NEGOTIABLE INSTRUMENTS LAW

COMPLETED BUT UNDELIVERED (Section 16)

Sec. 16. Delivery; when effectual; when presumed. - Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto.
As between immediate parties and as regards a remote party other than a holder in due course,
the delivery, in order to be effectual, must be made either by or under the authority of the party
making, drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may
be shown to have been conditional, or for a special purpose only, and not for the purpose of
transferring the property in the instrument. But where the instrument is in the hands of a holder
in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him
is conclusively presumed. And 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.

1. Development Bank of the Phils. Sima Wei

FACTS: In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the
latter executed and delivered to the former a pr omissory note. Sima Wei made partial
payments on the note. Sima Wei then issued two crossed checks payable to petitioner Bank
drawn against China Banking Corporation. 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 in Producers Bank. Producers Bank accepted the checks for deposit and credited
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: W/N petitioner Bank did not acquire any right or interest on the checks by reason that
these were not delivered and cannot therefore assert any cause of action against the defendants.

RULING: YES. 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.3Delivery of an instrument means transfer of possession, actual or constructive,
from one person to another.4 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.
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.
LIABILITY OF PERSONS SIGNING AS AGENT (Section 20)

Sec. 20. Liability of person signing as agent, and so forth. - Where the instrument contains or a
person adds to his signature words indicating that he signs for or on behalf of a principal or in a
representative capacity, he is not liable on the instrument if he was duly authorized; but the mere
addition of words describing him as an agent, or as filling a representative character, without
disclosing his principal, does not exempt him from personal liability.

2. PB of Commerce vs. Aruego

FACTS: Philippine Bank of Commerce instituted a case against Jose M. Aruego for the
recovery of a sum of money. The sum sought to be recovered represents the cost of the printing
of "World Current Events,". 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, Encal Press and Photo Engraving, collected the cost of printing by drawing a draft
against the plaintiff, said draft being sent later to the defendant for acceptance. The defendant
filed a motion to dismiss on the ground that the complaint states no cause of action because he
merely signed the bills of exchange in a representative capacity, as the then President of the
Philippine Education Foundation Company, publisher of "World Current Events and Decision
Law Journal," printed by Encal Press, drawer of the said bills of exchange in favor of the
plaintiff bank.

ISSUE: W/N the assertion of the defendant that he merely signed the BOEs in a representative
capacity exempts him from personal liability.

RULING: NO. With regard to the defense of the defendant that he signed the bills of exchange
as an agent of the Philippine Education Foundation Company where he is president, 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. 34 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.

Additional Ruling: The defendant also contends that he signed the drafts only as an
accommodation party and as such, should be made liable only after a showing that the drawer is
incapable of paying. This contention is also without merit. In the instant case, the defendant
signed as a drawee/acceptor. Under the Negotiable Instrument Law, a drawee is primarily liable

3. Francisco vs. CA

FACTS:
A Land Development and Construction Contract was entered into by A. Francisco Realty &
Development Corporation (AFRDC), of which petitioner Adalia Francisco (Francisco) is the
president, and private respondent Herby Commercial & Construction Corporation (HCCC),
represented by its President, private respondent Jaime C. Ong (Ong), pursuant to a housing
project of AFRDC, financed by the GSIS. Under the contract, HCCC agreed to undertake the
construction of housing units in which HCCC was to be paid. The GSIS and AFRDC put up an
Account with the Insular Bank of Asia & America (IBAA) from which checks would be issued
and co-signed by petitioner Francisco and the GSIS Vice-President Armando Diaz (Diaz).
A civil action was filed by HCCC against AFRDC for the unpaid balance, but was later
dismissed by virtue of an amicable settlement.
Subsequently, Ong discovered that Diaz and Francisco had executed and signed seven
checks, drawn against the IBAA and payable to HCCC for completed and delivered work under
the contract. Ong, however, claims that these checks were never delivered to HCCC. Upon
inquiry with Diaz, Ong learned that the GSIS gave Francisco custody of the checks. Instead,
Francisco forged the signature of Ong, without his knowledge or consent, to make it appear that
HCCC had indorsed the checks; Francisco then indorsed the checks and deposited in her IBAA
savings account. Ong filed complaints = charging Francisco with estafa thru falsification of
commercial documents. Francisco denied the allegation, claiming that Ong himself indorsed the
seven checks and delivered the same to Francisco in payment of the loans extended by Francisco
to HCCC.

Issue: Whether or not Francisco forged the signature of Ong on the seven checks

Ruling: YES. The court held that Francisco had indeed forged the signature of Ong to make it
appear that he had indorsed the checks. Francisco concealed the fact of issuance of the checks
from private respondents in order to make it appear as if she were accommodating private
respondents, when in truth she was lending HCCC its own money.

Petitioner claims that she was authorized to sign Ongs name on the checks by virtue of the
Certification executed by Ong in her favor giving her the authority to collect all the receivables
of HCCC from the GSIS, including the questioned checks. [12]Petitioners alternative defense must
similarly fail. The Negotiable Instruments Law provides that where any person is under
obligation to indorse in a representative capacity, he may indorse in such terms as to negative
personal liability.[13] An agent, when so signing, should indicate that he is merely signing in
behalf of the principal and must disclose the name of his principal; otherwise he shall be held
personally liable.[14] Even assuming that Francisco was authorized by HCCC to sign Ongs name,
still, Francisco did not indorse the instrument in accordance with law. Instead of signing Ongs
name, Francisco should have signed her own name and expressly indicated that she was
signing as an agent of HCCC. Thus, the Certification cannot be used by Francisco to validate
her act of forgery.

