A.B.

Solis

Case Doctrine
Negotiable Instruments Law

1. Philippine Education Co. Inc. v. Soriano

39 SCRA 589 [G.R. No. L-22405. June 30, 1971]

Postal money orders are not negotiable instruments, the reason behind this
rule being that, in establishing and operating a postal money order system, the
government is not engaging in commercial transactions but merely exercises a
governmental power for the public benefit.

Some of the restrictions imposed upon money orders by postal laws and
regulations are inconsistent with the character of negotiable instruments.
For instance, such laws and regulations usually provide for not more than one
endorsement; payment of money orders may also be withheld under a variety of
circumstances.

2. Tibajia Jr. v. Court of Appeals

223 SCRA 163 [G.R. No. 100290. June 4, 1993]

A check is not legal tender and a creditor may validly refuse payment by
check, whether it be a manager's, cashier's or personal check.

3. Philippine Airlines v. Court of Appeals

181 SCRA 5887 [G.R. No. L-49188. January 30, 1990]

Since a negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as payment. A
check, whether a manager's check or ordinary cheek, is not legal tender, and an offer of
a check in payment of a debt is not a valid tender of payment and may be refused receipt
by the obligee or creditor.

Mere delivery of checks does not discharge the obligation under a

judgment. The obligation is not extinguished and remains suspended until
the payment by commercial document is actually realized (Art. 1249, Civil
Code, par. 3).

4. Metropolitan Bank and Trust Co. v. C.A.

194 SCRA 169 [G.R. No. 88866. February 18, 1991]

An order or promise to pay out of a particular fund is not unconditional and

does not fulfill one of the essential requirements of a negotiable instrument (Sec. 3 last
sentence and section [1(b)] of the Negotiable Instruments Law).
A.B. Solis

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 "not unconditional" and the warrants
themselves non-negotiable.

5. Caltex (Philippines) vs. CA

212 SCRA 448 (1992)

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.
While the writing may be read in the light of surrounding circumstances in order to
more perfectly understand the intent and meaning of the parties, yet as they have
constituted the writing to be the only outward and visible expression of their meaning,
no other words are to be added to it or substituted in its stead. The duty of the court in
such case is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the meaning of the
words they have used. What the parties meant must be determined by what they said.

6. Ang Tek Lian v. Court of Appeals

[G.R. No. L-2516. September 25, 1950]

Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the
order of “cash" is a check payable to bearer, and the bank may pay it to the
person presenting it for payment without the drawer's indorsement.

If the bank is not sure of the bearer's identity or financial solvency, it has the right to
demand identification and /or assurance against possible complications, — for instance,
(a) forgery of drawer's signature, (b) loss of the check by the rightful owner, (c) raising
of the amount payable, etc. The bank may therefore require, for its protection, that the
indorsement of the drawer — or of some other person known to it — be obtained. But
where the Bank is satisfied of the identity and /or the economic standing of the bearer
who tenders the check for collection, it will pay the instrument without further question;
and it would incur no liability to the drawer in thus acting.

7. PNB vs. Rodrigeuz

[G.R. No. 170325. September 26, 2008]

A check is "a bill of exchange drawn on a bank payable on demand." It is either an order
or a bearer instrument. As a rule, when the payee is fictitious or not intended to
be the true recipient of the proceeds, the check is considered as a bearer
instrument. Where the instrument is payable to order, the payee must be
named or otherwise indicated therein with reasonable certainty.

The distinction between bearer and order instruments lies in their manner
of negotiation. Under Section 30 of the NIL, an order instrument requires an
indorsement from the payee or holder before it may be validly negotiated. A bearer
A.B. Solis

instrument, on the other hand, does not require an indorsement to be validly

negotiated. It is negotiable by mere delivery.

A check that is payable to a specified payee is an order instrument. However, under

Section 9(c) of the NIL, a check payable to a specified payee may nevertheless
be considered as a bearer instrument if it is payable to the order of a fictitious or
non-existing person, and such fact is known to the person making it so payable. In a
fictitious-payee situation, the drawee bank is absolved from liability and the drawer
bears the loss. When faced with a check payable to a fictitious payee, it is treated as a
bearer instrument that can be negotiated by delivery.

The rule protects the depositary bank and assigns the loss to the drawer of the check
who was in a better position to prevent the loss in the first place. Due care is not even
required from the drawee or depositary bank in accepting and paying the checks. The
effect is that a showing of negligence on the part of the depositary bank will not defeat
the protection that is derived from this rule.

However, there is a commercial bad faith exception to the fictitious-payee rule. A

showing of commercial bad faith on the part of the drawee bank, or any transferee of the
check for that matter, will work to strip it of this defense. The exception will cause it to
bear the loss. Commercial bad faith is present if the transferee of the check acts
dishonestly, and is a party to the fraudulent scheme.

For the fictitious-payee rule to be available as a defense, PNB must show that the
makers did not intend for the named payees to be part of the transaction involving the
checks. PNB failed to present sufficient evidence to defeat the claim of respondents-
spouses that the named payees were the intended recipients of the checks’ proceeds. The
bank failed to satisfy a requisite condition of a fictitious-payee situation – that the
maker of the check intended for the payee to have no interest in the transaction.

8. PNB vs. Manila Oil Refining and By Products Company

[G.R. No. L-18103, June 8, 1922]

A judgment note will not affect the negotiable character of the instrument.
Judgment notes however, is a form of warrant of attorney and are not valid nor
effective. Warrants of attorney to confess judgment are void as against public
policy because they enlarge the field for fraud. Under these instruments the promisor
bargains away his right to a day in court, and in effect strike down the right of appeal
accorded by statute.
The recognition of such a form of obligation would bring about a complete
reorganization of commercial customs and practices, with reference to short-term
obligations. It can readily be seen that judgement notes, instead of resulting to the
advantage of commercial life in the Philippines might be the source of abuse and
oppression, and make the courts involuntary parties thereto.
A.B. Solis

9. Republic Planters Bank vs. CA

216 SCRA 738 [G.R. No. 93073. December 21, 1992]

Under the Negotiable Instruments Law, persons who write their names on the
face of promissory notes are makers and are liable as such. By signing the
notes, the maker promises to pay to the order of the payee or any holder according to
the tenor thereof. Based on the above provisions of law, there is no denying that private
respondent Fermin Canlas is one of the co-makers of the promissory notes. As such, he
cannot escape liability arising therefrom.

