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STUDY GUIDE ON THE NEGOTIABLE Except as herein otherwise provided, the provisions of

INSTRUMENTS LAW* this Act applicable to a bill of exchange payable on

Act 2031 (1911) demand apply to a check.
1.6 Delivery (Sec. 191) means transfer of possession,
actual or constructive, from one person to another;
1.7 Forgery (Alvendia, p. 47)
1.1 Acceptance (Sec. 132) Acceptance; how made, by
and so forth. - The acceptance of a bill is the
signification by the drawee of his assent to the 1.8 Holder (Sec. 191) means the payee or indorsee of a
order of the drawer. The acceptance must be in bill or note who is in possession of it, or the bearer
writing and signed by the drawee. It must not thereof;
express that the drawee will perform his promise 1.9 Indorser
by any other means than the payment of money.

1.10 Inland bill of exchange (Sec. 129)   An inland bill of

1.2 Allonge (Sec. 31) Indorsement; how made. - The
exchange is a bill which is, or on its face purports to
indorsement must be written on the instrument itself
be, both drawn and payable within the Philippines.
or upon a paper attached thereto. The signature
Any other bill is a foreign bill. Unless the contrary
of the indorser, without additional words, is a
appears on the face of the bill, the holder may treat it
sufficient indorsement.
as an inland bill.
1.3 Bearer (Sec. 191) means the person in possession
1.11 Issue (Sec. 191) means the first delivery of the
of a bill or note which is payable to bearer; instrument, complete in form, to a person who takes it
1.4 Bill of exchange (Sec. 126) defined. - A bill of as a holder;
exchange is an unconditional order in writing 1.12 Person primarily liable on instrument (Sec. 192)
addressed by one person to another, signed by includes a body of persons, whether incorporated or
the person giving it, requiring the person to not;
whom it is addressed to pay on demand or at a 1.13 Presentment
fixed or determinable future time a sum certain in
money to order or to bearer.
1.5 Check (Sec. 185) defined. - A check is a bill of 1.14 Procuration (Alvendia, p. 44)
exchange drawn on a bank payable on demand.
 Prepared by Prof. Tristan A. Catindig as of July 29, 2008. All rights reserved. 1.15 Promissory note (Sec. 184)

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A negotiable promissory note within the meaning of 2.3 A party for value (Sec. 24) and every person whose
this Act is an unconditional promise in writing made signature appears thereon to have become a party
by one person to another, signed by the maker, thereto for value.
engaging to pay on demand, or at a fixed or
2.4 Time of indorsement (Sec. 45) Except where an
determinable future time, a sum certain in money to
indorsement bears date after the maturity of the
order or to bearer. Where a note is drawn to the
instrument, every
maker's own order, it is not complete until indorsed by
negotiation is deemed prima facie to have been
effected before the
1.16 Referee in case of need (Sec. 131)  The drawer of a bill instrument was overdue.
and any indorser may insert thereon the name of a
2.5 Place of indorsement (Sec. 46)   Except where the
person to whom the holder may resort in case of
contrary appears, every indorsement is presumed
need; that is to say, in case the bill is dishonored by
prima facie to have been made at the place where the
non-acceptance or non-payment. Such person is
instrument is dated. Holder in due course (Sec. 59)
called a referee in case of need. It is in the option of
Every holder is deemed prima facie to be a holder in
the holder to resort to the referee in case of need or
due course; but when it is shown that the title of any
not as he may see fit.
person who has negotiated the instrument was
1.17 Value (Sec. 25) Value is any consideration sufficient to defective, the burden is on the holder to prove that he
support a simple contract. An antecedent or pre- or some person under whom he claims acquired the
existing debt constitutes value; and is deemed such title as holder in due course. But the last-mentioned
whether the instrument is payable on demand or at a rule does not apply in favor of a party who became
future time. bound on the instrument prior to the acquisition of
such defective title.


