Negotiable Instruments Law (NIL)

●​ Negotiable instrument is meant to be passed from person to another person

I. FORM AND INTERPRETATION

[Memorize-WriSUDOD- IMPORTANT]
Sec. 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the
following requirements:

(a) It must be in Writing and Signed by the maker or drawer;

(b) Must contain an Unconditional promise or order to pay a sum certain in money;
(c) Must be payable on Demand, or at a fixed or determinable future time;
(d) Must be payable to Order or to bearer; and
(e) Where the instrument is addressed to a Drawee, he must be named or otherwise indicated
therein with reasonable certainty.

(a) It must be in Writing and Signed by the maker or drawer

Parties to a promissory note
●​ Maker/Promissor - debtor
●​ Payee - creditor

Parties to a bill of exchange

●​ Drawer
●​ Drawee
●​ Payee

Can it be written with any paper and ballpen?

●​ Yes, the law does not specify.

Does a signature of a maker or drawer require a full or short signature?

●​ It can be full or short signature

(b) Must contain an Unconditional promise or order to pay a sum certain in money
●​ Promise or order must be absolute and contain no conditions
●​ Unconditional promise - applicable to promissory note
●​ Unconditional order - applicable to bill of exchange
●​ Order is a directive, command or instruction
●​ Order in bill of exchange
○​ Who orders? Drawer
○​ Who is the one ordered?

(c) Must be payable on Demand, or at a fixed or determinable future time

Three (3) alternatives/situation:

 ●​ Demand - right now; can collect anytime
●​ Fixed date - due date indicated
●​ Determinable future time - Sec. 4

(d) Must be payable to Order or to bearer

Is the order here the same in letter b?
●​ No. There’s a different meaning.
●​ MOST IMPORTANT part to be negotiable

(e) Where the instrument is addressed to a Drawee, he must be named or otherwise indicated
therein with reasonable certainty.
●​ Only applies to bill of exchange
●​ N/A to promissory note
●​ Purpose: Payee will know to whom he/she will collect

Sec. 2. What constitutes certainty as to sum. - The sum payable is a sum certain within the
meaning of this Act, although it is to be paid:
(a) with interest; or
(b) by stated installments; or
(c) by stated installments, with a provision that, upon default in payment of any installment or of
interest, the whole shall become due; or
(d) with exchange, whether at a fixed rate or at the current rate; or
(e) with costs of collection or an attorney's fee, in case payment shall not be made at maturity.

If the sum is not certain, can it be considered a negotiable instrument?

●​ No.

(a) with interest

●​ In borrowing money, interest is the cost or the purchase price
●​ Sir: For example 100 pesos loan, the interest is 10%, the interest that has to be paid is
PhP10.00. The 10% is the interest rate, the 10 pesos is the interest. Do not confuse
interest rate and interest!
●​ The 100 is the principal loan
●​ As to the creditor, the interest is considered an interest income. As to the borrower, the
interest is deemed as “interest expense”

(b) by stated installments

(c) by stated installments, with a provision that, upon default in payment of any installment or of
interest, the whole shall become due
●​ Acceleration clause
●​ Payment of the full amount is accelerated

(d) with exchange, whether at a fixed rate or at the current rate; or

Does it matter if the sum certain in money is in foreign currency?
●​ No.
●​ When the law says “instrument”
○​ A mere document
○​ In oblicon, there is a meeting of minds (i.e., reformation of contracts is mere
reformation of the instrument because the instrument does not reflect the true
meetings of the minds of the parties.)

(e) with costs of collection or an attorney's fee, in case payment shall not be made at maturity.
●​ Only relevant after the instrument has already been dishonored

Sec. 3. When promise is unconditional. - An unqualified order or promise to pay is

unconditional within the meaning of this Act though coupled with:
(a) An indication of a particular fund out of which reimbursement is to be made or a particular
account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument. BUT an order or promise to
pay out of a particular fund is not unconditional

Does this apply to bills of exchange?

●​ No. What applies to bills of exchange is an unconditional order to pay a sum certain in
money

What applies to unqualified promise to pay?

●​ Promissory Note

If a negotiable instrument indicates where the money is coming from or the source of funds, will
it be negotiable or non-negotiable?
●​ If reimbursement only then it is still negotiable. However, if there is an order or promise
to pay out of a particular fund, it is conditional. Thus, it is not negotiable because the
creditor is not certain of the payment.
●​ The problem in this Section is that the second sentence of letter B is supposed to be in
letter A.
○​ Read letter A then second section of letter B

Sec. 4. Determinable future time; what constitutes. - An instrument is payable at a

determinable future time, within the meaning of this Act, which is expressed to be payable:

(a) At a fixed period after date or sight; or

(b) On or before a fixed or determinable future time specified therein; or
(c) On or at a fixed period after the occurrence of a specified event which is certain to happen,
though the time of happening be uncertain.

An instrument payable upon a contingency is not negotiable, and the happening of the event
does NOT cure the defect.
 ●​ Examples:
○​ (a) 15 days after christmas day
○​ (b) on or before august 15
○​ (c) to pay when Mr. X dies
●​ Payable on christmas = fixed date, not a determinable future time
●​ I promise to pay Mr. Chanco or order the amount of P100 when Mr. Del Rio passes the
bar exam = Not negotiable

Sec. 5. Additional provisions NOT affecting negotiability. - An instrument which contains an

order or promise to do any act in addition to the payment of money is NOT negotiable.

But the negotiable character of an instrument otherwise negotiable is not affected by a provision
which:
(a) authorizes the sale of collateral securities in case the instrument be not paid at maturity; or
(b) authorizes a confession of judgment if the instrument be not paid at maturity; or
(c) waives the benefit of any law intended for the advantage or protection of the obligor; or
(d) gives the holder an election to require something to be done in lieu of payment of
money.

But nothing in this section shall validate any provision or stipulation otherwise illegal.
●​ “Even-if provisions” not exceptions in which the instrument would still be negotiable
●​ (a) In principal loan obligations, it can be secured by collateral securities as a remedy of
the creditor (i.e., pledge, chattel or real estate mortgage)
○​ At the time collateral securities are to be sold, instrument is already overdue or
when the instrument is no longer negotiable in its full commercial sense, thus
there is no additional act to be done other than the payment of money
●​ (b) No confession of judgment in the ROC anymore; void as against public policy
denying person of his day in court
●​ (d) gives the holder an election to require something to be done in lieu of payment
of money. [IMPORTANT]
○​ If the option is given to the holder, it is still negotiable because the same can still
insist that payment shall be made in money
○​ However, if the instrument is payable in money and giving of property or service,
it become non-negotiable. Holder here has no choice.

Sec. 6. Omissions; seal; particular money. - The validity and negotiable character of an
instrument are NOT affected by the fact that: [DaVaPSKi]
(a) it is not Dated; or
(b) does not specify the Value given, or that any value had been given therefor; or
(c) does not specify the Place where it is drawn or the place where it is payable; or
(d) bears a Seal; or
(e) designates a particular Kind of current money in which payment is to be made.
But nothing in this section shall alter or repeal any statute requiring in certain cases the nature
of the consideration to be stated in the instrument.
●​ Absence of such does not impair negotiability of an instrument as they are not necessary
to the validity of the instrument
●​ Omission of Date:
○​ Date of instrument – if not indicated, the instrument will be considered to be
dated as of the time it was issued
a. Except: []
i. Where said date is tied to the date of issue (on or after a fixed date; to
determine maturity)
ii. Where interest is stipulated for purpose of determining when interest is
to run
iii. In the case of the promissory note, the date of issue, and in the case of
the bill of exchange, the date of the last negotiation thereof, for the
purpose of determining whether a party acted within a reasonable time in
making presentment for payment
○​ Date stated not in calendar – if there is a date stated, but there is no such date in
the calendar, the law will deem the nearest date of the month the date intended
●​ Omission of Value – it is not necessary to state that the value has been received for the
instrument because consideration is presumed
○​ Do we need to state the transaction and reason why the instrument is issued in
the first place for it; or write down cause/consideration to be negotiable? NO
●​ Omission of Place – does not affect negotiability as far as Sec. 1 is concerned.
However, Sec 73 specifies where presentment for payment should be made when place
of payment is not specified
1. An instrument is presumed to have been made where it is dated
2. A note does not specify the place of payment is presumed to be payable at the
place of residence of the maker
3. If the place of execution or payment is not stated, it is presumed to be the
maker’s or drawer’s place of business or his home
●​ Effect of presence of Seal – a sealed instrument is non-negotiable and is subject to the
rules governing contracts under seal. Under our law, however, there is no such
distinction
1. Absence of such seal does not destroy negotiability
2. It is advisable to have a bill or note appear in a public instrument so it will be included
among preferred credits with respect to other property of debtor
○​ Dry seal
●​ particular Kind of current money in which payment is to be made
○​ Does need to state specific currency

Sec. 7. When payable on demand. - An instrument is payable on demand:

(a) When it is so expressed to be payable on demand, or at sight, or on presentation; or
(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person
so issuing, accepting, or indorsing it, payable on demand.

●​ Due and demandable immediately from its issue

●​ “At sight” means upon seeing the document
●​ Example:
○​ (a) I promise to be pay A or order the sum of P100 on demand or at sight or on
presentation
○​ (b) I promise to be pay A or order the sum of P100
●​ What if “I promise to be pay A or order the sum of P100 on ______”
○​ Incomplete instrument and shall be governed by Secs. 14, 15 or 16

Sec. 8. When payable to order. - The instrument is payable to order where it is drawn payable
to the order of a specified person or to him or his order. It may be drawn payable to the order of:
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.

Where the instrument is payable to order, the payee must be named or otherwise indicated
therein with reasonable certainty.

●​ “Payable to order” = words of negotiability

●​ Examples:
○​ I promise to pay P100 to the order of B
○​ I promise to to pay P100 to B or order
●​ “I promise to pay A the sum of P1000” = not negotiable, payable to a specified person
●​ How negotiated?
○​ Endorsement and delivery
■​ Needs a payee because of the requirement of endorsement
■​ Reason why payee must be named or otherwise indicated therein with
reasonable certainty
○​ (a) A payee who is not maker, drawer, or drawee; or
■​ Ordinarily, in an instrument payable to order, payee is some person other
than the maker, drawer or drawee
■​ In a promissory note, it is unusual for a maker to make himself the payee
because in effect, he is making himself liable to himself on the instrument.
It can only has legal effect when payee-maker indorses the instrument to
another person
■​ In a bill of exchange
●​ When drawer is payee = drawer is asking the drawee to pay him
 ●​ When drawee is payee = drawer is asking drawee to pay himself
(drawee)
○​ (b) The drawer or maker; or
○​ (c) The drawee; or
○​ (d) Two or more payees jointly; or
■​ “and”
■​ Both payees must endorse to pass title, unless one has authority from the
other
○​ (e) One or some of several payees; or
■​ “or”
■​ Indorsement of any of them will suffice to pass title
○​ (f) The holder of an office for the time being.
■​ “I promise to pay to the order of the Commissioner of BOC the sum of
P100”
●​ Whoever is the incumbent commissioner at any given time is the
payee
●​ NOTE: This is different from order mentioned above which is unconditional order which
is applicable only to bill of exchange

Sec. 9. When payable to bearer. - The instrument is payable to bearer:

(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such fact was
known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) When the only or last indorsement is an indorsement in blank.

●​ “Payable to bearer” = words of negotiability

●​ How negotiated?
○​ Mere delivery
●​ Whoever is in possession is the bearer and the holder, as such the same is payable to
him
●​ Warranties extends only to immediate transferee
●​ (a) When it is expressed to be so payable; or
○​ “Payable to bearer the sum of P100”
●​ (b) When it is payable to a person named therein or bearer; or
○​ “or bearer” = whoever is in possession or holder of the bill
○​ If bearer precedes the name of the person specified in the bill = non-negotiable
●​ (c) When it is payable to the order of a fictitious or non-existing person, and such
fact was known to the person making it so payable; or [IMPORTANT]
○​ If it can easily be deduced that payee named is clearly fictitious
■​ It sometimes depend on the intention of the maker
■​ Requisites: [IMPORTANT]
●​ The person named in the instrument is a fictitious person
 ●​ Maker or drawer making or drawing the instrument knew that the
payee placed is a fictitious person or has intention to pay to a
bearer
○​ If the maker or drawer writes “Pay to the order of Harry potter”
■​ If the maker or drawer is thinking of the boy who lived and study at
hogwarts = negotiable; requisites complied with
■​ If the maker or drawer is thinking Harry potter, a classmate in highschool
and now a barangay chairman = non negotiable
●​ (d) When the name of the payee does not purport to be the name of any person; or
○​ “Pay to CASH the sum of P100”
●​ (e) When the only or last indorsement is an indorsement in blank.
○​ Indorsements are usually made at the back of the instrument
○​ If the holder, be he the payee or indorsee, just signs his name without indicating
to whom the instrument is transferred, same is a blank indorsement.
■​ Just a signature, nothing else

Sec. 10. Terms, when sufficient. - The instrument need not follow the language of this Act, but
any terms are sufficient which clearly indicate an intention to conform to the requirements
hereof.
●​ Not required, so long as words used clearly indicate an intention to adhere to the
requirements of the NIL.
○​ So long as requisites of negotiability are present, the instrument will remain
negotiable
○​ Examples:
■​ “I agree to pay” instead of “I promise to pay”
■​ “Pay to holder” instead of “Pay to bearer”
■​ Courtesy words like “Please” or “Kindly”
●​
●​ Substance criterion of negotiability:
○​ Clear intention of the parties – substance over form will be observed, as far as
negotiable instruments are concerned; So long as the clear intention of the
parties to make the instrument negotiable can be determined, the law will give it
force and effect
○​ Use of foreign language – does not affect negotiability
○​ Mere defect in language or grammatical error – does not affect negotiability

Sec. 11. Date, presumption as to. - Where the instrument or an acceptance or any
indorsement thereon is dated, such date is deemed prima facie to be the true date of the
making, drawing, acceptance, or indorsement, as the case may be.
●​ Presumption:
Date of instrument, acceptance, or any indorsement
○​ If instrument bears a date – said date is presumed to be the date when it was
made or drawn
 ○​ If acceptance or indorsement in bill is dated – it is considered the date of such
acceptance or indorsement
○​ The indorsement of the instrument is dated
Evidence of a different date
○​ He who claims some other date is the true date has the burden to establish such
claim.
○​ Disputable; Since these dates are merely prima facie evidence of the true dates
in the making, drawing, acceptance, or indorsement of the instrument, such dates
may be overturned by convincing evidence to the contrary

●​ Date in instrument:
○​ General rule – date is not essential to make an instrument negotiable
○​ Exceptions
■​ Where instrument is payable at a fixed period after date – “X days after
date;” date is material to determine date of maturity or date from which to
start counting X days
■​ Where instrument is payable at a fixed period after sight or presentment –
“X days after sight;” date is material to determine when the counting will
commence to run
○​ Date in instrument payable on demand – immaterial, since such instrument is
payable anytime. Except:
1. Promissory notes – must be presented for payment within a reasonable time
after its issue
2. Bills of exchange – within a reasonable time after the last negotiation

Sec. 12. Ante-dated and post-dated. - The instrument is not invalid for the reason only that it is
ante-dated or post-dated, provided this is not done for an illegal or fraudulent purpose.

The person to whom an instrument so dated is delivered acquires the title thereto as of the date
of delivery.
●​ Ante-dated – when date contained is earlier than the true date of issuance
●​ Post-dated – when date contained is later than the true date of issuance
●​ Effect of ante-dating and post-dating – no effect as to the negotiability of an
instrument, so long as it is not done for an illegal or fraudulent purpose
●​ Effectivity of instrument ante/post-dated – when an ante-dated or postdated
instrument is delivered to a person, the latter acquires the title to the instrument as of the
date of its delivery, regardless of the date appearing on the instrument

Sec. 13. When date may be inserted. - Where an instrument expressed to be payable at a
fixed period after date is issued undated, or where the acceptance of an instrument payable at
a fixed period after sight is undated, any holder may insert therein the true date of issue or
acceptance, and the instrument shall be payable accordingly.
The insertion of a wrong date does not avoid the instrument in the hands of a subsequent
holder in due course; but as to him, the date so inserted is to be regarded as the true date.
●​ Effect of insertion of wrong date:
○​ If done by one having knowledge of true date – instrument is avoided as to
him or any one claiming under him
○​ If subsequent holder in due course receives an instrument with the wrong
date – as he acquires the instrument in good faith, even if the date is wrong, it
will be regarded as the true date
●​ Remember: Drawee is not liable until he accepts the instrument.

