Negotiable Instruments Law

Dean Lope Feble

Aculeus Iustitia Notes
WEEK 1
I. Governing Law Act No. 2031 (enacted on Feb. 3, 1911 to take effect 90 days
after its publication in the Official Gazette.
II. Nature, Purpose and Function of Negotiable Instruments
Sec. 60, RA 7653
B. DEMAND DEPOSITS
Section 60. Legal Character. - Checks representing demand deposits do not have legal
tender power and their acceptance in the payment of debts, both public and private, is at
the option of the creditor: Provided, however, That a check which has been cleared and
credited to the account of the creditor shall be equivalent to a delivery to the creditor of
cash in an amount equal to the amount credited to his account
Traders Royal Bank vs. CA, 269 SCRA 15 (1997)
269 SCRA 15 Business Organization Corporation Law Piercing the Veil of Corporate
Fiction
Filriters Guaranty Assurance Corporation (FGAC) is the owner of several Central Bank
Certificates of Indebtedness (CBCI). These certificates are actually proof that FGAC has the
required reserve investment with the Central Bank to operate as an insurer and to protect
third persons from whatever liabilities FGAC may incur. In 1979, FGAC agreed to assign said
CBCI to Philippine Underwriters Finance Corporation (PUFC). Later, PUFC sold said CBCI to
Traders Royal Bank (TRB). Said sale with TRB comes with a right to repurchase on a date
certain. However, when the day to repurchase arrived, PUFC failed to repurchase said CBCI
hence TRB requested the Central Bank to have said CBCI be registered in TRBs name.
Central Bank refused as it alleged that the CBCI are not negotiable; that as such, the
transfer from FGAC to PUFC is not valid; that since it was invalid, PUFC acquired no valid title
over the CBCI; that the subsequent transfer from PUFC to TRB is likewise invalid.
TRB then filed a petition for mandamus to compel the Central Bank to register said CBCI in
TRBs name. TRB averred that PUFC is the alter ego of FGAC; that PUFC owns 90% of FGAC;
that the two corporations have identical sets of directors; that payment of said CBCI to PUFC
is like a payment to FGAC hence the sale between PUFC and TRB is valid. In short, TRB avers
that that the veil of corporate fiction, between PUFC and FGAC, should be pierced because
the two corporations allegedly used their separate identity to defraud TRD into buying said
CBCI.
ISSUE: Whether or not Traders Royal Bank is correct.
HELD: No. Traders Royal Bank failed to show that the corporate fiction is used by the two
corporations to defeat public convenience, justify wrong, protect fraud or defend crime or
where a corporation is a mere alter ego or business conduit of a person. TRB merely showed
that PUFC owns 90% of FGAC and that their directors are the same. The identity of PUFC
cant be maintained as that of FGAC because of this mere fact; there is nothing else which
could lead the court under the circumstance to disregard their corporate personalities.
Further, TRB cant argue that it was defrauded into buying those certificates. In the first
place, TRB as a banking institution is not ignorant about these types of transactions. It
should know for a fact that a certificate of indebtedness is not negotiable because the payee
therein is inscribed specifically and that the Central Bank is obliged to pay the named payee
only and no one else.

