in their verbal agreement, Urdaneta could redeem the property upon payment
of the loan within 3yrs. from the date of assignment; failure to pay would transfer physical possession of the lot to
Benin for a period of 15 years, without actual transfer of title and ownership thereto. Meanwhile, the
administration of the property was assigned to brothers Candido and Juan Casabuena, to whom Benin had
transferred her right, title and interest for a consideration of P7,500. Notwithstanding this assignment, Benin
constructed a duplex (apartment) on the lot separately occupied by Jose Abejero and Juan Casabuena, who
collected rentals from the former. After the lot was fully paid for by the Urdanetas, a Release of Mortgage was
executed and period of non-alienation of the land was extended from 5 to 20 years. Casabuena was Benin's rental
collector but their relationship soured resulting in a litigation involving issue on ownership, of which the cause was
the latter’s failure to pay rentals. Upon learning of the litigation between petitioner and Benin, Urdaneta asked
them to vacate the property and surrender to him possession thereof within 15 days from notice. Petitioner's
adamant refusal to comply with such demand resulted in a complaint for ejectment and recovery of possession of
property filed by Urdaneta against Casabuena and Benin. Amid the sprouting controversies involving the lot, the
Urdaneta spouses succeeded in having the Court declare them as its true and lawful owners with the deed of
assignment to Benin merely serving as evidence of Ciriaco's indebtedness to her in view of the prohibition against
the sale of the land imposed by the City government.
ISSUE: WON a deed of assignment can transfer ownership of the property to the assignee?
HELD:
At the bottom of this controversy is the undisputed fact that Ciriaco Urdaneta was indebted to Benin, to secure
which debt the spouses ceded their rights over the land through a deed of assignment. An assignment of credit is
an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, transfers his
credit and its accessory rights to another, known as the assignee, who acquires the power to enforce it to the
same extent as the assignor could have enforced it against the debtor. Stated simply, it is the process of
transferring the right of the assignor to the assignee, who would then be allowed to proceed against the debtor.
The assignment involves no transfer of ownership but merely effects the transfer rights which the assignor has
at the time, to the assignee. Benin having been deemed subrogated to the rights and obligations of the spouses,
she was bound by exactly the same conditions to which the latter were bound. This being so, she and the
Casabuenas were bound to respect the prohibition against selling the property within the five-year period
imposed by the City government. The act of assignment could not have operated to efface liens or restrictions
burdening the right assigned, because an assignee cannot acquire a greater right than that pertaining to the
assignor. At most, an assignee can only acquire rights duplicating those which his assignor is entitled by law to
exercise. In the case at bar, the Casabuenas merely stepped into Benin's shoes, who was not so much an owner as
a mere assignee of the rights of her debtors. Not having acquired any right over the land in question, it follows that
Benin conveyed nothing to defendants with respect to the property.
4) How are Negotiable Instruments and Non-Negotiable Instruments Transferred

Read:
173) Sesbreno vs. CA, 222 SCRA 466, May 24, 1993
(supra, p. 148)
174) Consolidated Plywood vs IFC Leasing, 149 SCRA 448, (GR No. 72593; April 30, 1987)
Facts:
Consolidated Plywood Industries, Inc. (CPII) needed two tractors for its logging business. Atlantic Gulf & Pacific
Company through its sister company Industrial Products Marketing (IPM) offered to sell two “used" tractors. IPM
inspected the job site and assured that the tractors were fit for the job and gave a 90-day warranty for machine
performance and availability of parts. CPII officers Wee and Vergara purchased the tractors on installment and
paid the down payment. The deed of sale with chattel mortgage with promissory note and the deed of assignment,
where IPM assigned its rights and interest in the chattel mortgage in favor of IFC Leasing and Acceptance Corp.,
were all executed on the same day by and among the parties. Barely 14 days after delivery, the tractors broke
down. Mechanics were sent to do repairs but the tractors were no longer serviceable. CPII logging operations were
delayed so Vergara advised IPM that the installment payments would likewise be delayed until it fulfills its
obligation under its warranty. IFC then filed a collection suit against petitioners for the recovery of the principal
sum plus interest, attorney's fees and costs of suit contending that it was a holder in due course of a negotiable
promissory note.
ISSUE:
WON IFC is a holder in due course of a negotiable promissory note so as to bar all defenses of CPII against IPM?
HELD:
No. The note in question fails to meet the requirement under Sec. 1(d) of Act No. 2013. IFC is not and will never be
a holder in due course of the promissory note but is merely an assignee. The note in question is not a negotiable
instrument for lack of the so-called words of negotiability. The sellerassignor IPM is liable for breach of warranty
and such liability as a general rule extends to the corporation (IFC) to whom it assigned its rights and interests.
Even assuming that the note is negotiable, IFC which actively participated in the sale on installment transaction

from its inception cannot be regarded as a holder in due course. Thus, petitioners may raise against the
respondent all defenses available to it as against the seller-assignor, IPM.
175) Traders Royal Bank vs CA, 269 SCRA 16, (GR No. 93397; Mar. 3, 1997)
Facts:
Assailed in this Petition is the Decision of the Court of Appeals affirming the nullity of the transfer of Central Bank
Certificate of Indebtedness (CBC), with a face value of P500,000 from Philippine Underwriters Finance Corporation
(Philfinance) - without authorization – to petitioner Traders Royal Bank.
ISSUE: WON Central Bank Certificate of Indebtedness (CBCI) is a negotiable instrument?
HELD:
No. The instrument provides for a promise to pay the registered owner Filriters. Very clearly, the instrument was
only payable to Filriters. It lacked the words of negotiability which should have served as an expression of the
consent that the instrument may be transferred by negotiation. The language of negotiability which characterizes a
negotiable paper as a credit instrument is its freedom to circulate as a substitute for money. Hence, freedom of
negotiability is the touchstone relating to the protection of holders in due course, and the freedom of negotiability
is the foundation for the protection, which the law throws around a holder in due course. This freedom in
negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to pay a sum of money to a
specified person or entity for a period of time. The transfer of the instrument from Philfinance to TRB was merely
an assignment, and is not governed by the negotiable instruments law.
The pertinent question then is—was the transfer of the CBCI from Filriters to Philfinance and subsequently from
Philfinance to TRB, in accord with existing law, so as to entitle TRB to have the CBCI registered in its name with the
Central Bank? Clearly shown in the record is the fact that Philfinance’s title over CBCI is defective since it acquired
the instrument from Filriters fictitiously. Although the deed of assignment stated that the transfer was for ‘value
received‘, there was really no consideration involved. What happened was Philfinance merely borrowed CBCI from
Filriters, a sister corporation. Thus, for lack of any consideration, the assignment made is a complete nullity.
Furthermore, the transfer wasn't in conformity with the regulations set by the CB. Giving more credence to rule
that there was no valid transfer or assignment to petitioner.
5) How Negotiations Takes Place (Sec. 16, 30, 40, NIL)