2.1 Date of instrument (Sec. 17) (c) Where the
instrument is not dated, it will be considered to be 3.1 Distinguish: a negotiable instrument from a non-
dated as of the time it was issued; negotiable instrument (Alvendia, pp. C-D)
2.2 Consideration for issuance of instrument (Sec. 24)
Every negotiable instrument is deemed prima facie to
3.2 Examples of negotiable as well as non-negotiable
have been issued for a valuable consideration;
documents and instruments

3.3 Distinguish: a promissory note from a bill of exchange

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(ii) A statement of the transaction which gives
rise to the instrument. But an order or
3.4 When may a bill be treated as a promissory note (Sec.
promise to pay out of a particular fund is
130) Where in a bill the drawer and drawee are the
not unconditional
same person or where the drawee is a fictitious
person or a person not having capacity to contract, (b) certainty of sum (Sec. 2) The sum payable is a
the holder may treat the instrument at his option sum certain within the meaning of this Act,
either as a bill of exchange or as a promissory note although it is to be paid:
3.5 Requisites of negotiability (i) with interest; or
(a) Promissory Note (Sec. 1) (ii) by stated installments; or
(i) It must be in writing and signed by the (iii) by stated installments, with a provision
maker that, upon default in payment of any
installment or of interest, the whole shall
(ii) Must contain an unconditional promise or
become due; or
order to pay a sum certain in money;
(iv) with exchange, whether at a fixed rate or
(iii) Must be payable on demand, or at a fixed
at the current rate; or
or determinable future time;
(v) with costs of collection or an attorney's
(iv) Must be payable to order or to bearer;
fee, in case payment shall not be made at
(v) Where the instrument is addressed to a maturity.
drawee, he must be named or otherwise
(c) in money
indicated therein with reasonable certainty.
(i) The instrument must be capable of being
(b) Bill of Exchange (Sec. 1) (same as above)
transformed into money, since negotiable
3.6 Meaning of particular requisites instruments are intended to be substitutes
(a) unconditional promise or order (Sec. 3) An for
unqualified order or promise to pay is money
unconditional within the meaning of this Act (ii) “Money” as used in the law is not
though coupled with: necessarily
(i) An indication of a particular fund out of limited to “legal tender” as defined by law
which reimbursement is to be made or a but
particular account to be debited with the includes any particular kind of current
amount; or money.
[see, Sec. 6(e), NIL and PNB v. Zulueta]

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(iii) An agreement to pay in foreign currency is (ii) When it is payable to a person named
valid. [RA 8183] therein or bearer; or
(d) payable on demand (Sec. 7) An instrument is (iii) When it is payable to the order of a
payable on demand: fictitious or non-existing person, and such
fact was known to the person making it so
(i) When it is so expressed to be payable on
payable; or
demand, or at sight, or on presentation; or
(iv) When the name of the payee does not
(ii) In which no time for payment is
purport to be the name of any person; or
expressed. Where an instrument is issued,
accepted, or indorsed when overdue, it is, (v) When the only or last indorsement is an
as regards the person so issuing, accepting, indorsement in blank
or indorsing it, payable on demand.
(h) rule as to dates (Sec. 11; Sec. 13; Sec. 17(b); Sec
(e) determinable future time (Sec. 4) 12)
(i) At a fixed period after date or sight; or Sec. 11. Date, presumption as to. - Where the
instrument or an acceptance or any indorsement
(ii) On or before a fixed or determinable
thereon is dated, such date is deemed prima
future time specified therein; or
facie to be the true date of the making, drawing,
(iii) On or at a fixed period after the acceptance, or indorsement, as the case may be.
occurrence of a specified event which is
Sec. 13. When date may be inserted. - Where
certain to happen, though the time of
an instrument
happening be uncertain.
expressed to be payable at a fixed period after
An instrument payable upon a date is issued
contingency is not negotiable, and the undated, or where the acceptance of an
happening of the event does not cure instrument payable at a fixed period after sight
the defect. is undated, any holder may insert therein the
(f) payable to order (Sec. 8) The instrument is true date of issue or acceptance, and the
payable to order where it is drawn payable to the instrument shall be payable accordingly. The
order of a specified person or to him or his order. insertion of a wrong date does not avoid the
instrument in the hands of a subsequent holder
(g) payable to bearer (Sec. 9) in due course; but as to him, the date so inserted
(i) When it is expressed to be so payable; or is to be regarded as the true date.

