Negotiable Instruments

Case Digest Pool Members:

1. Dave

Law 2. Gretchen
3. Eunice
4. Kaye Laurente
5. Vina
Saturday 9:00am to 12nn, Atty. Sarona-Lozare 6. Terry
7. Kae
Previous Digests:
● Batch 1 (Sec. 2 to 13 cases): Cases:
https://docs.google.com/document/d/1EMIsMVv_rGEfEHFQLAfQS4Moik2 - Section 24
9hpC1D8gzZFrwOsY/edit?usp=sharing - Villaluz vs. CA (1997) Kae
● Batch 2 (Sec. 14 to 23 cases): - Yang vs CA (2003) Dave
https://docs.google.com/document/d/1TQoRrbZ_TspE9WYS9zjcNEKv3oL - Pineda vs dela Rama (1983) Gretchen
SUEFSXKHuIIIqQDA/edit?usp=sharing - Ubas, Sr. vs. Chan (2017) Eunice
- Section 28
Guidelines for Digests. Each digest must at least contain the following: - PNB vs. Picornell (1922) Kaye
1. Deadline: Digests must be submitted before every thursday. - Bayani vs People (2004) Vina
2. Format: Use Arial, Size 10, Single spacing. Start each digest on the next - Sec. 29
page. The format of this document uses two columns. - Dela Rama C v. Admiral (2008) Terry
3. Citation. Case name, GR No., Date. - Ang vs Associated (2007) Kae
4. Doctrine/Topic. Just a short summary on the main point of the case or the - Lim vs Saban (2004) Dave
issue resolved. - Agro vs CA (2002) Gretchen
5. Relevant Facts only. Do not focus on the remedial/procedural issues. - Stelco vs CA (1992) Eunice
Petitioner’s contentions and arguments + legal basis. - Travel-on vs CA (1992) Kaye
6. Relevant Issues only. No remedial/procedural issues unless somehow - Perpetual Savings vs. Brondial (2001) Vina
related with Negotiable Instruments. - Bautista vs. Auto Plus (2008) Terry
7. Ruling. Provide a legal basis. Cite the article cited by the Supreme Court, - Sec. 32
or the previous jurisprudence. You may underline/bold it if you want to - Montinola vs PNB (1951) Kae
emphasize it. - Sec. 38
8. OPTIONAL: You can provide a simple list of the other issues discussed by - Metropol vs. Sambok Motors (1983) Dave
the SC in case someone’s interested to read the full text. - Sec. 49
- BPI vs CA (Jan 25, 2007) Gretchen

Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ] Page 1
 [G.R. No. 106214. September 5, 1997]
TERESITA VILLALUZ, CHIT ILAGAN, Spouses ADOR and TESS TABERNA
and MARIO LLAMAS, petitioner, vs. THE HONORABLE COURT OF APPEALS
and SPOUSES REYNALDO AND ZENAIDA ANZURES, respondents.
Doctrine: As a negotiable instrument, the checks were presumed to have
been issued for some valuable consideration, which presumption petitioner Villaluz
failed to controvert.
FACTS: Private respondents, spouses Anzures, sold a vessel to petitioner
Villaluz. However, the purchase price was not actually paid. Several months later,
petitioner sold to private respondents an Isuzu crew cab and parcels of land and a
house, but the purchase price were not paid because their agreement was to deduct
the same from the indebtedness of petitioner to private respondents. A month after
that, petitioner issued a check payable to private respondent Reynaldo Anzures, in
the amount of P2,123,400.00. Then, private respondents deposited the check with
the China banking Corporation, but it bounced.
Private respondents instituted a complaint against petitioner for violation of
B.P. 22. The RTC acquitted petitioner of the crime charged, but held her civilly liable
and ordered her to pay for the value of the check she issued. Petitioner contends
that she has no liability to private respondents.
ISSUE: Is petitioner liable for the value of the check she issued in favor of
private respondents?
RULING: Yes, petitioner is liable for the value of the check that she issued.
Petitioner Villaluz bought a vessel from private respondents where they
agreed that payment shall be made upon their arrival in Manila for which the former
issued the checks. In turn, petitioner Villaluz allegedly sold to the latter certain
properties where the payment thereof will be set-off for the value of the vessel.
These circumstances show that petitioner Villaluz is indeed obliged to private
respondents for the value of the checks. She cannot claim that the checks were
worthless for being issued without consideration. As a negotiable instrument, the
checks were presumed to have been issued for some valuable consideration,
which presumption petitioner Villaluz failed to controvert.
Also, it is absurd for her to issue checks in such a huge amount to private
respondents had this not been for the satisfaction of a monetary obligation. It is well
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
to emphasize at this point, that though petitioner was acquitted of the criminal
offense, she may still be held civilly liable for the checks she issued.
[G.R. No. 138074. August 15, 2003]
CELY YANG, petitioner, vs. HON. COURT OF APPEALS, PHILIPPINE
COMMERCIAL INTERNATIONAL BANK, FAR EAST BANK & TRUST CO.,
EQUITABLE BANKING CORPORATION, PREM CHANDIRAMANI and
FERNANDO DAVID, respondents.
Doctrine: Section 24 of the Negotiable Instruments Law creates a presumption that
every party to an instrument acquired the same for a consideration or for value.
Facts: Petitioner Cely Yang agreed with private respondent Prem Chandiramani to
procure from Equitable Banking Corp. and Far east Bank and Trust Company
(FEBTC) two cashier’s checks in the amount of P2.087 million each, payable to
Fernando david, and FEBTC dollar draft in the amount of US$200,000.00 payable
to PCIB FCDU account No. 4195-01165-2. Yang gave the checks and the draft to
Danilo Ranigo to be delivered to Chandiramani. Ranigo was to meet Chandiramani
to turn over the checks and the dollar draft, and the latter would in turn deliver to the
former Phil.
Commercial International Bank (PCIB) manager’s check in the sum of P4.2 million
and the dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of
HongKong. But Chandiramani did not appear at the rendezvous and Ranigo
allegedly lost the two cashier’s checks and the dollar draft.
The loss was then reported to the police. It transpired, however that the checks and
the dollar draft were never lost, for Chandiramani was able to get hold of them
without delivering the exchange consideration consisting of PCIB Manager’s checks.
Two hours after Chandiramani was able to meet Ranigo, the former delivered to
David the two cashier’s checks of Yang and, in exchange, got US $360,000 from
David, who in turn deposited them. Chandiramani also deposited the dollar draft in
PCIG FCDU No. 4194-0165-2.
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, thus, enabling the holder PCIB FCDU Account No.
4194-0165-2 to received the amount of US $ 200, 000.
Page 2
Issue (1): Whether or not David may be considered a holder in due course.
Held (1): Every holder of a negotiable instrument is deemed prima facie a holder in
due course. However, this presumption arises only in favor of a person who is a
holder as defined in Section 191 of the Negotiable Instruments Law, meaning a
“payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.”
In the present case, it is not disputed that David was the payee of the checks in
question. The weight of authority sustains the view that a payee may be a holder in
due course. Hence, the presumption that he is a prima facie holder in due course
applies in his favor.
Issue (2): Whether or not the presumption that every party to an instrument acquired
the same for a consideration is applicable in this case.
Held (2): The presumption is that every party to an instrument acquired the same
for a consideration. However, said presumption may be rebutted. Hence, what is
vital to the resolution of this issue is whether David took possession of the checks
under the conditions provided for in Section 52 of the Negotiable Instruments Law.
All the requisites provided for in Section 52 must concur in David’s case, otherwise
he cannot be deemed a holder in due course.
Section 24 of the Negotiable Instruments Law creates a presumption that every party
to an instrument acquired the same for a consideration or for value. Thus, the law
itself creates a presumption in David’s favor that he gave valuable consideration for
the checks in question. In alleging otherwise, the petitioner has the onus to prove
that David got hold of the checks absent said consideration. However, petitioner
failed to discharge her burden of proof. The petitioner’s averment that David did not
give valuable consideration when he took possession of the checks is unsupported,
devoid of any concrete proof to sustain it. Note that both the trial court and the
appellate court found that David did not receive the checks gratis, but instead gave
Chandiramani US$ 360,000 as consideration for the said instruments.
Digested by: Gretchen Canedo
G.R. No. L-31831 April 28, 1983
JESUS PINEDA, petitioner, vs. JOSE V. DELA RAMA and COURT OF
APPEALS, respondents.
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
FACTS:
Dela Rama is a practising lawyer whose services were retained by Pineda for the
purpose of making representations with the chairman and general manager of the
National Rice and Corn Administration (NARIC) to stop or delay the institution of
criminal charges against Pineda who allegedly misappropriated 11,000 cavans of
palay deposited at his ricemill in Concepcion, Tarlac. The NARIC general manager
was allegedly an intimate friend of Dela Rama.
According to Dela Rama, petitioner Pineda has used up all his funds to buy a big
hacienda in Mindoro and, therefore, borrowed the P9,300.00 subject of his complaint
for collection. In addition to filling the suit to collect the loan evidenced by the
matured promissory note, Dela Rama also sued to collect P5,000.00 attorney's fees
for legal services rendered as Pineda's counsel in the case being investigated by
NARIC.
The Court of First Instance of Manila decided Civil Case No. 45762 in favor of
petitioner Pineda. The court believed the evidence of Pineda that he signed the
promissory note for P9,300.00 only because Dela Rama had told him that this
amount had already been advanced to grease the palms of the 'Chairman and
General Manager of NARIC in order to save Pineda from criminal prosecution.
The Court of Appeals reversed the decision of the trial court on a finding that Pineda,
being a person of more than average intelligence, astute in business, and wise in
the ways of men would not "sign any document or paper with his name unless he
was fully aware of the contents and important thereof, knowing as he must have
known that the language and practices of business and of trade and commerce call
to account every careless or thoughtless word or deed."
ISSUE:
Is there a valuable consideration for the promissory note?
HELD:
No. Section 24 of the Negotiable Instruments Law provides—Every negotiable
instrument is deemed prima facie to have been issued for a valuable consideration;
and every person whose signature appears thereon to have become a party thereto
for value. However, the Court of Appeals' reliance on the above provision is
misplaced. The presumption that a negotiable instrument is issued for a valuable
consideration is only prima facie. It can be rebutted by proof to the contrary.
According to Dela Rama, he loaned the P9,300.00 to Pineda in two installments on two occasions five days
apart - first loan for P5,000.00 and second loan for P4,300.00, both given in cash. He also alleged that
previously he loaned P3,000.00 but Pineda paid this other loan two days afterward. These allegations of
Page 3
 Dela Rama are belied by the promissory note itself. The second sentence of the note reads - "This represents Manuel Ubas, Sr. filed a complaint for sum of money with writ of attachment against
the cash advances made by him in connection with my case for which he is my attorney-in- law." The terms
of the note sustain the version of Pineda that he signed the P9,300.00 promissory note because he believed Wilson Chan. He alleged that Chan, doing business under the name “UNIMASTER”
Dela Rama's story that these amounts had already been advanced by Dela Rama and given as gifts for owes him P1.5M representing the price of construction materials purchased from
NARIC officials.
him for the Macagtas Dam project. He claimed that such was long overdue and
Chan unjustly refused to pay despite repeated demands. Ubas added that Chan
In the present case, the Supreme Court said that it is unusual for a lawyer to lend
issued three (3) bank checks, payable to “CASH.” However, upon presentment, the
money to his client whom he had known for only three months, with no security for
same were dishonored due to a stop payment order.
the loan and on interest. Dela Rama testified that he did not even know what Pineda
was going to do with the money he borrowed from him. The petitioner had just
During trial, Ubas testified that he entered into a verbal agreement with Chan for the
purchased a hacienda in Mindoro for P210,000.00, owned sugar and rice lands in
supply of construction materials for the Macagtas Dam Project. He presented the
Tarlac of around 800 hectares, and had P60,000.00 deposits in three banks when
subject checks as proof of their business transaction.
he executed the note. It is more logical to believe that Pineda would not borrow
P5,000.00 and P4,300.00 five days apart from a man whom he calls a "fixer" and
For his part, Chan admitted issuing the subject checks. However, he claims that the
whom he had known for only three months.
checks were not issued to Ubas but to the project engineer of Unimasters who,
however, lost the same. He also disclaims any personal transaction with Ubas,
Considering the foregoing, the Supreme Court said that the promissory note was
stating that the subject checks were in fact, issued by Unimasters and not him.
executed for an illegal consideration. Articles 1409 and 1412 of the Civil Code in
Moreover, he claims that Ubas failed to present any documentary proof that he or
part, provide:
his firm delivered construction materials for the Macagtas Dam project.
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order and public Issue:
policy;
xxx xxx xxx
Whether Ubas has a cause of action in this case.

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense,
the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue
of the contract, or demand the performance of the other's undertaking.
xxx xxx xxx
Whether or not the supposed cash advances reached their destination is of no
moment. The consideration for the promissory note - to influence public officers in
the performance of their duties - is contrary to law and public policy. The promissory
note is void ab initio and no cause of action for the collection cases can arise from
it.
Ruling:
Yes.
Jurisprudence holds that in a suit for recovery of sum of money, the plaintiff-creditor
has the burden of proof to show that debtor has not paid him the amount of the
contracted loan. However, it was also established that when the plaintiff-creditor
possesses and submits in evidence an instrument showing indebtedness, a
presumption that the credit has not been satisfied arises. Thus, the defendant-debtor
is required to overcome the said presumption and present evidence to prove the fact
of payment so that no judgment will be entered against him.

