Professional Documents
Culture Documents
NEGO (AMPIL)
word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable
thereon.
[A]s the promissory note was executed jointly and severally by the same parties, namely, Concepcion Mining
Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the payee of the promissory note had the right to hold
any one or any two of the signers of the promissory note responsible for the payment of the amount of the note.
This judgment of the lower court should be affirmed.
NEGO (AMPIL)
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.
An incomplete instrument which has been delivered to the borrower for his signature is governed by Section 14 of
the Negotiable Instruments Law, which provides that: xxx [w]here the instrument is wanting in any material
particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks
therein. ... In order, however, that any such instrument when completed may be enforced against any person who
became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given
and within a reasonable time.
We take judicial notice of the customary procedure of commercial banks of requiring their clientele to sign
promissory notes prepared by the banks in printed form with blank spaces already filled up as per agreed terms of
the loan, leaving the borrowers-debtors to do nothing but read the terms and conditions therein printed and to sign
as makers or co-makers.
When the notes were given to private respondent Fermin Canlas for his signature, the notes were complete in the
sense that the spaces for the material particular had been filled up by the bank as per agreement. The notes were
not incomplete instruments; neither were they given to private respondent Fermin Canlas in blank as he claims.
Thus, Section 14 of the Negotiable Instruments Law is not applicable.
ASTRO ELECTRONICS CORP. V PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE (2003) (Sec. 17(g))
Thus, even without the phrase personal capacity, Roxas will still be primarily liable as a joint and several debtor
under the notes considering that his intention to be liable as such is manifested by the fact that he affixed his
signature on each of the promissory notes twice which necessarily would imply that he is undertaking the
obligation in two different capacities, official and personal.
(The three promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly, severally and solidarily,
promise to pay to PHILTRUST BANK or order...)
Section 17(g) of the NIL provides that: [a]n 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.
SAN CARLOS MILLING V BANK OF THE PHILIPPINE ISLANDS (1933) (Section 23)
It is an elementary principle both of banking and of NIL thatA bank is bound to know the signatures of its
customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and
cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged.
The signatures to the checks being forged, under Section 23 of the NIL they are not a charge against plaintiff nor
are the checks of any value to the defendant.
GREAT EASTERN LIFE V HSBC (1922) (forged of payees signature, Section 23)
(Here, the forgery was that of Melicor, who was the payee of the check, and the legal presumption is that the bank
would not honor the check without the genuine endorsement of Melicor.)
The money was on deposit in the HSBC, and it had no legal right to pay it out anyone except the plaintiff, or its
order.
(Here, the plaintiff ordered the HSBC to pay the P2000 to Melicor, and the money was actually paid to Maasim
and was never paid to Melicor, and he never personally endorsed the check, or authorized any one to endorse it
for him, and the alleged endorsement was a forgery.) Thus the bank has no defense to this action.
PNB had no license or authority to pay the money to Maasim or anyone else upon a forged signature. It was its
legal duty to know that Melicors endorsement was genuine before cashing the check. Its remedy is against
Maasim to whom it paid the money.
REPUBLIC BANK V EBRADA (1975) (one forged signature, other negotiations valid signatures)
(The signature of the original payee of the check, was a forgery as he was already dead before the check was
issued by the Bureau of Treasury.)
It is clear from the provision that where the signature on a negotiable instrument if forged, the negotiation of the
check is without force or effect.
SUPERABLE 2015C
NEGO (AMPIL)
Does one forged signature in a negotiable instrument render void all other negotiations as to other parties? Beam
v Farrel - it is only the negotiation based on the forged or unauthorized signature which is inoperative.
It can be safely concluded that it is only the negotiation predicated on the forged indorsement that should be
declared inoperative.
SUPERABLE 2015C
NEGO (AMPIL)
If his negligence should cause the bank to honor a forged check or prevent it from recovering the amount it may
have already paid on such check, he cannot later complain should the bank refuse to recredit his account with the
amount of such check.
ILUSORIO V CA (2002) (entrusted secretary with blank checks and credit cards, Section 23 exception)
Proximate cause is that cause, which, in natural and continuous sequence, unbroken by any efficient intervening
cause, produces the injury, and without which the result would not have occurred.
