Académique Documents
Professionnel Documents
Culture Documents
Abelardo Dumaguing
Important provisions
Sec. 1 Elements of Negotiable Instrument
Sec. 2 certainty of the amount payable
Sec. 3 in rel. to Sec. 47 unconditional character of instrument
Sec. 4 determinable future time, fixed future time, contingency
Sec. 5 provisions that do not affect the negotiability of the instrument
Sec. 6 omissions and additions
Sec. 7 payable on demand
Sec. 8 payable to order
Sec. 9 payable to bearer
Sec. 11 presumption of date (date is presumed correct)
Sec. 12 antedate and postdate
Sec. 13 insertion of date
Sec. 14 incomplete instrument but delivered
Sec. 15 incomplete and undelivered
Sec. 16 complete instrument but undelivered
Sec. 23 forgery
Sec. 124 material alteration
Sec. 125 material alteration
Sec. 24 presumption of valuable consideration
Sec. 28 want of consideration and failure of consideration
Sec. 29 accommodation party
Sec. 30 negotiation (referring to transfer of instrument)
Sec. 33-39 kinds of indorsement eg. Blank, special, restrictive (36), qualified, conditional
Sec. 48 striking out indorsement
Sec. 52 what constitutes a holder in due course
Sec. 59
Sec. 57 rights of a holder in due course
Sec. 60 liability of a maker
Sec. 61 liability of a drawer
Sec. 62 liability of an acceptor
Sec. 65 & 66 warranties of an indorser
Sec. 70-73 presentment for payment
Sec. 89 notice of dishonor
Sec. 126 definition of bill of exchange
Sec. 184 definition of a promissory note
Sec. 185 definition of a check
What is a negotiable instrument?
It is a written contractual obligation that requires payment of money with the following essential elements:
1. in writing and signed
a. by the maker (if a promissory note)
b. by the drawer (if a check)
2. contains unconditional
a. promise (for promissory note), or
b. order (for check or bill of exchange[BOE])
3. must be payable on
a. demand
b. fixed future time, or
c. determinable future time
4. payable to
a. order, or
b. bearer
5. Drawee (element required in check or bill of exchange)
drawee must be NAMED or be INDICATED with a REASONABLE CERTAINTY (if he cant be
named)
WRITTEN AND SIGNED
Kinds of signature:
1. Conventional signature
2. Personalized signature
UNCONDITIONAL PROMISE/ORDER
Promise to pay shall be ABSOLUTE
Ex:
P10,000.00
I promise to pay to the to the order of Pedro ten
thousand pesos.
(Sgd)Amado
If it is ABSOLUTE then it is NEGOTIABLE and PAYABLE ON DEMAND
CONDITIONAL PROMISE
P20,000.00
I promise to pay to the to the to Mario or his order
after the unconditional surrender of the Al Qaeda
network to the Allied Forces
(Sgd)Amado
If it is CONDITIONAL then it is NON-NEGOTIABLE
Ex:
P30,000.00
I promise to pay thirty thousand pesos to Ruby or
bearer after she will celebrate Christmas of the year
2001.
(Sgd)Amado
This is not negotiable because it is with condition.
Ex:
P5,000.00
I promise to pay unconditionally to the order of Anton
five thousand pesos when it rains today.
(Sgd)Harry Potter
This is not negotiable because it with condition for it is dependent on the happening of an event that not sure to
happen.
DEMAND (Sec. 7)
OVERDUE
NO TIME for payment is indicated
EXPRESSLY made payable on demand
EXPRESSLY
P40,000.00
On demand, pay to the order of Juana forty thousand
pesos.
To: Clara
(Sgd) Bella
NO TIME
Baguio City
19 November 2001
P40,000.00
Pay to the order of Juana forty thousand pesos.
To: Clara (drawee)
Bella
(Sgd)
Instrument is OVERDUE
Ex:
At the outset bill of exchange/promissory note was issued at 1 May 2001 and payable on 7 August 2001.
Baguio City
1 May 2001
P8,000.00
I promise to pay to Ana or bearer the sum of eight
thousand pesos on 7 August 2001.
(Sgd) Pablo
- Overdue and yet it was endorsed payable on demand
In this instance, payment is not limited to Juan but also to the pleasure of Juan (eg: by indorsing, signing at the
back of the instrument and deliver it to somebody)
NOT NEGOTIABLE, if payable to SPECIFIED PERSON because there is a limitation.
*Sec. 34 Indorsement
PAYABLE TO BEARER (Sec. 9)
5 Instances:
1. EXPRESSLY (eg: Pay to BEARER)
2. Person named/specified therein or BEARER (eg: Pay to Jose [payee] or bearer)
Sec. 8, last par. when the instrument is payable to order the payee must be named or otherwise
indicated therein with reasonable certainty.