G.R. No. 215910 February 6, 2017 The said presumption stems from Section 24 of the NIL, which provides that:
MANUEL C. UBAS, SR., petitioner,
Section 24. Presumption of Consideration. – Every negotiable instrument is deemed prima
v.
facie to have been issued for a valuable consideration; and every person whose signature
WILSON CHAN, respondent. appears thereon to have become a party thereto for value.
Digested by: Eunice L. Ambrocio
As mentioned, Ubas had presented in evidence the three (3) dishonored checks
Facts: which were undeniably signed by Chan. Hence, it is presumed that the subject
checks were issued for a valid consideration, which therefore, dispensed with the

Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ] Page 4
necessity of any documentary evidence to support Ubas’ monetary claim. Unless
otherwise rebutted, the legal presumption of consideration under Section 24 of the
NIL stands. Verily, “the vital function of legal presumption is to dispense with the
need for proof.”
Chan was not able to overcome the presumption of consideration under Section 24
of the NIL and establish any of his affirmative defenses. On the other hand, as the
holder of the subject checks which are presumed to have been issued for a valuable
consideration, and having established his privity of contract with Chan, Ubas has
substantiated his cause of action by a preponderance of evidence.
Additional info:
The RTC has already passed upon, as a factual matter, Chan’s defense that the
checks were lost. The RTC has pointed out, it would have been contrary to human
nature and experience for Ubas to send Chan a demand letter detailing the
particulars of the said checks if he indeed unlawfully obtained the same.
Additionally, Chan did not present the project engineer who purportedly lost the
checks, to personally testify on the circumstances concerning the loss of the checks.
The circumstances and actions taken are clearly inconsistent with ordinary human
nature and experience. The Supreme Court is not a trier of facts. It leaves such
matters to the lower court, which has more opportunity and facilities to examine
these matters. Thus, absent any clear and convincing reason to the contrary, the
Supreme Court submits to the RTC’s findings of fact on this matter.
Besides, Section 16 of the NIL provides that when an instrument is no longer in the
possession of the person who signed it and it is complete in its terms, “a valid and
intentional delivery by him is presumed until the contrary is proved,” as in this case.
Philippine National Bank (PNB)
vs.
Picornell et al.
[GR L-18751, 26 September 1922]; also PNB vs. Picornell [GR L-18915]
Doctrine:
Upon the non-payment of the bill by the drawee-acceptor, the bank had the right of
recourse, which it exercised, against the drawer. [Sec. 84, Negotiable Instruments
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
Law] The drawee, the Hyndman, Tavera & Ventura company, or its successors, J.
Pardo de Tavera, accepted the bill and is primarily liable for the value of the
negotiable instrument, while the drawer, Bartolome Picornell, is secondarily liable.
Facts:
Bartolome Picornell, following instruction Hyndman, Tavera & Ventura, bought in
Cebu 1,735 bales of tobacco. Picornell obtained from the branch of the National
Bank in Cebu the sum of P39,529,83, the value of the tobacco, together with his
commission of 1 real per quintal, having, in turn, drawn the a bill of exchange. This
instrument was delivered to the branch of the Philippine National Bank (PNB) in
Cebu, together with the invoice and bill of lading of the tobacco, which was shipped
in the boat Don Ildefonso, on 27 February 1920, consigned to Hyndman, Tavera &
Ventura at Manila. The invoice and bill of lading were delivered to PNB with the
understanding that the bank should not deliver them to Hyndman, Tavera & Ventura
except upon payment of the bill; which condition was expressed by the well-known
formula "D/P" (documents for [against] payment).
The central office of PNB in Manila received the bill and the aforesaid documents
annexed thereto. On 3 March 1920, PNB presented the bill to Hyndman, Tavera &
Ventura, who accepted it, stating on the bill face thereof that "Accepted, 3d March,
1920. Due, 2d April, 1920, Hyndman, Tavera & Ventura, by (Sgd.) J. Pardo de
Tavera, member of the firm."
The tobacco having arrived at Manila, the firm of Tambunting, owner of the ship Don
Ildefonso, that brought the shipment, requested Hyndman, Tavera & Ventura to
send for the goods, which was done by the company without the knowledge of PNB
which retained and always had in its possession the invoice and bill of lading of the
tobacco, until it presented them as evidence at the trial. Hyndman, Tavera & Ventura
proceeded to the examination of the tobacco, which was deposited in their
warehouses, and wrote and cabled to Picornell, notifying him that of the tobacco
received, there was a certain portion which was of no use and was damaged.
Through these communications, therefore, Picornell learned that Hyndman, Tavera
& Ventura had in their possession the tobacco. In view of the question raised by the
said company as to the quality of the aforesaid tobacco, more correspondence was
exchanged between the company and Picornell. Picornell requested PNB to extend
Page 5
the time for payment of the bill for P39,529,83 against Messrs. Hyndman, Tavera &
Ventura of Manila for 30 days. PNB granted the request of Picornell; wherefore Held (2): Yes. As to Bartolome Picornell, he warranted, as drawer of the bill, that it
Hyndman, Tavera & Ventura reaccepted the bill in the terms: "Accepted for thirty would be accepted upon proper presentment and paid in due course, and as it was
days. Due May 2d, 1920. Hyndman, Tavera & Ventura, by (Sgd.) J. Pardo de not paid, he became liable to the payment of its value to the holder thereof, which is
Tavera, member of the firm." 2 May 1920, arrived and the bill was not paid. On the the plaintiff bank. (Sec. 61, Negotiable Instruments Law.) The fact that Picornell was
4th of the same month, Hyndman, Tavera & Ventura sent a letter to PNB informing a commission agent of Hyndman, Tavera & Ventura, in the purchase of the tobacco,
the latter that it absolutely refise to pay draft 2 for P39,529.83, referring to 1,871,235 does not necessarily make him an agent of the company in its obligations arising
quintals of Leaf Tobacco Barili, owing to noncompliance of the contract by the from the drawing of the bill by him. His acts in negotiating the bill constitute a different
drawer. PNB protested the bill, took possession of the tobacco, and had it appraised contract from that made by his having purchased the tobacco on behalf of Hyndman,
on the 12th of the same month, its value having been fixed at P28,790.72. The bank Tavera & Ventura. Furthermore, he cannot exempt himself from responsibility by the
brought the action for the recovery of the value of the bill of exchange, and about fact of his having been a mere agent of this company, because nothing to this effect
September 1921, sold the tobacco, obtaining from the sale P6,708.82. was indicated or added to his signature on signing the bill. (Sec. 20, Negotiable
Instruments Law.) The fact that the tobacco was or was not of inferior quality does
Issue (1): Whether Hyndman, Tavera & Ventura company can escape liability due not affect the responsibility of Picornell, because while it may have an effect upon
to want of full consideration. the contract between him and the firm of Hyndman, Tavera, Ventura, yet it cannot
have upon the responsibility of both to the bank, upon the bill drawn and accepted
Held (1): Whether the tobacco was worth the value of the bill, does not concern as above stated.
PNB. 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 full and complete. The Hyndman,
Tavera & Ventura company cannot escape liability in view of section 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 of 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 advanced
by the plaintiff, that the draft was accepted for the accommodation of the drawer.

Issue (2): Whether Bartolome Picornell, even as a commissioned agent of

Hyndman, Tavera & Ventuta in the purchase of the tobacco, is liable for the bill.

Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ] Page 6
LEODEGARIO BAYANI vs. PEOPLE OF THE PHILIPPINES
G.R. No. 154947. August 11, 2004
CALLEJO, SR., J.
Digested by: Vina Cagampang
Instrument: Promissory Note; Maker: Bayani; Drawee: Far East Bank; Drawer:
PSBank (?)
Doctrine:
Under Section 28 of the Negotiable Instruments Law, absence or failure of
consideration is a matter of defense only as against any person not a holder in due
course
Facts:
On August 20, 1992, Alicia Rubia arrived at the grocery store of Dolores Evangelista,
and asked the latter to rediscount a PSBank Check in the amount of P55,000.00.
The check was drawn by Leodegario Bayani against his account with the PSBank
and postdated August 29, 1992. Considering that Rubia and Bayani were long-time
customers at the store and she knew Bayani to be a good man, Evangelista agreed
to rediscount the check. Rubia endorsed the check, and Evangelista gave her
P55,000.00. However, when Evangelista deposited the check in her account with
the Far East Bank & Trust Company on September 11, 1992, it was dishonored by
the drawee bank for the reason that on September 1, 1992, Bayani closed his
account with the PSBank. As of August 27, 1992, the balance of Bayani’s account
with the bank was P2,414.96. Evangelista then demanded the return of her
P55,000.00. Bayani testified that sometime in 1992, his wife lost four (4) blank
checks, one of which was the subject Check. He did not report however the loss to
the police authorities. He reported such loss to the bank only after Evangelista
demanded the refund of the P55,000.00. Bayani contend that the prosecution failed
to prove that the check was issued for valuable consideration because he denied
ever receiving the amount of P55,000.00 from Rubia.
Issue:
1. Is the petitioner a holder in due course?
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
2. Whether the defense of lack of valuable consideration a valid defense in this
case?
Ruling:
1. Yes, the petitioner is a holder in due course. The petitioner cannot escape
criminal liability by denying that he received the amount of P55,000.00 from Rubia
after he issued the check to her. The evidence on record shows that Evangelista
rediscounted the check and gave P55,000.00 to Rubia after the latter endorsed the
same. As such, Evangelista is a holder of the check in due course.
2. No. The defense of lack of valuable consideration is not a valid defense in this
case. Under Section 28 of the Negotiable Instruments Law (NIL), absence or failure
of consideration is a matter of defense only as against any person not a holder in
due course, thus:
SECTION 28. Effect of want of consideration. Absence or failure of
consideration is a matter of defense as against any person not a holder in
due course; and partial failure of consideration is a defense pro tanto,
whether the failure is an ascertained and liquidated amount or otherwise.
Moreover, Section 24 of the NIL provides the presumption of consideration, viz:
SECTION 24. Presumption of consideration. Every negotiable
instrument is deemed prima facie to have been issued for a valuable
consideration; and every person whose signature appears thereon to have
become a party thereto for value.
Such presumption cannot be overcome by the petitioners bare denial of receipt of
the amount of P55,000.00 from Rubia. In this case, the prosecution adduced
documentary evidence that when the petitioner issued the subject check on or about
August 20, 1992, the balance of his account with the drawee bank was only
P2,414.96. The collective evidence of the prosecution points to the fact that at the
time the petitioner drew and issued the check, he knew that the residue of the funds
in his account with the drawee bank was insufficient to pay the amount of the check.
Henry Dela Rama Co. v. Admiral United Savings Bank
Page 7
G.R. No. 154740. April 16, 2008
NACHURA, J.
Digested by: Terry Louise P. Boligor
FACTS: On February 28, 1983, Admiral United Savings Bank extended a loan of
Php 500,000.00 to petitioner Henry Dela Rama Co, with Leocadio O. Isip as co-
maker. The loan was evidenced by Promissory Note No. A1-041 dated February 28,
1983 and payable on or before February 23, 1984, with interest at the rate of 18%
per annum and service charge of 10% per annum. The note also provided for
liquidated damages at the rate of 3% per month plus incidental cost of collection
and/or legal fees/cost, in the event of non-payment on due date. Co and Isip failed
to pay the loan when it became due and demandable. Demands for payment were
made by ADMIRAL, but these were not heeded. Consequently, ADMIRAL filed a
collection case against Co and Isip with the RTC of Quezon City, docketed as Civil
Case No. Q-48543. Isip later on died. Co on the other hand denied liability for the
loan claiming that Metropolitan Sales and Rentals Inc. (Metro Rent), a corporation,
asked him to procure the loan and that he was only acting as an accommodation
party. He claimed the he signed the note only for the purpose of lending his name
to METRO RENT, without receiving value therefor. On the contrary, Metro Rent
claims that it did not derive any benefit from the loan transaction.
ISSUE: Is Co an accommodation party?
RULING: NO. Co cannot claim to be an accommodation party for he procured the
loan for his personal use and Metro Rent Inc. did not derive any benefit from the
loan.
Cos assertion that he merely acted as an accommodation party for METRO RENT
cannot release him from liability under the note. An accommodation party who lends
his name to enable the accommodated party to obtain credit or raise money is liable
on the instrument to a holder for value even if he receives no part of the
consideration. He assumes the obligation to the other party and binds himself to pay
the note on its due date. By signing the note, Co thus became liable for the debt
even if he had no direct personal interest in the obligation or did not receive any
benefit therefrom.
Additional: Co alleged to have paid the loan already.
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
Jurisprudence is replete with rulings that in civil cases, the party who alleges a fact
has the burden of proving it. Burden of proof is the duty of a party to present evidence
on the facts in issue necessary to prove the truth of his claim or defense by the
amount of evidence required by law. Thus, a party who pleads payment as a defense
has the burden of proving that such payment had, in fact, been made. When the
plaintiff alleges nonpayment, still, the general rule is that the burden rests on the
defendant to prove payment, rather than on the plaintiff to prove nonpayment.
Verily, Co failed to discharge this burden. His bare testimonial assertion that METRO
RENT paid the loan a week before April 11, 1983 or forty-five (45) days after [the]
release of the loan, cannot be characterized as adequate and competent proof of
payment. Accordingly, the CA rightly rejected his alternative defense of payment.
G.R. No. 146511 September 5, 2007
TOMAS ANG, petitioner, vs. ASSOCIATED BANK AND ANTONIO ANG ENG
LIONG, respondents.
FACTS: Respondent Associated Bank filed a collection suit against Antonio
Ang Eng Liong and petitioner Tomas Ang for the two (2) promissory notes that they
executed as principal debtor and co-maker, respectively. Antonio Ang Eng Liong
and Tomas Ang obtained a loan from the respondent bank. As agreed, the loan
would be payable, jointly and severally. Despite repeated demands for payment on
Antonio Ang Eng Liong and Tomas Ang, respectively, respondent Bank claimed that
Antonio and Tomas failed and refused to settle their obligation, resulting in a total
indebtedness of P539,638.96. Tomas Ang interposed the affirmative defenses that
the bank knew that he did not receive any valuable consideration for affixing his
signatures on the notes but merely lent his name as an accommodation party.
Respondent Bank countered that the fact that Tomas Ang never received any money
in consideration of the two (2) loans and that such was known to the bank are
immaterial because, as an accommodation maker, he is considered as a solidary
debtor who is primarily liable for the payment of the promissory notes. Citing Section
29 of the Negotiable Instruments Law (NIL), the bank posited that absence or failure
of consideration is not a matter of defense; neither is the fact that the holder knew
him to be only an accommodation party.
The RTC dismissed the complaint of the bank, but the CA reversed and set
aside the trial court's ruling.
ISSUE: Can petitioner be held liable to the respondent bank even if the latter
knew that petitioner only signed as an accommodation party?
RULING: Yes, petitioner is liable to pay respondent bank.
Page 8
 Notably, Section 29 of the NIL defines an accommodation party as a person
"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." As gleaned from the text, an accommodation party is one who meets all
the three requisites, viz: (1) he must be a party to the instrument, signing as maker,
drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must
sign for the purpose of lending his name or credit to some other person. An
accommodation party 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 party/ies thereto. The accommodation party is liable
on the instrument to a holder for value even though the holder, at the time of taking
the instrument, knew him or her to be merely an accommodation party, as if the
contract was not for accommodation.
As petitioner acknowledged it to be, the relation between an
accommodation party and the accommodated party is one of principal and surety –
the accommodation party being the surety. As such, he is deemed an original
promisor and debtor from the beginning; he is considered in law as the same party
as the debtor in relation to whatever is adjudged touching the obligation of the latter
since their liabilities are interwoven as to be inseparable. Although a contract of
suretyship is in essence accessory or collateral to a valid principal obligation, the
surety's liability to the creditor is immediate, primary and absolute; he is directly and
equally bound with the principal. As an equivalent of a regular party to the
undertaking, a surety becomes liable to the debt and duty of the principal obligor
even without possessing a direct or personal interest in the obligations nor does he
receive any benefit therefrom.
Consequently, in issuing the two promissory notes, petitioner as
accommodating party warranted to the holder in due course that he would pay the
same according to its tenor. It is no defense to state on his part that he did not
receive any value therefor because the phrase "without receiving value therefor"
used in Sec. 29 of the NIL means "without receiving value by virtue of the instrument"
and not as it is apparently supposed to mean, "without receiving payment for lending
his name." Stated differently, when a third person advances the face value of the
note to the accommodated party at the time of its creation, the consideration for the
note as regards its maker is the money advanced to the accommodated party. It is
enough that value was given for the note at the time of its creation. As in the instant
case, a sum of money was received by virtue of the notes, hence, it is immaterial so
far as the bank is concerned whether one of the signers, particularly petitioner, has
or has not received anything in payment of the use of his name.
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
Furthermore, since the liability of an accommodation party remains not only
primary but also unconditional to a holder for value, even if the accommodated party
receives an extension of the period for payment without the consent of the
accommodation party, the latter is still liable for the whole obligation and such
extension does not release him because as far as a holder for value is concerned,
he is a solidary co-debtor.
Nonetheless, petitioner, as an accommodation party, may seek
reimbursement from Antonio Ang Eng Liong, being the party accommodated.
G.R. No. 163720 December 16, 2004
GENEVIEVE LIM, petitioner,
vs.
FLORENCIO SABAN, respondents.
Doctrine: What is an accommodation party? What are the requisites?
Facts: Under an Agency Agreement, Ybañez authorized Saban to look for a buyer
of the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark up the
selling price to include the amounts needed for payment of taxes, transfer of title
and other expenses incident to the sale, as well as Saban's commission for the sale.
Through Saban's efforts, Ybañez and his wife were able to sell the lot to the
petitioner Genevieve Lim (Lim) and the spouses Benjamin and Lourdes Lim (the
Spouses Lim) on March 10, 1994. The price of the lot as indicated in the Deed of
Absolute Sale is Two Hundred Thousand Pesos (P200,000.00). It appears,
however, that the vendees agreed to purchase the lot at the price of Six Hundred
Thousand Pesos (P600,000.00), inclusive of taxes and other incidental expenses of
the sale.
Lim also issued in the name of Saban four postdated checks in the aggregate
amount of Two Hundred Thirty Six Thousand Seven Hundred Forty Three Pesos
(P236,743.00).
Subsequently, Ybaez sent a letter addressed to Lim. In the letter Ybaez asked Lim
to cancel all the checks issued by her in Sabans favor and to extend another partial
payment for the lot in his (Ybaezs) favor.
After the four checks in his favor were dishonored upon presentment, Saban filed a
Complaint for collection of sum of money and damages against Ybaez and Lim with
the Regional Trial Court (RTC).
Page 9