Read:
176) Manuel Lim vs CA, 251 SCRA 409, (GR No. 107898; Dec. 19, 1995)
Facts:
Manuel Lim and Rosita Lim are the officers of the Rigi Bilt Industries, Inc. (RIGI) which had been transacting
business with Linton Commercial Company, Inc. The Lims ordered several steel plates and purlins from Linton and
were delivered to the Lim’s place of business which was in Caloocan. To pay Linton, the petitioners issued seven
checks. When the checks were presented to the drawee bank (Solidbank), they were dishonored because payment
for the checks had been stopped and/or insufficiency of funds. As a result, petitioners were found guilty with
Estafa and 7 counts of violation of BP 22 by the Malabon RTC. On appeal, the CA reversed the trial court’s decision
on Estafa but upheld the decision on violation of BP 22, hence, this petition.
ISSUE: WON the issue was within the jurisdiction of the Malabon RTC?
HELD:
The venue of jurisdiction lies either in the RTC Caloocan or Malabon Trial Court. BP 22 is a continuing crime. A
person charged with a transitory crime may be validly tried in any municipality or territory where the offense was
partly committed. In determining the proper venue, the ff. must be considered.
1) 7 checks were issued to Linton in its place of business in Navotas.
2) The checks were delivered Linton in the same place.
3) The checks were dishonored in Caloocan
4) The Lims had knowledge of their insufficiency of funds.
Under Section 191 of the Negotiable Instruments Law, issue means the first delivery of the instrument
complete in its form to a person who takes it as holder. The term holder on the other hand refers to the payee
or endorsee of a bill or note who is in possession of it or the bearer thereof. The place where the bills were
written, signed or dated does not necessarily fix or determine the place where they were executed. It is the
delivery that is important. It is the final act essential to its consummation of an obligation. An undelivered bill is
unoperative. The issuance and delivery of the check must be to a person who takes it as a holder. In the case at
bar, although Linton sent a collector who received the checks from the petitioners’ place of business, the checks
were actually issued and delivered to Linton in Navotas. The collector is not a holder or an agent, he was just an
employee.
177) Dela Victoria vs Burgos, 245 SCRA 374, June 27, 1995 (GR No. 111190; June 27, 1995)
Facts:
Raul Sebreño filed a complaint for damages against Fiscal Bienvenido Mabanto Jr. of Cebu City. Sebreño won and
he was awarded the payment of damages. Judge Burgos ordered De La Victoria, custodian of the paychecks of
Mabanto, to hold the checks and convey them to Sebreño instead. De La Victoria assailed the decision as he said
that the paychecks and the amount thereon are not yet the property of Mabanto because they are not yet
delivered to him; that since there is no delivery of the checks to Mabanto, the checks are still part of the public
funds; and the checks due to the foregoing cannot be the proper subject of garnishment.
ISSUE: WON De La Victoria is correct?
HELD:
Yes. Under Section 16 of the Negotiable Instruments Law, every contract on a negotiable instrument is incomplete
and revocable until delivery of the instrument for the purpose of giving effect thereto. As ordinarily understood,
delivery means the transfer of the possession of the instrument by the maker or drawer with intent to transfer title
to the payee and recognize him as the holder thereof.
178) Development Bank of Rizal vs Sima Wei, 217 SCRA 743, (GR No. 85419; March 9, 1993)
Facts:
In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the latter executed and delivered
to the former a promissory note, engaging to pay the petitioner Bank or order the amount of P1,820,000.00 on or
before June 24, 1983 with interest at 32% per annum . Sima Wei made partial payments on the note, leaving a
balance of P1,032,450.02. On November 18, 1983, Sima Wei issued two crossed checks payable to petitioner Bank
drawn against China Banking Corporation, bearing respectively the serial numbers 384934, for the amount of
P550,000.00 and 384935, for the amount of P500,000.00. The said checks were allegedly issued in full settlement
of the drawer's account evidenced by the promissory note. These two checks were not delivered to the petitioner-
payee or to any of its authorized representatives. For reasons not shown, these checks came into the possession of
respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement (forged or
otherwise) to the account of respondent Plastic Corporation, at the Balintawak branch, Caloocan City, of the
Producers Bank. Cheng Uy, Branch Manager of the Balintawak branch of Producers Bank, relying on the assurance
of respondent Samson Tung, President of Plastic Corporation, that the transaction was legal and regular, instructed
the cashier of Producers Bank to accept the checks for deposit and to credit them to the account of said Plastic
Corporation, inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no
indorsement of the latter. Hence, petitioner filed the complaint as aforestated.
ISSUE:
WON petitioner Bank has a cause of action against any or all of the defendants, in the alternative or otherwise?
HELD:
A cause of action is defined as an act or omission of one party in violation of the legal right or rights of another.
The essential elements are:
(1) legal right of the plaintiff;
(2) correlative obligation of the defendant; and
(3) an act or omission of the defendant in violation of said legal right.
The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long recognized the
business custom of using printed checks where blanks are provided for the date of issuance, the name of the
payee, the amount payable and the drawer's signature. All the drawer has to do when he wishes to issue a check is
to properly fill up the blanks and sign it. However, the mere fact that he has done these does not give rise to any
liability on his part, until and unless the check is delivered to the payee or his representative. A negotiable
instrument, of which a check is, is not only a written evidence of a contract right but is also a species of property.
Just as a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable
instrument be delivered to the payee in order to evidence its existence as a binding contract. Section 16 of the
Negotiable Instruments Law, which governs checks, provides in part: “Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto”. Thus, the
payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Delivery of an
instrument means transfer of possession, actual or constructive, from one person to another. Without the initial
delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Moreover,
such delivery must be intended to give effect to the instrument. The allegations of the petitioner in the original
complaint show that the two (2) China Bank checks, numbered 384934 and 384935, were not delivered to the
payee, the petitioner herein. Without the delivery of said checks to petitioner-payee, the former did not acquire
any right or interest therein and cannot therefore assert any cause of action, founded on said checks , whether
against the drawer Sima Wei or against the Producers Bank or any of the other respondents. In the original
complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on the promissory note, and the alternative
defendants, including Sima Wei, on the two checks. On appeal from the orders of dismissal of the Regional Trial
Court, petitioner Bank alleged that its cause of action was not based on collecting the sum of money evidenced by
the negotiable instruments stated but on quasi - delict — a claim for damages on the ground of fraudulent acts and
evident bad faith of the alternative respondents. This was clearly an attempt by the petitioner Bank to change not
only the theory of its case but the basis of his cause of action. It is well-settled that a party cannot change his
theory on appeal, as this would in effect deprive the other party of his day in court. Notwithstanding the above, it
does not necessarily follow that the drawer Sima Wei is freed from liability to petitioner Bank under the loan
evidenced by the promissory note agreed to by her. Her allegation that she has paid the balance of her loan with
the two checks payable to petitioner Bank has no merit for, as We have earlier explained, these checks were never
delivered to petitioner Bank. And even granting, without admitting, that there was delivery to petitioner Bank, the
delivery of checks in payment of an obligation does not constitute payment unless they are cashed or their value is
impaired through the fault of the creditor. None of these exceptions were alleged by respondent Sima Wei.
Therefore, unless respondent Sima Wei proves that she has been relieved from liability on the promissory note by
some other cause, petitioner Bank has a right of action against her for the balance due thereon. However, insofar
as the other respondents are concerned, petitioner Bank has no privity with them. Since petitioner Bank never
received the checks on which it based its action against said respondents, it never owned them (the checks) nor
did it acquire any interest therein. Thus, anything which the respondents may have done with respect to said
checks could not have prejudiced petitioner Bank. It had no right or interest in the checks which could have been
violated by said respondents. Petitioner Bank has therefore no cause of action against said respondents, in the
alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of action against her co-
respondents, if the allegations in the complaint are found to be true.
6) Incomplete Negotiation of Order Instrument (Sec. 49, NIL)
7) Where Indorsement Should be Placed (Sec. 31, NIL)
8) When Person Deemed Indorser (Sec. 63, NIL)
9) Other Rules on Indorsement (Sec. 31, 32, 40-48, 49, NIL)

Read:
179) Enrique Montinola vs PNB, 68 Phil 178, (GR No. L - 2861 ; Feb. 26, 1951)
Facts:
In 1942, Mariano Ramos, as disbursing officer of an army division of United States Armed Forces in the Far East
(USAFFE) and based in Misamis Oriental, procured cash advances in the amount of Php800,000 with the Provincial
Treasurer (PT) of Lanao for the use of USAFFE in Cagayan de Misamis. PT-Lanao did not have that amount in cash
so he gave Ramos P300,000 in emergency notes and a check for P500,000. Thereafter, Ramos presented the check
to their PT in their province for encashment. PT-Misamis did not have enough cash to cover the check so he gave
Ramos P400,000 in emergency notes and a check for P100,000 drawn on the PNB as he had previously deposited
P500,000 emergency notes in the PNB branch in Cebu and thus he expected to have the check issued by him
cashed in Cebu against said deposit. Ramos was unable to encash said check for he was captured by the Japanese
and later made a prisoner of war. After his release, sometime in 1945, Ramos allegedly indorsed the check to
herein plaintiff-appellant. According to Montinola’s version of the circumstances that roused the present
controversy, Ramos, who then was no longer connected with the USAFFE but already a civilian who needed the
money only for himself and his family, offered to sell the check to him. But as stated by Ramos, he and Montinola
agreed to the sale of said check and the agreement regarding the transfer of the check was that he was selling only
P30,000 of it and for such reason, at the back of the document he wrote in longhand: Pay to the order of Enrique
P. Montinola P30,000 only. The balance to be deposited in the Philippine National Bank to the credit of M. V.
Ramos . Ramos further said that in exchange for this assignment of P30,000, Montinola would pay him P90,000 in
Japanese military notes but that the latter gave him only two checks of P20,000 and P25,000, leaving a balance
unpaid of P45,000. The writing made at the back of the check was, however, mysteriously obliterated and in its
place, a supposed indorsement appearing on the back of the check was made for the whole amount of the check.
ISSUE:
WON the check was legally negotiated within the meaning of the NIL in view of the fact that the instrument was
indorsed for a lesser amount?
HELD:
NO. Section 32 of the NIL provides that "the indorsement must be an indorsement of the entire instrument. An
indorsement which purports to transfer to the indorsee a part only of the amount payable (as in this case) does
not operate as a negotiation of the instrument." As to what was really written at the back of the check which
Montinola claims to be a full indorsement of the check, the Court agreed with trial court that the original writing of
Ramos on the back of the check was to the effect that he was assigning only P30,000 of the value of the document
and that he was instructing the bank to deposit to his credit the balance. Montinola may therefore not be regarded
as an indorsee. At most he may be regarded as a mere assignee of the P30,000 sold to him by Ramos, in which
case, as such assignee, he is subject to all defenses available to the drawer Provincial Treasurer of Misamis Oriental
and against Ramos.
180) AngTekLian vs CA, GR L-2516, (GR No. L - 2516; Sept. 25, 1950)
Facts:
Knowing he had no funds therefor, petitioner Ang Tek Lian drew a check upon the China Banking Corporation for
the sum of P4,000, payable to the order of “cash”. He delivered it to Lee Hua Hong in exchange for money which
the latter handed in the act. The next business day, the check was presented by Lee Hua Hong to the drawee bank
for payment, but it was dishonored for insufficiency of funds, the balance of the deposit of Ang Tek Lian on both
dates being P335 only. Petitioner was sued for estafa. In his defense, however, he argues that as the check had
been made payable to “cash” and had not been endorsed by Ang Tek Lian, the defendant is not guilty of the
offense charged.
ISSUE: WON a check payable to “cash” needs indorsement?
HELD:
NO. Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order of “cash” is a check
payable to bearer, and the bank may pay it to the person presenting it for payment without the drawer’s
indorsement. 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 need not obtain any
indorsement of the check, but may pay it to the person presenting it without any indorsement.
10) Kinds of Indorsement (Sec. 33, NIL)
a) Blank and Special Indorsements (Sec. 34, 35, NIL)
i. conversion of blank to special indorsement (Sec.

35, NIL)
b) Qualified and General Indorsement (Sec. 38, 65, NIL)

Read:
181) Metropol (Bacolod) Financing vs. Sambok Motors, 120 SCRA 864, (GR No. L - 39641 ;
Feb. 28, 1983 )
Facts:
Sambok Motors Company negotiated and indorsed the note in favor of plaintiff Metropol Financing & Investment
Corporation with the following indorsement: "Pay to the order of Metropol Bacolod Financing & Investment
Corporation with recourse. Notice of Demand; Dishonor; Protest; and Presentment are hereby waived. SAMBOK
MOTORS CO. (BACOLOD) By: RODOLFO G. NONILLO Asst. General Manager". The maker, Dr. Villaruel defaulted in
the payment. Plaintiff notified Sambok as indorsee of said note of the fact that the same has been dishonored and
demanded payment. Sambok failed to pay. Trial court rendered its decision in favor of Plaintiff. Appellant Sambok
argues that by adding the words "with recourse" in the indorsement of the note, it becomes a qualified indorser;
that being a qualified indorser, it does not warrant that if said note is dishonored by the maker on presentment, it
will pay the amount to the holder.
ISSUE: WON Sambok is a qualified indorser?
HELD:
Appellant, by indorsing the note "with recourse'' does not make itself a qualified indorser but a general indorser
who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails to pay the note,
plaintiffappellee can go after said appellant. The effect of such indorsement is that the note was indorsed without
qualification. A person who indorses without qualification engages that on due presentment, the note shall be
accepted or paid, or both as the case may be, and that if it be dishonored, he will pay the amount thereof to the
holder. Appellant Sambok's intention of indorsing the note without qualification is made even more apparent by
the fact that the notice of' demand, dishonor, protest and presentment were all waived. The words added by said
appellant do not limit his liability, but rather confirm his obligations as a general indorser.
c) Conditional Indorsement (Sec. 39, NIL)
d) Restrictive Indorsement (Sec. 36, 37, 47, NIL)
Read:
182) Gempesaw vs. CA, 218 SCRA 628, Feb. 9, 1993 ( GR No. 92244; Feb . 9, 1993)
Facts:
Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor of several supplies.
Most of the checks for amounts in excess of actual obligations as shown in their corresponding invoices. It was only
after the lapse of more than 2 years did she discovered the fraudulent manipulations of her bookkeeper. It was
also learned that the indorsements of the payee were forged, and the checks were brought to the chief accountant
of Philippine Bank of Commerce (the Drawee Bank, Buendia Branch) who deposited them in the accounts of
Alfredo Romero and Benito Lam. Gempesaw made demand upon the bank to credit the amount charged due the
checks. The bank refused. Hence, the present action.
ISSUE: Who shall bear the loss resulting from the forged indorsements?
HELD:
As a rule, a drawee bank who has paid a check on which an indorsement 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 checks. Gempesaw did not exercise prudence in taking steps that
a careful and prudent businessman would take in circumstances to discover discrepancies in her account. Her
negligence was the proximate cause of her loss, and under Section 23 of the Negotiable Instruments Law, is
precluded from using forgery as a defense. On the other hand, the banking rule banning acceptance of checks for
deposit or cash payment with more than one indorsement unless cleared by some bank officials, does not
invalidate the instrument; neither does it invalidate the negotiation or transfer of said checks. The only kind of
indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the
further negotiation thereof, pursuant to Section 36 of the Negotiable Instruments Law. In light of any case not
provided for in the Act that is to be governed by the provisions of existing legislation, pursuant to Section 196 of
the Negotiable Instruments Law, the bank may be held liable for damages in accordance with Article 1170 of the
Civil Code. The drawee bank, in its failure to discover the fraud committed by its employee and in contravention
banking rules in allowing a chief accountant to deposit the checks bearing second indorsements, was adjudged
liable to share the loss with Gempesaw on a 50:50 ratio.
e) Absolute Indorsement
f) Joint Indorsement (Sec. 41, NIL)
g) Irregular Indorsement (Sec. 64, NIL)
11) When Indorsement Necessary (Sec. 30, 184, NIL)

