Outline in Negotiable Instruments Law

A. Forms and Interpretation

1. Requisites of Negotiability

The Bank where postal money orders were deposited may debit the account of the
depositor corresponding to the amount of postal money orders deposited and
subsequently withdrawn from the depositor’s account when it turns out that such
instruments had been stolen by another but ended up being received by the depositor
as part of its sales receipts. Postal money orders are not negotiable instruments, the
reason being that in establishing and operating a postal money order system, the
government is not engaged in commercial transactions but merely exercises a
governmental power for the public benefit. Moreover, some of the restrictions imposed
upon money orders by postal laws and regulations are inconsistent with the character of
negotiable instruments. For instance, such laws and regulations usually provide for not
more than one endorsement and payment may be withheld under a variety of
circumstances. Not being negotiable instruments, the restriction which the Director of
Posts imposed that in cases of adverse claims on the money orders, the corresponding
amount will have to be refunded to the Post Master is valid against the bank in which the
warrants were deposited. Phillippine Education Co., Inc. vs Soriano, 39 SCRA 587
(1971)

Thus, when the defendant obtained a credit accommodation from a bank to facilitate the
payment of printing costs and the cost of printing is collected by drawing a draft against
the bank but which draft is later on sent to the defendant for acceptance, the signature of
the defendant on the draft, without any additional words, is tantamount to acceptance.
Defendant’s argument that the drafts signed by him were not really bills of exchange but
mere pieces of evidence of indebtedness because payments had been made by the
bank before the defendant’s acceptance is erroneous. A commercial paper which
conforms with the definition of a bill exchange is a bill of exchange. The nature of the
acceptance is important only in the determination of liability of the parties but not do
determine whether a commercial paper is a bill of exchange or not. Phil. Bank of
Commerce vs. Aruego, 102 SCRA 530 (1981)

A check which reads ―Pay to the Equitable Banking Corporation order of A/C of Casville
Enterprises, Inc.‖ is not negotiable because the payee ceased to be indicated with
reasonable certainly in contravention of Section 8 of the Negotiable Instruments Law. As
worded, it could be accepted as deposit to the account of the party named after the
symbols ― A/C ― or payable to the Bank as trustee, or as an agent, for Casville
Enterprises, with the latter being the ultimate beneficiary. Consequently where such
check was issued by the drawer to advance the payment of the marginal deposit for a
letter of credit for the account of Casville Enterprises but which the latter deposited in its
account with the payee-bank and then withdrew, the drawer cannot recover from the
payee-bank. xxx The ambiguity of the subject check should be construed against the
party who caused the ambiguity. Equitable Banking Corporation vs. IAC, 161 SCRA
518 (1988)

A promissory note which is payable to GSIS and the deed of Mortgage securing the
payment of the note are not negotiable instrument because they are not payable to order
or bearer. As such, third party mortgagor who mortgaged his property to secure the
obligation of another is not liable as an accommodation party but liable under Article
2085 of the Civil Code to the effect that third persons who are not parties to the principal
obligation may secure the latter by pledging or mortgaging their own property. GSIS vs.
Court of Appeals, 170 SCRA 533 (1989)

The instrument in order to be considered negotiable must contain the so called ―words of
negotiability‖ – i.e., must be payable to ―order‖ or ―bearer‖. Without the words of
negotiable, the instrument is payable only to the person designated therein and is
therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the
advantages of being a holder in due course but will merely step into the shoes of the
person designated in the instrument and will, thus, be open to all defenses available
against the latter. The defense of failure of consideration, that is, the vehicle delivered is
different from the vehicle purchased is not available as a defense against a holder in due
course. Salas vs. Court of Appeals, 181 SCRA 296 (1990)

Treasury warrants which are stamped on their face ―non-negotiable ―and / or are
payable from a particular fund, to wit, Fund 501, are non-negotiable. The indication of
Fund 501 as the source of payment to be made on the treasury warrant makes the order
or promise under the NIL do not apply. Not being negotiable instruments, then the
warranties of a general endorser could not be enforced against the person who
deposited the warrants with the collecting bank when such depositor did not have any
knowledge that that the warrants had been issued without government authority.
Metropolitan Bank & Trust Co. vs. Court of Appeals, 194 SCRA 196 (1991)

A certificate of time deposit which certifies that the bearer has deposited in the bank
money repayable to said depositor is a negotiable instrument. It is considered payable to
bearer for the depositor is the bearer. Caltex vs. Court of Appeals, 212 SCRA 448
(1992)