Cases:

Pay v. Vda. De Palanca, 57 SCRA 618

Facts:
●​ Petitioner George Pay is a creditor of the Late Justo Palanca who died in 1963.
●​ George Pay is asking that Segundina Chua vda. de Palanca, surviving spouse of the late
Justo Palanca, he appointed as administratrix of a certain piece of property which is a
residential dwelling located at 2656 Taft Avenue, Manila in the name of Justo Palanca,
assessed at P41,800.00. The idea is that once said property is brought under administration,
George Pay, as creditor, can file his claim against the administratrix."
○​ The claim of the petitioner is based on a promissory note dated January 30, 1952,
whereby the late Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised
to pay George Pay the amount of P26,900.00, with interest thereon at the rate of 12%
per annum.
■​ "For value received from time to time since 1947, we [jointly and severally
promise to] pay to Mr. [George Pay] at his office at the China Banking
Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos]
(P26,900.00), with interest thereon at the rate of 12% per annum upon receipt
by either of the undersigned of cash payment from the Estate of the late Don
Carlos Palanca or upon demand', signed by Rosa Gonzales Vda. de Carlos
Palanca and Justo Palanca."
●​ Segundina refused to be appointed as administratrix because the property sought to be
administered no longer belonged to the debtor, the late Justo Palanca; and that the rights of
petitioner-creditor had already prescribed.
●​ Court said the wording of the promissory note being "upon demand," the obligation was
immediately due. Since it was dated January 30, 1952, it was clear that more "than ten (10)
years has already transpired from that time until to date. The action, therefore, of the creditor
has definitely prescribed. Thus, it was dismissed.
●​ Petitioner appealed.

Issue: W/N the action to claim the amount in the PN is prescribed already- YES

Doctrine:
Article 1179 of the Civil Code: "Every obligation whose performance does not depend upon a future or
uncertain event, or upon a past event unknown to the parties, is demandable at once."

Held/Ratio:
 ●​ Considering the clear tenor of the promissory note, it would appear that the satisfaction of his
credit may be realized either through the debtor sued receiving cash payment from the estate
of the late Carlos Palanca presumptively as one of the heirs, or, as expressed therein, "upon
demand."
○​ There is nothing in the record that would indicate whether or not the first alternative
was fulfilled.
○​ More than fifteen years after the execution of the promissory note on January 30, 1952,
this petition was filed.
●​ The obligation being due and demandable, it would appear that the filing of the suit after fifteen
years was much too late.

Caltex v. CA, 212 SCRA 448

Facts:
●​ Security Bank and Trust Company issued 280 certificates of time deposit in favor of Angel dela
Cruz for the deposit of an aggregate amount of P1,120,000.00

●​ Dela Cruz delivered said certificates to Caltex for his purchase of fuel products.
●​ Dela Cruz informed Mr. Tiangco (Manager of Security Bank) that she lost all the certificates of
time deposit (CTDs).
●​ Tiangco advised him to execute and submit a notarized Affidavit of Loss, as a required bank
procedure if he desired replacements.
●​ Dela Cruz executed and delivered to defendant bank the required Affidavit and was later
issued CTDs as replacements.
●​ Dela Cruz obtained a loan from the bank in the amount of P875,000.00. Depositor executed a
notarized Deed of Assignment of Time Deposit.
●​ Mr. Aranas, Credit Manager of Caltex went to the the bank to verify the CTDs declared lost by
dela Cruz.
●​ Security Bank requested Caltex to furnish them:
1) a copy of the document evidencing the guarantee agreement with dela Cruz, and
2) details of dela Cruz’ obligation against which Caltex proposed to apply the time deposits.
●​ Security Bank rejected Caltex’ demand and claim for payment of the value of the CTD since
Caltex failed to furnish the requested documents.
●​ The loan of Dela Cruz with Security Bank matured and fell due. Security Bank set-off and
applied the timed deposits to the payment of the matured loan.
●​ Caltex filed the instant complaint praying that the bank be ordered to pay the CTDs (P1.12m)
plus accrued interest and compounded interest (16% p.a.). Petitioner averred that the
certificates were not actually lost but were given as security for payment for fuel
 purchases.
●​ RTC dismissed the complaint. CA affirmed.

Issue:
W/N the certificates of deposit are negotiable instruments – YES
W/N Caltex as holder can rightfully recover on the CTDs – NO

Doctrine:
Negotiable Instruments Law, enumerates the requisites for an instrument to become negotiable:
a. It must be in writing and signed by the maker or drawer;
b. Must contain an unconditional promise or order to pay a sum certain in money;
c. Must be payable on demand, or at a fixed or determinable future time;
d. Must be payable to order or to bearer; and
e. Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.

The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the
writing, that is, from the face of the instrument itself. In the construction of a bill or note, the intention
of the parties is to control, if it can be legally ascertained.

Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred from one
person to another in such a manner as to constitute the transferee the holder, and a holder may be
the payee or indorsee of a bill or note, who is in possession of it, or the bearer.

Held/Ratio:
CTDs in question met the requirements of the law for negotiability.

Here, the documents provide that the amounts deposited shall be repayable to the depositor, who is
also the “bearer” according to the document. The documents do not say that the depositor is Angel
dela Cruz and that the amounts deposited are repayable specifically to him. They only mention that
the amounts are repayable to the bearer of the documents or whoever may be the bearer at the time
of the presentment.

If it was really the intention of Security Bank to pay the amount to Angel dela Cruz only, it could have
expressed that fact in clear and categorical terms in the documents, instead of stamping the word
“BEARER” on the space provided for the name of the depositor in each CTD. The witness merely
declared that Angel dela Cruz is the depositor “insofar as the bank is concerned,” but obviously the
other parties not privy to the transaction between them would not know that the depositor is not the
bearer stated in the CTDs.

CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products.
Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and
agreement between it and De la Cruz, as ultimately ascertained, requires both delivery and
indorsement. In the letter addressed to Security Bank, Caltex admitted that the CTDs were negotiated
to them by dela Cruz to “guarantee” his purchases of fuel products. If it were true that the CTDs were
delivered as payment and not as security, petitioner's credit manager could have easily said so,
instead of using the words "to guarantee" in the letter.

The mere delivery of the CTDs did not legally vest in petitioner any right effective against and binding
upon respondent bank. Security Bank has better rights over the CTDs as Caltex neither proved the
amount of its credit or the extent of its lien nor the execution of any public instrument which could bind
dela Cruz. The delivery as security of the purchases of dela Cruz could at most constitute petitioner
only as a holder for value by reason of his lien, and a negotiation for such purpose cannot be effected
by mere delivery of the instrument.

Traders Royal Bank v. CA, March 3, 1997

Facts:
●​ Filriters Guaranty Assurance Corporation (FILRITERS) is the registered owner of Central Bank
Certificate of Indebtedness No. D891 (CBCI).
●​ Alfredo Banaria (Senior VP of Treasury for Filriters) without authorization and clearance from
the Board of Directors transferred the CBCI using a deed of assignment to Philippine
Underwriters Finance Corporation (PHILFINANCE).
●​ Subsequently, Philfinance transferred the same CBCI to Traders Royal Bank (TRB) under a
repurchase agreement.
○​ However, Philfinance failed to buy back the note on maturity date and executed a deed
of assignment to convey to TRB all its rights and title to CBCI No. D891.
●​ TRB tried to use the deed of assignment to transfer and register the CBCI under its name.
However, the Central Bank did not want to recognize the transfer.
●​ Hence, TRB filed a special civil action for mandamus against the Central Bank in the RTC to
compel the Central Bank of the Philippines to register the transfer of the subject CBCI to
petitioner Traders Royal Bank..
●​ RTC ruled that the CBCI No. 891 is not a negotiable instrument and the deed of assignment of
the CBCI to Philfinance is null and void.
●​ CA affirmed. However, Philfinance acquired no title or rights under CBCI No. D891, which it
could assign or transfer to Traders Royal Bank and which the latter can register with the
Central Bank. Thus, the transfer of the instrument from Philfinance to TRB was merely an
assignment, and is not governed by the negotiable instruments law.
●​ TRB argued that the assignment from Philfinance to TRB is valid.
○​ It admitted that the subject CBCI is not a negotiable instrument in the absence of words
of negotiability within the meaning of the Negotiable Instruments Law (Act 2031)

Issue:
W/N the CBCI is a negotiable instrument – NO.
W/N the Assignment of registered certificate is valid – NO

Doctrine:
A certificate of indebtedness is for the creation and maintenance of a permanent improvement
revolving fund and is similar to a bond. Being equivalent to a bond it is understood as an
acknowledgement of an obligation to pay a fixed sum of money.

The language of negotiability which characterize a negotiable paper as a credit instrument is its
freedom to circulate as a substitute for money. Hence, freedom of negotiability is the touchstone
relating to the protection of holders in due course. This freedom in negotiability is totally absent in
a certificate of indebtedness as it merely acknowledges to pay a sum of money to a specified
person or entity for a period of time.

Before the instruments become negotiable instruments, the instrument must conform to the
requirements under the Negotiable Instrument Law. Otherwise, instrument shall not bind the parties.

CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides that registered
certificates are payable only to the registered owner (Article II, Section 1). This is a sufficient notice
that assignments do not give registered owners rights as absolute owner of the CBCIs.

Held/Ratio:
CBCI IS NOT A NEGOTIABLE INSTRUMENT
1.​ The CBCI clearly indicated that it is payable to Filriters and no one else.
2.​ Certificate lacked the words of negotiability, which serve as an expression of consent that the
instrument may be transferred by negotiation.

CBCI constitutes part of the reserve investments of Filriters against liabilities required by the
Insurance Code and its assignment or transfer is expressly prohibited by law. TRB did not attempt to
get any clearance or authorization from the Insurance Commissioner. Petitioner knew that Philfinance
is not registered owner of the CBCI No. D891.

THE ASSIGNMENT WAS NULL AND VOID.

1.​ It was done without the knowledge and consent of the directors of Filriters.
2.​ Under 1409 of the Civil Code those contracts which are absolutely simulated or fictitious are
considered void and inexistent from the beginning.
3.​ There was no consideration involved. The deed of assignment stated that the transfer was for
‘value received,’ but there was really no consideration involved.

What happened was Philfinance merely borrowed CBCI No. D891 from Filriters, a sister
corporation.Thus, for lack of any consideration, the assignment made is a complete nullity. ​

It was not duly authorized in writing by the Board, as required by Article V, Section 3 of CB Circular
No. 769 otherwise known as the ‘Rules and Regulations Governing Central Bank Certificates of
Indebtedness.
The assignment was a personal act of Alfredo Banaria and not the corporate act of Filrit. rs Hence,
Philfinance never acquired title or rights under CBCI No. D891.

Metropolitan Bank v. CA, 194 SCRA 1694

Facts:
●​ Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants,
which were drawn by the Philippine Fish Marketing Authority. Consequently, the cashier of
Golden Savings indorsed and deposited the treasury warrants to its Savings Account in
Metrobank for clearing.
●​ The cashier went several times to the bank to inquire on whether the treasure warrants were
already cleared.
●​ Later, due to persistent inquiries, the bank became “exasperated," and decided to allow
Golden Savings to withdraw the proceeds of the warrants.
●​ However, Metrobank informed Golden Savings that 32 warrants were dishonored and
Metrobank demanded for a refund, which was rejected by Golden Savings, prompting
Metrobank to sue.
●​ Petitioner contended that the Treasure Warrants were negotiable instruments. Thus, by
 indorsing the warrants, Golden Savings assumed that they were “genuine and in all respects
what they purport to be,” in accordance with the Negotiable Instruments Law.

Issue:
W/N the treasure warrants are negotiable instruments – NO
W/N Metrobank can demand refund against Golden Savings with regard to the amount withdraws to
make up with the deficit as a result of the dishonored treasury warrants – NO

Doctrine:
An instrument is non-negotiable if it is payable out of a particular fund. Such payment is conditional
because the payment depends upon the availability or sufficiency of the particular fund

Held/Ratio:
Court held that the Treasure Warrants are non-negotiable instruments because the promise to pay is
conditional due to an indication of a particular fund where the instrument is to be paid. The indication
of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or
promise to pay conditional and the warrants themselves non-negotiable.

The indorsement that was made by Golden Savings was not for the purpose of guaranteeing the
genuineness of the warrants but merely to deposit them to the bank for clearing. The negligence of
the bank also barred them from claiming a refund. ​

Metrobank was indeed negligent in giving Golden Savings the impression that the treasury warrants
had been cleared and that, consequently, it was safe to allow Gomez to withdraw the proceeds thereof
from his account with it. Without such assurance, Golden Savings would not have allowed the
withdrawals; with such assurance, there was no reason not to allow the withdrawal.

PNB v. Concepcion Mining, 5 SCRA 745

Facts:
●​ PNB wants to collect money from respondents Concepcion Mining Company, Inc. and Vicente
L. Legarda and Jose S. Sarte.
●​ Legarda died and the other respondents want his estate to be included in the suit.
●​ CFI said it would be unnecessary to include it as well as immaterial in accordance with the
provisions of Article 1216 of the Civil Code and section 17 (g) of the Negotiable Instruments
Law.
●​ CFI ordered respondents and Jose Sarte to pay jointly and severally to PNB the amount of
P7,197.26 with interest.
●​ The present action was instituted by the plaintiff to recover from the defendants the face of a
promissory note signed by Vicente Legarda and Jose Sarte that reads:
○​ “NINETY DAYS after date, for value received, I promise to pay to the order of the
Philippine National Bank . . . .

Issue:
●​ WoN Legarda’s estate should be included in the suit – NO

Doctrine:
Where an instrument containing the word “I promise to pay” is signed by two or more persons, they
are deemed to be jointly and severally liable thereon

Held/Ratio:
●​ SC held that the ruling of the CFI should be affirmed and PNB can collect from the other
signers of the promissory note
●​ Section 17 (g) of the Negotiable Instruments Law provides as follows:
○​ SEC. 17. Construction where instrument is ambiguous. — Where the language of the
instrument is ambiguous or there are omissions therein, the following rules of
construction apply:
■​ (g) Where an instrument containing the word “I promise to pay” is signed by two
or more persons, they are deemed to be jointly and severally liable thereon.
●​ Article 1216 of the Civil Code of the Philippines also provides:
○​ ART. 1216. The creditor may proceed against any one of the solidary debtors or some
of them simultaneously. The demand made against one of them shall not be an
obstacle to those which may subsequently be directed against the others so long as
the debt has not been fully collected.
●​ As the promissory note was executed jointly and severally by the same parties, namely,
Concepcion Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the payee of the
promissory note had the right to hold any one or any two of the signers of the promissory note
responsible for the payment of the amount of the note. SC also demanded clarification from
Jose Sarte, the attorney of the defendants, since he made it appear that he is not a co-maker

Astro Electronics v. Philippine Export and Foreign Loan, 411 SCRA 462

Facts:
●​ Philtrust granted Astro several loans amounting to P3Million with interest and secured by 3
promissory notes(PN).
●​ Each promissory note was signed twice by Peter Roxas, as President of Astro and in his
personal capacity. Moreover, he signed a Continuing Suretyship Agreement in favor of
Philtrust.
●​ Philguarantee, guaranteed in favor of Philtrust to pay 80% of Astro’s loan on the condition that,
upon payment, it shall be proportionally subrogated to the rights of Philtrust against Astro.
●​ Astro failed to pay, thus, PhilG paid the guaranteed loan.
●​ PhilG filed against Astro and Roxas a complaint for sum of money with the RTC.
●​ Roxas argued that he signed the instruments in blank and that the signatures were
fraudulently inserted without him knowing.
●​ RTC rendered in favor of PhilG.
●​ CA affirmed.

Issue:
●​ W/N Roxas should be solidarily liable with Astro? YES

Doctrine:
Under the Negotiable Instruments Law, persons who write their names on the face of promissory
notes are makers, promising that they will pay to the order of the payee or any holder according to its
tenor.
●​ An instrument which begins with I, We, or Either of us promise to pay, when signed by two or
more persons, makes them solidarily liable.
 ●​ The phrase joint and several binds the makers jointly and individually to the payee so that all
may be sued together for its enforcement, or the creditor may select one or more as the object
of the suit.
●​ Here, he signed in his personal capacity

Held/Ratio:
●​ The PNs are valid and binding against Roxas. In signing his name aside from being the
President of Astro, Roxas became a co-maker of the promissory notes and cannot escape any
liability arising from it.
●​ PNs provides
○​ “I/We jointly, severally and solidarily, promise to pay to..”
●​ Having signed under such terms, Roxas assumed the solidary liability of a debtor and Philtrust
Bank may choose to enforce the notes against him alone or jointly with Astro. Lastly,
Philguarantee has all the right to proceed against petitioner, it is subrogated to the rights of
Philtrust to demand for and collect payment from both Roxas and Astro since it already paid
the value of 70% of Roxas and Astro Electronics Corp’s loan obligation.