12) Indorsement of Entire Instrument (Sec. 32, NIL)
13) Indorsement of Bearer Instrument (Sec. 32, NIL)
14) Indorsement When Payable to Two or More Persons (Sec. 41, NIL)
15) Indorsement in Representative Capacity (Sec. 44, NIL)
16) Presumption on Time, Place of Indorsement (Sec. 45, 46, NIL)
17) Continuation of Negotiable Character (Sec. 47, NIL)
18) Negotiation by Prior Party (Sec. 50, NIL)
19) Striking Out of Indorsement (Sec. 48, NIL)
20) Effect of Transfer Without Indorsement (Sec. 49, NIL)
21) Consideration for Issuance and Subsequent Transfer (Sec. 24, NIL)
22) What Constitutes Value (Sec. 25, NIL)

Read:
183) Bibiano Banas vs. CA, 325 SCRA 259, (GR No. 102967; Feb. 10, 2000)
Facts:
Petitioner sold to Ayala Investment Corporation (Ayala) a lot for P2,308,770 to be paid P461,754 upon signing of
the contract and the balance covered by a promissory note to be paid in four equal annual installments. On the
same day, petitioner discounted the promissory note with Ayala. On the year of sale, petitioner reported the
P461,754 as sales proceeds and the balance as unrealized, and consistently reported in the succeeding years the
installment that fell due. On 1978, Revenue Director of Manila authorized herein respondents Tuazon and Talon to
examine the books and records of petitioner to which they assessed him for deficiency taxes, arguing that since
the note evidencing the installment nature of the sale was discounted the same year it was issued, the sale should
be treated as a cash transaction and not installment and accordingly the whole amount of gain on disposition
should have been reported in 1976, the year of sale.
ISSUE:
WON the proceeds of the discounted note should have been reported as taxable income during 1976 and not
deferred on installments?
HELD:
Yes. As a general rule, the whole profit accruing from a sale of property is taxable as income in the year the sale is
made. But, if not all of the sale price is received during such year, and a statute provides that income shall be
taxable in the year in which it is “received”, the profit from an installment sale is to be apportioned between or
among the years in which the installments are paid and received. However, the proceeds from the disposition or
discounting of receivable, though not considered in computing for “initial payments” under Sec. 43 and Sec. 175 of
the Tax Code, it is still taxable in the year it was converted to cash. Non-dealer sales of property may be reported
as income under the installment method provided that the obligation is still outstanding at the close of the year.
Where an installment obligation is discounted at a bank or finance company, a taxable disposition results.
Clearly, the indebtedness of the buyer is discharged, while the seller acquires money for the settlement of his
receivables. Logically then, the income should be reported at the time of the actual gain.
23) Effect if Value Previously Given (Sec. 26, NIL)
24) Holder for Value (Sec. 26, 27, NIL)
25) Effect of Want of Consideration (Sec. 28, NIL)

26) Indorsement to Cashier (Sec. 42, NIL)
27) When name of payee or indorser wrongfully designated (Sec. 43, NIL)
IV. HOLDERS
1) What is a holder (Sec. 191, NIL)
a) Classes of Holder (Sec. 26, 27, 52, NIL)
b) Rights of Holders (Sec. 51, 88, 119, NIL)