The language of negotiability which characterizes a negotiable paper as a credit

instrument is its freedom to circulate as a substitute for money. The freedom of
negotiability is the touchstone relating to the protection of holders in due course and is
the foundation for the protection which the law thrown around a holder in due course.
This freedom in negotiability is totally absent in a certificate of indebtedness which
merely acknowledges to pay a sum of money to a specified persons or entity. Since a
certificate of indebtedness which is not payable to order or bearer but is payable to a
specific person is not negotiable, the assignee takes it subject to the defect in the title of
the assignor. Thus, when the person who signed the deed of assignment was not
 authorized by the board of directors, the assignor had no title to convey to the assignee.
Traders Royal Bank vs. Court of Appeals, 269 SCRA 15 (1997)

Withdrawal slips are non-negotiable instruments. Hence, the rules governing the giving
of immediate notice of dishonor of negotiable instruments do not apply in this case. The
essence of negotiability which characterizes a negotiable paper as a credit instrument
lies in its freedom to circulate freely as a substitute for money. The withdrawal slips in
question lacked this character. In a case where a client maintained a special saving
account with his drawee bank, was allowed to withdraw funds there from through the
medium of special withdrawal slips and used the withdrawal slips in payment of certain
purchases, as if they were checks, and the creditor deposited these withdrawal slips to
its bank which in turn would send them for collection to the drawee bank, the fact that
other withdrawal slips were honored and paid by the drawee bank was no license for the
collecting bank to presume that subsequent withdrawal slips would honored and paid
immediately. And the drawee bank was under no obligation to give immediate notice that
it would make payment on the subject withdrawal slips. Firestone Tire & Rubber Co.
vs. Court of Appeals, 353 SCRA 601 (2001)

A certificate of deposit is defined as a written acknowledgement by a bank of the receipt

of a sum of money on deposit which the bank promises to pay to the depositor or the
order of the depositor or to some other person or his order whereby the relation of debtor
and creditor between the bank and the depositor is created. A document to be
considered a certificate of deposit need not be in a specific form. Thus, a passbook of an
interest-earning deposit account issued by a bank is a certificate of deposit drawing
interest because it is considered a written acknowledgement by a bank that it has
accepted a deposit of a sum of money from a depositor. Thus, it is subject to a DST.
Prudential Bank v Commissioner of Internal Revenue (CIR) G.R. No. 180390, July
27, 2011.

2. Kinds of Negotiable Instruments

B. Completion and Delivery

1. Insertion of Date
2. Completion of Blanks
3. Incomplete and Undelivered Instruments
4. Complete but Undelivered Instruments

If the post-dated check was given to the payee in payment of an obligation, the purpose
of giving effect to the instrument is evident, thus title or ownership the check was
transferred to the payee. However, if the PDC was not given as payment, then there was
no intent to give effect to the instrument and ownership was not transferred. The evidence
proves that the check was accepted, not as payment, but in accordance with the policy of
the payee to cover the transaction ( purchase of beer products ) and in the meantime
Puzon was to pay for the transaction by some other means other than the check. This
 being so, title to the check did not transfer to SMC; it remained with Puzon. The second
element of the felony of theft was therefore not established. Petitioner was not able to
show that Puzon took a check that belonged to another. Hence, the prosecutor and the
DOJ were correct in finding no probable cause for theft.- San Miguel Corporation vs.
Puzon, Jr. G.R. No. 167567, 22 September 2010

C. Signature
1. Signing in Trade Name

2. Signature of Agent

3. Indorsement by Minor or Corporation

4. Forgery

A check is a ―bill of exchange‖ drawn on a bank payable on demand. It is either an order

or a bearer instrument but when the payee is fictitious or not intended to be the true
recipient of the proceeds of the check, the check is considered as a bearer instrument
and as such it does not require indorsement to be validly negotiated. It is negotiable by
mere delivery. On the other hand, if a check is payable to a specified payee, it is an
order instrument which requires indorsement from the payee or holder before it may be
validly negotiated but it may nevertheless be considered as a bearer instrument if it is
payable to the order of a fictitious or non- existing person, and such fact is known to the
person making it so payable. Thus, checks issued to ―PrinsipeAbante‖ or ―Si Malakas at
siMaganda,‖ who are well known characters in Philippine mythology, are bearer
instruments because the named payees are fictitious and non- existent.

An actual, existing, and living payee may also be "fictitious" if the maker of the
check did not intend for the payee to in fact receive the proceeds of the check. Thus, a
check made expressly payable to a non-fictitious and existing person is not necessarily
an order instrument. If the payee is not the intended recipient of the proceeds of the
check, the payee is considered a "fictitious" payee and the check is a bearer instrument.
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer
bears the loss. When faced with a check payable to a fictitious payee, it is treated as a
bearer instrument that can be negotiated by delivery. The underlying theory is that one
cannot expect a fictitious payee to negotiate the check by placing his indorsement
thereon. And since the maker knew this limitation, he must have intended for the
instrument to be negotiated by mere delivery. Thus, in case of controversy, the drawer of
the check will bear the loss. This rule is justified for otherwise, it will be most convenient
for the maker who desires to escape payment of the check to always deny the validity of
the indorsement. This despite the fact that the fictitious payee was purposely named
without any intention that the payee should receive the proceeds of the check ( There is
a commercial bad faith exception to the fictitious payee rule. A showing of commercial
bad faith on the part of the drawee bank or any transferee of the check for that matter,
will work to strip it of this defense. )
 Also, the fictitious-payee rule does not apply in a case where the drawee failed
to satisfy a requisite condition of a fictitious-payee situation — that the maker of the
check intended for the payee to have no interest in the transaction. Accordingly, the
checks are to be deemed payable to order. Consequently, the drawee bank that
accepted checks payable to the order of a third person but without the appropriate
endorsement from the latter, should bear the loss as against the drawer of the checks.
Philippine National Bank vs. Rodriguez 566 SCRA 513 (2008)