Negotiable Instruments Law

Dean Lope Feble
Aculeus Iustitia Notes
Eduque vs. Ocampo 86 Phil. 216
Facts: On 16 February 1935, Dr. Jose Eduque secured two loans from Mariano Ocampo de
Leon, Dona Escolastica delos Reyes and Don Jose M. Ocampo, with amount s of P40,000 and
P15,000, both payable within 20 years with interest of 5% per annum. Payment of the loans
was guaranteed by mortgage on real property. On 6 December 1943, Salvacion F. Vda de
Eduque, as administratrix of the estate of Dr. Jose Eduque, tendered payment by means of a
cashiers check representing Japanese War notes to Jose M. Ocampo, who refused payment.
By reason of such refusal, an action was brought and the cashiers check was deposited in
court. After trial, judgment was rendered against Ocampo compelling him to accept the
amount, to pay the expenses of consignation, etc. Ocampo accepted the judgment as to the
second loan but appealed as to the first loan.
Issue: Whether there is a tender of payment by means of a cashiers check representing
war notes.
Held: Japanese military notes were legal tender during the Japanese occupation; and
Ocampo impliedly accepted the consignation of the cashiers check when he asked the court
that he be paid the amount of the second loan (P15,000). It is a rule that a cashiers check
may constitute a sufficient tender where no objection is made on this ground.
III. Kinds of Negotiable Instruments
Secs. 184, 126 and 185, in relation to Sec. 1, NIL
PROMISSORY NOTES AND CHECKS
Sec. 184. Promissory note, defined. - A negotiable promissory note within the meaning of
this Act is an unconditional promise in writing made by one person to another, signed by the
maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain
in money to order or to bearer. Where a note is drawn to the maker's own order, it is not
complete until indorsed by him.
Sec. 185. Check, defined. - A check is a bill of exchange drawn on a bank payable on
demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of
exchange payable on demand apply to a check.
Sec. 126. Bill of exchange, defined. - A bill of exchange is an unconditional order in writing
addressed by one person to another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed or determinable future time a sum
certain in money to order or to bearer.
In re:
I. FORM AND INTERPRETATION
Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to
the following requirements:chanroblesvirtuallawlibrary
(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.
Moran vs. CA, 230 SCRA, 799

Negotiable Instruments Law

Dean Lope Feble
Aculeus Iustitia Notes
Facts: Petitioner spouses Moran maintained three joint accounts with respondent Citytrust
Banking Corporation. As a special privilege to the Morans, a pre-authorized transfer (PAT)
agreement was entered into by the parties. The PAT letter-agreement contained the
following provisions: (1) xxx the checks would be honored if the savings account has
sufficient balance to cover the overdraft; xxx (3) that the bank has the right to refuse to
effect transfer of funds at their sole and absolute option and discretion; (4) Citytrust is free
and harmless for any and all omissions or oversight in executing this automatic transfer of
funds. On December 12, 1983, petitioners, through Librada Moran, drew a check payable to
Petrophil Corporation. The next day, petitioners issued another check in favor of the same
corporation. Later, the bank dishonored the checks due to insufficiency of funds. As a
result, Petrophil refused to deliver the orders of petitioners on a credit. The non-delivery of
gasoline forced petitioners to temporarily stop business operations. Petitioners wrote
Citytrust claiming the dishonor of the checks caused them besmirched business and
personal reputation, shame and anxiety. Hence, they were contemplating filing legal actions,
unless the bank clears their name and paid for moral damages. The trial court dismissed the
complaint. The CA affirmed.
Issue: Whether or not petitioners had sufficient funds in their accounts when the bank
dishonored the checks in question.
Held: No. Under the clearing house rules, a bank processes a check on the date it was
presented for clearing. The available balance of December 14, 1983 was used by the bank in
determining whether or not there was sufficient cash deposited to fund the two checks,
although what was stamped on the dorsal side of the two checks was DAIF/12-15-83, since
December 15, 1983 was the actual date when the checks were processed. When petitioners
checks were dishonored, the available balance of the savings account, which was subject of
the PAT agreement, was not enough to cover either of the two checks.
Citytrust Banking Corp. vs. CA, 196 SCRA 553
Facts: Emme Herrero, businesswoman, made regular deposits with Citytrust Banking Corp.
at its Burgoa branch in Calamba, Laguna. She deposited the amount of P31, 500 in order to
amply cover 6 postdated checks she issued. All checks were dishonored due to insufficiency
of funds upon the presentment for encashment. Citytrust banking Corp. asserted that it was
due to Herreros fault that her checks were dishonored, for he inaccurately wrote his account
number in the deposit slip. RTC dismissed the complaint for lack of merit. CA reversed the
decision of RTC.
Issue: Whether or not Citytrust banking Corp. has the duty to honor checks issued by
Emme Herrero despite the failure to accurately stating the account number resulting to
insufficiency of funds for the check.
Held: Yes, even it is true that there was error on the account number stated in the deposit
slip, its is, however, indicated the name of Emme Herrero. This is controlling in
determining in whose account the deposit is made or should be posted. This is so because it
is not likely to commit an error in ones name than merely relying on numbers which are
difficult to remember. Numbers are for the convenience of the bank but was never intended
to disregard the real name of its depositors. The bank is engaged in business impressed with
public trust, and it is its duty to protect in return its clients and depositors who transact
business with it. It should not be a matter of the bank alone receiving deposits, lending out
money and collecting interests. It is also its obligation to see to it that all funds invested with
it are properly accounted for and duly posted in its ledgers.
Phil. Educ. Co., Inc. vs. Soriano, 39 SCRA 587