Note: A holder in due course is a holder who has taken the negotiable 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 is 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 of the instrument or
defect in the title of the person negotiating it.

All four conditions in Sec. 52 must concur in order to qualify a person as a holder in due course

Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any material
particular, the person in possession thereof has a prima facie authority to complete it by filling
up the blanks therein.

And a signature on a blank paper delivered by the person making the signature in order that the
paper may be converted into a negotiable instrument operates as a prima facie authority to fill it
up as such for any amount.

In order, however, that any such instrument when completed may be enforced against any
person who became a party thereto prior to its completion, it must be filled up strictly in
accordance with the authority given and within a reasonable time. [2 requisites]

But if any such instrument, after completion, is negotiated to a holder in due course, it is valid
and effectual for all purposes in his hands, and he may enforce it as if it had been filled up
strictly in accordance with the authority given and within a reasonable time.

Incomplete but delivered instrument

 ●​ Prima facie authority to fill in the blank following the requisites provided
●​ There’s a blank and wanting in any material particular
○​ I.e., name of the payee or the amount, if left blank, may be filled in by the holder
●​ PERSONAL DEFENSE
○​ Defenses used by DR; excuses not to pay

2 steps for the execution of negotiable instruments:

1.​ Mechanical writing of the instrument in accordance with negotiability under Sec. 1; and
●​ It is the duty of the maker or drawer to complete the same
2.​ Delivery by the maker or drawer to the payee to give legal effect.

When is the particular considered material?

●​ If it essential to the to complete the instrument

Effect if the instrument is lacking in any material particular

●​ The holder has prima facie authority to complete the same

As to holding a party liable:

●​ To hold a person who become a party to the instrument prior completion liable who is
NOT a holder in due course, the following are required:
1.​ Strictly filled up in accordance with the authority given; and
2.​ Completed within a reasonable time after its issue.
●​ Person NOT a holder in due course can go against parties subsequent to the
completion not parties prior to completion
○​ Those parties prior completion cannot be held liable because they are innocent
●​ Dependent upon the facts and circumstances of each case, nature of the instrument,
usage of trade or business with respect to such instruments
●​ Effect of being a holder in due course
○​ Can be enforced even if it was filled up wrongly
○​ If the instrument after its completions is in the hands of a holder in due course, it
is valid and effectual for all purposes and he/she may enforce as if all the
requisites above were met
○​ Can go against all parties to the instrument whether prior or subsequent

Note: Between innocent parties, the party who made possible the commission of the wrong
shall bear the loss

Signature on a blank paper

●​ Depends on the intention of the signatory
●​ It will only be negotiable if the person who affixed such a signature has such intention.
The holder has a prima facie authority to fill it up for any amount.
●​ If he/she has no intention, the person in possession has no authority to convert the same
to a negotiable instrument even if he/she is a holder in due course
Sec. 15. Incomplete instrument not delivered. - Where an incomplete instrument has not
been delivered, it will not, if completed and negotiated without authority, be a valid contract
in the hands of ANY holder, as against any person whose signature was placed thereon before
delivery.
●​ Incomplete and undelivered
○​ The 2 steps above were not completed: writing and delivery.
○​ Thus, no legal effect
○​ REAL DEFENSE
○​ NOT A VALID CONTRACT OR VOID CONTRACT
●​ What is decisive importance is the delivery of the instrument because it is the final act
essential to its consummation as an obligation. Until delivery, the contract is revocable.
●​ “Any holder” means even if you are a holder in due course, the instrument is not valid
and can’t have an effect.
○​ However, a holder in due course can set up a defense against whose signatures
are place on the instrument after its delivery because as general indorsers, they
warrant that the instrument is valid and subsisting, thus they are estopped to
deny the validity of the instrument
●​ Who can the creditor now run after?
○​ It is the person who completed the instrument

Sec. 16. Delivery; when effectual; when presumed. - Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of
giving effect thereto.

As between immediate parties and as regards a remote party other than a holder in due course,
the delivery, in order to be effectual, must be made either by or under the authority of the party
making, drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery
may be shown to have been conditional, or for a special purpose only, and not for the
purpose of transferring the property in the instrument.

But where the instrument is in the hands of a holder in due course, a valid delivery thereof by
all parties prior to him so as to make them liable to him is conclusively presumed. And where the
instrument is no longer in the possession of a party whose signature appears thereon, a valid
and intentional delivery by him is presumed until the contrary is proved.
●​ Complete and undelivered
○​ Opposite of Sec. 14
○​ Revocable until actually delivered
○​ Personal Defense only
●​ Valid delivery requires transfer of ownership, sometimes delivery is not absolute but
conditional I.e.
○​ I promise to pay to the order of Mr. Manimtim 20 php. (Payable on demand). This
note shall be subject to the condition that Mr. Manimtim has qpi of 84 at the end
of the semester
 ○​ The Delivery is subject to the condition, if condition was not met then tehre is no
delivery
●​ Sometimes delivery is for special purpose only
○​ I deliver the promissory note payable to the cashier of ALS, I deliver it to a family
driver, the Family driver is authorized to bring the document to the cashier, the
driver then negotiates it to his friend and the instrument circulates through the
PH. There was no special delivery because it purpose is to be delivered to a
special purpose which is the cashier of ALS for payment of tuition
●​ There was no delivery because the maker or drawer did not intent to give legal effect to
the instrument
●​ Effect:
○​ Ineffectual and revocable at will by the maker or drawer, as the case may be
●​ To be effectual, delivery must be made by or under the authority of the person making,
drawing, accepting and indorsing the instrument
○​ Delivery for whom it intended
○​ With the intention of transferring title
●​ Mailing a negotiable instrument to payee is sufficient delivery to give legal effect
●​ Ordinarily, delivery implies the transfer of ownership.
○​ However, if delivered for a purpose other than what immediate parties intended it
to be, the transferee is merely instituted as agent of the holder of the
instrument. No transfer of ownership.
●​ Once an instrument is no longer in the possession of a party whose signature is appears
thereon, the prima facie presumption is to the effect that the delivery to the holder is valid
and intentional
○​ If holder in due course, valid and intention delivery is conclusively presumed.
○​ Holder in due course deliver is conclusively presumed
●​ When the instrument is no longer in possession of the maker/drawer, which is complete
and signed, the rebuttable presumption that the delivery was validly made.
Sec. 17. Construction where instrument is ambiguous. - Where the language of the
instrument is ambiguous or there are omissions therein, the following rules of construction
apply:
(a) Where the sum payable is expressed in words and also in figures and there is a
discrepancy between the two, the sum denoted by the words is the sum payable; but if the
words are ambiguous or uncertain, reference may be had to the figures to fix the amount;
(b) Where the instrument provides for the payment of interest, without specifying the date
from which interest is to run, the interest runs from the date of the instrument, and if the
instrument is undated, from the issue thereof;
(c) Where the instrument is not dated, it will be considered to be dated as of the time it was
issued;
(d) Where there is a conflict between the written and printed provisions of the instrument,
the written provisions prevail;
(e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the
holder may treat it as either at his election;
(f) Where a signature is so placed upon the instrument that it is not clear in what capacity the
person making the same intended to sign, he is to be deemed an indorser;
(g) Where an instrument containing the word "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon.
Statutory construction
●​ (A) 110 Php (one hundred pesos only); Words will prevail
●​ (B) Interest starts to run from the date of issue; If undated/ interest starts at the date of
instrument.
●​ (C) Date of issue
○​ Repetitive
 ○​ Remember sec. 1 does not require a date
●​ (D) Written provisions prevail (I.e. written by a ball pen)
●​ (E) bill or note? Election of the holder
●​ (F) What capacity is he signing? Deemed as indorser
○​ This is because an indorser only has secondary liability
●​ (G)
●​ “We promise to pay” = only liable jointly

Sec. 18. Liability of person signing in trade or assumed name. - No person is liable on the
instrument whose signature does not appear thereon, except as herein otherwise expressly
provided. But one who signs in a trade or assumed name will be liable to the same extent as if
he had signed in his own name.
●​ GR: A person is NOT liable if his/her signature does not appear thereon
○​ Exceptions:
■​ A person who signs in an assumed name or trade name
■​ Signature of a party made by a duly authorized agent
■​ Forger, in case of forgery, one who forges signature of another person
■​ Under sec. 134, in acceptance by a separate instrument
■​ Under sec. 135, involving an unconditional promise in writing to accept
a bill before it is drawn
■​ Holder who negotiates an instrument payable to bearer by mere
delivery
●​ Drawee is NOT liable unless he accepts the same in which he/she will be the one
primarily liable

Sec. 19. Signature by agent; authority; how shown. - The signature of any party may be
made by a duly authorized agent. No particular form of appointment is necessary for this
purpose; and the authority of the agent may be established as in other cases of agency.
●​ If a person authorizes another to sign an instrument for and on his/her own behalf, that is
good as if he/she signed the instrument personally.
○​ Effect: Principal is the one liable (Provided, requisites are followed)
●​ Authority may be given verbally or in writing except in cases of statute of frauds

Sec. 20. Liability of person signing as agent, and so forth. - Where the instrument contains
or a person adds to his signature words indicating that he signs for or on behalf of a principal or
in a representative capacity, he is NOT liable on the instrument if he was duly authorized

but the mere addition of words describing him as an agent, or as filling a representative
character, without disclosing his principal, does NOT exempt him from personal liability.
●​ Requisites for an agent not to be liable: [DAWN]
➔​ Duly authorized;
➔​ Acted within the scope of his/her authority given; and
➔​ Adds Words to his signature that he/she signs as agent, in representative
capacity or on behalf of the principal and Discloses the Name of the principal.
 ●​ All must be present. Otherwise, the agent may be personally liable.

Sec. 21. Signature by procuration; effect of. - A signature by "procuration" operates as notice
that the agent has but a limited authority to sign, and the principal is bound only in case the
agent in so signing acted within the actual limits of his authority.
●​ Procuration gives a warning that the agent has a limited authority and thus, the person
dealing with the agent does so at his/her own risk.
○​ May be indicated by abbreviation “Per proc.”, “P.P.” or “P.p.”
●​ Principal is not bound if the agent exceeded his authority.
●​ Signing of per procuration is for the all the parties
●​ Procuration meaning from internet: Appointment

Note: Abuse of authority is not a defense against a bonafide holder for value

Sec. 22. Effect of indorsement by infant or corporation.- The indorsement or assignment of

the instrument by a corporation or by an infant passes the property therein, notwithstanding that
from want of capacity, the corporation or infant may incur no liability thereon.
●​ REAL DEFENSE
●​ Can minor execute a negotiable instrument and transfer ownership? YES.
●​ Indorsement by incapacitated persons
○​ As to Minors = voidable at the instance of the minor/guardian
■​ Cannot be held liable
■​ Do not have the capacity to contract
■​ Can put minority as a defense
○​ As to Corporation = ultra vires act
■​ Cannot be held liable
■​ If acts were done outside the scope of its powers
■​ Corp. Code: A corporation can only act through its BOD or its authorized
representative
○​ Nonetheless, it passes title and a holder can enforce payment to prior parties
■​ Indorser and maker not a minor or corporation can be held liable as they
cannot set up minority and ultra vires act as defense
●​ Indorsers warrant the existence of the payee and his capacity to
indorse and the instrument is valid and subsisting

Sec. 23. Forged signature; effect of. - When a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any
party thereto, can be acquired through or under such signature, unless the party against whom
it is sought to enforce such right is precluded from setting up the forgery or want of authority.
[MEMORIZE]
2 situations:
1.​ When a signature is forged or
2.​ Made without the authority of the person whose signature it purports to be
Effects as a General Rule: [WiRDE]
●​ it is Wholly Inoperative, and no right
○​ to Retain the instrument, or
○​ to give a Discharge therefor, or
○​ to Enforce payment thereof against any party thereto, can be acquired through or
under such signature,
●​ unless the party against whom it is sought to enforce such right is precluded from setting
up the forgery or want of authority. (Exception to the rule)
○​ Precluded/Barred/Estopped from setting up:
1.​ Indorsers of instruments payable to order
-​ They warrant that the instrument is genuine and in all respects it
purports to be and that the instrument is valid and subsisting
2.​ Forgery of the indorsement of a party in an instrument payable to bearer
-​ Because such forged indorsement is not necessary to the title of
the holder
-​ Bearer instrument can be negotiated by mere delivery
3.​ Acceptor in a bill of exchange
-​ As acceptor, it warrants the genuineness of the signature of the
drawer
4.​ Forger (criminal)
- cannot use his crime for his own benefit
- signed under assumed name under sec. 18
5.​ - Those under estoppel by their declaration, act or ommission

Forgery
●​ It is a real defense.
●​ Only the forged signature is inoperative, not the whole instrument.
●​ It does not apply to altered amounts or other matters that alter the effect of the
instrument

Cut-off formula
●​ A cut off point is made at the point when the forgery occured
Cases:

1. Republic Planters Bank v. CA, 216 SCRA 738

Facts:
●​ Yamaguchi and Canlas, President/Chief Operating Officer and Treasurer of Pinch
Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.) respectively
were authorized to apply for credit facilities with Republic Planters Bank in the forms of export
advances and letters of credit/trust receipts accommodations.
●​ Republic Planters Bank issued nine promissory notes:
○​ ___________, after date, for value received, I/we, jointly and severaIly promise to
pay to the ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila,
Philippines, the sum of ___________ PESOS(....) Philippine Currency…
○​ The name Worldwide Garment Manufacturing, Inc. was rubber stamped above the
signatures of Yamaguchi and Canlas above their printed names with the phrase
 “and (in) his personal capacity”
○​ The signatures were on the right bottom margin of the promissory note.
●​ At the bottom of the promissory notes appeared:
○​ Please credit proceeds of this note to: ________ Savings Account ______XX Current
Account No. 1372-00257-6 of WORLDWIDE GARMENT MFG. CORP.
●​ Worldwide was unable to settle its debt.
●​ Republic Planters Bank filed a case with the RTC.
●​ RTC ruled in favor of Republic Planters Bank and ordered Worldwide Garment Manufacturing,
Yamaguchi and Canlas to jointly and severally pay the bank.
●​ Canlas appealed to the Intermediate Court/Court of Appeals. He claims that he signed the
promissory notes as an officer who was authorized by WGM and should not be
personally liable.
●​ CA affirmed the decision of the RTC ordering WGM to pay, but absolved Canlas from liability
under the promissory notes.
●​ Republic Planters argued that Canlas is solidarily liable with Yamaguchi on each of the 9
promissory notes because he signed.

Issue:
●​ W/N Canlas is solidarily liable with WGM and Yamaguchi – YES

Doctrine/Held/Ratio:
AS CO-MAKER
●​ The promissory notes are negotiable instruments and must be governed by the Negotiable
Instruments Law. Persons who write their names on the face of promissory notes are makers.
By signing the notes, the maker promises to pay to the order of the payee or any holder
according to the tenor thereof. Canlas cannot escape liability as he is one of the co-makers of
the promissory notes.

WORDS INDICATED IN THE NEGOTIABLE INSTRUMENT

●​ Where an instrument containing the words "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon.
○​ An instrument which begins" with "I" ,We" , or "Either of us" promise to pay, when
signed by two or more persons, makes them solidarily liable. By the presence of the
phrase “joint and several" as describing the unconditional promise to pay to the order of
Republic Planters Bank, Canlas assumed the solidary liability of a debtor. As such, the
payee may choose to enforce the notes against him alone or jointly with Yamaguchi
and Corporation as solidary debtors.
○​ A joint and several note is one in which the makers bind themselves both jointly and
individually to the payee so that all may be sued together for its enforcement, or the
creditor may select one or more as the object of the suit.
○​ A joint and several obligation in common law corresponds to a civil law solidary
obligation; that is, one of several debtors bound in such wise that each is liable for the
entire amount, and not merely for his proportionate share.
●​ The fact that the singular pronoun is used indicates that the promise is individual as to each
other; meaning that each of the co-signers is deemed to have made an independent singular
promise to pay the notes in full.

