Negotiable Instruments - Annotated

Act No.
2031 - Negotiable Instruments Law
Sec. 1 - Form of Negotiable Instruments
Freedom of negotiability is totally absent in a certificate of indebtedness.

The language of negotiability which characterizes a negotiable paper as a credit
instrument is its freedom to circulate as a substitute for money. Hence, freedom of
negotiability is the touchstone relating to the protection of holders in due course, and
the freedom of negotiability is the foundation for the protection which the law throws
around a holder in due course. This freedom of negotiability is totally absent in a
certificate of indebtedness as it merely acknowledges to pay a sum of money to a
specified person or entity for a period of time.
Traders Royal Bank vs. Court of Appeals, G.R. No. 93397, March 3, 1997
Negotiability or non-negotiability of an instrument is determined from the face of

the instrument itself.
The accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself. In the
construction of a bill or note, the intention of the parties is to control, if it can be
legally ascertained. 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.
Caltex (Philippines), Inc. vs. Court of Appeals, G.R. No. 97753, August 10, 1992
When treasury warrant is not unconditional.

A treasury warrant "payable from the appropriation for food administration," is
actually an order for payment out of "a particular fund," and is not unconditional, and
does not fulfill one of the essential requirements of a negotiable instrument.
Benjamin Abubakar vs. Auditor General, G.R. No. L-1405, July 31, 1948
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Philippine Law Encyclopedia 2014
A negotiable instrument is a written evidence of contract and a species of property.

A negotiable instrument, of which a check is, is not only a written evidence of a
contract right but is also a species of property.
Development Bank of Rizal vs. Sima Wei, G.R. No. 85419, March 9, 1993
Negotiable promissory notes are prima facie deemed to have been issued for
consideration.
The promissory notes, however, appear to be negotiable as they meet the
requirements of Section 1 of the Negotiable Instruments Law. Such being the case,
the notes are prima facie deemed to have been issued for consideration.
Quirino Gonzales Logging Concessionaire vs. Court of Appeals, G.R. No. 126568, April
30, 2003
Drafts issued in connection with letters of credit are negotiable instruments.

Negotiable instruments include promissory notes, bills of exchange and checks.
Letters of credit and trust receipts are, however, not negotiable instruments. But drafts
issued in connection with letters of credit are negotiable instruments.
Charles Lee vs. Court of Appeals and Philippine Bank of Communications, G.R. No.
117913, February 1, 2002
Indication of fund as source of payment makes order or promise to pay "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 unconditional" and the warrants
themselves non-negotiable. There should be no question that the exception on Section
3 of the Negotiable Instruments Law is applicable.
Metropolitan Bank & Trust Company vs. Court of Appeals, G.R. No. 88866, February
18, 1991
Certificates of Time Deposit are negotiable instruments.

The Certificates of Time Deposit are negotiable instruments. The documents
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provide that the amounts deposited shall be repayable to the depositor. And who,
according to the document, is the depositor? It is the "bearer." The documents do not
say that the depositor is Angel de la Cruz and that the amounts deposited are
repayable specifically to him. Rather, the amounts are to be repayable to the bearer of
the documents or, for that matter, whosoever may be the bearer at the time of
presentment.
Caltex (Phil.), Inc. vs. Court of Appeals, et al., G.R. No. 97753, August 10, 1992
Instrument without words of negotiability is non-negotiable.

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.
Consolidated Plywood Industries, Inc. vs. IFC Leasing and Acceptance Corp., G.R. No.
72593, April 30, 1987
Certificates of stock are quasi-negotiable.

Certificates of stock are often spoken of and treated as quasi negotiable, that is, as
having some of the attributes and partaking of the character of negotiable instruments,
in passing from hand to hand, especially where they are accompanied by an
assignment and power of attorney, executed in blank, to transfer them to anyone who
may obtain possession as holders, even though such assignment and power are under
seal.
The Bachrach Motor Co., Inc. vs. Mariano Lacson Ledesma, G.R. No. 42462, August
31, 1937
Certificates of stock are non-negotiable.

A certificate of stock is not a negotiable instrument. Although it is sometimes
regarded as quasi-negotiable, in the sense that it may be transferred by endorsement,
coupled with delivery, it is well-settled that it is non-negotiable, because the holder
thereof takes it without prejudice to such rights or defenses as the registered owners or
transferor's creditor may have under the law, except insofar as such rights or defenses
are subject to the limitations imposed by the principles governing estoppel.
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Apolinario G. de los Santos vs. J. Howard Mcgrath, G.R. No. L-4818, February 28, 1955
Alfonso S. Tan vs. SEC, G.R. No. 95696, March 3, 1992
Postal money orders are not negotiable instruments.

The weight of authority in the United States is that 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. It is to
be noted in this connection that some of the restrictions imposed upon money orders
by postal laws and regulations are inconsistent with the character of negotiable
instruments.
Philippine Education Co., Inc. vs. Mauricio A. Soriano, G.R. No. L-22405, June 30,
1971
Impairment of negotiability of instrument by fault of creditor.

The clause of Article 1249 of the Civil Code relative to the impairment of the
negotiable character of the commercial paper by the fault of the creditor, is applicable
only to instruments executed by third persons and delivered by the debtor to the
creditor, and does not apply to instruments executed by the debtor himself and
delivered to the creditor.
National Marketing Corp. vs. Federation of United NAMARCO Distributors, Inc., G.R.
No. L-22578, January 31, 1973
Negotiability of a check is not affected by its being crossed.

According to commentators, the negotiability of a check is not affected by its being
crossed, whether specially or generally. It may legally be negotiated from one person
to another as long as the one who encashes the check with the drawee bank is another
bank, or if it is especially crossed, by the bank mentioned between the parallel lines.
Bataan Cigar and Cigarette Factory, Inc. vs. CA and State Investment House, Inc., G.R.
No. 93048, March 3, 1994
Requisites of a negotiable instrument

Sps. Pedro and Florencia Violago vs. BA Finance Corp., et al., G.R. No. 158262, July
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21, 2008
Sec. 2 - Certainty as to Sum; What Constitutes
Legality of stipulation on payment of attorney's fee in case of delinquency of

debtor.
We are of the opinion that it may lawfully be stipulated in favor of the creditor,
whether the obligation be evidenced by promissory note or otherwise, that in the event
that it becomes necessary, by reason of the delinquency of the debtor, to employ
counsel to enforce payment of the obligation, a reasonable attorney's fee shall be paid
by the debtor, in addition to the amount due for principal and interest. The legality of
such a stipulation, when annexed to a negotiable instrument is expressly recognized
by the Negotiable Instruments Law (Act No. 2031, Sec. 2, par. E).
E. M. Bachrach vs. Vicente Golingco, G.R. No. 13660, November 13, 1918
Sec. 3 - When Promise is Unconditional
Indication of particular fund as source of payment makes order or promise to pay

"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 unconditional" and the warrants
themselves non-negotiable.
Metropolitan Bank & Trust Company vs. Court of Appeals, G.R. No. 88866, February
18, 1991
Order for payment out of certain appropriation is an order for payment out of a
particular fund.
The document bearing on its face the words "payable from the appropriation for
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food administration" is actually an order for payment out of "a particular fund," and is
not unconditional, and does not fulfill one of the essential requirements of a
negotiable instrument.
Benjamin Abubakar vs. Auditor General, G.R. No. L-1405, July 31, 1948
When acknowledgment of debt becomes promise to pay.

An acknowledgment of a debt becomes a promise to pay by the addition of words
implying a promise of payment, such as, "payable," "payable on a given day,"
"payable on demand".
Intestate Estate of Luther Young and Pacita Young, G.R. No. L-10221, February 28,
1958
No precise words of contract are necessary to constitute a good promissory note.

To constitute a good promissory note, no precise words of contract are necessary,
provided they amount, in legal effect, to a promise to pay. In other words, if over and
above the mere acknowledgment of the debt there may be collected from the words
used a promise to pay it, the instrument may be regarded as a promissory note.
Intestate Estate of Luther Young and Pacita Young, G.R. No. L-10221, February 28,
1958
Sec. 5 - Additional Provision Not Affecting Negotiability
Warrants of attorney to confess judgment are void as against public policy.

Warrants of attorney to confess judgment are not authorized nor contemplated by
our law. Such warrants of attorney are void as against public policy, because they
enlarge the field for fraud, because under these instruments the promissor bargains
away his right to a day in court, and because the effect of the instrument is to strike
down the right of appeal accorded by statute. The recognition of such 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
judgment notes, instead of resulting to the advantage of commercial life the
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Philippines might be the source of abuse and oppression, and make the courts
involuntary parties thereto. If the bank has a meritorious case, the judgment is
ultimately certain in the courts.
PNB vs. Manila Oil Refining & By-Products Co., Inc., G.R. No. L-18103, June 8, 1922
Sec. 7 - When Payable on Demand

Prudential Bank vs. Intermediate Appellate Court, G.R. No. 74886, December 8, 1992
Annex A, in effect, authorized the RFC to fix the date of maturity of the
installments therein stipulated which is allowed by the Negotiable Instruments Law
and when a promissory note expresses "no time for payment," it is deemed "payable
on demand."
Jose L. Ponce De Leon vs. Rehabilitation Finance Corporation, G.R. No. L-24571,
December 18, 1970
As the two promissory notes in question were payable on demand, the Court of
Appeals correctly held that they were due immediately after delivery, and that the
corresponding period of prescription started to run from the date of such delivery.
Joseph Reich vs. Edmund Schwesinger, G.R. No. L-16525, January 31, 1963
Sec. 8 - When Payable to Order