Negotiable Instruments Law

Dean Lope Feble
Aculeus Iustitia Notes
Facts:Enrique Montinola sought to purchase from Manila Post Office ten money orders of
200php each payable to E. P. Montinola. Montinola offered to pay with the money orders with
a private check. Private check were not generally accepted in payment of money orders, the
teller advised him to see the Chief of the Money Order Division, but instead of doing so,
Montinola managed to leave the building without the knowledge of the teller. Upon the
disappearance of the unpaid money order, a message was sent to instruct all banks that it
must not pay for the money order stolen upon presentment. The Bank of America received a
copy of said notice. However, The Bank of America received the money order and deposited
it to the appellants account upon clearance. Mauricio Soriano, Chief of the Money Order
Division notified the Bank of America that the money order deposited had been found to
have been irregularly issued and that, the amount it represented had been deducted from
the banks clearing account. The Bank of America debited appellants account with the same
account and give notice by mean of debit memo.
Issue: Whether or not the postal money order in question is a negotiable instrument
Held:No. It is not disputed that the Philippine postal statutes were patterned after similar
statutes in force in United States. The Weight of authority in the United States is that postal
money orders are not negotiable instruments, the reason being that in establishing and
operating a postal money order system, the government is not engaged in commercial
transactions but merely exercises a governmental power for the public benefit. Moreover,
some of the restrictions imposed upon money orders by postal laws and regulations are
inconsistent with the character of negotiable instruments. For instance, such laws and
regulations usually provide for not more than one endorsement; payment of money orders
may be withheld under a variety of circumstances.
Metrobank vs. CA, 194 SCRA, 169
FACTS: Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury
warrants. All warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden
Savings and deposited to its Savings account in Metrobank branch in Calapan, Mindoro. They
were sent for clearance. Meanwhile, Gomez is not allowed to withdraw from his account,
later, however, exasperated over Floria repeated inquiries and also as an accommodation
for a valued client Metrobank decided to allow Golden Savings to withdraw from proceeds
of the warrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals
from his own account. Metrobank informed Golden Savings that 32 of the warrants had been
dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the
amount it had previously withdrawn, to make up the deficit in its account. The demand was
rejected. Metrobank then sued Golden Savings.
ISSUE: Whether or not treasury warrants are negotiable instruments?
HELD: The Court held in the negative. The treasury warrants are not negotiable instruments.
Clearly stamped on their face is the word: non negotiable. Moreover, and this is equal
significance, it is indicated that they are payable from a particular fund, to wit, Fund 501. An
instrument to be negotiable instrument must contain an unconditional promise or orders to
pay a sum certain in money. As provided by Sec 3 of NIL an unqualified order or promise to
pay is unconditional though coupled with: 1st, 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 2nd,
a statement of the transaction which give rise to the instrument. But an order to promise to
pay out of particular fund is not unconditional. 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
conditional and the warrants themselves non-negotiable. There should be no question that
the exception on Section 3 of NIL is applicable in the case at bar.

Negotiable Instruments Law

Dean Lope Feble
Aculeus Iustitia Notes
IV. Requisites of Negotiability of Negotiable Instruments
Sec. 1 - 4, 8 - 10, NIL; Art. 1179, Civil Code
Section 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.
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.
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.chan robles
virtual law library
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.
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