(In other words, petitioner had sufficient opportunity to prevent or detect any misappropriation by his secretary
had he only reviewed the status of his accounts based on the bank statements sent to him regularly.)
However, Section 23 does provide for an exception, namely: "unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or want of authority." xxx Petitioner is precluded from
setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit
cards and checkbook including the verification of his statements of account.
CONSIDERATION; NEGOTIATION (SEC. 24-50)
PINEDA V DELA RAMA (1983) (debt from a bribe, but no bribe was actually given, Sec 24: presumption of consideration)
The presumption that a negotiable instrument is issued for a valuable consideration is only puma facie. It can be
rebutted by proof to the contrary.
(The terms of the note sustain the version of Pineda that he signed the P9,300.00 promissory note because he
believed Dela Rama's story that these amounts had already been advanced by Dela Rama and given as gifts for
NARIC officials.)
The consideration for the promissory note - to influence public officers in the performance of their duties - is
contrary to law and public policy. The promissory note is void ab initio and no cause of action for the collection
cases can arise from it.
PHILIPPINE BANK OF COMMERCE V ARUEGO (1981) (World Current Events periodical credit accommodation, Sec. 29)
An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving
value therefor and for the purpose of lending his name to some other person.
Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking
of the instrument knew him to be only an accommodation party.
In lending his name to the accommodated party, the accommodation party is in effect a surety for the latter. He
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 parties thereto
because he wants to accommodate another.
(In the instant case, the defendant signed as a drawee/acceptor. Under the Negotiable Instrument Law, a drawee is
primarily liable. Thus, if the defendant who is a lawyer, he should not have signed as an acceptor/drawee. In
doing so, he became primarily and personally liable for the drafts.)
Under the Negotiable Instruments Law, 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.
The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved,
but not in the determination of whether a commercial paper is a bill of exchange or not.
CLARK V SELLNER (1921) (Section 29, accommodation party can be considered a surety)
(And as to whether or not the defendant is an accommodation party, it should be taken into account that by putting
his signature to the note, he lent his name, not to the creditor, but to those who signed with him placing himself
whit respect to the creditor in the same position and with the same liability as the said signers.
Without receiving value therefor without receiving value by virtue of the instrument and not, as it apparently
is supposed to mean, without receiving payment for lend his name.
In reality, the legal situation of the defendant in this case may be properly regarded as that of a joint surety rather
than that of an accommodation party. The defendant, as a joint surety, may, upon the maturity of the note, pay the
debt, demand the collateral security and dispose of it to his benefit; but there is no proof whatsoever that this was
done.
SUPERABLE 2015C
NEGO (AMPIL)
As a joint surety, the defendant may at any time after the maturity of the note, make payment, thus subrogating
himself in the place of the creditor with the right to enforce the guaranty against the other signers of the note for
the reimbursement of what he is entitled to recover from them.
It should not be lost sight of that the defendants signature on the note is an assurance to the creditor that the
collateral guaranty will remain good, and that otherwise, he, the defendant, will be personally responsible of the
payment.
PNB V MAZA AND MECENAS (1925) (blank checks sent to them and they signed it, Sec. 29)
(But as accommodation parties, the defendants having signed the instruments without receiving value therefor and
for the purpose of lending their names to some other person, are still liable on the instruments.)
The law now is that the accommodation party can claim no benefit as such, but he is liable according to the face
of his undertaking, the same as if he were himself financially interested in the transaction.
It is a fundamental rule that an instrument given without consideration does not create any obligation at law or in
equity in favor of the payee. However, to fasten liability upon an accommodation maker, it is not necessary that
any consideration should move to him.
The consideration which supports the promise of the accommodation maker is that parted with by the person
taking the note and received by the person accommodated.
When the accommodation parties make payment to the holder of the note, they have the right to sue the
accommodated party for reimbursement, since the relation between them is in effect that of principal and sureties,
the accommodation parties being the sureties.
SADAYA V SEVILLA (1967) (co-accommodation parties, but Sadaya paid the full amt., claim reimbursement)
(As such accommodation the makers, the individual obligation of each of them to the bank is no different from,
and no greater and no less than, that contract by Oscar Varona. xxx Their liability to the bank upon the explicit
terms of the promissory note is joint and several. The bank could have pursued its right to collect the balance
against either of them.)