Under Section 8 of the Negotiable Instruments Law, there are only two ways by
which an instrument may be made payable to order. There must always be a specified
person named in the instrument and 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 "step into the shoes" of the person designated in the
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instrument and will thus be open to all defenses available against the latter.
Consolidated Plywood Industries vs. IFC Leasing and Acceptance Corporation, G.R.
No. 72593, April 30, 1987
Juanita Salas vs. Court of Appeals, G.R. No. 76788, January 22, 1990
The subject check was equivocal and patently ambiguous. By making the check
read; "Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF
CASVILLE ENTERPRISES, INC." the payee ceased to be indicated with reasonable
certainty in contravention of Section 8 of the Negotiable Instruments Law.
Equitable Banking Corporation vs. Intermediate Appellate Court, G.R. No. 74451, May
25, 1988
Sec. 9 - When Payable to Bearer

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
Ang Tek Lian vs. Court of Appeals, G.R. No. L-2516, September 25, 1950
Bank incurs no liability if, satisfied with identity of bearer, it pays the check
without further question.
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.
Ang Tek Lian vs. Court of Appeals, G.R. No. L-2516, September 25, 1950
Sec. 12 - Antedated and Postdated

Considering that the second element [of Theft] is that the thing taken belongs to
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another, it is relevant to determine whether ownership of the subject check was

transferred to petitioner. . . . Note however that delivery as the term is used in the
aforementioned provision (Sec. 12 of Act 2031) means that the party delivering did so
for the purpose of giving effect thereto. Otherwise, it cannot be said that there has
been delivery of the negotiable instrument. Once there is delivery, the person to whom
the instrument is delivered gets the title to the instrument completely and irrevocably. .
..
The evidence proves that the check was accepted, not as payment, but in
accordance with the long-standing policy of SMC to require its dealers to issue
postdated checks to cover its receivables. The check was only meant to cover the
transaction and in the meantime [respondent] was to pay for the transaction by some
other means other than the check. This being so, title to the check did not transfer to
SMC; it remained with [respondent]. The second element of the felony of theft was
therefore not established.
San Miguel Corp. vs. Bartolome Puzon, Jr., G.R. No. 167567 , September 22, 2010
Sec. 16 - Delivery; When Effectual; When Presumed

Every contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect thereto. As ordinarily
understood, delivery means the transfer of the possession of the instrument by the
maker or the drawer with intent to transfer title to the payee and recognize him as the
holder thereof.
Loreto D. De La Victoria vs. Jose Burgos, G.R. No. 111190, June 27, 1995
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. 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.
Natividad Gempesaw vs. Court of Appeals, G.R. No. 92244, February 9, 1993
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The payee of a negotiable instrument acquires no interest with respect thereto until
its delivery to him. Delivery of an instrument means transfer of possession, actual or
constructive, from one person to another. Without the initial delivery of the instrument
from the drawer to the payee, there can be no liability on the instrument. Moreover,
such delivery must be intended to give effect to the instrument.
Development Bank of Rizal vs. Sima Wei, G.R. No. 85419, March 9, 1993
Sec. 17 - Construction Where Instrument is Ambiguous

In view of Section 17(g) of the Negotiable Instruments Law and Article 1216 of the
Civil Code, and as the promissory note was executed jointly and severally by the same
parties, 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.
PNB vs. Concepcion Mining Company, Inc., G.R. No. L-16968, July 31, 1962
Courts can interpret a contract only if there is doubt in its letter.

Sps Eduardo and Epifania Evangelista vs. Mercator Finance Corp., G.R. No. 148864,
August 21, 2003
Where a signature is so placed upon the instrument that it is not clear in what
capacity the person making the same intended to sign, he is deemed an indorser.
Remedios Nota Sapiera vs. Court of Appeals, G.R. No. 128927, September 14, 1999
Sec. 20 - Liability of Person Signing as Agent, and So Forth
Failure to disclose principal renders agent personally liable for drafts he accepted.
An inspection of the drafts accepted by the defendant shows that nowhere has he
disclosed that he was signing as representative of the Philippine Education Foundation
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Company. For failure to disclose his principal, Aruego is personally liable for the
drafts he accepted.
Philippine Bank of Commerce vs. Jose M. Aruego, G.R. Nos. L-25836-37, January 31,
1981
Salesman authorized to collect money does not have implied authority to indorse
checks received in payment.
The right of an agent to indorse commercial paper is a very responsible power and
will not be lightly inferred. A salesman with authority to collect money belonging to
his principal does not have the implied authority to indorse checks received in
payment. Any person taking checks made payable to a corporation which can act by
agents, does so at his peril, and must abide by the consequences if the agent who
endorses the same is without authority.
Jai-alai Corp. of the Phil. vs. BPI, G.R. No. L-29432, August 6, 1975
Insular Drug Co., Inc. vs. PNB, G.R. No. 38816, November 3, 1933
Sec. 23 - Forged Signature; Effect of

As a matter of practical significance, problems arising from forged indorsements of
checks may generally be broken into two types of cases: (1) where forgery was
accomplished by a person not associated with the drawer for example a mail
robbery; and (2) where the indorsement was forged by an agent of the drawer. This
difference in situations would determine the effect of the drawer's negligence with
respect to forged indorsements. While there is no duty resting on the depositor to look
for forged indorsements on his cancelled checks in contrast to a duty imposed upon
him to look for forgeries of his own name, 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 is under duty promptly to report such fact
to the drawee bank.
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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.
Traders Royal Bank vs. Radio Philippines Network, G.R. No. 138510, October 10, 2002
The Philippine National Bank 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
Melicor's endorsement was genuine before cashing the check. Its remedy is against
Maasim to whom it paid the money.
Great Eastern Life Insurance Co. vs. Hongkong & Shanghai Banking Corp., G.R. No.
18657, August 23, 1922
There are two (2) parts of the provision. The first part states the general rule while
the second part states the exception to the general rule. The general rule is to the effect
that a forged signature is "wholly inoperative", and payment made "through or under
such signature" is ineffectual or does not discharge the instrument. The exception to
this rule is when the party relying on the forgery is "precluded from setting up the
forgery or want of authority." In this jurisdiction we recognize negligence of the party
invoking forgery as an exception to the general rule. (See Banco de Oro Savings and
Mortgage Bank vs. Equitable Banking Corporation supra; Philippine National Bank
vs. Quimpo, G.R. No. L-53194, March 14, 1988; Philippine National Bank vs. Court
of Appeals, G.R. No. L-26001, October 29, 1968; Republic vs. Equitable Banking
Corporation, G.R. No. L-15894, January 30, 1964; National Bank vs. National City
Bank of New York, 63 Phil. 711 [1936]; San Carlos Milling Co. vs. Bank of P.I., 59
Phil. 59 [1933]). In these cases we determined the rights and liabilities of the parties
under a forged endorsement by looking at the legal effects of the relative negligence
of the parties thereto.
Bank of the Phil. Islands vs. Court of Appeals, G.R. No. 102383, November 26, 1992
The petitioner is barred from setting up the defense of forgery under Section 23 of
the Negotiable Instruments Law . . . [b]ecause it was guilty of negligence not only
before the questioned checks were negotiated but even after the same had already
been negotiated.
Republic of the Phil. vs. Equitable Banking Corporation, G.R. No. L-15894, January 30,
1964
Metropolitan Waterworks and Sewerage System vs. Court of Appeals, G.R. No.
L-62943, July 14, 1986
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It is apparent that the said three (3) checks were fraudulently altered as to their
amounts and, therefore, wholly inoperative. No right of payment thereof against any
party thereto could have been acquired the petitioner.
Banco Atlantico vs. Auditor General, G.R. No. L-33549, January 31, 1978
A forged signature in a negotiable instrument is wholly inoperative and no right to

discharge it or enforce its payment can be acquired through or under the forged
signature except against a party who cannot invoke the forgery, it stands to reason,
that the respondent, as a collecting bank which indorsed the checks to the
drawee-banks for clearing, should be liable to the latter for reimbursement, for, as
found by the court a quo and by the appellate court, the indorsements on the checks
had been forged prior to their delivery to the petitioner.
Jai-alai Corporation of the Philippines vs. Bank of the Philippine Island, G.R. No.
L-29432, August 6, 1975
Where the signature on a negotiable instrument is forged, the negotiation of the

check is without force of effect. But the existence of the forged signature therein will
not render void all the other negotiations of the check with respect to the other parties
whose signatures are genuine. It is only the negotiation predicated on the forged
indorsement that should be declared inoperative.
Republic Bank vs. Mauricia T. Ebrada, G.R. No. L-40796, July 31, 1975
The signatures to the checks being forged, under section 23 of the Negotiable
Instruments Law they are not a charge against plaintiff nor are the checks of any value
to the defendant.
San Carlos Milling Co. vs. BPI, G.R. No. 37467, December 11, 1933
True, it is a rule that when a signature is forged or made without the authority of
the person whose signature it purports to be, the check is wholly inoperative. No right
to retain the instrument, or to give a discharge therefor, or to enforce payment thereof
against any party, can be acquired through or under such signature. However, the rule
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."
Ramon K. Ilusorio vs. Hon. Court of Appeals, G.R. No. 139130, November 27, 2002
Since the signature of the payee, in the case at bar, was forged to make it appear
that he had made an endorsement in favor of the forger, such signature should be
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deemed as inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred
in making payment by virtue of said forged signature. The payee, herein respondent,
should therefore be allowed to recover from the collecting bank.
The collecting bank is liable to the payee and must bear the loss because it is its
legal duty to ascertain that the payee's endorsement was genuine before cashing the
check. As a general rule, a bank or corporation who has obtained possession of a
check upon an unauthorized or forged indorsement of the payee's signature and who
collects the amount of the check from the drawee, is liable for the proceeds thereof to
the payee or other owner, notwithstanding that the amount has been paid to the person
from whom the check was obtained.
Westmont Bank vs. Eugene Ong, G.R. No. 132560, January 30, 2002
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. Section 23 does not avoid the
instrument but only the forged signature. Thus, a forged indorsement does not operate
as the payee's indorsement.
The exception to the general rule in Section 23 is where "a party against whom it is
sought to enforce a right is precluded from setting up the forgery or want of
authority." 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.
Associated Bank vs. Court of Appeals, G.R. No. 107382, January 31, 1996
PNB vs. Honorable Court of Appeals, G.R. No. 107612, January 31, 1996
A bank is bound to know the signatures of its customers.