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. 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 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.

10. Sps. Evangelista vs. Mercator Finance Corp. et. al.

Augst 21, 2003

Section 17 of the Negotiable Instruments Law states: Where the language of the
instrument is ambiguous or there are omissions therein, the following rules of
construction apply: x x x (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.

11. Illano vs. Hon. Espanol

[G.R. No. 161756. December 16, 2005]

Even when the check’s date of issue bears only the year, its validity and
negotiable character is not affected. For Section 6 of the Negotiable Instruments
Law provides:

Section 6. Omission; seal; particular money. – The validity and negotiable

character of an instrument are not affected by the fact that –
A.B. Solis

(a) It is not dated;

12. Sesbreño v. Court of Appeals

[G.R. No. 89252. May 24, 1993]

The negotiation of a negotiable instrument must be distinguished from the

assignment or transfer of an instrument whether that be negotiable or non-
negotiable. Only an instrument qualifying as a negotiable instrument under the relevant
statute may be negotiated either by indorsement thereof coupled with delivery, or by
delivery alone where the negotiable instrument is in bearer form. A negotiable
instrument may, however, instead of being negotiated, also be assigned or transferred.
The legal consequences of negotiation as distinguished from assignment of a negotiable
instrument are, of course, different.

A non-negotiable instrument may, obviously, not be negotiated; but it may be

assigned or transferred, absent an express prohibition against assignment
or transfer written in the face of the instrument.

13. Consolidated Plywood Industries, Inc. v. IFC Leasing and Acceptance

Corp
[G.R. No. 72593. April 30, 1987]

“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 (P1,093,789.71),
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....”

Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires
that a promissory note "must be payable to order or bearer," it cannot be denied that the
promissory note in question is not a negotiable instrument.

"The instrument in order to be considered negotiable must contain the so

called ‘words of negotiability’ — i.e., must be payable to ‘order’ or ‘bearer’. These
words serve as an expression of consent that the instrument may be transferred. This
consent is indispensable since a maker assumes greater risk under a negotiable
instrument than under a non-negotiable one.

“These are the only two ways by which an instrument may be made payable to order.
There must always be a specified person named in the instrument. It means that the bill
or note is to be paid to the person designated in the instrument or to any person to
whom he has indorsed and delivered the same. Without the words ‘or order’ or ‘to
the order of,’ the instrument is payable only to the person designated
therein and is therefore non-negotiable. Any subsequent purchaser thereof will
not enjoy the advantages of being a holder of a negotiable instrument, but will merely
A.B. Solis

‘step into the shoes’ of the person designated in the instrument and will thus be open to
all defenses available against the latter."

14. De La Victoria v. Judge Burgos

[G.R. No. 111190. June 27, 1995]

Under Sec. 16 of the Negotiable Instruments Law, every contract on a negotiable

instrument is incomplete and revocable until delivery of the instrument for
the purpose of giving effect thereto. As ordinarily understood, delivery means the
transfer of the possession of the instrument by the maker or drawer with intent to
transfer title to the payee and recognize him as the holder thereof’…”

15. Development Bank of Rizal v. Sima Wei

[G.R. No. 85419. March 9, 1993]

Insofar as the other respondents are concerned, petitioner Bank has no privity with
them. Since petitioner Bank never received the checks on which it based its action
against said respondents, it never owned them (the checks) nor did it acquire any
interest therein. Thus, anything which the respondents may have done with respect to
said checks could not have prejudiced petitioner Bank. It had no right or interest in the
checks which could have been violated by said respondents. Petitioner Bank has
therefore no cause of action against said respondents, in the alternative or otherwise. If
at all, it is Sima Wei, the drawer, who would have a cause of action against her co-
respondents, if the allegations in the complaint are found to be true.

16. Metropol (Bacolod) Financing and Investment Corp v. Sambok Motors

Company
G.R. No. L-39641. February 28, 1983

"Recourse" means resort to a person who is secondarily liable after the default of the
person who is primarily liable.
Indorsing the note “with recourse” does not make one a qualified indorser
but a general indorser who is secondarily liable. The effect of such indorsement
is that the note was indorsed without qualification. A person who indorses without
qualification engages that on due presentment, the note shall be accepted or paid, or
both as the case may be, and that if it be dishonored, he will pay the amount thereof to
the holder.
Sambok’s intention of indorsing the note without qualification is made even more
apparent by the fact that the notice of’ demand, dishonor, protest and presentment were
all waived. The words added by said appellant do not limit his liability, but rather
confirm his obligations as a general indorser.
A.B. Solis

17. Gempesaw v. Court of Appeals

[G.R. No. 92244. February 9, 1993]

The drawer is duty bound to set up an accounting system and to report forged
instrument to the drawee. The drawer loses his right against the drawee for
failure to discover forgery or promptly report the said forgery. In other
words, he is precluded from using forgery as a basis for his claim for recrediting of his
account.

The decision to hold the drawee bank liable is based on law and substantial justice and
not on mere equity. And although the case was brought before the court not on breach of
contractual obligations, the courts are not precluded from applying to the circumstances
of the case the laws pertinent thereto. Thus, the fact that petitioner's negligence
was found to be the proximate cause of her loss does not preclude her from
recovering damages. And in breaches of contract under Article 1173, due
diligence on the part of the defendant is not a defense.

Every contract on a negotiable instrument is incomplete and revocable until delivery of

the instrument to the payee for the purpose of giving effect thereto. (NIL, Sec. 16) The
first delivery of the instrument, complete in form, to the payee who takes it as a holder,
is called issuance of the instrument. Without the initial delivery of the instrument from
the drawer of the check to the payee, there can be no valid and binding contract and no
liability on the instrument.

Under the NIL, the only kind of indorsement which stops the further
negotiation of an instrument is a restrictive indorsement which prohibits the
further negotiation thereof. In this kind of restrictive indorsement, the prohibition to
transfer or negotiate must be written in express words at the back of the
instrument, so that any subsequent party may be forwarned that it ceases to be
negotiable. However, the restrictive indorsee acquires the right to receive payment and
bring any action thereon as any indorser, but he can no longer transfer his rights as such
indorsee where the form of the indorsement does not authorize him to do so.

