Nego Summary of Cases

8/13/2019 Nego Summary of Cases

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Nego summary of cases

INTRODUCTIONFUNCTION AND IMPORTANCE OF NEGOTIABLE INSTRUMENTS

A. SUBSTITUTE FOR MONEY BUT NOT LEGAL TENDER.1. MYRON C. PAPA V. A.U. VALENCIA , 1998 If the holder did not intentionally encash the check, will the

sale be consummated in the light of article 1249 of CC?

As a general rule, when check is not yet encashed, the sale isnot consummated for the delivery of the check produces the

effect of payment only when it is cashed pursuant to 1249.

However, rule is otherwise if the debtor was prejudiced by thecreditors unreasonable delay in presentment. Acceptance ofa check implies an undertaking of due diligence in presentingit for payment. If no such presentment was made, the drawercannot be held liable irrespective of the loss or injurysustained by the payee. Payment will be deemed effected andthe obligation for which the check was given as conditionalpayment will be discharged.

2. CEBU INTERNATIONAL FINANCE CORP V. CA, 1999 What law governs the money market transaction of CIFCwith alegre? 1249 of CC or section 137 of the NIL?

1249 is applicable. the money market transaction between the

petitioner and the private respondent is in the nature of a loan.

Is check a legal tender?

No. A check, whether a managers check or ordinary check, isnot legal tender, and an offer of a check in payment of a debt isnot a valid tender of payment and may be refused receipt bythe obligee or creditor. The obligation is not extinguished andremains suspended until the payment by commercial documentis actually realized.

Was alegre bound by the compromise agreement of CICF andBPI?

No, Alegre was not bound by the compromise agreement. Thecompromise agreement could not bind a party who did not signthe compromise agreement nor avail of its benefits.

When the BPI deducted the amount of the check from CIFCs

account, did this ipso facto operate as a discharge orpayment of the check?

NO. Although the value of the CHECK was deducted from thefunds of CIFC, it was not delivered to the payee, Vicente Alegre.

3. RUEDA V. SANDIGANBAYAN, 2000 What does cash mean in a generally accepted auditingprinciple?

Cash as consisting of those items that serve as a medium ofexchange and provide a basis for accounting measurement. Tobe reported as cash, an item must be readily available and notrestricted for use in the payment of current obligations.

Examples: coin and currency on hand, and unrestricted fundsavailable on deposit in a bank, which are often called demanddeposits; The total of these items plus undeposited coin andcurrency is sometimes called cash on hand. Interest-bearingaccounts, or time deposits, also are usually classified as cash,even though a bank legally can demand prior notification beforea withdrawal can be made. In practice, banks generally do notexercise this legal right.

Are NIs cash? YES. Petty cash funds or change funds and negotiableinstruments, such as personal checks, travelers checks,cashiers checks, bank drafts, and money orders are also itemscommonly reported as cash.

4. PIO BARRETTO RELATY V. CA, 2001 What is the effect of the delivery of the check?It produces the effect of payment.

Is it not that payment takes effect only when the check isencashed?

YES. the rule is otherwise if the debtor was prejudiced by thecreditor's unreasonable delay in presentment. Acceptance of acheck implies an undertaking of due diligence in presenting itfor payment. If no such presentment was made, the drawercannot be held liable irrespective of loss or injury sustained bythe payee. Payment will be deemed effected and the obligationfor which the check was given as conditional payment will bedischarged.


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In this case, private respondent Moslares never questioned thetender done three (3) years earlier.

5. BPI V. ROYECA, 2008 Whether the tender of check constitutes payment?

No. A check is not legal tender and, therefore, cannot constitutea valid tender of payment .23 Since a negotiable instrument isonly a substitute for money and not money, the delivery of suchan instrument does not, by itself, operate as payment. Meredelivery of checks does not discharge the obligation under a

judgment. The obligation is not extinguished and remainssuspended until the payment by commercial document isactually realized.

6. MITRA V. PEOPLE, 2010 FUNCTIONS AND IMPORTANCE OF NI

1. serves as a substitute for money and2. as a convenient form of payment in financial

transactions and obligations.3. The use of checks as payment allows commercial and

banking transactions to proceed without the actualhandling of money, thus, doing away with the need tophysically count bills and coins whenever payment ismade.

4. It permits commercial and banking transactions to becarried out quickly and efficiently. But theconvenience afforded by checks is damaged by

unfunded checks that adversely affect confidence inour commercial and banking activities, and ultimatelyinjure public interest.

7. HALLEY V. PRINTWELL, 2011 Is check money?NO. check is not money and only substitutes for money.

When does a bill of exchange produce the fact of payment?The delivery of a bill of exchange only produces the fact ofpayment when the bill has been encashed.

B. MEDIUM OF COMMERCIAL TRANSACTIONS

PEOPLE V. TONGKO What is the history of Article 315 (2) (d) of the RPC?

The history of the law will show that the severe penalties wereintended to stop the upsurge of swindling by issuance ofbouncing checks. It was felt that unless aborted, this kind of estafa". . . would erode the people's confidence in the use of negotiableinstruments as a medium of commercial transaction andconsequently result in the retardation of trade and commerce and theundermining of the banking system of the country.

Is NI a medium of commercial transaction?YES.

C. MEDIUM OF CREDIT TRANSACTION (EVIDENCE OF INDEBTEDNESS)If proof of indebtedness of drawer check is with the payee or holder (presumably returned to payee after dishonored)If proof of indebtedness of payee check is with the drawer (when deposited, the check was honored, returned to drawer by draweebank)

Pacheco v. ca debt of drawer; benny go drawer; Antonio payee; chua gaw payee

1. PACHECO V. CA, 1999 What are the elements of the felony of estafa under 315 (2 of theRPC?

1. that the offender postdated or issued a check in payment ofan payment obligation contracted at the time the check wasissued;2. that such postdating or issuing a check was done when theoffender had no funds in the bank, or his funds depositedtherein were not sufficient to cover the amount of the check;3. deceit or damage to the payee thereof.

Can one waive the nego character of the check and treat it simplyas proof of an obligation (evidence of indebtedness)?

YES.By mutual agreement of the parties, the negotiable character ofa check may be waived and the instrument may be treated simply asproof of an obligation.

How material is the fact that the check was issued undated?Section13. When date may be inserted . Where an instrumentexpressed to be payable at a fixed period after date is issuedundated, or where the acceptance of an instrument payable at afixed period after sight is undated, any holder may insert therein thetrue date of issue or acceptance , and the instrument shall be
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payable accordingly. The insertion of a wrong date does not avoidthe instrument in the hands or a subsequent holder in due course;but as to him, the date so inserted is to be regarded as the truedate.

As stated in Section 14 thereof, complainant, as the person inpossession of the check, has prima facie authority to complete it byfilling up the blanks therein.

Section 14. Blanks, when may be filled. Where the instrumentis wanting in any material particular, the person in possession

thereof has a prima facie authority to complete it by filling up the theblanks therein. And a signature on a blank paper delivered by theperson making the signature in order that the paper may beconverted into a negotiable instrument operates as a prima facieauthority to fill it up as such for any amount. In order, however,that any such instrument when completed may be enforced againstany person who became a party thereto prior to its completion, itmust be filled up strictly in accordance with the authority given andwithin a reasonable time. But if any such instrument, aftercompletion, is negotiated to a holder in due course, it is valid andeffectual for all purposes in his hands, and he may enforce it as if ithad been filled up stricutly in accordance with the authority givenand within a reasonable time.

What is the effect of stale check? A check must be presented within a reasonable time fromissue. By current banking practice, a check becomes stale aftermore than six (6) months. In fact a check long overdue for morethan two and one-half years is considered stale.

2. BENNY GO V. BACARON, 2005 Are checks evidence of indebtedness? YES.

3. SPOUSES TAN V. VILLAPAZ, 2005 Can a check prove a loan transaction that was required to be inwriting under 1358 of the CC?

YES, it can. Such requirement, it has been held, is only forconvenience, not for validity. At all events, a check, the entries ofwhich are no doubt in writing, could prove a loan transaction.

4. CHUA GAW V. CHUA, 2008 Is the check evidence of indebtedness? YES.

5. LANDBANK V. MONETS EXPORT Is a PROMISSORY NOTE evidence of indebtedness?

YES. As the Court noted in its decision in G.R. 161865, the evidencethen on record showed that the credit line Land Bank extended toMonet began at P250,000.00 but, after several amendments,

eventually rose up to P5 million. Monet availed itself of these credit

lines by taking out various loans evidenced by individual promissorynotes that had diverse terms of payment.

As it happened, however, in its original decision, the RTC held thatMonet still owed Land Bank only P2.5 million as reported in the

banks Schedule of Amortization (Exhibit 39). But that schedulecovered only one promissory note, Promissory Note P-981. Notingthis, the C ourt rejected Exhibit 39 as basis for determining Monetstotal obligation, given that it undeniably took out more loans asevidenced by the other promissory notes it executed in favor of LandBank.

