Negotiable Instruments Law

1. Alvin Patrimonio case

- Section 14 of the NIL- if the maker or drawer delivers a pre-signed blank
paper to another person for the purpose of converting it into a negotiable
instrument, the said person is deemed to have prima facie authority to fill
it up: 1. Strictly accordance with the authority given and 2. Within
reasonable time
- If proven not filled in accordance with authority given, personal defense of
maker and can avoid liability such in the case of Alvin Patrimonio in this
case
2. RCBC vs. Hi-Tri Dev Corp
- Regarding sequestered lots
- The principle that the deposit rpresented by a managers check
automatically passes to the payee is inapplicable, because it remains
undelivered
- The respondents should have been informed that the deposit had been
left inactive for more than 10 yrs, and that it may be subjected to escheat
proceedings if left unclaimed
- Managers check may not be escheated since it was not yet delivered (see
above explanation)
3. Samsung and Associated Bank cases
-Sec 23 of NIL re. forgery is a real or absolute defense. On the premise that
Jongs signature was forged, FEBTC is liable for the loss. It attaches even if
the bank exerts due diligence and care in preventing such faulty discharge.
Forgeries often deceive the eye of the most cautious experts, and when a
bank has been so deceived, it is a harsh rule, which compels it to suffer
although no one has suffered by its being deceived. The forgery may be so
near like the genuine as to defy detection by the depositor himself and yet
the bank is liable to the depositor if it pays the check
-a drawee who has paid upon the forged signature bears the loss. Exception
only when negligence can be traced on the part of the drawer whose
signature was forged, and the need arises to weigh the comparative
negligence between the drawer and the drawee to determine who should
bear the burden of loss.
-bank should perform utmost diligence
-warranties of an indorser- even if the indorsement on the check deposited by
the banks client is forged, the collecting bank is bound by his warranties as
an indorser and cannot set up the defense of forgery as against the drawee
bank
-24 hrs rule- Items bearing a forged endorsement shall be returned within 24
hrs after discovery of the forgery but in no event beyond the period fixed or
provided by law for filing of a legal action by the returning bank. However,

the court does not apply it strictly, and may not apply provided there was
prompt notice
-last indorser liable for the amount if forged; except if with negligence (Allied
Bank case)

4. Evangeline Cabrera case

-BP Blg 22
-notice of honor should be proven was set to drawee and drawer received.
Fact of service is reckoned from receipt of such notice of dishonor by the
drawee of the check
5. Gonzales vs. RCBC
-subsequent part (indorser) who caused defect in the instrument cannot have
recourse against any of the prior endorsers in good faith
-RCBC caused the defect
6. Crossed check has the ff. effects (PCIB, Dino, Ford, Equitable)
a. Check may not be encashed but only deposited in the bank
b. Check may be negotiated only once to the one who has an account with
the bank
c. Act of crossing the check serves as a warning to the holder that the check
has been issued for a definite purpose and he must inquire if he received
the check pursuant to this purpose; otherwise, he is not a holder in due
course
d. Check should be deposited only to the payees account
e. Collecting bank to ascertain that the check is only deposited to the
payees account
f. Requires banks highest standards of integrity and performance
7. Vidago vs. Pvt Finance (Holder in due course)
- HDC- holds instrument from any defect of title of prior parties and from
defenses available to prior parties among themselves, and may enforce
payment of the instrument for the full amount thereof
- Has taken the instrument under the ff. conditions:
Complete and regular upon its face
Became the holder of it before it was overdue, and without notice that
it had been previously dishonored, if such was the fact
He took it in good faith and for value
At time it was negotiated to him he had no notice of any infirmity in
the instrument or defect in the title of the person negotiating it.
- HDC not precluded from recovering the instrument. Defenses as if it were
non-negotiable such as absence or failure of consideration
- Cashiers check is deemed cash (BPI vs Roxas) while managers check or
ordinary check is not legal tender (BPI vs Napiza)

Check payable to cash is payable to the bearer and could be negotiated

by mere delivery without need of an indorsement. (People vs. Wagas)
Delivery is transfer of possession from one person to another (actual or
constructive (DB of Rizal vs Sina Wei)

8. Union Bank vs. Tiu

- An agreement to pay in foreign currency is valid, despite the fact that it
was not allowed by law when the agreement was entered into, if the
actual loans were taken out at a time when such agreements are valid
under the law
9. Accommodation Party (Agro case, Claude, Aglibeit, Gonzales, Ang, Palimares)
- Signed as MAID (maker, acceptor, indorser, drawer)
- Lending his name
- Liable as holder for value and surety
10.Velasquez vs. Solidbank Corp
- Protest of foreign bills of exchange- a sight draft made payable outside the
Philippines is a foreign bill of exchange. When a foreign bill is dishonored
by non-acceptance or non-payment, protest is necessary to hold the
drawer and indorsers liable
11. General indorser (Tuazon vs Ramos heirs)
-if instrument dishonored by nonpayment; indorsers no longer secondarily
liable
-became principal debtors
12.Sycip case (townhouse case)
-Sec 23 of PD 957- a buyer may opt to suspend payment until owner fulfilled
obligation to buyers. Defense to BP 22.
13.Section 1 of NIL- A negotiable instrument must be:
- In writing and signed by maker or drawer
- Unconditional promise or order to pay sum certain in money
- Demand or fixed or determinable future time
- Payable to order or bearer
- Drawee named or indicated therein with reasonable certainty
Negotiability- Sec 1 of NIL
Validity- does not affect negotiability of instrument; OBLICON requirements
Promissory notes
Maker
Promise
1-4
Drawee- lower right portion; drawee bank

Bill of exchange
Drawer
Order
1-5

Ante dating and post dating- not prohibited but if to defraud, yes!

Types of instruments
1. Complete and delivered and paid- logical
2. Incomplete and undelivered (Sec 15)- real defense/complete defense even to
Holder in due course/ any holder; almost same with Sec 23 (forgery)
3. Incomplete but delivered (Sec 14, similar to Alvin Patrimonio case)4. Complete and undelivered (Sec 16)
Sec 17 Ambiguity- statutory construction; dispute with regards to figures and
words, words would prevail because not much error
X,Y,Z- joint and several (solidary, all of them whole amount to all of them)
X, Y and Z- joint (proportionate)
I/We- if guarantor, always use WE so that proportionate
Sec 23- forgery- effect will be wholly inoperative, no right to discharge, no right to
retain
Holder in due course- free from defects of prior party and can enforce title to its full
amount
Holder for value- pro tanto
Sec 58- sheltered principle, bad faith cannot be inherited except if there is
participation. Good faith can be inherited
SH- receive payment, discharge instrument, sue
To indorse- sign at the back
Bearer instrument- delivery
Order- signed + delivery
Another sheet of paper- permanently attached
Liability of indorser- warrants genuiness and due execution; secondarily liable
If cross name/striked out- subsequent parties will no longer liable
(Go over Atty. Heffrons notes )