Saban alleged that Lim and the Spouses Lim agreed to purchase the lot for
P600,000.00. Saban further averred that Ybaez and Lim connived to deprive him of
his sales commission by withholding payment of the first three checks.
The RTC rendered its Decision dismissing Sabans’ complaint, declaring the four (4)
checks issued by Lim as stale and non-negotiable, and absolving Lim from any
liability towards Saban. The Decision was subsequently reversed by the Court of
Appeals, holding that, in issuing the checks in payment of Sabans commission, Lim
acted as an accommodation party. She signed the checks as drawer, without
receiving value therefor, for the purpose of lending her name to a third person. As
such, she is liable to pay Saban as the holder for value of the checks.
Issue (1): Whether or not Saban is entitled to receive his commission from the sale
Held (1): Yes. The agency was not revoked since Ybaez requested that Lim make
stop payment orders for the checks payable to Saban only after the consummation
of the sale. At that time, Saban had already performed his obligation as Ybaezs
agent when, through his (Sabans) efforts, Ybaez executed the Deed of Absolute
Sale of the lot with Lim and the Spouses Lim.
To deprive Saban of his commission subsequent to the sale which was
consummated through his efforts would be a breach of his contract of agency with
Ybaez which expressly states that Saban would be entitled to any excess in the
purchase price after deducting the P200,000.00 due to Ybaez and the transfer taxes
and other incidental expenses of the sale.
Issue (2): Whether or not Lim is liable on the checks as an accommodation party
Held (2): No. Section 29 of the Negotiable Instruments Law defines accommodation
party as:
“An accommodation party as a person who has signed the negotiable
instrument as maker, drawer, acceptor or indorser, without receiving value therefor,
for the purpose of lending his name to some other person. The accommodation party
is liable on the instrument to a holder for value even though the holder at the time of
taking the instrument knew him or her to be merely an accommodation party. “
As gleaned from the text of Section 29 of the Negotiable Instruments Law, the
accommodation party is one who meets all these three requisites, viz:
(1) he signed the instrument as maker, drawer, acceptor, or indorser;
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
(2) he did not receive value for the signature; and
(3) he signed for the purpose of lending his name to some other person.
In the case at bar, while Lim signed as drawer of the checks she did not satisfy the
two other remaining requisites. The absence of the second requisite becomes
obvious when it is noted at the outset that Lim issued the checks in question on
account of her transaction, along with the other purchasers, with Ybaez which was
a sale and, therefore, a reciprocal contract. Specifically, she drew the checks in
payment of the balance of the purchase price of the lot subject of the transaction.
And she had to pay the agreed purchase price in consideration for the sale of the lot
to her and her co-vendees. In other words, the amounts covered by the checks form
part of the cause or consideration from Ybaezs end, as vendor, while the lot
represented the cause or consideration on the side of Lim, as vendee.
[G.R. No. 117660. December 18, 2000]
AGRO CONGLOMERATES, INC. and MARIO SORIANO, petitioners, vs. THE
HON. COURT OF APPEALS and REGENT SAVINGS and LOAN BANK, INC.,
respondents.
D E C I S I O N
FACTS:
Agro Conglomerates, Inc. sold two parcels of land to Wonderland Food Industries,
Inc. In their Memorandum of Agreement, the parties covenanted that the purchase
price of Five Million (P5,000,000.00) Pesos would be settled by the vendee, under
certain conditions. On July 19, 1982, the vendor, the vendee, and the respondent
bank Regent Savings & Loan Bank (formerly Summa Savings & Loan Association),
executed an Addendum to the previous Memorandum of Agreement. This
addendum was not notarized.
Consequently, petitioner Mario Soriano signed as maker several promissory
notes,[6] payable to the respondent bank. Thereafter, the bank released the
proceeds of the loan to petitioners. However, petitioners failed to meet their
obligations as they fell due. The bank gave petitioners opportunity to settle their
account by extending payment due dates. Mario Soriano manifested his intention to
re-structure the loan, yet did not show up nor submit his formal written request.
Respondent bank filed three separate complaints before the Regional Trial Court of
Manila for Collection of Sums of money. In their answer, petitioners interposed the
defense of novation and insisted there was a valid substitution of debtor.
They alleged that the addendum specifically states that although the promissory
notes were in their names, Wonderland shall be responsible for the payment thereof.
Page 10
 Accommodated Party: RYL Construction
ISSUE: Payee: Armstrong Industries, the sister company and manufacturing arm of
STELCO.
Is the petitioner liable as an accommodation party?
Facts:
HELD: Stelco Marketing Corporation (STELCO) is engaged in the distribution and sale to
the public of structural steel bars. On various occasions, it sold to RYL Construction
Yes, a subsidiary contract of suretyship had taken effect since petitioners signed the different quantities of steel bars.
promissory notes as maker and accommodation party for the benefit of Wonderland.
As such, petitioners became liable as accommodation party. An accommodation Although the invoices issued by STELCO stipulated that RYL would pay “COD”
party is a person who has signed the instrument as maker, acceptor, or indorser, (cash on delivery), RYL made no payments for the construction materials it ordered
without receiving value therefor, and for the purpose of lending his name to some and was delivered to it, despite insistent demands for payment by the STELCO.
other person and is liable on the instrument to a holder for value, notwithstanding
such holder at the time of taking the instrument knew (the signatory) to be an RYL gave Armstrong Industries, a sister corporation and manufacturing arm of
accommodation party.He has the right, after paying the holder, to obtain STELCO, a check drawn against Metrobank. This check was the company check of
reimbursement from the party accommodated, since the relation between them has Steelweld Corporation of the Philippines which was issued by the Peter Limson,
in effect become one of principal and surety, the accommodation party being the President of Steelweld, but only by way of accommodation, “only as guaranty but
surety. not to pay for anything.”

Suretyship is defined as the relation which exists where one person has undertaken
an obligation and another person is also under the obligation or other duty to the
obligee, who is entitled to but one performance, and as between the two who are
bound, one rather than the other should perform. The surety’s liability to the creditor
or promisee of the principal is said to be direct, primary and absolute; in other words,
he is directly and equally bound with the principal. And the creditor may proceed
against any one of the solidary debtors.
When Armstrong deposited the check to the bank, it was dishonored because it was
“drawn against insufficient funds.” When it was deposited, the check bore two (2)
indorsements, that of “RYL Construction,” followed by that of “Armstrong Industries.”
On account of the dishonored check, Armstrong filed a case against Steelweld
Corporation for violation of BP 22. They were acquitted 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.”

The said decision of acquittal was conditioned, stating that such decision is not
equivalent to releasing Steelweld Corporation from its liability under Sec. 29 of the
G.R. No. 96160. June 17, 1992. Negotiable Instruments Law for having issued it for the accommodation of Romeo
STELCO MARKETING CORPORATION, petitioner, Lim (President of RYL Corporation).”
vs.
HON. COURT OF APPEALS and STEELWELD CORPORATION OF THE Eleven months after the the said decision or some four (4) years after the issuance
PHILIPPINES, INC., respondents. of the said checks, STELCO filed a complaint against both RYL and Steelweld for
the recovery of the value of steel bars and wires sold and delivered to RYL. Since
Doctrine: RYL could no longer be located, and could not be served summons, it did not
A holder of a check who is not a holder in due course cannot sue the drawer- appear. Only Steelweld filed an answer.
accommodation party.
Steelweld contended that it had not entered into any transaction or business dealing
Accommodation Party: Steelweld Corporation of any kind with STELCO and the transaction described in the complaint was solely

Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ] Page 11
and exclusively between STELCO and RYL Construction. and nowhere in the check itself bears the name of STELCO as a payee, indorsee or
depositor. It does not show any participation by STELCO in any matter or form in
RTC: Under Sec 29 of NIL, since the president of Steelweld admitted that he issued the transactions, or any communication between Steelweld and STELCO or
the check, such accomodation party is liable. between STELCO and Armstrong Industries, at any time before the dishonor of the
check.
CA: Reversed RTC’s decision stating that there was no commercial transaction
between STELCO and Steelweld. Moreover, there was no evidence that Stelco But the records show that after the checks had been deposited and
Marketing became a holder for value. dishonored, STELCO came into possession of it in some way, and was able to give
such as an evidence at trial.
Issue: Whether Steelweld as an accommodation party can be held liable by
STELCO for the dishonored check. Possession of a negotiable instrument after presentment and dishonor, or
payment, is utterly inconsequential; it does not make the possessor a holder for
Ruling: No. In alleging liability to Steelweld, it is crucial to determine whether value within the meaning of the law; it gives rise to no liability on the part of the
STELCO became a holder in due course, of the bearer instrument, within the maker or drawer and indorsers.
contemplation of the Negotiable Instruments Law – to which STELCO never became
one. Therefore, as STELCO is not a holder in due course, Steelweld it cannot be
held liable.
Section 29 of the NIL reads:
“SECTION 29. Liability of accommodation party. — An accommodation Who is a holder in due course?
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 “A holder in due course is a holder who has taken the instrument under the following
other person. Such a person is liable on the instrument to a holder for value, conditions:
notwithstanding such holder, at the time of taking the instrument, knew him to be (a) That it is complete and regular upon its face;
only an accommodation party.” (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;
It is worthy to note that the RTC’s pronouncement containing reference to Section (c ) That he took it in good faith and for value;
29, NIL did not specify to whom STEELWELD, as accommodation party, is (d) That at the time it was negotiated to him, he had no notice of any
supposed to be liable; neither did the said pronouncement nor any other part of the infirmity in the instrument or defect in the title of the persons negotiating it.”
judgment of acquittal declared it liable to STELCO.