FORGERY

Sec. 23. Forged signature; effect of. - When a signature is forged or made without the authority
of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof against any party
thereto, can be acquired through or under such signature, unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want of authority.

4. Jai-Alai vs BPI

FACTS:

ISSUE:

RULING:

5. Republic Bank vs. Ebrada

FACTS:

ISSUE:

RULING:

6. MWSS vs CA

FACTS:

ISSUE:

RULING:

7. Banco de Oro vs. Equitable Banking Corp.

FACTS:

ISSUE:

RULING:

8. Gempesaw vs CA

FACTS:

ISSUE:

RULING:

9. Associated Bank vs. CA

FACTS:

ISSUE:

RULING:

10. Metrobank vs. First National City Bank

FACTS:

ISSUE:

RULING:

11. Republic Bank vs. CA

FACTS:

ISSUE:

RULING:

12. Phil. Commercial Int’l Bank vs CA

FACTS:
ISSUE:

RULING:

13. Ramon Rosario vs. CA

FACTS:

ISSUE:

RULING:

14. Samsung Construction vs. FEBTC and CA

FACTS:

ISSUE:

RULING:

MATERIAL ALTERATION

Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially
altered without the assent of all parties liable thereon, it is avoided, except as against a party who
has himself made, authorized, or assented to the alteration and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of a holder in due course
not a party to the alteration, he may enforce payment thereof according to its original tenor.

Sec. 125. What constitutes a material alteration. - Any alteration which changes.

(a) The date;

(b) The sum payable, either for principal or interest;

(c) The time or place of payment;

(d) The number or the relations of the parties;

(e) The medium or currency in which payment is to be made;

(f) Or which adds a place of payment where no place of payment is specified, or any other
change or addition which alters the effect of the instrument in any respect, is a material
alteration.

15. PNB vs CA
16. Montinola vs PNB

ACCOMODATION PARTY

Sec. 29. Liability of accommodation party. - An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to
be only an accommodation party.

17. Sadaya vs. Sevilla

18. Crisologo-Jose vs. CA
19. Stelco Marketing vs CA
20. Travel-On vs CA
21. BPI vs. CA
22. Agro Conglomerates vs CA

HOLDERS IN DUE COURSE

Sec. 52. What constitutes a holder in due course. - A holder in due course is a holder who has
taken the instrument under the following conditions:chanroblesvirtuallawlibrary

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

(b) That he became the holder of it before it was overdue, and without notice that it has 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.

Sec. 53. When person not deemed holder in due course. - Where an instrument payable on
demand is negotiated on an unreasonable length of time after its issue, the holder is not deemed a
holder in due course.

Sec. 59. Who is deemed holder in due course. - Every holder is deemed prima facie to be a
holder in due course; but when it is shown that the title of any person who has negotiated the
instrument was defective, the burden is on the holder to prove that he or some person under
whom he claims acquired the title as holder in due course. But the last-mentioned rule does not
apply in favor of a party who became bound on the instrument prior to the acquisition of such
defective title.

23. De Ocampo vs Gatchalian

24. Mesina vs. IAC

LIABILITY OF THE GENERAL INDORSER

Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification,
warrants to all subsequent holders in due course:chanroblesvirtuallawlibrary

(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding
section; and

(b) That the instrument is, at the time of his indorsement, valid and subsisting;

And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the
case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent
indorser who may be compelled to pay it.
 25. Metropolo vs. Sambok
26. Maralit vs. Imperial
27. Sapiera vs. CA
28. BPI vs. CA

PRESENTMENT FOR PAYMENT/ACCEPTANCE

Sec. 72. What constitutes a sufficient presentment. - Presentment for payment, to be sufficient,
must be made:chanroblesvirtuallawlibrary

(a) By the holder, or by some person authorized to receive payment on his behalf;

(b) At a reasonable hour on a business day;

(c) At a proper place as herein defined;

(d) To the person primarily liable on the instrument, or if he is absent or inaccessible, to any
person found at the place where the presentment is made.

29. Prudential Bank vs IAC

30. Wong vs. CA
31. The Int’l Corp. Bank vs. Sps. Gueco

CHECKS (Section 185 and 186)

Sec. 185. Check, defined. - A check is a bill of exchange drawn on a bank payable on demand.
Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange
payable on demand apply to a check.

Sec. 186. Within what time a check must be presented. - A check must be presented for payment
within a reasonable time after its issue or the drawer will be discharged from liability thereon to
the extent of the loss caused by the delay.

32. State Investment House vs. CA

33. Bataan Cigar vs. CA
34. Citytrust Banking Corp. vs. IAC
35. Tan vs. CA
36. Papa vs. A.U. Valencia and Co. Inc

CLEARING OF CHECKS
37. PNB vs Sps. Cheah

MANAGER’S CHECK
38. RCBC vs Hi Tri Dev’t Corp.
39. PNB vs Amelio Tria

CHECKS AS EVIDENCE OF INDEBTEDNESS

40. Emilia Lim vs. Mindanao Wines & Liquor Galleria