WHERE THE AGENT IS LIABLE

●​ Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or a
person adds to his signature words indicating that he signs for or on behalf of a principal , or in
 a representative capacity, he is not liable on the instrument if he was duly authorized; BUT the
mere addition of words describing him as an agent, or as filling a representative character,
without disclosing his principal, does not exempt him from personal liability.
●​ Where the agent signs his name but nowhere in the instrument has he disclosed the fact that
he is acting in a representative capacity or the name of the third party for whom he might have
acted as agent, the agent is personally liable to take holder of the instrument and cannot be
permitted to prove that he was merely acting as agent of another and parol or extrinsic
evidence is not admissible to avoid the agent's personal liability. Canlas cannot claim to be the
agent of the corporation to exempt him from liability as he signed in his personal capacity
which made him a solidary debtor.

BLANK INSTRUMENT
●​ Sec. 14. Blanks: when may be filled. — Where the instrument is wanting in any material
particular, the person in possession thereof has a prima facie authority to complete it by filling
up the blanks therein. ... In order, however, that any such instrument when completed may be
enforced against any person who became a party thereto prior to its completion, it must be
filled up strictly in accordance with the authority given and within a reasonable time…
●​ Common practice of banks
○​ Court took judicial notice of the customary procedure of commercial banks of requiring
their clientele to sign promissory notes prepared by the banks in printed form with blank
spaces already filled up as per agreed terms of the loan, leaving the borrowers-debtors
to do nothing but read the terms and conditions therein printed and to sign as makers
or co-makers.
●​ Not an incomplete instrument
○​ When the notes were given to Fermin Canlas for his signature, the notes were
complete in the sense that the spaces for the material particular had been filled up by
the bank as per agreement.
○​ A careful examination of the notes shows that they are the stereotype printed form of
promissory notes generally used by commercial banking institutions to be signed by
their clients in obtaining loans. They only seem to be incomplete because there are
blank spaces to be filled up on material particulars such as payee's name, amount of
the loan, rate of interest, date of issue and the maturity date. The terms and conditions
of the loan are printed on the note for the borrower-debtor 's perusal.
○​ The notes were filled up before they were given to Canlas and Yamaguchi for
their signatures as joint and several promissors. For signing the notes above
their typewritten names, they bound themselves as unconditional makers.
Doctrine on corporation name asked*

2. Development Bank of Rizal v. Sima Wei, 219 SCRA 736

Facts:
●​ Development Bank of Rizal extended loan to respondent Sima Wei in which the latter executed
and delivered a promissory note engaging to pay or order the amount of Php 1,820,000.00 on
or before June 24, 1983 with 32% interest per annum.
●​ Sima Wei made partial payments on the note, leaving a balance of Php 1,032,450.02
●​ Sima Wei then issued two crossed checks payable to petitioner bank drawn against China
Banking Corp. with the serial numbers 384934 and 384935 amounting to 550,000 and Php
500,000 respectively.
 ●​ The said two checks were delivered to the petitioner bank.
●​ For reasons not shown, the said checks came into the possession of respondent Lee Kian
Huat who deposited the checks without the petitioner bank’s indorsement to the account of
respondent Plastic Corporation of the Balintawak branch of Producers Bank
●​ Cheng Uy the branch manager of Producers Bank relying on the assurance of Samson Tung,
the president of Plasitc Corp., that the transaction was legal and regular, instructed the cashier
of Producers Bank to accept the checks for deposit and credit it to Plastic Corps.’ Account.
●​ Despite the fact that the checks were crossed and payable to petitioner bank and bore no
indorsement of the latter.
●​ Petitioner bank filed a complaint against herein respondents based on two cause of actions:
a.) to enforce the remaining balance of the promissory note executed by Sima Wei
b.) to enforce the payment of the two checks by respondent Sima Wei payable to petitioner
and drawn against China Banking Corp.
●​ Trial Court dismissed the complaint due to lack of cause of action
●​ CA affirmed the lower court’s decision. Hence, this petition

Issue:
●​ W/N the petitioner bank has a cause of action against Sima Wei–Yes
●​ W/N the petitioner bank has a cause of action against Sima Wei the others - None

Doctrine/Held/Ratio:
IMPORTANCE OF DELIVERY IN NEGOTIABLE INSTRUMENT
●​ A negotiable instrument of which a check is, is not only written evidence of a contract right, but
also a species of property.
●​ Section 16 of the Negotiable Instruments Law provides that: “Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of giving
effect thereto…” Delivery of instrument means transfer of possession, actual or constructive
from one person to another. Without the initial delivery of the instrument from the drawer
to the payee, there can be no liability on the instrument. Moreover such delivery must
be intended to give effect to the instrument.
○​ Hence, the payee of a negotiable instrument acquires no interest until its delivery to
him. Here, the said two checks were not delivered to the payee which is the petitioner
bank. Without delivery, petitioner bank did not acquire any right or interest and cannot
therefore assert any cause of action.
For the liability of Sima Wei
●​ On the business custom of using printed checks where blanks are provided for date of
issuance, name of payee, amount payable, and drawer’s signature, All drawer has to do is to
properly fill up the blanks and sign it BUT the mere fact that he has done these does not give
rise to any liability on his part unless the check is delivered to the payee. Unless respondent
Sima Wei proves that she has been relieved from liability on the promissory note by some
other cause, petitioner Bank has a right of action against her for the balance due which is the
first cause of action. Sima Wei still has liability as he was not paid yet - there being no delivery
of the checks at all Even if there was delivery, there were no encashment so there is no
payment yet. Drawer Sima Wei’s allegation that she has paid the balance of her loan with the
two checks payable to petitioner Bank has no merit for, these checks were never delivered to
petitioner Bank. Assuming that there was delivery to petitioner Bank, the delivery of checks in
payment of an obligation does not constitute payment unless they are cashed or their value is
impaired through the fault of the creditor. None of these exceptions were alleged by
respondent Sima Wei.
 Trivia: A crossed check is a check that has two diagonal parallel lines on the upper left corner to
mark the check for deposit only. Once a check is crossed, it produces the following effects:
(1) the check cannot be encashed with the drawee bank but can only be deposited in the bank;
(2) the check can be negotiated only once – to the payee who must have an account with the bank;
and
(3) the act of crossing the check serves as a warning to the holder that the check has been issued for
a definite purpose – that of being deposited in the account of the payee. Thus, when a bank accepts a
crossed check and allows it to be deposited to an account, which is not that of the payee, that bank is
negligent and liable for the loss suffered by the aggrieved party. Such bank violated the order of the
issuer that the check should be deposited only in the account of the payee and should not be indorsed
and credited to the account of a third person.1

3. Asia Brewery v. Equitable PCI Bank, G.R. No. 190432, April 25, 2017

Facts:
●​ 10 checks, 16 demand drafts (instruments) were issued in the name of Charlie Go (AVP for
Finance of Asia Brewery).
○​ It amounted to P3.6M and bore the annotation “endorsed by PCI Bank, Ayala Branch,
All Prior Endorsement And/Or Lack of Endorsement Guaranteed.”
●​ Petitioners claimed lack of delivery
●​ None of the above checks and demand drafts reached payee Charlie Go
●​ They instead fell into the hands of Keh - Sales Accounting Manager of Asia Brewery Inc who
falsely pretended to be Charlie Go - who then succeeded to open accounts in Equitable PCI
Bank in the name of Charlie Go and deposited instruments and withdrew them.
●​ Keh jumped bail and fled the country
●​ Petitioners based their claim on jurisprudence where “the possession of check on a forged or
unauthorized indorsement is wrongful, and when the money is collected on the check, the
bank can be held for money had and received.”
●​ The defendants interpreted parts of the Complaint as admissions that the instruments had
NOT been delivered to Go. Hence, there is no cause of action.
●​ RTC dismissed for a lack of a cause of action.

Issue:
●​ W/N the lower court erred in dismissing the case for a lack of action - YES

Doctrine/Held/Ratio:
●​ NIL Sec. 16. Delivery; when effectual; when presumed. - Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of giving
effect thereto. As between immediate parties and as regards a remote party other than a
holder in due course, the delivery, in order to be effectual, must be made either by or under the
authority of the party making, drawing, accepting, or indorsing, as the case may he; and, in
such case, the delivery may be shown to have been conditional, or for a special purpose only,
and not for the purpose of transferring the property in the instrument. But where the instrument
is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so
as to make them liable to him is conclusively presumed. And where the instrument is no longer
in the possession of a party whose signature appears thereon, a valid and intentional delivery
by him is presumed until the contrary is proved.

1
Crossed checks (mb.com.ph)
 ●​ It is ERRONEOUS to conclude that there is no delivery just because the checks did not reach
payee. The question of delivery is a matter of defense that should be proven during trial. In
order to resolve whether the Complaint lacked a cause of action, respondent must have
presented evidence to dispute the presumption that the signatories validly and
intentionally delivered the instrument.
●​ In Sima Wei, the complainant themselves admitted via their allegations that there was NO
DELIVERY. In this case, the delivery is yet to be determined by TRIAL.
○​ RTC should proceed with the case
■​ Legal right of plaintiff: Asia Brewery has a legal right to be paid for the value of
the instruments. The position of the bank taking the check on forged or
unauthorized indorsement is the same as if it had taken the check and collected
without indorsement at all. The act of bank amounts to conversion

4. Lim v. CA, 251 SCRA 408

Facts:
●​ Spouses Manuel (President) and Rosita (Treasurer) Lim of Rigi Built Industries (Rigi) bought
steel goods from Linton Commercial Company using Consolidated Bank and Trust Co.
(Solidbank) checks.
●​ When the checks were deposited to the Rizal Commercial Banking Corporation, they were
dishonored for insufficiency of funds, with the notation “payment stopped”
○​ Solidbank employee (signature verifier) Salvador Alfonso testified that all 7 checks
were dishonored because the Spouses Lim ordered them to stop payment and that
they were drawn against insufficient funds
○​ Manuel Lim admitted drawing the 7 checks but denied that they had insufficient funds –
and showed a ledger of their account with a balance of Php65,752.65. Manuel claimed
that he ordered Solidbank to stop payment since the goods delivered by Linton were
not in accordance with the specifications in the purchase orders
●​ Linton sent repeated demands to Sps Lim to pay.
●​ They failed to pay the amounts of the checks or to make arrangements for full payment within
5 banking days
●​ When they failed and refused to pay, Linton filed criminal cases against them for estafa and
violating BP22 (bouncing checks).
○​ It was alleged that spouses issued the checks with knowledge that they did not have
sufficient funds or credit with the bank
●​ RTC Malabon found them guilty of both estafa and BP22
●​ On appeal, spouses Lim contend:
○​ RTC Malabon has no jurisdiction since offense was committed outside territory
○​ The checks were issued at their place of business, received by a collector of
Linton, and dishonored by the drawee bank – all in Kalookan City
○​ They could not be liable for estafa since the 7 checks were issued by them after the
delivery of the goods
○​ They could not be held liable for violating BP 22 since they only ordered to stop
payment since the goods delivered were not as they specified and besides, they had
sufficient funds to pay the checks
●​ CA said they were only guilty of BP22 since the checks were actually issued weeks after
deliveries of goods. Spouses are not guilty for estafa since the checks were not made in
payment of an obligation contracted at time of their issuance.
 ●​ Hence, this appeal. The spouses are saying that the RTC had no jurisdiction to try them
because the checks were issued, received, and dishonored all in Caloocan, not Malabon.

Issue:
●​ W/N the RTC have jurisdiction? YES
●​ W/N Sps. Lim are guilty of violating BP22? YES

Doctrine/Held/Ratio:
JURISDICTION
●​ BP22 is a continuing crime, so its elements may occur in multiple territories before the
consummation of the crime. Thus, BP22 can be tried in any territory where part of it was
committed.
○​ 7 Checks issued to Linton in its office (Balut, Navotas)
○​ Delivered to Linton office (Balut, Navotas)
○​ Checks were dishonored (Kalookan City)
●​ Crucial in this case is the definition of “ISSUE” and “DELIVERED” as contemplated by the law.
○​ Spouses Lim contend that the checks were issued and delivered in their Kalookan
office when the collector of Linton went there to get the checks.
○​ However, under Negotiable Instruments Law, this is not true. In Negotiable Instruments
Law:
■​ “Issue” means the first delivery of the instrument complete in form to a person
who takes it as a holder
■​ “Holder” refers to the payee or indorsee of a bill or note who is in possession
of it or the bearer thereof
■​ “Delivery” of the check signifies transfer of possession, actual or constructive,
from one person to another with intent to transfer title thereto
○​ Therefore, since delivery and issuance actually happened in Linton’s office in Navotas,
the RTC Malabon obtained jurisdiction.
○​ The information alleges that the offense was committed in Municipality of Navotas –
which is controlling and sufficient to give jurisdiction to the RTC of Malabon
○​ SC said that the place where the bills were written, signed or dated does not
necessarily fix or determine the place where they were executed. What is decisive is
the delivery thereof. The delivery of the instrument is the final act essential to its
consummation as an obligation – until delivery, the contract is revocable Although
Linton sent a collector who received the checks from Rigi office in Kalookan, they were
actually issued and delivered to Linton in its place of business in Balut, Navotas.
●​ The holder is the payee or indorsee of a bill or note who is in possession of it or the bearer
thereof. It doesn’t matter where the bills were written, signed, or dated. What matters in
determining where a bill is executed is the delivery since delivery is essential to make it
operative. Until delivery, the contract is revocable. While Linton sent a collector to get the
checks in Caloocan, the real place of issuance was at Linton’s office in Navotas, where Linton
actually received them.
●​ The collector was not the person who could be considered the payee or indorser nor was he
an agent with respect to the checks (just a messenger).
●​ On the issue of BP22, SC said the sps couldn’t overturn the prima facie evidence of
knowledge of insufficiency of funds since they refused to pay Linton even after the bounce, so
they’re guilty.
●​ SC ruled that they are guilty for violation of BP 22. BP 22 provides prima facie evidence of
knowledge of insufficiency of funds and spouses failed to adduce evidence to prove otherwise.
Spouses also failed to pay or make arrangements for the full payment of the checks within 5
 banking days. Jurisdiction was obtained by RTC Malabon since the checks were issued
and delivered to Linton’s office in Balut, Navotas (inside jurisdiction of Malabon)
contrary to what spouses alleged.
●​ The “issuance” and “delivery” of an instrument as contemplated by the law is actually the
transfer to a valid holder.
GUILTY OF B.P. 22
●​ BP 22 punishes:
a. “any person who makes or draws and issues any check to apply on account or for
value, knowing that the time of issue that he does not have sufficient funds in or credit
with the drawee bank for the payment of such check in full upon its presentment, which
check is subsequently dishonored by the drawee bank for insufficiency of funds or
credit or would have been dishonored for the same reason had not the drawer, without
any valid reason, ordered the bank to stop payment”
2. The gravamen of the offense is knowingly issuing a worthless check
●​ 2 essential elements:
○​ Knowledge on the part of the drawer of the insufficiency of funds
○​ Subsequent Dishonor of the check by the drawee bank for insufficiency of funds or that
the drawer without any valid reason, order to stop payment
■​ Spouses Lim had knowledge of their insufficiency of funds in Solidbank at time
they were issued
●​ The receipt of the checks by the collector of Linton is not the issuance and delivery
contemplated by the law, because:
○​ (a) the collector was not the person who could take the checks as a holder (he was not
a payee or indorsee to which it was intended to transfer (
○​ b) the collector cannot be deemed an agent since he is a mere employee
●​ Spouses Lim were not able to show proof to the contrary because:
(a) they did not pay Linton the amounts due on the checks
(b) failed to make arrangements to pay in full within 5 days after receiving notices that the
checks had not been paid by drawee bank
●​ People v. Manzanilla – knowledge on the part of the maker or drawer of the check of the
insufficiency of his funds is by itself a continuing eventuality, whether the accused be in one
territory or another

II. CONSIDERATION
Sec. 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.
●​ 2 PRESUMPTIONS:
1.​ Every negotiable instrument is deemed prima facie to have been issued for a
valuable consideration
2.​ Every person whose signature appears thereon to have become a party thereto
for value.
●​ Consideration
○​ some right, interest, profit, benefit or advantage conferred upon a promisor to
which he is otherwise not lawfully entitled
●​ Value consideration is presumed.
○​ Every party to an instrument acquired the same for a consideration or for value
(Yang v. CA)
 ○​ From the fact that it is a negotiable instrument
○​ In actions based upon a nego instrument, it is unnecessary to aver or prove
consideration (Ong v. People)
●​ Valuable consideration may be defined as the obligation of contracting parties to give, to
do or not to do
●​ Example of “not a valuable consideration” – moral value/beyond commerce
○​ Promissory notes for
■​ Love and affection
■​ Trust
■​ Respect
○​ Reason:
■​ Cannot be measured or quantified

Sec. 25. Value, what constitutes. — Value is any consideration sufficient to support a simple
contract. An antecedent or pre-existing debt constitutes value; and is deemed such whether
the instrument is payable on demand or at a future time.
●​ Consideration is important w/n a holder is a holder for value
○​ If he/she is not a holder for value, he/she cannot be deemed a holder in due
course
●​ Examples of “for value” transactions — economic value
○​ Promissory notes for
■​ Tuition fee

Sec. 26. What constitutes holder for value. - Where value has at any time been given for the
instrument, the holder is deemed a holder for value in respect to all parties who become such
prior to that time.
●​ Holder for value – one who has given a valuable consideration for the instrument
issued or negotiated to him
○​ The holder (who is the last indorsee of an instrument) is also considered a holder
for value with respect to all persons who became parties to the instrument prior
to the time it is shown that valuable consideration had been given
●​ “prior to that time” – from the time a valuable consideration was given

Sec. 27. When lien on instrument constitutes holder for value. — Where the holder has a
lien on the instrument arising either from contract or by implication of law, he is deemed a holder
for value to the extent of his lien.
●​ The holder for value has a lien on the instrument to the extent only of what the indorser
owes to such holder. He/she is not a holder for value on the excess value.