18. De Ocampo v. Gatchalian

[G.R. No. L-15126. November 30, 1961]

As holder's title was defective or suspicious, it cannot be stated that the

payee acquired the check without knowledge of said defect in holder's title,
and for this reason the presumption that it is a holder in due course or that it
acquired the instrument in good faith does not exist. And having presented no
evidence that it acquired the check in good faith, it (payee) cannot be considered as a
holder in due course. In other words, under the circumstances of the case, instead of the
presumption that payee was a holder in good faith, the fact is that it acquired possession
of the instrument under circumstances that should have put it to inquiry as to the title of
the holder who negotiated the check to it. The burden was, therefore, placed upon it to
A.B. Solis

show that notwithstanding the suspicious circumstances, it acquired the check in actual
good faith.

19. Yang v. Court of Appeals

[G.R. No. 138074. August 15, 2003]

The Negotiable Instruments Law is silent with respect to crossed checks, although the
Code of Commerce makes reference to such instruments. Nonetheless, this Court has
taken judicial 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 not
converted into cash. The effects of crossing a check, thus, relates to the mode of
payment, meaning that the drawer had intended the check for deposit only by the
rightful person, i.e., the payee named therein. In Bataan Cigar, the rediscounting of the
check by the payee knowingly violated the avowed intention of crossing the check. Thus,
in accepting the cross checks and paying cash for them, despite the warning of the
crossing, the subsequent holder could not be considered in good faith and thus, not a
holder in due course.

20. Mesina v. Intermediate Appellate Court

[G.R. No. 70145. November 13, 1986]

Admittedly, petitioner became the holder of the cashier's check as endorsed by

Alexander Lim who stole the check. He refused to say how and why it was passed to him.
He had therefore notice of the defect of his title over the check from the start.

The holder of a cashier's check who is not a holder in due course cannot
enforce such check against the issuing bank which dishonors the same. If a
payee of a cashier's check obtained it from the issuing bank by fraud, or if there is some
other reason why the payee is not entitled to collect the check, the respondent bank
would, of course, have the right to refuse payment of the check when presented by the
payee, since respondent bank was aware of the facts surrounding the loss of the check in
question.

Respondent bank could not be drawer and drawee for clearly, Jose Go owns the money
it represents and he is therefore the drawer and the drawee in the same manner as if he
has a current account and he issued a check against it; and from the moment said
cashier's check was lost and/or stolen no one outside of Jose Go can be termed a holder
in due course because Jose Go had not indorsed it in due course. The check in
question suffers from the infirmity of not having been properly negotiated
and for value by respondent Jose Go who as already been said is the real owner of
said instrument.

21. PNB vs. Picornell

46 Phil 716, Sept. 26, 1922
A.B. Solis

The drawee by acceptance becomes liable to the payee or his indorsee, and
also to the drawer himself. But the drawer and acceptor are the immediate parties
to the consideration, and if the acceptance be without consideration, the drawer cannot
recover of the acceptor. The payee holds a different relation; he is a stranger to the
transaction between the drawer and the acceptor, and is, therefore, in a
legal sense a remote party. In a suit by him against the acceptor, the question as to
the consideration between the drawer and the acceptor cannot be inquired into. The
payee or holder gives value to the drawer, and if he is ignorant of the equities
between the drawer and the acceptor, he is in the position on a bona fide
indorsee. Hence, it is no defense to a suit against the acceptor of a draft which has
been discounted, and upon which money has been advance by the plaintiff, that the
draft was accepted or the accommodation of the drawer.

22. Astro Electronics vs. Roxas et. Al.

[G.R. No. 136729. September 23, 2003]

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.
Also, 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. 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.

23. Garcia vs. Dionisio

[G.R. No. 154127.December 8, 2003]

By its terms, the note was made payable to a specific person rather than
bearer to or order—a requisite for negotiability. Hence, petitioner cannot avail
himself of the NIL’s provisions on the liabilities and defenses of an accommodation
party. Besides, a non-negotiable note is merely a simple contract in writing and evidence
of such intangible rights as may have been created by the assent of the parties. The
promissory note is thus covered by the general provisions of the Civil Code, not by the
NIL.

Even granting that the NIL was applicable, still petitioner would be liable for the note.
An accommodation party is liable for the instrument to a holder for value
even if, at the time of its taking, the latter knew the former to be only an
accommodation party. The relation between an accommodation party and the party
accommodated is, in effect, one of principal and surety. It is a settled rule that a
surety is bound equally and absolutely with the principal and is deemed an original
promissory debtor from the beginning. The liability is immediate and direct.
A.B. Solis

24. Crisologo vs CA
[G.R. No. 80599. September 15, 1989.]

The 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.
An officer or agent of a corporation shall have the power to execute or indorse a
negotiable paper in the name of the corporation for the accommodation of a third
person only if specifically authorized to do so. Corporate officers have no power to
execute for mere accommodation a negotiable instrument of the corporation for their
individual debts or transactions arising from matters in which the corporation has no
legitimate concern. Since such accommodation paper cannot thus be enforced against
the corporation, especially since it is not involved in any aspect of the corporate business
or operations, the inescapable conclusion in law and in logic is that the signatories
thereof shall be personally liable therefor.

25. Sadaya vs. Sevilla

19 SCRA 924 [G.R. No. L-17845. April 27, 1967]

On principle, a solidary accommodation maker—who made payment—has the right

to contribution, from his co-accomodation maker, in the absence of agreement to the
contrary between them, subject to conditions imposed by law. This right springs
from an implied promise to share equally the burdens they may ensue from their
having consented to stamp their signatures on the promissory note.
The following are the rules:
1. A joint and several accommodation maker of a negotiable
promissory note may demand from the principal debtor
reimbursement for the amount that he paid to the payee;
2. A joint and several accommodation maker who pays on the said
promissory note may directly demand reimbursement from his co-
accommodation maker without first directing his action against the
principal debtor provided that
a. He made the payment by virtue of a judicial demand
b. A principal debtor is insolvent.
A.B. Solis

It was never shown that there was a judicial demand on Sadaya to pay the obligation
and also, it was never proven that Varona was insolvent. Thus, Sadaya cannot proceed
against Sevilla for reimbursement.

26. Travel-On vs. CA,

210 SCRA 352

The best evidence that the courts should have looked at were the checks itself.
There is a prima facie presumption that a check was issued for valuable
consideration and the provision puts the burden upon the drawer to
disprove this presumption. Miranda was unable to relieve himself of this burden.
Only clear and convincing evidence and not mere self-serving evidence of drawer
can rebut this presumption. The company was entitled to the benefit
conferred by the statutory provision. Miranda failed to show that the checks
weren’t issued for any valuable consideration. The checks were clear by stating that
the company was the payee and not a mere accommodated party. And also,
notice was given to the fact that the checks were issued after a written demand
by the company regarding Miranda’s unpaid liabilities.

