Tables

Atty. Rene Alexis P.
Villarente
Ateneo de Davao University College of Law
IV. RIGHTS AND LIABILITIES OF PARTIES
MAKER
PAYEE
Section 61
DRAWER
Order
Sec. 1 (b)
Section 51 Simple Holder
Sec 65 Del/ Qual
Sec 66 General
Sec 67 bearer
Tuazon vs. Heirs of Ramos GR. No. 156262 July 14, 2005; After an instrument is
dishonored by non payment, indorsers ceases to be merely secondarily liable; they
become principal debtors whose liability becomes identical to that of the original
obligor. The holder of a negotiable instrument need not even proceed against the
maker before suing the indorser. Drawer is not indispensable party in an action
against the indorser of checks.
PAYEE
Section 62
Acceptor
DRAWEE
Not liable
Metro Bank vs. Cabilzo GR. No. 154469 December 6, 2006;
Drawee who paid under a materially altered instrument, such
payment is not payment done in accordance with the drawers
instruction.
Villanueva vs. Nite GR. No. 148211 July 25, 2006; If a

(drawee) bank refuses to pay a check (with sufficient funds),
the payee-holder should instead sue the drawer who might in
turn sue the bank. Section 189 is sound law based on logic
and established legal principles: no privity of contract exists
between the drawee-bank and the payee. The Drawer is an
indispensable party when drawee is sued by the payee.
A drawee who did not accept is not liable and may not be
sued (Villanueva vs. Nite, id.) exception:
1. In a suit initiated by the drawer (Solid Bank vs. Arieta, G.R.
No. 152720, February 17, 2005)
Solid Bank vs. Arieta GR. No. 152720 Feb. 17, 2005; A
(drawee) banks gross negligence in dishonoring a well-funded
check, aggravated by its unreasonable delay in repairing the error,
calls for an award of moral and exemplary damages. The
resulting injury to the check writers reputation and peace of mind
needs to be recognized and compensated.
HOLDER
Sec 69 (20,21,44) Agent
INDORSERS
Sec 64 Irreg
2. In a suit by the payee or holder based on Article 19 of

the Civil Code (HSBC vs. Catalan, G.R. 159590, Oct. 18, 2004)
3. Where the instrument involved is a managers or
certified check (E-PCI vs. Ong, G.R. 156207, September 15, 2004)
Section 26 Holders for Value

Sec. 52/58/59 Holders in due
RIGHTS OF HOLDERS
LIABILITIES OF PARTIES
Section 60
To sue, be paid and to negotiate
HOLDER
Section 191 Definition of Terms: Holder
means the payee or indorsee of a bill or note,
who is in possession of it, or the bearer thereof.
BPI vs. Roxas GR. No. 157833 October 15, 2007;

Under Section 52, as a general rule, every holder is
presumed prima facie to be a holder in due course.
One who claims otherwise has the onus probandi to
prove that one or more of the conditions are lacking.
BPI vs. CA and Napiza GR. No. 112392 February
29, 2000; An accommodation party is liable on the
instrument to a holder for value, notwithstanding
such holder at the time of taking the instrument knew
him to be only an accommodation party.
Q: Is a collecting bank a holder for value with rights
or a last indorser with liability (PCHC rule 17)?
Atty. Rene Alexis P. Villarente

III. FORGERY AND MATERIAL ALTERATION

Landmark case on Section 23:
MAKER
Associated Bank vs. Court of

Appeals, Province of Tarlac and
Philippine National Bank, G.R.
107382, January 31, 1996.
Forgery (F) vs. Material