Sec. 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.
●​ Absence of consideration
○​ No consideration or illegal consideration
 ○​ Personal defense – cannot be put up against a holder in due course
●​ Failure of consideration
○​ Failed to materialize
○​ Personal defense
●​ Partial failure of consideration
○​ Protanto — To the extent of the failure

Sec. 29. Liability of accommodation party. - An accommodation party is one who has
signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor,
and for the purpose of lending his name to some other person. Such a person is liable on the
instrument to a holder for value, notwithstanding such holder, at the time of taking the
instrument, knew him to be only an accommodation party. [IMPORTANT]
●​ Requisites: [SWL]
1.​ party to the instrument Signs as maker, drawer, acceptor, or indorser
2.​ Without receiving value
3.​ for the purpose of Lending his name to some other person
●​ Accommodation party is LIABLE to a holder for value in the capacity that he signed
○​ NOT liable to accommodated party but entitled for reimbursement from
accommodated party
○​ The relationship is in effect one of principal and surety (Caneda v. CA)
●​ NOT a valid defense
○​ Accommodation party did not receive any valuable consideration when he
executed the same
○​ Holder knew that the party was an accommodation party
●​ Accommodated party is the one primarily liable

III. NEGOTIATION

Sec. 30. What constitutes negotiation. - An instrument is negotiated when it is transferred

from one person to another in such 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 of the holder and completed by delivery.
●​ Process of transferring an instrument
●​ Know what type/character of instrument first. (See sec. 8 or 9)
○​ If payable to bearer, indorsement is not necessary and may be negotiated by
mere delivery.
■​ The person who is the bearer in physical possession = holder
○​ If payable to order, indorsement plus delivery
■​ If payable to order and it was delivered without indorsement, the
transferee cannot be considered as holder.
●​ If not negotiated properly – it is called assignment
○​ Sir: Fancy word for a sale of intangible assets
Sec. 31. Indorsement; how made. - The indorsement must be written on the instrument itself
or upon a paper attached thereto. The signature of the indorser, without additional words, is
a sufficient indorsement.
●​ Sir: Fancy word for a signature
●​ Where? Anywhere in the instrument
●​ Allonge – separate piece of paper attached to the instrument

Sec. 32. Indorsement must be of entire instrument. - 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, or which purports to transfer the instrument to two or more
indorsees severally, does not operate as a negotiation of the instrument.

But where the instrument has been paid in part, it may be indorsed as to the residue.
●​ To constitute negotiation, indorsement must be an indorsement of the entire instrument
●​ Partial indorsement and indorsement to 2 or more payees severally = does NOT
constitute as negotiation
●​ But where the instrument has been paid in part, it may be indorsed as to the residue.
○​ Usually on instruments payable by stated installments
○​ Negotiation is valid where the indorsees are joint
○​ If part of amount is already paid, unpaid balance may be indorsed as this is
expressly authorized by law
●​ Ratio: To avoid multiplicity of suits

Sec. 33. Kinds of indorsement. - An indorsement may be either special or in blank; and it may
also be either restrictive or qualified or conditional. [SBResQuaC]
1.​ Special
2.​ Blank
3.​ Restrictive
4.​ Qualified
5.​ Conditional

Indorsement Description

As to methods of Special Says pay to a specific person

negotiation
Blank Signature and nothing else

As to kind of title Restrictive Pay to one person and nobody else; Destroys
transferred negotiability; All transfers after — assignmnet

As to scope of liability of Qualified “Sans recourse”

indorser

As to presence or Conditional “I pay A if she will have a QPI if 85 this upcoming sem”
absence of limitation
Sec. 34. Special indorsement; indorsement in blank. - A special indorsement specifies the
person to whom, or to whose order, the instrument is to be payable, and the indorsement of
such indorsee is necessary to the further negotiation of the instrument. An indorsement in
blank specifies no indorsee, and an instrument so indorsed is payable to bearer, and may be
negotiated by delivery.
●​ To be further negotiated:
○​ Originally order – indorsement plus delivery
○​ Originally bearer – mere delivery
○​ Special indorsement — indorsement plus delivery
○​ Blank indorsement — mere delivery

Sec. 35. Blank indorsement; how changed to special indorsement. - The holder may
convert a blank indorsement into a special indorsement by writing over the signature of the
indorser in blank any contract consistent with the character of the indorsement.
●​ One where the indorser merely signs his/her name without identifying the person to
whom the instrument is transferred as holder
●​ Conversion from payable to order to payable to bearer
○​ Indorsement no longer necessary
○​ Can be negotiated by mere delivery
●​ Holder cannot write anything over the signature of the indorser which is not consistent
with the character of the indorsement
○​ I.e., protest waiver, notice of dishonor waived — material alterations

Sec. 36. When indorsement restrictive. - An indorsement is restrictive which either:

(a) Prohibits the further negotiation of the instrument; or
(b) Constitutes the indorsee the agent of the indorser; or
(c) Vests the title in the indorsee in trust for or to the use of some other persons.

But the mere absence of words implying power to negotiate does NOT make an
indorsement restrictive.
●​ Where the transferee does not acquire the full rights of the owner of the instrument as
holder
●​ (a) Prohibits the further negotiation – “Pay to Adrian only. Sgd. Tin”
○​ Instrument becomes payable to a specified person
●​ (b) Constitutes the indorsee the agent of the indorser – “Pay to Adrian for collection.
Sgd. Tin”
○​ Agency type of indorsement
●​ (c) Vests the title in the indorsee in trust for or to the use of some other persons. “Pay to
Adrian in trust for Charles. Sgd. Tin”
○​ Trust type of indorsement
○​ Indorsement passes title to Adrian but he holds it in trust for Charles, thus Adrian
cannot use it for his own benefit
Sec. 37. Effect of restrictive indorsement; rights of indorsee. - A restrictive indorsement
confers upon the indorsee the right:[PAT]
(a) to receive Payment of the instrument;
(b) to bring any Action thereon that the indorser could bring;
(c) to Transfer his rights as such indorsee, where the form of the indorsement authorizes
him to do so.

But all subsequent indorsees acquire only the title of the first indorsee under the restrictive
indorsement.
●​ (a) to receive Payment of the instrument; – unless the character of the indorsement is
inconsistent with such right
●​ (b) to bring any Action thereon that the indorser could bring;
●​ (c) to Transfer his rights as such indorsee, where the form of the indorsement authorizes
him to do so
●​ Holder can further negotiate the instrument if the indorsement contains the words of
negotiability
○​ BUT the transferee shall acquire only the rights of the indorsee of the restrictive
instrument

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. Such an indorsement does NOT impair
the negotiable character of the instrument.
●​ “San recourse” or “at your own risk” written at the back of the instrument
○​ If the holder did not get paid, he/she cannot go after the maker/drawer
●​ Assignor cannot ordinarily be held liable
○​ Unless he violates warranties under Sec. 65 [not yet – BE PATIENT]
Sec. 39. Conditional indorsement. - Where an indorsement is conditional, the party required to
pay the instrument may disregard the condition and make payment to the indorsee or his
transferee whether the condition has been fulfilled or not.

But any person to whom an instrument so indorsed is negotiated will hold the same, or the
proceeds thereof, subject to the rights of the person indorsing conditionally. [IMPORTANT - 2nd
sentence]
●​ One by which the indorser imposes some other conditions to his liability or on the
indorsee’s right to collect the proceeds of the instrument
○​ Dependent upon a contingent even which may or may not happen
●​ If the instrument on its face is originally negotiable, a conditional indorsement will not
render the same non-negotiable
○​ What is conditional is only the indorsement, not the promise or order to pay.
●​ The party primarily liable may disregard the condition and make payment
○​ Instrument is discharged and the person primarily liable is freed from further
liability
 ●​ However, the recipient of the payment will hold the same in trust for the party who made
the conditional indorsement
●​ Absolute indorsement – one by which the indorser binds himself to pay upon no other
condition than the failure of prior parties to do so, and of due notice to him of such failure
●​ If condition not fulfilled – indorsement not valid
○​ Subject to the rights of the conditional indorser [last sentence]

Sec. 40. Indorsement of instrument payable to bearer. - Where an instrument, payable to

bearer, is indorsed specially, it may nevertheless be further negotiated by delivery; but the
person indorsing specially is LIABLE as indorser to only such holders as make title through
his indorsement. [STUDY CAREFULLY]
●​ Applicable only to originally bearer instruments
○​ This is not the one where it was an instrument payable to order converted into a
bearer instrument when the only or last indorsement was left blank (Sec. 9 —
N/A)
●​ Instrument is originally payable to bearer
○​ Effect of negotiating the same by special indorsement
■​ Remains to be payable to bearer [NOT converted to order instrument]
●​ Note: Once originally a bearer always a bearer!
■​ It may be negotiated by mere delivery (Sec. 34)
●​ Because indorsement is actually not necessary here
■​ However, all the person indorsing can be held liable by the holder
●​ Condition: Provided, the holder can trace title to the party through
unbroken chain of indorsement from such indorser
●​ Check the instrument who signed and who indorsed
○​ If it's unbroken – you may held the indorsers liable
●​ Instance of negotiated by mere delivery in the middle then eventually indorsed
○​ A → B → C → D → E
■​ B → C indorsenent plus delivery
■​ C → D mere delivery [BREAK OF CHAIN]
■​ D → E indorsement plus delivery
■​ E is the holder, he can held everyone liable except B
○​ In practice: E will not opt to strike out the indorsements even if it is not necessary
for purposes of liability
○​ When the bearer instrument was negotiated by indorsement plus delivery but in
the middle there was an instance of negotiation by delivery
○​ The holder cannot go against the parties before that instance of negotiation by
delivery because the chain of indorsements were broken
■​ BUT immediate transferee can be liable and maker can be liable
○​ Since bearer instrument — When negotiated by delivery — warranties extends
only to his immediate transferee (one who can make him liable)
●​ Ratio: The maker or drawer expressly provided that the instrument shall be payable to
order, and it cannot be made payable to order without modifying these terms.
Sec. 41. Indorsement where payable to two or more persons. - Where an instrument is
payable to the order of two or more payees or indorsees who are not partners, ALL must
indorse unless the one indorsing has authority to indorse for the others.
●​ Instrument may be drawn payable to two or more persons BUT all must indorse
●​ Effect if only one of them indorse:
○​ The one who indorsed is deem to have indorsed only his share of the instrument
○​ Will NOT constitute a negotiation of instrument but merely assignment of portion
○​ Indorsee has no right of action
■​ Remember sec. 32 which requires for negotiation to take place that the
indorsement must be the entirety of the instrument
○​ Exception:
■​ One of the joint payees has authority to indorse for the others
■​ One of the joint payees are partners
●​ Act of one partner binds the others
●​ Note: This section does not apply in case of payable to two or more persons
SEVERALLY
○​ Pay to the order of P or A

Sec. 42. Effect of instrument drawn or indorsed to a person as cashier. - Where an

instrument is drawn or indorsed to a person as "cashier" or other fiscal officer of a bank or
corporation, it is deemed prima facie to be payable to the bank or corporation of which he
is such officer, and may be negotiated by either the indorsement of the bank or corporation or
the indorsement of the officer.
●​ Note: only prima facie in character
○​ May be rebutted if the cashier indorsed the same in his personal capacity
●​ Pay to the order of the Cashier, Leona Escueta Corporation the sum of P50,000 (Sgn)
Tin To: Adrian
○​ Presumption: Payable to Leona Escueta Corporation and may be negotiated by
the cashier or any officer of such corporation

Sec. 43. Indorsement where name is misspelled, and so forth. - Where the name of a
payee or indorsee is wrongly designated or misspelled, he may indorse the instrument as
therein described adding, if he thinks fit, his proper signature.
●​ The payee or indorsee may indorse the same by signing to the instrument and adding
the correct name afterwards. A person may correct the spelling only if the intention of
maker or drawer was that the instrument should be payable to the person making the
correction
●​ Tinapay instead of Tin
○​ To correct: (Sgd.) Tinapay (Sgd.) Tin

Sec. 44. Indorsement in representative capacity. - Where any person is under obligation to
indorse in a representative capacity, he may indorse in such terms as to negative personal
liability.
●​ May indorse personally or through an agent
 ●​ Recall — Requisites for an agent not to be liable: [DAWN]
➔​ Duly authorized;
➔​ Acted within the scope of his/her authority given; and
➔​ Adds Words to his signature that he/she signs as agent, in representative
capacity or on behalf of the principal and Discloses the Name of the principal.
●​ Examples:
○​ Adrian (Principal) by Tin (Agent)
○​ Tin (Agent) For Adrian (Principal)
○​ Tin for and in behalf of his principal Adrian

Sec. 45. Time of indorsement; presumption. - Except where an indorsement bears date after
the maturity of the instrument, every negotiation is deemed prima facie to have been effected
before the instrument was overdue.
●​ Indorsement bears a date – deemed true date
●​ Indorsement no date — negotiated BEFORE maturity/due date
○​ Example: Note payable on September 3, 2024
■​ Presumption is he/she indorse the same BEFORE September 3, 2024
●​ Ratio: To be a holder in due course, the holder must have acquired the instrument before
it was overdue
○​ Except: Dated after the maturity of the instrument

Sec. 46. Place of indorsement; presumption. - Except where the contrary appears, every
indorsement is presumed prima facie to have been made at the place where the instrument
is dated.
●​ Ratio: To determine what law apply – in different countries
●​ Place of indorsement: Law of the state where it is made although the instrument is
executed in a different state
●​ Example: “Quezon City, September 3, 2024” – presumption is the indorsement was
made in Quezon City
○​ Except: Shown through evidence that instrument is dated in one place and
indorsement occurred in another place
○​ He who alleges otherwise has the burden of proving

Sec. 47. Continuation of negotiable character. - An instrument negotiable in its origin

continues to be negotiable until it has been restrictively indorsed or discharged by payment or
otherwise.
●​ Exceptions:
○​ It has been restrictively indorsed to prevent further negotiation
■​ Not every restrictive indorsement prevents further negotiation
○​ Discharged by payment
○​ Discharged by other causes under Sec. 119
Sec. 48. Striking out indorsement. - The holder may at any time strike out any indorsement
which is not necessary to his title.

The indorser whose indorsement is struck out, and all indorsers subsequent to him, are
thereby relieved from liability on the instrument. [Effect of striking out]
●​ Examples:
○​ Originally bearer instrument – holder may strike out special indorsements
anytime
○​ Converted order instrument — all subsequent indorsements may stricken out
■​ Ratio: holder acquired instrument thru a blank indorsement
●​ In an instrument payable to order, you cannot strike out instrument payable to order with
special indorsements
○​ All of them are necessary
○​ Ratio: Holder must be able to trace title – unbroken chain of indorsements
●​ Effect of striking out:
○​ The indorser whose indorsement has been struck out will be DISCHARGED from
the liability.
○​ All subsequent indorsers will be DISCHARGED from the liability.
■​ Ratio: By reason of equity and fairness; Subsequent parties will have a
hard time claiming from discharged prior party

Sec. 49. 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.
●​ Effects:
○​ Transfer does not operate as a negotiation but mere assignment
○​ Transferee only acquires rights of the transferor
○​ Transferee has the right to compel the transferor to indorse

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.
●​ Negotiated back to a prior party
○​ Prior party may re-negotiate BUT he/she cannot go against any intervening
party to whom he was previously held liable.
●​ Example:
○​ Adrian executed a promissory note in favor of Tin or order. Tin negotiated to Yna;
Yna to Louis; Louis to Ari; Ari back to Yna; Yna to EJ, holder.
 ○​ If EJ enforces payment of the instrument against Yna, Yna cannot go against
Louis and Ari because they are intervening parties to whom C was personally
liable. Yna can only go against Tin and Adrian then.