Read:
184) Chan Wan vs. Tan Kim, 109 Phil 706, ( G.R . No. L - 15380; September 30, 1960 )
Facts:
The drawer in drawing the check engaged that "on due presentment, the check would be paid, and that if it be
dishonored . . . he will pay the amount thereof to the holder". On the backs of the checks, endorsements which
apparently show they had been deposited with the China Banking Corporation and were, by the latter, presented
to the drawee bank for collection. The court declined to order payment for two principal reasons: (a) plaintiff failed
to prove he was a holder in due course, and (b) the checks being crossed checks should not have been deposited
instead with the bank mentioned in the crossing.
ISSUE: WON a holder who is not a holder in due course may recover on the checks?
HELD:
YES. The Negotiable Instruments Law does not provide that a holder, who is not a holder in due course, may not
in any case, recover on the instrument. If B purchases an overdue negotiable promissory note signed by A, he is
not a holder in due course; but he may recover from A, if the latter has no valid excuse for refusing payment. The
only disadvantage of holder who is not a holder in due course is that the negotiable instrument is subject to
defense as if it were non- negotiable.
185) Atrium Management vs CA, 144 SCAD 390, (G.R. N o. 109491; F ebruary 28, 2001)
Facts:
Hi-Cement Corp. issued checks in favor of E.T. Henry and Co. Inc., as payee. The latter, in turn, endorsed the checks
to Atrium for valuable consideration. But upon presentment for payment, the drawee bank dishonored the checks
for the common reason "payment stopped" which prompted petitioner to institute this action. The trial court
rendered a decision ordering E.T. Henry and Co., Inc. and Hi-Cement to pay petitioner Atrium, jointly and severally,
the amount corresponding to the value of the checks. CA, however, absolved & ruled, inter alia, that Lourdes de
Leon of Hi-Cement was not authorized to issue the subject checks in favor of E.T. Henry, Inc.
ISSUE: WON petitioner Atrium is a holder in due course?
HELD: To emphasize, the checks were crossed checks and specifically indorsed for deposit to payee's (E.T. Henry)
account only. Atrium was aware of the fact that the checks were all for deposit only to payee's account. Clearly,
then, Atrium could not be considered a holder in due course. The SC, however, held that it does not follow as a
legal proposition that simply because petitioner Atrium was not a holder in due course for having taken the
instruments in question with notice that the same was for deposit only to the account of payee E.T. Henry that it
was altogether precluded from recovering on the instrument. The Negotiable Instruments Law does not provide
that a holder not in due course cannot recover on the instrument. The disadvantage of Atrium in not being a
holder in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. One such
defense is absence or failure of consideration.
186) Marcelo Mesina vs CA, 145 SCRA 497, ( G.R. No. 70145 November 13, 1986)
Facts:
Jose Go purchased from Associated Bank a cashier's check for P800,000.00. Unfortunately, he left said check on
the top of the desk of the bank manager when he left the bank. The bank manager entrusted the check for
safekeeping to a bank official, a certain Albert Uy. While Uy went to the men's room, the check was stolen by his
visitor in the person of Alexander Lim. Upon discovering that the check was lost, Jose Go accomplished a "STOP
PAYMENT" order. Two days later, Associated Bank received the lost check for clearing from Prudential Bank. After
dishonoring the same check twice, Associated Bank received summons and copy of a complaint for damages of
Marcelo Mesina who was in possession of the lost check and is demanding payment. Petitioner claims that a
cashier's check cannot be countermanded in the hands of a holder in due course.
ISSUE: WON petitioner can collect on the stolen check on the ground that he is a holder in due course?
HELD:
No. Petitioner failed to substantiate his claim that he is a holder in due course and for consideration or value as
shown by the established facts of the case. Admittedly, petitioner became the holder of the cashier's check as
endorsed by Alexander Lim who stole the check. He refused to say how and why it was passed to him. He had
therefore notice of the defect of his title over the check from the start. The holder of a cashier's check who is not a
holder in due course cannot enforce such check against the issuing bank which dishonors the same. A person who
became the holder of a cashier's check as endorsed by the person who stole it and who refused to say how and
why it was passed to him is not a holder in due course.
2) Holders in Due Course (Sec. 52, 53, 54, 55, 56, 88, NIL)
a) instrument complete and regular
b) taken before overdue (Sec. 4, 7, 53, 83, 85, NIL)
c) previously dishonored (Sec. 83, 149, NIL)
d) notice of infirmity or defect (Sec. 54, 55, 56, NIL)
e) good faith
Read:
187) Equitable Banking vs. Special Steel, GR 175350, June 13, 2012
Facts:
Augusto L. Pardo (Pardo) is SSPI’s President and majority stockholder. International Copra Export Corporation
(Interco) is its regular customer. Jose Isidoro Uy, alias Jolly Uy (Uy), is an Interco employee, in charge of the
purchasing department, and the son-in-law of its majority stockholder. Petitioner Equitable Banking Corporation
(Equitable or bank) is a private domestic corporation engaged in banking and is the depository bank of Interco and
of Uy. In 1991, SSPI sold welding electrodes to Interco, as evidenced by the following sales invoices: Sales Invoice
No. 65042 dated February 14, 1991 for P 325,976.34 Sales Invoice No. 65842 dated April 11, 1991 for P 345,412.80
Sales Invoice No. 65843 dated April 11, 1991 for P 313,845.84 The due dates for these invoices were March 16,
1991 (for the first sales invoice) and May 11, 1991 (for the others). The invoices provided that Interco would pay
interest at the rate of 36% per annum in case of delay. and July 29, 1991. In payment for the above welding
electrodes, Interco issued three checks payable to the order of SSPI on July 10, 1991, July 16, 1991, Each check was
crossed with the notation “account payee only” and was drawn against Equitable. The records do not identify the
signatory for these three checks, or explain how Uy, Interco’s purchasing officer, came into possession of these
checks. The records only disclose that Uy presented each crossed check to Equitable on the day of its issuance and
claimed that he had good title thereto. He demanded the deposit of the checks in his personal accounts in
Equitable, Account No. 188412 and Account No. 03474-0.
Issue: Whether or not the payment made by Equitable is proper.
Held:
No. 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 diversion of the checks would be averted. This expectation arises from the
accepted banking practice that crossed checks are intended for deposit in the named payee’s account only and no
other. At the very least, the nature of crossed checks should place a bank on notice that it should exercise more
caution or expend more than a cursory inquiry, to ascertain whether the payee on the check has authorized the
holder to deposit the same in a different account. It is well to remember that “[t]he 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, banks have attained an [sic] ubiquitous presence among the people, who have come to regard
them with respect and even gratitude and, above all, trust and confidence. In this connection, it is important that
banks should guard against injury attributable to negligence or bad faith on its part. As repeatedly emphasized,
since the banking business is impressed with public interest, the trust and confidence of the public in it is of
paramount importance. Consequently, the highest degree of diligence is expected, and high standards of integrity
and performance are required of it.”
Equitable did not observe the required degree of diligence expected of a banking institution under the existing
factual circumstances.
Equitable’s pretension that there is nothing under the circumstances that rendered Uy’s title to the checks
questionable is outrageous. These are crossed checks, whose manner of discharge, in banking practice, is
restrictive and specific. Uy’s name does not appear anywhere on the crossed checks. Equitable, not knowing the
named payee on the check, had no way of verifying for itself the alleged genuineness of the indorsement to Uy.
The checks bear nothing on their face that supports the belief that the drawer gave the checks to Uy. Uy’s
relationship to Interco’s majority stockholder will not justify disregarding what is clearly ordered on the checks.
188) De Ocampo vs Gatchalian, 3 SCRA 596, (GR No. L-15126 ;Nov. 30, 1961)
Facts:
Herein defendants issued a check amounting to P600 to one Manuel Gonzales, who represented himself as
authorized by the owner of the car, Ocampo Clinic, which will be shown to the owner as evidence of defendants’
good faith in the intention to purchase the said car. Without knowledge of this transaction, plaintiff received from
Gonzales the subject check for the payment of the hospitalization of his wife. On the failure of Gonzales to appear
the day following, to bring the car and its certificate of registration and to return the check on the following day as
previously agreed upon, defendant Gatchalian issued a "Stop Payment Order" on the check, with the drawee bank.
The CFI of Manila then ordered defendants to pay the plaintiff the sum of P600 with legal interest until paid. In this
action, defendants seek to recover the value of the check, contending that plaintiff is not a holder in due course.
ISSUE: WON plaintiff is a holder in due course?
HELD:
Under the Negotiable Instruments Law, Section 52 (c) provides that a holder in due course is one who takes the
instrument "in good faith and for value;" Section 59, "that every holder is deemed prima facie to be a holder in due
course;" and Section 52 (d), that in order that one may be a holder in due course it is necessary that "at the time
the instrument was negotiated to him "he had no notice of any . . . defect in the title of the person negotiating it;"
and lastly Section 59, that every holder is deemed prima facie to be a holder in due course. In the case at bar the
rule that a possessor of the instrument is prima facie a holder in due course does not apply because there was a
defect in the title of the holder (Manuel Gonzales), because the instrument is not payable to him or to bearer. On
the other hand, the stipulation of facts indicated by the appellants in their brief, like the fact that the drawer had
no account with the payee; that the holder did not show or tell the payee why he had the check in his possession
and why he was using it for the payment of his own personal account — show that holder's title was defective or
suspicious, to say the least. As holder's title was defective or suspicious, it cannot be stated that the payee
acquired the check without knowledge of said defect in holder's title, and for this reason the presumption that it is
a holder in due course or that it acquired the instrument in good faith does not exist. And having presented no
evidence that it acquired the check in good faith, it (payee) cannot be considered as a holder in due course. In
other words, under the circumstances of the case, instead of the presumption that payee was a holder in good
faith, the fact is that it acquired possession of the instrument under circumstances that should have put it to
inquiry as to the title of the holder who negotiated the check to it. The burden was, therefore, placed upon it to
show that notwithstanding the suspicious circumstances, it acquired the check in actual good faith. In the case at
bar as the payee acquired the check under circumstances which should have put it to inquiry, why the holder had
the check and used it to pay his own personal account, the duty devolved upon it, plaintiff-appellee, to prove that
it actually acquired said check in good faith. The stipulation of facts contains no statement of such good faith,
hence, plaintiff payee has not proved that it acquired the check in good faith and may not be deemed a holder in
due course thereof. It was payee's duty to ascertain from the holder Manuel Gonzales what the nature of the
latter's title to the check was or the nature of his possession. Having failed in this respect, we must declare that
plaintiff-appellee was guilty of gross neglect in not finding out the nature of the title and possession of Manuel
Gonzales, amounting to legal absence of good faith, and it may not be considered as a holder of the check in good
faith. To such effect is the consensus of authority.
189) Yang vs CA, No. 138074, (GR No. 138074; Aug. 15, 2003)
Facts:
Cely Yang and Prem Chandiramani were to exchange dollar drafts and checks with the difference to be divided
equally as their profit. Chandiramani did not appear at the rendezvous and Ranigo, Yang’s representative, allegedly
lost the two cashier’s checks and the dollar draft bought by petitioner. Ranigo reported the alleged loss of the
checks and the dollar draft to Liong. Liong, in turn, informed Yang, and the loss was then reported to the police.
The checks and the dollar draft were not lost because Chandiramani was able to get hold of said instruments,
without delivering the exchange consideration consisting of the PCIB manager’s check and the Hang Seng Bank
dollar draft. Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be lost. Both
banks complied with her request, but upon the representation of PCIB, FEBTC subsequently lifted the stop
payment order on FEBTC Dollar Draft No. 4771. Yang lodged a Complaint for injunction and damages against
Equitable, Chandiramani, and David (payee of the subject checks). The Court rendered judgment in favor of
defendant Fernando David against the plaintiff Cely Yang and declaring the former entitled to the proceeds of the
two (2) cashier’s checks.
ISSUE: WON Fernando David is a holder in due course?
HELD:
Yes. Petitioner fails to point any circumstance which should have put David on inquiry as to the why and
wherefore of the possession of the checks by Chandiramani. David was not privy to the transaction between
petitioner and Chandiramani. Instead, Chandiramani and David had a separate dealing in which it was precisely
Chandiramani’s duty to deliver the checks to David as payee. The evidence shows that Chandiramani performed
said task to the letter. Petitioner admits that David took the step of asking the manager of his bank to verify from
FEBTC and Equitable as to the genuineness of the checks and only accepted the same after being assured that
there was nothing wrong with said checks. At that time, David was not aware of any "stop payment" order. Under
these circumstances, David thus had no obligation to ascertain from Chandiramani what the nature of the latter’s
title to the checks was, if any, or the nature of his possession. Thus, we cannot hold him guilty of gross neglect
amounting to legal absence of good faith, absent any showing that there was something amiss about
Chandiramani’s acquisition or possession of the checks. David did not close his eyes deliberately to the nature or
the particulars of a fraud allegedly committed by Chandiramani upon the petitioner, absent any knowledge on his
part that the action in taking the instruments amounted to bad faith. Moreover, the factual circumstances in D e O
c a m p o and in B a t a a n Cig a r are not present in this case. For here, there is no dispute that the crossed checks
were delivered and duly deposited by David, the payee named therein, in his bank account. In other words, the
purpose behind the crossing of the checks was satisfied by the payee.
190) Bataan Cigar vs CA, 230 SCRA 643 (1994) (GR No. 93048; March 3, 1994)
Facts:
BCCFI issued to King Tim Pua George (George King) post-dated crossed checks for the delivery tobacco leaves.
George King later on sold at a discount the subject checks to SIHI. In as much as George King failed to deliver the
bales of tobacco leaves as agreed, despite petitioner’s demand, BCCFI issued a stop payment order on all checks
payable to George King. Unable to collect, SIHI instituted an action to recover from herein petitioner and was
granted relief by the trial court and later on upheld by the CA. Hence, the present petition.
ISSUE: WON SIHI, a second indorser, a holder of crossed checks, a holder in due course?
HELD:
No. Sec. 52 of the Negotiable Instruments Law (NIL) states what constitutes a holder in due course, thus:
Sec. 52 – 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 had been
previously dishonored, if such was the fact;
c. That he took it in good faith and for value;
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.
Jurisprudence has pronounced that crossing a check should have 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 one who has an account
with a bank; (c) and the act of crossing the check serves as warning to the holder that the check has been issued f o
r a d e finit e 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 . It is settled that crossing the checks should put the holder on inquiry and upon him
devolves the duty to ascertain the indorser’s title to the check or the nature of his possession. Failing in this
respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith, contrary to Sec.
52(c) of the NIL. In the present case, BCCFIs defense in stopping payment is as good to SIHI as it is to George King.
Because, really, the checks were issued with the intention that George King would supply BCCFI with the bales of
tobacco leaf. There being failure of consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot
be obliged to pay the checks.
191) Stelco Marketing vs CA, 210 SCRA 51, (GR No. 96160 ; June 17, 1992)
Facts:
Stelco Marketing Corporation is engaged in the distribution and sale to the public of structural steel bars. On 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" — a check drawn against Metrobank in the amount of P126,129.86, numbered 765380 and dated 4 April
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. 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, 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 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. They were acquitted in a decision
rendered on 28 June 1984 "on the ground that the check in question was not issued by the drawer 'to apply on
account for value,' it being merely for accommodation purposes." That judgment however conditioned the
acquittal with the pronouncement that "this is not however to release Steelweld Corporation from its liability
under Sec. 29 of the Negotiable Instruments Law for having issued it for the accommodation of Romeo Lim."
Eleven months later — and some 4 years after issuance of the check — in May, 1985, STELCO filed with the
Regional Trial Court of Caloocan City a civil complaint against both RYL and STEELWELD for the recovery of the
value of the steel bars and wire sold to and delivered to RYL in the amount of P126,129.86, plus 18% interest from
20 August 1980 and 25% of the total amount sought to be recovered as and by way of attorney's fees. A
preliminary attachment was issued by the trial court on the basis of the averments of the complaint but was
shortly dissolved upon the filing of a counter-bond by STEELWELD. RYL could no longer be located and could not be
served with summons. It never appeared. Only STEELWELD filed an answer, under date of 16 July 1985. Judgment
was rendered on 26 June 1986. The judgment sentenced Steelweld to pay to Stelco the amount of P126,129.86
with legal rate of interest from 9 May 1985, when the case was instituted until fully paid, plus another sum
equivalent to 25% of the total amount due as and for attorney's fees. STELCO's motion for reconsideration was
denied by the Appellate Tribunal's resolution dated 13 November 1990. STELCO appealed.
ISSUE NO. 1:
WON the fourth condition, i.e. as to notice, for a holder in due course is applicable to an accommodation party?
HELD: "A holder in due course," says the law, "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 had been previously dishonored, if such was the fact; (c) That he took it in good
faith and for value; (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 persons negotiating it." As regards an accommodation party (such as
STEELWELD), the fourth condition, i.e., lack of notice of any infirmity in the instrument or defect in title of the
persons negotiating it, has no application. This is because Section 29 of the law above quoted preserves the right
of recourse of a "holder for value" against the accommodation party notwithstanding that "such holder, at the
time of taking the instrument, knew him to be only an accommodation party."
ISSUE NO.2:
WON STELCO ever became a holder in due course of Check 765380, a bearer instrument within the contemplation
of the Negotiable Instruments Law?
HELD:
NO. It never did. There is no evidence whatever that STELCO's possession of Check 765380 ever dated back to any
time before the instrument's presentment and dishonor. There is no evidence whatsoever that the check was ever
given to it, or indorsed to it in any manner or form in payment of an obligation or as security for an obligation, or
for any other purpose before it was presented for payment. On the contrary, STELCO never became a holder for
value and that "(n)owhere in the check itself does the name of Stelco Marketing appear as payee, indorsee or
depositor thereof." What the record shows is that:
(1) the STEELWELD company check in question was given by its president to R.Y. Lim;
(2) it was given only by way of accommodation, to be "used as collateral for another obligation;"
(3) in breach of the agreement, however, R.Y. Lim indorsed the check to Armstrong in payment of an obligation;
(4) Armstrong deposited the check to its account, after indorsing it;
(5) the check was dishonored. The record does not show any intervention or participation by STELCO in any
manner or form whatsoever in these transactions, or any communication of any sort between STEELWELD and
STELCO, or between either of them and Armstrong Industries, at any time before the dishonor of the check. 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 RYL. 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." 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.
192) Go vs. Metropolitan Bank, GR 168842, August 11, 2010