A drawee bank which paid a check on which the signature of the drawer had been
forged cannot recover the payment from the collecting bank, because payment implies
acceptance and admission of the genuineness of the signature of the drawer. The
question of whether or not the endorsements have been falsified is immaterial to the
liability of the drawee for as against the drawee, the endorsement of the collecting bank
does not guarantee the signature of the drawer, since the forgery of the endorsement
was not the cause of the loss. And even assuming that the collecting bank had been
guilty of negligence in not discovering that the checks was forged, the drawee bank had
been guilty of greater negligence when it had a previous and formal notice from the
drawer that the check had been lost. Philippine National Bank vs. Court of Appeals,
25 SCRA 693 (1968)

Pursuant to its duly to ascertain the genuineness of the signature of the drawer or
depositor on the check being encashed, a bank is expected to use reasonable business
prudence in accepting and cashing a check presented to it. When a check was stolen by
a classmate and friend of the drawer who thereafter forged the latter’s signature, the
drawee bank should return the amount debited from the account of the drawer, because
the drawee was guilty of negligence in paying the check despite the forged signature
and the drawer, under the circumstance, could not be considered negligent. Philippine
National Bank vs. Quimpo, 158 SCRA 582 (1988)

Where the checks were deposited to a bank account despite the forgery of the
endorsement of the payee and the collecting bank allowed withdrawals after the checks
had been cleared, the collecting bank is not liable on the forged check where the payee
is not its depositor and where the payee was guilty of negligence by allowing a condition
in which its employees could appropriate the checks and falsify the endorsement. The
collecting bank could not be guilty of negligence because it had no way of ascertaining
the authenticity of the endorsements in the checks and because it caused the checks to
pass through the clearing house before allowing withdrawal of the proceeds thereof.
Manila Lighter Transportation, Inc. vs. Court of Appeals, 182 SCRA 251 (1990)

When the drawee bank fails to return a forged or altered check to the collecting bank
within 24-hour clearing period, the collecting bank is absolved from liability. It is true that
when an endorsement is forged, the collecting bank or last endorser, as a general rule,
bears the loss. But the unqualified endorsement of the collecting bank on the checks
should be read with the 24 hour regulation on clearing house operation. Republic Bank
vs. Court of Appeals, 196 SCRA 100 (1991)

Author’s note: The Philippine Clearing House Corporation subsequently issued a

regulation that the 24-hour clearing rule only applies in case of forgery of the
drawer’s signature. In case of forgery of the payee’s endorsement or material
alteration, the drawee bank has five years to return the check to the collecting
bank from presentment. It is therefore submitted that the ruling in this case is no
longer controlling.

When a bank accepted a crossed check payable to a person other than the
depositor and stamped thereon its guarantee ―all prior endorsement and/or lack of
endorsements guaranteed‖, the bank had for all legal intents and purposes treated the
said check as a negotiable instrument and, accordingly assumed the warranty of an
endorser. Thus, when a crossed check payable to a person other than the depositor who
was not authorized by the payee to endorse it was paid notwithstanding that the title had
not passed to the endorser, the bank did so at its peril and became liable to the payee
for the value of the check. Out of convenience, the payee may disregard the circuitous
route in determining the chain of liability and proceed directly against the collecting bank.
Associated Bank vs. Court of Appeals 208 SCRA 465 (1992)

A bank which allowed the pre-termination of a money market placement without

making verification with the client and comparing the signature in the letter pre-
terminating the money market placement with the specimen signature of the client on file
and without requiring the surrender of the promissory note evidencing the money market
placement is considered negligent, more so in this case, where the instruction was made
by a swindler who impersonated the client with a money market placement in a bank.
The bank to whom the swindler deposited the cashier’s check representing the proceeds
of the money market placement was also negligent when it approved the opening of the
account with only a tax account number as means of identification. The drawee bank,
however, whose negligence is greater and the proximate cause of the loss should bear
sixty per cent of the loss while the collecting bank should bear forty per cent thereof.
Bank of the Philippine Island vs. Court of Appeals, 216 SCRA 51 (1992)