A 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.
San Carlos Milling Co., Ltd. vs. BPI, G.R. No. 37467, December 11, 1933
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Drawee bank paying a forged check cannot recover from holder who took no part
in the forgery.
If a drawee bank pays a forged check which was previously accepted or certified by
the said bank it cannot recover from a holder who did not participate in the forgery
and did not have actual notice thereof.
PNB vs. The National City Bank of New York, G.R. No. 43596, October 31, 1936
Requisites to entitle the holder of a forged check to retain money obtained thereon.
To entitle the holder of a forged check to retain the money obtained thereon, there
must be a showing that the duty to ascertain the genuineness of the signature rested
entirely upon the drawee, and that the constructive negligence of such drawee in
failing to detect the forgery was not affected by any disregard of duty on the part of
the holder, or by failure of any precaution which, from his implied assertion in
presenting the check as a sufficient voucher, the drawee had the right to believe he
had taken.
Drawee bank may require indorsement of drawer.

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.
Ang Tek Lian vs. CA, G.R. No. L-2516, September 25, 1950
Bank bears the loss when it cashed the check to a third person who forged the
payee's signature.
Where a check is drawn payable to the order of one person and is presented to a
bank by another and purports upon its face to have been duly indorsed by the payee of
the check, it is the duty of the bank to know that the check was duly indorsed by the
original payee, and where the Bank pays the amount of the check to a third person,
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who has forged the signature of the payee, the loss falls upon the bank who cashed the
check, and its only remedy is against the person to whom it paid the money.
The Great Eastern Life Insurance Co. vs. Hongkong & Shanghai Banking Corp. and
PNB, G.R. No. 18657, August 23, 1922
Forging of checks prior to delivery did not create creditor-debtor relationship

between depositor and depository.
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.
Collecting bank relying upon warranty made by depositor of forged checks is not
liable for resulting loss.
Where the depositor indorsed the checks with forged indorsement when it
deposited them with the collecting bank, the former as an endorser guaranteed the
genuineness of all prior indorsement thereon. The collecting bank which relied upon
this warranty cannot be held liable for the resulting loss.
When indorsement of intermediate bank does not guarantee drawer's signature.

The question whether or not the indorsements have been falsified is immaterial to
the PNB's liability as a drawee, or to its right to recover from the PCIB, for, as against
the drawee, the indorsement of an intermediate bank does not guarantee the signature
of the drawer, since the forgery of the indorsement is not the cause of the loss.
Manila Pest Control, Inc. vs. Workmen's Compensation Commission, G.R. No.
L-27662, October 29, 1968
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Sec. 24 - Presumption of Consideration

Unless otherwise stated in the instrument, a negotiable promissory note implies
prima facie valuable consideration moving to the maker whether the words "value
received" appear in it or not.
Bank of the Philippine Islands vs. Laguna Cocoanut Oil Company, G.R. No. 23252,
September 24, 1925
Section 24 of the Negotiable Instruments Law creates a presumption that every

party to an instrument acquired the same for a consideration or for value. Thus, the
law itself creates a presumption in respondent David's favor that he gave valuable
consideration for the checks in question. In alleging otherwise, the petitioner has the
onus to prove that respondent David got hold of the checks absent said consideration.
In other words, the petitioner must present convincing evidence to overthrow the
presumption.
Cely Yang vs. Court of Appeals, G.R. No. 138074, August 15, 2003
The genuineness of the deceased's signature having been shown, he is prima facie
presumed to have become a party to the check for value, following Section 24 of the
Negotiable Instruments Law.
Felicito G. Sanson vs. Court of Appeals, G.R. No. 127745, April 22, 2003
Under Section 3, Rule 131 of the Rules of Court the following presumptions,
among others, are satisfactory if uncontradicted: a) That there was a sufficient
consideration for a contract and b) That a negotiable instrument was given or indorsed
for sufficient consideration. A similar presumption is found in Section 24 of the
Negotiable Instruments Law which provides that every negotiable instrument is
deemed prima facie to have been issued for valuable consideration and every person
whose signature appears thereon to have become a party for value.
Charles Lee vs. Court of Appeals, G.R. No. 117913, February 1, 2002
Mico Metals Corporation vs. Court of Appeals, G.R. No. 117914, February 1, 2002
Under the Negotiable Instruments Law, it is presumed that every party to an

instrument acquired the same for a consideration or for value.
Leodegario Bayani vs. People of the Phil., G.R. No. 155619, August 14, 2007
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Sec. 28 - Effect of Want of Consideration
When original payee repurchases a note unenforceable for lack of consideration.

If the original payee of a note unenforceable for lack of consideration repurchases
the instrument after transferring it to a holder in due course, the paper again becomes
subject in the payee's hands to the same defense to which it would have been subject if
the paper had never passed through the hands of a holder in due course. The same is
true where the instrument is retransferred to an agent of the payee.
Charles A. Fossum vs. Fernandez Hermanos, G.R. No. 19461, March 28, 1923
Drawee cannot allege want of consideration if he accepts the instrument

unconditionally.
The drawee, by accepting unconditionally the bill, becomes liable to the holder, and
cannot allege want of consideration between him and the drawer. The holder is a
stranger as regards the transaction between the drawer and the drawee, and if he has
given value to the drawer and has no knowledge of any equity between the drawer and
the drawee, he is in the same situation as an indorsee in good faith. Hence, in an
action brought by the holder against the acceptor it is no defense that the merchandise
sent by the drawer, and which constituted the consideration for the drawing of the bill,
is of inferior quality than was ordered by the drawee to such a degree that it is not
worth the value of the bill.
PNB vs. Bartolome Picornell, G.R. No. L-18751, September 26, 1922
Sec. 29 - Liability of Accommodation Party
Credit given to accommodation party is sufficient consideration to bind the

accommodation maker.
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Such an indorsement is generally for the purpose of better securing the payment of
the note - that is, he lends his name to the maker, not to the holder. Putting it in
another way: An accommodation note is one to which the accommodation party has
put his name, without consideration, for the purpose of accommodating some other
party who is to use it and is expected to pay it. The credit given to the accommodation
party is sufficient consideration to bind the accommodation maker. Where, however,
an indorsement is made as a favor to the indorsee, who requests it, not the better to
secure payment, but to relieve himself from a distasteful situation, and where the only
consideration for such indorsement passes from the indorser to the indorsee, the
situation does not present one creating an accommodation indorsement, nor one where
there is a consideration sufficient to sustain an action on the indorsement.
Fernando Maulini vs. Antonio G. Serrano, G.R. No. 8844, December 16, 1914
Effect of signature of one or more makers on a joint and several note.

The fact that a joint and several note has been signed by one or various of the
makers thereof for the accommodation by one or more of his or their comakers, does
not render him or them an accommodation maker or makers with respect to the
creditor who, upon the receipt of the note, pays the full value thereof. In such a case
the payment by the creditor of the value of the note upon the latter passing into his
hands, renders all the signers of the note liable thereon; and it is of no importance that
one or more of the signers has or have not received absolutely any part of the
consideration.
R.N. Clark vs. George C. Sellner, G.R. No. 16477, November 22, 1921
Accommodation notes are so drawn as to either express or imply a valuable

consideration prima facie.
An accommodation note showing on its face in express terms that it had been
issued for no consideration would be of little or no use to the payee, and for that
reason, if for no other, practically all accommodation notes are so drawn as to either
express or imply a valuable consideration prima facie.
BPI vs. Laguna Coconut Oil Co., G.R. No. 23252, September 24, 1925
An accommodation party is liable according to the face of his undertaking.

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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.
PNB vs. Ramon Maza, G.R. No. 24224. November 3, 1926
Relation between accommodation party and accommodated party is that of

principal and surety.
After making payment to the holder, the accommodation party may sue the
accommodated party for reimbursement, since the relation between them is in effect
that of principal and surety, the accommodation party being the surety.
PNB vs. Ramon Maza, G.R. No. 24224. November 3, 1926
Accommodation party is liable to a holder for value even if he did not receive
valuable consideration thereto.
The accommodation party is liable to a holder for value as if the contract was not
for accommodation. It is not a valid defense that the accommodation party did not
receive any valuable consideration when he executed the instrument. It is not correct
to say that the holder for value is not a holder in due course merely because at the time
he acquired the instrument, he knew that the indorser was only an accommodation
party.
Ang Tiong vs. Lorenzo Ting, G.R. No. L-26767, February 22, 1968
Last indorser of a forged check is deemed to be liable as accommodation party.