27. Agro-Conglomerates Inc. vs. CA,

348 SCRA 350 [GR No. 117660. December 18, 2000]

Petitioners are liable as accommodation party. In the instant case the original plan was
that the initial payments would be paid in cash. Subsequently, the parties (with the
participation of respondent bank) executed an addendum providing instead, that the
petitioners would secure a loan in the name of Agro Conglomerates Inc. for the total
amount of the initial payments, while the settlement of said loan would be assumed by
Wonderland. Thereafter, petitioner Soriano signed several promissory notes and
received the proceeds in behalf of petitioner-company.

By this time, we note a subsidiary contract of suretyship had taken effect since
petitioners signed the promissory notes as maker and accommodation
party for the benefit of Wonderland. Petitioners became liable as
accommodation party.

DEFINITIONS:
(1) Accommodation party : person who has signed the instrument as maker,
acceptor, or indorser, without receiving value therefor, and for the purpose of lending
his name to some other person and is liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew (the signatory)
to be an accommodation party.
A.B. Solis

He has the right, after paying the holder, to obtain reimbursement from the party
accommodated, since the relation between them has in effect become one of principal
and surety, the accommodation party being the surety.

28. Gonzales vs. RCBC,

[G.R. No. 156294. 29 November 2006]

Under Section 66, the warranties of general endorsers in favor of subsequent

endorsers extend only to the state of the instrument at the time of their
endorsements, specifically, that the instrument is genuine and in all respects
what it purports to be; that they have good title thereto; that all prior
parties had capacity to contract; and that the instrument, at the time of
their endorsements, is valid and subsisting. This provision, however, cannot be
used by the party which introduced a defect on the instrument, such as
respondent RCBC in this case, which qualifiedly endorsed the same, to hold prior
endorsers liable on the instrument because it results in the absurd situation whereby a
subsequent party may render an instrument useless and inutile and let innocent parties
bear the loss while he himself gets away scot-free.

29. Ang vs. Associated Bank

[G.R. No. 146511. 05 September 2007]

An accommodation party is one who meets all the three requisites, viz: (1) he must be a
party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not
receive value therefor; and (3) he must sign for the purpose of lending his name or
credit to some other person. An accommodation party lends his name to enable
the accommodated party to obtain credit or to raise money; he receives no
part of the consideration for the instrument but assumes liability to the
other party/ies thereto. The accommodation party is liable on the instrument to a
holder for value even though the holder, at the time of taking the instrument, knew him
or her to be merely an accommodation party, as if the contract was not for
accommodation.

In issuing the two promissory notes, petitioner as accommodating party warranted to

the holder in due course that he would pay the same according to its tenor. It is no
defense to state on his part that he did not receive any value therefor because the phrase
“without receiving value therefor” used in Sec. 29 of the NIL means “without receiving
value by virtue of the instrument” and not as it is apparently supposed to mean,
“without receiving payment for lending his name.” Stated differently, when a third
person advances the face value of the note to the accommodated party at the
time of its creation, the consideration for the note as regards its maker is
the money advanced to the accommodated party. It is enough that value was
given for the note at the time of its creation.

Furthermore, since the liability of an accommodation party remains not only primary
but also unconditional to a holder for value, even if the accommodated party
A.B. Solis

receives an extension of the period for payment without the consent of the
accommodation party, the latter is still liable for the whole obligation and
such extension does not release him because as far as a holder for value is
concerned, he is a solidary co-debtor.

30. Far East vs. Gold Palace Jewelry,

G.R. No. 168274, August 20, 2008

The Negotiable Instruments Law (NIL), explicitly provides that the acceptor, by
accepting the instrument, engages that he will pay it according to the tenor
of his acceptance. This provision applies with equal force in case the drawee
pays a bill without having previously accepted it.

Actual payment by the drawee is greater than his acceptance, which is merely a promise
in writing to pay. The payment of a check includes its acceptance. The tenor of the
acceptance is determined by the terms of the bill as it is when the drawee accepts.

The subsequent payment by the drawee bank and the collection of the amount by the
collecting bank closed the transaction insofar as the drawee and the holder of the check
or his agent are concerned, converted the check into a mere voucher, and foreclosed the
recovery by the drawee of the amount paid. This closure of the transaction is a matter of
course.

31. Salas vs. CA

[G.R. No. 76788. January 22, 1990]

Under the circumstances, there appears to be no question that Filinvest is a holder in

due course, having taken the instrument under the following conditions: [a] it is
complete and regular upon its face; [b] it became the holder thereof before it was
overdue, and without notice that it had previously been dishonored; [c] it took the same
in good faith and for value; and [d] when it was negotiated to Filinvest, the latter had no
notice of any infirmity in the instrument or defect in the title of VMS Corporation.

Accordingly, respondent corporation 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. This being so, petitioner cannot set up against respondent
the defense of nullity of the contract of sale between her and VMS.

32. Philippine National Bank vs. CA

256 SCRA 491 [G.R. No. 107508. April 25, 1996]

An alteration is said to be material if it alters the effect of the instrument. It

means an unauthorized change in the instrument that purports to modify in any
respect the obligation of a party or an unauthorized addition of words or numbers
or other change to an incomplete instrument relating to the obligation of the party.
A.B. Solis

In other words, a material alteration is one which changes the items which are
required to be stated under Section 1 of the NIL.

The alteration of the serial number of the check in issue is not an

essential element of a negotiable instrument under Section 1. The check’s
serial number is not the sole indicia of its origin. The name of the government agency
issuing the check is clearly stated therein. Thus, the check’s drawer is sufficiently
identified, rendering redundant the referral to its serial number.

33. International Corporate Bank vs. CA

[G.R. No. 129910. 05 September 2006]

The alteration of the serial number of the check not an essential requisite
for negotiability under Section 1 of the Negotiable Instruments Law. The
aforementioned alteration did not change the relations between the parties. The name of
the drawer and the drawee were not altered. The intended payee was the same. The sum
of money due to the payee remained the same. Petitioner, thus cannot refuse to accept
the check in question on the ground that the serial number was altered, the same being
an immaterial or innocent one.

