Negotiable Instruments Case Doctrines—Atty.
Busmente SBCA 2017-2018
PHILIPPINE EDUCATION Co., Inc. v. MAURICIO SORIANO (G.R. No. L-22405—June 30, 1971)
Postal money orders are non-negotiable because in establishing and operating a postal money order
system, the government is not engaging in commercial transactions but merely exercises a
governmental power for the public benefit. Furthermore, postal money orders do not conform to Sec.
1 of the NIL as postal laws and regulations limit the negotiability of such instruments as it only allows
one indorsement, thus, it cannot freely circulate and accumulate secondary contracts.
CALTEX, Inc. v. CA and SECURITY BANK AND TRUST COMPANY (G.R. No. 97753—August 10, 1992)
The CTDs are negotiable instruments because it conforms with Sec. 1 of the NIL and it is payable to
bearer as indicated on the face of the instrument. The negotiability or non-negotiability of an
instrument is determined from the writing, that is, from the face of the instrument itself.
Security Bank has a better right over the CTDs because they were not validly negotiated on the ground
that the intention of Angel de la Cruz was to give the instruments as a pledge to Caltex. The CTDs were
only delivered but not indorsed to Caltex. The mere delivery did not legally vest in Caltex any right
effective against and binding upon Security Bank. On the other hand, Security bank was able to
provide proof that a Deed of Assignment was signed by both parties.
METROBANK v. CA and GOLDEN SAVINGS (G.R. No. 88866—February 18, 1991)
The treasury warrants are non-negotiable as it says so on its face. The instrument indicated that the
source of payment was a particular fund thus negating the requirement of Sec. 1 of the NIL that the
instrument must contain an unconditional promise or order to pay a sum certain in money. Sec. 3 of
NIL provides that an order or promise to pay out of a particular fund is not unconditional.
SESBRENO v. CA (G.R. No. 89252—May 24, 1993)
A non-negotiable instrument cannot be negotiated but it may be assigned or transferred, absent an
express prohibition against assignment or transfer on the face of the instrument. Although the
promissory note is marked “NON-NEGOTIABLE,” it contained no stipulation which prohibited
PhilFinance from assigning or transferring, in whole or in part, that note; thus, it can still be assigned
to a person called an assignee. The difference between an assignment and a negotiable instrument is
that the latter may be freely circulated whereas the former cannot.
FIRESTONE TIRE & RUBBER CO. v. CA (G.R. No. 113236—March 5, 2001)
The special withdrawal slip are not negotiable instruments as it lacked the essence of negotiability of
the freedom to circulate freely as a substitute for money. Special withdrawal slips do not conform to
Sec. 1 (b), (c), and (d) of the NIL.
Respondent bank was under no obligation to give immediate notice that it would not make payment
on the subject withdrawal slips as the rules governing the giving of immediate notice of dishonor of
negotiable instruments do not apply in this case since they are non-negotiable instruments.
ANG TEK LIAN v. CA (G.R. No. L-2516—September 25, 1950)
Under Sec. 9(d) of the NIL, a check drawn payable to the order of “cash” is a check payable to bearer,
and the bank may pay it to the person presenting it for payment without the drawer’s indorsement.
Where a check is made payable to the order of “cash,” the word cash does not purport to be the name
of any person, and hence the instrument is payable to bearer. The drawee bank need not obtain any
indorsement of the check, but may pay it to the person presenting it without any indorsement. Mere
delivery is sufficient.
DEVELOPMENT BANK OF RIZAL v. SIMA WEI (G.R. No. 85419—March 9, 1993)
There is no right over the instrument if there was no delivery even though the name was indicated as
payee in the instrument.
A negotiable instrument must be delivered to the payee in order to evidence its existence as a binding
contract. Section 16 of the NIL, which governs checks, provides in part: “every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of giving
effect thereto…” There must be an intention of transferring title. In this case, there was no such
intention because respondent Sima Wei did not deliver it all.
The payee of a negotiable instrument acquires no interest with respect thereto until its delivery to
him. Delivery of an instrument means transfer of possession, actual or constructive, from one person
to another. Without the initial delivery of the instrument from the drawer to the payee, there can be
no liability on the instrument. Moreover, such delivery must be intended to give effect to the
instrument.