Payee person specified in the instrument
Sec. 9 no need of specifying the person
Q: How to know if the instrument is payable to bearer?
A: See Sec. 9
In, ORDER payee must indorse it first
In, BEARER payee does not need to endorse
3. FICTITIOUS PERSON/PAYEE and such is known to the person making it payable.
(eg: Pay to the order of Tarzan)
4. NAME OF THE PAYEE DOES NOT PURPORT TO THE NAME OF ANY PERSON
(eg: Pay to the order of CASH)
nb: the word order is not the controlling factor
5. WHEN THE ONLY OR LAST INDORSEMENT IS AN INDORSEMENT IN BLANK (in relation to Secs. 33
and 34
1.
2.
3.
4.
5.
Fictitious
Expressly made payable
Not named
Indorsement in blank
Specified (named)
BLANK INDORSEMENT
- signature affix, written at the back of the instrument
- made by the payee who is first to indorse
CLASSIFICATIONS OF INDORSEMENT
1. Blank indorsement
- an indorsement that does not specify the indorsee
Ex:
Baguio City
22 November 2001
P50,000.00
I promise to pay to the order of Ruby the sum of fifty
thousand pesos.
(Sgd) Harry Potter
At the back
To:
Ruby
(Sgd)
2. Special indorsement
- one that specifies the indorsee
Ex:
Face of instrument (same as above)
At the back
To: Rosanna
To:
Rosanna
(blank indorsement)
(Sgd) Ruby
(Sgd)
-This is payable to bearer because last indorsement is in blank, hence the whole instrument is converted to
payable to bearer (blank indorsement)
(Sgd) Harry
3. ACCELERATION CLAUSE
Definition: with a provision that upon default the whole amounts shall become due.
Stated installment but in default the whole shall become due.
Ex:
NEGOTIABLE
P20,000.00
Pay to Adquilen or bearer the sum of twenty thousand
pesos by installment as follows:
a) P3,000.00 due on 1 January 2002
b) P4,000.00 due on 2 February 2002
c) P5,000.00 due on 3 March 2002
d) P2,000.00 due on 4 April 2002
e) P6,000.00 due on 5 May 2002
In the event there is failure to pay anyone of the
foregoing installments then the entire remaining
obligation as of the time of default shall immediately
become due.
To: Clara
Potter
(Sgd) Harry
4. EXCHANGE
-difference in value of same amount of money by different countries
Ex
US$1 and Canadian$1
(here, the US dollar is more valuable. Their difference is called EXCHANGE)
Exchange must be at:
1. Fixed rate
-by agreement of the parties
2. Current rate
-average rate that will be prevailing at the time of the transaction during a particular date.
Ex: of an instrument payable with an EXCHANGE
California USA
26 November 2001
US$2,000.00
Pay to the order of Jose the sum of two thousand US
dollar in Philippine peso at a rate of P51.00 per dollar
on 25 December 2001.
To: Maria
Potter
(Sgd) Harry
US$2,000.00
Pay to the order of Juan de la Cruz the sum of two
thousand US dollar in Philippine peso at the current rate
of exchange.
To: Clara
Potter
(Sgd) Harry
SECTION 3
-Promise is unconditional
ORDER/PROMISE to pay remains UNCONDITIONAL although couple with:
1. An indication of particular fund
-for reimbursement
2. Statement of the transaction which gave rise to the instrument.
-a mere statement on how come the instrument was issued in ONLY a statement stating WHAT TRANSPIRED
between the parties as a consequence of it the instrument was issued.
P50,000.00
I promise to pay to the order of Reynaldo the sum of
fifty thousand pesos on 5 May 2002.
This promissory note was executed by me because of
the fact that I purchased from the payee a Mitshubishi
Lancer car model 1964 with plate number ADB398 and
the aforesaid amount represents my balance on that
sale.
(Sgd) Harry Potter
-In the first paragraph, the promise to pay is absolute
-In the second paragraph, mere statement of what transpired.
Q: What prompted Harry to issue the promissory note?
A: There was a sale/transaction
P50,000.00
I promise to pay to the order of Reynaldo fifty
thousand pesos after he will sell to me his car with plate
number ADB 398.
(Sgd) Harry Potter
Q: Is this negotiable?
A: It is NOT because the condition is unconditional.
INDICATION OF PARTICULAR FUND OUT OF WHICH THE REIMBURSEMENT IS TO BE MADE
FUND is a source of reimbursement
i. It can be where the drawee can be reimbursed, or
ii. Where the drawee may be able to compensate for what he will pay
10
Ex:
Defendant denying that he paid the liability, but the abandonment is tantamount to a liability.