34. Associated Bank vs. CA

[G.R. No. 107382/G.R. No. 107612. January 31, 1996]

General Rule: A forged signature, whether it be that of the drawer or the

payee, is wholly inoperative and no one can gain title to the instrument
through it.
A person whose signature to an instrument was forged was never a party and never
consented to the contract which allegedly gave rise to such instrument.

Parties who warrant or admit the genuineness of the signature in question and those
who, by their acts, silence or negligence are estopped from setting up the defense of
forgery, are precluded from using this defense. Indorsers, persons negotiating by
delivery and acceptors are warrantors of the genuineness of the signatures on
the instrument.

In bearer instruments, the signature of the payee or holder is unnecessary to pass

title to the instrument. Hence, when the indorsement is a forgery, only the
person whose signature is forged can raise the defense of forgery against a
holder in due course.

In order instruments, the signature of its rightful holder (here, the payee hospital) is
essential to transfer title to the same instrument. When the holder's indorsement is
forged all parties prior to the forgery may raise the real defense of forgery
against all parties subsequent thereto.

A collecting bank where a check is deposited and which indorses the check upon
presentment with the drawee bank is an indorser. So even if the indorsement on the
A.B. Solis

check deposited by the banks's client is forged, the collecting bank is bound by his
warranties as an indorser and cannot set up the defense of forgery as
against the drawee bank.

The bank on which a check is drawn, known as the drawee bank, is under strict
liability to pay the check to the order of the payee.

The drawer's instructions are reflected on the face and by the terms of the check.

Payment under a forged indorsement is not to the drawer's order. Then the drawee bank
may not debit the drawer's account and is not entitled to indemnification from the
drawer. The risk of loss must perforce fall on the drawee bank.

In cases involving a forged check, where the drawer's signature is forged, the
drawer can recover from the drawee bank.

In cases involving checks with forged indorsements, the drawee bank can seek
reimbursement or a return of the amount it paid from the presentor bank or person

However, a drawee bank has the duty to promptly inform the presentor of the
forgery upon discovery. If the drawee bank delays in informing the presentor of the
forgery, thereby depriving said presentor of the right to recover from the forger, the
former is deemed negligent and can no longer recover from the presentor.

35. Jai-Alai vs. BPI

66 SCRA 29

Where the indorsement made on the checks were forged prior to their
delivery to depositor, the payments made by the drawee-banks to the
collecting bank on account of the said checks were ineffective. Such being the
case, the relationship of creditor and debtor between the depositor and the depository
had not been validly effected, the checks not having properly and legitimately converted
into cash.
It is the obligation of the collecting bank to reimburse the drawee-bank the
value of the checks subsequently found to contain the forged indorsement
of the payee. The reason is that the bank with which the check was deposited has no
right to pay the sum stated therein to the forger "or to anyone else upon a forged
signature." "It was its duty to know," said the Court, "that (the payee’s) endorsement
was genuine before cashing the check." The depositor must in turn shoulder the loss of
the amounts which the respondent, as its collecting agent, had no reimburse to the
drawee-banks.
Where the depositor indorsed the checks with forged indorsement when it
deposited them with the collecting bank, the former as an endorser
A.B. Solis

guaranteed the genuineness of all prior indorsement thereon. The collecting

bank which relied upon this warranty cannot be held liable for the resulting loss.

36. Republic vs. Ebrada

[G.R. No. L-40796. July 31, 1975]

The drawee of a check can recover from the holder the money paid to him
on a forged instrument. It is not supposed to be its duty to ascertain whether the
signatures of the payee or indorsers are genuine or not. This is because the indorser is
supposed to warrant to the drawee that the signatures of the payee and
previous indorsers are genuine, warranty not extending only to holders in due
course.
The recovery is permitted because although the drawee was in a way negligent in failing
to detect the forgery, yet if the encasher of the check had performed his duty, the forgery
would in all probability, have been detected and the fraud defeated.

37. Philippine National Bank vs. Quimpo,

[G.R. No. L-53194. March 14, 1988]

The prime duty of a bank is to ascertain the genuineness of the signature of

the drawer or the depositor on the check being encashed. It is expected to use
reasonable business prudence in accepting and cashing a check presented to it.

Payment in neglect of duty places upon him the result of such negligence.
Still, Gozon’s act in leaving his checkbook in the car, where his trusted friend remained
in, cannot be considered negligence sufficient to excuse the bank from its own
negligence. The bank bears the loss.

38. Gempesaw vs. CA

[G.R. No. 92244. February 9, 1993]

A depositor is under a duty to set up an accounting system and a business

procedure as are reasonably calculated to prevent or render difficult the
forgery of indorsements, particularly by the depositor’s own employees. And if the
drawer (depositor) learns that a check drawn by him has been paid under a forged
indorsement, the drawer in under duty promptly to report such fact to the drawee bank.

As a rule, a drawee bank who has paid a check on which an indorsement has been forged
cannot charge the drawer’s account for the amount of said check. An exception to this
rule is where the drawer is guilty of such negligence which causes the bank
to honor such a check or checks.

For his negligence or failure either to discover or to report promptly the fact of such
forgery to the drawee, the drawer loses his right against the drawee who has debited his
A.B. Solis

account under the forged indorsement. In other words, he is precluded from using
forgery as a basis for his claim for recrediting of his account.

39. Philippine Commercial International Bank vs. Court of Appeals

350 SCRA 446 [G.R. No. 121413. January 29, 2001]

As to the unlawful negotiation of the check the applicable law is Section 55 of the
Negotiable Instruments Law (NIL), which provides:

"When title defective -- The title of a person who negotiates an instrument is

defective within the meaning of this Act when he obtained the instrument, or any
signature thereto, by fraud, duress, or fore and fear, or other unlawful means, or
for an illegal consideration, or when he negotiates it in breach of faith or under
such circumstances as amount to a fraud."

Pursuant to this provision, it is vital to show that the negotiation is made by the
perpetator in breach of faith amounting to fraud. The person negotiating the
checks must have gone beyond the authority given by his principal. If the principal
could prove that there was no negligence in the performance of his duties,
he may set up the personal defense to escape liability and recover from
other parties who though their own negligence, allowed the commission of the crime.