PHILIPPINE BANK OF COMMERCE v. ARUEGO (G.R. No. L-25836-37—January 31, 1981)
According to Sec. 20 of the NIL, a person signing in a representative capacity should disclose his
principal or else he is personally liable.
Where the instrument contains or a person adds to his signature words indicating that he signs for or
on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was
duly authorized; but the mere addition of words describing him as an agent or as filling a
representative character, without disclosing his principal, does not exempt him from personal
liability.
An inspection of the drafts accepted by Aruego shows that nowhere has he disclosed that he was
signing as representative of the Philippine Education Foundation Company. For failure to disclose his
principal, defendant Aruego is personally liable for the drafts he accepted.
FRANCISCO v. CA (G.R. No. 116320—November 29, 1999)
He who signs as an agent must disclose the name of his principal. In the absence of such disclosure,
the person claiming to be an agent shall be personally liable.
The NIL provides that where any person is under obligation to indorse in a representative capacity,
he may indorse in such terms as to negate personal liability. An agent, when so signing, should indicate
that he is merely signing in behalf of the principal and must disclose the name of his principal;
otherwise he shall be held personally liable.
Even assuming that Francisco was authorized by HCCC to sign Ong’s name, still, Francisco did not
indorse the instrument in accordance with law. Instead of signing Ong’s name, Francisco should have
signed her own name and expressly indicated that she was signing as an agent of HCCC. Thus, the
Certification cannot be used by Francisco to validate her act of forgery.
JAI-ALAI CORPORATION OF THE PHILIPPINES v. BANK OF THE PHILIPPINE ISLANDS (G.R. No. L-
29432—August 6, 1975)
The general rule is that a collecting bank is not liable on the payment of a forged instrument. The
power to collect does not carry with it the power to negotiate.
The depositor of a check as indorser warrants that it is genuine and in all respects what it purports to
be. Considering that petitioner Jai-Alai indorsed the subject checks when it deposited them with
respondent BPI, the former, as an indorser, guaranteed the genuineness of all prior indorsements
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thereon. Having received the checks merely for collecting and deposit, respondent BPI cannot be
expected to know or ascertain the genuineness of all prior indorsements. Respondent BPI, as a
collecting bank which relied upon petitioner Jai-Alai’s warranty, is not liable for the resulting loss.
REPUBLIC BANK v. EBRADA (G.R. No. L-40796—July 31, 1975)
The existence of a forged signature in the check will not render void all the other negotiations of the
check with respect to the other parties whose signatures are genuine. It is only the negotiation
predicated on the forged indorsement that should be declared inoperative.
MWSS v. CA & THE PHILIPPINE NATIONAL BANK (G.R. No. L-62943—July 14, 1986)
Generally, a forged signature is wholly inoperative and so no right can be acquired through such
signature, unless the person against whom it is sought to enforce such right is precluded from setting
up the forgery or want of authority. Such persons are those who warrant the genuineness of the
signatures in questions and those who by their acts, silence, or negligence are estopped from setting
up the defense of forgery.
Failure to provide appropriate security measures over its own personalized checks and records, as
well as the laxity and poor control that it exercised with regards to its transactions, render petitioner
MWSS grossly negligent as these were the proximate causes of the failure to discover the forgery, and
is, therefore, barred from setting up the defense of forgery under Sec. 23 of the NIL.
BDO v. EQUITABLE BANKING CORPORATION (G.R. No. 74917—January 20, 1988)
The general rule is that a collecting bank is not liable on a forged instrument. However, an exception
to this rule is when the collecting bank is the last indorser and had a warranty stamped providing “all
prior indorsement or lack of indorsement guaranteed.” Such a situation renders the collecting bank
estopped from setting up the defense of forgery and will be held liable.
In the present case, petitioner collecting bank BDO having stamped its guarantee is now estopped
from claiming that the checks under consideration are non-negotiable instruments. By such
deliberate and positive act of the petitioner BDO, it has for all legal intents treated the checks as
negotiable instruments and accordingly assumed the warranty of a general endorser when it stamped
its guarantee at the back of the checks, which thus led respondent EB to believe that it was acting as
an indorser of the checks, and on the strength of such guarantee, respondent EB credited petitioner
BDO’s clearing account.