Section 29 of the NIL preserves the right of recourse of a “holder for value” TRAVEL-ON, INC., petitioner,
against the accommodation party notwithstanding that “such holder, at the time of vs.
taking the instrument, knew him to be only an accommodation party.” COURT OF APPEALS and ARTURO S. MIRANDA, respondents.
G.R. No. 56169. June 26, 1992
Based from the relevant circumstances of the case, STELCO cannot be deemed a
holder in due course. It failed to meet two of the essential requisites prescribed by
the Negotiable Instruments Law. It did not become “the holder of it before it was Doctrine:
overdue, and without notice that it had been previously dishonored,” and it did not A holder for value under Section 29 of the Negotiable Instruments Law is one who
take the check “in good faith and for value.” must meet all the requirements of a holder in due course under Section 52 of the
same law except notice of want of consideration
There has been no evidence or whatsoever that STELCO possessed the
check dated back to any time before the instruments were presented and dishonored

Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ] Page 12
Facts:
Petitioner Travel-On, Inc. (“Travel-On”) is a travel agency selling airline tickets on
commission basis for and in behalf of different airline companies. Private respondent
Arturo S. Miranda had a revolving credit line with petitioner. He procured tickets from
petitioner on behalf of airline passengers and derived commissions therefrom.
Petitioner sold and delivered various airline tickets to respondent at a total price of
P278,201.57. To settle said account, private respondent paid various amounts in
cash and in kind, and thereafter issued six (6) postdated checks amounting to
P115,000.00 which were all dishonored by the drawee banks. In March 1972, private
respondent made another payment of P10,000.00 reducing his indebtedness to
P105,000.00.
Private respondent argued that he had issued the postdated checks for purposes of
accommodation. In support of his theory that the checks were issued for
accommodation, private respondent testified that he had issued the checks in the
name of Travel-On in order that its General Manager, Elita Montilla, could show that
the accounts receivable of the company were still good.
Montilla, on the other hand explained that the “accommodation” extended to Travel-
On by private respondent related to situations where one or more of its passengers
needed money in Hongkong, and to advance Hongkong money to the passenger.
The passenger then paid Travel-On upon his return to Manila and which payment
would be credited by Travel-On to respondent’s running account with it.
Issue: Whether or not the checks involved here were issued for “accommodation”
thus respondent maker is not liable to petitioner payee
Held:
No. The Supreme Court held that in the first place, while the Negotiable Instruments
Law does refer to accommodation transactions, no such transaction was here
shown.
In accommodation transactions recognized by Section 29 of the Negotiable
Instruments Law, an accommodating party lends his credit to the accommodated
party, by issuing or indorsing a check which is held by a payee or indorsee as a
holder in due course, who gave full value therefore to the accommodated party. The
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
latter, in other words, receives or realizes full value which the accommodated party
then must repay to the accommodating party, unless of course the accommodating
party intended to make a donation to the accommodated party. But the
accommodating party is bound on the check to the holder in due course who is
necessarily a third party and is not the accommodated party. Having issued or
indorsed the check, the accommodating party has warranted to the holder in due
course that he will pay the same according to its tenor.
In the case at bar, Travel-On was payee of all six (6) checks; it presented these
checks for payment at the drawee bank but the checks bounced. Travel-On
obviously was not an accommodated party; it realized no value on the checks which
bounced.
Travel-On was entitled to the benefit of the statutory presumption that it was
a holder in due course that the checks were supported by valuable consideration.
Private respondent maker of the checks did not successfully rebut these
presumptions. The only evidence aliunde that private respondent offered was his
own self-serving uncorroborated testimony. He claimed that he had issued the
checks to Travel-On as payee to “accommodate” its General Manager who allegedly
wished to show those checks to the Board of Directors of Travel-On to “prove” that
Travel-On’s account receivables were somehow “still good.” It will be seen that this
claim was in fact a claim that the checks were merely simulated, that private
respondent did not intend to bind himself thereon. Only evidence of the clearest and
most convincing kind will suffice for that purpose, no such evidence was submitted
by private respondent. The latter’s explanation was denied by Travel-On’s General
Manager; that explanation, in any case, appears merely contrived and quite hollow
to us. Upon the other hand, the “accommodation” or assistance extended to Travel-
On’s passengers abroad as testified by petitioner’s General Manager involved, not
the accommodation transactions recognized by the NIL, but rather the circumvention
of then existing foreign exchange regulations by passengers booked by Travel-On,
which incidentally involved receipt of full consideration by private respondent.
PERPETUAL SAVINGS BANK vs. BRONDIAL, et al.
G.R. No. 146663.March 14, 2001
Digested by: Vina Cagampang
Instrument: Promissory Note
Accommodation Party: Dolores Brondial
Page 13
Accommodated Party: Perpetual Savings Bank
Doctrine:
Facts:
Perpetual Savings Bank sued Dolores Brondial for non-payment of a promissory
note valued at P826,315.00, which she allegedly executed in its favor on 11
February 1983. Brondial denied liability by raising the defense that she did not
receive any consideration for the note because according to her, she was required
to sign the loan instruments and execute the PN by PSB as condition to her
appointment as Senior Manager of Perpetual Capital Investments & Finance Corp.,
an affiliate of PSB. It was later found out that the loan allegedly applied by Brondial,
secured by her PN, was actually a loan made by the other officers of the Bank from
the PSB itself. It was Brondial who merely effected the transaction. When the check
was delivered to her, said check was endorsed and deposited in the personal
accounts of the officers of PSB in Metrobank. Then Natividad, the President of PSB,
transferred the amount to PSB’s account in Metrobank. Thus, Brondial did not
receive a single centavo from the transaction.
Issue:
1. Does the promissory note have a valuable consideration
2. Is Brondial liable as an accommodation maker under Section 29?
Held:
1. NO. The PN did not have any consideration when it was issued by Brondial
as purported security for the loan. She applied for the loan in behalf of the
officers and the corporation. None of its proceeds was used by her for her
consumption. Upon appreciation of the evidence presented by the parties,
the RTC and CA found that respondent Brondial was not indebted to
petitioner Bank because the amounts she purportedly received were
returned to and received by petitioner Bank on the very day the checks
were released. Respondent Brondial did not receive a single centavo from
the loan
2. No. Brondial is not liable as an "accommodation maker."
Section 29 of the NIL defines the term as:
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
x x x 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.
It was PSB who was accommodated by Brondial when she executed the PN,
thus, PSB cannot collect from respondent Brondial. (The one accommodated
cannot go after the accommodation party. It is the payee who can go after said
accommodation party for payment, not the party accommodated.)
Other Issues/Ruling:
1. Is PSB a holder in due course?
No. PSB is not a holder in due course. It knew well enough that the PN issued by
Brondial was without consideration since the loan she applied for was not for her
consumption. PSB’s officers were responsible for the loan. The proceeds of said
loan were deposited to their accounts and were ultimately re-deposited in PSB’s
account.
2. What is the effect of Section 28 of the NIL?
The effect of Section 28, in this case, is that the bank cannot enforce or collect
payment from the maker of the PN, respondent Brondial, because of absence or
lack of consideration. Absence or lack of consideration is a valid defense against
any person not a holder in due course.
Claude P. Bautista v Auto Plus Traders Inc and CA
G.R. No. 166405. August 6, 2008
QUISUMBING, J.
Digested by: Terry Louise P. Boligor
FACTS: Petitioner Claude P. Bautista, in his capacity as President and Presiding
Officer of Cruiser Bus Lines and Transport Corporation, purchased various spare
parts from private respondent Auto Plus Traders, Inc. and issued two postdated
checks to cover his purchases. The checks were subsequently dishonored. Private
respondent then executed an affidavit-complaint for violation of Batas Pambansa
Page 14
Blg. 22 against petitioner. Consequently, two Informations for violation of BP Blg. 22
were filed with the MTCC of Davao City against Bautista.
Petitioner asserts that BP Blg. 22 merely pertains to the criminal liability of the
accused and that the corporation, which has a separate personality from its officers,
is solely liable for the value of the two checks. Private respondent counters that
petitioner should be held personally liable for both checks. Private respondent
alleged that petitioner issued two postdated checks: a personal check in his name
for the amount of P151,200 and a corporation check under the account of Cruiser
Bus Lines and Transport Corporation for the amount of P97,500. According to
private respondent, petitioner, by issuing his check to cover the obligation of the
corporation, became an accommodation party. Under Section 29 of the Negotiable
Instruments Law, an accommodation party is liable on the instrument to a holder for
value. Private respondent adds that petitioner should also be liable for the value of
the corporation check because instituting another civil action against the corporation
would result in multiplicity of suits and delay.
ISSUE: Can Bautista be held liable as an accommodation party?
RULING: NO. Bautista cannot be considered liable as an accommodation party
for Check No. 58832. Section 29 of the Negotiable Instruments Law defines an
accommodation party as a person 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.
Section 29 of the Negotiable Instruments Law defines an accommodation party as
a person 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. As gleaned from the text, an accommodation party is one who meets
all the three requisites, viz:
(1) he must be a party to the instrument, signing as maker, drawer, acceptor, or
indorser;
(2) he must not receive value therefor; and
(3) he must sign for the purpose of lending his name or credit to some other person.
An accommodation party 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 party/ies thereto. The first two elements
are present here, however there is insufficient evidence presented in the instant
case to show the presence of the third requisite. All that the evidence shows is that
petitioner signed Check No. 58832, which is drawn against his personal account.
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
The said check, dated December 15, 2000, corresponds to the value of 24 sets of
tires received by Cruiser Bus Lines and Transport Corporation on August 29, 2000.
There is no showing of when petitioner issued the check and in what capacity. In the
absence of concrete evidence it cannot just be assumed that petitioner intended to
lend his name to the corporation. Hence, petitioner cannot be considered as an
accommodation party.
Cruiser Bus Lines and Transport Corporation, however, remains liable for the
checks especially since there is no evidence that the debts covered by the subject
checks have been paid.
Additional: The appellate court in error for affirming the decision of the RTC
holding petitioner liable for the value of the checks considering that petitioner was
acquitted of the crime charged and that the debts are clearly corporate debts for
which only Cruiser Bus Lines and Transport Corporation should be held liable.
Juridical entities have personalities separate and distinct from its officers and the
persons composing it. Generally, the stockholders and officers are not personally
liable for the obligations of the corporation except only when the veil of corporate
fiction is being used as a cloak or cover for fraud or illegality, or to work injustice.
These situations, however, do not exist in this case.The evidence shows that it is
Cruiser Bus Lines and Transport Corporation that has obligations to Auto Plus
Traders, Inc. for tires. There is no agreement that petitioner shall be held liable for
the corporations obligations in his personal capacity. Hence, he cannot be held liable
for the value of the two checks issued in payment for the corporations obligation in
the total amount of P248,700.
G.R. No. L-2861 February 26, 1951
ENRIQUE P. MONTINOLA vs. THE PHILIPPINE NATIONAL BANK, ET AL.
FACTS: Ubaldo D. Laya was the Provincial Treasurer of Misamis Oriental.
As such Provincial Treasurer he was ex officio agent of the Philippine National Bank
branch in the province. Mariano V. Ramos worked under him as assistant agent in
the bank branch aforementioned.
(1) M. V. Ramos was then inducted into the United States Armed Forces in the
Far East (USAFFE) as disbursing officer of an army division.
(2) As such disbursing officer, M. V. Ramos went to the Province Lanao to
procure a cash advance in the amount of P800,000 for the use of the USAFFE.
Page 15
(3) The Provincial Treasurer of Lanao did not have that amount in cash. So, he
gave Ramos P300,000 in emergency notes and a check for P500,000.
(4) When Ramos went to the office of Provincial Treasurer Laya at Misamis
Oriental to encash the check for P500,000, Laya 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 Philippine National Bank.
(5) Ramos had no opportunity to cash the check because Ramos was made a
prisoner of war until February 12, 1943, after which, he was released and he
resumed his status as a civilian.
(6) More than a year later, Ramos allegedly indorsed this subject check to
Enrique P. Montinola.
The agreement between Ramos and Montinola regarding the
transfer of the check was that Ramos was selling only P30,000 of the check
and for this reason, at the back of the document he wrote in longhand the
following:
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.
In exchange for this assignment of P30,000, they agreed that Montinola
would pay Ramos P90,000 in Japanese military notes but in actuality Montinola only
gave Ramos two checks of P20,000 and P25,000, leaving a balance unpaid of
P45,000.
(7) Two years later, Montinola filed a complaint against PNB and the
Provincial Treasurer of Misamis Oriental to collect the sum of P100,000, the
amount of Check issued by the Provincial Treasurer of Misamis Oriental to Mariano
V. Ramos and supposedly indorsed to Montinola.
ISSUE: Was there a proper negotiation or endorsement of the check to
petitioner Montinola?
RULING: No, the check was not legally negotiated within the meaning of the
Negotiable Instruments Law. Section 32 of the same law 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."
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
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.
Neither can Montinola be considered as a holder in due course because
section 52 of said law defines a holder in due course as a holder who has taken the
instrument under certain conditions, one of which is that he became the holder
before it was overdue. When Montinola received the check, it was long overdue.
And, Montinola is not even a holder because section 191 of the same law defines
holder as the payee or indorsee of a bill or note and Montinola is not a payee. Neither
is he an indorsee for as already stated, at most he can be considered only as
assignee. Neither could it be said that he took it in good faith. As already stated, he
has not paid the full amount of P90,000 for which Ramos sold him P30,000 of the
value of the check. Montinola must have known that at the time the check was issued
in May, 1942, the money circulating in Mindanao and the Visayas was only the
emergency notes and that the check was intended to be payable in that currency.
Also, he should have known that a check for such a large amount of P100,000 could
not have been issued to Ramos in his private capacity but rather in his capacity as
disbursing officer of the USAFFE, and that at the time that Ramos sold a part of the
check to him, Ramos was no longer connected with the USAFFE but already a
civilian who needed the money only for himself and his family.
As already stated, as a mere assignee Montinola is subject to all the
defenses available against assignor Ramos. And, Ramos had he retained the check
may not now collect its value because it had been issued to him as disbursing officer.
As observed by the trial court, the check was issued to M. V. Ramos not as a person
but M. V. Ramos as the disbursing officer of the USAFFE. Therefore, he had no right
to indorse it personally to plaintiff. It was negotiated in breach of trust, hence he
transferred nothing to the plaintiff.
The words "Agent, Phil. National Bank' below the signature of Ubaldo D.
Laya and the printed words "Provincial Treasurer" were added in the check after the
same was issued by the Provincial Treasurer of Misamis Oriental. The insertion of
the words "Agent, Phil. National Bank" which converts the bank from a mere drawee
to a drawer and therefore changes its liability, constitutes a material alteration of the
instrument without the consent of the parties liable thereon, and so discharges the
instrument.
G.R. No. L-39641 February 28, 1983
Page 16
METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, Issue: Whether or not Sambok Motors Co is a qualified indorser, thus it is not liable
plaintiff-appellee, upon the failure of payment of the maker.
vs.
SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD.,
Held: No. Sec. 38 of the NIL provides that:
defendants-appellants.