The least that can be said is that, as between Varona and Sadaya, there is an implied contract of indemnity. And
Varona is bound by the obligation to reimburse Sadaya.
On principle, a solidary accommodation maker who made payment has the right to contribution, from his
co-accommodation maker, in the absence of agreement to the contrary between them, and subject to conditions
imposed by law. This right springs from an implied promise between the accommodation makers to share equally
the burdens that may ensue from their having consented to stamp their signatures on the promissory note.
For having lent their signatures to the principal debtor, they clearly placed themselves in so far as payment
made by one may create liability on the other in the category of mere joint grantors of the former.
UNITED GENERAL INDUSTRIES V PALER (1982) (illegal causestop criminal case, not liable on note; Sec. 28)
Arroyo vs. Berwin - an agreement to stifle the prosecution of a crime is manifestly contrary to public policy and
due administration of justice and will not be enforced in a court of law.
Under the law and jurisprudence, there can be no recovery against Jose de la Rama who incidentally appears to
have been an accommodation signer only of the promissory note which is vitiated by the illegality of the cause.
As for Paler who did not pay the TV he bought, he has an obligation to the appellee independently of the
promissory note which was co-signed by Jose de la Rama, pursuant to the principle of unjust enrichment.
PRUDENCIO V CA (1986) (accommodation parties but with stipulation, stipulation not followed)
Unlike in a contract of suretyship, the liability of the accommodation party remains not only primary but also
unconditional to a holder for value such that even if the accommodated party receives an extension of the period
for payment without the consent of the accommodation party, the latter is still liable for the whole obligation and
such extension does not release him because as far as a holder for value is concerned, he is a solidary co- debtor.
Ang Tiong v Ting as a surety, his liability to a holder for value is not diminished. The liability of the appellant
remains primary and unconditional. To sanction the appellant's theory is to give unwarranted legal recognition to
the patent absurdity of a situation where an indorser, when sued on an instrument by a holder in due course and
for value, can escape liability on his indorsement by the convenient expedient of interposing the defense that he is
a mere accommodation indorse
There is, therefore, no question that as accommodation makers, petitioners would be primarily and
unconditionally liable on the promissory note to a holder for value, regardless of whether they stand as sureties or
SUPERABLE 2015C
NEGO (AMPIL)
solidary co-debtors since such distinction would be entirely immaterial and inconsequential as far as a holder for
value is concerned.
A holder for value under Section 29 of the Negotiable Instruments Law is one who must meet all the requirements
of a holder in due course under Section 52 of the same law except notice of want of consideration.
If he does not qualify as a holder in due course then he holds the instrument subject to the same defenses as if it
were non-negotiable (Section 58, Negotiable Instruments Law).
As a general rule, a payee may be considered a holder in due course we think that such a rule cannot apply with
respect to the respondent PNB.
(Not only was PNB an immediate party or in privy to the promissory note, that is, it had dealt directly with the
petitioners knowing fully well that the latter only signed as accommodation makers but more important, it was the
Deed of Assignment executed by the Construction Company in favor of PNB which principally moved the
petitioners to sign the promissory note also in favor of PNB.)
(From the foregoing circumstances, PNB can not be regarded as having acted in good faith which is also one of
the requisites of a holder in due course under Section 52 of the Negotiable Instruments Law. The PNB knew that
the promissory note which it took from the accommodation makers was signed by the latter because of full
reliance on the Deed of Assignment, which, PNB had no intention to comply with strictly.)
CRISOLOGO-JOSE V CA (1989) (signed as agent of corporation, but not authority; Sec. 29)
Consequently, to be considered an accommodation party, a person must (1) be a party to the instrument, signing
as maker, drawer, acceptor, or indorser, (2) not receive value therefor, and (3) sign for the purpose of lending his
name for the credit of some other person.
It is not a valid defense that the accommodation party did not receive any valuable consideration when he
executed the instrument.
From the standpoint of contract law, he differs from the ordinary concept of a debtor therein in the sense that he
has not received any valuable consideration for the instrument he signs.
Nevertheless, he is liable to a holder for value as if the contract was not for accommodation in whatever capacity
such accommodation party signed the instrument, whether primarily or secondarily.
It has been held that in lending his name to the accommodated party, the accommodation party is in effect a surety
for the latter.