P50,000.00
I promise to pay to the order of Ruby fifty thousand
pesos on 6 June 2002. In the event I failed to pay the
aforesaid obligation and as a consequence thereof a
case should be filed against me in court for collection of
sums of money, I hereby authorize Pedro as my
attorney in fact to acknowledge in my behalf the liability
that may arise from the issuance of this note.
(Sgd) Harry Potter
If warrant of attorney is made as if no warrant of attorney is made at all.
Sec. 5 (c)
-obligor = drawer/indorser in relation to Sec. 89
Sec. 89
-person secondarily liable (referring to the drawer/indorser) is entitled to a notice of dishonor.
Q: What is the advantage of the person secondarily liable?
A: He can be discharged/relieved from liability.
NOTICE OF DISHONOR
-notice to be made by the holder informing the person secondarily liable the fact that the instrument was refused
payment or acceptance.
Q: What is the form of the notice?
A: It must be in writing (for convinience).
BP 22 is not the same with Sec. 89 of NIL
Ex: Bill of Exchange
P20,000.00
Pay to the order of Ruby twenty thousand pesos on 3
March 2002.
Notice of Dishonor is hereby waived.
(Sgd) Harry Potter (drawer)
To: Reynaldo (drawee)
-even if one does not receive a NOTICE, he is still liable.
Sec. 6
1. Omissions (may be intentional or not)
2. Additions
INTENTIONAL OMISSION: the instrument:
1. is not dated
2. does not specify the value given
3. does not specify the place where it is issued or drawn
ADDITIONS
1. seal
2. particular kind of current money which payment is to be made (ie: designating of denomination)
NOT DATED
-When the promissory note is not dated, and one does not know when it was executed, then he can put the date
of issue [Sec. 17 (c)]
DOES NOT SPECIFY THE VALUE GIVEN
-There is a presumption that it is in exchange of a valuable consideration (Sec. 24 Presumption of
Consideration)
PLACE (issued/drawn)
See: Sec. 17 in relation to Sec. 73 (Place of presentment)
In his (obligors)
11
1. residence
2. place of business, or
3. in any other place where he could be found.
Promissory note vs Bill of Exchange
PROMISSORY NOTE
BILL OF EXCHANGE
-Unconditional promise
-4 essential elements
1. Unconditional promise
2. Signed by maker
3. Payable on demand or at a fixed or
determinable future time
4. Payable to bearer or order
-Unconditional order
-5 elements
1. Unconditional order in writing
2. Addressed by one person to another
3. Signed by the person issuing it
4. Order to pay on demand or at a fixed or
determinable future time a sum certain in
money
5. Order to pay must be to order or to bearer.
-drawee must be named
-may be presented for acceptance
-three parties
-drawer is secondarily liable
Check
-always payable on demand
-drawee is always a bank
-act is CRIMINAL
-need not be presented for acceptance
1. Generally crossed by 2 diagonal parallel lines at the upper left corner of the check
or instrument.
2. Specially
P80,000.
Pay to the order of CASH the amount of eighty thousand pesos.
(Sgd) Harry Potter
To: PNBank
-specify denomination but not condition simply a designation of the denomination used.
As differentiated with:
Sec. 2 amount payable is to be made in exchange (speaks of two kind of currency)
Sec. 184
To pay on
1. Demand
2. Fixed future time, or
3. Determinable future time
A sum certain in money to order or a bearer
CASHIERS CHECK
-check drawn by a cashier of a particular bank against the same bank where he is employed as a cashier.
Effect: as good as cash, but not a legal tender
Date of payment
-takes the effect of payment when encashed
MANAGERS CHECK
-check drawn by a manager of a particular bank against the same bank where he is employed as manager
-as good as cash, but not a legal tender
-takes effect when encashed
BLANK CHECK
-incomplete instrument (Secs. 14 and 15)
-the amount is not yet written
MEMORANDUM CHECK
-contains memorandum to the effect that this will be followed before encashing
-not condition
-guidelines
-written at the back on another paper attach to the check.
GUARANTEE CHECK
-issued to simply guarantee payment of an existing obligation.
ACCOMMODATION CHECK
-issued by drawer who did not receive any valuable consideration for drawing it from the payee or bearer.
Sec. 12
ANTE-DATED
POST-DATED
-date earlier than the actual date of drawing or -date later than the actual date of issuance or
issuance
drawing the instrument
effect: before encashing, wait for the arrival of post
date
allowed, but VOID if used for fraudulent purpose.
NEGOTIATION
-refers to transfer of instrument
-purpose: makes the transferee becomes holder of the instrument as:
1. Bearer, or
2. Endorser
But, NOT if the transferee if for depositary only.