Although the one to whom the Bank paid the check was not proven to be the author
of the supposed forgery, as last indorser of the check, she has warranted that she has
good title to it even if in fact she did not have it because the payee of the check was
already dead eleven years before the check was issued. The fact that immediately after
receiving the cash proceeds of the check in question from the drawee bank she
immediately turned over said amount to another party, who in turn handed the amount
to somebody else on the same date would not exempt her from liability because by
doing so, she acted as an accommodation party in the check for which she is also
liable under Section 29 of the Negotiable Instruments Law.
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Defendant Maniego may also be deemed an "accommodation party" in the light of

the facts, i.e., 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." As such, she is under the law "liable on the instrument to a
holder for value, notwithstanding such holder at the time of taking the instrument
knew . . . (her) to be only an accommodation party," although she has the right, after
paying the holder, to obtain reimbursement from the party accommodated, "since the
relation between them is in effect that of principal and surety, the accommodation
party being the surety."
People of the Phil. vs. Julia Maniego, G.R. No. L-30910, February 27, 1987
As regards an accommodation party, the fourth condition, i.e., lack of notice of any
infirmity in the instrument or defect in title of the persons negotiating it, has no
application. This is because Section 29 of the law preserves the right of recourse of a
"holder for value" against the accommodation party notwithstanding that "such holder,
at the time of taking the instrument, knew him to be only an accommodation party."
Stelco Marketing Corporation vs. Court of Appeals, G.R. No. 96160, June 17, 1992
In accommodation transactions recognized by the Negotiable Instruments Law, 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 latter, in other words,
receives or realizes full value which the accommodated party then must repay to the
accommodating party, unless of course the accommodating party intended to make a
donation to the accommodated party. But 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. Having issued or indorsed the check, the accommodating party
has warranted to the holder in due course that he will pay the same according to its
tenor.
Travel-On, Inc. vs. Court of Appeals, G.R. No. 56169, June 26, 1992
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. Based on the foregoing requisites, it is not a valid defense that the
accommodation party did not receive any valuable consideration when he executed
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the instrument.
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. 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.
Ernestina Crisologo-Jose vs. Court of Appeals, G.R. No. 80599, September 15, 1989
In the case of Philippine Bank of Commerce v. Jose M. Aruego, G.R. Nos.

L-25836-37, January 31, 1981, the Court held that ". . . in lending his name to the
accommodated party, the accommodation party is in effect a surety. . . ." However,
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.
Eulalio Prudencio vs. Court of Appeals, G.R. No. L-34539, July 14, 1986
Although the defendant-appellant to whom the plaintiff Bank paid the check was
not proven to be the author of the supposed forgery, yet as last indorser of the check,
she has warranted that she has good title to it even if in fact she did not have it
because the payee of the check was already dead 11 years before the check was
issued. The fact that immediately after receiving the cash proceeds of the check in
question in the amount of P1,246.08 from the plaintiff Bank, defendant-appellant
immediately turned over said amount to Adelaida Dominguez (Third-Party defendant
and the Fourth-Party plaintiff) who in turn handed the amount to Justina Tinio on the
same date would not exempt her from liability because by doing so, she acted as an
accommodation party in the check for which she is also liable under Section 29 of the
Negotiable Instruments Law (Act 2031).
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As such accommodation makers, the individual obligation of each of them to the

bank is no different from, and no greater and no less than, that contracted by Oscar
Varona. For, while these two did not receive value on the promissory note, they
executed the same with, and for the purpose of lending their names to, Oscar Varona.
Their liability to the bank upon the explicit terms of the promissory note is joint and
several.
Simeon Sadaya vs. Francisco Sevilla, G.R. No. L-17845, April 27, 1967
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 with respect to the creditor
in the same position and with the same liability as the said signers. It should be noted
that the phrase "without receiving value therefor," as used in section 29 of the
aforesaid Act, means "without receiving value by virtue of the instrument" and not, as
it apparently is supposed to mean, "without receiving payment for lending his name."
If, as in the instant case, a sum of money was received by virtue of the note, it is
immaterial, so far as the creditor is concerned, whether one of the signers has, or has
not, received anything in payment of the use of his name.
R. N. Clark vs. George C. Sellner, G.R. No. 16477, November 22, 1921
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 the
same to be only an accommodation party."
Fernando Maulini vs. Antonio G. Serrano, G.R. No. 8844, December 16, 1914
An accommodation party is one who has signed the instrument as maker, drawer,
acceptor, 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
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because he wants to accommodate another.

Philippine Bank of Commerce vs. Jose M. Aruego, G.R. Nos. L-25836-37, January 31,
1981
Section 29 of the NIL defines an accommodation party as 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." As gleaned
from the text, 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.
Genevieve Lim vs. Florencio Saban, G.R. No. 163720, December 16, 2004
Ernestina Crisologo-Jose vs. Court of Appeals, G.R. No. 80599, September 15, 1989
Tomas Ang vs. Associated Bank, et al., G.R. No. 146511, September 5, 2007
Sec. 30 - What Constitutes Negotiation

Jose Velasco vs. Tan Liuan & Co., G.R. No. L-17230, March 17, 1922
It is important to bear in mind that 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.
Raul Sesbreo vs. Court of Appeals, G.R. No. 89252, May 24, 1993
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Sec. 32 - Indorsement Must Be of Entire Instrument
Partial indorsement is not negotiation.

Where the indorsement of a check is only for a part of the amount payable, it is not
legally negotiated within the meaning of section 32 of the Negotiable Instruments
Law.
Enrique P. Montinola vs. PNB, G.R. No. L-2861. February 26, 1951
Sec. 36 - When Indorsement Restrictive

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 forewarned 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.
Sec. 38 - Qualified Indorsement
Qualified indorsement does not relieve indorser of liability arising from

warranties.
A qualified indorsement constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorser's signature the words "without
recourse" or any words of similar import. Such an indorsement relieves the indorser of
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the general obligation to pay if the instrument is dishonored but not of the liability
arising from warranties on the instrument.
Metropol (Bacolod) Financing & Investment Corp. vs. Sambok Motors Company, et al.,
G.R. No. L-39641, February 28, 1983
Indorsing an instrument "with recourse" makes one a general indorser.

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.
The words added by appellant do not limit his liability, but rather confirm his
obligations as a general indorser.
Metropol (Bacolod) Financing & Investment Corp. vs. Sambok Motors Company and Ng
Sambok Sons Motors Co., Ltd., G.R. No. L-39641, February 28, 1983
Sec. 41 - Indorsement Where Payable to Two or More Persons

To be sure, a collecting bank, where a check is deposited and which indorses the
check upon presentment with the drawee bank, is an indorser. This is because in
indorsing a check to the drawee bank, a collecting bank stamps the back of the check
with the phrase "all prior endorsements and/or lack of endorsement guaranteed" and,
for all intents and purposes, treats the check as a negotiable instrument, hence,
assumes the warranty of an indorser. Without the collecting bank's warranty, the
drawee bank would not have paid the value of the subject check.
Metrobank vs. BA Finance Corp., et al., G.R. No. 179952, December 4, 2009
The collecting bank or last indorser, generally suffers the loss because it has the
duty to ascertain the genuineness of all prior indorsements considering that the act of
presenting the check for payment to the drawee is an assertion that the party making
the presentment has done its duty to ascertain the genuineness of prior indorsements.
Accordingly, one who credits the proceeds of a check to the account of the indorsing
payee is liable in conversion to the non-indorsing payee for the entire amount of the
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check.
Metrobank vs. BA Finance Corp., et al., G.R. No. 179952, December 4, 2009
Sec. 49 - Transfer Without Indorsement; Effect of

Section 49 of the Negotiable Instruments Law contemplates a situation whereby the
payee or indorsee delivers a negotiable instrument for value without indorsing it It
bears stressing that the above transaction is an equitable assignment and the transferee
acquires the instrument subject to defenses and equities available among prior parties.
Thus, if the transferor had legal title, the transferee acquires such title and, in addition,
the right to have the indorsement of the transferor and also the right, as holder of the
legal title, to maintain legal action against the maker or acceptor or other party liable
to the transferor. The underlying premise of this provision, however, is that a valid
transfer of ownership of the negotiable instrument in question has taken place.
Bank of the Philippine Islands vs. Court of Appeals, et al., G.R. No. 136202, January
25, 2007
Sec. 51 - Right of Holder to Sue; Payment

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 The only disadvantage
of a holder who is not a holder in due course is that the negotiable instrument is
subject to defenses as if it were non-negotiable.
Chan Wan vs. Tan Kim, G.R. No. L-15380, September 30, 1960
There can be no question that the petitioner, as the payee named in, and as the
holder of each of the five bills of exchange sued upon, is entitled under section 51 of
the Negotiable Instruments Law to sue upon said instruments in its own name.
Westminster Bank, Ltd. vs. Luis P. Torres, G.R. No. 38139, October 27, 1932
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Sec. 52 - What Constitutes a Holder in Due Course
When a holder not in due course may recover from a person primarily liable.
A person who is not himself a holder in due course of a negotiable instrument may
yet recover against the person primarily liable thereon, even though the consideration
for the instrument has failed, where it appears that such holder derives his title
through a holder in due course. But in order that the holder may recover on the
instrument under such circumstances, it is incumbent upon him to show that he person
through whom he derives his indefeasible title was a holder in due course; and this
must be proved as an independent matter of fact.
When presumption of being a holder in due course arises.

The presumption expressed in section 59 of the Negotiable Instruments Law, to the
effect that every holder is deemed prima facie to be a holder in due course, arises only
in favor of a person who is a holder in the sense defined in section 191 of the same
Law, that is, a payee or indorses who is in possession of the draft, or the bearer
thereof. There is no presumption that a person through whose hands an instrument has
passed was a holder in due course.
When holder not deemed a holder in due course.

There is no doubt that as the plaintiff had purchased the two promissory notes in
question without the necessary endorsement on the part of the holder after payment
thereof had already been one year overdue, and without having made inquiries about
the solvency of their makers, he cannot be considered a holder in due course.
Isidro S. Santos vs. Arturo P. Reyes, G.R. No. 42081, June 26, 1937
Disadvantage of one who is not a holder in due course.