Facts: Sec. 38. Qualified indorsement. - A qualified indorsement constitutes the

indorser a mere assignor of the title to the instrument. It may be made by adding to
the indorser's signature the words "without recourse" or any words of similar import.
(1) Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons
Such an indorsement does not impair the negotiable character of the instrument.
Motors Co., Ltd. payable in twelve (12) equal monthly installments with interest.
A qualified indorsement constitutes the indorser a mere assignor of the title to the
It is further provided that in case on non-payment of any of the
instrument. It may be made by adding to the indorser’s signature the words “without
installments, the total principal sum then remaining unpaid shall become
recourse” or any words of similar import. Such indorsement relieves the indorser of
due and payable with an additional interest.
the general obligation to pay if the instrument is dishonored but not of the liability
arising from warranties on the instrument as provided by section 65 of NIL.
(2) Sambok Motors co., a sister company of Ng Sambok Sons negotiated and
indorsed the note in favor of Metropol Financing & investment Corporation.
However, Sambok indorsed the note “with recourse” and even waived the notice of
Sambok Motors ----indorsed to----> Petitioner Metropol
demand, dishonor, protest and presentment.

(3) Villaruel defaulted in the payment, upon presentment of the promissory note
he failed to pay the promissory note as demanded,
(4) hence Ng Sambok Sons Motors Co., Ltd. notified Sambok as indorsee that the
promissory note has been dishonored and demanded payment.
Recourse means resort to a person who is secondarily liable after the default of the
person who is primarily liable. Sambok 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 Villaruel fails to pay the not the
holder can go after it.

(5) [Despite repeated demands] Sambok failed to pay.

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
(6) Hence, Ng Sambok Sons filed a complaint for the collection of sum of
note shall be accepted or paid, or both as the case maybe, and that if it be
money. During the pendency of the case Villaruel died.
dishonored, he will pay the amount thereof to the holder. The words added by
Sambok do not limit his liability, but rather confirm his obligation as general indorser.
(7) Contention of Defendant: Appellant Sambok argues that by adding the words
"with recourse" in the indorsement of the note, it becomes a qualified indorser
Lastly, the lower court did not err in not declaring appellant as only secondarily liable
that being a qualified indorser, it does not warrant that if said note is dishonored by
because after an instrument is dishonored by non-payment, the person secondarily
the maker on presentment, it will pay the amount to the holder; that it only warrants
liable thereon ceases to be such and becomes a principal debtor. His liability
the following pursuant to Section 65 of the Negotiable Instruments Law.
becomes the same as that of the original obligor. Consequently, the holder need not
even proceed against the maker before suing the indorser.

Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ] Page 17
Hence, Sambok Motors Co is liable, and is not a qualified indorser. deposited, since this account was already closed by private respondent
Salazar or had an insufficient balance.

(4) As it appeared that private respondent Salazar was not entitled to the funds
represented by the checks which were deposited and accepted for deposit,
petitioner BPI decided to debit the amount of P267,707.70 from her Account
No. 0201-0588-48 and the sum of P267,692.50 was paid to Templonuevo by
means of a cashier’s check.

(5) Private Respondent’s Contention: In the answer to the third-party complaint,

G.R. No. 136202 January 25, 2007
private respondent Templonuevo admitted the payment to him of P267,692.50 and
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
argued that said payment was to correct the malicious deposit made by private
vs.
respondent Salazar to her private account, and that petitioner bank’s
COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R.
negligence and tolerance regarding the matter was violative of the primary
TEMPLONUEVO, Respondents
and ordinary rules of banking. The debiting from another account of private
DECISION
respondent Salazar, considering that her other account was effectively closed, was
AZCUNA, J.:
not his concern.

FACTS:
The RTC rendered judgment in favor of the plaintiff [private respondent
Salazar] and against the defendant [petitioner BPI].
(1) Annabelle A. Salazar filed an action for a collection of sum of money in the
amount of Two Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and
On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held
Seventy Centavos (P267,707.70) which was debited by petitioner BPI from her
that respondent Salazar was entitled to the proceeds of the three (3) checks
account.
notwithstanding the lack of endorsement thereon by the payee.

(2) Petitioner’s Contention: BPI claimed that Julio R. Templonuevo, third-party

Petitioner’s Contention upon Appeal: Petitioner argued that there is no
defendant and herein also a private respondent, demanded from the former
presumption in law that a check payable to order, when found in the possession of
payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred
a person who is neither a payee nor the indorsee thereof, has been lawfully
Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate
transferred for value.
value of three (3) checks, which were allegedly payable to him, but which were
deposited with the petitioner bank to private respondent Salazar’s account
Hence, the CA should not have presumed that Salazar was a transferee for
(Account No. 0203-1187-67) without his knowledge and corresponding
value within the contemplation of Section 49 of the Negotiable Instruments Law, as
endorsement.
the latter applies only to a holder defined under Section 191of the same.

(3) Accepting that Templonuevo’s claim was a valid one, petitioner BPI froze
ISSUE:
Account No. 0201-0588-48 of A.A. Salazar and Construction and Engineering
Services, instead of Account No. 0203-1187-67 where the checks were

Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ] Page 18
Whether or not Salazar is a transferee for value within the contemplation of Section
49 of the Negotiable Instruments Law
HELD:
No. In the present case, the records do not support the finding made by the CA and
the trial court that a prior arrangement existed between Salazar and Templonuevo
regarding the transfer of ownership of the checks. This fact is crucial as Salazar’s
entitlement to the value of the instruments is based on the assumption that she is a
transferee within the contemplation of Section 49 of the Negotiable Instruments Law.
Section 49 of the Negotiable Instruments Law contemplates a situation whereby the
payee or indorsee delivers a negotiable instrument for value without indorsing it,
thus:
Transfer without indorsement; effect of- Where the holder of an instrument
payable to his order transfers it for value without indorsing it, the transfer
vests in the transferee such title as the transferor had therein, and the
transferee acquires in addition, the right to have the indorsement of the
transferor. But for the purpose of determining whether the transferee is a
holder in due course, the negotiation takes effect as of the time when the
indorsement is actually made.
It bears stressing that the above transaction is an equitable assignment and
the transferee acquires the instrument subject to defenses and equities
available among prior parties.
Thus, if the transferor had legal title, the transferee acquires such title and,
in addition, the right to have the indorsement of the transferor and also the right, as
holder of the legal title, to maintain legal action against the maker or acceptor or
other party liable to the transferor. The underlying premise of this provision,
however, is that a valid transfer of ownership of the negotiable instrument in
question has taken place.
Transferees in this situation do not enjoy the presumption of ownership in
favor of holders since they are neither payees nor indorsees of such
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
instruments. The weight of authority is that the mere possession of a negotiable
instrument does not in itself conclusively establish either the right of the possessor
to receive payment, or of the right of one who has made payment to be discharged
from liability. Thus, something more than mere possession by persons who are not
payees or indorsers of the instrument is necessary to authorize payment to them in
the absence of any other facts from which the authority to receive payment may be
inferred.
Thus, even if the delay in the demand for reimbursement is taken in conjunction with
Salazar’s possession of the checks, it cannot be said that the presumption of
ownership in Templonuevo’s favor as the designated payee therein was sufficiently
overcome. This is consistent with the principle that if instruments payable to named
payees or to their order have not been indorsed in blank, only such payees or their
indorsees can be holders and entitled to receive payment in their own right. 21
The presumption under Section 131(s) of the Rules of Court stating that a negotiable
instrument was given for a sufficient consideration will not inure to the benefit of
Salazar because the term "given" does not pertain merely to a transfer of physical
possession of the instrument. The phrase "given or indorsed" in the context of a
negotiable instrument refers to the manner in which such instrument may be
negotiated. Negotiable instruments are negotiated by "transfer to one person or
another in such a manner as to constitute the transferee the holder thereof. If
payable to bearer it is negotiated by delivery. If payable to order it is negotiated by
the indorsement completed by delivery." The present case involves checks
payable to order. Not being a payee or indorsee of the checks, private
respondent Salazar could not be a holder thereof.
Page 19
 8. OPTIONAL: You can provide a simple list of the other issues discussed by

Negotiable Instruments the SC in case someone’s interested to read the full text.

Case Digest Pool Members:

Law 1. Dave
2. Gretchen
3. Eunice
4. Kaye Laurente
Saturday 9:00am to 12nn, Atty. Sarona-Lozare 5. Vina
6. Terry
7. Kae
Batch #4

Previous Digests: Cases:

● Batch 1 (Sec. 2 to 13 cases): - Sec. 51
https://docs.google.com/document/d/1EMIsMVv_rGEfEHFQLAfQS4Moik2 - Chan Wan v. Tan Kim (1960) Eunice
9hpC1D8gzZFrwOsY/edit?usp=sharing - Sec. 52
● Batch 2 (Sec. 14 to 23 cases): - BPI v. Roxas (2007) Kaye
https://docs.google.com/document/d/1TQoRrbZ_TspE9WYS9zjcNEKv3oL
- Atrium Management v. CA (2001) Vina
SUEFSXKHuIIIqQDA/edit?usp=sharing
● Batch 3 (Sec. 24 to 49 cases): - Bataan Cigar v. CA (1994) Terry
https://docs.google.com/document/d/1UT9- - Banco Atlantico v. Auditor General (1978) Kae
Ui5QQZF28FTJoC3Kp_F5iG5FVcFZhhFW8vI3nDs/edit?usp=sharing - Vicente de Ocampo & Co. v. Gatchalian (1961) Dave
- Santos v. Reyes (1937) Gretchen
Guidelines for Digests. Each digest must at least contain the following: - Violago v. BA Finance (2008) Eunice
1. Deadline: Digests must be submitted before every thursday. - Patrimonio v. Gutierrez (2014) Kaye
2. Format: Use Arial, Size 10, Single spacing. Start each digest on the next
- Sec. 55
page. The format of this document uses two columns.
3. Citation. Case name, GR No., Date. - Ford v. CA (2001) Vina
4. Doctrine/Topic. Just a short summary on the main point of the case or the - Sec. 57
issue resolved. - BPI vs Alfred Berwin and Company (1928) Dave
5. Relevant Facts only. Do not focus on the remedial/procedural issues. - Sec. 59
Petitioner’s contentions and arguments + legal basis. - Fossum vs Hermanos (1923) Kae
6. Relevant Issues only. No remedial/procedural issues unless somehow
related with Negotiable Instruments.
7. Ruling. Provide a legal basis. Cite the article cited by the Supreme Court,
or the previous jurisprudence. You may underline/bold it if you want to
emphasize it.

Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ] Page 20
GR No. L-15380. September 30, 1960
CHAN WAN, plaintiff and appellant,
vs.
TAN KIM and CHEN SO, defendants and appellees.
Doctrine:
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. The only disadvantage of a holder
who is not a holder in due course is that the negotiable instrument is subject to defenses as
if it were non-negotiable.
Facts:
Chan Wan presented for payment eleven (11) checks that were payable to cash or bearer.
These checks were drawn by Tan Kim upon the Equitable Banking Corporation. However,
they were all dishonored and returned to Chan Wan unpaid, due to insufficient funds and/or
causes attributable to the drawer. Thus, Chan Wan filed a suit for collect the amount.
At the hearing, Chan Wan did not appear, but his lawyer testified only to identify the checks
plus the letters of demand upon the defendants. Tan Kim on the other hand alleged that the
checks had been issued to two persons named Pinong and Muy for some shoes the former
had promised to make and "were intended as mere receipts".
The court declined the order of payment because (1) Chan Wan was not a holder in due
course, and (2) the checks which were crossed checks should not have been presented to
the drawee for payment but should have been deposited to the bank in the crossing.
Issue: Whether Chan Wan has the right to collect the eleven checks.
Ruling: Yes. Chan Wan MAY have the right to collect.
Eight of the checks here in question bear across their face two parallel transverse lines
between which these words are written: non-negotiable—China Banking Corporation. These
checks have, therefore, been crossed specially to the China Banking Corporation, and should
have been presented for payment by China Banking, and not by Chan Wan. Inasmuch as
Chan Wan did present them for payment himself, there was no proper presentment, and the
liability did not attach to the drawer.
It must be remembered, at this point, that 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". Wherefore, in the absence of due presentment, the drawer did
not become liable.
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
L
Nevertheless, on the backs of the checks, endorsements. However, as circumstances show,
Chan p took phold of the checks after they had been returned due to insufficiency of funds,
because when he presented them to court it had ‘account closed’ stamps. Chan Wan was
considered not a holder in due course since he knew, upon taking them up, that the checks
had already been dishonored.l
But it does not follow that simply because Chan Wan was not a holder in due course, he could
not recover on the checks. 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 a holder who is not a holder in due course is that the negotiable
instrument is subject to defenses as if it were non-negotiable.
Here, if it was proven that Tan has a real defense against Chan Wan who is not a holder in
due course, then has a good defense against such holder. If it was true that the checks were
issued in payment for shoes that were never made and delivered, such may be used against
Chan Wan. But in this case, there was deficiency of important details to prove such
circumstance. Thus, for the fair adjudication of the parties’ rights, the case was remanded
back to the court of origin.
G.R. No. 157833. October 15, 2007
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
GREGORIO C. ROXAS, respondent
Doctrine:
Value is any consideration sufficient to support a simple contract. An antecedent or
preexisting debt constitutes value; and is deemed as such whether the instrument
is payable on demand or at a future time.”
Facts:
Gregorio C. Roxas, respondent, is a trader. In March 1993, he delivered
stocks of vegetable oil to spouses Rodrigo and Marissa Cawili. As payment therefor,
spouses Cawili issued a personal check in the amount of P348,805.50. However,
when respondent tried to encash the check, it was dishonored by the drawee bank.
Spouses Cawili then assured him that they would replace the bounced check with
a cashier’s check from the Bank of the Philippine Islands (BPI), petitioner.
Page 21