Section 29 of the NIL 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. If the form of the instrument, or the nature of the
transaction, is such as to charge the indorsee with knowledge that the issue or indorsement of the instrument by
the corporation is for the accommodation of another, he cannot recover against the corporation thereon.
As an exception 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.
Corollarily, corporate officers, such as the president and vice-president, have no power to execute for mere
accommodation a negotiable instrument of the corporation for their individual debts or transactions arising from
or in relation to 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, as well as the consequences arising from their acts
in connection therewith.
TRAVEL-ON INC. V CA (1992) (revolving credit line, checks as accommodation but facts show otherwise; Sec. 24)
Section 24 - a check which is regular on its face is deemed prima facie to have been issued for a valuable
consideration and every person whose signature appears thereon is deemed to have become a party thereto for
value. Thus, the mere introduction of the instrument sued on in evidence prima facie entitles the plaintiff to
recovery.
Further, the rule is quite settled that a negotiable instrument is presumed to have been given or indorsed for a
sufficient consideration unless otherwise contradicted and overcome by other competent evidence.
SUPERABLE 2015C
NEGO (AMPIL)
An accommodating party lends his credit to the accommodated party, by issuing or indorsing a check which is
held by a payee or indorsee as a holder in due course, who gave full value therefor to the accommodated party.
The accommodated party receives full value for the accommodation and the accommodating party is bound on the
check to the holder in due course who is necessarily a third party and is not the accommodated party. The
accommodation party warrants to the holder in due course that he will pay the instrument according to its tenor.
TOWN SAVINGS V CA (1993) (surety: sister-in-law, alleges that they should not be principal parties; Sec. 29)
PBCom v Aruego [i]n lending his name to the accommodated party, the accommodation party is in effect a
surety for the latter. He 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 parties thereto because he
wants to accommodate another.
(The Hipolitos accommodated her by signing a promissory note for half of the loan that she applied for because
Town Savings may not lend any single borrower more than the authorized limit of its loan portfolio. Under
Section 29 of the Negotiable Instruments Law, the Hipolitos are liable to the bank on the promissory note that
they signed to accommodate Pilarita.)
BAUTISTA V AUTO PLUS TRADERS (2008) (private respondent not accommodation party; Sec. 29)
Generally, the stockholders and officers are not personally liable for the obligations of the corporation except only
when the veil of corporate fiction is being used as a cloak or cover for fraud or illegality, or to work injustice.
(These situations, however, do not exist in this case. xxx There is no agreement that petitioner shall be held liable
for the corporations obligations in his personal capacity.)
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 first two elements are present here, however there is insufficient evidence presented in the instant case to
show the presence of the third requisite. There is no showing of when petitioner issued the check and in what
capacity. In the absence of concrete evidence it cannot just be assumed that petitioner intended to lend his name
to the corporation. Hence, petitioner cannot be considered as an accommodation party.)
SIAIN ENTERPRISES V CUPERTINO REALTY (2009) (presumption of valuable consideration, affirmative defense)
(From the foregoing chain of transactions, a presumption has arisen that the loan documents were supported by a
consideration.)
Rule 131, Section 3 of the Rules of Court specifies that a disputable presumption is satisfactory if uncontradicted
and not overcome by other evidence.
SEC. 3.
Disputable presumptions. The following presumptions are satisfactory if uncontradicted, but
may be contradicted and overcome by other evidence:
(r)
That there was sufficient consideration for a contract;
(s)
That a negotiable instrument was given or indorsed for a sufficient consideration;
Section 24 of the NIL provides that:[p]resumption of consideration. [e]very 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.
(However, petitioners bare-faced assertion does not even dent, much less, overcome the aforesaid presumptions
on consideration for a contract.)
It is a basic axiom in this jurisdiction that as between the plaintiffs negative evidence of denial and the
defendants affirmative evidence on the existence of the consideration, the latter must be given more weight and
value. xxx By such failure to present rebutting evidence, [Cupertinos] testimony on the existence of the
consideration of the amended real estate mortgage does not only become impliedly admitted by the [petitioner],
more significantly, to the mind of this Court, it is a clear indication that [petitioner] has no counter evidence to
overcome and defeat the [Cupertinos] evidence on the matter.