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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. The only disadvantage
Chan Wan vs. Tan Kim and Chen So, G.R. No. L-15380, September 30, 1960
Presumption that one is a holder in due course does not exist where his title is
defective or suspicious.
Where a holder's title is defective or suspicious, it cannot be stated that the payee
acquired the check without the 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.
Vicente R. de Ocampo & Co. vs. Anita Gatchalian, G.R. No. L-15126, November 30,
1961
Bank encashing a check is not deemed holder in due course if payee requested
deferment of presentment.
The fact that the payee of a check payable on demand requested the encashing bank
to defer the presentment for collection of the same to the drawee bank to a later date,
is an indication of an infirmity in the instrument or defect in the title of the person
negotiating it, so that the encashing bank cannot be considered a holder in due course.
Neither can appellant be considered as a holder in due course because section 52 of

said law defines a holder in due course as a holder who has taken the instrument under
certain conditions, one of which is that he became the holder before it was overdue.
When appellant received the check, it was long overdue.
Enrique P. Montinola vs. Philippine National Bank, G.R. No. L-2861, February 26, 1951
In the instant case, the checks were crossed checks and specifically indorsed for
deposit to payee's account only. From the beginning, Atrium was aware of the fact
that the checks were all for deposit only to payee's account, meaning E.T. Henry.
Clearly, then, Atrium could not be considered a holder in due course.
Atrium Management Corp. vs. Court of Appeals, G.R. No. 109491, February 28, 2001
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Lourdes M. De Leon vs. Court of Appeals, G.R. No. 121794, February 28, 2001
Sec. 55 - When Title Defective

Pursuant to this provision, it is vital to show that the negotiation is made by the
perpetrator 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, through their
own negligence, allowed the commission of the crime.
Ford Philippines, Inc. vs. Court of Appeals, G.R. No. 121479, January 29, 2001
Ford Philippines, Inc. vs. Citibank, G.R. No. 128604, January 29, 2001
Sec. 57 - Rights of Holder in Due Course

As it does not appear from the record that the promissory notes in question are still
at the disposal of Alfred Berwin & Co., so that they may return them to the maker
Anselmo Diaz upon the latter's making the payment thereof, said Diaz cannot be
compelled to pay the sum of the said promissory notes to any person save the holder
of such documents in due course, for said person is the one entitled to receive it.
Bank of the Philippine Islands vs. Alfred Berwin & Company, G.R. No. 29075, October
2, 1928
Sec. 58 - When Subject to Original Defenses

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. The only disadvantage
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Chan Wan vs. Tan Kim, G.R. No. L-15380, September 30, 1960
Sec. 59 - Who is Deemed Holder in Due Course

The rule that a possessor of the instrument is prima facie a holder in due course
does not apply because there was a defect in the title of the holder because the
instrument is not payable to him or to bearer. On the other hand, the stipulation of
facts indicated by the appellants in their brief, like the fact that the drawer had no
account with the payee; that the holder did not show or tell the payee why he had the
check in his possession and why he was using it for the payment of his own personal
account show that holder's title was defective or suspicious, to say the least. 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.
Vicente R. De Ocampo & Co. vs. Anita Gatchalian, G.R. No. L-15126, November 30,
1961
The law presumes that a holder of a negotiable instrument is a holder thereof in due
course.
Sps. Pedro and Florencia Violago vs. BA Finance Corp., et al., G.R. No. 158262, July
21, 2008
Sec. 60 - Liability of Maker
Payee's interest is merely to see that the note be paid according to its terms.
The maker of a promissory note cannot escape liability by alleging that he spent the
money for the medical treatment of his daughter, the beneficiary of the trustee who is
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the payee of the note, since it is not the payee's concern to know how said proceeds
should be spent, inasmuch as that is the sole concern of the maker, and payee's interest
is merely to see that the note be paid according to its terms.
J. Antonio Araneta vs. Antonio Perez, G.R. Nos. L-20787-8, June 29, 1965
As makers of the negotiable instruments, they must keep their engagement and
must pay as promised. Their liability on the instruments is primary and unconditional.
PNB vs. Ramon Maza, G.R. No. 24224, November 3, 1926
The liability of the defendant, as one of the signers of the note, is not dependent on
whether he has, or has not, received any part of the amount of the debt. The defendant
is really and expressly one of the joint and several debtors on the note, and as such he
is liable under the provisions of section 60 of Act No. 2031.
Sec. 61 - Liability of Drawer
Drawer of a bill becomes liable for the payment of its value if it is not paid.
The fact that the drawer was a commission agent of the drawee in the purchase of
the merchandise covered by the bill does not necessarily make him an agent of the
drawee in his obligations emanating from the bill drawn by him. His acts in
negotiating the bill constitute a contract distinct from that made by his having
purchased the merchandise on behalf of the drawee, unless at the time of signing the
bill he should have added to his signature some expression to indicate it. (Sec. 20,
Negotiable Instruments Law.) Nor is his liability as drawer affected by the fact that
the merchandise shipped by him, which constituted the consideration for the drawing
of the bill, was or was not of inferior quality.
Without due presentment, drawer does not become liable.

The drawer in drawing the check engaged that on due presentment, the check
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would be paid, and that if it be dishonored, he will pay the amount thereof to the
holder. Wherefore, in the absence of due presentment, the drawer did not become
liable.
Sec. 62 - Liability of Acceptor
Drawee becomes primarily liable upon unconditional acceptance of drafts.

As such negotiable instruments, when the drafts were unconditionally accepted by
defendant as drawee, the latter became primarily liable thereon for their respective
values.
PNB, et al. vs. Union Books Incorporated, G.R. No. L-8490, August 30, 1957
Westminster Bank, Ltd. vs. Luis P. Torres, G.R. No. 38139, October 27, 1932
Acceptance is unnecessary for bills of exchange payable on demand.

In view of the fact that acceptance is a step unnecessary in so far as bills of
exchange payable on demand are concerned (sec. 143), it follows that the provisions
relative to "acceptance" are without application to checks. Acceptance implies, in
effect, subsequent negotiation of the instrument, which is not true in case of the
payment of a check because from the moment a check is paid it is withdrawn from
circulation. The warranty established by section 62, is in favor of holders of the
instrument after its acceptance. When the drawee bank 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 warranty provided in section 62 against the drawee.
Drawee who unconditionally accepts the bill cannot allege want of consideration
between him and the drawer.
The drawee, by accepting unconditionally the bill, becomes liable to the holder, and
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cannot allege want of consideration between him and the drawer. The holder is a
stranger as regards the transaction between the drawer and the drawee, and if he has
given value to the drawer and has no knowledge of any equity between the drawer and
the drawee, he is in the same situation as an indorsee in good faith. Hence, in an
action brought by the holder against the acceptor it is no defense that the merchandise
sent by the drawer, and which constituted the consideration for the drawing of the bill,
is of inferior quality than was ordered by the drawee to such a degree that it is not
worth the value of the bill.
When bank is estopped to deny the genuineness of drawer's signature.

Where a check is accepted or certified by the bank on which it is drawn, the bank is
estopped to deny the genuineness of the drawer's signature and his capacity to issue
the instrument.
Act No. 2031, or 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. His actual payment of the amount in
the check implies not only his assent to the order of the drawer and a recognition of
his corresponding obligation to pay the aforementioned sum, but also, his clear
compliance with that obligation. 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.
Far East Bank & Trust Co. vs. Gold Palace Jewellery Co., G.R. No. 168274, August 20,
2008
Philippine National Bank vs. Court of Appeals, G.R. No. L-26001, October 29, 1968
Having relied on the drawee bank's clearance and payment of the draft and not
being negligent (it delivered the purchased jewelry only when the draft was cleared
and paid), respondent is amply protected by the said Section 62. Commercial policy
favors the protection of any one who, in due course, changes his position on the faith
of the drawee bank's clearance and payment of a check or draft.
2008
Thus, considering that, in this case, Gold Palace is protected by Section 62 of the
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NIL, its collecting agent, Far East, should not have debited the money paid by the
drawee bank from respondent company's account. When Gold Palace deposited the
check with Far East, the latter, under the terms of the deposit and the provisions of the
NIL, became an agent of the former for the collection of the amount in the draft. 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, as
already discussed, foreclosed the recovery by the drawee of the amount paid. This
closure of the transaction is a matter of course; otherwise, uncertainty in commercial
transactions, delay and annoyance will arise if a bank at some future time will call on
the payee for the return of the money paid to him on the check.
2008
Jai-Alai Corporation vs. Bank of the Philippine Islands, G.R. No. L-29432, August 6,
1975
A depositary/collecting bank may resist or defend against a claim for breach of

warranty if the drawer, the payee, or either the drawee bank or depositary bank was
negligent and such negligence substantially contributed to the loss from alteration.
Areza v. Express Savings Bank, Inc., G.R. No. 176697, September 10, 2014
Sec. 63 - When Person Deemed Indorser