40. MWSS vs. CA

143 SCRA 20 [G.R. No. L-62943. July 14, 1986]

Forgery cannot be presumed. It should be proven by clear, convincing and

positive evidence. There must be conclusive findings that there is a variance in the
inherent characteristics of the signatures and that they were written by two or more
different persons.
The National Bureau of Investigation concluded in its Report dated November 2, 1970
that the fraudulent encashment of the twenty-three (23)checks in question was an
"inside job". Even if the twenty-three (23) checks in question are considered forgeries,
considering the petitioner's gross negligence, it is barred from setting up the defense of
forgery under Section 23 of the Negotiable Instruments Law.

41. Ramon Illusorio vs. CA

393 SCRA 89 [G.R. No. 139130 November 27, 2002]

The burden to prove forgery is upon the plaintiff. To be entitled to damages, one
has to prove the negligence on the part of the bank for failure to detect the discrepancy
in the signatures on the checks. It is incumbent upon plaintiff to establish the fact of
forgery.
A.B. Solis

It was petitioner who was negligent in this case. He failed to examine his bank
statements and this was the proximate cause of his own damage. Because of this
negligence, he is precluded from setting up the defense of forgery with regard the
checks. In view of Article 2179 of the New Civil Code,22 when the plaintiff’s own
negligence was the immediate and proximate cause of his injury, no recovery could be
had for damages.

42. Samsung Construction vs. Far East Bank

[G.R. No. 129015. 15 August 2004]

The general rule remains that the drawee who has paid upon the forged
signature bears the loss. The exception to this rule arises only when
negligence can be traced on the part of the drawer whose signature was
forged, and the need arises to weigh the comparative negligence between the drawer
and the drawee to determine who should bear the burden of loss.

The drawer whose signature was forged may still recover from the bank as
long as he or she is not precluded from setting up the defense of forgery.
After all, Section 23 of the Negotiable Instruments Law plainly states that no right to
enforce the payment of a check can arise out of a forged signature. Since the
drawer, Samsung Construction, is not precluded by negligence from setting up the
forgery, the general rule should apply.

Consequently, if a bank pays a forged check, it must be considered as paying out of its
funds and cannot charge the amount so paid to the account of the depositor. A bank is
liable, irrespective of its good faith, in paying a forged check.

43. Metropolitan Bank and Trust Company vs. Cabilzo

[G.R. No. 154469. 06 December 2006]

The check entries altered were among those enumerated under Section 1 and
125, namely, the sum of money payable and the date of the check, the instant
controversy therefore squarely falls within the purview of material alteration.

The bank on which the check is drawn, known as the drawee bank, is under strict
liability to pay to the order of the payee in accordance with the drawer’s instructions as
reflected on the face and by the terms of the check. Payment made under
materially altered instrument is not payment done in accordance with the
instruction of the drawer.

When the drawee bank pays a materially altered check, it violates the terms
of the check, as well as its duty to charge its client’s account only for bona
fide disbursements he had made. Since the drawee bank, in the instant case, did
not pay according to the original tenor of the instrument, as directed by the drawer, then
it has no right to claim reimbursement from the drawer, much less, the
A.B. Solis

right to deduct the erroneous payment it made from the drawer’s account
which it was expected to treat with utmost fidelity.

44. Bank of America vs. Philippine Racing Club

[G.R. No. 150228. July 20, 2009]

When the negligence of both the drawee and drawer resulted to the encashment of a
stolen check, both parties must bear the loss proportionately.

Petitioner cannot evade responsibility for the loss by attributing negligence on the part
of respondent because, even if we concur that the latter was indeed negligent in
pre-signing blank checks, the former had the last clear chance to avoid the
loss. To reiterate, petitioner's own operations manager admitted that they could have
called up the client for verification or confirmation before honoring the dubious checks.
Verily, petitioner had the final opportunity to avert the injury that befell the respondent.

As the employer of the "thief," respondent supposedly had control and supervision over
its own employee. This gives the Court more reason to allocate part of the loss to
respondent.

45. Far East Realty Investment, Inc. vs. CA

166 SCRA 256 [G.R. No. L-36549, October 5, 1988]

Where the instrument is not payable on demand, presentment must be made

on the day it falls due. Where it is payable on demand, presentment must be
made within a reasonable time after issue, except that in the case of a bill of
exchange, presentment for payment will be sufficient if made within a reasonable time
after the last negotiation thereof. (Section 71, Negotiable Instruments Law).

Notice may be given as soon as the instrument is dishonored; and unless delay is
excused must be given within the time fixed by the law (Section 102, Negotiable
Instruments Law).

"Reasonable time" has been defined as so much time as is necessary under the
circumstances for a reasonable prudent and diligent man to do,
conveniently, what the contract or duty requires should be done, having a
regard for the rights, and possibility of loss, if any, to the other party
(Citizens' Bank Bldg. v. L & E. Wertheirmer 189 S.W. 361, 362, 126 Ark, 38, Ann. Cas.
1917 E, 520).

46. Wong vs. CA

[G.R. No. 117857. February 2, 2001]

Under Section 186 of the Negotiable Instruments Law, " a check must be presented
for payment within a reasonable time after its issue or the drawer will be
A.B. Solis

discharged from liability thereon to the extent of the loss caused by the
delay." By current banking practice, a check becomes stale after more than six
(6) months, or 180 days. Private respondent herein deposited the checks 157 days
after the date of the check. Hence said checks cannot be considered stale.

47. International Corporate Bank vs. Sps. Gueco

[G.R. No.141968. February 12, 2001]

A manager's check is one drawn by the bank's manager upon the bank itself.
It is similar to a cashier's check both as to effect and use. A cashier's check is a check
of the bank's cashier on his own or another check. In effect, it is a bill of
exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance
by the act of its issuance. It is really the bank's own check and may be treated as
a promissory note with the bank as a maker. The check becomes the primary
obligation of the bank which issues it and constitutes its written promise to
pay upon demand. The mere issuance of it is considered an acceptance
thereof. If treated as promissory note, the drawer would be the maker and in
which case the holder need not prove presentment for payment or present the bill to the
drawee for acceptance.

Even assuming that presentment is needed, failure to present for payment within
a reasonable time will result to the discharge of the drawer only to the
extent of the loss caused by the delay. Failure to present on time, thus, does not
totally wipe out all liability. In fact, the legal situation amounts to an
acknowledgment of liability in the sum stated in the check. In this case, the Gueco
spouses have not alleged, much less shown that they or the bank which issued the
manager's check has suffered damage or loss caused by the delay or non-presentment.
Definitely, the original obligation to pay certainly has not been erased.