GEMPESAW v. CA & PHILIPPINE BANK OF COMMUNICATIONS (G.R. No. 92244—February 9, 1993)
The general rule is that a drawee bank (PBC) who has paid a forged check on which an indorsement
has been forged cannot charge the drawer’s account for the amount of said check. However, the
exception to this rule is where the drawer (petitioner Gempesaw) is guilty of such negligence which
causes the bank to honor such check.
ASSOCIATED BANK v. CA (G.R. No. 107382—January 31, 1996)
When one of two persons must suffer by the acts of a third, he who has enabled such third person to
occasion the loss must bear it.
When the need arises to weigh the comparative negligence between the parties to determine who
should bear the burden of loss, then on the basis of the doctrine of comparative negligence, the
responsible parties shall bear the such loss in proportion to the degree of their fault or negligence,
which was the proximate cause that facilitated the forgery.
The exception to the general rule that a collecting bank is not liable on a forged instrument is when it
is the last indorser and had a warranty stamped providing “all prior indorsement or lack of
indorsement guaranteed.” Such a situation renders the collecting bank estopped from setting up the
defense of forgery and will be held liable.
Further, the drawee bank is under strict liability to pay the check to the order of the payee. Payment
under a forged indorsement is not in accordance to the drawer’s order. The general rule then is that
the drawee bank may not debit the drawer’s account and is not entitled to indemnification from the
drawer if the drawee had paid on a forged instrument. The risk of loss must perforce fall on the
drawee bank. However, an exception to this rule is if the drawee bank can prove a failure by the
drawer to exercise ordinary care that substantially contributed to the making of the forgery, then the
drawer is precluded for setting up the defense of forgery. If more than one party is responsible for the
loss, then such loss shall be divided proportionately to their degrees of fault or negligence.
METROBANK v. FIRST NATIONAL CITY BANK & CA (G.R. No. L-55079—November 19, 1982)
The exception to the general rule that a collecting bank is not liable on a forged instrument is when it
is the last indorser and had a warranty stamped providing “all prior indorsement or lack of
indorsement guaranteed.” However, an exception to this exception arises when, despite having a
warranty stamp, the collecting bank is absolved from liability upon the drawee bank’s failure to return
the forged check within 24 hours.
REPUBLIC BANK v. CA & FNCB (G.R. No. L42725—April 22, 1991)
When an indorsement is forged, the collecting bank or last endorser, as a general rule, bears the loss.
But the unqualified indorsement of the collecting bank should be read together with the 24-hour
regulation on clearing house operation. Thus, when the drawee bank (respondent FNCB) fails to
return a forged or altered check to the collecting bank (petitioner Republic Bank) within the 24-hour
clearing period, the collecting bank is absolved from liability.
The exception to the general rule that a collecting bank is not liable on a forged instrument is when it
is the last indorser and had a warranty stamped providing “all prior indorsement or lack of
indorsement guaranteed.” However, an exception to this exception arises when, despite having a
warranty stamp, the collecting bank is absolved from liability upon the drawee bank’s failure to return
the forged check within 24 hours.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK v. CA (G.R. No. 121413—January 29, 2001)
The crossing of the check serves as a warning to the holder that the check has been issued for a definite
purpose so that he must inquire if he received the check pursuant to that purpose; otherwise, he is
not a holder in due course.
When the need arises to weigh the comparative negligence between the parties to determine who
should bear the burden of loss, then on the basis of the doctrine of comparative negligence, the
responsible parties shall bear the such loss in proportion to the degree of their fault or negligence,
which was the proximate cause that facilitated the forgery.
ILUSORIO v. CA & THE MANILA BANKING CORPORATION (G.R. No. 139130—November 27, 2002)
Under Sec. 23 of the NIL, those who by their acts, silence, or negligence are estopped from setting up
the defense of forgery. Petitioner Ilusorio is precluded from setting up the forgery, assuming there is
forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook, and
his inaction in verifying the bank statements of his account.