On March 31, 1993, respondent and Rodrigo Cawili went to petitioner’s
branch at Shaw Boulevard, Mandaluyong City where Elma Capistrano, the branch
manager, personally attended to them. Upon Elma’s instructions, Lita Sagun, the
bank teller, prepared BPI Cashier’s Check in the amount of P348,805.50, drawn
against the account of Marissa Cawili, payable to respondent. Rodrigo then handed
the check to respondent in the presence of Elma.
The following day, respondent returned to petitioner’s branch at Shaw Boulevard
to encash the cashier’s check but it was dishonored. Elma informed him that
Marissa’s account was closed on that date. Despite respondent’s insistence, the
bank officers refused to encash the check and tried to retrieve it from respondent.
On September 23, 1993, respondent filed with the Regional Trial Court a
complaint for sum of money against petitioner. In its answer, petitioner specifically
denied the allegations in the complaint, claiming that it issued the check by mistake
in good faith; that its dishonor was due to lack of consideration; and that
respondent’s remedy was to sue Rodrigo Cawili who purchased the check.
Issue:
Whether or not the element of “value” is not present, therefore, respondent
could not be a holder in due course.
Held:
No. In this case, the element of “value” is present, therefore, respondent is a
holder in due course.
Section 25 of the Negotiable Instruments Law states:
“SEC. 25. Value, what constitutes.—Value is any consideration
sufficient to support a simple contract. An antecedent or preexisting
debt constitutes value; and is deemed as such whether the
instrument is payable on demand or at a future time.”
As a general rule, under the above provision, every holder is presumed prima facie
to be a holder in due course. One who claims otherwise has the onus probandi to
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
prove that one or more of the conditions required to constitute a holder in due course
are lacking.
In Walker Rubber Corp. v. Nederlandsch Indische & Handelsbank, N.V. and South
Sea Surety & Insurance Co., Inc., this Court ruled that value “in general terms may
be some right, interest, profit or benefit to the party who makes the contract or
some forbearance, detriment, loan, responsibility, etc. on the other side.”
Here, there is no dispute that respondent received Rodrigo Cawili’s cashier’s
check as payment for the former’s vegetable oil. The fact that it was Rodrigo who
purchased the cashier’s check from petitioner will not affect respondent’s status as
a holder for value since the check was delivered to him as payment for the
vegetable oil he sold to spouses Cawili. Verily, the Court of Appeals did not err in
concluding that respondent is a holder in due course of the cashier’s check.
Furthermore, it bears emphasis that the disputed check is a cashier’s check. In
International Corporate Bank v. Spouses Gueco, this Court held that a cashier’s
check is really the bank’s own check and may be treated as a promissory note with
the bank as the maker. The check becomes the primary obligation of the bank which
issues it and constitutes a written promise to pay upon demand.
In New Pacific Timber & Supply Co., Inc. v. Señeris, this Court took judicial notice
of the “well-known and accepted practice in the business sector that a cashier’s
check is deemed as cash.” This is because the mere issuance of a cashier’s check
is considered acceptance thereof.
In view of the above pronouncements, petitioner bank became liable to respondent
from the moment it issued the cashier’s check. Having been accepted by
respondent, subject to no condition whatsoever, petitioner should have paid the
same upon presentment by the former.
Page 22
ATRIUM MANAGEMENT CORPORATION vs. COURT OF APPEALS, E.T.
HENRY AND CO., LOURDES VICTORIA M. DE LEON, RAFAEL DE LEON, JR.,
AND HI-CEMENT CORPORATION,
G.R. No. 109491. February 28, 2001.
PARDO, J.
Doctrine: A person to whom a crossed check was endorsed by the payee of said
check could not be considered a holder in due course.
Facts:
Hi-Cement Corp. (Hi-Cement) through its corporate signatories Lourdes M.
de Leon, treasurer, and the late Antonio de las Alas, Chairman, issued checks in
favor of E.T. Henry and Co. Inc. (ET Henry.) as payee. ET Henry in turn, endorsed
the 4 checks to Atrium Management Corporation (Atrium) for valuable consideration.
Upon presentment for payment, the drawee bank dishonored all four checks for the
common reason payment stopped. Atrium, thus, instituted this action after its
demand for payment of the value of the checks was denied. Atrium filed an action
for collection of the proceeds of four postdated checks.
The record reveals that Hi-Cement Corporation issued the four (4) checks
to extend financial assistance to E.T. Henry, not as payment of the balance of the
P30 million pesos cost of hydro oil delivered by E.T. Henry to Hi-Cement. Hi-
Cement, however, maintains that the checks were not issued for consideration and
that Lourdes and E.T. Henry engaged in a “kiting operation” to raise funds for E.T.
Henry, who admittedly was in need of financial assistance. At the time of the
issuance of the checks, there were sufficient funds in the bank to cover payment of
the amount of P2 million pesos.
Issues:
1. Whether Atrium was a holder in due course and for value.
2. Granting that Atrium is not a holder in due course, can it still recover on the
instrument?
Ruling:
1. No. Atrium was not a holder in due course and for value.
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
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The Negotiable Instruments Law, Section 52 defines a holder in due course, thus:
“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.
In the instant case, the checks were crossed checks and specifically indorsed for
deposit to payee’s account only. From the beginning, Atrium was aware of the fact
that the checks were all for deposit only to payee’s account, meaning E.T. Henry.
Clearly, then, Atrium could not be considered a holder in due course. Lourdes M. de
Leon and Antonio de las Alas as treasurer and Chairman of Hi-Cement were
authorized to issue the checks. However, Ms. de Leon was negligent when she
signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T.
Henry for the rediscounting of the crossed checks issued in favor of E.T. Henry. She
was aware that the checks were strictly endorsed for deposit only to the payee’s
account and not to be further negotiated.
2. Yes. Atrium, although a holder not in due course, can still recover from the
instrument.
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.
Page 23
G.R. No. 93048 March 3, 1994
BATAAN CIGAR AND CIGARETTE FACTORY, INC. vs.
THE COURT OF APPEALS and STATE INVESTMENT HOUSE, INC.,
Nocon, J.
Digested by: Terry Louise P. Boligor
Facts: Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the
manufacturing of cigarettes, engaged one of its suppliers, King Tim Pua George
(referred to as George King), to deliver 2,000 bales of tobacco leaf starting October
1978. In consideration thereof, BCCFI, on July 13, 1978 issued crossed checks
post dated sometime in March 1979 in the total amount of P820,000.
Relying on the supplier's representation that he would complete delivery within three
months from December 5, 1978, petitioner agreed to purchase additional 2,500
bales of tobacco leaves, despite the supplier's failure to deliver in accordance with
their earlier agreement. Again petitioner issued post dated crossed checks in the
total amount of P1,100,000.00, payable sometime in September 1979. During those
times, George King was also dealing with State Investment House Inc. (SIHI). King
issued 3 checks to SIHI the first amounting to 164,000 and the second and third
both at 100,000 each. But because King did not make good with the agreement,
BCCFI made a STOP PAYMENT order on all checks payable to King.
Efforts of SIHI to collect from BCCFI having failed, it instituted the present case,
naming only BCCFI as party defendant. The trial court pronounced SIHI as having
a valid claim being a holder in due course. It further said that the non-inclusion of
King Tim Pua George as party defendant is immaterial in this case, since he, as
payee, is not an indispensable party.
Issue: Whether SIHI, a second indorser, a holder of crossed checks, is a holder in
due course, to be able to collect from the drawer, BCCFI.
Ruling: NO. SIHI is not a holder in due course provided in sec. 52 of the NIL.
It is then settled that crossing of 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
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
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
Negotiable Instruments Law, and as such the consensus of authority is to the effect
that the holder of the check is not a holder in due course.
In the present case, BCCFI's 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. The foregoing does not mean, however, that
respondent could not recover from the checks. The only disadvantage of a holder
who is not a holder in due course is that the instrument is subject to defenses as if
it were non-negotiable. Hence, respondent can collect from the immediate indorser,
in this case, George King.
Basis of the decision:
The foregoing was adopted in the case of SIHI v. IAC, supra. In that case, New
Sikatuna Wood Industries, Inc. also sold at a discount to SIHI three post dated
crossed checks, issued by Anita Peña Chua naming as payee New Sikatuna Wood
Industries, Inc. Ruling that SIHI was not a holder in due course, we then said:
The three checks in the case at bar had been crossed generally and issued payable
to New Sikatuna Wood Industries, Inc. which could only mean that the drawer had
intended the same for deposit only by the rightful person, i.e. the payee named
therein. Apparently, it was not the payee who presented the same for payment and
therefore, there was no proper presentment, and the liability did not attach to the
drawer. Thus, in the absence of due presentment, the drawer did not become liable.
Consequently, no right of recourse is available to petitioner (SIHI) against the drawer
of the subject checks, private respondent wife (Anita), considering that petitioner is
not the proper party authorized to make presentment of the checks in question.
xxx xxx xxx
That the subject checks had been issued subject to the condition that private
respondents (Anita and her husband) on due date would make the back up deposit
for said checks but which condition apparently was not made, thus resulting in the
non-consummation of the loan intended to be granted by private respondents to
Page 24
New Sikatuna Wood Industries, Inc., constitutes a good defense against petitioner
who is not a holder in due course.
G.R. No. L-33549 January 31, 1978
BANCO ATLANTICO, petitioner, vs. AUDITOR GENERAL, respondent.
FACTS: Petitioner is a commercial Bank doing business in Madrid, Spain.
Virginia Boncan was then the Finance Officer of the Philippine Embassy in Madrid,
Spain. On several occasions, Boncan negotiated with Banco Atlantico a total of three
checks drawn against the Philippine National Bank branch in New York, U.S.A,
allegedly endorsed by the embassy to Boncan. Petitioner Banco Atlantico, without
clearing the check with the drawn bank in New York, U.S.A., paid the full amount of
the checks to Virginia Boncan. However, upon presentment for acceptance and
payment of the checks by Banco Atlantico through its collecting bank in New York,
U.S.A. to the drawn bank, the Philippine National Bank branch in U.S.A., said
drawee bank dishonored the checks by non-acceptance allegedly on the ground that
the drawer had ordered payments to be stopped. Upon receipt of the notice of the
dishonor, the collecting bank of the petitioner in New York, U.S.A. sent individual
notices of protest with respect to the checks in question to the Philippine Embassy
in Madrid, Spain and to Virginia Boncan as endorser payee. Virginia Boncan and
the Philippine Embassy in Madrid, Spain refused to pay the petitioner the amounts
of the aforementioned checks. As a result, petitioner Banco Atlantico, filed a money
claim with the Auditor General. Petitioner insists that it is a holder in due course.
ISSUE: Is petitioner a holder in due course?
RULING: No. All four conditions enumerated under section 52 of the
Negotiable Instruments Law must concur before a holder can be considered as a
holder in due course. The absence or failure to comply with any of the conditions set
forth under said section will make one's title to the instrument defective.
In this case, the check for US$90,000.00 was a demand note. When
Boncan, the payee of said check, negotiated the same by depositing it in her
account, at the game time informing the bank in writing that it be not presented for
collection until a later date, Banco Atlantico through its agent teller or cashier should
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
have been put on guard that there was something wrong with the check. The fact
that the amount involved was quite big and it was the payee herself who made
the request that the same not be presented for collection until a fixed date in
the future was proof of a glaring infirmity or defect in the instrument. It loudly
proclaims, "Take me at your risk." The interest of the payee was the immediate
punishment of the check of which she was the beneficiary and not the deferment of
the presentment for collection of the same to the drawee bank. This being the case,
Banco Atlantico was not a holder in due course as defined by Section 52 of
the N.I.L., because it was obvious that it had knowledge of the infirmity or
defect of the check. The fact that the check was honored by claimant bank was
proof not only of their gross negligence but a further manifestation of the special
treatment they were according Miss Boncan.
G.R. No. L-15126 November 30, 1961
VICENTE R. DE OCAMPO & CO., plaintiff-appellee,
vs.
ANITA GATCHALIAN, ET AL., defendants-appellants.
Facts: Matilde Gonzales was a patient of the De Ocampo Clinic owned by Vicente De
Ocampo. She incurred a debt amounting to P441.75. Her husband, Manuel Gonzales
designed a scheme in order to pay off this debt: In 1953, Manuel went to a certain Anita
Gatchalian. Manuel purported himself to be selling the car of Vicente De Ocampo. Gatchalian
was interested in buying said car but Manuel told her that De Ocampo will only sell the car if
Gatchalian shows her willingness to pay for it. Manuel advised Gatchalian to draw a check of
P600.00 payable to De Ocampo so that Manuel may show it to De Ocampo and that Manuel
in the meantime will hold it for safekeeping. Gatchalian agreed and gave Manuel the check.
After that, Manuel never showed himself to Gatchalian.
Meanwhile, Manuel gave the check to his wife who in turn gave the check to De Ocampo as
payment of her bills with the clinic. De Ocampo received the check and even gave Matilde
her change (sukli). On the other hand, since Gatchalian never saw Manuel again, she placed
a stop-payment on the P600.00 check so De Ocampo was not able to cash on the check.
Eventually, the issue reached the courts, De Ocampo filed an action for the value of the
checks, and the trial court ordered Gatchalian to pay De Ocampo the amount of the check.
Page 25
Gatchalian argued that De Ocampo is not entitled to payment because there was no valid
indorsement. De Ocampo argued that he is a holder in due course because he is the named
payee.
Issue: Whether or not De Ocampo is a Holder in Due Course?
Held: No. No. Section 52 of the Negotiable Instruments Law, defines holder in due course,
thus:
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.
In the case at hand, De Ocampo failed to satisfy Par (C), or that he took it in good faith or for
value. There were multiple admitted facts that show that the holder’s title (Gonzales) was
defective and suspicious, hence the presumption that De Ocampo was a holder in due course
does not exist. These indications include:
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.
Having presented no evidence that it acquired the check in good faith, it (payee De
Ocampo) cannot be considered as a holder in due course.
De Ocampo should have inquired as to the legal title of Manuel to the said check. The fact
that Gatchalian has no obligation to De Ocampo and yet he’s named as the payee in the
check hould have apprised De Ocampo; that the check did not correspond to Matilde
Gonzales’ obligation with the clinic because of the fact that it was for P600.00 – more than
the indebtedness; that why was Manuel in possession of the check – all these gave De
Ocampo the 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.
The burden was, therefore, placed upon it to show that notwithstanding the suspicious
circumstances, it acquired the check in actual good faith.
The SC also used justification from foreign jurisprudence regarding good faith:
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
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In order to show that the defendant had "knowledge of such facts that his action in
taking the instrument amounted to bad faith," it is not necessary to prove that the defendant
knew the exact fraud that was practiced upon the plaintiff by the defendant's assignor, it being
sufficient to show that the defendant had notice that there was something wrong about his
assignor's acquisition of title, although he did not have notice of the particular wrong that was
committed.
Note (Opinion only, lol): Although the SC in this case used lack of good faith as a rationale,
the foregoing circumstances may also be said to be a defect, hence there is a lack of the
element in par (d), as there was a defect or infirmity when it was received by de Ocampo, or
even par (a) as it was irregular upon its face due to the inconsistency on Gonzales’ obligation,
and the amount on the check.
Digested by: Gretchen Canedo
G.R. No. L-42081, June 26, 1937
ISIDRO S. SANTOS, plaintiff-appellant, vs.
ARTURO P. REYES and AURELIO P. REYES, defendants-appellees.
Arsenio Santos and Nicolas Belmonte for appellant.
Teofilo G. San Luis, Ramon V. Villaflor and Onofre Mendoza for appellees.
VILLA-REAL, J.:
FACTS:
Hermogenes Mendoza and the herein defendant, the brothers Arturo P. Reyes and Aurelio
P. Reyes are optometrists by profession and were partners in the business connected with
optometry. On December 24, 1928, Hermogenes Mendoza applied for and obtained from the
Bureau of Lands a loan in the sum of P300 with interest of 9 per cent per annum. To secure
the payment thereof, he constituted a mortgage on a residential lot having an area of 698
square meters. The mortgage matured on April 23, 1931, but Mendoza succeeded in having
the period for payment extended to December 5th of said year. Threatened by the Bureau of
Lands with foreclosure of the mortgage, Hermogenes Mendoza approached the defendant
Arturo P. Reyes and requested the latter to help him in order to avoid the foreclosure of said
mortgage.
Hermogenes Mendoza executed a notarial instrument (Exhibit A) in favor of the herein
defendants Arturo P. Reyes and Aurelio P. Reyes, wherein it was made to appear that he
sold and transferred the parcel of land in question to said defendants for the sum of P1,745
which the vendor acknowledged to have received from the purchasers.
Page 26
The defendant Arturo P. Reyes, also on said date, April 23, 1931, issued a promissory note
(Exhibit B) in favor of Hermogenes Mendoza, whereby, for value received, he promised to
pay the latter, or order, the sum of P300 on or before April 24, 1931. Likewise on the same
date, April 23, 1931, the herein defendants Arturo Reyes and Aurelio P. Reyes, executed
another promissory note (Exhibit C) in favor of said Hermogenes Mendoza, acknowledging
that they were indebted to the latter and promising to pay jointly and severally in Maypajo,
Caloocan Rizal, the sum of P1,145 on or before October 23, 1932.
Inasmuch as the period for the payment of the mortgage debt had expired without having
been paid, the mortgagee Director of Lands instituted civil case. On September 4, 1933, as
Hermogenes Mendoza was in difficulty and needed money urgently, he executed a document
(Exhibit D) whereby in consideration of the sum of P1,000, he transferred to the herein
plaintiff-appellant Isidro S. Santos all his rights, interest and participation in said promissory
notes Exhibits B and C.
In making the defendants sign the documents Exhibit B and C, Hermogenes Mendoza
assured them that his only purpose was to present said documents to one Vicente Syquia so
that the latter might be convinced to buy the lands at a high price, the profit to be divided later
among themselves. However, instead of selling the land, Hermogenes Mendoza negotiated
and transferred the promissory notes executed by the defendants for the purpose of inducing
those who were interested in the land to buy it.
On September 4, 1933, as Hermogenes Mendoza was in difficulty and needed money
urgently, he executed a document (Exhibit D) whereby in consideration of the sum of P1,000,
he transferred to the herein plaintiff-appellant Isidro S. Santos all his rights, interest and
participation in said promissory notes Exhibits B and C.
On October 2, 1933, Isidro S. Santos filed a complaint against Arturo P. Reyes and Aurelio
P. Reyes, with a petition for preliminary attachment, for the recovery of the proceeds of two
promissory notes. The Court of First Instance of Rizal absolved the defendants Arturo P.
Reyes and Aurelio P. Reyes from the complaint filed by Santos. On appeal, he assigned six
alleged errors and one of which is that he is not a holder in due course, and in holding that
plaintiff is not such a holder.
ISSUE:
Whether or not Santos is a holder in due course
HELD:
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
No. Santos himself admitted that when said documents were transferred to him, payment
thereof was already one year overdue, and he was aware of it. In spite of this, he bought said
promissory notes without first inquiring into the solvency of the makers thereof, the herein
defendants, contending himself with the idea that they were known to him. Section 52 of the
Negotiable Instruments Law provide:
Sec. 52. What constitutes a holder in due course. - A holder in due course is a holder who
has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
b) That he became the holder of it before it was overdue, and without notice that it
has 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.
In the present case, the promissory notes have not been endorsed to him by the holder
Hermogenes Mendoza. There is no doubt that as the plaintiff had purchased the two
promissory notes in question without the necessary endorsement on the part of the holder
after payment thereof had already been one year overdue, and without having made inquiries
about the solvency of their makers, he cannot be considered a holder in due course in
accordance with the provisions of section 52 of the Negotiable Instruments Law (Act No.
2031), and the defendants have a perfect right to set up, as they have done so against him,
the defense that said promissory notes lack valuable consideration and are fictitious, which
defense they could have set up had original holder Hermogenes Mendoza demanded
payment of them.
Was there a valuable consideration?
No. The fact that Arturo P. Reyes paid P160 to Hermogenes Mendoza on account of the
promissory note Exhibit B does not of itself show that said promissory note was executed
for a consideration, there being, as already stated, an understanding between them to
make it appear that the land was worth more so that a higher price could be obtained at
the sale thereof.
What are the defenses of Reyes?
Page 27
 Issue:
● The defendants, in answer to the complaint, alleged as special defense that the
Whether BA Finance is a holder in due course, and therefore the Violago spouses are liable
promissory note for the sum of P1,145 is forged, spurious and fictitious, denying
to pay them the amount of the promissory note.
under oath the genuineness and due execution thereof.
Ruling:
● On February 27, 1934, said defendants amended their answer by amplifying their
Yes.
special defense and alleging, furthermore, that the promissory notes which are
Issue on Negotiability of the Promissory Note
the subject matter of the complaint are without or consideration.
In this case, before the SC touched upon the issue of whether BA Finance was a holder in
due course, it first addressed the issue on whether the promissory note issued by the Violago
spouses was indeed a negotiable instrument covered by the NIL.