SUMMARY:
Go, owner of Hope Pharmacy, filed complaints for sums of money against his employees, Chua and Tabaag and
Metrobank for unauthorized deposits and encashments of 32 crossed checks payable to Hope Pharmacy, in the
sum of P1.49M. In the RTC and CA, it was held that Chua and Tabaag were not liable for the encashments, since
the proceeds of the checks were used as payments for loans of Go from the parents of Chua. The only issue left for
resolution in the SC was whether Metrobank was liable for negligence for encashing the subject crossed checks.
The Court held that Metrobank was negligent for allowing the deposit of crossed checks which were issued in favor
and payable to petitioner and without being indorsed by the petitioner to the account of Chua.
DOCTRINE:
The crossing of a check is a warning that the check should be deposited only in the account of the payee. Thus, it is
the duty of the collecting bank to ascertain that the check be deposited to the payee’s account only.
FACTS:
• Petitioner filed 2 separate cases before RTC Cebu
o Civil Case CEB 9713- against Ma. Teresa Chua (Chua) and Glydah Tabaag (Tabaag) for a sum of money
o Civil Case CEB 9866- against Metropolitan Bank and Trust Company and Chua for a sum of money with
damages

• Petitioner is doing business under the name Hope Pharmacy which sells medicine in the City of Cebu. He had
in his employ the following persons:
o Chua- pharmacist and trustee or caretaker of the business
o Tabaag- took care of the receipts and invoices and assisted Chua in making deposits for petitioner’s
accounts in business operations of Hope Pharmacy
CEB-9713
• There were unauthorized deposits and encashments made by Chua and Tabaag in the total amount of
P109,433.30.
• FEBTC Check No. 251111 was issued by petitioner’s customer Loy Liboron in the payment of the stocks
purchased was deposited to a MetroBank Savings Account belonging to the defendant Chua.
• RCBC Checks Nos. 33059 and 294515, which were in blank but pre-signed by petitioner for convenience
intended for payment to his suppliers, were filled up and dated September 22, 1990 and September 7, 1990 in
the amount of P30,000 and P50,000 respectively and were deposited with defendant Chuas aforestated
account with Metrobank.
• PBC Check No. 005874 drawn by Elizabeth Enriquez payable to the Hope Pharmacy in the amount of P6,789.30
was encashed by the defendant Glyndah Tabaag
• There were unauthorized deposits and encashments in the total sum of P109,433.30.
CEB 9866
• There were 32 checks with Hope Pharmacy as payee, for varying sums, amounting to P1,492,595.06 that were
not endorsed by him but were deposited under the personal account of Chua with Metrobank.
• The said checks were crossed checks payable to Hope Pharmacy only
• Petitioner avers that without the participation and connivance of respondent bank, te checks could not have
been accepted for deposit to any other account, except petitioner’s account.
RTC
• RTC rendered a joint decision.
• Dismissed complaint against Chua and Tabaag in CEB 9713 as wells as complaint against Chua in CEB 9866
• Metrobank in CEB 9866 was ordered to pay Go the amount of P50,000 as moral damages and attorney’s fees
of P25,000
• Ratio of RTC:
o Absolved Chua because the subject checks in CEB No. 9866 were payments of petitioner for his loans from
the parents of Chua, through Chua, who was given the total discretion by petitioner to transfer money
from the offices of Hope Pharmacy to pay the advances and other obligations of the drugstore; she was
also given the full discretion where to source the funds to cover the daily overdrafts, even to the extent of
borrowing money with interest from other persons
o Declared Metrobank liable for being negligent in allowing the deposit of crossed checks without the
proper indorsement.
• CA affirmed the RTC decision.
RULING: Decision affirmed. Metrobank is liable for negligence.
Issue:
Whether Metrobank is liable for allowing the deposit of crossed checks which were issued in favor and payable to
petitioner and without being indorsed by the petitioner to the account of Chua
Held: YES. Metrobank is liable.
Crossed checks
• A check is a bill of exchange drawn on a bank payable on demand.
• A crossed check is one where two parallel lines are drawn across its face or across the corner thereof. It may
crossed generally or specially.
• A check is crossed specially when the name of a particular banker or company is written between the parallel
lines drawn.
• It is crossed generally when only the words “and company” are written or nothing is written at all between the
parallel lines. It may be issued so that presentment can be made only by a bank.
• Jurisprudence has pronounced that 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 one who has an account with a bank; and
c) The act of crossing the check serves as 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.
• The Court has taken judicial cognizance of the practice that a check with 2 parallel lines in the upper left hand
corner means that it could only be deposited and not converted into cash.
• The effect of crossing a check, thus, 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 crossing of a check is a warning that the check should be deposited only in the account of the payee. Thus,
it is the duty of the collecting bank to ascertain that the check be deposited to the payee’s account only.
As applied in the instant case
• There is no dispute that the subject 32 checks were crossed checks with petitioner names as payee.
• Bank has liability. It was negligent in permitting the deposit and encashment of the crossed checks without
proper indorsement
Extent of liability of the bank
• Petitioner: bank should be accountable for the entire amount of the checks because it accepted the checks for
deposit under Chua’s account despite the fact that the checks were crossed and that the payee named therein
was not Chua
• Respondent: petitioner is not entitled to the reimbursement of the total sum of P1.49M from either Chua or
the Bank since petitioner was not damaged thereby.
• Court: Respondent’s contention is meritorious. Bank should not be liable for the entire amount.
• The checks were actually given to Chua was payments by petitioners for loans obtained from the parents of
Chua.
• Petitioner’s non-inclusion of Chua and Tabaag in the petition before the Court is an admission by petitioner
that Chua, in representation of her parents, had rightful claim to the proceeds of the checks.
• Petitioner suffered no pecuniary loss in the deposit of the checks to the account of Chua.
Respondent bank was negligent in permitting the deposit and encashment of the crossed checks without the
proper indorsement; Bank liable for moral damages
• Bank presented Jonathan Davis as witness. He was the OIC and ranked second to the VP of the bank at the
time material to this case.
o He allowed Chua to deposit the checks subject of this litigation which were payable to Hope Pharmacy
o He said it was a privilege given to valued customers on a highly selective case to case basis, for marketing
purposes, based on trust and confidence.
o Chua told him that those checks belonged to her as payment for the advances she extended to Go/Hope
Pharmacy.
o Metrobank gave the privilege to Chua. The arrangement went on for about 3 years, without any
complaint from Go/ Hope Pharmacy
o Chua made a warrant that she would reimburse Metrobank if Go complained.
o He did not call or inform Go about this arrangement, because being a Chinese bank, transactions are
based on trust and confidence, and for him to inform Go about it, was tantamount to questioning the
integrity of their client, Chua.
• An indorsement is necessary for the proper negotiation of checks specially if the payee named therein or
holder thereof is not the one depositing or encashing it.
• Knowing fully well that subject checks were crossed, that the payee was not the holder and that the checks
contained no indorsement, respondent bank should have taken reasonable steps in order to determine the
validity of the representations made by Chua.
• Respondent bank was amiss in its duty as an agent of the payee. Prudence dictates that respondent bank
should not have merely relied on the assurances given by Chua.
• The law imposes a duty of extraordinary diligence on the collecting banks to scrutinize checks deposited with
it, for the purpose of determining their genuineness and regularity.
• As a business affected with public interest and because of the nature of its functions, the banks are under
obligation to treat the accounts of its depositors with meticulous case, always having in mind the fiduciary
nature of the relationship.

