Professional Documents
Culture Documents
GOVERNING LAWS
1. Negotiable Instruments Law (Act No. 2031)
- apply only to negotiable instruments;
- if NOT NEGOTIABLE, provisions of Civil Code (CC) shall apply.
2. Code of Commerce
- Before NIL, negotiable instruments were governed by Arts. 439 – 566 of the Code of
commerce.
- Now, it governs those that were not impliedly repealed by the NIL
such manner as to give the holder, if he is a holder in due course, the right to enforce
payment against all parties liable to him.
b. LEGAL TENDER is the kind of currency which the law compels a debtor to accept in
payment of a debt, be it public or private, provided it is tendered in the right amount.
SECTION 52 of the CENTRAL BANK ACT (RA 7653) – all notes and coins issued by the
Bangko Sentral ng Pilipinas shall be fully guaranteed by the government of the Philippines
and shall be legal tender in the payment of all debts both public and private.
CIRCULAR 537 of the BSP (series of 2006) – coins in the denominations of P1, P5, P10
coins, up to P1,000, and those 25cents below up to P100.
MEMORIZE
SEC 126 (BOE defined) – A bill of exchange is an unconditional order in writing addressed
by one person to another, signed by the person giving it, requiring the person to whom it
is addressed to pay on demand or at a fixed determinable future time a sum certain in
money to order or bearer.
SEC 184 (PN defined) – a promissory note is an unconditional promise in writing made by
one person to another, signed by the maker, engaging to pay on demand, or at a fixed
determinable future time, a sum certain in money to order or to bearer. (Where a note is
drawn to the maker’s own order, it is not COMPLETE until indorsed by him.
SEC 185 (Check defined) – a check is a bill of exchange drawn on a bank payable on
demand.
Check art 1249 (2) of NCC on impairment clause: “the delivery of promissory notes
payable to order, or bills of exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired.
Current bank practice is to require presentment within 6 months from issuance
(otherwise, it becomes a STALE CHECK)
Up to what extent is the drawer discharged because of the delay? EXTENT OF THE LOSS
CAUSED BY THE DELAY, NOT THE WHOLE OBLIGATION (e.g. bank insolvency)
Sec. 50. When prior party may negotiate instrument. - Where an instrument is negotiated
back to a prior party, such party may, subject to the provisions of this Act, reissue and
further negotiable the same. But he is not entitled to enforce payment thereof against
any intervening party to whom he was personally liable.
REQUIREMENTS OF PARTY (ies) SIGNING AS AGENT – so as not to make them liable (SEC 19-20)
Duly authorized
Indicate that he is signing as a mere agent
Discloses the name of his principal
Transfer vests in the transferee such title as the transferor had therein (steps only into
the shoes of the transferor, cannot acquire better right)
But, shall have the right to have the indorsement of the transferor
In determining if HIDC: negotiation takes effect as of the time the indorsement is actually
made.
Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification,
warrants to all subsequent holders in due course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next
preceding section; and
(b) That the instrument is, at the time of his indorsement, valid and subsisting;
- By his qualified indorsement, the indorser disclaims his liability to any holder or
subsequent party who might be compelled to pay by another. He is only liable for
breach of warranties under section 65 of the NIL. Usually he negatives liability by
placing a notation “without recourse” or “sans recourse” in his special or blank
indorsement.
Sec. 65. Warranty where negotiation by delivery and so forth. — Every person negotiating
an instrument by delivery or by a qualified indorsement
warrants:chanroblesvirtuallawlibrary
(a) That the instrument is genuine and in all respects what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
(d) That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless.
But when the negotiation is by DELIVERY only, the warranty extends in favor of no holder
other than the immediate transferee (NOT ALL PRIOR PARTIES).
The provisions of subdivision (c) of this section do not apply to a person negotiating public
or corporation securities other than bills and notes.
But all subsequent indorsees acquire only the title of the first indorsee under the
restrictive indorsement.
MATERIAL ALTERATION
What Constitutes (Sec 125)
Sec. 125. What constitutes a material alteration. - Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
(f) Or which adds a place of payment where no place of payment is specified, or any other
change or addition which alters the effect of the instrument in any respect, is a
material alteration.
EFFECTS OF FORGERY
I. PROMISSORY NOTE
1. Signature of the MAKER
a. MAKER
- is NOT liable to ALL SUBSEQUENT PARTIES (whether order of bearer)
- WHOLLY INOPERATIVE and no right to enforce payment against the maker is obtained
by any holder (SEC 23, NIL)
b. Indorser - indorsers AFTER forgery are still secondarily liable to the holder. [Sec 65 (1)
– that the instrument is genuine and in all respect what it purports to be]
b. Bearer Instruments
- HOLDER can recover from DRAWER if a special indorsement was forged as the forged
signature is unnecessary for his title.
- DRAWEE can charge the account of the drawer
CUNANAN 2S NEGOTIABLE INSTRUMENTS LAW (NIL)
HINT: Buy 10 postal money orders which were at first offered to be paid by private check
(but it was stolen when the private check was not accepted)
HELD: NO. in establishing and operating a postal money order system, the government is
not engaging in commercial transactions but merely exercises a governmental power for
the public benefit.