Q: How to negotiate a BEARER INSTRUMENT?
A: By delivery.
Q: How to negotiate an ORDER INSTRUMENT?
A: By indorsement plus delivery.
INDORSEMENT (Secs. 39 and 40)
-signature affixed at the back of the instrument by the person negotiating it.
Face: signature of the drawer/maker
Back: signature of the person negotiating it
Ex: FACE
14
BACK
(Sgd) Juan
indorsement
SPECIAL INDORSEMENT
-if indorsee is specifically named
BLANK INDORSEMENT
last indorser
-payable to bearer
16
-The person in the possession thereof has a prima facie authority to complete it by filling up the blank therein
(he is still a possessor, not still a holder because the instrument is not yet negotiable)
Q: What is the evidence of the authority?
A: The signature on the blank paper.
Q: How to fill up?
A: 1. Fill up the blank strictly in accordance with the authority given
2. Fill it up within a reasonable time
if he exceeds the authority then a holder in due course has a right under Sec. 57
negotiation by delivery = to bearer
Warranties of an Indorser (Secs. 65 and 66)
1. That the instrument is genuine and in all respect what it purports to be;
2. That he has a good title to it;
3. That all prior parties had the capacity to contract;
4. That he has no knowledge of any fact which would impair the validity of the instrument or render it
valueless.
ILLUSTRATION OF SEC. 14
FACE
Baguio City
10 January 2002
P__________.00
Pay to the order of Juan the sum of
_________________
(Sgd) Pedro
Land Bank
Facts:
Pedro instructed Juan to put any amount but not exceeding P40,000.00. However, Juan placed
P47,000.00.
Subsequently, Juan indorsed the check to Marta.
BACK (Special Indorsement)
To: Marta (indorsee)
(Sgd) Juan
Question #1
Q: As a holder (indorsee), what can Marta do with the check?
A: Marts may:
1. Indorse it further, or
2. Present the check to the drawee bank for payment
Question #2
Q: If Marta chose to present the check for payment but the bank dishonors the check, what must Marta do so that
she can recover from the persons who are secondarily liable?
A: Marta should give notice of dishonor to the persons secondarily liable [ie: 1) the drawer and 2) the drawee]
Q: What if Marta did not give any notice of dishonor?
A: Then the persons secondarily liable are DISCHARGED from liability.
NO form of notice but it must be in writing for purposes of convinience.
Question #3
Q: If Marta is not a holder in due course (ex: she knew of the infirmity/defect), can she enforce the check against
Pedro?
A: No. She cannot enforce the instrument against Pedro because the latter can raise the personal defense that
the instrument was filled up not strictly in accordance with the authority given. The law requires that in order
that the instrument may be enforced it must be filled up with authority given and within a reasonable time.
Question #4
Q: Will your answer be the same as in the preceding question if Marta is a holder in due course (ie: she did not
know that there was infirmity/defect and if she knew, she was not a party thereor)?
17
A: NO. My answer will not be the same as in the preceding question. Marta can enforce the instrument as if it
was strictly filled up in accordance with the authority given and within a reasonable time. (see: last sentence
of Sec. 14, NIL) [Sec. 57 Rights of holder in due course]
Marta can enforce the instrument free from defect and in its full amount of P47,000.00
Question #5
Q: Can Marta require Juan to pay P47,000.00 if the bank and Pedro do not pay?
A: YES.
Juan warrants Marta that:
1. The check is genuine and in all respect what it purports to be (ie: the amount is correct even if it was
written not strictly in accordance of the authority given)
SEC. 15 INCOMPLETE instrument and UNDELIVERED
undelivered means NO VALID DELIVERY
-no essential particular and no valid delivery
See: Sec 8 payee must be named
-instrument is INCOMPLETE
-COMPLETED and NEGOTIATED without authority
-Effect of signing: the instrument is NOT a valid contract in the hands of ANY HOLDER
-the instrument cannot be enforced by the holder (nb: even holder in due course) against the person who became
the party thereto prior to delivery
ILLUSTRATION:
FACE
P80,000.00
Pay to the order of Mr. ____________________
the sum of eighty thousand pesos .
(Sgd) RUA
To: PNBank
Facts:
He
Nb: from Amado to Lito = there is a valid delivery BUT from RUA to Amado = no valid delivery.
-Lito cannot enforce the instrument against RUA if the instrument is dishonored by the bank.
any holder includes holder in due course
Lito cannot enforce the instrument against RUA because the check cannot be valid in the hands of ANY
HOLDER. Even if Lito is a holder in due course he cannot enforce it against RUA considering that RUA was a
person who place the signature in the instrument before delivery.