GONZALES V PHIL. COMMERCIAL AND INTL BANK (2011) (accommodation party, solidarily liable; Sec. 29)
For signing as borrower and co-borrower on the promissory notes with the proceeds of the loans going to the
spouses Panlilio, Gonzales has extended an accommodation to said spouses.
SUPERABLE 2015C
NEGO (AMPIL)
Ang v Associated Bank an accomodationparty is a person 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.
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.
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.
An accommodation party is deemed an original promisor and debtor from the beginning; he is considered in law
as the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since their
liabilities are interwoven as to be inseparable.
Although a contract of suretyship is in essence accessory or collateral to a valid principal obligation, the suretys
liability to the creditor is immediate, primary and absolute; he is directly and equally bound with the principal. As
an equivalent of a regular party to the undertaking, a surety becomes liable to the debt and duty of the principal
obligor even without possessing a direct or personal interest in the obligations nor does he receive any benefit
therefrom.
SUPERABLE 2015C
NEGO (AMPIL)
There was nothing on the face of the note to put the purchasers on notice of the existence of such equitable
defenses. It was entirely regular in form and came into their possession in the usual course of business.
Under these circumstances the burden of proof was manifestly upon the makers of the note to establish the fact if
the knowledge of these equitable defenses before they could be permitted to rely upon such defenses as against
the purchasers.
Equitable defenses of this nature can in no event defeat the right of the holders of a negotiable note by
indorsement and for valuable consideration, until and unless knowledge of the existence of such equitable
defenses is brought home to them, or until it appears that the holders had such knowledge of the existence of
defects in the instrument as to charge them with bad faith in acquiring it under all the attendant circumstances.
BATAAN CIGAR V CA (1994) (failure to deliver consideration, effect on second indorser; Sec. 52, 59)
However, when it is shown that the title of any person who has negotiated the instrument was defective, the
burden is on the holder to prove that he or some person under whom he claims, acquired the title as holder in due
course.
A check is defined by law as a bill of exchange drawn on a bank payable on demand.
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 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.
CHAN WAN V TAN KIM (1960) (clearance written on the back of the checks)
(He got them after they had been thus returned, because he presented them in court with such "account closed"
stamps, without bothering to explain.)
Naturally and rightly, the lower court held him not to be a holder in due course under the circumstances, since he
knew, upon taking them up, that the checks had already been dishonored.
If it were true that the checks had been issued in payment for shoes that were never made and delivered, Tan Kim
would have a good defense as against a holder who is not a holder in due course.
CONSOLIDATED PLYWOOD V IFC LEASING (1987) (tractors sold but broke down, payment delayed; Sec. 52, 56, 58)
It is patent then, that the seller-assignor is liable for its breach of warranty against the petitioner.
This liability as a general rule, extends to the corporation to whom it assigned its rights and interests unless the
assignee is a holder in due course of the promissory note in question, assuming the note is negotiable, in which
case the latter's rights are based on the negotiable instrument and assuming further that the petitioner's defenses
may not prevail against it.
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 "step into the shoes" of the person designated in the instrument and will thus be open to all defenses
available against the latter."
Considering that the subject promissory note is not a negotiable instrument, it follows that the respondent can
never be a holder in due course but remains a mere assignee of the note in question.
(Thus, the petitioner may raise against the respondent all defenses available to it as against the seller-assignor
Industrial Products Marketing.)
Moreover, the respondent had actual knowledge of the fact that the seller-assignor's right to collect the purchase
price was not unconditional, and that it was subject to the condition that the tractors -sold were not defective.
Even assuming for the sake of argument that the promissory note is negotiable, the respondent, which took the
same with actual knowledge of the foregoing facts so that its action in taking the instrument amounted to bad
faith, is not a holder in due course.
The respondent failed to present any evidence to prove that it had no knowledge of any fact, which would justify
its act of taking the promissory note as not amounting to bad faith.
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10
NEGO (AMPIL)
We subscribe to the view of Campos and Campos that a financing company is not a holder in good faith as to the
buyer. xxx Where the goods sold turn out to be defective, the finance company will be subject to the defense of
failure of consideration and cannot recover the purchase price from the buyer.
When a finance company actively participates in a transaction of this type from its inception, it cannot be
regarded as a holder in due course of the note given in the transaction.