- Suggested answer in the book taken from PECO vs SORIANO (p.44): It does not contain
an unconditional promise or order to pay required in Sec 1(b) of the NIL. Regulations
or restrictions are imposed on PMO which are consistent with the character of
Negotiable Instruments. For instance, the rules and regulations on PMO usually
provide for not more than one indorsement. They also provide that they may be
withheld under a variety of circumstances.
2. Caltex Phil vs. CA and Security Bank and Trust Co. (Negotiability) - CTDs
HINT: 280 Certificate of Time Deposit delivered to Caltex for purchase of fuel products
but declared the same as lost (to procure another copy of CTD and further negotiate it to
another)
HELD: YES. The CTDs in question undoubtedly meet the requirements of the law for
negotiability. The documents provide that the amounts deposited shall be repayable to
the depositor. And who, according to the document, is the depositor? It is the "bearer."
The documents do not say that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him. Rather, the amounts are to be repayable to
the bearer of the documents or, for that matter, whosoever may be the bearer at the
time of presentment.
CUNANAN 2S NEGOTIABLE INSTRUMENTS LAW (NIL)
(Consider na din natin yung issue on recovery. SC held that the petitioner cannot recover
considering the Private Respondent bank acquired better right. This is with regard to the
provisions of Art. 2095 and 2096 of the NCC – Incorporeal rights evidence by NI which are
pledged should be INDORSED. A pledge shall only produce effect if it appears in a public
instrument. Eh hindi naman napanotarized ng Petitioner yung claim nila tapos hindi pa
na-indorse yung CTD sa kanila. Correlate it with Sec 27 of the NIL which talks about lien
on instrument of holder for value)
HINT: 3 crossed checks (P8,030.58) payable to Inter-island Gas Service (IGS), Inc and
drawn upon drawee-banks (PBC, CBC, PNB); Sales-agent of IGS, who is a regular bettor of
Jai Alai, indorsed (under forged signatures) the check to the latter which was then
deposited to Respondent Bank (collecting bank).
ISSUE: WON BPI had the right to debit from petitioner’s account the value of the checks
with the forged indorsements.
HELD: YES. the respondent acted within legal bounds when it debited the petitioner's
account. When the petitioner deposited the checks with the respondent, the nature of
the relationship created at that stage was one of agency, that is, the bank was to collect
from the drawees of the checks the corresponding proceeds. It must be noted further
that three of the checks in question are crossed checks, namely, exhs. 21, 25 and 27,
which may only be deposited, but not encashed; yet, the petitioner negligently accepted
them for cash. That two of the crossed checks, namely, exhs. 21 and 25, are bearer
instruments would not, in our view, exculpate the petitioner from liability with respect to
them. The fact that they are bearer checks and at the same time crossed checks should
have aroused the petitioner's suspicion as to the title of Ramirez over them and his
authority to cash them
HINT: Secretary who were entrusted of credit cards, checkbook and blank checks of
petitioner (Manila Banking Corporation) – drawn 17 checks
HELD: NO. It is a rule that when a signature is forged or made without the authority of the
person whose signature it purports to be, the check is wholly inoperative. No right to
retain the instrument, or to give a discharge therefor, or to enforce payment thereof
against any party, can be acquired through or under such signature. However, the rule
does provide for an exception, namely: "unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or want of authority." In the
instant case, it is the exception that applies. In our view, petitioner is precluded from
CUNANAN 2S NEGOTIABLE INSTRUMENTS LAW (NIL)
setting up the forgery, assuming there is forgery, due to his own negligence in entrusting
to his secretary his credit cards and checkbook including the verification of his statements
of account. (Sec 23, NIL)
HINT: 3 unpaid checks (crossed) BCCFI issued to George king for payment of tobacco
leaves, which were subsequently sold (checks) at a discount with SIHI.
Issue: WON SIHI, a second indorser, a holder of crossed checks, is a holder in due course
HELD: NO
- In order to preserve the credit worthiness of checks, jurisprudence has pronounced
that crossing of a check should have the following effects: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be negotiated only once
— to one who has an account with a bank; (c) and the act of crossing the check serves
as warning to the holder that the check has been issued for a definite purpose so that
he must inquire if he has received the check pursuant to that purpose, otherwise, he
is not a holder in due course.
- It 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 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, 13 and as such the consensus of authority is to the effect that the
holder of the check is not a holder in due course.
HINT: A check in the amount of P600 used to pay for a prospective car, but the check was
used as payment of the hospital bills of the wife of Manuel Gonzales.
HELD: NO. As holder's title was defective or suspicious, it cannot be stated that the payee
acquired the check without knowledge of said defect in holder's title, and for this reason
the presumption that it is a holder in due course or that it acquired the instrument in good
faith does not exist. And having presented no evidence that it acquired the check in good
faith, it (payee) cannot be considered as a holder in due course. In other words, under the
circumstances of the case, instead of the presumption that payee was a holder in good
faith, the fact is that it acquired possession of the instrument under circumstances that
should have put it to inquiry as to the title of the holder who negotiated the check to it.
The burden was, therefore, placed upon it to show that notwithstanding the suspicious
circumstances, it acquired the check in actual good faith. (Secs 52 & 59, NIL)