Negotiable Instruments Law

Dean Lope Feble
Aculeus Iustitia Notes
therein with reasonable certainty.
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.
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.
Inciong vs. CA, 257 SCRA 578
57 SCRA 578 Mercantile Law Negotiable Instruments in General Signature of Makers
Guaranty
FACTS: In February 1983, Rene Naybe took out a loan from Philippine Bank of
Communications (PBC) in the amount of P50k. For that he executed a promissory note in the
same amount. Naybe was able to convince Baldomero Inciong, Jr. and Gregorio Pantanosas
to co-sign with him as co-makers. The promissory note went due and it was left unpaid. PBC
demanded payment from the three but still no payment was made. PBC then sue the three
but PBC later released Pantanosas from its obligations. Naybe left for Saudi Arabia hence
cant be issued summons and the complaint against him was subsequently dropped. Inciong
was left to face the suit. He argued that that since the complaint against Naybe was
dropped, and that Pantanosas was released from his obligations, he too should have been
released.
ISSUE: Whether or not Inciong should be held liable.
HELD: Yes. Inciong is considering himself as a guarantor in the promissory note. And he was
basing his argument based on Article 2080 of the Civil Code which provides that guarantors
are released from their obligations if the creditors shall release their debtors. It is to be
noted however that Inciong did not sign the promissory note as a guarantor. He signed it as
a solidary co-maker.
A guarantor who binds himself in solidum with the principal debtor does not become a
solidary co-debtor to all intents and purposes. There is a difference between a solidary codebtor and a fiador in solidum (surety). The latter, outside of the liability he assumes to pay
the debt before the property of the principal debtor has been exhausted, retains all the other
rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary codebtor has no other rights than those bestowed upon him.
Because the promissory note involved in this case expressly states that the three signatories
therein are jointly and severally liable, any one, some or all of them may be proceeded
against for the entire obligation. The choice is left to the solidary creditor (PBC) to
determine against whom he will enforce collection. Consequently, the dismissal of the case
against Pontanosas may not be deemed as having discharged Inciong from liability as well.
As regards Naybe, suffice it to say that the court never acquired jurisdiction over him.
Inciong, therefore, may only have recourse against his co-makers, as provided by law.
Rep. Planters Bank vs. CA, 216 SCRA 738

Negotiable Instruments Law

Dean Lope Feble
Aculeus Iustitia Notes
216 SCRA 738 Mercantile Law Negotiable Instruments in General Signature of Makers
FACTS: In 1979, World Garment Manufacturing, through its board authorized Shozo
Yamaguchi (president) and Fermin Canlas (treasurer) to obtain credit facilities from Republic
Planters Bank (RPB). For this, 9 promissory notes were executed.
The note became due and no payment was made. RPB eventually sued Yamaguchi and
Canlas. Canlas, in his defense, averred that he should not be held personally liable for such
authorized corporate acts that he performed inasmuch as he signed the promissory notes in
his capacity as officer of the defunct Worldwide Garment Manufacturing.
ISSUE: Whether or not Canlas should be held liable for the promissory notes.
HELD: Yes. The solidary liability of private respondent Fermin Canlas is made clearer and
certain, without reason for ambiguity, by the presence of the phrase joint and several as
describing the unconditional promise to pay to the order of Republic Planters Bank. 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.
Canlas is solidarily liable on each of the promissory notes bearing his signature for the
following reasons:
The promissory notes are negotiable instruments and must be governed by the Negotiable
Instruments Law.
Under the Negotiable lnstruments 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.
Jimenez vs. Bucoy, 103 Phil. 40
Facts: In the proceedings in the intestate of Luther Young and Pacita Young who died in
1954 and 1952, respectively, Pacifica Jimenez presented for payment 4 promissory notes
signed by Pacita for different amounts totalling P21,000. Acknowledging receipt by Pacita
during the Japanese occupation, in the currency then prevailing, the Administrator
manifested willingness to pay provided adjustment of the sums be made in line with the
Ballantyne schedule. The claimant objected to the adjustment insisting on full payment in
accordance with the notes. The court held that the notes should be paid in the currency
prevailing after the war, and thus entitling Jimemez to recover P21,000 plus P2,000 as
attorneys fees. Hence, the appeal.
Issue: Whether the amounts should be paid, peso for peso; or whether a reduction should
be made in accordance with the Ballantyne schedule.
Held: If the loan was expressly agreed to be payable only after the war, or after liberation,
or became payable after those dates, no reduction could be effected, and peso-for-peso
payment shall be ordered in Philippine currency. The Ballantyne Conversion Table does not
apply where the monetary obligation, under the contract, was not payable during the
Japanese occupation. Herein, the debtor undertook to pay six months after the war, peso
for peso payment is indicated.
Ponce vs. CA, 90 SCRA 533; Kalalo vs. Luz, 34 SCRA 337
90 SCRA 533 Mercantile Law Negotiable Instruments Law Negotiable Instruments in
General Sum Certain in Money RA 529