Nothing in the check in question indicates that the appellant is not a general
indorser within the purview of section 63 of the Negotiable Instruments Law which
makes "a person placing his signature upon an instrument otherwise than as maker,
drawer or acceptor" a general indorser, "unless he clearly indicates by appropriate
words his intention to be bound in some other capacity," which he did not do.
05plpecda
Ang Tiong vs. Lorenzo Ting, G.R. No. L-26767, February 22, 1968
Section 63 of Act No. 2031 or the Negotiable Instruments Law provides that the
acceptor, by accepting the instrument, engages that he will pay it according to the
tenor of his acceptance. The acceptor is a drawee who accepts the bill. In Philippine
National Bank v. Court of Appeals, the payment of the amount of a check implies not
only acceptance but also compliance with the drawee's obligation.
Areza v. Express Savings Bank, Inc., G.R. No. 176697, September 10, 2014, citing
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PNB v. Court of Appeals, G.R. No. L-26001, October 29, 1968
Sec. 65 - Warranty Where Negotiation by Delivery and So Forth
Indorser warrants to the drawee that the signatures of payee and previous
indorsers are genuine.
It is not supposed to be the duty of a drawee bank 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.
05plpecda
Sec. 66 - Liability of General Indorser
Law defines liability of a person who makes an unqualified indorsement of a

promissory note.
When a person makes an unqualified indorsement of a promissory note, the
Negotiable Instruments Law specifies and defines his liability, and parol testimony is
not admissible to explain or defeat such liability.
Jose Velasco vs. Tan Liuan & Co., G.R. No. L-17230, March 17, 1922
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, and any material alteration in the terms of this contract by the holder of the
same, without the consent of the obligor, will relieve such obligor from all liability
thereon.
Notwithstanding that the defendant is relieved from liability by reason of this
material alteration in his indorsement, we hold that his original indorsement created
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no liability whatever. The original indorsement by the defendant was for the purpose
only of assuring the plaintiff that the signature of V. S. Wolff, as attached to the
original bill of exchange, was genuine that is to say, that the person whom he
represented himself to be. It was an indorsement of identification of the person only,
and not for the purpose of incurring any liability as to the payment of such bill of
exchange. There was no attempt to show that the drawer of said bill of exchange, V.
S. Wolff, was not the person who actually drew and signed said bill of exchange.
American Bank vs. Macondray & Co., G.R. No. 1808, August 23, 1905
Under Section 67 of the Negotiable Instruments Law, "Where a person places his
indorsement on an instrument negotiable by delivery he incurs all the liability of an
indorser," and under Section 66 of the same statute a general indorser warrants that
the instrument "is genuine and in all respects what it purports to be." Considering that
the petitioner indorsed the said checks when it deposited them with the respondent,
the petitioner as an indorser guaranteed the genuineness of all prior indorsements
thereon. The respondent which relied upon the petitioner's warranty should not be
held liable for the resulting loss.
Jai-Alai Corporation of the Philippines vs. Bank of the Philippine Island, G.R. No.
L-29432, August 6, 1975
The supposed assurances of refund in case of dishonor of the check are precisely
the ordinary obligations of an indorser, and these obligations are, under the law,
considered discharged by an unreasonable delay in the presentation of the check for
payment.
PNB vs. Benito Seeto, G.R. No. L-4388, August 13, 1952
The Negotiable Instruments Law contains provisions establishing the liability of a

general indorser and giving the procedure for notice of dishonor. The general indorser
of a negotiable instrument engages that if it be dishonored and the necessary
proceedings of dishonor be duly taken, he will pay the amount thereof to the holder. In
this connection, it has been held by a long line of authorities that notice of dishonor is
necessary in order to charge an indorser and that the right of action against him does
not accrue until the notice is given.
Asia Banking Corp. vs. Juan Javier, G.R. No. 19051, April 4, 1923
Paulino Gullas vs. Phil. National Bank, G.R. No. 43191, November 13, 1935
It is thus clear that ordinarily private respondent may be held liable as an indorser
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of the check or even as an accommodation party. However, to hold private

respondent liable for the amount of the check he deposited by the strict application of
the law and without considering the attending circumstances in the case would result
in an injustice and in the erosion of the public trust in the banking system.
Bank of the Phil. Islands vs. Court of Appeals, G.R. No. 112392, February 29, 2000
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.
Associated Bank vs. Court of Appeals, G.R. No. 107382, January 31, 1996
Philippine National Bank, vs. Honorable Court of Appeals, et al., G.R. No. 107612,
January 31, 1996
It is undisputed that the four (4) checks issued by de Guzman were signed by
petitioner at the back without any indication as to how she should be bound thereby
and, therefore, she is deemed to be an indorser thereof.
Remedios Nota Sapiera vs. Court of Appeals, G.R. No. 128927, September 14, 1999
A depositary/collecting bank where a check is deposited, and which endorses the

check upon presentment with the drawee bank, is an endorser. Under Section 66 of the
Negotiable Instruments Law, an endorser warrants "that the instrument is genuine and
in all respects what it purports to be; that he has good title to it; that all prior parties
had capacity to contract; and that the instrument is at the time of his endorsement
valid and subsisting." It has been repeatedly held that in check transactions, the
depositary/collecting bank or last endorser generally suffers the loss because it has the
duty to ascertain the genuineness of all prior endorsements considering that the act of
presenting the check for payment to the drawee is an assertion that the party making
the presentment has done its duty to ascertain the genuineness of the endorsements. If
any of the warranties made by the depositary/collecting bank turns out to be false,
then the drawee bank may recover from it up to the amount of the check. 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.
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Sec. 70 - Effect of Want of Demand on Principal Debtor

There is no question that upon accepting it, defendant became a party primarily
liable; and the holder (Philippine National Bank) may sue him, even if there had been
no presentation for payment on the day of maturity.
PNB vs. Jose C. Zulueta, G.R. No. L-7271, August 30, 1957
Sec. 71 - Presentment Where Instrument is Not Payable on Demand and

Where Payable on Demand
Under the negotiable instruments law, an instrument not payable on demand must
be presented for payment on the day it falls due. When the instrument is payable on
demand, presentment must be made within a reasonable time after its issue. In the
case of a bill of exchange, presentment is sufficient if made within a reasonable time
after the last negotiation thereof.
International Corporate Bank vs. Francis S. Gueco, G.R. No. 141968, February 12,
2001
Sec. 74 - Instrument Must Be Exhibited

As it does not appear from the record that the promissory notes in question are still
at the disposal of Alfred Berwin & Co., so that they may return them to the maker
upon the latter's making the payment thereof, said maker cannot be compelled to pay
the sum of the said promissory notes to any person save the holder of such documents
in due course, for said person is the one entitled to receive it.
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Bank of the Philippine Islands vs. Alfred Berwin & Company, G.R. No. 29075, October
2, 1928
Sec. 84 - Liability of Person Secondarily Liable, When Instrument Dishonored
Person secondarily liable becomes principal debtor after instrument is dishonored

by non-payment.
After an instrument is dishonored by non-payment, the person secondarily liable
thereon ceases to be such and becomes a principal debtor. His liability becomes the
same as that of the original obligor. Consequently, the holder need not even proceed
against the maker before suing the indorser.
Metropol (Bacolod) Financing & Investment Corp. vs. Sambok Motors Company and Ng
Sambok Sons Motors Co., Ltd., G.R. No. L-39641, February 28, 1983
Failure to notify indorser frees him from all liability upon the document.
If, after a negotiable instrument is dishonored for non-acceptance of non-payment,
the endorser is not notified of the fact in the time and manner prescribed by the law,
said endorser is released from all liability upon the document.
Asia Banking Corp. vs. Juan Javier, G.R. No. 19051, April 4, 1923.
Time of payment may be extended by oral agreement.

The time of payment of a bill or note may be extended by an oral agreement. An
agreement to extend the time of payment in order to be valid must be for a definite
time.
Philippine Engineering Co. vs. B.A. Green, G.R. No. 24486, December 16, 1925
Dishonor of check upon presentment differs in consequences from its being stale
for non-presentment.
The dishonoring of a check upon presentment, and its being stale for not being
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presented at all time, are incompatible developments that naturally have variant legal
consequences. Thus, if indeed the check in question had been dishonored then there
can be no doubt that petitioner's redemption was null and void. On the other hand, if it
had only become stale, then it becomes imperative that the circumstances that caused
its non-presentment be determined, for if this was not due to the fault of the petitioner,
then it would be unfair to deprive him of the rights he had acquired as redemptioner,
particularly, if, after all, the value of the check has otherwise been received or realized
by the party concerned.
Raymundo A. Crystal vs. CA, G.R. No. L-35767, June 18, 1976
The silence of Section 186 as to the indorser is due to the fact that his discharge is
already expressly covered by the provision of Section 84, the indorser being a person
secondarily liable on the instrument. The reason for the difference between the
liability of the indorser and that of the drawer in case of dishonor is that the drawer is
not probably or necessarily prejudiced thereby, while an indorser is, actually or by
legal presumption.
Philippine National Bank vs. Benito Seeto, G.R. No. L-4388, August 13, 1952
Sec. 89 - To Whom Notice of Dishonor Must Be Given
Right of action against indorser does not accrue until notice.