Alteration (MA)
1. F (Sec. 23) refers to the signature
of maker or drawer (Sec 1 [a]) or
indorser (Sec 31) while MA refers to
those mentioned in Sec 125.
PAYEE
HOLDER
e
DRAWER
PAYEE
Collecting Bank
d
A
HOLDER
d
f
2. F of indorsement is immaterial to
a bearer instrument (Sec 48) while
MA is always material regardless as
to whether the instrument is payable
to order or bearer.
3. F: done by a stranger (forger) or
person without authority while MA:
may be made by a party or stranger
(spoliation).
4. F: signature is wholly inoperative
(even against holder in due course)
and no right to retain the instrument,
give discharge or enforce payment
can be acquired through such
signature while in MA: instrument is
avoided but holder in due course
may enforce payment thereof
according to its original tenor.
5. F: except those precluded by
estoppel or warranty while MA:
except party who has himself made,
authorized or assented to the
alteration and subsequent indorsers.
DRAWEE
1 Associated vs CA id.
A forged
signature, whether it be that of the
drawer (b) or payee (c), is wholly
inoperative and no one can gain
title to the instrument through it.
A person whose signature to the
instrument was forged was never
a party and never consented to the
contract which allegedly gave rise
to such instrument.
Except:
(1) parties who warrant or admit
the genuineness of the signature
(indorsers, persons negotiating by
delivery and acceptors)
(2) those who by their acts,
silence or negligence are estopped
from setting up the defense of
forgery
Associated vs CA id. In
bearer instruments, the signature
of the payee or holder is
unnecessary to pass title to the
instrument.
Hence when the
indorsement is a forgery, only the
person whose signature is forged
can raise the defense of forgery
against a holder in due course
In order
instruments the signature of its
holder is essential to transfer title.
If the holders (c) (d) indorsement
is forged all parties prior to the
forger may raise the real defense
of forgery against all parties
subsequent thereto. An indorser
(Sec 65/66) can not alleged that
prior signatures are forged.
5 Associated vs CA id.;
MBTC
vs. BA Finance GR 179952,
Dec. 27, 2009. A collecting (e)
bank where a check is deposited
and which indorses the check
upon presentment with the
drawee bank, is such an indorser.
So 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 against the
drawee bank (PCHC rule 17).
E-PCI vs. Ong, G.R. 156207,

Sep. 15, 2006 A managers check
may be treated as a promissory
note with the bank as maker (a).
Associated vs CA id.;
Ilusorio vs. CA MBC, G.R.
139130, Nov. 27, 2002 If
drawee proves customerdrawer (g) contributed to the
forgery the drawer is
precluded from asserting
forgery. If the drawee was
also negligent then such loss
can be apportioned between
the negligent drawer and the
negligent drawee bank. Else
dw (accptor) is liable ( 62)
8 Allied vs. Lim Sio Wan,

G.R. 133197, March 27,
2008 The liability of Allied
(a) (b) is concurrent with
Metro (f) as the last indorser
so the 60:40 ratio of liability

I. SECTION 1 and allied sections

Negotiable Instrument arise from
Section 1 of the NIL
Section 1 Form of Negotiable

Instruments. An instrument to be
negotiable must conform to the
following requirements:
(a) It must be in writing and signed
by the maker or drawer;
(b) Must contain an unconditional
promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or
at a fixed or determinable future
time;
(d) Must be payable to order or to
bearer; and
(e) Where the instrument is
addressed to a drawee, he must be
named or otherwise indicated
therein with reasonable certainty.
ORDER
1) Sec 1 (b): order of drawer to drawee to
pay;
2) Sec 1 (d): order of payee or holder for
person primarily liable to pay another
Promissory Note (PN)

(Section 184)
Maker
Payee
Holder
Drawer
Payee
Holder
Bill of Exchange (BE)

(Section 126)
Checks (Ch)
(Section 185)
Section 3 When promise (or
order) is unconditional
Section 2 Certainty as to sum
what constitutes (RA 8183)
Section 7 When payable on
demand
Section 4 Determinable future
time; what constitutes
Section 8 When payable to
order
Section 9 When payable to
bearer
Drawee
Figure of relationship of parties to NI
Liability on Negotiable Instrument

is extinguished (discharge)
A. Section 119 Instruments; how discharged A negotiable instrument is
discharged
(a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the instrument
is made or accepted for accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge simple contract for the payment of
money;
(e) When the principal debtor becomes the holder of the instrument at or after
maturity in his own right.
B. Other provision of the NIL other than Section 119
1) 89 (notice of dishonor)
7) 152 (failure to protest)
2) 120 (discharge of secondarily liable) 8) 175 (payment for honor)
3) 122 (renunciation by holder)
9) 176 (refuse payment supra protest)
4) 124 (alteration of instrument)
10) 183 (discharge of one set)
5) 142 (qualified acceptance)
11) 186 (checks time of presentment)
6) 144 (failure to present)
12) 188 (check accepted/certified)
C. Civil Code: Article 1231 Obligations are extinguished:
Section 128 Bill addressed to

more than one drawee. A bill
may be addressed to two or
more drawees jointly but not in
alternative or succession.
(1) By payment or performance; (2) By the loss of the thing due; (?) (3) By the
condonation or remission of the debt; (4) By the confusion or merger of the rights
of the creditor and debtor; (5) By compensation; (6) By novation; Other causes of
extinguishment of obligations, such as annulment, rescission, fulfillment of
resolutory condition, and prescription are governed elsewhere in the Civil Code.