G.R. No. 158262. July 21, 2008. The SC held that the promissory note was clearly negotiable. It clearly satisfies the
SPS. PEDRO AND FLORENCIA VIOLAGO, petitioners, requirements of a negotiable instrument under Section 1 of the NIL. That it is in writing; signed
vs. by the Violago spouses; has an unconditional promise to pay a certain amount, on specific
BA FINANCE CORPORATION and AVELINO VIOLAGO, respondents. dates in the future which could be determined from the terms of the note; made payable to
the order of VMSC; and names the drawees with certainty. The indorsement by VMSC to BA
Doctrine: Finance appears likewise to be valid and regular.
A holder in due course holds the instrument free from any defect of title of prior parties and
from defenses available to prior parties among themselves, and may enforce payment of the Whether BA Finance is a holder in due course
instrument for the full amount thereof. Sec. 52 of the NIL provides:
“Section 52. What constitutes a holder in due course.––A holder in due course is a holder who
Facts: has taken the instrument under the following conditions:
Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell a car (a) That it is complete and regular upon its face;
to his cousin, Pedro F. Violago, and the latter’s wife, Florencia. He promised the spouses that (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;
they will only need to pay a downpayment to VSMC while the balance would be financed by
(c) That he took it in good faith and for value;
BA Finance. It was agreed that the spouses will pay the monthly installments to BA Finance (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument
while Avelino would take care of the documentation and approval of financing of the car. or defect in the title of the person negotiating it.

The spouses Avelino signed a promissory note binding themselves to pay jointly and severally
to the order of VMSC the amount of the vehicle in 36 monthly installments. The spouses also
executed a chattel mortgage over the car in favor of VMSC as security for the amount of the
note. VMSC indorsed the promissory note to BA Finance without recourse. Moreover, VMSC
assigned its rights and interests under the note and the chattel mortgage in favor of BA
Finance.
The spouses, however, were unaware that the same car had already been sold to Esmeraldo
Violago, another cousin of Avelino, and has been registered under Esmeraldo’s name.
Despite the spouses’ repeated demands, there was no delivery of the vehicle. And as a result,
Pedro did not pay any monthly amortization to BA Finance. BA Finance filed a complaint for
replevin with damages against the spouses.
The law presumes that a holder of a negotiable instrument is a holder thereof in due course.
In this case, BA Finance meets are the foregoing requisites: (1) the PN was complete and
regular; (2) it was indorsed by VMSC in favor of BA Finance; (3) BA Finance, when it accepted
the PN, acted in good faith and for value; (4) BA Finance was never informed before and at
the time the PN was indorsed to it that the vehicle sold to the Violago spouses was not
delivered to the latter and that VMSC had already previously sold it to another. Hence, BA
Finance is a holder in due course.
In the hands of one other than a holder in due course, a negotiable instrument is subject to
the same defenses as if it were non-negotiable. A holder in due course, however, holds
the instrument free from any defect of title of prior parties and from defenses available

Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ] Page 28
to prior parties among themselves, and may enforce payment of the instrument for the
full amount thereof. Since BA Finance is a holder in due course, petitioners cannot raise the
defense of non-delivery of the object and nullity of the sale against the corporation. The NIL
considers every negotiable instrument prima facie to have been issued for a valuable
consideration.
Other issues:
The Violago spouses pray that the veil of corporate fiction be set aside and Avelino be
adjudged directly liable to BA Finance.
Piercing the veil of corporate fiction
In corporation law, the corporation is an entity separate and distinct from its stockholders and
from other corporations to which it may be connected. But, this separate and distinct
personality of a corporation is merely a fiction created by law for convenience and to promote
justice. So, when the notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat
the labor laws, this separate personality of the corporation may be disregarded or the veil
of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct,
a business conduit or an alter ego of another corporation.
The test to determine of the applicability of the doctrine of piercing the veil of corporate fiction
is: (1) there is control, a complete domination of the business policies and practices; (2) such
control was used to commit fraud or wrong or to perpetuate a violation of statutory and legal
duties; and (3) the control and breach of duty is the approximate cause of the injury or loss
complained of.
The case meets the foregoing test. VMSC is a family-owned corporation of which Avelino was
president. Avelino committed fraud in selling the vehicle to petitioners, a vehicle that was
previously sold to Avelino’s other cousin, Esmeraldo.
Nowhere in the pleadings did Avelino refute the fact that the vehicle in this case was already
previously sold to Esmeraldo; he merely insisted that he cannot be held liable because he
was not a party to the transaction.
Avelino knew fully well that the vehicle was already sold but still proceeded with the sale.
Avelino clearly defrauded the spouses. His actions were the proximate cause of the spouses’
loss. Thus, Avelino cannot now hide behind the separate corporate personality of VMSC to
escape from liability for the amount adjudged by the trial court in favor of the spouses.
G.R. No. 187769. G.R. No. 187769
ALVIN PATRIMONIO, petitioner,
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vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, respondents.
Doctrine:
Section 52(c) of the NIL states that a holder in due course is one who takes the instrument
“in good faith and for value.” It also provides in Section 52(d) that in order that one may be
a holder in due course, it is necessary 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.
Facts:
The petitioner Alvin Patrimonio and the respondent Napoleon Gutierrez (Gutierrez) entered
into a business venture under the name of Slam Dunk Corporation (Slam Dunk), a production
outfit that produced miniconcerts and shows related to basketball.
In the course of their business, the petitioner presigned several checks to answer for the
expenses of Slam Dunk. Although signed, these checks had no payee’s name, date or
amount. The blank checks were entrusted to Gutierrez with the specific instruction not to fill
them out without previous notification to and approval by the petitioner.
In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez went to
Marasigan, to secure a loan in the amount of P200,000.00 on the excuse that the petitioner
needed the money for the construction of his house. In addition to the payment of the principal,
Gutierrez assured Marasigan that he would be paid an interest of 5% per month from March
to May 1994. Thus, Marasigan gave him P200,000.00 sometime in February 1994.
Gutierrez simultaneously delivered to Marasigan one of the blank checks the petitioner
presigned with Pilipinas Bank with the blank portions filled out with the words “Cash” “Two
Hundred Thousand Pesos Only,” and the amount of “P200,000.00.”
On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason
“ACCOUNT CLOSED.” Marasigan sought recovery from Gutierrez, to no avail. He thereafter
sent several demand letters to the petitioner asking for the payment of P200,000.00, but his
demands likewise went unheeded. Consequently, he filed a criminal case for violation of B.P.
22 against the petitioner, docketed as Criminal Case No. 42816.
Issue:
Whether Marasigan is a holder in due course.
Held:
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No. Marasigan is not a holder in due course. Section 52(c) of the NIL states that a holder in
due course is one who takes the instrument “in good faith and for value.” It also provides
in Section 52(d) that in order that one may be a holder in due course, it is necessary 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.
Acquisition in good faith means taking without knowledge or notice of equities of any sort
which could be set up against a prior holder of the instrument. It means that he does not have
any knowledge of fact which would render it dishonest for him to take a negotiable paper. The
absence of the defense, when the instrument was taken, is the essential element of good
faith.
As held in De Ocampo v. Gatchalian:
“In order to show that the defendant had "knowledge of such facts that his
action in taking the instrument amounted to bad faith," it is not necessary to prove
that the defendant knew the exact fraud that was practiced upon the plaintiff by the
defendant's assignor, it being sufficient to show that the defendant had notice that
there was something wrong about his assignor's acquisition of title, although he did
not have notice of the particular wrong that was committed.”
It is sufficient that the buyer of a note had notice or knowledge that the note was in some way
tainted with fraud. It is not necessary that he should know the particulars or even the nature
of the fraud, since all that is required is knowledge of such facts that his action in taking the
note amounted bad faith.
The term ‘bad faith’ does not necessarily involve furtive motives, but means bad faith in a
commercial sense. The manner in which the defendants conducted their Liberty Loan
department provided an easy way for thieves to dispose of their plunder. It was a case of "no
questions asked." Although gross negligence does not of itself constitute bad faith, it is
evidence from which bad faith may be inferred. The circumstances thrust the duty upon the
defendants to make further inquiries and they had no right to shut their eyes deliberately to
obvious facts.
In the present case, Marasigan’s knowledge that the petitioner is not a party or a privy to the
contract of loan, and correspondingly had no obligation or liability to him, renders him
dishonest, hence, in bad faith.
Since he knew that the underlying obligation was not actually for the petitioner, the rule that
a possessor of the instrument is prima facie a holder in due course is inapplicable. As correctly
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
noted by the CA, his inaction and failure to verify, despite knowledge of that the petitioner was
not a party to the loan, may be construed as gross negligence amounting to bad faith.
Yet, it does not follow that simply because he is not a holder in due course, Marasigan is
already totally barred from recovery. The NIL does not provide that a holder who is not a
holder in due course may not in any case recover on the instrument.The only disadvantage
of a holder who is not in due course is that the negotiable instrument is subject to defenses
as if it were non-negotiable. Among such defenses is the filling up blank not within the
authority.
Considering that Marasigan is not a holder in due course, the petitioner can validly set up the
personal defense that the blanks were not filled up in accordance with the authority he gave.
Consequently, Marasigan has no right to enforce payment against the petitioner and the latter
cannot be obliged to pay the face value of the check.
FORD PHILIPPINES, INC. vs. COURT OF APPEALS and CITIBANK, N.A. and
PHILIPPINE COMMERCIAL INTERNATIONAL BANK
G.R. No. 121479. January 29, 2001
QUISUMBING, J.:
Parties:
Drawee bank: Citibank
Collecting Bank: Philippine Commercial International Bank (PCIB)
Payee: Commission on Internal Revenue (CIR)
Doctrine:
G.R. No. 121413 & G.R. No. 121479. January 29, 2001.
Facts:
Ford Philippines drew and issued Citibank Check No. SN-04867 in the amount of
P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment for its
percentage or manufacturer’s sales taxes for the third quarter of 1977. The check
was deposited with PCI Bank and was subsequently sent to Central Clearing with
the indorsement at the back "all prior indorsements and/or lack of indorsements
guaranteed/' Upon presentation with Citibank, the proceeds of the check was paid
to PCI Bank as collecting or depository bank. The proceeds of the check were never
paid to or received by the CIR. It was found out during an NBI investigation that
revealed that the issued check was (Check No. SN-04867) was recalled by
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Godofredo Rivera, the General Ledger Accountant of Ford. He purportedly needed
to hold back the check because there was an error in the computation of the tax due
to the Bureau of Internal Revenue (BIR). With Rivera’s instruction, PCI Bank
replaced the check with two of its own Manager’s Checks (MCs). Alleged members
of a syndicate later deposited the two MCs with the Pacific Banking Corporation.
Issue:
Does Ford have the right to recover from the PCIBank the value of the check in the
amount of P4,746,114.41 intended as payment to the CIR?
Ruling:
Yes. PCIBank is declared solely responsible for the loss of the proceeds of Citibank
Check No. SN-04867 in the amount of P4,746,114.41, which shall be paid together
with six percent (6%) interest thereon to Ford Philippines, Inc. from the date when
the original complaint was filed until said amount is fully paid.
Note that in these cases, the checks were drawn against the drawee bank, but the
title of the person negotiating the same was allegedly defective because the
instrument was obtained by fraud and unlawful means, and the proceeds of the
checks were not remitted to the payee. It was established that instead of paying the
checks to the CIR, for the settlement of the appropriate quarterly percentage taxes
of Ford, the checks were diverted and encashed for the eventual distribution among
the members of the syndicate.
As to the unlawful negotiation of the check the applicable law is Section 55 of the
Negotiable Instruments Law (NIL), which provides:
“When title defective—The title of a person who negotiates an instrument is defective
within the meaning of this Act when he obtained the instrument, or any signature
thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal
consideration, or when he negotiates it in breach of faith or under such
circumstances as amount to a fraud.”
Pursuant to this provision, it is vital to show that the negotiation is made by the
perpetrator in breach of faith amounting to fraud. The person negotiating the checks
must have gone beyond the authority given by his principal. If the principal could
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
prove that there was no negligence in the performance of his duties, he may set up
the personal defense to escape liability and recover from other parties who, through
their own negligence, allowed the commission of the crime.
On record, PCIBank:
1. Failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect
of PCIBank employees to verify whether his letter requesting for the replacement of
the Citibank Check No. SN-04867 was duly authorized, showed lack of care and
prudence required in the circumstances. Furthermore, it was admitted that PCIBank
is authorized to collect the payment of taxpayers in behalf of the BIR. As an agent
of BIR, PCIBank is duty bound to consult its principal regarding the unwarranted
instructions given by the payor or its agent.
2. As agent of the BIR (the payee of the check), PCIBank should receive
instructions only from its principal BIR and not from any other person especially so
when that person is not known to the defendant. It is very imprudent on the part of
the defendant IBAA to just rely on the alleged telephone call of one Godofredo
Rivera and in his signature to the authenticity of such signature considering that the
plaintiff is not a client of the defendant IBAA.”
3. Had the responsibility to make sure that the check in question is deposited in
Payee’s account only. Indeed, the crossing of the check with the phrase “Payee’s
Account Only,” is a warning that the check should be deposited only in the account
of the CIR. Thus, it is the duty of the collecting bank PCIBank to ascertain that the
check be deposited in payee’s account only. Therefore, it is the collecting bank
(PCIBank) which is bound to scrutinize the check and to know its depositors before
it could make the clearing indorsement “all prior indorsements and/or lack of
indorsement guaranteed.”
G.R. No. 128604. January 29, 2001.
Facts:
Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the amount of
P5,851,706.37 representing the percentage tax due for the second quarter of 1978
payable to the Commissioner of Internal Revenue. On April 20, 1979, Ford drew
another Citibank Check No. SN-16508 in the amount of P6,311,591.73, representing
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the payment of percentage tax for the first quarter of 1979 arid payable to the
Commissioner of Internal Revenue. Both checks were “crossed checks” and contain
two diagonal lines on its upper left corner between which were written the words
“payable to the payee’s account only.” Both checks were issued BIR Revenue Tax
Receipts. The checks however, never reached the payee, CIR. Thus, in a letter
dated February 28, 1980, the BIR, Region 4-B, demanded for the said tax payments
the corresponding periods above-mentioned. As far as the BIR is concerned, the
said two BIR Revenue Tax Receipts were considered “fake and spurious.” This
anomaly was confirmed by the NBI upon the initiative of the BIR. The findings forced
Ford to pay the BIR anew, while an action was filed against Citibank and PCIBank
for the recovery of the amount of Citibank Check Numbers SN-10597 and 16508.
Issue:
1. Does Ford have the right to recover from the collecting bank (PCIBank) and
the drawee bank (Citibank) the value of the checks intended as payment to CIR?
2. Ruling: Yes. PCIBank and Citibank must share the loss on a fifty- fifty ratio,
with 6% interest thereon, from the date the complaint was filed until full payment of
said amount.
As a general rule, a banking corporation is liable for the wrongful or tortuous acts
and declarations of its officers or agents within the course and scope of their
employment. A bank will be held liable for the negligence of its officers or agents
when acting within the course and scope of their employment. It may be liable for
the tortuous acts of its officers even as regards that species of tort of which malice
is an essential element. In this case, we find a situation where the PCIBank appears
also to be the victim of the scheme hatched by a syndicate in which its own
management employees had participated.
More so, the evidence on record shows that Citibank as drawee bank was
likewise negligent in the performance of its duties. Citibank failed to establish that
its payment of Ford’s checks were made in due course and legally in order. In its
defense, Citibank claims the genuineness and due execution of said checks,
considering that Citibank (1) has no knowledge of any infirmity in the issuance of the
checks in question (2) coupled by the fact that said checks were sufficiently funded
Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ]
and (3) the endorsement of the Payee or lack thereof was guaranteed by PCI Bank
(formerly IBAA), thus, it has the obligation to honor and pay the same.
Citibank should have scrutinized Citibank Check Numbers SN-10597 and 16508
before paying the amount of the proceeds thereof to the collecting bank of the BIR.
One thing is clear from the record: the clearing stamps at the back of Citibank Check
Nos. SN-10597 and 16508 do not bear any initials. Citibank failed to notice and
verify the absence of the clearing stamps. Had this been duly examined, the
switching of the worthless checks to Citibank Check Nos. SN-10597 and 16508
would have been discovered in time. For this reason, Citibank had indeed failed to
perform what was incumbent upon it, which is to ensure that the amount of the
checks should be paid only to its designated payee. The fact that the drawee bank
did not discover the irregularity seasonably, in our view, constitutes negligence in
carrying out the bank’s duty to its depositors. The point is that as a business affected
with public interest and because of the nature of its functions, the bank is under
obligation to treat the accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of their relationship. Invoking the doctrine of comparative
negligence, we are of the view that both PCIBank and Citibank failed in their
respective obligations and both were negligent in the selection and supervision of
their employees resulting in the encashment of Citibank Check Nos. SN-10597 and
16508. Thus, we are constrained to hold them equally liable for the loss of the
proceeds of said checks issued by Ford in favor of the CIR.
BPI V ALFRED BEARWIN & CO. (1928)
NATURE
Appeal by Anselmo Diaz against the CFI of Iloilo’s order for him to satisfy 2
promissory notes he issued in favor of Alfred Berwin & Co.
FACTS
-The Bank of the Philippine Islands (BPI) filed a collection suit against Alfred
Berwin & Co (ABC). Diaz, ABC’s debtor, was given notice, when the
preliminary attachment was ordered, not to deliver the payment of his debtto ABC. The CFI
of Iloilo rendered judgment in favor of BPI.-To effect the execution of the judgment, BPI prayed
that Diaz be summonedto testify concerning the credit of ABC against him. Diaz
acknowledged hisindebtedness in the sum of P20,000, the balance of credit for a
greateramount. The P20,000 was evidenced by two promissory notes he issued infavor of
ABC.-It does not appear, however, from the record whether such promissorynotes are still in
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the hands of ABC. It was not known whether ABC is still theholder in due course of the
promissory notes or whether it had already beenalienated.
ISSUE
WON Diaz may be compelled to pay Alfred Berwin & Co., or the sheriff as acredit in favor of
said corporation.
HELD:
NO. Diaz cannot be compelled to pay the amount of the saidpromissory notes to any person
save the holder of such documents in duecourse, for said person is the one entitled to receive
it. To compel Diaz to payABC would be to expose him to the situation in which, having paid
theamount of the promissory notes without settling the same, a holder in duecourse may
appear and within all reason demand its full payment.- The fact that he was given notice when
the preliminary attachment wasordered does not change the situation because the debt was
secured bynegotiable ins
truments. Notwithstanding such notice, it was beyond Diaz’s
power to prevent ABC from negotiating the promissory notes.
Disposition
Order revoked.
SECTION 59
Upon inspection, the shaft was found not to be in conformity with the
specifications and was incapable of use for the purpose for which it had been
intended. Upon discovering this, Fernandez Hermanos refused to pay the draft,
and it remained for a time dishonored in the hands of the Philippine National
Bank in Manila. Later the bank indorsed the draft in blank, without
consideration, and delivered it to Charles A. Fossum, who thereupon instituted
the present action on the instrument against the acceptor, Fernandez Hermanos,
and the two individuals named as defendants in the complaint.
Petitioner invokes the 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. Basically, petitioner
claims that he can recover from respondents the amount covered by the draft
because he derives his title through PNB which he alleged was a holder in due
course.
ISSUE: Can petitioner recover from respondents the amount covered by the
draft by invoking section 59 of NIL?

RULING: No. Petitioner himself is not a holder of the draft in due course. In
the first place, petitioner himself was a party to the contract which supplied the
consideration for the draft, albeit he there acted in a representative capacity. In the
second place, he procured the instrument to be indorsed by the bank and delivered
G.R. No. L-19461 March 28, 1923
to himself without the payment of value, after it was overdue, and with full notice
CHARLES A. FOSSUM, plaintiff-appellant, vs. FERNANDEZ HERMANOS, a
that, as between the original parties, the consideration had completely failed. Under
general partnership, and JOSE F. FERNANDEZ Y CASTRO and RAMON
these circumstances, recovery on this draft by the petitioner is out of the question.
FERNANDEZ Y CASTRO, members of the said partnership of FERNANDEZ
(In this case, there was a failure of consideration).
HERMANOS, defendants-appellees.

In this case, there is no proof that the bank itself was ever a holder of this
FACTS: Charles A. Fossum was the resident agent in Manila of the
draft in due course. In this connection it was incumbent on petitioner to show that
American Iron Products Company, Inc. Fernandez Hermanos ordered a tail shaft
the bank was a holder in due course; and upon this point the petitioner can have no
from Fossum who was acting as agent of the aforementioned company. Meanwhile
assistance from the presumption, expressed in section 59 of the Negotiable
the American Iron Products Company, Inc., had drawn a time draft, at sixty days,
Instrument Law, to the effect that every holder is deemed prima facie to be a holder
upon Fernandez Hermanos, for the purchase price of the shaft, payable to the
in due course. The presumption expressed in that section arise only in favor of a
Philippine National Bank. In due course the draft was presented to Fernandez
person who is a holder in the sense defined in section 191 of the same Law, that is,
Hermanos for acceptance, and was accepted by said firm.

Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ] Page 33
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.

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 the present plaintiff, 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 the
plaintiff; and it was incumbent upon petitioner 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. In the entire absence of proof on this point, the action must
fail.

Also, petitioner personally made the contract which constituted the

consideration for this 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 the petitioner
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. Certainly, 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. In the present case there is no proof that the petitioner Fossum
has ceased to be the agent of the American Iron Products Company, Inc.; and in the
absence of proof the presumption must be that he still occupies the relation of agent
to that company.

It is a well-known rule of law that if the original payee of a note unenforceable

for lack of consideration repurchase 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.

Negotiable Instruments Law Case Digests | Based on the Syllabus of Atty. Jazzie Sarona-Lozare
[ JMC College of Law S.Y. 2017-2018 ] Page 34