Cases:

Pineda v. De La Rama, 121 SCRA 671 “A deal with a fixer”

Facts:
●​ Jose Dela Rama is the lawyer of Jesus Pineda. The latter engaged the former to stop or
delay the institution of criminal charges against Pineda who allegedly misappropriated 11,000
cavans of palay from National Rice and Corn Administration (NARIC).
○​ NARIC general manager was allegedly an intimate friend of Dela Rama having
worked with him in the Philippine consulate at Hongkong.
●​ Dela Rama said that Pineda has used up all his funds to buy a big hacienda in Mindoro and
that Pineda borrowed P9,300 from him as a loan. Thus, Dela Rama filed a suit to collect the
same, evidenced by the matured promissory note, and attorney’s fees amounting to P5,000 for
his services rendered for the NARIC case.
●​ Pineda claims that he signed the promissory note because Dela Rama told him that such
amount was already given to the chairman and general manager of NARIC to save him from
criminal prosecution. Such amount was never given to such officials nor was there any
contemplated case against Pineda.
●​ CFI ruled in favor of Pineda.
●​ CA reversed the decision.
○​ 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.
○​ Relied on the efficacy Sec. 24 of NIL – presumption of consideration in negotiable
instruments.

Issue:
W/N Dela Rama can collect from Pineda - NO
W/N the promissory note is VOID - YES

Doctrine/Held/Ratio:
SEC. 24 – PRIMA FACIE
●​ 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.
●​ CA’s reliance on Section 24 of the Negotiable Instruments Law 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 9,300 to Pineda in 2 installments on two occasions 5
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 Dela Rama are contradicted by the promissory note itself.
○​ Note provides: "This represents the cash advances made by him in connection with my
case for which he is my attorney-in-law."
 ○​ He only signed the P9,300.00 promissory note because he believed Dela Rama's story
that these amounts had already been advanced by Dela Rama and given as gifts for
NARIC officials.
○​ Dela Rama himself admits that Pineda engaged his services to delay by one month the
filing of the NARIC case against Pineda while the latter was trying to work out an
amicable settlement.
○​ It is unusual for a lawyer to lend money to his client whom he had known for only three
months, with no security for the loan and on interest. 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 whom he had known for only three months.
●​ The consideration of the promissory note (i.e., to influence public officers in the performance of
their duties) is contrary to law and public policy. Therefore, the promissory note is void ab
initio — no cause of action can arise from it. The promissory note is void because of the
illegality of its purpose. In pari delicto so no action against each other.

Manuel C. Ubas, Sr. v. Wilson Chan, G.R. No. 215910, February 6, 2017 “dishonored
check”
Facts:
●​ Wilson Chan, doing business under the name Unimaster, issued 3 checks amounting to 1.5M
to pay for boulders, sand, gravel, and other construction materials for the construction of the
Macagtas Dam in Northern Samar for Manuel C. Ubas.
●​ When they became due, Chan refused to pay despite repeated demands.
●​ The checks were also dishonored upon a stop payment order.
●​ Thus, Ubas filed a case against him.
●​ Chan argued that there was no cause of action and no contract that ever existed between him
and Ubas.
○​ Ubas was not among their suppliers of aggregates for the Macagtas Dam project as, in
fact, the latter never submitted any bill attaching purchase orders and delivery receipts
for payments as other suppliers did.
○​ Chan presented witnesses who testified that Engr. Morelos was hired as project
engineer and he was in charge of negotiating the supply of aggregates and the
revolving fund for its payment. He was the one who lost the checks which is why there
was a stop payment order.
○​ Chan said he issued the checks not to Ubas but to Engr. Morelos for purposes of
replenishing the project's revolving fund.
●​ RTC ruled in favor of Ubas
○​ Chan failed to overcome the disputable presumption that every party to an instrument
acquired the same for a valuable consideration under Section 24.
●​ CA reversed.
○​ Ubas was not the proper party defendant in the case, considering that the drawer of the
subject checks was Unimasters, which, as a corporate entity, has a separate and
distinct personality from Ubas
○​ It observed that the subject checks cannot be validly used as proof of the alleged
transactions between petitioner and respondent, since from the face of these checks
alone, it is readily apparent that they are not personal checks of the former.
○​ Thus, if at all, the said checks can only serve as evidence of transactions between
Unimasters and petitioner. Accordingly, Unimasters is an indispensable party, and since
it was not impleaded, the court had no jurisdiction over the case.
 ○​ CA gave scant consideration to petitioner's argument that respondent and Unimasters
should be treated as one and the same under the doctrine of piercing the veil of
corporate fiction because not only was the issue raised for the first time on appeal, but
that the records bear no evidence that would establish the factual conditions for the
application of the doctrine

Issue: W/N Ubas have a cause of action? - YES

Doctrine/Held/Ratio:
SEC. 24 – PRESUMPTION ON CERTIFICATE OF INDEBTEDNESS
●​ 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.
●​ In this case, Chan admitted in trial that the dishonored checks were signed by him. At this
point, it is presumed that these checks were for valid consideration.
○​ The defense that the subject checks were lost and were not actually issued is a matter
already passed upon by the RTC.
○​ Where the creditor possesses and submits in evidence an instrument showing
indebtedness, a presumption that the credit has not been satisfied arises in his favor.
Thus, if reality is contrary, the debtor must prove it. It is contrary to human nature that
Ubas sent Chan a demand letter detailing the particulars of checks if he unlawfully
obtained them. Ubas also personally demanded the value of checks from Chan in his
office.
○​ Chan also did not present as witness, Engr. Morelos, who supposedly is the one who
lost the checks.
○​ There was also no showing that Unimasters and/or Chan acted to assert its interest
over the P1.5M relative to the stolen checks.
●​ Sec. 16 of NIL which presumes rightful delivery of a complete instrument when it is not in the
possession of the maker/drawer.
○​ Ubas explained clearly before the court that he delivered the construction materials to
Chan without written agreement (as to delivery - the actual consideration) because he
trusted him. This squares with Chan’s testimony that he wanted to have supplies in
Macagtas Dam but did not want to enter into any written contract.
●​ The preponderance of evidence does not overturn the presumption of consideration. Hence,
there is a privity of contract between Ubas and Chan and there is a cause of action.

Clark v. Sellner, 42 Phil 384

Facts:
●​ Sellner, together with 2 other people signed a note in favor of RN Clark, stating that they will
jointly and severally pay P12,000 to the order of RN Clark:
 ●​ The note matured but there was no payment.
●​ Sellner’s counsel stated that he should not pay because:
○​ he did not receive any part of the amount of the debt
○​ the instrument was not presented to Sellner and
○​ being an accommodation party, he is not liable.
●​ TC rendered judgment in favor of Sellner stating that at the time of the institution of the action,
the collateral security value had become valueless and that it was already 4 years since the
maturity of the note plus Sellner did not receive any part of the amount.

Issue: W/N Sellner has an obligation to pay the debt to RN Clark- YES

Doctrine/Held/Ratio:
SEC. 29 – ACCOMMODATION PARTY
●​ Sec. 29. Liability of accommodation party. - An accommodation party is one who has signed
the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for
the purpose of lending his name to some other person. Such a person is liable on the
instrument to a holder for value, notwithstanding such holder, at the time of taking the
instrument, knew him to be only an accommodation party.
●​ Sellner is one of the joint and several debtors on the note and as such he is liable. By putting
his signature (“Geo C. Sellner”) to the note, he lent his name, not to the creditor, but to those
who signed with him placing himself with respect to the creditor in the same position and with
the same liability as the signers.
●​ The phrase, “without receiving value therefore,” as used in Sec. 29 of the NIL means “without
receiving value by virtue of the instrument” and NOT “without receiving payment for lending his
name.” If a sum of money was received by virtue of the note, it is immaterial whether one of
the signers has received anything in payment for the use of his name. The liability of Sellner,
as one of the signers of the note is not dependent on whether he has or has not
received any part of the amount of the debt.
RIGHTS OF AN ACCOMMODATION PARTY
●​ As to W.H. Clarke, George Sellner, as a joint surety, may pay the debt, demand the collateral
security, and dispose of it to his benefit upon maturity of the note.
 ●​ Sellner may, at any time after the maturity of the note, make payment, thus subrogating himself
in the place of Clark with the right to enforce the guaranty against the other signers of the
note for the reimbursement of what he is entitled to recover from them.
LIABILITY OF AN ACCOMMODATION PARTY
●​ As to the plaintiff, R.N. Clarke, he is the holder for value and has the right to demand payment
from the signer of the note, even though he knows that person to be merely an
accommodation party.
●​ With respect to the surety, the creditor is under no obligation to display any diligence in the
enforcement of his rights as a creditor. His mere inaction or delay in proceeding against the
principal debtor, or the fact that he did not enforce debt, constitute no defense at all for the
surety, unless the contract expressly requires promptness on the part of the creditor, which is
not the case here. Hence, George Sellner may still be held liable to pay the creditor R.N.
Clarke. But George Sellner is still subject to recover reimbursement from W.H. Clarke
afterwards.
●​ The mere delay of Clark in enforcing the guaranty has not by any means impaired his action
against Sellner.
IN CASE SIR ASKS
An action was instituted with the trial court after the lapse of 4 years from the date on which payment
fell due. Hence, the trial court judge took into account the fact that at the time of the maturity of the
note, the collateral security given to guarantee the payment was worth more than what was due on
the note, but it depreciated to such an extent that, at the time of the institution of this action, it was
entirely valueless. And taking this circumstance, together with the fact that this case was not
commenced until after the lapse of four years from the date on which the payment fell due, and with
the further fact that Sellner had not received any part of the amount mentioned in the note, he was of
the opinion, and so decided, that the defendant could not be held liable. W/N the delay in instituting
the action constituted laches which had the effect of extinguishing Clark’s right of action?- NO
Sellner’s position is a joint surety. Sellner’s signature on the note is an assurance to Clark that the
collateral guaranty will remain good, and that otherwise he, Sellner, will be personally responsible for
the payment.
●​ If the creditor had done any act whereby the guaranty was impaired in its value, or discharged,
such an act would have wholly or partially released the surety;
●​ but it must be born in mind that it is a recognized doctrine in the matter of suretyship that
with respect to the surety, the creditor is under no obligation to display any diligence in
the enforcement of his rights as a creditor.
●​ His mere inaction, indulgence, passiveness, or delay in proceeding against the principal
debtor, or the fact that he did not enforce the guaranty or apply on the payment of such funds
as were available, constitute no defense at all for the surety, unless the contract expressly
requires diligence and promptness on the part of the creditor, which is not the case in the
present action.
●​ There is in some decisions a tendency toward holding that the creditor's laches may discharge
the surety, meaning by laches a negligent forbearance. This theory, however, is not generally
accepted and the courts almost universally consider it essentially inconsistent with the relation
of the parties to the note

PNB v. Maza, 48 Phil 207

Facts:
●​ The Philippine National Bank is suing Ramon Maza and Francisco Mecenas on five
promissory notes of ten thousand pesos (P10,000) each.
○​ Maza and Mecenas executed two of the promissory notes on January 20, 1921, due
three months after date.
○​ The three other notes due four months after date were executed by the same parties
on January 21, 1921.

○​
●​ The notes were not taken up by Maza and Mecenas at maturity. The obligations with
accumulated interest totaled P65,207.73 on September 22, 1924.
●​ Maza and Mecenas allege that the promissory notes were sent to them in blank for them to
sign by Enrique Echaus with the request that they sign them so that he, Echaus, might
negotiate them with the Philippine National Bank in case of need. Although their signatures
appear on the instrument, they are not the real parties in interest since it was Echaus who
negotiated the notes with PNB.

Issue: W/N Maza and Mecenas are liable to pay for the amount issued in the five promissory
notes - YES

Doctrine/Held/Ratio:
LIABILITY OF ACCOMMODATION PARTIES
●​ The defendants having signed the instruments without receiving value therefor and for the
purpose of lending their names to some other person, are still liable on the instruments. The
law now is that the accommodation party can claim no benefit as such, but he is liable
according to the face of his undertaking, the same as if he were himself financially interested in
the transaction.”
●​ “it is not necessary that any consideration should move to him. The consideration which
supports the promise of the accommodation maker is that parted with by the person taking the
note and received by the person accommodated.” The NIL is clear that a person who signs
their name on an instrument as maker, drawer, acceptor, or indorser is liable for the
instrument once it reaches a holder for value; even if the accommodation party received
no value or consideration. Both Maza and Mecenas are still liable. The defendants in this
case admitted the genuineness of the subject instruments in the case. The only defense that
Maza and Mecenas could proffer is that they are accommodation parties, as defined under
Section 29 of the NIL. However, based on this defense Maza and Mecenas are still liable for
the amount present in the promissory notes.
●​ When the accommodation parties make payment to the holder of the notes, they have the right
to sue the accommodated party for reimbursement, since the relation between them is in effect
that of principal and sureties, the accommodation parties being the sureties. The first
assumption was that they were principals and Echaus was the agent.

Sadaya v. Sevilla, 19 SCRA 924

Facts:
●​ Victor Sevilla, Oscar Varona, and Simeon Sadaya executed jointly and severally, in favor of the
Bank of the Philippine Islands, or its order, a promissory note for P15,000.00 with interest at
 8% per annum, payable on demand.
●​ The entire amount was received from the bank by Oscar Varona alone.
●​ Victor Sevilla and Simeon Sadaya signed the promissory note as comakers only as a favor to
Oscar Varona.
●​ Payments were made on account.
●​ The bank then collected from Sadaya the balance together with interest, which totaled
P5,416.12.
●​ Varona failed to reimburse Sadaya despite repeated demands.
●​ Victor Sevilla died and the intestate estate proceedings commenced. Francisco Sevilla was
named administrator.
●​ Sadaya filed a creditor’s claim for P5,746.12 plus attorney’s fees, but Francisco resisted the
claim on the ground that the deceased Victor Sevilla “did not receive any amount as
consideration for the promissory note,” but signed only as “surety for Oscar Varona.”
●​ The trial court admitted the claim of Simeon Sadaya directing the administrator to pay the
amount from any available funds belonging to the estate of the deceased.The MR was
overruled. Francisco Sevilla appealed.
●​ CA disallowed Sadaya’s claim against the intestate estate. Hence this appeal.

Issue: W/N Simeon Sadaya can claim against the intestate estate of the deceased Victor
Sevilla – NO

Doctrine/Held/Ratio:
ACCOMMODATION PARTY
●​ A solidary accommodation maker who made payment has the right to contribution, from his
co-accommodation maker, in the absence of agreement to the contrary and subject to
conditions imposed by law. This right springs from an implied promise between the
accommodation makers to share equally the burdens from their having consented to stamp
their signatures on the promissory note.
●​ Having lent their signatures to the principal debtor (in this case Varona), they clearly placed
themselves in the category of mere joint grantors of the former. This is as it should be. Not one
of them benefited by the promissory note. Victor Sevilla and Simeon Sadaya were joint and
several accommodation makers of the P15,000 promissory note in favor of BPI. As such
accommodation makers, the individual obligation of each of them to the bank is no different
from, and no greater than and no less than, that contract by Oscar Varona. Even if Sevilla and
Sadaya did not receive the value on the promissory note, they executed the same with and for
the purpose of lending their names to Oscar Varona. Their liability is joint and several, and
Sadaya paid the balance. The principal debtor, who received from the bank the full value of the
note, is obligated to make full reimbursement to an accommodation maker who paid the bank
the balance due on said note.
●​ Although there is nothing in the Negotiable Instruments Law that governs the rules for when
one accommodation maker can seek reimbursement from a co-accommodation maker, this
deficiency should be supplied by the Civil Code pursuant to Art. 18 of the Civil Code which
states that the deficiency of the laws shall be supplied by its provisions. Sadaya could have
sought reimbursement from Oscar Varona because Varona received full value of the
promissory note, unlike Sadaya. As between Varona and Sadaya, there is an implied contract
of indemnity. Varona is bound by the obligation to reimburse Sadaya.
●​ Art. 2073. When there are two or more guarantors of the same debtor and for the same debt,
the one among them who has paid may demand of each of the others the share which is
proportionally owing from him. If any of the guarantors should be insolvent, his share shall be
borne by the others, including the payer, in the same proportion. The provisions of this article
 shall not be applicable, unless the payment has been made in virtue of a judicial demand or
unless the principal debtor is insolvent. The article mentioned above deals with the situation
which arises when one surety has paid the debt to the creditor and is seeking contribution from
his co-sureties.