Generally, a forged signature is wholly inoperative and payment made through or under
such signature is ineffective or does not discharge the instrument, except when the party
relying on the forgery is precluded from setting up the forgery or want of authority.
Where over a period of two years a depositor signed checks prepared by her book
keeper without ascertaining the correctness of their amounts, did not examine and
reconcile the bank statements and cancelled checks, failed to set- up an accounting
procedures to monitor check issuance and discovered later on that the signatures of the
payees were forgeries, and the drawee, on the other hand , violated its internal policies
against acceptance of second endorsed checks, the loss occasioned or caused by such
negligence should be divided equally between the depositor and the drawee bank.
Gempesaw vs. Court of Appeals, 218 SCRA 682 (1993)
 While a drawee bank which paid several checks payable to order with forged
endorsements can recover the payment from the collecting bank because the forged
endorsement is inoperative, the drawer must share one-half of the loss when it
substantially contributed to the loss by continuing to release the check to the forger
although the drawer knew that he was no longer under the employ of the payee. The
drawee bank is also liable because it is under strict obligation to pay the check to the
order of the payee. If the drawee did not pay the holder or other person entitled to
receive payment, in effect it violated the instruction of the drawee. However, the latter
can recover from the collecting bank because in case of forgery of the payee’s
endorsement, the latter incurs liability because of its breach of warranty as an endorser.
Associated Bank vs. Court of Appeals, 252 SCRA 620 (1996)

A drawer who discovered the loss its checkbook and did not notify the bank of the loss
should bear the loss caused by the subsequent payment of the checks in which the
signature of the drawer had been forged. Security Bank and Trust Corporation vs.
Triump Lumber and Construction Corporation, 301 SCRA 537 (1999)

The drawer, which issued crossed checks to the Commissioner of Internal Revenue
(CIR) in payment for its taxes but which payment was not received by the CIR because
the checks were switched with worthless checks en route to clearing and, as a
consequence, had to pay the CIR anew, could recover the amount deducted from its
account from the drawee for the loss because it failed to ensure that the amount of the
checks is paid only to the designated payee while the collecting bank should share one-
half of the loss because its branch manager conspired in the fraud. Philippine
Commercial International Bank vs. Court of Appeals, 350 SCRA 446 (2001)

Since what is at issue is whether the depositor issued the questioned checks the
essential comparison should be between the signatures appearing on the checks and
the specimen signature appearing on the depositor’s card. Such is the normal process
followed in verifying signatures for purpose of bank withdrawals. Considering that the
depositor’s card was not presented in evidence, resort may thus be made to other
documents as would bear his authentic signature. The record is replete with documents
such as residence certificate, passport, and application forms for the current account.
However, there is no significant disparity between the signatures on the checks and
those on the abovesaid documents. Forgery, as any other mechanism of fraud, must be
proven clearly and convincingly, and the burden of proof lies on the party alleging
forgery. Chiang Yia Min vs. CA, 355 SCRA 608 (2001)

The drawer is precluded from setting up the forgery due to his own negligence when he
accorded his secretary unusual degree of trust and unrestricted access to his credit
card, passbooks, check books, bank statement including custody and possession of
cancelled checks and reconciliation of accounts, when the drawer had introduced his
secretary to the bank for purposes of reconciliation of his account, the said secretary
became a familiar figure in the bank and whenever the bank verifiers call the office of the
drawer, it is the same secretary who answers and confirms the checks. Its verifiers first
 verified the drawer’s signatures thereon as against his specimen signature cards, and
when in doubt, the verifier went further, such as by referring to a more experienced
verifier for further verification. In some instances, the verifier made a confirmation by
calling the depositor by phone. It is only after taking such precautionary measures that
the subject checks were given to the teller for payment. Of course it is possible that the
verifiers might have made a mistake in failing to detect the forgery ---if indeed there was.
However, a mistake is not negligence if it was an honest mistake. Ilusorio vs. Court of
Appeals, 393 SCRA 89 (2002)

Where the forgery of the drawer’s signature has been clearly established, the drawee
bank must re-credit the account of the drawer. The failure of the drawer to report the
forgery within ten days from receipt of the monthly bank statement from the drawee bank
does not preclude the drawer from questioning the mistake of the drawee bank despite
the provision in the monthly statement that if no error is reported in ten days, the account
will be deemed correct. BPI vs. CASA Montessori, 430 SCRA 261 (2004)

The bare fact that the forgery was committed by an employee of the party whose
signature was forged can not necessarily imply that such party’s negligence was the
cause of the forgery in the absence of some circumstances raising estoppel against the
drawer. Since the drawer is not precluded by negligence from setting up the forgery, the
general rule should apply. Consequently, if a bank pays a forged check, it must be
considered as paying out of its own funds and can not charge the amount so paid to the
account of the depositor. A bank is liable, irrespective of its good faith, in paying a forged
check. Samsung Construction Co. vs. Far East Bank and Trust Company, 436
SCRA 402 (2004)