D. IT IS A SPECIE OF PROPERTY

1. PEOPLE V. MIRTO Are checks by itself personal property?the fund collections through checks payments all issued payable tocash are personal properties belonging to UCC. These fundsthrough checks were paid by UCC clients for the deliveries of cementfrom UCC.

May it be subject to theft or qualified theft? YES. Theft is qualified under Art. 310 of the RPC, when it is, amongothers, committed with grave abuse of confidence, UCC found thataccused-appellant gravely abused the trust and confidence reposedon him as Branch Manager and violated company policies, rules and

regulations. He did not remit collections from customers who paid"Pay to Cash" checks. He used the credit line of accredited dealers infavor of persons who did not have credit lines or other dealers whohad exhausted their credit line. He diverted cement bags fromNorzagaray Plant or La Union Plant to truckers who would buycement for profit. In these transactions, he instructed dealers thatcheck be made in the form of "pay to cash". He did not issue themreceipts. Thechecks were either encashed or deposited to accused-appellants personal account No. 0301 -261982-001 at Security Bank& Trust Co. (SBTC) Tuguegarao Branch or deposited to the accountsof a certain Mr. Magno Lim maintained at MetroBank andEquitablePCIBank, both located at Tuguegarao City

2. DBP OF RIZAL V. SIMA WEI A negotiable instrument, of which a check is, is not only a writtenevidence of a contract right but is also a species of property. Just as


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a deed to a piece of land must be delivered in order to convey title tothe grantee, so must a negotiable instrument be delivered to thepayee in order to evidence its existence as a binding contract.

Thus, the payee of a negotiable instrument acquires no interest withrespect thereto until its delivery to him. Delivery of an instrumentmeans transfer of possession, actual or constructive, from oneperson to another. Without the initial delivery of the instrument fromthe drawer to the payee, there can be no liability on the instrument.Moreover, such delivery must be intended to give effect to theinstrument. Without the delivery of said checks to petitioner-payee,the former did not acquire any right or interest therein and cannottherefore assert any cause of action, founded on said checks,whether against the drawer Sima Wei or against the Producers Bankor any of the other respondents.

CHARACTERISTICS OF A NEGOTIABLE INSTRUMENT

1. NEGOTIABILITYNATIVIDAD GEMPESAW V. CAPetitioner likewise contends that banking rules prohibit the drawee bank from having checks with more than one indorsement. The bankingrule banning acceptance of checks for deposit or cash payment with more than one indorsement unless cleared by some bank officials doesnot invalidate the instrument; neither does it invalidate the negotiation or transfer of the said check. In effect, this rule destroys thenegotiability of bills/checks by limiting their negotiation by indorsement of only the payee. Under the NIL, the only kind of indorsement whichstops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof.

Sec. 36. When indorsement restrictive. An indorsement is restrictive which either(a) Prohibits further negotiation of the instrument; orxxx xxx xxx

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 ceases to be negotiable. However, the restrictive indorsee acquires the right to receivepayment and bring any action thereon as any indorser, but he can no longer transfer his rights as such indorsee where the form of theindorsement does not authorize him to do so.

2. ACCUMULATION OF SECONDARY CONTRACTS

SALVADOR ECHANO V. TOLEDOEchano, as Acting Branch Cashier, should have exercised a high degree of diligence and care in handling Perezs second -endorsed checkssince her rediscounting of checks was not a regular banking transaction. Moreover, the manager s check in this case had been crossed andissued for the payees account only. This meant that Medical Center Trading Corporation intended it to be deposited to the ac count of thepayee, namely, the City Treasurer of Manila. And Echano cannot plead simple oversight because he had approved for deposit to Perezsaccounts more or less 26 second-endorsed checks intended for the City Treasurer of Manila. What is more, Echano failed to prove that Perezhad indeed been a valued client of his bank or that her questionable transactions carried the approval of higher bank officials.

SECTION 1

1. TRADERS ROYAL BANK V. CA,, FILRITERS GUARANTYASSURANCE COPR AND CENTRAL BANK, 1997

Is a CBCI a negotiable instrument?NO. the subject CBCI is not a negotiable instrument in the absence ofwords of negotiability within the meaning of the negotiable instrumentslaw equivalent to a bond, it is properly understood as acknowledgment ofan obligation to pay a fixed sum of money. It is usually used for thepurpose of long term loans.

What is the negotiability?

The language of negotiability which characterize a negotiable paper as acredit instrument is its freedom to circulate as a substitute for money.

What is its relation to the right conferred to a holder in due course?Freedom of negotiability is the touchtone relating to the protection ofholders in due course, and the freedom of negotiability is the foundationfor the protection which the law throws around a holder in due course.This freedom in negotiability is totally absent in a certificate indebtednessas it merely to pay a sum of money to a specified person or entity for aperiod of time.

When the CBCI was transferred to Philfinance and TRB, what was itthat transpired? A negotiation or an assignment?ASSIGNMENT.

2. FIRESTONE TIRE &RUBBER COMPANY V. CA AND LUZON

DEVELOPMENT BANK , 2001

Are special withdrawal slips negotiable?

The withdrawal slips in question were non-negotiable.

Do the rules governing the giving of immediate notice of dishonor ofNI apply in this case? NO. Hence, the rules governing the giving ofimmediate notice of dishonor of negotiable instruments do not apply inthis case.

Citibank could not have missed the non-negotiable nature of thewithdrawal slips. The essence of negotiability which characterizes anegotiable paper as a credit instrument lies in its freedom to circulatefreely as a substitute for money. The withdrawal slips in question lackedthis character.

The withdrawal slips deposited with petitioner's current account with


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Citibank were not checks, as petitioner admits. Citibank was not bound toaccept the withdrawal slips as a valid mode of deposit. But havingerroneously accepted them as such, Citibank and petitioner as account-holder must bear the risks attendant to the acceptance of theseinstruments.

3. ASTRO ELECTRONICS CORP AND PETER ROXAS V. PHILIPPINEEXPORT AND FOREIGN LOAN GUARANTEE

Whether or not Roxas should be jointly and severally liable with Astrofor thE sum awareded by the RTC?

YES, The promissory notes are valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed twice: first, as president of Astroand second, in his personal capacity. In signing his name aside frombeing the President of Asro, Roxas became a co-maker of the promissory

notes and cannot escape any liability arising from it.

ISSUE: What is a maker and what is its liability?

Under the Negotiable Instruments Law, persons who write their names onthe face of promissory notes are makers, promising that they will pay tothe order of the payee or any holder according to its tenor. Thus, evenwithout the phrase personal capacity, Roxas will still be primarily liableas a joint and several debtor under the notes considering that his intentionto be liable as such is manifested by the fact that he affixed his signatureon each of the promissory notes twice which necessarily would imply thathe is undertaking the obligation in two different capacities, official andpersonal.

4. GARCIA V. LLAMAS, 2003 Is the quoted promissory note a negotiable instrument?NO. By its terms, the note was made payable to a specific person ratherthan to bearer or to order -- a requisite for negotiability under Act 2031,the Negotiable Instruments Law (NIL). Hence, petitioner cannot availhimself of the NILs provisions on the liabilities and defenses of anaccommodation party. Besides, a non-negotiable note is merely a simplecontract in writing and is evidence of such intangible rights as may havebeen created by the assent of the parties. The promissory note is thuscovered by the general provisions of the Civil Code, not by the NIL.

Assuming that it is, what is the liability of an accommodation party?Under Article 29 of Act 2031, an accommodation party is liable for theinstrument to a holder for value even if, at the time of its taking, the latterknew the former to be only an accommodation party. The relationbetween an accommodation party and the party accommodated is, ineffect, one of principal and surety -- the accommodation party being thesurety. It is a settled rule that a surety is bound equally and absolutelywith the principal and is deemed an original promissor and debtor fromthe beginning. The liability is immediate and direct.

5. TRANSFIELD PHILIPPINES V. LUZON HYDRO CORPORATION,AUSTRALIA AND NEW ZEALAND BANKING CORP, SECURITYBANK CORP, 2004

What is a letter of credit?a letter of credit is a written instrument whereby the writer requests orauthorizes the addressee to pay money or deliver goods to a third personand assumes responsibility for payment of debt therefor to the addressee.

A letter of credit, however, changes its nature as different transactionsoccur and if carried through to completion ends up as a binding contractbetween the issuing and honoring banks without any regard or relation tothe underlying contract or disputes between the parties thereto.

Letters of credit are employed by the parties desiring to enter intocommercial transactions, not for the benefit of the issuing bank but mainlyfor the benefit of the parties to the original transactions.