Crisologo-Jose v. CA, 177 SCRA 594

Facts:
●​ Ricardo Santos Jr was the VP of Mover Enterprises while Atty Oscar Benares was the
president of said corporation.
●​ Atty. Benares issued a check payable to Ernestina Crisologo-Jose, in order to accommodate
his clients, spouses Jaime and Clarita Ong.
●​ Since the check was under the account of Mover Enterprises, Inc. the same was signed by the
president, Atty. Benares. Santos also signed such check since the treasurer was not available.
●​ It appears that the check was in consideration of the waiver ot quitclaim by Crisologo-Jose
over a certain property which the GSIS agreed to sell to spouses Ong.
●​ Upon approval of the compromise agreement between Spouses Ong and GSIS, said check
will be encashed.
●​ The compromise agreement was not approved at the expected time, therefore the check was
replaced by Atty. Benares and likewise signed the same along with Santos.
●​ When Crisologo-Jose deposited the replacement check, it was dishonored for insufficiency of
funds. A subsequent redepositing of the said check was likewise dishonored by the bank for
the same reason.
●​ Crisologo-Jose filed a criminal complaint for violation of BP 22 against Atty. Benares and
Santos.
●​ During preliminary investigation, Santos tendered a cashier’s check in to Crisologo-Jose in
payment of the dishonored check but the latter refused to receive the check.
●​ Santos encashed the check and subsequently deposited the amount with the Clerk of Court.
●​ The trial court held that held that it was "not persuaded to believe that consignation referred to
in Article 1256 of the Civil Code is applicable to this case
●​ CA reversed the judgment of dismissal and revived the complaint for consignation, directing
the trial court to give due course thereto. Ricardo Santos is an accommodation party under the
Negotiable Instruments Law and a debtor of petitioner (Crisologo-Jose) to the extent of the
amount of said check.
●​ Crisologo-Jose avers that the accommodation party in this case is Mover Enterprises, Inc. and
not Ricardo Santos who merely signed the check in question in a representative capacity, that
is, as vice-president of said corporation, hence he is not liable thereon under the Negotiable
Instruments Law. She also submits that no creditor-debtor relationship exists between the
parties, hence consignation is not proper. Concomitantly, this argument was premised on the
assumption that private respondent Santos is not an accommodation party

Issue:
W/N Ricardo Santos is an accommodation party. – YES
W/N consignation may be resorted to –YES

Doctrine/Held/Ratio:
●​ To be considered an accommodation party, a person must (1) be a party to the instrument,
signing as maker, drawer, acceptor, or indorser, (2) not receive value therefor, and (3) sign for
the purpose of lending his name for the credit of some other person.
●​ Santos is an accommodation party and is liable to the extent of the amount of said check
 ●​ From the standpoint of contract law, he differs from the ordinary concept of a debtor therein in
the sense that he has not received any valuable consideration for the instrument he signs.
Nevertheless, he is liable to a holder for value as if the contract was not for accommodation
●​ In lending his name to the accommodated party, the accommodation party is in effect a surety
for the latter.
●​ Assuming arguendo that it is Mover Enterprises who is the accommodation party, then she
cannot recover from said company.
●​ The aforequoted provision of the Negotiable Instruments Law which holds an accommodation
party liable on the instrument to a holder for value, although such holder at the time of taking
the instrument knew him to be only an accommodation party, does not include nor apply to
corporations which are accommodation parties. This is because the issue or indorsement of
negotiable paper by a corporation without consideration and for the accommodation of another
is ultra vires. Hence, one who has taken the instrument with knowledge of the accommodation
nature thereof cannot recover against a corporation where it is only an accommodation party.
●​ Respondent Santos is an accommodation party and is, therefore, liable for the value of the
check. The fact that he was only a co-signatory does not detract from his personal liability. A
co-maker or co-drawer under the circumstances in this case is as much an accommodation
party as the other co-signatory or, for that matter, as a lone signatory in an accommodation
instrument Issue on Consignation Since Santos is in fact an accommodation party, he is in
effect a cosurety for the accommodated party with whom he and his co-signatory, as the other
co-surety, assume solidary liability ex lege for the debt involved. With the dishonor of the
check, there was created a debtorcreditor relationship, as between Atty. Benares and
respondent Santos, on the one hand, and petitioner CrisologoJose, on the other. This
circumstance enables respondent Santos to resort to an action of consignation where his
tender of payment had been refused by petitioner.

Travel-On v. CA, 210 SCRA 351*

Facts:
●​ Travel-On is a travel agency selling airline tickets on a commission basis for and in behalf of
different airline companies.
●​ Arturo Miranda had a revolving credit line with Travel-On where he procures tickets and sells
them for a commission.
●​ From 1969-1970, Travel-On sold and delivered tickets to Miranda worth P278,201.57 which
the latter paid in cash and in kind.
●​ Miranda also issued 6 checks amounting to P115,000.
●​ All 6 checks were dishonored.
●​ Thus, Travel- On filed a suit praying to collect the 6 checks plus issue a writ of attachment on
the properties of Miranda.
●​ Miranda however argues that he had already paid his dues and even overpaid. Thus, the
excess should be given back to him. Moreover, he claims that the checks issued were for
accommodation purposes only. He claims that he issued these checks in the name of
Travel-On in order that its General Manager, Elita, could show to Travel-On’s Board of
Directors that the accounts receivable of the company were still good. The lower courts ruled
that Miranda’s indebtedness to Travel-On was not established. Further, that the checks were
issued for accommodation purposes.

Issue: W/N Miranda is liable for the 6 checks here involved - YES

Doctrine/Held/Ratio:
 ●​ Miranda is liable for the check because the check not for accommodation purposes.
●​ When it comes to negotiable instruments, it presumed to have been given or indorsed for a
sufficient consideration unless the contrary is proven.
●​ Miranda was not able to prove the contrary. What he presented as evidence is his testimony,
but that is not enough to prove that the checks were for accommodation.
●​ Only evidence of the clearest and most convincing kind will suffice to rebut the presumption. A
negotiable instrument is presumed to have been given or indorsed for a sufficient
consideration unless otherwise contradicted and overcome by other competent evidence

Town Savings and Loan Bank v. CA, 223 SCRA 459

Facts:
●​ Hipolitos applied for, and were granted, a loan in the amount of P700,000.00 with interest of
24% per annum.
●​ They executed a promissory note and delivered it to Town Savings and Loan Bank (or TSLB).
●​ They defaulted on their obligation.
●​ Hipolitos denied being personally liable on the P700,000.00 promissory note which they
executed. They argued that the loan was for the account of Pilarita H. Reyes, the sister of
Miguel Hipolito and they were just guarantors.

Issue: W/N Hipolitos are liable on the promissory note which they executed - YES

Doctrine/Held/Ratio:
●​ An accommodation party is one who has signed the instrument as maker, drawer, indorser,
without receiving value therefor and for the purpose of lending his name to some other person.
Such person is liable on the instrument to a holder for value, notwithstanding such holder, at
the time of the taking of the instrument knew him to be only an accommodation party. An
accommodation party receives no part of the consideration for the instrument but assumes
liability to the other parties thereto because he wants to accommodate another. In lending his
name to the accommodated party, the accommodation party is in effect a surety for the latter.
In this case, the Hipolotos signed the promissory note to enable Pilarita H. Reyes, who is
Miguel Hipolito's sister, to borrow P1.4 million from TSLB. She was the actual beneficiary the
Hipolitos accommodated her by signing a promissory note for half of the loan that she applied
for. This is because TSLB may not lend any single borrower more than the authorized limit of
its loan portfolio. Under Section 29 of the Negotiable Instruments Law, the Hipolitos are liable
to the bank on the promissory note that they signed to accommodate Pilarita.

IV. RIGHTS OF THE HOLDER

Sec. 51. Right of holder to sue; payment. - The holder of a negotiable instrument may sue
thereon in his own name; and payment to him in due course discharges the instrument.
●​ Holder — payee or indorsee of a bill or note; one in possession of the same; the bearer
●​ Rights of the holder as owner:
○​ Right to enforce payment
○​ Sue in his own name upon refusal
●​ Payment in due course
○​ If payment is made by principal debtor
○​ At or after the maturity of the instrument
 ○​ In good faith
○​ Without notice of defect in the title of the person whom payment is made
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: [COWGI]
(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. [MEMORIZE]
●​ Presumption: Every holder of a negotiable instrument is deemed prima facie a holder
in due course
●​ Burden of proof to show that conditions were not met: one who alleges otherwise
●​ Complete upon its face;
○​ Complete with respect to the important particulars (i.e., name of the payee and
the amount involved) at the time of its acquisition
■​ Even if no date, deemed complete
■​ Even if lacking in a material particular, it will not destroy the presumption
of holder in due course as long as completed in accordance with the
authority given him
○​ Must contain “payable to order or bearer”
●​ Regular upon its face
○​ There is no indication that it has been altered
○​ What if there’s a selfie? Still regular
○​ What if some edges were torn? Still regular
○​ Numbers written different from figures written? Irregularity can be fixed
●​ Acquired before it was Overdue, and Without notice that it has been previously
dishonored, if that is really what happened
○​ An overdue instrument indicates a dishonored instrument
■​ dishonored = NOT paid
○​ Possible if the drawee does not write the fact of dishonor by non-acceptance on
the instrument itself to indicate that it had been previously dishonored
○​ You can be a holder in due course as long as you are NOT aware of the dishonor
at the time of acquisition of the bill of exchange
●​ Good faith and for value;
○​ Total absence of knowledge on the part of the holder regarding any infirmity or
defect
○​ For value = with valuable consideration
●​ No notice of any Infirmity in the instrument or defect in the title
○​ I.e., instrument was issued for an unlawful consideration, or indorser was guilty of
an illegal act or ill-motive in negotiating the instrument
■​ Holder must NOT be aware of any of these when he took the instrument
○​ Infirmity in the instrument = something is wrong with the instrument itself;
problem in the paper itself
 ■​ I.e., forgery or material alteration
○​ Defect in the title of the person = wrong in the manner in which he obtained the
instrument; refers to the seller and indorser
■​ I.e., want of consideration or acquisition by means of fraud/duress

Sec. 53. When person NOT deemed holder in due course. - Where an instrument payable on
demand is negotiated on an unreasonable length of time after its issue, the holder is not
deemed a holder in due course.
●​ If the instrument is payable on demand, it is due immediately from its date of issue and
the holder can present the instrument for payment at any time.
●​ An instrument payable on demand which is present after an unreasonable length of time
from its issue, it is deemed overdue and thus, the holder cannot be considered as holder
in due course.
●​ What is a reasonable time then? It will depend upon the circumstances of each case

Sec. 54. Notice before full amount is paid. - Where the transferee receives notice of any
infirmity in the instrument or defect in the title of the person negotiating the same before he has
paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only
to the extent of the amount therefore paid by him.
●​ Situation where the transferee has not remitted the full amount of the instrument at the
time the instrument was negotiated to him
●​ Payments made by the transferee BEFORE he came to know of the infirmity or defect
will NOT affect his being a holder in due course with respect to such payments = STILL
holder in due course
○​ Payments AFTER knowledge = transferee will be NOT a holder in due course
with respect to the payment of the balance

Sec. 55. 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.
●​ defines defect in the title by person negotiating it

Title can be defective Through the means of Example

in two (2) ways

Fraud Autograph turned into promissory note

Duress or force and fear Issued a check because of pointing a

1.​ Acquisition gun

Illegal consideration Issued a check in consideration of

consenting to be a mistress
 Other unlawful means Stolen check

Breach of faith Despite the instruction that the check

is only for collection, it was deposited
in his personal account
2.​ Negotiation
Circumstances as Consideration turned out to be fake —
amount to fraud diamond ring to an ordinary glass

Sec. 56. What constitutes notice of defect. - To constitute notice of an infirmity in the
instrument or defect in the title of the person negotiating the same, the person to whom it is
negotiated must have had ACTUAL knowledge of the infirmity or defect, or knowledge of
such facts that his action in taking the instrument amounted to bad faith.
●​ Infirmity in the instrument = something is wrong with the instrument itself
○​ I.e., forgery or material alteration
●​ Defect in the title of the person = wrong in the manner in which he obtained the
instrument
○​ I.e., want of consideration or acquisition by means of fraud/duress
●​ Notice = ACTUAL knowledge of the infirmity in the instrument or defect of title of
the person negotiating the same
○​ Mere suspicion is NOT enough
○​ Gossip/rumor/hearsay NOT enough
○​ We have to see and hear it for ourselves
●​ Deemed taken the instrument in bad faith = if the transferee has knowledge of some
facts that should put him in inquiry and he STILL took the instrument without making
such an inquiry
○​ I.e., you know that the instrument was negotiated to you lacking material
particular yet you did not inquire

Sec. 57. Rights of holder in due course. - A holder in due course holds the instrument free
from any defect of title of prior parties, and free from defenses available to prior parties among
themselves, and may enforce payment of the instrument for the full amount thereof against all
parties liable thereon.
●​ This section provides the advantages of being a holder in due course and the
advantages of negotiation as compared to mere assignment
●​ Rights
○​ May sue in his own name
○​ May receive payment and payment to him in due course discharges the
instrument
○​ Holds instrument free from any defect of title of prior parties
○​ Holds instrument free from defenses available to prior parties among themselves
○​ May enforce payment of the instrument for the full amount against ALL parties
liable thereon
●​ Personal/Equitable Defenses
○​ Arise in the course of the life on the instrument emanating from the conduct or
circumstances surrounding its acquisition by a party
 ○​ Available among prior parties, immediate parties or parties with notice of infirmity
in the instrument or defect of title
○​ Good defense against a party not a holder in due course
■​ Because such holder holds the instrument subject to the defenses
available to prior parties among themselves
○​ NOT a good defense against holder in due course
■​ Holder in due course holds instrument free from any defect of title of prior
parties
■​ Holder in due course holds instrument free from defenses available to
prior parties among themselves
●​ Real/Legal Defenses
○​ Attach to the instrument itself
○​ Available as defense against the whole world including holder in due course

Personal/Equitable Defenses Real/Legal Defenses

Complete but undelivered Incomplete and undelivered

Incomplete but delivered Forgery

Acquisition of instrument by Minority

means of fraud in inducement

Acquisition of instrument by Material Alteration

means of fear, force, duress

Acquisition of instrument for an Confession of judgment

illegal consideration instrument or cognovit
actionem

Acquisition of instrument by Fraud in factum or fraud in

unlawful means esse contractus

Absence of consideration in the

acquisition

Insertion of wrong date where the

date is a material particular

Negotiation in breach of faith

Negotiation under circumstances

amounting to fraud

●​ Confession of judgment instrument = a written confession of an action by defendant

subscribed but not sealed authorizing plaintiff to sign judgment and issue execution
usually for a sum named.
○​ It is given after the action is brought to save expenses
○​ In PH, against public policy because it does not only place the obligor completely
at the mercy of obligee but it also tends to oust the jurisdiction of courts
●​ Fraud in factum or fraud in esse contractus
 ○​ Fraud amounting to forgery (due to deception) – a person without negligence is
tricked into signing the instrument which he believed is a document of a different
character
○​ Instrument deemed invalid and treated as if the person never signed it
○​ Person who signed must have exercised reasonable diligence (not negligent)
■​ Finding of negligence will render the person executing the instrument
holder in due course

Sec. 58. When subject to original defense. - In the hands of any holder other than a holder in
due course, a negotiable instrument is subject to the same defenses as if it were
non-negotiable. But a holder who derives his title through a holder in due course, and who is
not himself a party to any fraud or illegality affecting the instrument, has all the rights of such
former holder in respect of all parties prior to the latter.
●​ Holder not in due course
○​ Holds the instrument subject to defenses that may be raised against the person
who transferred the instrument to him
○​ As if the instrument is non negotiable and the transferee is a mere assignee
■​ The transferee cannot acquire rights better than those of transferor
■​ A mere assignee takes the instrument subject to all valid claims of any
party which would be available in an action on an ordinary contract
○​ Note: May recover against the person primary liable even though the
consideration for the instrument has failed if he can show that the person through
whom he derived his indefeasible title was a holder in due course
●​ Holder who derives his title from a holder in due course/ Holder through a holder
in due course
○​ Requisites:
■​ Acquires the rights of a holder in due course in respect of all parties prior
to said holder in due course from whom he acquired the instrument
■​ Such holder is not a party to fraud or illegality
○​ I.e., Louis executed a promissory payable to the order of Yna, payee. Yna
negotiated to Tin, a holder in due course, negotiated the note as a wedding gift to
Ivan, holder
■​ Ivan is not a holder in due course because of want of consideration but he
acquired his title from Tin a holder in due course, thus Ivan acquired the
rights of a holder in due course from his assignor Tin
●​ Limitation: Ivan cannot go against Tin for a personal defense of
absence of consideration

Sec. 59. Who is deemed holder in due course. - Every holder is deemed prima facie to be a
holder in due course; but when it is shown that the title of any person who has negotiated
the instrument was defective, the burden is on the holder to prove that he or some person
under whom he claims acquired the title as holder in due course.