D. Consideration
Upon issuance of a negotiable check, in the absence of evidence to the contrary,
it is presumed that the same was issued for valuable consideration which may consist
either in some right, interest, profit or benefit accruing to the party who makes the
contract, or some forbearance, detriment, loss or some responsibility, to act, or labor, or
service given, suffered or undertaken by the other side. Under the Negotiable
Instruments Law, it is presumed that every party to an instrument acquires the same for
a consideration or for value. As petitioner alleged that there was no consideration for
the issuance of the subject checks, it devolved upon him to present convincing evidence
to overthrow the presumption and prove that the checks were in fact issued without
valuable consideration. Petitioner, however, has not presented any credible evidence to
rebut the presumption, as well as North Star’s assertion, that the checks were issued as
payment for the US$85,000 petitioner owed to the corporation and not to the manager
who facilitate the fund transfer. - Cayanan v. North Star International Travel Inc.,G.R.
No. 172954, October 5, 2011

Since a negotiable instrument is presumed to have been issued for a valuable

consideration, the mere presentation of a dishonored check in evidence entitles the
holder to recover from the drawer. Thus, a travel agency selling airline tickets on
commission basis for and in behalf of different airline companies in possession of
checks issued by another who procured tickets from the agency on behalf of airline
 passengers is presumed to be a holder in due course. The payee could not be
considered an accommodated party when it realized no value on the checks which
bounced. As holder, it is entitled to the payment of the checks in its possession. The
drawer of check, not payee, has the burden of proof to show that he no longer owes
payee any amount. Travel-On vs. Court of Appeals, 210 SCRA 351 (1992)

When the promissory note is negotiable, the defense of want of consideration is

unavailing if no sufficient evidence was adduced to overcome the prima facie
presumption that the note was deemed to have been issued for a valuable
consideration. It is also no defense that the promissory note was signed in blank as
Section 14 of the Negotiable Instruments Law conceded the prima facie authority of the
person in possession of negotiable instruments to fill in the blank. Quirino Gonzales
Logging Concessionaire vs. Court of Appeals, 402 SCRA 181 (2003)

E. Accommodation Party

A person whose signature is placed at at the back of a check other than as a maker, drawer or
acceptor is liable as an endorser. Even on the assumption that he affixed his signature as a
mere accommodation party, still he is liable to the payee of the check. Section 29 of the
Negotiable Instruments Law by clear mandate makes the accommodation party ―liable‖ on the
instrument to a holder for value, notwithstanding that such holder at time of taking the
instrument knew him to be only an accommodation party. It is not a valid defense that the
accommodation party did not receive any valuable consideration when he executed the
instrument. AngTiong vs. Ting, 22 SCRA 713 (1968)

To be entitled to recover from an accommodation party, the holder of a negotiable instrument

must be a holder in due course except for the notice of want of consideration. If he does not
quality as a holder in due course then he holds the instrument subject to the defenses as if it
were non-negotiable. A bank can not be considered a holder in due course when it dealt with an
accommodation party knowing fully well that the latter signed the promissory note and deed of
assignment only because the said deed contains a provision that the principal debtor would
assign and convey to the bank all payments to be received from the person who would pay the
project to be undertaken by the principal debtor as public works contractor. The approval by the
bank of the direct release of payments by the Bureau of Public Works to the project contractor
which the bank should have retained and applied to the contractor’s loan constitutes a waiver of
said payments for which it can not charge the accommodation party which had no knowledge of
nor approved such procedure. Thus, an accommodation party can set up the defense of release
from liability. The bank, in effect, extended the term of payment of the note without the consent
of the accommodation makers who stand as sureties to the accommodated party and to all
other parties who are not holders in due course or who do not derive their right from the same.
Prudencio vs. Court of Appeals, 143 SCRA 7 (1986)
Where a party indorsed several checks as accommodation endorser and the checks were
dishonored for lack of funds, she is liable to the holder for the payment of the checks. People
vs. Maniego, 148 SCRA 30 (1987)

Where a corporate officer issued a check in behalf of the corporation to accommodate his
client who needed the check in consideration for a certain transaction and the check was
dishonored for lack of funds, the payee cannot hold the corporation liable. The rule that an
accommodation party is liable on the instrument to a holder for value does not apply to
corporations which are accommodation parties. This is because the issue or endorsement of
negotiable paper by a corporation without consideration and for the accommodation of another
is ultra vires. Hence, one who has taken the instrument with knowledge of the accommodation
nature thereof can not recover against a corporation where it is only an accommodation party.
Since such accommodation paper can not be enforced against the corporation especially since
it is not involved in any aspect of the corporate business or operations, the corporate officers
who executed the instruments should be held personally liable. Crisologo Jose vs. Court of
Appeals, 177 SCRA 594 (1989)