A letter of credit is not a third-party beneficiary contract because the

issuer must honor drafts drawn against a letter regardless of problemssubsequently arising in the underlying contract. Since the bankscustomer cannot draw on the letter, it does not function as an assignmentby the customer to the beneficiary.

Is it a nego instrument? NO. because it is not payable to order or bearerand is generally conditional

How about a draft drawn from a letterof credit? YES, often NEGOTIABLE.

NOTE: Instructive as to meaning and import of a letter of credit, but notstrictly covered by NIL

6. PEOPLE V. REYES, 2005 What is a negotiable order of withdrawal? (NOW)

Now is defined as interest-bearing deposit accounts that combine thepayable on demand feature of checks and the investment feature ofsavings accounts.

The fact that a NOW check shall be payable only to a specific person, andnot valid when made payable to BEARER or to CASH or when indorsedby the payee to another person, is inconsequential. The same restriction isproduced when a check is crossed: only the payee named in the checkmay deposit it in his bank account. If a third person accepts a cross checkand pays cash for its value despite the warning of the crossing, he cannotbe considered in good faith and thus not a holder in due course. Thepurpose of the crossing is to ensure that the check will be encashed bythe rightful payee only. Yet, despite the restriction on the negotiability ofcross checks, we held that they are negotiable instruments.


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evidence of indebtedness.

The confirmations of sale of government securities made by the petitionerto private individuals/entities are subject to documentary stamp taxpursuant to Section 225 of the NIRC.

ISSUE: What is the difference between deposit substitutes andcertificates of indebtedness? What is the difference betweencertificate of indebtedness and promissory notes?

HELD: A certificate of indebtedness includes only instruments having thegeneral character of investment securities as distinguished frominstruments evidencing debts arising in ordinary transactions betweenindividuals. As distinguished from a promissory note which is anunconditional promise in writing made by one person to another, signedby the maker, engaging to pay on demand, or at a fixed or determinablefuture time, a sum certain in money, to order or bearer, T-bills and CentralBank bills are investment securities of a public character, issued by thePhilippine Government, thru the Central Bank of the Philippines.

On the other hand, the chief feature of a deposit substitute is borrowing.In this case, petitioner sells government securities to privateindividuals/entities, in which its confirmations of sale are being subjectedto documentary stamp tax. There is no borrowing or debt instrumentinvolved in this case. Here, the petitioner, as the seller, simply conveysthrough sale, specific government securities to the buyer, who therebyacquires title thereto, including the plenary right of disposal. As there is

no borrowing, there is no debt with respect to which the seller can beprimarily bound. Nor is the seller subsidiarily bound to respond in casethe issuer of the said securities defaults, hypothetically assuming that thePhilippine Government, as issuer of the securities sold, could default.Precisely, the sale of said government securities is always "withoutrecourse."

3. BPI V. CIR, 2006 ISSUE: What does Section 182 of the NIRC cover?

HELD: Section 182 imposes a documentary stamp tax on (1) foreign billsof exchange, (2) letters of credit, and (3) orders, by telegraph orotherwise, for the payment of money issued by express or steamshipcompanies or by any person or persons. This enumeration is furtherlimited by the qualification that they should be drawn in the Philippinesand payable outside of the Philippines.

ISSUE: What is the definition of a Bill of Exchange (B/E)?

HELD: A definition of a bill of exchange is provided by Section 39 ofRegulations No. 26, the rules governing documentary taxes promulgatedby the Bureau of Internal Revenue (BIR) in 1924:

Sec. 39. Definition of bill of exchange . The term bill of exchangedenotes checks, drafts, and all other kinds of orders for the payment ofmoney, payable at sight, or on demand or after a specific period aftersight or from a stated date.

Section 126 of The Negotiable Instruments Law (Act No. 2031)reiterates that i t is an order for the payment of money and specifies theparticular requisites that make it negotiable.

Sec. 126. Bill of exchange defined. A bill of exchange is an unconditionalorder in writing addressed by one person to another, signed by the persongiving it, requiring the person to whom it is addressed to pay on demandor at fixed or determinable future time a sum certain in money to order orto bearer.

Section 129 of the same law classifies bills of exchange as inland andforeign, the distinction is laid down by where the bills are drawn and paid.Thus, a foreign bill of exchange may be drawn outside the Philippines,payable outside the Philippines, or both drawn and payable outside of thePhilippines.

Sec. 129. Inland and foreign bills of exchange. -- An inland bill ofexchange is a bill which is, or on its face purports to be, both drawn andpayable within the Philippines. Any other bill is a foreign bill. x x x

ISSUE: What is the distinction between a B/E and a letter ofcredit?

HELD: A bill of exchange and a letter of credit may differ as to theirnegotiability, and as to who owns the funds used for the payment at thetime payment is made. However, in both bills of exchange and letters ofcredit, a person orders another to pay money to a third person.

The Code of Commerce loosely defines a letter of credit andprovides for its essential conditions, thus:

Art. 567 . Letters of credit are those issued by one merchant to another orfor the purpose of attending to a commercial transaction.


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Art 568 . The essential conditions of letters of credit shall be:1. To be issued in favor of a definite person and not to order.2. To be limited to a fixed and specified amount, or to one or moreundetermined amounts, but within a maximum the limits of which has tobe stated exactly.

A more explicit definition of a letter of credit can be found in thecommentaries:

A letter of credit is one whereby one person requests some otherperson to advance money or give credit to a third person, and promisesthat he will repay the same to the person making the advancement, or

accept the bills drawn upon himself for the like amount.ISSUE: What is a telegraphic transfer?

HELD: The phrase orders, by telegraph or otherwise, for the paymentof money used in reference to documentary stamp taxes may be found inan earlier documentary tax provision, Section 1449(i) of the AdministrativeCode of 1917, which was substantially reproduced in Section 195 (nowSection 182) of the NIRC. Regulations No. 26, which provided the rulesand guidelines for the documentary stamp tax imposed under the

Administrative Code of 1917, contains an explanation for the phrase orders, by telegraph or otherwise, for the payment of money:

What may be regarded as telegraphic transfer. a local bank cables to acertain bank in a foreign country with which bank said local bank has acredit, and directs that foreign bank to pay to another bank or person in

the same locality a certain sum of money, the document for and in respectsuch transaction will be regarded as a telegraphic transfer, taxable underthe provisions of Section 1449(i) of the Administrative Code.

ISSUE: What is the nature of a DST?

HELD: A documentary stamp tax (DST) is an excise upon the facilitiesused in the transaction of the business separate and apart from thebusiness itself. It is not a tax upon the business itself which is sotransacted, but it is a duty upon the facilities made use of and actuallyemployed in the transaction of the business, and separate and apart fromthe business itself.

ISSUE: What is a draft?

HELD: A draft is a form of a bill of exchange used mainly in transactionsbetween persons physically remote from each other. It is an order madeby one person, say the buyer of goods, addressed to a person having inhis possession funds of such buyer ordering the addressee to pay thepurchase price to the seller of the goods. Where the order is made by onebank to another, it is referred to as a bank draft.

4. SECURITY BANK CORPORATION V. CIR, 2006 Does the term securities include negotiable promissory notes?

NO. The issue of DST assessment on sales of securities with repurchaseagreement, which was the subject of the reassessment being questionedin this case, is definitely not within the scope of the compromiseagreement, being limited as it is to DST on promissory notes issuedprior to October 15, 1984. The DST assessed on the former arises fromthe act of selling securities (presently taxed under Section 176), whilethe DST assessed in the latter is on the act of issuing promissory

notes (taxed under Section 180). It is evident from the separateprovisions governing the two that the law treats these two instrumentsdifferently. This Court simply cannot agree with SBC that securities andpromissory notes for purposes of the subject Compromise Agreementare one and the same thing. Besides, even assuming, in gratiaargumenti, that promissory notes may be included under the genericterm securities, securities cannot be included under the specific term

promissory notes so as to be deemed within the scope of the samecompromise agreement . To be sure, the term promissory note has adefinite meaning under the negotiable instruments law, which does notinclude securities, and this definite meaning is what is deemedincorporated in the compromise agreement entered into by and betweenSBC and the BIR, unless a different definition is therein expressly agreedupon, which is not the case.

5. INTERNATIONAL EXCHANGE BANK V. CIR, 2007 ISSUE: Are the Savings Account-Fixed Savings Deposit (FSDs)subject to DST?HELD: Certificates of time deposit are subject to the DST and that acertificate of time deposit is but a type of a certificate of deposit drawinginterest.The FSD, like a time deposit, provides for a higher interest ratewhen the deposit is not withdrawn within the required fixed period;otherwise, it earns interest pertaining to a regular savings deposit. Havinga fixed term and the reduction of interest rates in case of pre-terminationare essential features of a time deposit.

SA-FSD is a deposit account with a fixed term. Withdrawal before theexpiration of said fixed term results in the reduction of the interest rate.Having a fixed term and reduction of interest rate in case of pre-termination are essentially the features of a time deposit.