Notice of dishonor is necessary in order to charge an indorser, and the right of
action against him does not accrue until the notice is given.
Paulino Gullas vs. PNB, G.R. No. 43191, November 13, 1935
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 of each of the endorsers, and those who are
not notified that the document was dishonored. 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 endorser, 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. If these facts are
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not proven, the plaintiff has not sufficiently established the defendant's liability.
Asia Banking Corp. vs. Juan Javier, G.R. No. 19051, April 4, 1923
Sec. 114 - When Notice Need Not Be Given to Drawer

(d)
Where the drawer has no right to expect or require that the drawee or
acceptor will honor the instrument.
Jose Velasco Vs. Tan Liuan & Co., G.R. No. L-17230, March 17, 1922
Secs. 119 (d) and 122

As the promissory notes were not discharged or impaired through any act or
omission of the bank, Sections 119 (d) and 122 of the NIL as well as Art. 1249 of the
Civil Code would necessarily find no application.
Tomas Ang vs. Associated Bank, et al., G.R. No. 146511, September 5, 2007
Sec. 124 - Alteration of Instrument; Effect of

In case the negotiable instrument is altered before acceptance, is the drawee liable
for the original or the altered tenor of acceptance? There are two divergent
intepretations proffered by legal analysts. The first view is supported by the leading
case of National City Bank of Chicago v. Bank of the Republic. In said case, a certain
Andrew Manning stole a draft and substituted his name for that of the original payee.
He offered it as payment to a jeweler in exchange for certain jewelry. The jeweler
deposited the draft to the defendant bank which collected the equivalent amount from
the drawee. Upon learning of the alteration, the drawee sought to recover from the
defendant bank the amount of the draft, as money paid by mistake. The court denied
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recovery on the ground that the drawee by accepting admitted the existence of the
payee and his capacity to endorse.
The second view is that the acceptor/drawee despite the tenor of his acceptance is
liable only to the extent of the bill prior to alteration. This view appears to be in
consonance with Section 124 of the Negotiable Instruments Law which states that a
material alteration avoids an instrument except as against an assenting party and
subsequent indorsers, but a holder in due course may enforce payment according to its
original tenor. Thus, 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. If the drawee 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 right to deduct the erroneous payment
it made from the drawer's account which it was expected to treat with utmost fidelity.
The drawee, however, still has recourse to recover its loss. It may pass the liability
back to the collecting bank which is what the drawee bank exactly did in this case. It
debited the account of Equitable-PCI Bank for the altered amount of the checks.
Areza v. Express Savings Bank, Inc., G.R. No. 176697, September 10, 2014, citing
National City Bank of Chicago v. Bank of the Republic, 300 Ill. 103, 132 N.E. 832, 22
A.L.R. 1153
Bank assumes risk if it encashes check without first clearing it with drawee bank.
Where a bank to which a check was negotiated encashes the same without first
clearing it with the drawee bank, contrary to normal banking practice, and the check is
dishonored by the drawee bank on the ground that the drawer had ordered payment to
be stopped because the check was fraudulently altered, the encashing bank assumes
the risk and no right of payment could be acquired by the latter against any party
thereto.
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, and any material alteration in the terms of this contract by the holder of the
same, without the consent of the obligor, will relieve such obligor from all liability
thereon.
American Bank vs. Macondray & Co., G.R. No. 1808, August 23, 1905
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Sec. 125 - What Constitutes Material Alteration

Conversion of bank from drawee to drawer constitutes material alteration which
discharges the instrument.
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.
Enrique P. Montinola vs. PNB, G.R. No. L-2861. February 26, 1951
[T]he 24-hour clearing rule does not apply to altered checks.

Sec. 126 - Bill of Exchange

The weight of authority in the United Status is that postal money orders are not
negotiable instruments (Bolognesi vs. U. S., 189 Fed. 395; U. S. vs. Stock Drawers
National Bank, 30 Fed. 912), the reason behind this rule being that, in establishing and
transactions but merely exercises a governmental power for the public benefit.
It is to be noted in this connection that 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 (49 C. J. 1153).
Philippine Education Co., Inc. vs. Mauricio A. Soriano, et al., G.R. No. L-22405, June
30, 1971
As long as a commercial paper conforms with the definition of a bill of exchange,

that paper is considered a bill of exchange. The nature of acceptance is important only
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in determination of whether a commercial paper is a bill of exchange or not.

The Philippine Bank of Commerce vs. Jose M. Aruego, G.R. Nos. L-25836-37, January
31, 1981
Sec. 129 - Inland and Foreign Bills of Exchange

The draft is a foreign bill of exchange, because, drawn in New York, it is payable
here. Although the amount payable is expressed in dollars - not current money here - it
is still negotiable, for it may be discharged with pesos of equivalent amount.
PNB vs. Jose C. Zulueta, G.R. No. L-7271, August 30, 1957
Sec. 132 - Acceptance; How Made, and So Forth
Actual payment of amount of check implies compliance by drawee with his

obligation.
The acceptance of a bill is the signification by the drawee of his assent to the order
of the drawer, which in the case of checks, is the payment on demand, of a given sum
of money. Upon the other hand, actual payment of the amount of a check implies not
only an assent to said order of the drawer and a recognition of the drawee's obligation
to pay the aforementioned sum, but, also, a compliance with such obligation.
PNB vs. CA and PCI Bank, G.R. No. L-26001, October 29, 1968
Sec. 143 - Presentment for Acceptance

In general, "acceptance", in the sense in which this term is used in the Negotiable
Instruments Law , is not required for checks, for the same are payable on demand.
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Indeed, "acceptance" and "payment" are, within the purview of said Law, essentially
different things, for the former is "a promise to perform an act," whereas the latter is
the "actual performance" thereof. In the words of the law, "the acceptance of a bill
is the signification by the drawee of his assent to the order of the drawer," which, in
the case of checks, is the payment, on demand, of a given sum of money. Upon the
other hand, actual payment of the amount of a check implies not only an assent to said
order of the drawer and a recognition of the drawee's obligation to pay the
aforementioned sum, but, also, a compliance with such obligation.
Philippine National Bank vs. Court of Appeals, G.R. No. L-26001, October 29, 1968
Sec. 152 - In What Cases Protest Necessary

Marlou L. Velasquez vs. Solidbank Corp., G.R. No. 157309, March 28, 2008
Sec. 184 - Promissory Note

A promissory note is a solemn acknowledgment of a debt and a formal
commitment to repay it on the date and under the conditions agreed upon by the
borrower and the lender. A person who signs such an instrument is bound to honor it
as a legitimate obligation duly assumed by him through the signature he affixes
thereto as a token of his good faith. If he reneges on his promise without cause, he
forfeits the sympathy and assistance of this Court and deserves instead its sharp
repudiation.
Pentacapital Investment Corp. vs. Makilito B. Mahinay, G.R. Nos. 171736 & 181482,
July 5, 2010, citing Sierra v. Court of Appeals, G.R. No. 90270, July 24, 1992
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.
Astro Electronics Corp. vs. Phil. Export And Foreign Loan Guarantee Corp., G.R. No.
136729, September 23, 2003
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Promissory notes executed to evidence crop loans become due and demandable
only at end of agricultural year.
Promissory notes executed to evidence crop loans to be used for plowing,
purchasing seeds, planting, cultivation, harvesting, marketing transportation etc. for
the agricultural year 1943 1944 became due and demandable only at the end of the
said agricultural year - more or less around the month of April, 1944.
In the Matter of the Testate Estate of the deceased German Gaston, Victoria Vda. de
Gaston vs. Republic of the Philippines, G.R. No. L-20320, March 30, 1967
Sec. 185 - Check

Among the different types of checks issued by a drawer is the crossed check. The
Negotiable Instruments Law is silent with respect to crossed checks, although the
Code of Commerce makes reference to such instruments. We have 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 could not be converted into cash.
Thus, the effect of crossing a check 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. The change in the mode of paying the obligation was not a change in
any of the objects or principal condition of the contract for novation to take place.
Anamer Salazar vs. J.Y. Brothers Marketing Corp., G.R. No. 171998, October 20, 2010
Crossed check is generally deposited with bank mentioned in the crossing.

Where a check is crossed specially in favor of a certain bank, the check is generally
deposited with the bank mentioned in the crossing, so that the latter may take charge
of the collection. If it is not presented by said bank for payment, the drawee is liable to
the true owner, in case of payment to persons not entitled thereto.
Where duty to prove acquisition of check in good faith devolves upon payee.
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Where the payee acquired the check under circumstances which should have put it
to inquiry, why the holder had the check and used it, to pay his own personal account,
the duty devolved upon it to prove that it actually acquired said check in good faith.
Vicente R. de Ocampo & Co. vs. Anita Gatchalian, G.R. No. L-15126, November 30,
1961
Purchaser of check or draft is obliged to satisfy himself that the paper is genuine.
One who purchases a check or draft is bound to satisfy himself that the paper is
genuine, and that by indorsing it or presenting it for payment or putting it into
circulation before presentation he impliedly asserts that he performed his duty.
Checks and money orders may be bought and sold like commodities.
Checks, as bills of exchange, are negotiable instruments and may be bought and
sold like a commodity. Money orders, also considered as bills of exchange of limited
negotiability, possess the same attributes as other negotiable instruments. Thus, they
may also be bought and sold like checks.
Manuel Bastida vs. Acting Commissioner of Customs, G.R. No. L-24011, October 24,
1970
However, postal money orders are not negotiable instruments.

The weight of authority in the United States is that postal money orders are not
negotiable instruments, the reason behind this rule being that, in establishing and
transactions but merely exercises a governmental power for the public benefit. It is to
be noted in this connection that some of the restrictions imposed upon money orders
by postal laws and regulations are inconsistent with the character of negotiable
instruments.
Philippine Education Co., Inc. vs. Mauricio A. Soriano, G.R. No. L-22405, June 30,
1971
Memorandum check signifies that maker/drawer engages to pay bona fide holder
unconditionally.
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A memorandum check is in the form of an ordinary check, with the word

"memorandum", "memo" or "mem" written across its face, signifying that the maker
or drawer engages to pay the bona fide holder absolutely, without any condition
concerning its presentment. Such a check is an evidence of debt against the drawer,
and although may not be intended to be presented, has the same effect as an ordinary
check, and if passed to a third person, will be valid in his hands like any other check.
People of the Phil. vs. Hon. David G. Nitafan, G.R. No. 75954, October 22, 1992
Negotiability of a check is not affected by its being crossed.

According to commentators, the negotiability of a check is not affected by its being
crossed, whether specially or generally. It may legally be negotiated from one person
to another as long as the one who encashes the check with the drawee bank is another
bank, or if it is especially crossed, by the bank mentioned between the parallel lines.
This is specially true in England where the Negotiable Instrument Law originated.
No. 93048, March 3, 1994
Effects of crossing a check.

Crossing of a check should have the following effects: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be negotiated only once
to one who has an account with a bank; (c) and the act of crossing the check serves as
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.
No. 93048, March 3, 1994
Holder of crossed check deemed not in good faith if it fails to ascertain indorser's
title or nature of possession.
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
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of the check is not a holder in due course.