f) holder for value (Sec. 24-27, NIL)
3) Presumption of Due Course Holding (Sec. 59, NIL)
4) Rights of Holders in Due Course (Sec. 14, 16, 57, NIL); When Subject to Original Defenses (Sec.
58, NIL)
Read:
193) Salas vs CA, 181 SCRA 296, (G.R. No.76788, January 22, 1990)
Facts:
Juanita Salas (Petitioner) bought a motor vehicle from the Violago Motor Sales Corporation (VMS) as evidenced by
a promissory note. This note was subsequently endorsed to Filinvest Finance & Leasing Corporation (private
respondent) which financed the purchase. Petitioner defaulted in her installments allegedly due to a discrepancy in
the engine and chassis numbers of the vehicle delivered to her and those indicated in the sales invoice, certificate
of registration and deed of chattel mortgage, which fact she discovered when the vehicle figured in an accident.
This failure to pay prompted private respondent to initiate an action for a sum of money against petitioner before
the Regional Trial Court.
ISSUE: WON private respondent is a holder in due course?
HELD:
YES. The Promissory Note was negotiated by indorsement in writing on the instrument itself payable to the Order
of Filinvest Finance and Leasing Corporation and it is an indorsement of the entire instrument. Under the
circumstances, there appears to be no question that Filinvest is a holder in due course, having taken the
instrument under the following conditions:
[a] it is complete and regular upon its face;
[b] it became the holder thereof before it was overdue, and without notice that it had previously been
dishonored; [c] it took the same in good faith and for value; and
[d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the instrument or
defect in the title of VMS Corporation.
Accordingly, respondent corporation 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. This being so, petitioner cannot set up against respondent the defense of nullity of the
contract of sale between her and VMS.
194) State Investment House vs CA, 175 SCRA 311, July 13, 1989 (GR No. ; July 13, 1989)
Facts:
New Sikatuna Wood Industries, Inc. requested for a loan from Chua. The latter agreed to grant the same subject to
the condition that the former should wait until December 1980 when he would have the money. In view of this
agreement, private respondent Chua issued three (3) "crossed checks" payable to New Sikatuna Wood Industries,
Inc. all postdated December 22, 1980. Subsequently, New Sikatuna entered into an agreement with herein
petitioner State Investment House, Inc. whereby New Sikatuna assigned and discounted with petitioner eleven
(11) postdated checks including the aforementioned three (3) postdated checks issued by Chua. The checks,
however, were dishonored by reason of "insufficient funds", "stop payment" and "account closed", respectively.
Petitioner claims that despite demands on Chua to make good said checks, the latter failed to pay the same
necessitating the former to file an action for collection. When the CA reversed the trial court ruling favoring State
Investment House, the latter elevated the issue before the SC.
ISSUE:
WON petitioner is a holder in due course as to entitle it to proceed against private respondents Chua for the
amount stated in the dishonored checks?
HELD:
The Intermediate Appellate Court (now Court of Appeals), correctly elucidated that the effects of crossing a check
are: the check may not be encashed but only deposited in the bank; the check may be negotiated only once to one
who has an account with a bank; and 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. It results therefore that when State Investment House
rediscounted the check knowing that it was a crossed check he was knowingly violating the avowed intention of
crossing the check. Furthermore, his failure to inquire from the holder, party defendant New Sikatuna Wood
Industries, Inc., the purpose for which the three checks were cross despite the warning of the crossing, prevents
him from being considered in good faith and thus he is not a holder in due course. Being not a holder in due
course, plaintiff is subject to personal defenses, such as lack of consideration between appellants and New
Sikatuna Wood Industries. Note that under the facts the checks were postdated and issued only as a loan to New
Sikatuna Wood Industries, Inc. if and when deposits were made to back up the checks. Such deposits were not
made, hence no loan was made, hence, the three checks are without consideration (Sec. 28, Negotiable
Instruments Law).
195) Prudencio vs CA, 143 SCRA 7, (GR No.; July 14, 1986)
Facts:
In 1955, Concepcion and Tamayo Construction Enterprise had a contract with the Bureau of Public Works. The firm
needed fund to push through with the contract so it convinced spouses Eulalio and Elisa Prudencio to mortgage
their parcel of land with the Philippine National Bank for P10,000.00. Prudencio, without consideration, agreed and
so he mortgaged the land and executed a promissory note for P10k in favor of PNB. Prudencio also authorized PNB
to issue the P10k check to the construction firm. In December 1955, the firm executed a Deed of Assignment in
favor of PNB which provides that any payment from the Bureau of Public Works in consideration of work done (by
the firm) so far shall be paid directly to PNB – this will also ensure that the loan gets to be paid off before maturity.
Notwithstanding the provision in the Deed of Assignment, the Bureau of Public Works asked PNB if it can make the
payments instead to the firm because the firm needs the money to buy construction materials to complete the
project. Notwithstanding the provision of the Deed of Assignment, PNB agreed. And so the loan matured without
PNB actually receiving any payment from the Bureau of Public Works. Prudencio, upon learning that no payment
was made on the loan, petitioned to have the mortgage cancelled (to save his property from foreclosure). The trial
court ruled against Prudencio; the Court of Appeals affirmed the trial court. ISSUE: WON Prudencio should pay the
promissory note to PNB? HELD: No. PNB is not a holder in due course. Prudencio is an accommodation party for he
signed the promissory note as maker but he did not receive value or consideration therefor. He expected the firm
(accommodated party) to pay the loan – this obligation was shifted to the Bureau of Public Works by way of the
Deed of Assignment). As a general rule, an accommodation party is liable on the instrument to a holder for
value/in due course, notwithstanding such holder at the time of taking the instrument knew him to be only an
accommodation party. The exception is that if the holder, in this case PNB, is not a holder in due course. The court
finds that PNB is not a holder in due course because it has not acted in good faith when it waived the supposed
payments from the Bureau of Public Works contrary to the Deed of Assignment. Had the Deed been followed, the
loan would have been paid off at maturity.
196) Stelco Marketing vs CA, GR No. 96169, June 17, 1992

(supra , p. 166)
Facts:
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
RYL. 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." 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.
5) Rights of Holders Not in Due Course (Sec. 14, 16, 51, 53, NIL)
6) Accomodation Parties (Sec. 29, NIL)

7) Shelter Rule (Sec. 58, NIL)
Read:
197) Charles Fossum vs Fernandez Hermanos, 44 Phil 713, (GR No. L - 19461)
Facts:
Herein petitioner was the resident agent in Manila of the American Iron Products Company, Inc. (AIPCI), engaged
in business in New York City, while Fernandez Hermanos is a general commercial partnership engaged in business
in the Philippines. Fossum, acting as agent of AIPCI, procured an order from respondent to deliver a tail shaft, to be
installed on the ship Romulus . It was stipulated that the tail shaft would be in accordance with the specifications
contained in a blueprint given to Fossum and that the shaft should be shipped from New York in March or April
1920. The manufacture and shipment of the shaft was delayed considerably. Meanwhile AIPCI had drawn a time
draft for $2250, at 60 days, upon Fernandez Hermanos, for the price of the shaft, and payable to Philippine
National Bank (PNB). It was presented to Fernandez Hermanos for acceptance, and was accepted by the firm
according to its tenor. Subsequently, the shaft was found not to be in conformity with the specifications and was
incapable of use for its intended purpose. Upon discovering this, Fernandez Hermanos refused to pay the draft,
and it remained for a time dishonored in PNB Manila. Later the bank indorsed the draft in blank, without
consideration, and delivered it to Fossum, who then instituted this action against Fernandez Hermanos. The trial
court held that the consideration for the draft and for its acceptance by Fernandez Hermanos has completely failed
and no action whatever can be maintained on the instrument by AIPCI, or by any other person against whom the
defense of failure of consideration is available.
ISSUE: WON Fossum is a holder in due course, such that an action can be maintained on the instrument?
HELD:
NO. Fossum is far from being a holder in due course. He was himself a party to the contract which supplied the
consideration for the draft, albeit acting in a representative capacity. Also, he procured the instrument to be
indorsed by the bank and delivered to himself without the payment of value, after it was overdue, and with full
notice that, as between the original parties, the consideration had completely failed. Under these circumstances,
recovery on the draft is out of the question. He calls attention, however, to the familiar rule that a person who is
not himself a holder in due course may yet recover against the person primarily liable where it appears that such
holder derives his title through a holder in due course. There is not a line of proof tending to show that the bank
itself was ever a holder in due course. It was incumbent on Fossum to show that the bank was a holder in due
course, and can have no assistance from the presumption expressed in sec 59 of NIL, to the effect that every
holder is deemed prima facie to be a holder in due course. This presumption arises only in favor of a person who is
a holder in the sense defined in sec 191 of NIL, that is, a payee or indorsee who is in possession of the draft, or the
bearer thereof. Under this definition, in order to be a holder, one must be in possession of the note or the bearer
thereof. (Night & Day Bank vs. Rosenbaum) If this action had been instituted by the bank itself, the presumption
that the bank was a holder in due course would have arisen from the tenor of the draft and the fact that it was in
the bank's possession; but when the instrument passed out of the possession of the bank and into the possession
of Fossum, no presumption arises as to the character in which the bank held the paper. The bank's relation to the
instrument became past history when it delivered the document to Fossum; and it was incumbent upon him to
show that the bank had in fact acquired the instrument for value and under such conditions as would constitute it
a holder in due course. Moreover, Fossum personally made the contract which constituted the consideration for
the draft. He was therefore a party in fact, if not in law, to the transaction giving origin to the instrument; and it is
difficult to see how he could strip himself of the character to agent with respect to the origin of the contract and
maintain this action in his own name where his principal could not. An agent who actually makes a contract, and
who has notice of all equities emanating therefrom, can stand on no better footing than his principal with respect
to commercial paper growing out of the transaction. To place him on any higher plane would be incompatible with
the fundamental conception underlying the relation of principal and agent. If the original payee of a note
unenforceable for lack of consideration repurchases the instrument after transferring it to a holder in due course,
the paper again becomes subject in the payee's hands to the same defenses to which it would have been subject if
the paper had never passed through the hands of a holder in due course. The same is true where the instrument is
retransferred to an agent of the payee.
V. PARTIES WHO ARE LIABLE

1) Primary and Secondary Liability Distinguished (Sec. 61, 66, 192, NIL)
2) Payment By Party Secondarily Liable (Sec. 68, 70, 84, 89, 118, 120, 151, 184, NIL)
3) Liability vs. Warranties
4) Liability and/or Warranties of Parties
a) Maker (Sec. 60, NIL)
b) Drawer (Sec. 61, NIL)
i. Relationship with Drawee
ii. Relationship with Collecting Bank
Read:
198) Jai Alai vs. BPI, 66 SCRA 29, (GR No. L - 29432 ; Aug. 6, 1975)
Facts:
Petitioner deposited 10 checks in its current account with BPI which were acquired from Antonio Ramirez, a
regular jai-alai bettor and a sales agent of the Inter-Island Gas. All the checks were payable to InterIsland Gas
Service, Inc. or order. After the checks had been submitted to Inter-bank clearing, Inter-Island Gas discovered that
all the indorsements made on the checks purportedly by its cashiers were forgeries. The drawers of the checks
demanded reimbursement from the drawee-banks, who in turn demanded from BPI. BPI thus debited the value of
the checks against petitioner's current account and forwarded to the latter the checks containing the forged
indorsements which petitioner refused to accept.
ISSUE:
WON BPI had the right to debit from petitioner's current account the value of the checks with the forged
indorsements?
HELD:
Yes. BPI acted within legal bounds when it debited the petitioner's account. When the petitioner deposited the
checks with the respondent, the nature of the relationship created at that stage was one of agency, that is, the
bank was to collect from the drawees of the checks the corresponding proceeds. It is true that the respondent had
already collected the proceeds of the checks when it debited the petitioner's account, so that following the rule in
Gullas vs. Philippine National Bank 2 it might be argued that the relationship between the parties had become that
of creditor and debtor as to preclude the respondent from using the petitioner's funds to make payments not
authorized by the latter. It is our view nonetheless that no creditor-debtor relationship was created between the
parties. Since the indorsements were forgeries, they are inoperative, the payment made by the drawee banks
therefore is inoperative and relationship of a creditor and debtor was not created. Having indorsed the checks to
respondent bank, petitioner is deemed to have given the warranty prescribed in Section 66 of the NIL that every
single one of those checks "is genuine and in all respects what it purports to be." BPI, being the collecting bank is
liable to the drawee banks when it submitted the checks for clearing. The petitioner was, moreover, grossly
recreant in accepting the checks in question from Ramirez. It could not have escaped the attention of the
petitioner that the payee of all the checks was a corporation — the InterIsland Gas Service, Inc. Yet, the petitioner
cashed these checks to a mere individual who was admittedly a habitue at its jai-alai games without making any
inquiry as to his authority to exchange checks belonging to the payee-corporation. In Insular Drug Co. vs. National,
the Court made the pronouncement that: ". . . The right of an agent to indorse commercial paper is a very
responsible power and will not be lightly inferred. A salesman with authority to collect money belonging to his
principal does not have the implied authority to indorse checks received in payment. Any person taking checks
made payable to a corporation, which can act only by agents, does so at his peril, and must abide by the
consequences if the agent who indorses the same is without authority." Respondent which relied upon the
petitioner's warranty should not be held liable for the resulting loss. T he depositor of a check as indorser warrants
that it is genuine and in all respects what it purports to be. Having indorsed the checks to respondent bank,