INCOMPLETE INSTRUMENT
FACE
P____________.00
Amado placed this incomplete instrument in his cabinet. Rey took it without the consent of Amado.
Subsequently, Rey put the amount of ninety thousand pesos. Later, Rey indorsed it to Bartolo.
Bartolo presented the instrument to the bank but it was dishonored. He gave a notice of dishonor to Rey
and Amado.
(Sgd) Pedro
Pedro signed this instrument, put it in his cabinet and the sister of Juan took it without Pedros consent.
The sister of Juan delivered the instrument to Juan but she is not authorized by Pedro.
Later, Juan indorsed the instrument to Harry.
BACK
To: Harry
(Sgd) Juan
Harry is still an IMMEDIATE PARTY as long as he is aware that the instrument was not deliverd by Pedro (NOT
PROXIMITY)
BUT, If Harry is NOT AWARE but the check is overdue, then Harry is a REMOTE PARTY OTHER THAN
HOLDER IN DUE COURSE
Question #1
Q: As a holder in due course what may Harry do with the check?
A: Harry can 1) present the check to Land Bank for payment, or 2) indorse if further.
Question #2
Q: If Harry presents the check to the Land Bank for payment but the bank refuses to pay, what should Harry do
so that he may be able to recover?
A: Harry shall give a notice of dishonor to Pedro and Juan.
Question #3
Q: If Harry is not a HOLDER IN DUE COURSE can he require Pedro to pay P80,000.00?
A: NO.
Reason: There is no effectual delivery because the check was not delivered by or under the authority of
Pedro.
Question #4
Q: Will your answer be the same as in the preceding question if Harry is a holder in due course?
A: See: Sec 16, last sentence: And where the instrument is no longer in the possession of a party whose
signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proven.
In the hands of a holder in due course, a valid and intentional delivery is conclusively presumed to have
been made by all parties prior to him (holder in due course) [until the contrary is proven]
***Juan is a prior party and he warrants
Question #5
Q: If Harry decides to go against Juan will the latter be liable?
A: YES.
Reason: Juan as indorser warrants that he has a good title to the check (see: Sec. 65)
ANOTHER ILLUSTRATION OF SEC. 16
P80,000.00
Pay to the order of Juan eighty thousand pesos.
T: Land Bank
(Sgd) Pedro
Facts:
Pedro instructed Juan to indorse this check until such time the latter will be able to complete the
construction of Pedros house.
Construction has never started when Juan indorsed the check to Ruby.
Subsequently, Ruby indorsed the check to Clara.
BACK
To: Ruby
To: Clara
(Sgd) Juan
(Sgd) Ruby
Question #1
Q: If Clara is not a holder in due course can she require Pedro to pay after giving him notice of dishonor?
A: NO.
Pedro has a personal defense that there was no effectual delivery of the instrument considering that
delivery was conditional and the suspensive condition was not fulfilled. (Juan was not acting under the authority of
Pedro).
Question #2
Q: Will your answer be the same as in the preceding question if Clara is a holder in due course?
A: NO. My answer is not the same as in the preceding question because Clara can require Pedro to pay because
the law provides that when the instrument is in the hands of a holder in due course a valid and intentional
delivery by all parties prior to him (holder in due course) so as to make them (prior parties) liable to her, is
conclusively presumed.
(Clara holds the instrument as though there was a valid delivery from Pedro, Juan and Ruby)
Question #3
Q: As a holder in due course, can Clara require Juan to pay?
A: YES. Clara can require Juan to pay (*warranty of Juan extends beyond Ruby)
[See: Sec. 66, opening sentence (every indorser who indorses without qualification, warrants, to all
subsequent holders in due course ) in relation to Par(b) of Sec. 65 (that he has a good title to it)]
Juan is a general indorser and he warrants ALL SUBSEQUENT HOLDERS IN DUE COURSE that he has
a good title.
Question #4
Q: If Clara fails to find Pedro and Juan, can she require Ruby to pay?
A: YES. Clara can require Ruby to pay because the latter is a general indorser and such she warrants that the
check is genuine.
NOTES:
-Check is complete, therefore, negotiable.
-Delivery is conditional (ie: construction)
-The suspensive condition was not fulfilled, therefore, the delivery is NOT EFFECTUAL.
Juan was not acting under the authority of Pedro because of the non-fulfillment of the obligation,
therefore, no effectual delivery to Ruby (as far as Pedro is concern)
Sec. 15
Sec. 16
QUESTIONS:
1) If the bank dishonors the check and H gives notice of dishonor to Pedro, is the latter liable?