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Sec. 17 (b) Where the instrument provides for (a) Where the sum payable is expressed in words
the payment of interest, without specifying the and also in figures and there is a discrepancy
date from which interest is to run, the interest between the two, the sum denoted by the words
runs from the date of the instrument, and if the is the sum payable; but if the words are
instrument is undated, from the issue thereof; ambiguous or uncertain, reference may be had
to the figures to fix the amount;
Sec. 12. Ante-dated and post-dated. - The
instrument is not invalid for  the reason only that (b) Where the instrument provides for the payment
it is ante-dated or post-dated, provided this is of interest, without specifying the date from
not done for an illegal or fraudulent purpose. The which interest is to run, the interest runs from
person to whom an instrument so dated is the date of the instrument, and if the instrument
delivered acquires the title thereto as of the date is undated, from the issue thereof;
of delivery.
(c) Where the instrument is not dated, it will be
3.7 Omissions not affecting negotiability (Sec. 6) considered to be dated as of the time it was
Omissions; seal; particular money. - The validity and issued;
negotiable character of an instrument are not affected
(d) Where there is a conflict between the written
by the fact that:
and printed provisions of the instrument, the
(a) it is not dated; or written provisions prevail;
(b) does not specify the value given, or that any (e) Where the instrument is so ambiguous that there
value had been given therefor; or is doubt whether it is a bill or note, the holder
may treat it as either at his election;
(c) does not specify the place where it is drawn or
the place (f) Where a signature is so placed upon the
where it is payable; or instrument that it is not clear in what capacity
the person making the same intended to sign, he
(d) bears a seal; or
is to be deemed an indorser;
(e) designates a particular kind of current money in
(g) Where an instrument containing the word "I
promise to pay" is signed by two or more
payment is to be made.
persons, they are deemed to be jointly and
But nothing in this section shall alter or severally liable thereon.
repeal any statute requiring in certain
3.9 Cases:
cases the nature of the consideration to be
stated in the instrument (a) Caltex (Philippines), Inc. vs. CA, et al., G.R.
97753, August 10, 1992;
3.8 Rules of construction (Sec. 17)

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(b) Metropolitan Bank & Trust Co. vs. CA, et al., G.R. revocable until delivery of the instrument for the
88866, February 18, 1991; purpose of giving effect thereto. As between
immediate parties and as regards a remote party
(c) Development Bank of Rizal vs. Sima Wei, et al.,
other than a holder in due course, the delivery, in
G.R. 85419, March 9, 1993.
order to be effectual, must be made
4.3 Incomplete and undelivered negotiable instrument
Where an incomplete instrument has not been
4.1 Incomplete but delivered negotiable instrument (Sec. delivered, it will not, if completed and negotiated
14) without authority, be a valid contract in the hands of
Blanks; when may be filled. - Where the instrument is any holder, as against any person whose signature
wanting in any material particular, the person in was placed thereon before delivery.
possession thereof has a prima facie authority to 4.4 Absence or failure of consideration or illegal
complete it by filling up the blanks therein. And a consideration
signature on a blank paper delivered by the person
(a) Absence of consideration defined
making the signature in order that the paper may be
converted into a negotiable instrument operates as a (b) Failure of consideration defined
prima facie authority to fill it up as such for any
(c) Effect of illegal consideration (Pineda vs. dela
amount. In order, however, that any such instrument
Rama, 121 SCRA 671)
when completed may be enforced against any person
who became a party thereto prior to its completion, it (d) Effect of absence or failure of consideration (Sec.
must be filled up strictly in accordance with the 28)
authority given and within a reasonable time. But if (e) Exception to effects of absence of consideration:
any such instrument, after completion, is negotiated Accommodation
to a holder in due course, it is valid and effectual for
all purposes in his hands, and he may enforce it as if it (i) Accommodation party defined (Sec. 29)
had been filled up strictly in accordance with the (ii) Liability of an accommodation party (Sec.
authority given and within a reasonable time. 29)
4.2 Complete but undelivered negotiable instrument (Sec 4.5 Cases:
(a) Travel-on, Inc. vs. CA, et al., G.R. 56169, June 26,
Delivery; when effectual; when presumed. - Every 1992;
contract on a negotiable instrument is incomplete and