A party who signed a promissory note as accommodation maker in favor of the payees, who
then indorsed it to a financing company, is liable to the financing company and cannot raise the
defense that he did not receive any value thereof, but he is entitled to reimbursement from the
party accommodated. The relationship of an accommodation party and the party
accommodated is in effect of one of principal and surety, such that after making payment an
accommodation party has the right to claim reimbursement from the party accommodated.
Caneda vs. Court of Appeals, 181 SCRA 762 (1990)

A married couple, who signed a promissory note in favor of a bank to enable the sister of the
husband to obtain a loan because any additional loan would already exceed the single
borrower’s limit allowed for the bank, are accommodation parties and are liable for the payment
of the loan. Town Saving and Loan Bank. Inc. vs. Court of Appeals, 223 SCRA 459 (1993)

An accommodation party who acted as a co-maker of a promissory note issued in favor of

a bank can not validly set up the defense that he did not receive any consideration therefor as
the fact that the loan was granted to the principal debtor already constitutes sufficient
consideration. The accommodation party is one who meets all the three requisites : 1) he must
be a party to the instrument, signing as maker, drawer, acceptor or indorser; 2) he must not
receive any value therefor; and 3 ) he must sign for the purpose of lending his name or credit 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 if the contract was not for accommodation.The relation between an
accommodation party and the accommodated party is one of principal and surety- the
accommodation party being the surety. 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 obligation not does he receive any benefit therefrom. XXX It is
completely immaterial if the payee of the promissory note would opt to proceed only against the
accommodation party or the accommodated party. Xxx Further, 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 debtor. Xxx The insolvency of the accommodated party will not relieve the
accommodation party from his obligation to the payee of the note. He may obtain a security
from the party accommodated to protect himself from the danger of insolvency in the even that
he is eventually sued by the payee. But whether or not he obtains security can not affect his
liability to the payee as the said remedy is matter of concern exclusively between him and the
accommodated party.Angv. Associated Bank, 532 SCRA 244 (2007).

A person who signed a promissory note as a co-maker for the purpose of lending his
name to his co-maker but without receiving value on the note is an accommodation party. 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.‖ Henry dela Rama
vs. Admiral United Savings Bank 551 SCRA 472 ( 2008 )

F. Negotiation
1. Distinguished from Assignment
An assignee of a promissory note can not enforce payment thereof if the same had already
been extinguished by compensation as when the maker of the note and the assignor thereof are
mutually indebtedness to each other. The mere fact that two corporations have a common
director is not a sufficient basis for disregarding their separate juridical personalities. Sesbreno
vs. Court of Appeals, 222 SCRA 466 (1993)

2. Modes of Negotiation
A check drawn payable to the order of ―cash‖ is payable to bearer and the bank may pay it
to the person presenting it for payment even without the drawer’s endorsement.
AngTekLian vs. Court of Appeals, 87 SCRA 383 (1978)

An instrument is negotiated when it is transferred from one person to another in such a

manner as to constitute the transferee the holder thereof and a holder may be the payee
or indorsee of a bill or note who is possession or the bearer thereof. The mere delivery to
the pledgee of negotiable certificates of time deposit to guarantee the payment of
obligation does not constitute and make the pledgee the holder thereof, for under Article
2095 of the Civil Code, the certificate must be indorsed and to bind third persons, the
pledge must appear in a public instrument. At most, the pledgee is a holder for value to the
extent of his lien. Caltex vs. Court of Appeals, 212 SCRA 448 (1992)

3. Kinds of Indorsements

G. Rights of the Holder

 1. Holder in Due Course

A check drawn payable to the order of ―cash‖ is payable to bearer and the bank may pay
it to the person presenting it for payment even without the drawer’s endorsement.
AngTekLian vs. Court of Appeals, 87 SCRA 383 (1978)

An instrument is negotiated when it is transferred from one person to another in such a

manner as to constitute the transferee the holder thereof and a holder may be the payee
or indorsee of a bill or note who is possession or the bearer thereof. The mere delivery
to the pledgee of negotiable certificates of time deposit to guarantee the payment of
obligation does not constitute and make the pledgee the holder thereof, for under Article
2095 of the Civil Code, the certificate must be indorsed and to bind third persons, the
pledge must appear in a public instrument. At most, the pledgee is a holder for value to
the extent of his lien. Caltex vs. Court of Appeals, 212 SCRA 448 (1992)