Further, negligence and forgery are never presumed, but must be proven by the person who alleges
it.
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SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC. v. FAR EAST BANK AND TRUST COMPANY
& CA (G.R. No. 129015—August 13, 2004)
The general rule is that if a drawee bank pays a forged check, it must be considered as paying out of
its funds and cannot charge the amount so paid to the account of the drawer. A bank is liable,
irrespective of its good faith, in paying a forged check.
The justification of the distinction between the forgery of the signature of the drawer and the forgery
of an indorsement is that the drawee is in a position to verify the drawer’s signature by comparison
with one in his hands, but has ordinarily no opportunity to verify an indorsement. Thus, a drawee
bank is generally liable to its depositor in paying a check which bears either a forgery of the drawer’s
signature or a forged indorsement. But the drawee bank, may as a general rule, recover back the
money which it has paid on a check bearing a forged indorsement, whereas it does not have this right
to the same extent with reference to a check bearing a forgery of the drawer’s signature.
FINALS
SADAYA v. SEVILLA (G.R. No. L-17845—April 27, 1967)
A solidary (joint and several) accommodation party may seek reimbursement from the
accommodated party or contribution from other accommodation parties subject to the following
rules:
1) a joint and several accommodation maker of a negotiable promissory note may demand
from the accommodated party reimbursement for the amount that he paid to the payee;
and
2) a joint and several accommodation maker who pays on the said promissory note may
directly demand contribution from his co-accommodation maker without first directing his
action against the accommodated party provided that (a) he made the payment by virtue
of a judicial demand or (b) the accommodated party is insolvent.
CRISOLOGO-JOSE v. CA (G.R. No. 80599—September 15, 1989)
The rule on accommodation party in Sec. 29 of the NIL does not include nor apply to corporations
because the issue or indorsement of a negotiable paper by a corporation without consideration and
for accommodation of another is ultra vires. Hence, the signatories thereof shall be personally liable
therefore, as well as the consequences arising from their acts in connection therewith.
STELCO MARKETING v. CA (G.R. No. 96160—June 17, 1992)
Possession of a negotiable instrument after presentment and dishonor, or payment, is utterly
inconsequential; it does not make the possessor a holder for value within the meaning of the law; it
gives no rise to liability on the part of the maker or drawer and indorsers.
TRAVEL-ON, INC. v. CA (G.R. No. 56169—June 26, 1992)
When the maker of a check fails to rebut the two presumptions in Sect. 24 of the NIL, which provides
that every negotiable instrument is deemed prima facie to have been (1) issued for a valuable
consideration, and (2) every person whose signature appears thereon to have become a party thereto
for value, such maker shall be held liable on the negotiable instrument.
Private respondent Miranda, the maker of the checks, failed to rebut the two presumptions in Sect.
24, hence, he was made liable on the checks. The two presumptions are as follows: (1) the NI has been
issued for a valuable consideration; and (2) that every person whose signature appears thereon has
become a party for value. Thus, petitioner Travel-On was entitled to the benefit of the statutory
presumption that it was a holder for value, that the checks were supported by valuable consideration.
BPI v. CA (G.R. No. 112392—February 29, 2000)
Although, as a general rule, private respondent Napiza may be held liable because he is an
accommodation indorser of the check, an exception arises when to hold him liable would result in
injustice as the proximate cause of the loss is the negligence of petitioner BPI.
BPI’s negligent acts include paying the amount on the check despite the fact that there was a need for
the passbook to be presented with the withdrawal slip and by not following the normal banking
procedure when it paid the depositor even before the check was cleared.
A bank is under obligation to treat the accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of their relationship.
AGRO CONGLOMERATES, INC. v. CA (G.R. No. 117660—December 18, 2000)
An accommodation party has the right, after paying the holder, to obtain reimbursement from the
party accommodated, since the relation between them has in effect become one of principal and
surety, the accommodation party being the surety. The surety’s liability to the creditor or promisee
of the principal is said to be direct, primary and absolute; in other words, he is directly and equally
bound with the principal. And the creditor may proceed against any one of the solidary debtors.