But the last-mentioned rule does NOT apply in favor of a party who became bound on the
instrument prior to the acquisition of such defective title.
 ●​ Presumption arises only in favor of a person who is a holder in the sense defined in Sec.
191 — "Holder" means the payee or indorsee of a bill or note who is in possession of it,
or the bearer thereof
○​ Indorsee does not have to prove that he is a holder in due course
●​ Burden
○​ Whoever alleges otherwise has the burden of proof to show the contrary
○​ Once such is proved, the burden shifts. Indorsee will now have to show that he
acquired the instrument compliant with Sec. 52 or he acquired the instrument
from a holder in Sec. 58
○​ Rule does NOT apply with respect to parties who are already bound on the
instrument prior to acquisition of the defective title (i.e., prior parties like maker
and first indorsers)

Cases:

De Ocampo & Co v. Gatchalian

Facts:
●​ Anita Gatchalian was interested in looking for a car for the use of her husband and the
family
●​ Manuel Gonzales accompanied by Fajardo (whom Gatchalian personally knew)
represented himself that he was duly authorized in the sale of a car allegedly owned
by De Ocampo and registered under the name of Ocampo clinic.
○​ Unknown to De Ocampo
●​ When Gatchalian expressed that she was willing to buy the said car and asked him to
deliver the car with the certificate of registration, the latter requested that Gatchalian
should first issue a check as mere evidence to the owner that Gatchailian was indeed
willing to buy the car and she was in good faith.
●​ Relying on this, Gatchalian issued a check (crossed check) payable to the owner on
the understanding that the check was to be shown only to the latter as evidence of
Gatchalian’s good faith to purchase the car.
●​ On the failure of Gonzales to appear the next day, and on his failure to bring the car,
its registration and to return the check, the Gatchalian issued a “stop payment order”
on the check with the drawee bank
●​ Gonzales instead paid the check to De Ocampo for the hospital bill of Gonzales’ wife
in the formers clinic and was even given P158.25 as the difference of the face value of
the check and Gonzales’ indebtedness.
●​ De Ocampo accepted such check and applied its proceeds without previous inquiry
from defendants.
●​ An action was filed by plaintiff de Ocampo with the CFI to recover the said proceeds of
the check from defendant Gatchalian. [kasi diba nag stop payment order]
●​ TC ruled in favor of De Ocampo.

Issue: Is De ocampo considered a holder in due course such that he can recover from
Gatchalian - NO
Doctrine/Held/Ratio:
●​ Section 52 of NIL provides that: “A holder in due course is a holder who has taken the
instrument under the ff. 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.”
●​ If the holder had actual knowledge of suspicious circumstances, coupled with the
means of readily informing himself of the facts yet he willfully abstained from making
inquiries, his intentional ignorance may amount to bad faith.
●​ Although de Ocampo was not aware of the circumstances under which the check was
delivered to Gonzales by Gatchalian, De Ocampo was guilty of gross neglect/gross
negligence amounting to legal absence of good faith since the surrounding
circumstances should have put de Ocampo on inquiry
○​ Gatchalian had no obligation with him
○​ Amount of the check did not correspond exactly to Gonzales’ obligation to him
○​ Check being a crossed check
●​ It was De Ocampo’s duty to to ascertain from the holder Gonzales what the nature of
the latter’s title and possession is. Having failed in this respect, SC declares that
plaintiff de Ocampo is guilty of gross neglect, amounting to legal absence of good
faith, and it may not be considered as a holder of the check in good faith.
●​ Paika v Perry: 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… it being sufficient to show that the defendant
had notice that there was something wrong about his assignor’s acquisition of title
(although not the particular wrong).

CONSOLIDATED PLYWOOD INDUSTRIES VS IFC LEASING & ACCEPTANCE CORP.

Facts:
●​ Consolidated Plywood Industries(Plywood) is engaged in the logging business. It
bought two tractors from Atlantic Gulf.
●​ Plywood paid using installments and made a down payment of 210,000. The deed of
sale was accompanied by 2 PNS and a chattel mortgage.
○​ “FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the
INDUSTRIAL PRODUCTS MARKETING, the sum of ONE MILLION NINETY-THREE
THOUSAND SEVEN HUNDRED EIGHTY-NINE PESOS & 71/100 only (P
1,093,789.71), Philippine Currency, the said principal sum, to be payable in 24 monthly
installments starting July 15, 1978 and every 15th of the month thereafter until fully
paid.
●​ Atlantic Gulf assigned its rights and interest to the note in IFC Leasing’s
(financing company) favor by means of a deed of assignment.
●​ However, the tractors broke down after 14 days BEFORE the warranty expired. So
Atlantic did not honor the warranty
●​ Plywood will delay its payment until Atlantic fulfills its obligation under the warranty.
●​ Consolidated Plywood rescinded the contract of purchase and demanded a refund.
 ●​ IFC Leasing then filed suit to recover the amount of the promissory note.
●​ RTC and CA ruled for IFC. Even though there was a breach of warranty this shouldn’t
affect IFC, as it was not a party to that agreement. IFC is a holder in due course and
the instrument is a negotiable one.

Issue:
1.​ Is the promissory note a negotiable instrument to bar completely all the
available defenses of the petitioner against the respondent-assignee? No.
2.​ What if it was a negotiable instrument, is plywood liable? No, because IFC is in
bad faith.

Doctrine/Held/Ratio:
●​ A negotiable instrument must contain the words of negotiability such as ‘order’ or
‘bearer.’ Without the words ‘or order’ or ‘to the order of’ then the instrument is payable
only to that person and no one else, therefore non-negotiable. In effect, any
subsequent holder of the note will only step into the shoes of the person designated in
the instrument and will be open to all the defenses available against the latter. He
doesn’t enjoy the benefits of being a holder in due course of a negotiable instrument.
Here, The promissory note isn’t payable to order or bearer. Thus, PN is not a
negotiable instrument. The petitioner may raise against the respondent all defenses
available to it as against the seller assignor, Industrial Products Marketing.
●​ 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:
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
●​ SEC. 56. WHAT CONSTITUTES NOTICE OF DEFECT. — To constitute notice of an
infirmity in the instrument or defect in the title of the person negotiating the same the
person to whom it is negotiated must have had actual knowledge of the infirmity or
defect, or knowledge of such facts that his action in taking the instrument amounts to
bad faith.
○​ The evidence presented in the instant case shows that prior to the sale on
installment of the tractors, there was an arrangement between the seller
assignor, Industrial Products Marketing, and the respondent whereby the latter
would pay the seller-assignor the entire purchase price and the seller
assignor, in turn, would assign its rights to the respondent which
acquired the right to collect the price from the buyer, herein petitioner
Consolidated Plywood Industries, Inc.
○​ The documents evidencing the sale on installment of the tractors were all
executed on the same day by and among the buyer (Plywood); the
seller-assignor (Industrial Products Marketing); and the assignee financing
company, which is the respondent IFC.
○​ Therefore, the respondent had actual knowledge of the fact that the
seller-assignor's right to collect the purchase price was not
unconditional, and that it was subject to the condition that the tractors sold
were not defective.
●​ The respondent knew that when the tractors turned out to be defective, it would be
subject to the defense of failure of consideration and cannot recover the purchase
price from the petitioners. The respondent’s actual knowledge of the foregoing
facts so that its action in taking the instrument amounted to bad faith, is not a
 holder in due course. As such, the respondent is subject to all defenses which
the petitioners may raise against the seller assignor.
●​ Even assuming that the subject promissory note is negotiable, the respondent, a
financing company which actively participated in the sale on installment of the subject
2 tractors, cannot be regarded as a holder in due course of said note. It follows that
the respondent's rights under the promissory note involved in this case are subject to
all defenses that the petitioners have against the seller-assignor, Industrial Products
Marketing.
●​ Section 58 of the Negotiable Instruments Law provides that "in the hands of any holder
other than a holder in due course, a negotiable instrument is subject to the same
defenses as if it were non-negotiable

CHAN WAN v. TAN KIM

Facts:
●​ This involves a suit to collect 11 checks totaling P4,290 (checks payable to “cash or
bearer”) drawn by Tan Kim upon the Equitable Banking Corp.
●​ Such checks were presented for payment by Chan Wan to the drawee bank, but they
were all dishonored for insufficiency of funds and/or causes attributable to the drawer.”
●​ At the hearing of the case, Chan Wan did not take the witness stand and his attorney
testified only to identify the 11 checks (Exhibits A-K) plus the letters of demand upon
Tan Kim and Chen So
●​ Tan Kim declared that the checks had been issued to 2 persons named Pinong
and Muy for shoes which Pinong promised to make and “were intended as mere
receipts.”
●​ Court declined to order payment for 2 reasons:
○​ Chan Wan failed to prove that he was a holder in due course
○​ The checks, being crossed checks, should not have been deposited with the
bank mentioned in the crossing.
●​ Defendants Kim and So asserted a counterclaim; the court dismissed it for failure of
proof

Issue: W/N Chan Wan has a right to collect on the 11 checks - Case was remanded.

Doctrine/Held/Ratio:
HOLDER IN DUE COURSE
●​ Disadvantage of holder not in due course: negotiable instrument is subject to defense
as if it were non-negotiable. If a holder of a negotiable instrument is proven to be a
holder not in due course, it does not necessarily follow that he cannot recover from
that instrument simply because he isn’t one. But the negotiable instrument held by him
will be subject to defenses as if it were a nonnegotiable instrument.
●​ Supreme Court held that the case be remanded to the lower court for further details.
But with regard to the checks, it was said that the checks were deposited with China
Banking Corporation and then sent to Central Bank for clearance but was dishonored.
How the checks reached Chan Wan – he did not indicate how (assumed he got it after
it was returned from being dishonored).
●​ But it could be concluded that Chan Wan is not a holder in due course because
of the fact that when he took the checks, he already knew that it was
 dishonored. Yet, it does not mean he can’t recover from those checks, subject to
defenses by drawer (Tan Kim) as if the negotiable instrument is non-negotiable.
●​ Trial court has no mention on what was proved by the defense of Tan Kim
●​ Tan Kim admitted on cross-examination either that the checks had been issued as
evidence of debts to Pinong and Muy, and/or that they had been issued in payment of
shoes which Pinong had promised to make for her. Yet the idea was not complete
(because she was just answering cross-questions, her main testimony having referred
merely to the counter-claim) Needless to say, if it were true that the checks had been
issued in payment for shoes that were never made and delivered, Tan Kim would
have a good defense because the holder is not a holder in due course.
CROSS CHECKS
●​ Negotiable Instruments Law (NIL) regulates the issuance of negotiable checks and the
rights and liabilities arising therefrom but it does not mention “crossed checks.” Art.
541 of the Code of Commerce refers to such instruments as well as the Bills of
Exchange Act of England (1882).
●​ PNB v. Zulueta: applied some provisions of Bills of Exchange Act because the NIL,
originating from England and codified in the US, permits resort to it (Bills of Exchange
Act) in matters not covered by NIL and local legislation.
●​ In drawing the cross check, the drawer 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.”
●​ 8 checks in question here bear across their face two parallel transverse lines between
which words are written: “non-negotiable – China Banking Corporation.” (CBC)
○​ This means the checks have been crossed specially to the CBC and not by
Chan Wan.
○​ Inasmuch as Chan Wan was the one who actually presented them for
payment, there was no proper presentment, and liability did not attach to the
drawer. Because of the absence of due presentment (because no proper
presentment by Chan Wan), the drawer (Tan Kim and Chen So) did not
become liable.
○​ However, on the backs of the checks, there are endorsements which show that
they had been deposited with CBC and were presented to the drawee bank for
collection.

STATE INVESTMENT HOUSE v IAC

Facts:
●​ New Sikatuna Wood Industries, Inc. (New Sikatuna) requested for a loan from Harris
Chua.
●​ Harris agreed to grant the same subject to the condition that New Sikatuna should wait
until December 1980 when Harris would have the money.
●​ Anita Pena Chua, wife of Harris, issued three crossed checks payable to New
Sikatuna all postdated:
○​ China Banking Corporation, P98,750; International Corporate Bank, P102,313;
Metropolitan Bank & Trust Co, P98,387. The total value of the three checks
amounted to P299,450.
●​ New Sikatuna entered into agreement with State Investment House whereby under a
deed of sale, New Sikatuna assigned and discounted with Harris eleven postdated
 checks including the three postdated checks issued by Anita to New Sikatuna.
●​ When the three checks issued by Anita were deposited by State Investment
House, these were dishonored by reason of insufficient funds, stop payment,
and account closed.
●​ New Sikatuna claims that despite demands on Anita to make good said checks, Anita
failed to pay the same.
●​ Hence, State Investment House filed an action for collection in the RTC.
●​ Spouses Chua filed a third party complaint against New Sikatuna for reimbursement
and indemnification in the event that they be held liable to State Investment House
●​ RTC ruled against spouses Chua. On the third party complaint, third party defendant
New Sikatuna Wood Industries, Inc. is ordered to pay third party plaintiffs Anita Pena
Chua and Harris Chua
●​ IAC reversed the decision.
○​ State Investment House submits that at the time of the negotiation and
endorsement of the checks in question by New Sikatuna Wood Industries, it
had no knowledge of the transaction and/or arrangement made between New
Sikatuna and spouses Chua

Issue: W/N State Investment House is a holder in due course as to entitle it to proceed
against respondents for the amount stated in the dishonored checks. - NO

Doctrine/Held/Ratio:
●​ Crossed checks are checks with two parallel lines in the upper left hand corner
means that it could only be deposited and may not be converted into cash.The effects
of crossing a check are:
(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) the act of crossing the check serves as a warning to the holder that the check has
been issued for a definite purpose so that he must inquire if he has received the check
pursuant to that purpose; otherwise he is not a holder in due course. [Case of
Ocampo]
●​ The Negotiable Instruments Law regulating the issuance of negotiable checks does
not mention “crossed checks.” But this Court has taken cognizance of the practice that
a check with two parallel lines in the upper left hand corner means that it could only be
deposited and may not be converted into cash. Such circumstance should put the
payee on inquiry and upon him devolves the duty to ascertain the holder's title to the
check or the nature of his possession. Failing in this respect, the payee is declared
guilty of gross negligence amounting to legal absence of good faith and as such the
consensus of authority is to the effect that the holder of the check is not a holder in
good faith.
●​ State Investment House rediscounted the check knowing that it was a crossed
check he was knowingly violating the avowed intention of crossing the check.
New Sikatuna Wood Industries negotiated the three checks in breach of faith in
violation of Article 55, Negotiable Instruments Law, which is a personal defense
available to the drawer of the check.
●​ His failure to inquire from the holder, New Sikatuna Wood Industries, Inc., the
purpose for which the three checks were cross despite the warning of the crossing,
prevents him from being considered in good faith and thus he is not a holder in
due course.
●​ SIH is not a holder in due course hence not entitled to proceed against Anita Chua for
 the amount stated in the dishonoured checks. Being not a holder in due course, State
Investment House is subject to personal defenses, such as lack of consideration
between Spouses Chua and New Sikatuna Wood Industries.
○​ LACK OF CONSIDERATION: Under the facts the checks were postdated and
issued only as a loan to New Sikatuna Wood Industries, Inc. if and when
deposits were made to back up the checks. Such deposits were not made,
hence no loan was made, hence the three checks are without consideration.
●​ The effect of crossing a check relates to the mode of its presentment for payment.
○​ The three subject 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 (New Sikatuna) who presented the same for
payment and therefore, there was no proper presentment, and the liability
did not attach to the drawer (Anita). Thus, in the absence of due
presentment, the drawer did not become liable.
○​ Consequently, no right of recourse is available to State Investment House
against the drawer of the subject checks, Anita, considering that State
Investment House is not the proper party authorized to make presentment of
the checks in question.
●​ However, 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 for in
the case at bar, State Investment House may recover from the New Sikatuna Wood
Industries, Inc. if the latter has no valid excuse for refusing payment. 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.