petitioner is deemed to have given the warranty prescribed in Section 66 of the NIL that every single one of those
checks " is genuine and in all respects what it purports to be."
c) Acceptor, (Sec. 62, 127, 139-141, 143, 165, 189, NIL)
Read:
199) PNB vs. Picornell, 46 Phil 716, (GR No. L-18751/L -18915; September 26, 1922)
Facts:
Bartolome Picornell executed a bill of exchange ordering Hyndman, Tavera & Ventura (HTV) to pay PNB for the
amount used to purchase bales of tobacco and Picornell’s commission. HTV later on accepted the bill, and re-
accepted it after the requested extension. However, the bill was not paid upon maturity, HTV arguing that the
quality of the bales of tobacco fell short of what was expected.
ISSUE:
WON HTV is still liable on the instrument considering that the bales of tobacco delivered were of poor quality?
HELD:
Yes. The question of whether or not the tobacco was worth the value of the bill, does not concern the plaintiff
bank. Such partial want of consideration, if it was, does not exist with respect to the bank which paid to Picornell
the full value of said bill of exchange. The bank was a holder in due course, and was such for value and complete.
The HTV company cannot escape liability in view of Sec. 28 of the Negotiable Instruments Law.
The drawee by acceptance becomes liable to the payee or his indorsee, and also to the drawer himself. But the
drawer and acceptor are the immediate parties to the consideration, and if the acceptance be without
consideration, the drawer cannot recover of the acceptor. The payee holds a different relation; he is a stranger to
the transaction between the drawer and the acceptor, and is, therefore, in a legal sense a remote party. In a suit
by him against the acceptor, the question as to the consideration between the drawer and the acceptor cannot be
inquired into. The payee or holder gives value to the drawer, and if he is ignorant of the equities between the
drawer and the acceptor, he is in the position on a bona fide indorsee. Hence, it is no defense to a suit against the
acceptor of a draft which has been discounted, and upon which money has been advance by the plaintiff, that the
draft was accepted or the accommodation of the drawer. . . . (3 R. C. L., pp. 1143, 1144, par, 358.)
200) PNB vs CA, 25 SCRA 693, (GR No. L - 26001 ; Oct. 29, 1968)
Payment Without Acceptance
Facts:
Agusto Lim deposited GSIS check no. 645915-B with respondent bank Philippine Commercial and Industrial Bank,
who in turn submitted said check to PNB, through Central Bank, for clearing which the latter paid. Upon demand of
GSIS that the signatures of its officers on the check were forged, PNB re-credited the account of GSIS. PNB
requested reimbursement from PCIB, the latter refused. Hence, the present action.
ISSUE: WON prior acceptance before payment is required in the case of checks?
HELD:
No. In general, "acceptance", in the sense in which this term is used in the Negotiable Instruments Law is not
required for checks, for the same are payable on demand. Indeed, "acceptance" and "payment" are, within the
purview of said Law, essentially different things, for the former is "a promise to perform an act," whereas the latter
is the " actual performance " thereof. In the words of the Law, "the acceptance of a bill is the signification by the
drawee of his assent to the order of the drawer," which, in the case of checks, is the payment, on demand, of a
given sum of money. Upon the other hand, actual payment of the amount of a check implies not only an assent to
said order of the drawer and a recognition of the drawer's obligation to pay the aforementioned sum, but, also, a
compliance with such obligation. Sec. 62 of the NIL is applicable to a drawee who pays a bill without having
previously accepted it.
d) Indorsers (Sec. 63, 68, NIL)
i. General Indorser (Sec. 66, NIL)

Read:
201) AngTiong vs Ting, 22 SCRA 713, Feb. 22, 1968 (G.R. No. L - 26767, February 22, 1968)
Facts:
Lorenzo Ting issued a check payable to “cash or bearer.” With Felipe Ang’s signature (indorsement in blank) at the
back thereof, the instrument was received by Ang Tiong who thereafter presented it to the bank for payment. The
drawee bank dishonored it. Ang Tiong made written demands on both Ting and Ang to make good the amount
represented by the check. These demands unheeded, Ang Tiong then filed a suit for collection. The trial court
adjudged for herein petitioner. Only Felipe Ang appealed, maintaining that he is only an accommodation party.
ISSUE:
1. WON Felipe Ang is an accommodation party?
2. What is the liability of an accommodation indorser?
HELD:
1. NO. Felipe Ang is a general indorser (Section 63, NIL), in the absence of any indication by appropriate
words his intention to be bound in some other capacity. Even on the assumption that Ang is a mere
accommodation party as he professes to be, he is nevertheless by the clear mandate of section 29 of the
Negotiable Instruments Law. That the appellant, again assuming him to be an accommodation indorser,
may obtain security from the maker to protect himself against the danger of insolvency of the latter,
cannot in any manner affect his liability to the appellee, as the said remedy is a matter of concern
exclusively between accommodation indorser and accommodated party. So that the fact that the
appellant stands only as a surety in relation to the maker, granting this to be true for the sake of
argument, is immaterial to the claim of the appellee, and does not a whit diminish nor defeat the rights of
the latter who is a holder for value.
2. The liability of the appellant remains primary and unconditional. To sanction the appellant's theory is to
give unwarranted legal recognition to the patent absurdity of a situation where an indorser, when sued
on an instrument by a holder in due course and for value, can escape liability on his indorsement by the
convenient expedient of interposing the defense that he is a mere accommodation indorser.
202) People vs Maniego, 148 SCRA 30, (G.R. No. L - 30910 February 27, 1987)
Facts:
Accused Julia T. Maniego was indicted, together with Rizalino Ubay and Milagros Pamintuan, for Malversation, by
drawing checks. Maniego was acquitted in the absence of evidence against her but ordered to pay jointly and
severally the amount of P57,434.50 to the government. Maniego sought reconsideration of the judgment, praying
that she be absolved from civil liability or, at the very least, that her liability be reduced. The Court declined to
negate her civil liability, but did reduce the amount. She appealed.
ISSUE: WON Maniego could properly be held civilly liable after her acquittal?
HELD:
Yes. Appellant's contention that as mere indorser, she may not be made liable on account of the dishonor of the
checks indorsed by her, is untenable. Under the law, the holder or last indorsee of a negotiable instrument has the
right to "enforce payment of the instrument for the full amount thereof against all parties liable thereon." Among
the "parties liable thereon" is an indorser of the instrument i.e., "a person placing his signature upon an
instrument otherwise than as maker, drawer, or acceptor ** unless he clearly indicates by appropriate words his
intention to be bound in some other capacity.” Such an indorser "who indorses without qualification," inter alia
"engages that on due presentment, ** (the instrument) 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."
(a) conditions precedent to make unqualified indorser liable
ii. Qualified Indorser (Sec. 65, NIL)
iii. Indorsers of Bearer Instruments (Sec. 40, 65, 67, NIL)
iv. Irregular Indorser (Sec. 64, NIL)
v. Liability of Accommodation Party (Sec. 29, 52, NIL)

Read:
203) Clark vs Sellner, GR 16477, Nov. 22, 1921 (GR No. 16477; Nov. 22, 1921)
Facts:
Herein defendant, together with two other persons, signed a note in favor of the plaintiff which stipulates that six
months after date of the same, the former shall pay the latter the sum of P12,000 with interest at rate of 10% per
annum from date until paid, payable quarterly. The note matured, but its amount was not paid. Counsel for the
defendant allege that the latter did not receive in that transaction either the whole or any part of the amount of
the debt; that the instrument was not presented to the defendant for payment; and that the defendant, being an
accommodation party, is not liable unless the note is negotiated, which was not done, as shown by the evidence.
ISSUE: WON defendant is liable given the defenses raised by him?
HELD:
The liability of the defendant, as one of the signers of the note, is not dependent on whether he has, or has not,
received any part of the amount of the debt. The defendant is really and expressly one of the joint and several
debtors on the note, and as such he is liable under the provisions of Sec. 70 of NIL. As provided in Sec. 70 of the
said law, as to presentment for payment, such action is not necessary in order to charge the person primarily
liable, as is the defendant. And as to whether or not the defendant is an accommodation party, it should be taken
into account that by putting his signature to the note, he lent his name, not to the creditor, but to those who
signed with him placing himself with respect to the creditor in the same position and with the same liability as the
said signers. It should be noted that the phrase "without receiving value therefor," as used in section 29 of the
aforesaid Act, means "without receiving value by virtue of the instrument" and not, as it apparently is supposed to
mean, "without receiving payment for lending his name." If, as in the instant case, a sum of money was received by
virtue of the note, it is immaterial, so far as the creditor is concerned, whether one of the singers has, or has not,
received anything in payment of the use of his name. In reality the legal situation of the defendant in this case may
properly be regarded as that of a joint surety rather than that of an accommodation party. The defendant, as a
joint surety, may, upon the maturity of the note, pay the debt, demand the collateral security and dispose of it to
his benefit; but there is no proof whatever that this was done. As to the plaintiff, he is the "holder for value,"
under the phrase of said section 29, for he had paid the money to the signers at the time the note was executed
and delivered to him.
204) Crisologo vs CA, 177 SCRA 594, (GR No. 80599; Sept. 15, 1989 )
Facts:
The Vice-president of Mover Enterprises, Inc. issued a check drawn against Traders Royal Bank, payable to
petitioner Ernestina Crisologo-Jose, for the accommodation of his client. Petitioner-payee was charged with the
knowledge that the check was issued at the instance and for the personal account of the President who merely
prevailed upon respondent vice-president to act as co-signatory in accordance with the arrangement of the
corporation with its depository bank. While it was the corporation's check which was issued to petitioner for the
amount involved, petitioner actually had no transaction directly with said corporation.
ISSUE:
WON private respondent, one of the signatories of the check issued under the account of Mover Enterprises, Inc.,
is an accommodation party under NIL and a debtor of petitioner to the extent of the amount of said check.
HELD:
Yes. To be considered an accommodation party, a person must (1) be a party to the instrument, signing as maker,
drawer, acceptor, or indorser, (2) not receive value therefor, and (3) sign for the purpose of lending his name for
the credit of some other person. It is not a valid defense that the accommodation party did not receive any
valuable consideration when he executed the instrument. He is liable to a holder for value as if the contract was
not for accommodation, in whatever capacity such accommodation party signed the instrument, whether primarily
or secondarily. Thus, it has been held that in lending his name to the accommodated party, the accommodation
party is in effect a surety for the latter. The foregoing notwithstanding, the liability of an accommodation party to a
holder for value, although such holder does not include nor apply to corporations which are accommodation
parties. This is because the issue or indorsement of negotiable paper by a corporation without consideration and
for the accommodation of another is ultra vires. One who has taken the instrument with knowledge of the
accommodation nature thereof cannot recover against a corporation where it is only an accommodation party. By
way of exception, an officer or agent of a corporation shall have the power to execute or indorse a negotiable
paper in the name of the corporation for the accommodation of a third person only if specifically authorized to do
so. Corollarily, corporate officers, such as the president and vice-president, have no power to execute for mere
accommodation a negotiable instrument of the corporation for their individual debts or transactions arising from
or in relation to matters in which the corporation has no legitimate concern. Since such accommodation paper
cannot thus be enforced against the corporation, especially since it is not involved in any aspect of the corporate
business or operations, the signatories thereof (president and vice-president) shall be personally liable therefor, as
well as the consequences arising from their acts in connection therewith.
205) PNB vs Maza, GR 24224, (GR No. 24224; Nov. 3, 1925)