II. SECTIONS 14, 15 and 16/ INDORSEMENT
O. K.
SECTION
16*
INCOMPLETE
SECTION
14*
SECTION
15
Section 14:
Sps. Ojeda vs. Orbeta G.R. No. 142074, July 10, 2006. The law merely
requires the instrument be in possession of a person other than the drawer or
maker, and from such possession, together with the fact that the instrument is
wanting in a material particular, the law presumes agency to fill up the blanks.
The burden of proving absence of authority is on the person questioning it.
Section 15 and 16:

Ching vs. Nicdao and CA GR. No. 141181 April 27, 2007; In as much as the
check was incomplete and undelivered in the hands of complainant Ching, he
did not acquire any right or interest therein and cannot, therefore, assert any
cause of action founded on said stolen check. Nicdao has no obligation to
make good the stolen check and is not therefore liable of BP Blg. 22
If payable to bearer, it
is negotiated by
delivery; if payable to
order, it is negotiated
by the indorsement of
the holder completed by
delivery
BEARER
COMPLETE
INDORSEMENT
ORDER
DELIVERED
UNDELIVERED
DELIVERY
The rule: where one of

two persons must suffer
by the bad faith of
another, the loss must
fall upon the one who
first reposed confidence
and made it possible for
the loss to occur
Section 30
Negotiation
ACT OF WRITING
PAYABLE TO:
*Blondeau Doctrine:
BLANK
SPECIAL
Section 9 (a-e)
Section 65 or 66
Section 40
Section 9(a-d)
Section 65 or 66
NI can be
negotiated by
delivery
NI can be
negotiated by
delivery without
indorsement
Section 34
Section 9(e)
Section 65 or 66
Section 34
Section 8
Section 65 or 66
NI is payable to
bearer until
indorsed specially
NI is payable to
order, indorsement
necessary to further
negotiate
NI payable to bearer and delivered without indorsement: (ok, as required by

section 30)
NI payable to order and delivered without indorsement: (Section 49);
BPI vs. CA GR. No. 136202 January 25, 2007; Section 49 NIL where the
holder of an instrument payable to his order transfers it for value without
indorsing it, the transfer vests in the transferee such title as the transferor had
therein, and the transferee acquires in addition, the right to have the
indorsement of the transferor. But for the purpose of determining whether the
transferee is a holder in due course negotiation takes effect as of the time
when the indorsement is actually made. The weight of authority is that the
mere possession of a negotiable instrument does not in itself conclusively
establish either the right of possessor to receive payment, or of the right of one
who has made payment to be discharge from liability.

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Atty. Rene Alexis P.

IV. RIGHTS AND LIABILITIES OF PARTIES

Section 51 Simple Holder

Sec 65 Del/ Qual

Villanueva vs. Nite GR. No. 148211 July 25, 2006; If a

Sec 69 (20,21,44) Agent

2. In a suit by the payee or holder based on Article 19 of

Section 26 Holders for Value

To sue, be paid and to negotiate

BPI vs. Roxas GR. No. 157833 October 15, 2007;

Atty. Rene Alexis P. Villarente

III. FORGERY AND MATERIAL ALTERATION

Associated Bank vs. Court of

Forgery (F) vs. Material

E-PCI vs. Ong, G.R. 156207,

8 Allied vs. Lim Sio Wan,

Atty. Rene Alexis P. Villarente

I. SECTION 1 and allied sections

Section 1 Form of Negotiable

Promissory Note (PN)

Bill of Exchange (BE)

Figure of relationship of parties to NI

Liability on Negotiable Instrument

Section 128 Bill addressed to

Atty. Rene Alexis P. Villarente

II. SECTIONS 14, 15 and 16/ INDORSEMENT

Section 15 and 16:

The rule: where one of

NI payable to bearer and delivered without indorsement: (ok, as required by

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