Negotiable Instruments Law

Dean Lope Feble
Aculeus Iustitia Notes
FACTS: In 1969, Jesusa Afable and two others procured a loan from Nelia Ponce in the
amount of $194,016.29. In June 1969, Afable and her co-debtors executed a promissory note
in favor of Ponce in the peso equivalent of the loan amount which was P814,868.42. The
promissory note went due and was left unpaid despite demands from Ponce. This prompted
Ponce to sue Afable et al. The trial court ruled in favor of Ponce. The Court of Appeals initially
affirmed the trial court but it later reversed its decisions as it ruled that the promissory note
under consideration was payable in US dollars, and, therefore pursuant to Republic Act 529,
the transaction was illegal with neither party entitled to recover under the in pari delicto
rule.
ISSUE: Whether or not Ponce may recover.
HELD: Yes. RA 529 provides that an agreement to pay in dollars is null and void and of no
effect however what the law specifically prohibits is payment in currency other than legal
tender. It does not defeat a creditors claim for payment, as it specifically provides that
every other domestic obligation whether or not any such provision as to payment is
contained therein or made with respect thereto, shall be discharged upon payment in any
coin or currency which at the time of payment is legal tender for public and private debts. A
contrary rule would allow a person to profit or enrich himself inequitably at anothers
expense.
On the face of the promissory note, it says that it is payable in Philippine currency the
equivalent of the dollar amount loaned to Afable et al. It may likewise be pointed out that
the Promissory Note contains no provision giving the obligee the right to require payment in
a particular kind of currency other than Philippine currency, which is what is specifically
prohibited by RA No. 529. If there is any agreement to pay an obligation in a currency other
than Philippine legal tender, the same is null and void as contrary to public policy, pursuant
to Republic Act No. 529, and the most that could be demanded is to pay said obligation in
Philippine currency.
Rivera vs. Sps. Chua, G.R. No. 184458, Jan. 14, 2015
READ FULL TEXT this is new! XD

PNB vs. Rodriguez, G.R. No. 170325, Sept. 26, 2008

FACTS: Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner
Philippine National Bank (PNB), Amelia Avenue Branch, Cebu City. They maintained savings
and demand/checking accounts, namely, PNBig Demand Deposits (Checking/Current
Account No. 810624-6 under the account name Erlando and/or Norma Rodriguez), and
PNBig Demand Deposit (Checking/Current Account No. 810480-4 under the account name
Erlando T. Rodriguez).
The spouses were engaged in the informal lending business. In line with their business, they
had a discounting arrangement with the Philnabank Employees Savings and Loan
Association (PEMSLA), an association of PNB employees. Naturally, PEMSLA was likewise a
client of PNB Amelia Avenue Branch. The association maintained current and savings
accounts with petitioner bank.