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(b) Prudencio, et al. vs. CA, et al., G.R. L-34539, July (a) Defined (Sec. 125)
14, 1986;
(b) Effect (Sec. 124)
(c) Crisologo-Jose vs. CA, et al., G.R. 80599,
(c) Effect of negligence of drawer of check (Campos,
September 15, 1989.
p. 416)
4.6 Forgery of signature (Sec. 23)
(d) Effect of drawee’s payment or acceptance of
(a) Defined altered check (Campos, p. 435)
(b) Effects
(c) Parties precluded to use the defense of forgery 5 N E GO T I AT I ON
(d) Forgery in checks (Campos, p. 268-404) 5.1 Negotiation defined (Sec. 30)
(i) When the drawee accepts or pays a 5.2 Negotiation vs. Assignment or Transfer
forged instrument
5.3 Case: Sesbreño vs. CA, et al., G.R. 89252, May 24,
(ii) Payment of drawee bank despite stop 1993.
payment order of drawer
5.4 Rights transferred by negotiation (Campos, p. 69)
(iii) Effect of negligence of depositor
5.5 Methods of negotiation:
(iv) Effect of payment under forged
(a) By delivery of the Instrument alone (for
instruments payable to bearer)
(v) Effect of negligence of drawee in
(b) By indorsement followed by delivery (for
informing recipient of forgery
instruments payable to order)
(vi) Effect of negligence of drawer in case of
(i) How indorsement made (Sec. 31)
forged indorsements
(ii) Indorsement where name is misspelled
4.7 Cases:
(Sec. 43)
(a) Republic Bank vs. Ebrada, G.R. L-40796, July 31,
(iii) Indorsement must be of entire instrument
(Sec. 32)
(b) Jai-Alai vs. BPI, G.R. L-29432, August 6, 1975;
(iv) Indorsement by agent (Sec. 44)
(c) Westmont Bank vs. Ong, G.R. No. 132560,
(v) Indorsement to a “Cashier” (Sec. 42)
January 30, 2002.
4.8 Material alteration of the Instrument

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(vi) Kinds of indorsements (Secs. 33, 34, 36, (e) Payee as holder in due course
6.2 Cases:
(vii) Effect of indorsement on instrument
(a) Stelco Marketing vs. CA, et al., G.R. 96160, June
negotiable by delivery (Sec. 40)
17, 1992;
(viii) Effect of lack of indorsement on an
(b) Atrium Management vs. CA, et al., G,R, 109491,
instrument negotiable by indorsement (Sec.
February 28, 2001.
6.3 Defenses against the holder
(ix) Striking out of indorsements (Sec. 48)
(a) Real or absolute
(x) Continuation of negotiable character
(Sec. 47) (i) Incapacity (Sec. 22)
(ii) Incomplete, undelivered instrument
(Sec. 15)
(b) Personal or equitable defenses
6.1 Holder in due course
(i) Complete, undelivered instrument
(a) Requisites (Sec. 52)
(Sec. 16)
(i) Complete and regular (Sec. 124)
(ii) Incomplete, delivered instrument (Sec.
(ii) Holder before or at maturity and 14)
without notice of dishonor (Secs. 12 and 53)
(iii) Lack of consideration (Sec. 28)
(iii) Holder for value and in good faith (Secs.
(iv) Illegality
25, 26 and 27)
(v) Duress
(iv) No notice of infirmity in the instrument or
defect in the title of person negotiating (c) Sometimes real, sometimes personal;
(Secs. 54, 55 and 56) (i) Forgery (Sec. 23)
(b) Who is deemed a holder in due course (Sec. 59) (ii) Material Alteration (Sec. 124)
(c) Rights of a Holder in due course(Secs. 51 and (iii) Fraud
(d) Rights of a purchaser from a Holder in due
course (Sec. 58)