48. Far East Realty vs. CA

[G.R. No. L-36549. October 5, 1988]

Where the instrument is not payable on demand, presentment must be made

on the day it falls due. Where it is payable on demand, presentment must be
made within a reasonable time after issue, except that in the case of a bill of
exchange, presentment for payment will be sufficient if made within a reasonable time
after the last negotiation thereof. (Section 71, Negotiable Instruments Law).

Notice may be given as soon as the instrument is dishonored; and unless delay is
excused must be given within the time fixed by the law (Section 102, Negotiable
Instruments Law).

"Reasonable time" has been defined as so much time as is necessary under the
circumstances for a reasonable prudent and diligent man to do,
conveniently, what the contract or duty requires should be done, having a
A.B. Solis

regard for the rights, and possibility of loss, if any, to the other party
(Citizens' Bank Bldg. v. L & E. Wertheirmer 189 S.W. 361, 362, 126 Ark, 38, Ann. Cas.
1917 E, 520).

49. State Investment House vs. CA

217 SCRA 32 [G.R. No. 101163. January 11, 1993]

A prima facie presumption exists that the holder of a negotiable instrument

is a holder in due course. Consequently, the burden of proving that STATE is not a
holder in due course lies in the person who disputes the presumption.

That the post-dated checks were merely issued as security is not a ground for the
discharge of the instrument as against a holder in due course. For the only grounds are
those outlined in Sec. 119 of the Negotiable Instruments Law:

Sec. 119. Instrument; how discharged. — A negotiable instrument is

discharged: (a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the instrument
is made or accepted for his accommodation; (c) By the intentional cancellation
thereof by the holder; (d) By any other act which will discharge a simple contract
for the payment of money; (e) When the principal debtor becomes the holder of
the instrument at or after maturity in his own right.

The intentional cancellation contemplated under paragraph (c) is that

cancellation effected by destroying the instrument either by tearing it up,
burning it, or writing the word "cancelled" on the instrument. The act of
destroying the instrument must also be made by the holder of the
instrument intentionally. Since MOULIC failed to get back possession of the post-
dated checks, the intentional cancellation of the said checks is altogether impossible.

50. Asia Banking Corporation vs. Javier

44 Phil 777 [GR 19051. April 1923]
Section 89 of the Negotiable Instruments Law (Act No. 2031) provides that, when a
negotiable instrument is dishonored for non-acceptance or non-payment,
notice thereof must be given to the drawer and each of the indorsers, and
those who are not notified shall be discharged from liability, except where this
act provides otherwise.

Then, under the general principle of the law of procedure, it will be incumbent upon
the plaintiff, who seeks to enforce the defendant's liability upon these checks as
indorser, to establish said liability by proving that notice was given to the
defendant within the time, and in the manner, required by the law that the
checks in question had been dishonored.

51. Nyco Sales Corporation vs. BA Finance Corporation

A.B. Solis

200 SCRA 637 [G.R. No. 71694. August 16, 1991]

Nyco's pretension that it had not been notified of the fact of dishonor is belied not only
by the formal demand letter but also by the fact that Nyco and Sanshell had frequent
contacts before, during and after the dishonor (Rollo, p. 40). More importantly, for as
long as the credit remains outstanding, it shall continue to be liable to BA Finance as its
assignor. The dishonor of an assigned check simply stresses its liability and
the failure to give a notice of dishonor will not discharge it from such
liability. This is because the cause of action stems from the breach of the
warranties embodied in the Deed of Assignment, and not from the
dishonoring of the check alone (See Art. 1628, Civil Code).

52. Arceo, Jr. vs. People of the Philippines

[G.R. No. 142641. 17 July 2006]

The trial court found that, contrary to petitioner’s claim, Cenizal’s counsel had informed
petitioner in writing of the check’s dishonor and demanded payment of the value of the
check. Despite receipt of the notice of dishonor and demand for payment, petitioner still
failed to pay the amount of the check.

Petitioner cannot claim that he was deprived of the period of five banking days from
receipt of notice of dishonor within which to pay the amount of the check. While
petitioner may have been given only three days to pay the value of the check, the trial
court found that the amount due thereon remained unpaid even after five banking days
from his receipt of the notice of dishonor. This negated his claim that he had already
paid Cenizal and should therefore be relieved of any liability.

53. Allied Banking vs. CA, GG Sportswear

[G.R. No. 125851. 11 July 2006]

There are well-defined distinctions between the contract of an indorser and that
of a guarantor/surety of a commercial paper, which is what is involved in this
case.

 The contract of indorsement is primarily that of transfer, while the contract of

guaranty is that of personal security.
 The liability of a guarantor/surety is broader than that of an indorser.
 Unless the bill is promptly presented for payment at maturity and due notice of
dishonor given to the indorser within a reasonable time, he will be discharged
from liability thereon. On the other hand, except where required by the
provisions of the contract of suretyship, a demand or notice of default is not
required to fix the surety's liability.
 He cannot complain that the creditor has not notified him in the absence of a
special agreement to that effect in the contract of suretyship.
A.B. Solis

Therefore, no protest on the export bill is necessary to charge all the respondents jointly
and severally liable with G.G. Sportswear since the respondents held themselves liable
upon demand in case the instrument was dishonored and on the surety, they even
waived notice of dishonor as stipulated in their Letters of Guarantee.

54. New Pacific Timber vs. Hon. Seneris

[G.R. No. L-41764. December 19, 1980]

It is a well-known and accepted practice in the business sector that a Cashier’s Check
is deemed as cash. Moreover, since the said check had been certified by the
drawee bank, by the certification, the funds represented by the check are
transferred from the credit of the maker to that of the payee or holder, and
for all intents and purposes, the latter becomes the depositor of the drawee
bank, with rights and duties of one in such situation.

Where a check is certified by the bank on which it is drawn, the certification is

equivalent to acceptance. Said certification "implies that the check is drawn upon
sufficient funds in the hands of the drawee, that they have been set apart for its
satisfaction, and that they shall be so applied whenever the check is presented for
payment. It is an understanding that the check is good then, and shall continue to be
good, and this agreement is as binding on the bank as its notes in circulation, a
certificate of deposit payable to the order of the depositor, or any other obligation it can
assume.