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Thus, a regular savings account with a passbook which is withdrawable atany time is not subject to DST, unlike a time deposit which is payable on afixed maturity date.

Hence, FSDs are subject to DST.

ISSUE: Is the negotiability of an instrument material for theimposition of DST?

HELD: Contrary to petitioners claim, not all certificates of deposit arenegotiable. A certificate of deposit may or may not be negotiable asgathered from the use of the conjunction or , instead of and , in itsdefinition. A certificate of deposit may be payable to the depositor, to theorder of the depositor, or to some other person or his order.

In any event, the negotiable character of any and all documents underSection 180 is immaterial for purposes of imposing DST.

SECTION 2

1. NEW SAMPAGUITA AND SPOUSES DEE V.PHILIPPINENATIONAL BANK, 2004

ISSUE: Can banks unilaterally increase interest rates?

HELD: The Court holds that petitioners accessory duty to pay interest did not give respondent unrestrained freedom to charge any rate otherthan that which was agreed upon. No interest shall be due, unlessexpressly stipulated in writing. It would be the zenith of farcicality tospecify and agree upon rates that could be subsequently upgraded atwhim by only one party to the agreement.

The unilateral determination and imposition of increased rates is violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code. One-sided impositions do not have the force of lawbetween the parties, because such impositions are not based on theparties essential equality.

Article 1308. The contracts must bind both contracting parties; its validityor compliance cannot be left to the will of one of them.

Although escalation clauses are valid in maintaining fiscal stability andretaining the value of money on long-term contracts, giving respondent anunbridled right to adjust the interest independently and upwardly would

complet ely take away from petitioners the right to assent to an importantmodification in their agreement and would also negate the element ofmutuality in their contracts. The clause cited earlier made the fulfillmentof the contracts dependent exclusively upon the uncontrolled will ofrespondent and was therefore void. Besides, the pro forma promissorynotes have the character of a contract dadhsion , where the parties donot bargain on equal footing, the weaker partys [the debtors]participation being reduced to the alternative to take it or leave it.

ISSUE: What is the effect of the repeal of the Usury Law?

HELD: While the Usury Law ceiling on interest rates was lifted by[Central Bank] Circular No. 905, nothing in the said Circular grants lenderscarte blanche authority to raise interest rates to levels which will eitherenslave their borrowers or lead to a hemorrhaging of their assets. Neitherthis Circular nor PD 1684, which further amended the Usury Law,

authorized either party to unilateral ly raise the interest rate without theothers consent. Rates found to be iniquitous or unconscionable are void,as if it there were no express contract thereon. Above all, it isundoubtedly against public policy to charge excessively for the use ofmoney.

ISSUE: What is the use of the Truth in Lending Act?

HELD: The time is now ripe to give teeth to the often ignored forty-one-year old Truth in Lending Act and thus transform it from a snivellingpaper tiger to a growling financial watchdog of hapless borrowers.

No penalty charges or increases thereof appear either in the DisclosureStatements or in any of the clauses in the second and the third Credit

Agreements earlier discussed. While a standard penalty charge of 6percent per annum has been imposed on the amounts stated in all threePromissory Notes still remaining unpaid or unrenewed when they fell due,there is no stipulation therein that would justify any increase in thatcharges. The effect, therefore, when the borrower is not clearly informedof the Disclosure Statements -- prior to the consummation of theavailment or drawdown -- is that the lender will have no right to collectupon such charge or increases thereof, even if stipulated in the Notes.

ISSUE: Can attorneys fees mentioned in the PNs reduced?

HELD: Yes, it can be reduced.

We affirm the equitable reduction in attorneys fees. These are not anintegral part of the cost of borrowing, but arise only when collecting uponthe Notes becomes necessary. The purpose of these fees is not to give


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respondent a larger compensation for the loan than the law alreadyallows, but to protect it against any future loss or damage by beingcompelled to retain counsel in-house or not -- to institute judicialproceedings for the collection of its credit. Courts have has the power todetermine their reasonableness based on quantum meruit and to reducethe amount thereof if excessive.

NOTE: quotable quotes: the time is now ripe to give teeth to the oftenignored 41- year old truth in lending act and thus transform it from asniveling paper tiger to a growling financial watchdog of haplessborrowers)

2.

BPI V. SPOUSES YUISSUE: whether or not the RTC and the CA a) correctly deletedthe penalty charges because of BPIs alleged failure to complywith the Truth in Lending Act;

HELD: NO. the promissory notes signed by the Yus contained data,including penalty charges, required by the Truth in Lending Act. Theycannot avoid liability based on a rigid interpretation of the Truth inLending Act that contravenes its goal. although BPI failed to state thepenalty charges in the disclosure statement, the promissory note that the

Yus signed, on the same date as the disclosure statement, contained apenalty clause that said: "I/We jointly and severally, promise to furtherpay a late payment charge on any overdue amount herein at the rate of3% per month." The promissory note is an acknowledgment of a debt andcommitment to repay it on the date and under the conditions that theparties agreed on .43 It is a valid contract absent proof of acts which mighthave vitiated consent.

b) WON it correctly reduced the attorneys fees to 1% of the judgment debtyes. based on the following reasons: (1) attorneys fee is not essential tothe cost of borrowing, but a mere incident of collection ; 55(2) 1% is justand adequate because BPI had already charged foreclosure expenses; (3)attorneys fee of 10% of th e total amount due is onerous considering therote effort that goes into extrajudicial foreclosures.

3. UNION BANK OF THE PHILIPPINES V. SPOUSES TIU ISSUE: Is the stipulation that the promissory note is payable indollars prohibited?

NO. Art. 1249. The payment of debts in money shall be made in thecurrency stipulated, and if it is not possible to deliver such currency, thenin the currency which is legal tender in the Philippines.

ISSUE: Trace the history of the rule on payment using foreigndenomination from Article 1249 of the CC to RA 8183 of July 5,1996.

HELD: June 16, 1950-- Section 1 of Republic Act No. 529, any agreement topay an obligation in a currency other than the Philippine currency is void;the most that could be demanded is to pay said obligation in Philippinecurrency to be measured in the prevailing rate of exchange at the time theobligation was incurred.

August 30, 1950 Civil CodeJune 19, 1964 ---Republic Act No. 4100 took effect, modifying Republic

Act No. 529 by providing for several exceptions to the nullity ofagreements to pay in foreign currency.

April 13, 1993-- Central Bank Circular No. 1389 ] was issued, liftingforeign exchange restrictions and liberalizing trade in foreign currency. Incases of foreign borrowings and foreign currency loans, however, priorBangko Sentral approval was required.July 5, 1996 ---Republic Act No. 8183 took effect, expressly repealingRepublic Act No. 529 in Section 2 thereof. The same statute also explicitlyprovided that parties may agree that the obligation or transaction shall besettled in a currency other than Philippine currency at the time ofpayment.

Although the Credit Line Agreement between the spouses Tiu and UnionBank was entered into on November 21, 1995 , when the agreement topay in foreign currency was still considered void under Republic Act No.529, the actual loans, as shown in the promissory notes, were taken outfrom September 22, 1997 to March 26, 1998 , during which timeRepublic Act No. 8183 was already in effect. In United Coconut PlantersBank v. Beluso ,] we held that:

[O]pening a credit line does not create a credit transaction ofloan ormutuum, since the former is merely a preparatorycontract to the contract of loan or mutuum. Under such creditline, the bank is merely obliged, for the considerations specifiedtherefor, to lend to the other party amounts not exceeding thelimit provided. The credit transaction thus occurred not whenthe credit line was opened, but rather when the credit line wasavailed of. x x x.

Having established that Union Bank and the spouses Tiu validly enteredinto dollar loans, the conclusion of the Court of Appeals that there were nodollar loans to novate into peso loans must necessarily fail.
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SECTION 5

PNB V. MANILA OIL REFINING CORP ISSUE: Whether or not the promissory note containing a confession of judgment is legal

HELD: NO. Judgments by confession as appeared at common law wereconsidered an amicable, easy, and cheap way to settle and secure debts.They are a quick remedy and serve to save the court's time. They alsosave the time and money of the litigants and the government theexpenses that a long litigation entails. In one sense, instruments of this

character may be considered as special agreements, with power to enterup judgments on them, binding the parties to the result as theythemselves viewed it.

On the other hand, are disadvantages to the commercial world whichoutweigh the considerations just mentioned. Such warrants of attorneyare void as against public policy, because they enlarge the field for fraud,because under these instruments the promissor bargains away his right toa day in court, and because the effect of the instrument is to strike downthe right of appeal accorded by statute. The recognition of such a form ofobligation would bring about a complete reorganization of commercialcustoms and practices, with reference to short-term obligations. It canreadily be seen that judgement notes, instead of resulting to theadvantage of commercial life in the Philippines might be the source ofabuse and oppression, and make the courts involuntary parties thereto. Ifthe bank has a meritorious case, the judgement is ultimately certain in thecourts.