Negotiable Instruments Law

Dean Lope Feble
Aculeus Iustitia Notes
PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the
postdated checks issued to members whenever the association was short of funds. As was
customary, the spouses would replace the postdated checks with their own checks issued in
the name of the members.
It was PEMSLAs policy not to approve applications for loans of members with outstanding
debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain additional
loans despite their outstanding loan accounts. They took out loans in the names of
unknowing members, without the knowledge or consent of the latter. The PEMSLA checks
issued for these loans were then given to the spouses for rediscounting. The officers carried
this out by forging the indorsement of the named payees in the checks. In return, the
spouses issued their personal checks (Rodriguez checks) in the name of the members and
delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the other hand, were
deposited by the spouses to their account.
Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account
without any indorsement from the named payees. This was an irregular procedure made
possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank
teller in the PNB Branch. It appears that this became the usual practice for the parties. For
the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, in
the total amount ofP2,345,804.00. These were payable to forty seven (47) individual payees
who were all members of PEMSLA.
Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this
scheme, PNB closed the current account of PEMSLA. As a result, the PEMSLA checks
deposited by the spouses were returned or dishonored for the reason Account Closed. The
corresponding Rodriguez checks, however, were deposited as usual to the PEMSLA savings
account. The amounts were duly debited from the Rodriguez account. Thus, because the
PEMSLA checks given as payment were returned, spouses Rodriguez incurred losses from
the rediscounting transactions.
ISSUE: Whether the subject checks are payable to order or to bearer and who bears the
loss?
HELD: In the case at bar, respondents-spouses were the banks depositors. The checks were
drawn against respondents-spouses accounts.
PNB, as the drawee bank, had the
responsibility to ascertain the regularity of the indorsements, and the genuineness of the
signatures on the checks before accepting them for deposit. Lastly, PNB was obligated to
pay the checks in strict accordance with the instructions of the drawers. Petitioner
miserably failed to discharge this burden.
The checks were presented to PNB for deposit by a representative of PEMSLA absent any
type of indorsement, forged or otherwise. The facts clearly show that the bank did not pay
the checks in strict accordance with the instructions of the drawers, respondents-spouses.
Instead, it paid the values of the checks not to the named payees or their order, but to
PEMSLA, a third party to the transaction between the drawers and the payees.
Moreover, PNB was negligent in the selection and supervision of its employees. The
trustworthiness of bank employees is indispensable to maintain the stability of the banking
industry. Thus, banks are enjoined to be extra vigilant in the management and supervision
of their employees.
HSBC vs. CIR, G.R. No. 166018, June 4, 2014
Facts: The Philippine Long Distance Telephone Company (PLDT) drew a check on the

Negotiable Instruments Law

Dean Lope Feble
Aculeus Iustitia Notes
Hongkong & Shanghai Banking Corporation (HSBC) in the latters favor for P14,608.05, and
sent it through mail. The check fell into the hands of Florentino Changco, who was able to
erase the name of the payee and substituted his own, and deposited the altered check in his
current account with the Peoples Bank and Trust Co. (PBTC). The check was cleared by
HSBC, and PBTC credited Changco the amount. The alteration was known when the
cancelled check was returned to PLDT. HSBC requested PBTC to refund the amount, but the
latter refused.
Issue: Whether HSBC can claim reimbursement from PBTC.
Held: A person who presents fro payment checks guarantees the genuineness of the check,
and the drawee bank need to concern itself with nothing but the genuineness of the
signature, and the state of the account with it of the drawee. If at all, whatever remedy,
whatever remedy HSBC has would lie not against PBTC but as against the party responsible
for changing the name of the payee (i.e. Changco). Its failure to call the attention of PBTC as
to such alteration until after the lapse of 27 days would, in the light of Central Bank Circular
9 (24-hour clearing house rule), negate whatever right it might have had against PBTC.
V. Matters which does not affect
Negotiable Instruments

negotiability/ Rules of Construction on

Secs. 5 7, 11, 12, 17, 24, 73, NIL

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.
Sec. 6. Omissions; seal; particular money. - The validity and negotiable character of an
instrument are not affected by the fact that:
(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.
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.
Sec. 11. Date, presumption as to. - Where the instrument or an acceptance or any

Negotiable Instruments Law

Dean Lope Feble
Aculeus Iustitia Notes
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.
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.
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.
Sec. 73. Place of presentment. - Presentment for payment is made at the proper place:
(a) Where a place of payment is specified in the instrument and it is there presented;
(b) Where no place of payment is specified but the address of the person to make payment
is given in the instrument and it is there presented;
(c) Where no place of payment is specified and no address is given and the instrument is
presented at the usual place of business or residence of the person to make payment;
(d) In any other case if presented to the person to make payment wherever he can be found,
or if presented at his last known place of business or residence.
VI. Parties to Negotiable Instruments; Capacities
a.
Promissory Notes
1. Maker
2. Payee
3. Indorser/s
b. Bill of Exchange
1.
2.
3.
4.

Drawer
Drawee
Payee
Indorser

VII. Consideration in Negotiable Instruments

Secs. 24 29, NIL
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.
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.
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.

Negotiable Instruments Law

Dean Lope Feble
Aculeus Iustitia Notes
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.
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.
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.