55. PNB vs. National City Bank of New York

63 Phil 711 [G.R. No. L-43596. October 31, 1936]

A check is a bill of exchange payable on demand and only the rules

governing bills of exchanges payable on demand are applicable to it.
In view of the fact that acceptance is a step necessary insofar as negotiable instruments
are concerned, it follows that the provisions relative to acceptance are
without application to checks.

Acceptance implies subsequent negotiation of the instrument, which is not true in the
case of checks because from the moment it is paid, it is withdrawn from
circulation. When the drawee banks cashes or pays a check, the cycle of negotiation is
terminated and it is illogical thereafter to speak of subsequent holders who can
invoke the warrant against the drawee.

The responsibility of the drawee who pays a forged check, for the genuineness of
the drawer’s signature is absolute only in favor of one who has not, by his own fault or
negligence, contributed to the success of the fraud or to mislead the drawee.

56. Bataan Cigar vs. CA

230 SCRA 648 [G.R. No. 93048. March 3, 1994]
A.B. Solis

It is then settled that crossing of checks should put the holder on inquiry and
upon him devolves the duty to ascertain the indorser's title to the check or
the nature of his possession. Failing in this respect, the holder is declared
guilty of gross negligence amounting to legal absence of good faith, contrary
to Sec. 52(c) of the Negotiable Instruments Law, and as such the consensus of authority
is to the effect that the holder of the check is not a holder in due course.

The foregoing does not mean, however, that respondent could not recover from the
checks. The only disadvantage of a holder who is not a holder in due course
is that the instrument is subject to defenses as if it were non-negotiable.
Hence, respondent can collect from the immediate indorser, in this case,
George King.

57. Stelco Marketing Corporation vs. CA

[G.R. No. 96160. June 17, 1992]

It is clear from the relevant circumstances that STELCO cannot be deemed a holder
of the check for value. It does not meet two of the essential requisites
prescribed by the statute. It did not become "the holder of it before it was
overdue, and without notice that it had been previously dishonored," and it
did not take the check "in good faith and for value."

58. State Investment House vs. CA

175 SCRA 311 [G.R. No. 72764. July 13, 1989]

[I]t does not follow as a legal proposition that simply because petitioner was not a
holder in due course as found by the appellate court for having taken the
instruments in question with notice that the same is for deposit only to the account of
payee named in the subject checks, petitioner could not recover on the checks.
The Negotiable Instruments Law does not provide that a holder who is not a holder in
due course may not in any case recover on the instrument for in the case at bar,
petitioner 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.

The effects of crossing a check are: the check may not be encashed but only
deposited in the bank; the check may be negotiated only once — to one who has an
account with a bank; and 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.
A.B. Solis

Under usual practice, crossing a check is done by placing two parallel lines
diagonally on the left top portion of the check. The crossing may be special wherein
between the two parallel lines is written the name of a bank or a business institution, in
which case the drawee should pay only with the intervention of that bank or company,
or crossing may be general wherein between two parallel diagonal lines are written the
words "and Co." or none at all as in the case at bar, in which case the drawee should not
encash the same but merely accept the same for deposit.

59. Papa vs. A.U. Valencia

284 SCRA 643 [G.R. No. 105188. January 23, 1998]

While it is true that the delivery of a check produces the effect of payment only
when it is cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if
the debtor is prejudiced by the creditor's unreasonable delay in
presentment.

The acceptance of a check implies an undertaking of due diligence in presenting it for

payment, and if he from whom it is received sustains loss by want of such diligence, it
will be held to operate as actual payment of the debt or obligation for which it was given.
It has, likewise, been held that if no presentment is made at all, the drawer
cannot be held liable irrespective of loss or injury unless presentment is
otherwise excused.

This is in harmony with Article 1249 of the Civil Code under which payment by way
of check or other negotiable instrument is conditioned on its being cashed,
except when through the fault of the creditor, the instrument is impaired.
The payee of a check would be a creditor under this provision and if its no-payment is
caused by his negligence, payment will be deemed effected and the obligation for which
the check was given as conditional payment will be discharged.

60.Villanueva vs. Nite,

[G.R. No. 148211, 25 July 2006]

SEC. 189. When check operates as an assignment. – A check of itself does not
operate as an assignment of any part of the funds to the credit of the drawer with the
bank, and the bank is not liable to the holder, unless and until it accepts or
certifies the check.

If a bank refuses to pay a check (notwithstanding the sufficiency of funds),

the payee-holder cannot, in view of the cited sections, sue the bank. The payee
should instead sue the drawer who might in turn sue the bank. Section 189 is
sound law based on logic and established legal principles: no privity of contract
exists between the drawee-bank and the payee. Indeed, in this case, there was no
such privity of contract between ABC and petitioner.
A.B. Solis

61. Equitable PCI vs. Ong,

15 September 2006

Where a check is certified by the bank on which it is drawn, the certification

is equivalent to acceptance. Said certification “implies that the check is drawn upon
sufficient funds in the hands of the drawee, that they have been set apart for its
satisfaction, and that they shall be so applied whenever the check is presented for
payment. It is an understanding that the check is good then, and shall continue good,
and this agreement is as binding on the bank as its notes circulation, a certificate of
deposit payable to the order of depositor, or any other obligation it can assume.

The object of certifying a check, as regards both parties, is to enable the holder to use it
as money.” When the holder procures the check to be certified, “the check operates as an
assignment of a part of the funds to the creditors.”

By accepting check issued by Sarande to Ong and issuing in turn a manager's check in
exchange thereof, PCI Bank assumed the liabilities of an acceptor under Section
62 of the Negotiable Instruments Law which states:

Sec. 62. Liability of acceptor. – The acceptor by accepting the instruments

engages that he will pay it according to the tenor of his acceptance; and
admits –

(a) The existence of the drawer, the genuineness of his signature, and his capacity
and authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.

The issues on Ong being not a holder in due course and failure or want of consideration
for PCI Bank's issuance of the manager's check is out of sync.

62.Security Bank & Trust Company vs. RCBC

[G.R. Nos. 170984 & 170987, January 30, 2009]

A manager's check is one drawn by a bank's manager upon the bank itself. It stands on
the same footing as a certified check, which is deemed to have been accepted by the
bank that certified it. As the bank's own check, a manager's check becomes the
primary obligation of the bank and is accepted in advance by the act of its
issuance.

By drawing the instrument, it admits the existence of the payee and his then
capacity to indorse; and engages that on due presentment, the instrument
will be accepted, or paid, or both, according to its tenor.