We are of the opinion that warrants of attorney to confess judgment arenot authorized nor contemplated by our law. We are further of the opinionthat provisions in notes authorizing attorneys to appear and confess

judgments against makers should not be recognized in this jurisdiction byimplication and should only be considered as valid when given expresslegislative sanction.

ISSUE: What will happen to the negotiable instrument? Is it still valid?

HELD: YES. The Negotiable Instruments Law, in section 5, provides that"The negotiable character of an instrument otherwise negotiable is notaffected by a provision which ". . . ( b ) Authorizes a confession of

judgment if the instrument be not paid at maturity." We do not believe,however, that this provision of law can be taken to sanction judgments byconfession, because it is a portion of a uniform law which merely providesthat, in jurisdiction where judgment notes are recognized, such clausesshall not affect the negotiable character of the instrument. Moreover, thesame section of the Negotiable Instruments. Law concludes with thesewords: "But nothing in this section shall validate any provision orstipulation otherwise illegal."

DECISION: The judgment appealed from is set aside, and the case isremanded to the lower court for further proceedings in accordance withthis decision. Without special finding as to costs in this instance, it is soordered.

NOTES: At common law, there were two kinds of judgments byconfession; the one a judgment by cognovit actionem , and the other byconfession relicta verificatione .

SECTION 7

International CORPORATE BANK V. GUECO, 2001 ISSUE: What is a stale check?

HELD: A stale check is one which has not been presented for paymentwithin a reasonable time after its issue. It is valueless and, therefore,should not be paid. Under the negotiable instruments law, an instrumentnot payable on demand must be presented for payment on the day it fallsdue. When the instrument is payable on demand, presentment must bemade within a reasonable time after its issue. In the case of a bill ofexchange, presentment is sufficient if made within a reasonable time afterthe last negotiation thereof.

ISSUE: What is meant by reasonable time after issue that acheck must be presented for payment?

HELD: A check must be presented for payment within a reasonable timeafter its issue, and in determining what is a "reasonable time," regard is tobe had to the nature of the instrument, the usage of trade or businesswith respect to such instruments, and the facts of the particular case. Thetest is whether the payee employed such diligence as a prudent manexercises in his own affairs. This is because the nature and theory behindthe use of a check points to its immediate use and payability. In a case, acheck payable on demand which was long overdue by about 2-1/2 yearswas considered a stale check. Failure of a payee to encash a check formore than 10 years undoubtedly resulted in the check becoming stale.Thus, even a delay of 1 week or 2 days, under the specific circumstancesof the cited cases constituted unreasonable time as a matter of law.


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ISSUE: What is the nature of a managers check ?

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

SECTION 9 (BEARER INSTURMETNS)

1. VERTUDES V. BUENAFLOR, 2005 ISSUE: What is the effect of the issuance of bearer checks thatwere not crossed?

HELD: The two checks were made payable to "cash," a bearerinstrument, and was not even crossed on its face, hence, can be encashedby any person holding the negotiable instrument.

ISSUE: Is this proof that the transaction was not for loan but thepromise for travel document to Japan?

HELD: YES, it is proof that the transaction was not for a loan. Aside frompetitioners testimony and that of her household helpers to prove thisassertion, no other independent and unbiased evidence was offered toprove the fact of loan. As it is, her theory of loan stands on flimsy groundand is not sufficient enough to overthrow the fact established bycomplainant. This considering that it is highly improbable and evencontrary to human experience for a person to loan a huge amount ofmoney as P 50,000.00 without any document evidencing such loan nor acollateral to secure its payment.

Note even that the two checks were made payable to "cash," abearer instrument, and was not even crossed on its face, hence, can beencashed by any person holding the negotiable instrument. If, indeed,private respondent gave the two checks to petitioner as a clean loan(without any collateral) without any separate document embodying theirloan agreement, the latter should have at least been made the payee ofthe checks and a memorandum written at the back of the check to theeffect that it is being extended as a loan, in order to protect the interest ofthe lender. This is conventional business practice which is altogetherabsent in the case at bar, hence, petitioner's theory of loan mustnecessarily crumble.

2. PNB V. RODRIGUEZ, 2008 Can an actual, existing and living payee be considered fictitious?

YES. A review of US jurisprudence yields that an actual, existing, andliving payee may also be "fictitious" if the maker of the check did notintend for the payee to in fact receive the proceeds of the check. Thisusually occurs when the maker places a name of an existing payee on thecheck for convenience or to cover up an illegal activity. [14] Thus, a checkmade expressly payable to a non-fictitious and existing person is not

necessarily an order instrument. If the payee is not the intendedrecipient of the proceeds of the check, the payee is considered a"fictitious" payee and the check is a bearer instrument.

Who bears the loss in a fictitious payee situation, the drawee ordrawer?

In a fictitious-payee situation, the drawee bank is absolved from liabilityand the drawer bears the loss .

What is the fictitious payee rule?

When faced with a check payable to a fictitious payee, it is treated as abearer instrument that can be negotiated by delivery. The underlyingtheory is that one cannot expect a fictitious payee to negotiate the checkby placing his indorsement thereon. And since the maker knew thislimitation, he must have intended for the instrument to be negotiated bymere delivery. Thus, in case of controversy, the drawer of the check willbear the loss. This rule is justified for otherwise, it will be mostconvenient for the maker who desires to escape payment of the check toalways deny the validity of the indorsement. This despite the fact that thefictitious payee was purposely named without any intention that the payeeshould receive the proceeds of the check.

What is the commercial bad faith exception to the ficitious payeerule?

A showing of commercial bad faith on the part of the drawee bank, orany transferee of the check for that matter, will work to strip it ofthis defense . The exception will cause it to bear the loss. Commercial


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bad faith is present if the transferee of the check acts dishonestly, and is aparty to the fraudulent scheme.

n the case under review, the Rodriguez checks were payable to specifiedpayees. It is unrefuted that the 69 checks were payable to specificpersons. Likewise, it is uncontroverted that the payees were actual,existing, and living persons who were members of PEMSLA that had arediscounting arrangement with spouses Rodriguez.

For the fictitious-payee rule to be available as a defense, PNB must showthat the makers did not intend for the named payees to be part of thetransaction involving the checks. At most, the bank's thesis shows thatthe payees did not have knowledge of the existence of the checks. Thislack of knowledge on the part of the payees, however, was nottantamount to a lack of intention on the part of respondents-spouses that the payees would not receive the checks' proceeds .Considering that respondents-spouses were transacting with PEMSLA andnot the individual payees, it is understandable that they relied on theinformation given by the officers of PEMSLA that the payees would bereceiving the checks

Verily, the subject checks are presumed order instruments. PNB failed topresent sufficient evidence to defeat the claim of respondents-spousesthat the named payees were the intended recipients of the checks'proceeds. The bank failed to satisfy a requisite condition of a fictitious-payee situation - that the maker of the check intended for the payee tohave no interest in the transaction. FICTITIOUS PAYEE RULE DOES not

apply. Thus, the checks are to be deemed payable to order.Consequently, the drawee bank bears the loss. [20]

SECTION 12

SAN MIGUEL V. PUZON ISSUE: What is the meaning of delivery in relation to Sec. 16?

Held: Sec. 12. Antedated and postdated The instrument is not invalid for thereason only that it is antedated or postdated, provided this is not done for an illegalor fraudulent purpose. The person to whom an instrument so datedis delivered acquires the title thereto as of the date of delivery. (Underscoringsupplied.

Note however that delivery as the term is used in the aforementioned provision

means that the party delivering did so for the purpose of giving effectthereto .[12] Otherwise, it cannot be said that there has been delivery of thenegotiable instrument. Once there is delivery, the person to whom the instrumentis delivered gets the title to the instrument completely and irrevocably.

If the subject check was given by Puzon to SMC in payment of the obligation, thepurpose of giving effect to the instrument is evident thus title to or ownership of thecheck was transferred upon delivery. However, if the check was not given aspayment, there being no intent to give effect to the instrument, then ownership ofthe check was not transferred to SMC.

The evidence of SMC failed to establish that the check was given in payment of theobligation of Puzon. There was no provisional receipt or official receipt issued forthe amount of the check. What was issued was a receipt forthe document, aPOSTDATED CHECK SLIP. [13]

ISSUE: When the check was issued only for security and wastaken by the drawer who gave it as security can the drawer becharged for theft.

Held: NO.Considering that the second element is that the thing taken belongs to another , it isrelevant to determine whether ownership of the subject check was transferred topetitioner.