No. 93048, March 3, 1994
A crossed check with the notation "account payee only" can only be deposited in
the named payee's account. It is gross negligence for a bank to ignore this rule solely
on the basis of a third party's oral representations of having a good title thereto.
Equitable Banking Corp. vs. Special Steel Products, Inc., et al., G.R. No. 175350, June
13, 2012
The checks that Interco issued in favor of SSPI were all crossed, made payable to
SSPI's order, and contained the notation "account payee only." This creates a
reasonable expectation that the payee alone would receive the proceeds of the checks
and that diversion of the checks would be averted. This expectation arises from the
accepted banking practice that crossed checks are intended for deposit in the named
payee's account only and no other. At the very least, the nature of crossed checks
should place a bank on notice that it should exercise more caution or expend more
than a cursory inquiry, to ascertain whether the payee on the check has authorized the
holder to deposit the same in a different account. It is well to remember that "[t]he
banking system has become an indispensable institution in the modern world and
plays a vital role in the economic life of every civilized society. Whether as mere
passive entities for the safe-keeping and saving of money or as active instruments of
business and commerce, banks have attained an [sic] ubiquitous presence among the
people, who have come to regard them with respect and even gratitude and, above all,
trust and confidence. In this connection, it is important that banks should guard
against injury attributable to negligence or bad faith on its part. As repeatedly
emphasized, since the banking business is impressed with public interest, the trust and
confidence of the public in it is of paramount importance. Consequently, the highest
degree of diligence is expected, and high standards of integrity and performance are
required of it.
13, 2012 citing Security Bank and Trust Company vs. Rizal Commercial Banking
Corporation, G.R. Nos. 170984 & 170987, January 30, 2009
The fact that a person, other than the named payee of the crossed check, was
presenting it for deposit should have put the bank on guard. It should have verified if
the payee (SSPI) authorized the holder (Uy) to present the same in its behalf, or
indorsed it to him. Considering however, that the named payee does not have an
account with Equitable (hence, the latter has no specimen signature of SSPI by which
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to judge the genuineness of its indorsement to Uy), the bank knowingly assumed the
risk of relying solely on Uy's word that he had a good title to the three checks. Such
misplaced reliance on empty words is tantamount to gross negligence, which is the
"absence of or failure to exercise even slight care or diligence, or the entire absence of
care, evincing a thoughtless disregard of consequences without exerting any effort to
avoid them."
13, 2012 citing Metropolitan Bank and Trust Company v. BA Finance Corporation, G.R.
No. 179952, December 4, 2009
A check is a bill of exchange payable on demand and only the rules governing bills
of exchange payable on demand are applicable to it, according to section 185 of the
Negotiable Instruments Law.
Philippine National Bank vs. The National City Bank of New York, G.R. No. 43596,
October 31, 1936
The checks in question which plaintiff drew on its foreign correspondents were
orders for the payment of money and clearly come within the definitions of a bill of
exchange under section 126 and a check as defined in section 185, and, as such, are
foreign bills of exchange within the meaning of subsection (i) of section 1449 of the
Administrative Code of 1917.
Bank of the Phil. Islands vs. Wenceslao Trinidad, G.R. No. 22967, February 27, 1925
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.
New Pacific Timber & Supply Co. vs. Alberto V. Seneris, G.R. No. L-41764, December
19, 1980
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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 (citing Sec. 189,
Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan London Co. vs. American
Bank, 7 Phil. 255; Tan Sunco vs. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check,
whether a manager's check or ordinary check, 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.
Roman Catholic Bishop of Malolos, Inc. vs. Intermediate Appellate Court, G.R. No.
72110, November 16, 1990
A check is a bill of exchange drawn on a bank payable on demand. Thus, a check

is a written order addressed to a bank or persons carrying on the business of banking,
by a party having money in their hands, requesting them to pay on presentment, to a
person named therein or to bearer or order, a named sum of money.
Sps. George and Librada Moran vs. Court of Appeals, G.R. No. 105836, March 7, 1994
The law is that a check produces the effect of payment only when it has been
cashed.
Raymundo A. Crystal vs. Court of Appeals, G.R. No. L-35767, June 18, 1976
Sec. 186 - Within What Time a Check Must Be Presented
Indorser is wholly discharged irrespective of question of loss or inquiry.

Although the drawer of a check is discharged from liability only to the extent of the
loss caused by unreasonable delay in presenting the check for payment, an indorser is
wholly discharged thereby irrespective of any question of loss or inquiry.
Delay of 27 days from indorsement to presentation of check deemed unreasonable.

A delay of 27 days from the date of indorsement to that of the presentation of the
check for payment at the drawee bank, is unreasonable, and consequently, discharges
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52
completely the indorser from liability.

It is also true that Section 84 is applicable, but its application is subject to the
condition imposed by Section 186, to the effect that the check must be presented for
payment within a reasonable time after its issue.
Philippine National Bank vs. Benito Seeto, G.R. No. L-4388, August 13, 1952
A check must be presented for payment within a reasonable time after its issue,
and in determining what is a "reasonable time," regard is to be had to the nature of the
instrument, the usage of trade or business with respect to such instruments, and the
facts of the particular case. The test is whether the payee employed such diligence as
a prudent man exercises in his own affairs. This is because the nature and theory
behind the use of a check points to its immediate use and payability.
2001
A check is not legal tender and that a creditor may validly refuse payment by check,
whether it be a manager's, cashier's or personal check.
Norberto Tibajia, Jr., et al. vs. Court of Appeals, G.R. No. 100290, June 4, 1993
Sec. 191 - Definition and Meaning of Terms

Manuel Lim vs. Court of Appeals, G.R. No. 107898, December 19, 1995
Acceptance
Moreover, according to section 191, "acceptance" means "an acceptance completed
by delivery or notification" and this concept is entirely incompatible with payment,
because when payment is made the check is retained by the bank, and there is no such
thing as delivery or notification to the party receiving the payment. (1 Bouvier's Law
Dictionary, 476.) There can be no such thing as "acceptance" in the ordinary sense of
the term. A check being payable immediately and on demand, the bank can fulfill its
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53
duty to the depositor only by paying the amount demanded. The holder has no right to
demand from the bank anything but payment of the check, and the bank has no right,
as against the drawer, to do anything but pay it. (5 R.C.L., p. 516, par. 38.) A check is
not an instrument which in the ordinary course of business calls for acceptance. The
holder can never claim acceptance as his legal right. He can present for payment, and
only for payment. (1 Morse on Banks and Banking, 6th ed., People. 898, 899.)
Philippine National Bank vs. The National City Bank of New York, G.R. No. 43596,
October 31, 1936
Issue
Section 191 of the Negotiable Instruments Law defines "issue" as the first delivery
of an instrument, complete in form, to a person who takes it as a holder. Significantly,
delivery is the final act essential to the negotiability of an instrument. Delivery
denotes physical transfer of the instrument by the maker or drawer coupled with an
intention to convey title to the payee and recognize him as a holder. It means more
than handing over to another; it imports such transfer of the instrument to another as
to enable the latter to hold it for himself.
John Dy vs. People of the Phil., et al., G.R. No. 158312, November 14, 2008
Sec. 193 - Reasonable Time

A check must be presented for payment within a reasonable time after its issue, and
in determining what is a "reasonable time," regard is to be had to the nature of the
instrument, the usage of trade or business with respect to such instruments, and the
facts of the particular case. The test is whether the payee employed such diligence as a
prudent man exercises in his own affairs. This is because the nature and theory behind
the use of a check points to its immediate use and payability.
2001
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54

Negotiable Instruments - Annotated

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Negotiable Instruments - Annotated

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Act No.

2031 - Negotiable Instruments Law

Sec. 1 - Form of Negotiable Instruments

Freedom of negotiability is totally absent in a certificate of indebtedness.

Negotiability or non-negotiability of an instrument is determined from the face of

When treasury warrant is not unconditional.

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A negotiable instrument is a written evidence of contract and a species of property.

Drafts issued in connection with letters of credit are negotiable instruments.

Indication of fund as source of payment makes order or promise to pay "not

Certificates of Time Deposit are negotiable instruments.

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Instrument without words of negotiability is non-negotiable.

Certificates of stock are quasi-negotiable.

Certificates of stock are non-negotiable.

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Postal money orders are not negotiable instruments.

Impairment of negotiability of instrument by fault of creditor.

Negotiability of a check is not affected by its being crossed.

Requisites of a negotiable instrument

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Sec. 2 - Certainty as to Sum; What Constitutes

Legality of stipulation on payment of attorney's fee in case of delinquency of

Sec. 3 - When Promise is Unconditional

Indication of particular fund as source of payment makes order or promise to pay

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When acknowledgment of debt becomes promise to pay.

No precise words of contract are necessary to constitute a good promissory note.

Sec. 5 - Additional Provision Not Affecting Negotiability

Warrants of attorney to confess judgment are void as against public policy.

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Sec. 7 - When Payable on Demand

Sec. 8 - When Payable to Order

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Sec. 9 - When Payable to Bearer

Sec. 12 - Antedated and Postdated

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another, it is relevant to determine whether ownership of the subject check was

Sec. 16 - Delivery; When Effectual; When Presumed

Every contract on a negotiable instrument is incomplete and revocable until

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Sec. 17 - Construction Where Instrument is Ambiguous

Courts can interpret a contract only if there is doubt in its letter.

Sec. 20 - Liability of Person Signing as Agent, and So Forth

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Sec. 23 - Forged Signature; Effect of

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A forged signature in a negotiable instrument is wholly inoperative and no right to

Where the signature on a negotiable instrument is forged, the negotiation of the

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