It follows that the respondent's rights under the promissory note involved in this case are subject to all defenses
that the petitioners have against the seller-assignor, Industrial Products Marketing. (following Sec. 58)
STATE INVESTMENT HOUSE V IAC (1989) (conditional loanget money after a few monthsnot paid)
Furthermore, his failure to inquire from the holder, party defendant New Sikatuna Wood Industries, Inc., the
purpose for which the three checks were cross despite the warning of the crossing, prevents him from being
considered in good faith and thus he is not a holder in due course.
Being not a holder in due course, plaintiff is subject to personal defenses, such as lack of consideration between
appellants and New Sikatuna Wood Industries.
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.
SPOUSES VIOLAGO V BA FINANCE (2008) (car bought but previously sold already; Sec. 59, 58, 57)
The law presumes that a holder of a negotiable instrument is a holder thereof in due course (Sec. 59).
In the hands of one other than a holder in due course, a negotiable instrument is subject to the same defenses as if
it were non-negotiable (Sec. 58).
A holder in due course, however, holds the instrument free from any defect of title of prior parties and from
defenses available to prior parties among themselves, and may enforce payment of the instrument for the full
amount thereof (Sec. 57)
(Since BA Finance is a holder in due course, petitioners cannot raise the defense of non-delivery of the object and
nullity of the sale against the corporation.)
The NIL considers every negotiable instrument prima facie to have been issued for a valuable consideration (Sec.
24)
Salas v CA - we held that a party holding an instrument may enforce payment of the instrument for the full
amount thereof. As such, the maker cannot set up the defense of nullity of the contract of sale.
DINO V JUDAL-LOOT (2010) (syndicate got loan by posing as owner of land)
T
he act of crossing a check serves as a warning to the holder that the check has been issued for a definite purpose
so that the holder thereof must inquire if he has received the check pursuant to that purpose; otherwise, he is not a
holder in due course.
Based on the foregoing, respondents had the duty to ascertain the indorser's, in this case Lobitana's, title to the
check or the nature of her possession. This, respondents failed to do. Respondents' verification from Metrobank
on the funding of the check does not amount to determination of Lobitana's title to the check.
Failing in this respect, respondents are guilty of gross negligence amounting to legal absence of good faith,
contrary to Section 52(c) of the Negotiable Instruments Law. Hence, respondents are not deemed holders in due
course of the subject check.
LIABILITIES OF PARTIES (SECTION 60-69)
PNB V PICORNELL (1922) (instrument accepted but payment denied; Sec. 62, 61)
The Hyndman, Tavera & Ventura Company accepted the bill of exchange unconditionally, but did not pay it at its
maturity; wherefore its responsibility, or that of its successor, Tavera to pay the same is clear (Sec. 62).
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 from the acceptor.
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In a suit by the payee 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 of a bona fide indorsee.
It is no defense to a suit against the acceptor of a draft which has been discounted, and upon which money has
been advanced by the plaintiff, that the draft was accepted for the accommodation of the drawer.
As to Picornell, he warranted as a drawer of the bill, that it would be accepted upon proper presentment and paid
in due course, and as it was not paid, he became liable to the payment of its value to the holder thereof, which is
PNB.
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notice thereof. The payment of a check does not include or imply its acceptance in the sense that this word is used
in Section 62 of the Negotiable Instruments Act.
American Exchange v Yorkville Bank - "the drawer owes no duty of diligence to the collecting bank (one who
had accepted an altered check and had paid over the proceeds to the depositor) except of seasonably discovering
the alteration by a comparison of its returned checks and check stubs or other equivalent record, and to inform the
drawee thereof."
We hold that while the drawer generally owes no duty of diligence to the collecting bank, the law imposes a duty
of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their
genuineness and regularity.
The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law
holds it to a high standard of conduct.
These checks have been made the subject of contracts of endorsement wherein the defendant made expressed
warranties to induce payment by the drawer of the checks; and the defendant cannot now refuse liability for
breach of warranty as a consequence of such forged endorsements.
The defendant has falsely warranted in favor of plaintiff the validity of all endorsements and the genuineness of
the checks in all respects what they purport to be.
ASSOCIATED BANK V CA (1996) (forged endorsements, checks for hospital but diverted by hospitals cashier, Sec. 66)
Section 23 does not avoid the instrument but only the forged signature. Thus, a forged indorsement does not
operate as the payee's indorsement.