The evidence proves that the check was accepted, not as payment, but inaccordance with the long-standing policy of SMC to require its dealers toissue postdated checks to cover its receivables. The check was only meantto cover the transaction and in the meantime Puzon was to pay for thetransaction by some other means other than the check.

Title to the check did not transfer to SMC; it remained with Puzon. The 2 nd

element of the felony of theft was threrefore not established. Petitionerwas not able to show that Puzon took a check that belonged to another.Hence, the prosecutor and the DOJ were collect in finding no probablecause for theft.

SECTIONS 14-15-16

1. BORROMEO V. SUN AND CA, 1999 ISSUE: Is document subject in this case executed with similareffects as Section 14 of the Negotiable Instruments Law?

HELD: YES, the subject Deed of Assignment is embodied in a blank formfor the assignment of shares with authority to transfer such shares in the
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books of the corporation. It was clearly intended to be signed in blank tofacilitate the assignment of shares from one person to another at anyfuture time. This is similar to Section 14 of the Negotiable InstrumentsLaw where the blanks may be filled up by the holder, the signing in blankbeing with the assumed authority to do so.

2. QUIRINO GONZALES LOGGING V. CA AND REPUBLICPLANTERS BANK, 2003

ISSUE: Did the promissory note comply with Section 1 of theNegotiable Instruments Law? YES. What is the presumption ofconsideration?

HELD: YES. The promissory notes appear to be negotiable as they meetthe requirements of Section 1 of the Negotiable Instruments Law. Suchbeing the case, the notes are prima facie deemed to have been issued forconsideration. It bears noting that no sufficient evidence was adduced bypetitioners to show otherwise.

ISSUE: What is the consequence of an instrument issued inblank?

HELD: In any case, it is no defense that the promissory notes weresigned in blank as Section 14 48 of the Negotiable Instruments Lawconcedes the prima facie authority of the person in possession ofnegotiable instruments, such as the notes herein, to fill in the blanks.

3. SPOUSES OJEDA V. ORBETA, 206 ISSUE: What is the effect of a blank check that was delivered?

HELD: the presumption is that the latter had prima facie authority tocomplete the check by filling up the same. Here, the provision of Section

14 of the Negotiable Instruments Law is pertinent.

The law merely requires that the instrument be in the possession of aperson other than the drawer or maker, and from such possession,together with the fact that the instrument is wanting in a materialparticular, the law presumes agency to fill up the blanks. Because of thepresumption of authority, the burden of proving that there was noauthority or that the authority granted was exceeded is placed on theperson questioning such authority. There is nothing on record to showthat the prima facie presumption created by the afore-quoted section wassuccessfully refuted by the spouses. Therefore, the couple's stance thatthey cannot be held liable for the check because they were not the oneswho wrote the date, the name of the payee and the amount, is untenable.

4. CHING V. NICDAO, 2007 ISSUE: What is the effect of Sections 15 and 16 of the NIL? HELD: The P20,000,000.00 check was filled up by Ching without Nicdaosauthority. Further, it was incomplete and undelivered. Hence, Ching didnot acquire any right or interest therein and could not assert any causeof action founded on the stolen checks. Respondent could not be held

liable for violation of BP 22.

ISSUE: Is the check here an evidence of indebtedness?

HELD: Generally checks may constitute evidence of indebtedness.However, in view of the CAs findings relating to the 11 checks - that theP20,000,000.00 was a stolen check and the obligations secured by theother 10 checks had already been fully paid by Nicdao they can nolonger be given credence to establish Nicdaos civil liability to Ching. Suchcivil liability, therefore, must be established by preponderant evidenceother than the discredited checks.

The existence of Nicdaos civil liability to Ching in the amount ofP20,950,000.00 representing her unpaid obligations to the latter has notbeen sufficiently established by preponderant evidence.

5. LUNARIA V. PEOPLE, 2008 ISSUE: What is the effect of Section 14 of the NegotiableInstruments?

HELD: At the outset, it should be borne in mind that the exchange of thepre-signed checks without date and amount between the parties had beentheir practice for almost a year by virtue of their money-lending business.They had authority to fill up blanks upon information that a check canthen be issued.

ISSUE: What is presumption of authority to fill the blanks?

HELD: Because of the presumption of authority, the burden of proof thatthere was no authority or that authority granted was exceeded is carriedby the person who questions such authority.

Records show that [petitioner] had not proven lack of authority on thepart of Artaiz to fill up such blanks. Having failed to prove lack ofauthority, it can be presumed that Artaiz was within his rights to fill upblanks on the check.

Note: Issue means the first delivery of the instrument, complete inform, to a person who takes it as a holder.

6. DY V. PEOPLE AND CA, 2008 ISSUE: What is Issuance of a check under Section 191?


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HELD: Section 191 of the Negotiable Instruments Law defines "issue" asthe first delivery of an instrument, complete in form, to a person whotakes it as a holder. Significantly, delivery is the final act essential to thenegotiability of an instrument. Delivery denotes physical transfer of theinstrument by the maker or drawer coupled with an intention to conveytitle to the payee and recognize him as a holder. It means more thanhanding over to another; it imports such transfer of the instrument toanother as to enable the latter to hold it for himself.

ISSUE: What is the prima facie authority to complete blankmaterial particulars under Section 14 of the NegotiableInstruments Law?

HELD: In this case, even if the checks were given to W.L. Foods in blank,this alone did not make its issuance invalid. When the checks weredelivered to Lim, through his employee, he became a holder with primafacie authority to fill the blanks. This was, in fact, accomplished by Lim'saccountant.

Hence, the law merely requires that the instrument be in the possession ofa person other than the drawer or maker. From such possession, togetherwith the fact that the instrument is wanting in a material particular, thelaw presumes agency to fill up the blanks. Because of this, the burden ofproving want of authority or that the authority granted was exceeded, isplaced on the person questioning such authority. Petitioner failed to fulfillthis requirement.

7. BANK OF AMERICA V. PHILIPPPINE RACING CLUB, 2009 ISSUE: What are the effects of Article 14 and 16? HELD: In defense of its cashier/tellers questionable action, petitionerinsists that pursuant to Sections 14 and 16 of the NIL, it could validlypresume, upon presentation of the checks, that the party who filled up theblanks had authority and that a valid and intentional delivery to the partypresenting the checks had taken place. Thus, in petitioners view, the soleblame for this debacle should be shifted to Philippine Racing club forhaving its signatories pre-sign and deliver the subject checks. Petitionerargues that there was indeed delivery in this case because, following

American jurisprudence, the gross negligence of respondents accountantin safekeeping the subject checks which resulted in their theft should betreated as a voluntary delivery by the maker who is estopped fromclaiming non-delivery of the instrument.

ISSUE: What is the effect of Article 15?

HELD: Petitioners contention would have bee n correct if the subjectchecks were correctly and properly filled out by the thief and presented tothe bank in good order. In that instance, there would be nothing to givenotice to the bank of any infirmity in the title of the holder of the checksand it could validly presume that there was proper delivery to the holder.The bank could not be faulted if it encashed the checks under thosecircumstances. However, the undisputed facts plainly show that therewere circumstances that should have alerted the bank to the likelihoodthat the checks were not properly delivered to the person who encashedthe same. In all, we see no reason to depart from the finding in theassailed CA Decision that the subject checks are properly characterized asincomplete and undelivered instruments thus making Section 15

of the NIL applicable in this case .

ISSUE: What is material alteration?

HELD: A material alteration is defined in Section 125 of the NIL to be onewhich changes the date, the sum payable, the time or place of payment,the number or relations of the par ties, the currency in which payment is tobe made or one which adds a place of payment where no place ofpayment is specified, or any other change or addition which alters theeffect of the instrument in any respect. With respect to the checks atissue, petitioner points out that they do not contain any materialalteration.

ISSUE: What is meant by obvious irregularity?

HELD: Although not in the strict sense "material alterations," themisplacement of the typewritten entries for the payee and the amount onthe same blank and the repetition of the amount using a check writerwere glaringly obvious irregularities on the face of the check. Another typeof irregularity: such as when blanks were not properly filled out)Clearly,someone made a mistake in filling up the checks and the repetition of theentries was possibly an attempt to rectify the mistake.

RULING:Following established jurisprudential precedents , [27] we believe theallocation of sixty percent (60%) of the actual damages involved in thiscase (represented by the amount of the checks with legal interest) topetitioner is proper under the premises. Respondent should, in light of itscontributory negligence, bear forty percent (40%) of its own loss.

SECTION 17
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1. PEOPLE V. ROMERO, 1999 Is section 17 of the NIL applicable?

HELD: No, it is not applicable

The rule in the Negotiable Instruments Law is that when there isambiguity in the amount in words and the amount in figures, it would bethe amount in words that would prevail. However, this rule ofinterpretation finds no application in the case. The agreement wasperfectly clear that at the end of 21 days, the investment of P150,000.00would become P1,200,000.00. Even if the trial court admitted the

stipulation of facts, it would not be favorable to accused-appellant.