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9.1 In Promissory Notes
7.1 When required (Sec. 143)
(a) Purpose (Sec. 70)
7.2 Effect of non- presentment when required (Sec. 144)
(b) Requisites (Secs. 72, 73 and 74)
7.3 How made (Sec. 145)
(c) When excused (Secs. 80 and 82)
7.4 When made (Sec. 146)
(d) When instrument considered dishonored (Sec.
7.5 When time is insufficient (Sec. 147) 83)
7.6 When excused (Sec. 148) 9.2 In Bills of Exchange
7.7 Dishonor by non-acceptance (Sec. 149) (a) When necessary (Sec. 70)
7.8 Duty of holder where bill not accepted (Sec. 150) (b) When not necessary (Secs. 79, 80, 111 and 151)
7.9 Rights of holder where bill not accepted (Sec. 151) (c) When excused (Secs. 82)
7.10 Effect of omission to give notice of non-acceptance (d) Requisites (Secs. 71, 72, 73,74)
(Sec. 117)
9.3 Date and time of presentment (Secs. 85, 86, 194)
9.4 Manner of presentment when::
(a) Instrument payable at bank (Sec. 75)
8.1 Defined (Sec. 132)
(b) Principal debtor is dead (Sec. 76)
8.2 Requisites for validity (Sec. 132)
(c) Persons liable as partners (Sec. 77)
8.3 How made (Secs 133, 134, 135 and 136)
(d) There are joint debtors (Sec. 78)
8.4 Kinds of acceptance
9.5 Dishonor by non-payment and its effects (Secs. 83
(a) General (Secs. 139 and 140) and qualified (Secs. and 84)
139 and 141)
(b) Actual (Sec. 132) and constructive (Sec. 137)
8.5 Rights of the parties as to qualified acceptance (Sec.
10.1 When necessary and to whom given (Sec. 89)
10.2 Form and contents of notice (Secs. 95 and 96)

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10.3 Time within which notice must be given (Secs 102, (a) Defined (Sec. 129)
103, 104, 105, 106, 107 and 113)
(b) Importance of determining whether a bill of
10.4 Place where notice must be given (Sec. 108) exchange is an inland bill or a foreign bill
10.5 By whom notice may be given (Secs. 90 and 91) 11.2 Protest Defined
10.6 To whom notice must be given (a) When necessary (Sec. 152)
(a) In general (Sec. 97) (b) How made (Sec. 153)
(b) If given by agent (Sec. 94) (c) By whom made (Sec. 154)
(c) If party is dead (Sec. 98) (d) When made (Sec. 155)
(d) To partners (Sec. 99) (e) Where made (Sec 156)
(e) To joint parties (Sec 100) (f) Waiver of protest (Sec.111)
(f) To bankrupt (Sec. 101) (g) Protest both for non-acceptance and non-
payment (Sec. 157)
10.7 In whose favor notice operates (Secs 92 and 93)
(h) Protest for better security (Sec. 158)
10.8 When rule requiring notice not applied
(i) When delay is excused and protest dispensed
(a) In general (Sec 112)
with (Sec. 159)
(b) When notice of non-acceptance already given
(j) Protest where bill is lost (Sec. 160)
(Sec. 116)
11.3 Distinguish: protest from notice of dishonor (Secs. 89,
(c) Waiver (Sec. 109 and 110)
91, 96, 102, 103, 118, 152-156):
10.9 When not necessary to charge:
11.4 Acceptance for honor (acceptance supra protest)
(a) Drawer (Sec. 114)
(a) Defined (Alvendia, p. 214)
(b) Indorser (Sec. 115)
(b) Purpose
10.10 Effect of failure to give notice (Secs. 89 and 117)
(c) Requisites (Sec. 161)
(d) Effects (Sec. 164)
11.5 Payment for honor (payment supra protest)
11.1 Foreign Bill
(a) Defined