Ans: No. The forged signature is wholly inoperative. (real defense)
Pedro will never be liable for that signature because Harry did not acquire any right to enforce payment of the
instrument, based on that signature, against the person whose signature was forged. (NB: even if you are a holder in due
course)
2) If Harry gives notice of dishonor to Amado, can Harry recover from the former?
Ans: Yes. Reason: he is a forger and as such he is precluded from setting up forgery or want of authority as a defense.
As a general indorser, he warrants under Art. 66 that the signature is genuine and in all respects what it purports
to be
3) If Harry gives notice of dishonor to Bella, will Bella be liable to pay?
Ans: Yes. Reason: She is a subsequent indorser and precluded from setting forgery as a defense. And by indorsing the
check, she warrants to Harry that the instrument is genuine and in all respects what it purports to be.
Forged instrument in hands of a HOLDER IN DUE COURSE cant be enforced for payment.
Forged signature does not make you liable to the instrument
NB: When the payees signature was ONLY forged, the payee and the drawer can still avail of the real defense. Reason:
No valid indorsement by the payee.
(see: sec. 30 indorsement + delivery)
Illustration (forgery in the signature of the PAYEE)
Face
P80,000.00
Pay to theORDER of Juan eighty thousand pesos.
(Sgd) Berto
To: Land Bank
Back
To: Pablo
(Sgd) Juan
To: Harry
(Sgd) Pablo
This payees (aka orginal indorser) signature is forged by Pablo.
QUESTIONS:
1) If The bank does not pay Harry and Harry gives notice of dishonor (NOD) to Berto, is the latter liable?
Ans: NO. Berto can set up the real defense that the forged signature of Juan (payee) is wholly inoperative (that is using
the payees forged signature as a real defense).
Berto is not made liable even to a HOLDER IN DUE COURSE bec. of lack of valid indorsement by the payee.
2) If Harry gives NOD to Juan, is the latter liable?
Ans: NO. Reason: Forged signature is rendered wholly inoperative. Juan cant be made liable on the basis of that forged
signature.
As a holder (even HDC), Harry did not acquire any right to enforce the instrument against Juan.
3) If Harry gives a NOD to Pablo, is the latter liable?
Ans: YES. Reason: Pablo is the FORGER and SUBSEQUENT INDORSER. As such, he is precluded from setting up
forgery or want of authority. And he warrants that the instrument is genuine and in all respects what it purports to be.
Face
P60,000.00
Pay to REY or BEARER sixty thousand pesos.
(Sgd) Pablo
To: PNBank
Back
To: Pedro
(Sgd) REY
To: Harry
NOTE: Under 30, there is no need to indorse the bearer instrument. Negotiation is made by delivery only.
However, under 40, the bearer instrument may be indorsed.
In a bearer instrument, the payee does not need to indorse.
Indorsement by the payee is not necessary to the title of the bearer/holder.
NB: Forgery anent indorsement of the payee is IMMATERIAL or IRRELEVANT (reason: bec. indorsement is not needed in
b.i.).
The bearer/holder acquires title even sans indorsement.
In order instrument, valid indorsement by the payee is necessary to the title of the holder.
QUESTIONS:
1) If the bank does not pay Harry, and Harry gives NOD to Pablo, is the latter liable?
Ans: YES. Pablo is liable to Harry. Pablo cant use forger as a defense bec. the FORGERY is IRRELEVANT.
Sec. 61. Liability of drawer. - The drawer by drawing the instrument admits the existence of the payee and his then
capacity to indorse; and engages that, on due presentment, the instrument will be accepted or paid, or both, according to
its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder or to any subsequent indorser who may be compelled to pay it. But the drawer may insert in the
instrument an express stipulation negativing or limiting his own liability to the holder.
2) If Harry gives a NOD to Rey, can Rey avail of the defense of forgery to defeat the claim of Harry?
Ans: NO. Forgery in the indorsement is IRRELEVANT or IMMATERIAL to the title of Harry bec. Harry acquires title even
with or without indorsement for bearer instrument need not be indorsed.
3) What defense which Rey can raise if Harry is not a HDC?
Ans: Rey can avail of the defense of the LACK OF EFFECTUAL or VALID DELIVERY (under 16) NB: This is a personal
defense in forgery NOT a real defense. [16 as personal defense cant be used against a HDC]
***But Rey cant avail of the defense of forgery as REAL DEFENSE if this is a order instrument.
4) If Harry gives a NOD to Pedro, is the latter liable?
Ans: YES. Reason: Bec. he warrants under 65 that he has a good title in the instrument, and no knowledge of any fact
that would impair the validity of the instrument.
*Harry is an IMMEDIATE TRANSFEREE (see: last sentence of 65).