2. Defenses Against the Holder

While its manager forged the signature of the authorized signatories of clients in the
application for manager’s checks and forged the signatures of the payees thereof, the
drawee bank also failed to exercise the highest degree of diligence required of banks in
the case at bar. It allowed its manager to encash the Manager’s checks that were plainly
crossed checks. A crossed check is one where two parallel lines are drawn across its
face or across its corner. Based on jurisprudence, the crossing of a check has the
following effects: (a) the check may not be encashed but only deposited in the bank; (b)
the check may be negotiated only once — to the one who has an account with the bank;
and (c) the act of crossing the check serves as a warning to the holder that the check
has been issued for a definite purpose and he must inquire if he received the check
pursuant to this purpose; otherwise, he is not a holder in due course. In other words, the
crossing of a check is a warning that the check should be deposited only in the account
of the payee. When a check is crossed,it is the duty of the collecting bank to ascertain
that the check is only deposited to the payee’s account. In complete disregard of this
duty, PCIB’s systems allowed Balmaceda to encash 26 Manager’s checks which were
all crossed checks, or checks payable to the ―payee’s account only.‖ - Philippine
Commercial International Bank vs. Balmaceda,G.R. No. 158143, September 21,
2011

H. Liabilities of Parties
1. Maker
Under the Negotiable Instruments Law, persons who write their names on the face of
promissory notes are makers and liable as such. Republic Planters Bank vs. Court of
Appeals, 216 SCRA 738 (1992)

2. Drawer
3. Acceptor
4. Indorser
 The general endorser of a check engages that if it be dishonored and the necessary
proceeding for dishonor duly be taken, he will pay the amount thereof to the holder.
However, a notice of dishonor is necessary in order to change an endorser and the right
of action against him does not accrue until the notice is given. Gullas vs. PNB, 62 Phil.
519

Where a person paid for certain merchandise with checks issued by the drawer and
such person signed at the back of the checks without any indication as to how she
should be bound thereby, she is deemed to be an endorser thereof and as such, is liable
to pay the instruments to the payee if the checks were dishonored for lack of funds.
Sapiera vs. Court of Appeals, 314 SCRA 370 (1999)

Notice of dishonor is not required if the drawer has no right to expect or require the bank to
honor the check or if the drawer has countermanded payment. In the instant case, all the
checks were dishonored for any of the following reasons. ―account closed‖, ―account under
garnishment‖, ―insufficiency of funds‖, or ―payment stopped‖. In the first three instances, the
drawer had no right to except or require the bank to honor the checks and in the last instance,
the drawer had countermanded payment. Great Asian Sales Corporation vs. Court of
Appeals, 381 SCRA 557 (2002)

5. Warranties

I. Presentment for Payment

1. Necessity of Presentment for Payment

Where instrument is payable on demand, presentment must be made within a
reasonable time after issue. Reasonable time depends upon the peculiar facts and
circumstance of each case. Where a check is presented for payment three and a half
years after the date of its maturity, the presentment is considered beyond a reasonable
time and the endorser should be deemed discharged. Far East Realty Investment, Inc.
vs. Court of Appeals, 166 SCRA 256 (1988)

The promissor cannot question the failure of the payee to exhibit to him the promissory
note when he has made an express waiver of demand, presentment, protest and notice
of non-payment of the note. Ansaldo vs. Court of Appeals, 177 SCRA 594 (1989)

Presentment for acceptance is not required for sight drafts. Presentment for acceptance
is required if the draft is payable after sight or in any other case, when presentment for
acceptance is necessary to fix the maturity of the instrument or when the bill expressly
so stipulates or and when the bill is drawn payable elsewhere than at the residence or
place of business of the drawee. Prudential Bank vs. Court of Appeals, 216 SCRA
257 (1992)

2. Parties to Whom Presentment for Payment Should Be Made

3. Dispensation with Presentment for Payment
4. Dishonor by Non-Payment
 After an instrument is dishonored by nonpayment, indorsers cease to be merely
secondarily liable; they become principal debtors whose liability becomes identical to
that of the original obligor. The holder of the negotiable instrument need not even
proceed against the drawer before suing the indorser. Clearly, the drawer of the checks
is not an indispensable party in an action against the indorser of the checks. Maria
Tuazon vs. Heirs of Bartolome Ramos, 463 SCRA 408 ( 2005 )

J. Notice of Dishonor
1. Parties to Be Notified
2. Parties Who May Give Notice and Dishonor
3. Effect of Notice

For a check to be dishonored upon presentation, on the one hand, and to be stale for not
being presented at all in time on the other hand, are incompatible developments that
naturally have variant legal consequences. Crytal vs. Court of Appeals, 71 SCRA 443
(1976)

A bank which dishonored a check issued by a depositor because at the time the checks
were processed for clearing the depositor had no sufficient funds in the account after the
processing of the checks is not liable for damages. A check, as distinguished from an
ordinary bill of exchange, is supposed to be drawn against a previous deposit of funds
for it is ordinarily intended for immediate payment. The depositor must personally keep
track of his available balance in the bank and not rely on the bank to notify him of the
necessity to fund certain checks he previously issued. A bank is under no obligation to
make part payment on a check, up to the amount of the drawer’s funds. Moran vs.
Court of Appeals, 230 SCRA 799 (1994)