2. SAPIERA V. CA, 1999 ISSUE: In what capacity did Sapiera sign when there is doubt asto her signature? What is the rule of construction under Section17?

HELD: Despite the conflicting versions of the parties, it is undisputed thatthe four (4) checks issued by de Guzman were signed by petitioner at theback without any indication as to how she should be bound thereby and,therefore, she is deemed to be an indorser thereof. The NegotiableInstruments Law clearly provides

Sec. 17. Construction where instrument is ambiguous. - Where thelanguage of the instrument is ambiguous, or there are admissions therein,the following rules of construction apply: x x x x (f) Where a signature isso placed upon the instrument that it is not clear in what capacity theperson making the same intended to sign, he is deemed an indorser. x x xx

ISSUE: Who are indorsers under Section 63?

HELD:

Sec. 63. When person deemed indorser. - A person placing his signatureupon an instrument otherwise than as maker, drawer or acceptor, isdeemed to be an indorser unless he clearly indicates by appropriate wordshis intention to be bound in some other capacity.

ISSUE: What is the liability of an indorser under Section 66?

HELD:

Sec. 66. Liability of general indorser. - Every indorser who indorseswithout qualification, warrants to all subsequent holders in due course: (a)The matters and things mentioned in subdivisions (a), (b) and (c) of thenext preceding section; and (b) That the instrument is, at the time of theindorsement, valid and subsisting;

And, in addition, he engages that, on due presentment, it shall beaccepted or paid or both, as the case may be, according to its tenor, andthat if it be dishonored and the necessary proceedings on dishonor be dulytaken, he will pay the amount thereof to the holder or to any subsequentindorser who may be compelled to pay it.

3. EVANGELISTA V. MERCATOR FINANCE CORP, 2003 ISSUE: What rule must be followed if there is no ambiguity?

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

But, an examination of the promissory note shows no such ambiguity.ISSUE: How will the document be interpreted under Section 17of the NIL when the NI reads: I/WE and signed by two or morepersons?

HELD: Assuming arguendo that there is an ambiguity, Section 17 of theNegotiable Instruments Law states, viz:

Sec. 17. Construction where instrument is ambiguous. Where thelanguage of the instrument is ambiguous or there are omissions therein,the following rules of construction apply:x x x x x x x x x(g) Where an instrument containing the word I promise to pay is signedby two or more persons, they are deemed to be jointly and severally liablethereon.

SECTIONS 19, 20, 44, 69

1. FRANCISCO V. CA, 1999 ISSUE: What are the effects of the finds of fact of the trial courtsof the existence of forgery?

HELD: As regards the forgery, we concur with the lower courts' findingthat Francisco forged the signature of Ong on the checks to make itappear as if Ong had indorsed said checks and that, after indorsing thechecks for a second time by signing her name at the back of the checks,Francisco deposited said checks in her savings account with IBAA. The


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forgery was satisfactorily established in the trial court upon the strength ofthe findings of the NBI handwriting expert. Other than petitioner's self-serving denials, there is nothing in the records to rebut the NBI's findings.Well-entrenched is the rule that findings of trial courts which are factual innature, especially when affirmed by the Court of Appeals, deserve to berespected and affirmed by the Supreme Court, provided it is supported bysubstantial evidence on record, as it is in the case at bench.

ISSUE: How a NI may be issued through an agent (Section 20)or indorsed in a representative capacity (Section 44)?

HELD: The Negotiable Instruments Law provides that where any personis under obligation to indorse in a representative capacity, he may indorsein such terms as to negative personal liability. An agent, when so signing,should indicate that he is merely signing in behalf of the principal andmust disclose the name of his principal; otherwise he shall be heldpersonally liable. Even assuming that Francisco was authorized by HCCCto sign Ong's name, still, Francisco did not indorse the instrument inaccordance with law. Instead of signing Ong's name, Francisco shouldhave signed her own name and expressly indicated that she was signingas an agent of HCCC. Thus, the Certification cannot be used by Franciscoto validate her act of forgery.

2. SOLIDBANK CORP V. MINADANAO FERROALLOY CORP ISSUE: What is the liability of an agent under Section 19 and 20of the NIL? HELD: The Promissory Note in question is a negotiable instrument.Under Section 19 of the Negotiable Instruments Law, agents or

representatives may sign for the principal. Their authority may beestablished, as in other cases of agency. Section 20 of the law providesthat a person signing for and on behalf of a [disclosed] principal or in arepresentative capacity x x x is not liable on the instrument if he was dulyauthorized.

Respondents Cu and Hong signed the Promissory Note without the word by preceding their signatures, atop the designation Maker/Borrowerand the printed name of the corporation.

While their signatures appear without qualification, the inference that theysigned in their individual capacities is negated by the following facts: 1)the name and the address of the corporation appeared on the spaceprovided for Maker/Borrower; 2) Respondents Cu and Hong had onlyone set of signatures on the instrument, when there should have beentwo, if indeed they had intended to be bound solidarily -- the first as

representatives of the corporation, and the second as themselves in theirindividual capacities; 3) they did not sign under the spaces provided for

Co-maker, and neither were their addresses reflected there; and 4) atthe back of the Promissory Note, they signed above the words AuthorizedRepresentative.

The authority of Respondents Cu and Hong to sign for and on behalf ofthe corporation has been amply established by the Resolution of MinfacosBoard of Directors.

In the totality of the circumstances, Respondents Cu and Hong clearlysigned the Note merely as representatives of Minfaco. Hence, they arenot solidarily liable since they acted merely as agents.

Since solidary liability is not clearly expressed in the Promissory Note andis not required by law or the nature of the obligation in this case, noconclusion of solidary liability can be made.

SECTION 22

ATRIUM MANAGEMEN TCORP V. CA, 2001 ISSUE: What is an ultra vires act?

HELD: "An ultra vires act is one committed outside the object for whicha corporation is created as defined by the law of its organization andtherefore beyond the power conferred upon it by law". The term "ultravires" is "distinguished from an illegal act for the former is merely voidablewhich may be enforced by performance, ratification, or estoppel, while thelatter is void and cannot be validated."

ISSUE : In what instances will personal liability of corporateofficers attach?

HELD: "Personal liability of a corporate director, trustee or officer along(although not necessarily) with the corporation may so validly attach, as arule, only when:

"1. He assents (a) to a patently unlawful act of the corporation, or(b) for bad faith or gross negligence in directing its affairs, or (c) forconflict of interest, resulting in damages to the corporation, itsstockholders or other persons;"2. He consents to the issuance of watered down stocks or who,having knowledge thereof, does not forthwith file with the corporatesecretary his written objection thereto;"3. He agrees to hold himself personally and solidarily liable with thecorporation; or


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"4. He is made, by a specific provision of law, to personally answerfor his corporate action."

In the case at bar, Lourdes M. de Leon and Antonio de las Alas astreasurer and Chairman of Hi-Cement were authorized to issue the checks.However, Ms. de Leon was negligent when she signed the confirmationletter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for therediscounting of the crossed checks issued in favor of E.T. Henry. She wasaware that the checks were strictly endorsed for deposit only to thepayee's account and not to be further negotiated. What is more, theconfirmation letter contained a clause that was not true, that is, "that thechecks issued to E.T. Henry were in payment of Hydro oil bought by Hi-Cement from E.T. Henry". Her negligence resulted in damage to thecorporation. Hence, Ms. de Leon may be held personally liable therefor.

ISSUE: What is a holder in due course?

HELD: The Negotiable Instruments Law, Section 52 defines a holder indue course, thus:

Section 52. A holder in due course is a holder who has taken theinstrument under the following conditions:

(a) That it is complete and regular upon its face;(b) That he became the holder of it before it was overdue,and without notice that it had been previously dishonored, ifsuch was the fact;(c) That he took it in good faith and for value;(d) That at the time it was negotiated to him he had no

notice of any infirmity in the instrument or defect in the title ofthe person negotiating it.

ISSUE: Is Atrium a holder in due course when it re-discountedthe crossed checks?

HELD: In the instant case, the checks were crossed checks andspecifically indorsed for deposit to payee's account only. From thebeginning, Atrium was aware of the fact that the checks were all fordeposit only to payee's account, meaning E.T. Henry. Clearly, then, Atriumcould not be considered a holder in due course.

ISSUE: Are holders not in due course precluded from recoveringon the instrument?

HELD: However, it does not follow as a legal proposition that simplybecause petitioner Atrium was not a holder in due course for having takenthe instruments in question with notice that the same was for deposit onlyto the account of payee E.T. Henry that it was altogether precluded fromrecovering on the instrument. The Negotiable Instruments Law does notprovide that a holder not in due course can not recover on the instrument.