BEARER INSTRUMENT
Face
P60,000.00
Pay to JUAN or BEARER sixty thousand pesos.
(Sgd) Pedro
To: LandBank
this signature was forged by Juan.
Back
To: Nena
(Delivered by) Juan
To: Harry
(Delivered by) Nena
QUESTIONS:
1) If the bank does not pay and Harry gives NOD to Pedro, is the latter liable?
Ans: NO. Perdo can set up a real defense that the signature is wholly inoperative, and this does not make Pedro liable.
The Holder did not acquire any right to enforce payment of the instrument against Pedro.
2) If Harry give a NOD to Juan, is the latter liable?
Ans: NO. (See: 65) Warranty extend in favor of NO HOLDER OTHER THAN THE IMMEDIATE TRANSFEREE. [nb: NOT
immediate party]
Harry is not the immediate transferee of Juan.
NOTE: The question here is not of forgery (in 23) but of warranty (in 65). Even if there is forgery, forgery cant always
be availed of as a defense.
REMEMBER: What issue is raised in the problem?
Juan as liable forger does not apply in negotiation by delivery(b.i.)
3) If Harry gives NOD to Nena, is the latter liable?
Ans: YES. She warrants under 65 that the instrument is genuine and in al respects what it purports to be (including
Pedros forged signature), and her warranty extends to Harry as her immediate transferee.
Face
P60,000.00
Pay to JUAN or BEARER sixty thousand pesos.
(Sgd) Pedro
To: LandBank
this signature was forged by Juan
Back
To: Nena
Juan
To: Harry
(Sgd)
(Sgd) Baldwin
To: BPI
Forged by Dolores
Back
27
(Sgd) Dolores in
(Sgd)
Back
To: Maasim
(Sgd) MELICOR
To: HSB
(Sgd) Maasim
This was forged by Maasim
this check was drawn by GELAC involving payment of insurance proceeds for MELICOR.
This check was lost and Maasim had possession of the check and tried to make it appear that it was indorsed to him by
MELICOR.
The practice of GELAC is to send the check by mail.
8: order instrument payee must be named.
Maasim deposited the check to HSB and the amount was allowed to be credited in Maasims account, and so he was
allowed to withdraw amount.
HSB presented to PNB. PNB paid.
Now, PNB wants to debit against the deposit account of GELAC.
DOCTRINE:
When a check is payable to the order of a person and it is presented for payment BY ANOTHER it is the duty of
the bank to see to it that the check was duly indorsed by the original payee. (Reason: no valid indorsement)
So, PNB should see to it that MELICOR made a valid indorsement.
GELAC.
***Forgery in the signature of the payee is a real defense by the drawer.
PNB can go against HSB; HSB can go against Maasim.
3) PNB vs Motor Service, 63 Phil 693
Face
28
in behalf of
(Sgd)
by
(Sgd)
(Sgd)
Back
To: Manuel Go
(Sgd) M. Pulido
To: Lim
(Sgd) M. Go
To: PCIB
(Sgd) Lim
PCIB said: all prior indorsements guaranteed
Signatories of GSIS check are manager and auditor
Managers and Auditors signature were forged (this check was lost)
2 months before PCIB went to PNB. GSIS has already notified PNB to stop payment bec. GSIS said that the check was
forged (lost).
But PNB still paid bec. of the ANNOTATION: PCIB guaranteed that the indorsement were GENUINE but not the
signature.
SO, GSIS is not liable bec. its signature is wholly inoperative.
There was GREATER or ACTUAL NEGLIGENCE by PNB.
DOCTRINE OF JUS TERTIIS
When one of the two innocent persons must suffer from a wrongful act of a third person, the one guilty of actual
negligence or who put it into the power of a 3rd person to perpetrate the wrong shall bear the loss.
Here, the 3rd person is the GSIS.
5) Republic Bank vs. Mauricia Ebrada, 65 SCRA 693
Signature of payee (original indorser) was forged.
Ebrada also raised the issue that she was only an accommodation pary (29)
Check payable to the order of a specified person.
DOCTRINE
a person who takes a check or purchases draft is bound to satisfy himself that the check he is taking is genuine,
and by putting it into circulation, or by presenting it for payment or by indorsing it, he impliedly asserts that he has
performed his duty.
Face (GENUINE)
Pay to A or ORDER
Y
To: Bank
(Sgd)
Back (FORGED)
To: B
(Sgd) A
(Sgd) B
B presented this to the BANK.
B is the holder.
if B purchases a draft, B should believe in good faith that the check in his possession is genuine.
Drawee bank cannot debit account of Y.