4. Form of Notice
5. Waiver
6. Dispensation with Notice

The holder of two checks which were dishonored because the drawer withdrew her
funds from the bank can hold the drawer liable even if no notice of dishonor was given to
the drawer, since the drawer had no right to expect that the drawee bank would honor
the checks. State Investment House, Inc. vs. Court of Appeals, 217 SCRA 32 (1993)

Notice of dishonor is not required if the drawer has no right to expect or require the bank
to honor the check or if the drawer has countermanded payment. In the instant case, all
the checks were dishonored for any of the following reasons. ―account closed‖, ―account
under garnishment‖, ―insufficiency of funds‖, or ―payment stopped‖. In the first three
instances, the drawer had no right to except or require the bank to honor the checks and
in the last instance, the drawer had countermanded payment. Great Asian Sales
Corporation vs. Court of Appeals, 381 SCRA 557 (2002)
 7. Effect of Failure to Give Notice

K. Discharge of Negotiable Instrument

1. Discharge of Negotiable Instrument
2. Discharge of Parties Secondarily Liable
3. Right of Party Who Discharged Instrument
4. Renunciation by Holder

L. Material Alteration
1. Concept
2. Effect of Material Alteration

The alteration of the serial number of a check is not material and does not entitle the
drawee bank which paid it to recover the payment. Reason: The alteration of the serial
number of a check did not change the relations between the parties nor the effect of the
instrument. Philippine National Bank vs. Court of Appeals, 256 SCRA 491 (1996)

The alteration on the serial number of a check is not a material alteration. Since
there were no material alterations on the checks, respondent as drawee bank has no
right to dishonor them and return them to the collecting bank. International Corporate
Bank vs. Court of Appeals 501 SCRA 20(2006)

A party aggrieved by an arbitral award of the PCHC may choose among any of the
following remedies: a.) filing a petition to vacate arbitral award in the Regional Trial
Court, pursuant to the Arbitration Law, b.) filing a petition for review in the Court Appeals,
under Rule 43 of the Rules of Court, and c) filing a petition for certiorari under Rule 65
before the Court of Appeals, in case the arbitral award is impressed with grave abuse of
discretion. The filing of a petition for review with the RTC, albeit provided by the PCHC
Rules on Arbitration, is not the appropriate remedy. Since the Rules of Procedure for
Arbitration of the Philippine Clearing House Corporation (PCHC) only came about as a
result of a mere agreement between and among member banks of the PCHC—such
rules cannot validly confer jurisdiction on the Regional Trial Courts to review arbitral
awards of the former. It is a well settled principle that jurisdiction over the subject matter
can only be conferred by law, and can never be determined by consent or acquiescence
of the parties Metropolitan Bank & Trust Company vs. Court of Appeals 579 SCRA
(2009)

M. Acceptance
1. Definition
2. Manner
3. Time for Acceptance
4. Rules Governing Acceptance
N. Presentment for Acceptance
1. Time/Place/Manner of Presentment
2. Effect of Failure to Make Presentment
3. Dishonor by Non-Acceptance

O. Promissory Notes

P. Checks
1. Definition
2. Kinds
Manager's or cashier's checks are bills of exchange drawn by the bank's manager or
cashier, in the name of the bank, against the bank itself. Typically, a manager's or
cashier's check is procured from the bank by allocating a particular amount of funds to
be debited from the depositor's account or by directly paying or depositing to the bank
the value of the check to be drawn. Since the bank issues the check in its name, with
itself as the drawee, the check is deemed accepted in advance. Nevertheless, the mere
issuance of a manager's check does not ipso facto work as an automatic transfer of
funds to the account of the payee. If there was no delivery, presentment of the
manager's check to the bank did not occur. As a result, the assigned fund is deemed
part of the account of the purchaser of the check. The doctrine that the deposit
represented by the manager's check automatically passes to the payee is inapplicable
because the instrument- although accepted in advance remains undelivered. The
purchaser should be informed if the deposit had been left inactive for more than 10 years
and that it may be subjected to escheat proceedings if left unclaimed. RCBC vs. Hi-Tri
Development Corporation, 672 SCRA 514 (2012).

Acts involving the violation of trust receipt agreements occurring after 29 January 1973
(date of enactment of PD 115) would make the accused criminally liable for estafa under
paragraph 1 (b). Article 315 of the Revised Penal Code pursuant to the explicit provision
of Section 13 of PD 115. PD 115 does not violate the constitutional provision against
imprisonment for non-payment of debt because what is sought to be penalized is not the
non-payment of debt but the dishonesty and abuse of confidence in the handling of
money or goods to the prejudice of another. The law punishes the act not as an offence
against property but against public order. It is in the context of upholding public interest
that the law specifically designates the breach of a trust receipt agreement to be an act
which shall make the offender liable for estafa. People vs. Nitafan, 207 SCRA 726
(1992)

3. Presentment for Payment

a. Time
b. Effect of Delay