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(b) Purpose (Alvendia, p. 222) (b) Intentional cancellation of signature of holder
(Secs. 123 and 48)
(c) Requisites (Secs 161, 172)
(c) Discharge of a prior party
(d) Effects (Sec. 175)
(d) Valid tender of payment by a prior party
(e) Preference of parties offering to pay for honor
(Sec. 174) (e) Release of the principal debtor
11.6 Distinguish an acceptance for honor from a payment (f) Extension of time of payment
for honor (Secs. 161, 171 and 176):
(g) Renunciation by holder before, at or after its
maturity (Sec. 122)
12 DISCHARGE OF INSTRUMENT (h) Taking a qualified acceptance unless drawer and
indorsers have expressly or impliedly authorized
12.1 Causes for discharge of the instrument and discharge
the holder to take a qualified acceptance or
of all parties (Sec. 119)
subsequently assent thereto (sec.142)
(a) Payment in due course by debtor
(i) Failure to make due presentment when required
(i) What constitutes payment in due course (Secs. 70, 144)
(Sec. 88)
(j) Failure to give notice of dishonor (Sec.89)
(b) Payment in due course by the accommodated
(k) Certification of check at instance of holder (Sec.
(c) Intentional cancellation by the holder
12.3 Right of a party secondarily liable on an instrument
(i) Unintentional cancellation; burden of proof who discharges the same (Sec. 121)
(Sec. 123)
12.4 Case: State Investment House. vs. CA and Nora B.
(d) Any other act which will discharge a simple Moulic, G.R. 101163, January 11, 1993.
contract for the payment of money
(e) Debtor becomes the holder of the instrument at
or after maturity in his own right
13.1 Parties primarily liable
(f) Renunciation by holder at or after maturity (Sec.
122) (a) Maker (Sec. 60)
12.2 Causes for discharge of secondary parties (Sec. 120) (b) Acceptor or the drawee who accepts the
instrument (Sec. 62)
(a) Any act which discharges the instrument

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13.2 Parties secondarily liable 15.2 Differentiated from an ordinary Bill of Exchange
(Campos, p. 546)
(a) The Drawer (Sec. 61)
15.3 Stop payment order by drawer (Campos, p. 328-329)
(b) The General Indorser (Sec. 66)
15.4 Certification Sec. 187)
(c) The Irregular Indorser (Sec. 64)
(a) Certified check defined (Alvendia, p. 251)
13.3 Parties with limited liability
(b) Effect of certification (Secs. 187, 188 and 189)
(a) The Qualified Indorser (Sec. 65)
15.5 Kinds of checks
(b) Person negotiating by delivery
(a) Stale check. (Alvendia, p. 250)
13.4 When secondary liability attaches
(b) Traveler’s check (Alvendia, p. 243-244)
(a) Acts needed before secondary liability attaches
(c) Cashier’s or manager’s check (Alvendia, p. 243)
(b) Order in which Indorsers are liable (Sec. 68)
(d) Memorandum check (People v. Nitafan, G.R. L-
13.5 Parties signing in accommodation (Sec. 29)
7594, Oct. 22, 1992; 215 SCRA 79)
13.6 Parties signing as agent (Secs. 19, 20, 21 and 69)
15.6 Check used as payment of obligation
13.7 Parties signing under a trade or assumed name (Sec.
15.7 Crossed Checks (Bataan Cigar and Cigarette Factory,
Inc. vs. CA, et al., G.R. 93048, March 3, 1994; 230
SCRA 643)
14 BILLS IN A SET (a) Defined
14.1 Defined (Sec. 178) (b) How made
14.2 Purpose of drawing bills in a set (Alvendia, p. 225) (c) Effects
14.3 Effect of payment of one part of a bill drawn in a set 15.8 Cases:
(Secs. 180 and 183)
(a) Papa vs. A.U. Valencia, et al., G.R. 105188,
January 23, 1998.
15 CHECKS (b) Firestone Tire vs. CA, et al., G.R. 113236, March
15.1 Defined; characteristics (Secs. 185, 186, 188, Sec. 60, 5, 2001.
RA 7653) (c) BPI vs. CA, et al., G.R. 112392, February 29,

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(d) International Corporate Bank vs. Spouses Gueco,
G.R. 141968, February 12, 2001.
(e) State Investment House vs. IAC, et al., G.R.
72764, July 13, 1989;
(f) Bataan Cigar and Cigarette Factory vs. CA, et al.,
G.R. 93048, March 3, 1994.


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