An exception to the Section 23 is when 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
BEARER instruments: 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 (since signature of payee or holder unnecessary to pass title to
instrument).
ORDER instrument at TIME of forgery: 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 (since signature of rightful holder
essential to transfer title to the same instrument).
An indorser of an order instrument warrants "that the instrument is genuine and in all respects what it purports to
be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time
of his indorsement valid and subsisting." He cannot interpose the defense that signatures prior to him are forged.
So even if the indorsement on the check deposited by the bank's client is forged, the collecting bank (considered
an indorser in this case) 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.
When the drawee bank pays a person other than the payee, it does not comply with the terms of the check and
violates its duty to charge its customer's (the drawer) account only for properly payable items.
Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to
reimbursement from the drawer. The general rule then is that 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.
EXCEPTION: However, if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care
that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the
forgery. If at the same time the drawee bank was also negligent to the point of substantially contributing to the
loss, then such loss from the forgery can be apportioned between the negligent drawer and the negligent bank.
Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee bank. The
former must necessarily return the money paid by the latter because it was paid wrongfully.
Also, under Sec. 66 of the NIL, a collecting bank which indorses a check bearing a forged indorsement and
presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants
that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the
indorsement is a forgery, the collecting bank commits a breach of this warranty and will be accountable to the
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drawee bank. This liability scheme operates without regard to fault on the part of the collecting/presenting bank.
Even if the latter bank was not negligent, it would still be liable to the drawee bank because of its indorsement.
The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the
genuineness of any indorsement. The drawee bank's duty is but to verify the genuineness of the drawer's signature
and not of the indorsement because the drawer is its client.
Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The
bank knows him, his address and history because he is a client. It has taken a risk on his deposit. The bank is also
in a better position to detect forgery, fraud or irregularity in the indorsement.
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It is undeniable, however, that the PNB has, also, been negligent, with the particularity that the PNB had been
guilty of a greater degree of negligence, because it had a previous and formal notice from the GSIS that the check
had been lost, with the request that payment thereof be stopped.
Just as important, if not more important and decisive, is the fact that the PNB's negligence was the main or
proximate cause for the corresponding loss.
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The liability of an indorser of a bill of exchange, after due protest and notice of nonpayment and dishonor, is the
same as that of the original obligors on such a contract by the holder of the same, and any material alteration by
the holder of the same without consent of the obligor, will relieve such obligor from all liability thereon.
Also, his indorsement thereon was merely for the identification of the person, and not for the purpose of incurring
any liability thereon.
MONTINOLA V PNB (1951) (USAFFE cash advance, check almost destroyed, indorsement written on back of the check)
As to what was really written at the back of the check which Montinola claims to be a full indorsement of the
check, we agree with trial court that the original writing of Ramos on the back of the check was to the effect that
he was assigning only P30,000 of the value of the document and that he was instructing the bank to deposit to his
credit the balance. This writing was in some mysterious way obliterated, and in its place was placed the present
indorsement appearing thereon.
The insertion of the words "Agent, Phil. National Bank" which converts the bank from a mere drawee to a drawer
and therefore changes its liability, constitutes a material alteration of the instrument without the consent of the
parties liable thereon, and so discharges the instrument.
Also, Montinola did not take the instrument in good faith, among others. At most, he is a mere assignee. As a
mere assignee Montinola is subject to all the defenses available against assignor Ramos.
STATE INVESTMENT HOUSE, INC V CA (1993) (check issued for jewelry, returned jewelry but check already negotiated)
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 (See Sec. 119).
Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge of the
instrument.
But, 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. It is impossible for
Moulic to intentionally cancel the instrument.
On the other hand, the acts which will discharge a simple contract for the payment of money under paragraph (d)
are determined by other existing legislations since Sec. 119 does not specify what these acts are, e.g., Art. 1231 of
the Civil Code which enumerates the modes of extinguishing obligations.
Again, none of the modes outlined therein is applicable in the instant case as Sec. 119 contemplates of a situation
where the holder of the instrument is the creditor while its drawer is the debtor. In the present action, the payee,
Corazon Victoriano, was no longer MOULIC's creditor at the time the jewelry was returned.
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