DE OCAMPO v. GATCHALIAN (G.R. No. L-15126—November 30, 1961)
If the holder had actual knowledge of suspicious circumstances, coupled with the means of readily
informing himself of the facts and he willfully abstained from making inquiries, his intentional
ignorance may amount to bad faith. For this reason, the presumption that it is a holder in due course
or that it acquired the instrument in good faith does not exist. The burden is, therefore, placed upon
it to show that notwithstanding the suspicious circumstances, it acquired the check in actual good
faith.
It is not necessary that the buyer of the instrument had notice or knowledge of the exact fraud or the
particulars thereof, committed by the assignor, since all that is required is knowledge of such facts
that his action in taking the instrument amounted to bad faith.
MESINA v. IAC (G.R. No. 70145—November 13, 1986)
A person who becomes the holder of a cashier’s check as indorsed by the person who stole it and who
refused to say how and why it was passed to him is not a holder in due course as he had, therefore,
actual or chargeable notice of the defect of his title over the check from the start. The check is valid
only to the original payee.
METROPOL v. SAMBOK (G.R. No. L-39641—February 28, 1983)
A party indorsing a note “with recourse,” does not make itself a qualified indorser. The effect of such
indorsement is that the note was indorsed without qualification. A person who indorses without
qualification engages that on due presentment, the note shall be accepted or paid, or both as the case
may be, and that if it be dishonored, he will pay the amount thereof to the holder. The words “with
recourse” do not limit his liability, but rather confirm his obligation as a general indorser.
A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may
be made by adding to the indorser’s signature the words “without recourse” or any words of similar
import. Such an indorsement relieves the indorser of the general obligation to pay if the instrument
is dishonored but not of the liability arising from warranties on the instrument as provided in Sec. 65
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of the NIL. However, defendant Sambok indorsed the note “with recourse” and even waived the notice
of demand, dishonor, protest and presentment, thus, it is a general indorser and not a qualified
indorser.
MARALIT v. IMPERIAL (G.R. No. 130756—January 21, 1999)
Both petitioner Maralit and respondent Imperial are negligent but greater responsibility should be
borne by petitioner Maralit. Respondent Imperial could not have encashed and deposited the checks
without petitioner Maralit’s approval. If petitioner Maralit was not remiss in her duty in imposing the
banking rules strictly, then these things could not have happened. However, loss is ultimately charged
against respondent Imperial who upon her indorsement warranted that the instrument is genuine
and that she will pay the amount in case of dishonor pursuant to Sec. 66 of the NIL. Thus, respondent
Imperial’s warranties render her liable for the treasury warrants subject of the case.
SAPIERA v. CA (G.R. No. 128927—September 14, 1999)
Under Sec. 63 of the NIL, a person placing his signature upon an instrument otherwise than as maker,
drawer, or acceptor, is deemed to be an indorser, unless he clearly indicates by appropriate words his
intention to be bound in some other capacity. Such a person is liable as a general indorser under Sec.
66 of the NIL for any breach of warranty and is required to pay the holder or any subsequent indorser
who may be compelled to pay the instrument.
WONG v. CA (G.R. No. 117857—February 2, 2001)
Under Sec. 186 of the NIL, a check must be presented for payment within a reasonable time after its
issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the
delay. By current banking practice, a check becomes stale after more than six (6) months, or 180 days
from the date of the check.
In the present case, the checks subject of the case are not stale because they were presented within a
reasonable time or 157 days after the date of the check. Hence, it is still well within the 180-day
required period.
PRUDENTIAL BANK v. IAC (G.R. No. 74886—December 8, 1992)
Under Sec. 143 of the NIL, with regards to sight drafts, there is no need for presentment for acceptance
because upon seeing the instrument, it must be paid right away or at sight.
The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer; this
may be done in writing by the drawee in the bill itself, or in a separate instrument.
INTERNATIONAL CORPORATE BANK v. SPS. GUECO (G.R. No. 141968—February 12, 2001)
As a general rule, a check becomes stale if not presented for payment within a reasonable time after
its issue or within 180 days from its issue.