The disadvantage of Atrium in not being a holder in due course is that thenegotiable instrument is subject to defenses as if it were non-negotiable.One such defense is absence or failure of consideration.

SECTION 23

1. ASSOCIATED BANK V. CA, 2001 ISSUE: Give a review of the effects of a forged indorsement

HELD: A forged signature , whether it be that of the drawer or thepayee, is wholly inoperative and no one can gain title to the instrumentthrough it. A person whose signature to an instrument was forged wasnever aparty and never consented to the contract which allegedly gaverise to such instrument. Section 23 does not avoid the instrument but onlythe forged signature. Thus, a forged indorsement does not operate as thepayees indorsement.

The exception to the general rule in Section 23 is where a partyagainst whom it is sought to enforce a right is precluded from setting upthe forgery or want of authority. Parties who warrant or admit thegenuineness of the signature in question and those who, by their acts,silence or negligence, are estopped from setting up the defense of forgeryare precluded from using this defense. Indorsers, persons negotiating bydelivery and acceptors are warrantors of the genuineness of thesignatures on the instrument.

In bearer instruments , the signature of the payee or holder isunnecessary to pass title to the instrument. Hence, when the indorsementis a forgery, only the person whose signature is forged can raise thedefense of forgery against a holder in due course.

Where the instrument is payable to order at the time of the forgery,such as the checks in this case, the signature of its rightful holder (here,the payee hospital) is essential to transfer title to the same instrument.When the holders ind orsement is forged, all parties prior to the forgerymay raise the real defense of forgery against all parties subsequentthereto

An indorser of an order instrument warrants that the instrument is


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genuine and in all respects what it purports to be; that he has a good titleto it; that all prior parties had capacity to contract; and that theinstrument is at the time of his indorsement valid and subsisting. Hecannot interpose the defense that signatures prior to him are forged.

A collecting bank where a check is deposited and which indorses thecheck upon presentment with the drawee bank, is such an indorser. Soeven if the indorsement on the check deposited by the bankss client isforged, the collecting bank is bound by his warranties as an indorser andcannot set up the defense of forgery as against the drawee bank.

The bank on which a check is drawn, known as the drawee bank, isunder strict liability to pay the check to the order of the payee. Thedrawers instructions are reflected on the face a nd by the terms of thecheck. Payment under a forged indorsement is not to the drawers order.When the drawee bank pays a person other than the payee, it does notcomply with the terms of the check and violates its duty to charge itscustomers (the drawe r) account only for properly payable items. Since thedrawee bank did not pay a holder or other person entitled to receivepayment, it has no right to reimbursement from the drawer. The generalrule then is that the drawee bank may not debit the drawers a ccount andis not entitled to indemnification from the drawer. The risk of loss mustperforce fall on the drawee bank.

If the drawee bank can prove a failure by the customer/drawer to exerciseordinary care that substantially contributed to the making of the forgedsignature, the drawer is precluded from asserting the forgery. If at the

same time the drawee bank was also negligent to the point ofsubstantially contributing to the loss, then such loss from the forgery canbe apportioned between the negligent drawer and the negligent bank.

In cases involving a forged check, where the drawers signature isforged , the drawer can recover from the drawee bank. No drawee bankhas a right to pay a forged check. If it does, it shall have to recredit theamount of the check to the account of the drawer. The liability chain endswith the drawee bank whose responsibility it is to know the drawerssignature since the latter is its customer.

In cases involving checks with forged indorsements , such as thepresent petition, the chain of liability does not end with the drawee bank.The drawee bank may not debit the account of the drawer but maygenerally pass liability back through the collection chain to the party whotook from the forger and, of course, to the forger himself, if available. In

other words, the drawee bank can seek reimbursement or a return of theamount it paid from the presentor bank or person. Theoretically, the lattercan demand reimbursement from the person who indorsed the check to itand so on. The loss falls on the party who took the check from the forger,or on the forger himself. Since a forged indorsement is inoperative, thecollecting bank had no right to be paid by the drawee bank. The formermust necessarily return the money paid by the latter because it was paidwrongfully.

In this case, the checks were indorsed by the collecting bank (AssociatedBank) to the drawee bank (PNB). The former will necessarily be liable tothe latter for the checks bearing forged indorsements. If the forgery isthat of the payees or holders indorsement, the collecting bank is heldliable, without prejudice to the latter proceeding against the forger.

More importantly, by reason of the statutory warranty of a general

indorser in Section 66 of the Negotiable Instruments Law, a collectingbank which indorses a check bearing a forged indorsement and presents itto .the drawee bank guarantees all prior indorsements, including theforged indorsement. It warrants that the instrument is genuine, and that itis valid and subsisting at the time of his indorsement. Because theindorsement is a forgery, the collecting bank commits a breach of thiswarranty and will be accountable to the drawee bank. This liability schemeoperates without regard to fault on the part of the collecting/presentingbank. Even if the latter bank was not negligent, it would still be liable tothe drawee bank because of its indorsement. The Court has consistentlyruled that the collecting bank or last endorser generally suffers the lossbecause it has the duty to ascertain the genuineness of all priorendorsements considering that the act of presenting the check forpayment to the drawee is an assertion that the party making thepresentment has done its duty to ascertain the genuineness of theen dorsements. Moreover, the collecting bank is made liable because it isprivy to the depositor who negotiated the check. The bank knows him, hisaddress and history because he is a client. It has taken a risk on hisdeposit. The bank is also in a better position to detect forgery, fraud orirregularity in the indorsement.

The drawee bank is not similarly situated as the collecting bank becausethe former makes no warranty as to the genuineness of any indorsement.The drawee banks duty is but to verify the genuineness of the drawerssignature and not of the indorsement because the drawer is its client.

The drawee bank can recover the amount paid on the check bearing aforged indorsement from the collecting bank. However, a drawee bankhas the duty to promptly inform the presentor of the forgery upondiscovery. If the drawee bank delays in informing the presentor of the


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forgery, thereby depriving said presentor of the right to recover from theforger, the former is deemed negligent and can no longer recover fromthe presentor.

ISSUE: Where thirty checks beraing forged endorsements arepaid, who bears the loss, the drawer, the drawee bank or thecollecting bank?

HELD: Applying these rules to the case at bench, PNB, the drawee bank,cannot debit the current account of the Province of Tarlac because it paidchecks which bore forged indorsements. However, if the Province ofTarlac as drawer was negligent to the point of substantially contributing tothe loss, then the drawee bank PNB can charge its account. If bothdrawee bank-PNB and drawer-Province of Tarlac were negligent, the lossshould be properly apportioned between them. The loss incurred bydrawee bank-PNB can be passed on to the collecting bank-AssociatedBank which presented and indorsed the checks to it. Associated Bank can,in turn, hold the forger, Fausto Pangilinan, liable. If PNB negligentlydelayed in informing Associated Bank of the forgery, thus depriving thelatter of the opportunity to recover from the forger, it forfeits its right toreimbursement and will be made to bear the loss.

After careful examination of the records, the Court finds that the Provinceof Tarlac was equally negligent and should, therefore, share the burden ofloss from the checks bearing a forged indorsement. The Province of Tarlacpermitted Fausto Pangilinan to collect the checks when the latter, havingalready retired from government service, was no longer connected with

the hospital. With the exception of the first check, all the checks wereissued and released after Pangilinans retiremen. After nearly three years,the Treasurers office was still releasing the checks to the retired cashier.In addition, some of the aid allotment checks were released to Pangilinanand the others to Elizabeth Juco, the new cashier. The fact that therewere now two persons collecting the checks for the hospital is anunmistakable sign of an irregularity which should have alerted employeesin the Treasurers office of the fraud being committed. There is al soevidence indicating that the provincial employees were aware ofPangilinans retirement and consequent dissociation from the hospital. Thefailure of the Province of Tarlac to exercise due care contributed to asignificant degree to the loss tantamount to negligence. Hence, theProvince of Tarlac should be liable for part of the total amount paid on thequestioned checks. The drawee bank PNB also breached its duty to payonly according to the terms of the check. Hence, it cannot escape liabilityand should also bear part of the loss. The Court finds as reasonable, the

proportionate sharing of fifty percent - fifty percent (50%-50%). Due tothe negligence of the Province of Tarlac in releasing the checks to anunauthorized person (Fausto Pangilinan), in allowing the retired hospitalcashier to receive the checks for the payee hospital for a period close tothree years and in not properly ascertaining why the retired hospitalcashier was collecting checks for the payee hospital in addition to thehospitals real cashier, respondent Province contributed to the lossamounting to P203,300.00 and shall be liable to the PNB for fifty (50%)percent thereof. In effect, the Province of Tarlac can only recover fiftypercent (50%) of P203,300.00 from PNB. The collecting bank, AssociatedBank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It isliable on its warranties as indorser of the checks which were deposited byFausto Pangilinan, having guaranteed the genuineness of all prior

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