Facts:
PNB is suing Ramon Maza and Francisco Mecenas on five promissory notes of P10,000 each, two of which is due 3
months after date, the three were due 4 months after date. The notes were not taken up by Maza and Mecenas at
maturity. The special defines interposed by the defendants was that the promissory notes were sent in blank to
them by Enrique Echaus with the request that they sign them so that Echaus might negotiate them with the PNB in
case of need; that the defendants have not negotiated the note with the bank nor have they received the value
thereof, or delivered them to the bank in payment of any pre-existing debt; and that it was Echaus who negotiated
the note with the bank and who is accordingly the real party in interest and the party liable for the payment of the
notes. Defendants move for the inclusion of Echaus as defending party, which was denied. The court rendered a
judgment in favor of PNB.
ISSUE: WON Ramon Maza and Francisco Mecenas are liable even if classified as accommodation parties?
HELD:
Yes. The most plausible and reasonable stand for the defendants is that they are accommodation parties. But as
accommodation parties, the defendants having signed the instrument without receiving value therefor and for the
purpose of lending their names to some other person, are still liable on the instruments. The law now is that the
accommodation party can claim no benefit as such, but he is liable according to the face of his undertaking, the
same as if he were himself financially interested in the transaction. To fasten liability upon an accommodation
maker, it is not necessary that any consideration should move to him. The consideration which supports the
promise of the accommodation maker is that parted with by the person taking the note and received by the
person accommodated. The accommodation parties may make payment to the holder of the notes and have the
right to sue the party accommodated for reimbursement, since the relation between them is in effect that of
principal and sureties.
206) Maulini vs Serrano, 28 Phil 640, (GR No. 8844; Dec. 16, 1914)
Facts:
The promissory note reads:
3,000. Due 5th of September, 1912.
We jointly and severally agree to pay to the order of Don Antonio G. Serrano on or before the 5th
day of September, 1912, the sum of three thousand pesos (P3,000) for value received for
commercial operations. Notice and protest renounced. If the sum herein mentioned is not
completely paid on the 5th day of Septem ber, 1912, this instrument will draw interest at the
rate of 1½ per cent per month from the date when due until the date of its complete payment.
The makers hereof agree to pay the additional sum of P500 as attorney's fees in case of failure to
pay the note.
Manila, June 5, 1912.
(Sgd.) For Padern, Moreno & Co., by F. Moreno, member of the firm. For Jose Padern, by F.
Moreno. Angel Gimenez.
The note was indorsed on the back as follows:

Pay note to the order of Don Fernando Maulini, value received. Mani la, June 5, 1912. (Sgd.) A.G.
Serrano.
Maulini's business as a broker consisted in looking up and ascertaining persons who had money to loan as well as
those who desired to borrow money and, acting as a mediary, negotiate a loan between the two. According to the
method usually followed, the broker delivered the money personally to the borrower, took note in his own name
and immediately transferred it by indorsement to the lender. At the special request of the indorsee and simply as a
favor to him, the latter stating to the broker that he did not wish his name to appear on the books of the
borrowing company as a lender of money and that he desired that the broker take the note in his own name,
immediately transferred to him title thereto by indorsement. The trial court held that it was immaterial whether
there was a consideration for the transfer or not, as the indorser, under the evidence offered, was an
accommodation indorser.
ISSUE: WON Serrano was an accommodation indorser?
HELD:
No. There was never a moment that Serrano was the real owner of the note. It was always the note of the
indorsee, Maulini, he having furnished the money which was the consideration or the note directly to the maker
and being the only person who had the slightest interest therein. Serrano, the broker, acting solely as an agent, a
vehicle by which the naked title to the note passed from the borrower to the lender. The only payment the broker
received was for his services in negotiating the loan. He was paid absolutely nothing for becoming responsible as
an indorser to the paper, nor did the indorsee lose, pay or forego anything, or alter his position thereby. He is also
not an accommodation party under Sec. 29. The accommodation to which reference is made in Sec. 29, is not one
to the person who takes the note – that is, the payee or indorsee, but one to the maker or indorser of the note. An
accommodation note is one to which the accommodation party has put his name, without consideration, for the
purpose of accommodating some other party who is to use it and is expected to pay it. Where, however, an
indorsement is made as a favor to the indorsee, who requests it, not the better to secure payment, but to relieve
himself from a distasteful situation, and where the only
consideration for such indorsement passes from the indorser to the indorsee, the situation does not present one
creating an accommodation indorsement, nor one where there is a consideration sufficient to sustain an action on
the indorsement.
vi. Order of Liability (Sec. 68, NIL)

Read:
207) People vs Maniego
(supra, page )
- Such an indorser "who indorses without qualification," inter alia "engages that on due presentment, ** (the
instrument) 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."
e) Persons Negotiating By Delivery (Sec. 65, NIL)
f) Liability of Agent or Broker (Sec. 19-21, 69, NIL)

Read:
208) Philippine Bank of Commerce vs Aruego
(supra, p. ) - Sec. 20 provides that “a person (who) 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. An inspection of the drafts accepted by the
defendant shows that nowhere has he disclosed that he was signing as representative of the Philippine Education
Foundation Company. He merely signed as follows: “JOSE ARUEGO (Acceptor) (SGD) JOSE ARUEGO”. For failure to
disclose his principal, Aruego is personally liable for the drafts he accepted.
g) Person Who Should Sign (Sec. 18, NIL)
i. Exceptions: Those who do not sign in their own names or whose

signatures do not appear in instrument itself but are still liable
(a) trade or assumed name (Sec. 18, NIL)

(b) agent/authorized representative (Sec. 19, NIL)
(c) incapacitated persons signing through legal guardians
(d) forgers of signatures (Sec. 23, NIL)
(e) those precluded from setting up defense of forgery
(Sec. 23, NIL)
(f) constructive acceptance (Sec. 137, NIL)
(g) allonge
(h) negotiating by mere delivery (Sec. 65, NIL)

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NEGOTIABLE INSTRUMENTS LAW

By Atty. Mary Ann L. Reyes

2) Applicability of the Negotiable Instruments Law

3) Concept of Negotiable Instruments

4) Characteristics of Negotiable Instruments

5) Incidents in the Life of Negotiable Instruments

6) Kinds of Negotiable Instruments

a) Negotiable Promissory Notes (Sec. 184, NIL)

b) Bills of Exchange (Sec. 126, 185, NIL)

7) When Bill Treated as Notes (Sec. 17e, 130, NIL)

8) Bills and Notes Distinguished

9) Negotiable Instruments Compared with other Papers

10) Some Non-Negotiable Instruments

II. FORMS AND INTERPETATION OF NEGOTIABLE INSTRUMENTS

1) How Negotiability is Determined

b) must contain an unconditional promise or order to pay a sum certain in money

i. Promise or Order to Pay (Sec. 10, NIL)

1) resolutory and suspensive condition (Art. 1173, 1181, NCC)

c) must be payable on demand or at a fixed or determinable future time

d) must be payable to order or bearer (Sec. 8, 9, 184, NIL)

4) Omissions and Provisions That Do Not Affect Negotiability

III. TRANSFER AND NEGOTIATION

1) Issuance/Delivery of Negotiable Instruments (Sec. 15, 16, 191, NIL)

2) Negotiation Defined (Sec. 30, NIL)

4) How are Negotiable Instruments and Non-Negotiable Instruments Transferred

Mary Michelle T. Ong 155

5) How Negotiations Takes Place (Sec. 16, 30, 40, NIL)

6) Incomplete Negotiation of Order Instrument (Sec. 49, NIL)

7) Where Indorsement Should be Placed (Sec. 31, NIL)

8) When Person Deemed Indorser (Sec. 63, NIL)

9) Other Rules on Indorsement (Sec. 31, 32, 40-48, 49, NIL)

10) Kinds of Indorsement (Sec. 33, NIL)

a) Blank and Special Indorsements (Sec. 34, 35, NIL)

i. conversion of blank to special indorsement (Sec.

b) Qualified and General Indorsement (Sec. 38, 65, NIL)

c) Conditional Indorsement (Sec. 39, NIL)

d) Restrictive Indorsement (Sec. 36, 37, 47, NIL)

f) Joint Indorsement (Sec. 41, NIL)

g) Irregular Indorsement (Sec. 64, NIL)

11) When Indorsement Necessary (Sec. 30, 184, NIL)

13) Indorsement of Bearer Instrument (Sec. 32, NIL)

15) Indorsement in Representative Capacity (Sec. 44, NIL)

16) Presumption on Time, Place of Indorsement (Sec. 45, 46, NIL)

17) Continuation of Negotiable Character (Sec. 47, NIL)

18) Negotiation by Prior Party (Sec. 50, NIL)

19) Striking Out of Indorsement (Sec. 48, NIL)

20) Effect of Transfer Without Indorsement (Sec. 49, NIL)

22) What Constitutes Value (Sec. 25, NIL)

23) Effect if Value Previously Given (Sec. 26, NIL)

24) Holder for Value (Sec. 26, 27, NIL)

25) Effect of Want of Consideration (Sec. 28, NIL)

1) What is a holder (Sec. 191, NIL)

a) Classes of Holder (Sec. 26, 27, 52, NIL)

b) Rights of Holders (Sec. 51, 88, 119, NIL)

a) instrument complete and regular

b) taken before overdue (Sec. 4, 7, 53, 83, 85, NIL)

c) previously dishonored (Sec. 83, 149, NIL)

d) notice of infirmity or defect (Sec. 54, 55, 56, NIL)

192) Go vs. Metropolitan Bank, GR 168842, August 11, 2010

Mary Michelle T. Ong 167

Mary Michelle T. Ong 169

3) Presumption of Due Course Holding (Sec. 59, NIL)

196) Stelco Marketing vs CA, GR No. 96169, June 17, 1992