However, a manager’s check cannot become stale. By the very nature of a manager’s check, it cannot
become stale because it is deemed accepted and paid in advance and it is issued by the bank against
its own funds.
NYCO SALES CORP. v. BA FINANCE CORP. (G.R. No. 71694--August 16, 1991)
The assignor-vendor warrants both the credit itself (its existence and legality) and the person of the
debtor (his solvency), if so stipulated, as in the case at bar. Consequently, if there be any breach of the
above warranties, the assignor-vendor should be held answerable therefor despite failure to give
notice of dishonor. There is no question then that the assignor-vendor is indeed liable for the
invalidity of whatever he assigned to the assignee-vendee.
STATE INVESTMENT HOUSE v. CA (G.R. No 101163--January 11, 1993)
The drawer of a check issued to another merely as a security (for jewelry to be sold on commission)
is liable to a holder in due course. He cannot simply withdraw his funds from the drawee-bank to
excuse himself from liability after the check has been negotiated without his knowledge to a holder
in due course and there is no need to serve him notice of dishonor.
The need for a Notice of Dishonor is not absolute; there are exceptions under Sec. 114 of the NIL.
Under the facts of the case, petitioner State Investment House, Inc. could not expect payment as
private respondent Moulic left no funds with the drawee bank to meet her obligations on the checks,
so that Notice of Dishonor would be futile.
PNB v. CA (G.R. No. 107508--April 25, 1996)
The alteration of the serial number of a check does not constitute a material alteration as such item is
not an essential requisite for negotiability under Sec. 1 of the NIL.
An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized
change in an instrument that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other changes to an incomplete instrument relating to
the obligation of a party. In other words, a material alteration is one which changes the items which
are required to be stated under Sec. 1 of the NIL.
MONTINOLA v. PNB (G.R. No. L-2861--February 26, 1951)
The insertion of the words, “Agent, Phil. National Bank” on the face of the check converts the bank
from a mere drawee to a drawer and therefore changes its liability. This constitutes material
alteration of the instrument without the consent of the parties liable thereon; hence, it discharges the
instrument.
BATAAN CIGAR and CIGARETTE FACTORY v. CA (G.R. No. 93048—March 3, 1994)
There are two (2) kinds of crossed checks. One is the special crossed check which indicates the name
of the payee in between the two parallel lines on the upper left corner of the check, and the second is
the general crossed check which indicates “& Co.” in between the parallel lines.
The three effects of a crossed check are as follows:
1) it cannot be encashed, but only deposited;
2) it can only be negotiated once and only to a person who has an account with the bank; and
3) it puts the holder thereof in a situation wherein he must inquire into the consideration for
which the check was issued.
CITY TRUST BANKING CORP. v. CA (G.R. No. 84281—May 27, 1994)
The bank is engaged in business impressed with public interest and it is its duty to protect in return
its many clients and depositors who transact business with it. It is under obligation to treat the
accounts of its depositors with meticulous care having in mind the fiduciary nature of their
relationship. The depositor expects the bank to treat his account with utmost fidelity, whether such
account consists only of a few hundred pesos or of millions. It must exercise extraordinary diligence.
TAN v. CA (G.R. No 108555--December 20, 1994)
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The bank is engaged in business impressed with public interest and the nature of the relationship
between the bank and its clients is fiduciary in character hence it is required to exercise extraordinary
diligence in handling the accounts of its clients.

PAPA v. A.U. VALENCIA and CO. Inc. (G.R. No. 105188—January 23, 1998)

The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if
he from whom it is received sustains loss by want of such diligence, it will be held to operate as actual
payment of the debt or obligation for which it was given.

PIO BARRETTO REALTY v. CA (G.R. No. 132362—June 28, 2001)

It is true that a check is not a legal tender and while delivery of a check produces the effect of payment
only when it is encashed, the rule is otherwise if the debtor was prejudiced by the creditor’s
unreasonable delay in presentment.

Acceptance of a check implies an undertaking of due diligence in presenting it for payment. If no such
presentment was made, the drawer cannot be held liable irrespective of loss or injury sustained by
the payee. Payment will be deemed effected and the obligation for which the check was given as
conditional payment will be discharged.

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