Bank can go against B (basis: one who purchases a draft must satisfy himself that such draft is genuine)
Doctrine in GELAC is not applicable but the doctrine in Rep Bank vs Ebrada does not mean abandonment of ruling in
GELAC case.
6)
Face
P10,000.00
Pay to the order of Inter Island Gas Services, Corp
(IGSP)
(Sgd) DD
To: VB
10 different drawers in various drawee banks
Back
30
(by
A. Ramirez)
To: BPI
(Sgd) Jai Alai
BPI credited amount of checks to the account of Jai Alai; VB does not pay.
Signature of Alfredo Ramirez was NOT AUTHORIZED (therefore, forgery)
NOTE: The payee is corporation a corporation can act only through its Board of Directors. The Board can authorize any
of the corporate employees or officers to act for in its behalf.
DOCTRINE:
A person taking a check of corporation (which can act only through its Board of Directors) does so on his own peril when
the one who indorses in behalf of the corporation was in fact not authorized.
If you are the holder, you cannot compel the drawee to pay BUT go against the indorsee, or the person who appear to
be secondarily liable.
bec. VB does not pay, BPI sued Jai Alai.
When Ramirez signed the checks in favor of Jai Alai, the latter should have verified the validity (ie. Authorization of
Ramirez) of the formers signature.
When Jai Alai accepted the checks from Ramirez, he did so in his own peril.\
7) PNB vs CA (1997)
Face
P80,000.00
Pay to the order of Ana eighty thousand pesos.
(Sgd) Pedro
To: X Bank
This signature was forged.
Back
To: Y Bank (indorsee)
to Y Bank [indorser])
(Sgd) Ana
(indorsed check
Forgery
1. It refers to any 1 . I t p e r t a i n s t o
unauthorized change.
unauthorized signature.
2. The forged signature is
2.
The instrument is rendered INOPERATIVE.
AVOIDED.
3.
The HDC cannot
recover in some instances.
3. A HDC may recover but
is limited only as to the
original tenor.
He did not
32
Primary reason: Pablo is liable to pay P77K bec. the law provides that the instrument can be enforced against the party
who made the alteration. The general rule is that the instrument is avoided except to the one who made or is not
authorized to make the alteration. Here, Pablo falls under the exception.
Pablo as an indorser warrants to all subsequent holders that the instrument is genuine and in all respects what it
purports to be.
4) What if Harry gives NOD to Indong, is the latter liable to pay P77K?
Ans: YES. Indong is liable to pay P77K bec. under the law a subsequent indorser is liable in material alteration.
YES. Indong is liable to pay P77K. As a subsequent indorser, Indong is liable bec. he warrants that the instrument is
genuine and in all respects what it purports to be.
5) Assuming that Indong and Pablo are not in the country and Harry badly needs money and wants to recover from the
drawer, can Harry as HDC recover the amount other than P77K from Danny?
Ans: YES. As HDC Harry can recover the amount of P69K ONLY from Danny bec. the HDC can enforce the instrument
according to its original tenor.
Banco Atlantico vs Auditor General, 81 scra 335
- 3 checks involved; 1 check payment for a living quarter; a check is payable in the amount of US$79 for one living
quarter; the US$79 became US$375,000 (alteration in the amount); Azucena Pace deposited the check after altering it.
Face
US$79.00 (to US$39,000.00)
Pay to the order of Azucena Pace.
Gonzalez (Ambassador)
(Sgd) Luis
To: PNBank
this was altered.
Back
To: Banco Atlantico de Espanyol
Pace
(Sgd) Azucena
Banco Atlantico presented this for payment by the PNB (before this BA allowed AP to withdraw the amount even without
clearing.
PNB was informed that the checks were altered.
BA sued PNB, impleading AG
BA should have waited for the clearing.
In Internationa banking practice, the collecting bank should wait for the clearing of the check, esp. if the check
involves large amount.
SC: BA cannot recover bec.since the 3 checks were fraudulently altered they are rendered wholly inoperative. (acc. to
AD wholly inoperative is for forgery, so this is a wrong reasoning)
Sec. 29 ACCOMMODATION PARTY
He becomes a party to the instrument without receiving a valuable consideration therefore.
He may be a accommodation maker/drawer/indorser/acceptor.
He lends his name or credit to another. He does not receive anything for becoming a party to the instrument.
He may receive payment for lending his name.
Eg. One borrowed money from you but you have none, instead you drew a check in his favor.
Accommodation indorser
Accommodation acceptor eg. A bank who pays your payee even if you do not have any deposit in the bank but you have
a good credit. Reason: bank did not receive any valuable consideration.
One remains an AP even if he receives payment bec. of the good name he lends.
What matters is he received nothing for being a drawer.
lending name or good credit