A.

REQUISITES OF NEGOTIABILITY [SECTION 1] [MEMORIZE]  RTC ruled in favor of Llamas

 CA reversed the decision of the RTC
Section 1. Form of negotiable instruments –
An instrument to be negotiable must conform to the following ISSUE: WON the said promissory note is in accordance with Sec 1
requirements: of the NIL. And WON Garcia can use the accommodated party
(a) It must be in writing and signed by the maker or drawer; defense under the NIL
(b) Must contain an unconditional promise or order to pay a sum
certain in money; HELD:
(c) Must be payable on demand, or at a fixed or determinable future
time;  NO and NO
(d) Must be payable to order or to bearer; and  First and foremost, the Court herein ruled that the said
(e) Where the instrument is addressed to a drawee, he must be promissory note is not a negotiable instrument because the
named or otherwise indicated therein with reasonable certainty. note was made payable to a specific person rather than
to a bearer or to order.
REQUISITES OF NEGOTIABILITY  Second, with the aforementioned ruling, Garcia cannot
HSBC LTD. v. COMMISSIONER OF INTERNAL REVENUE invoke the liabilities and defense of accommodated party
 Electronic messages were not signed under the NIL simply because the said promissory note is
 They do not contain an order to pay a sum certain in money not a negotiable instrument.
 Not payable to order or bearer
 Not signed
FIRESTONE v. CA
SC: The said electronic messages are not negotiable
instruments, the bills of exchange in this case are subject to FACTS:
documentary stamp tax  Forjas-Arca purchased products from Firestone and issued
special withdrawal slips as payment.
APPLICABILITY OF THE NIL  Firestone then deposited the withdrawal slips to their current
account in Citibank.
GARCIA v. LLAMAS  Some of the withdrawal slips were dishonored by LDB as
Forjas-Arca’s account did not have sufficient funds.
 Petitioner Garcia and de Jesus borrowed Php 400,000 from  Citibank then debited the amount of the dishonored
respondent Llamas withdrawal slips from Firestone’s account.
 On the same day, Garcia and de Jesus executed a  Firestone is alleging that these withdrawal slips were treated
promissory note wherein they bound themselves jointly and as checks and should be classified as a negotiable
severally to pay the loan on or before 23 January 1997 with instrument.
a 5% interest per month SC: The essence of negotiability which characterizes a negotiable
 The loan became overdue, despite repeated demands paper as a credit instrument lies in its freedom to circulate freely as a
 A case was filed against petitioner Garcia and de Jesus substitute for money. The withdrawal slips in question lacked this
 Garcia argued that he assumed no liability under the character.
promissory note because he signed it merely as an
accommodation party
KINDS OF NEGOTIABLE INSTRUMENT PNB v. RODRIGUEZ

BEARER INSTRUMENT [SEC 9] SC: The persons whose signatures were forged weren’t fictitious, the
 “Payable to A or bearer” drawee bank bears the loss. Negligence negates the defense that
 Mere delivery would suffice negotiation the names were fictitious.
 Fictitious person: is meant to be one who, though named as
payee in an instrument, has no right to it because the maker ORDER INSTRUMENT [SECTION 8]
or drawer so intended and it matters not, whether the name  “to the order of” “or order”
of the payee used by him be that one living or dead, or one  Delivery + indorsement is required
who never existed (Snyder v. Com. Exch. Nat. Bank) 
o Non-existing person: A. COMPLETION AND DELIVERY
“Pay to the order of the king of Planet Jupiter”
o Name of payee not name of person: COMPLETE AND DELIVERED INCOMPLETE AND DELIVERED
“Pay to cash” or “pay to money”
*Fictitious payee = automatically a bearer instrument  Q: When is there delivery?  Section 14 of the NIL
ANS: when there is delivery  It is important to determine
coupled with intention to be whether or not the person is a
PEOPLE v. WAGAS bound holder in due course
 No defense available for the  Holder in due course – can
FACTS: drawer or maker enforce the instrument
 Wagas, according to Ligaray, ordered 200 sacks of rice from  Not a holder in due course –
him. Wagas assured payment. cannot enforce the instrument
 Personal defense is available
 Ligaray met up with Wagas’ brother-in-law which the latter (NOTE: Personal defense can
gave the former a check worth the agreed price for the sacks only be used if the holder is not
of rice. a holder in due course)
 The check bounced and Ligaray filed a case of Estafa  Refer to: Alvin Patrimonio vs.
against Wagas Napoleon Gutierrez , et.al., G.R.
No. 187769, June 04, 2014
 Wagas argued that the check was a bearer instrument
(stated in the check “payable to cash”), therefore it shows COMPLETE BUT UNDELIVERED INCOMPLETE AND UNDELIVERED
that he had no intent to defraud Liagaray.
SC: The check was a bearer instrument. Wagas cannot be guilty of  Section 16 of the NIL  Section 15 of the NIL
estafa due to the fact that the prosecution failed to show intent to  Complete instrument but the  Incomplete instrument and no
defraud on the part of Wagas. The nature of the check, which was a drawer or maker had no intention to be bound
bearer instrument, shows the lack of intent to defraud; the accused, intention to be bound  Not enforceable against the
 Unenforceable drawer or maker
to be guilty of estafa as charged, must have used the check in
 However, if the instrument is  Complete or real defense is
order to defraud the complainant. delivered to a holder in due available
course, the drawer is liable (NOTE: even if the holder is a holder in
Personal defense is available due course, he cannot enforce the
instrument to the drawer or maker)
PATRIMONIO CASE vs. BANK OF AMERICA CASE SIGNING IN TRADE NAME [SECTION 18]
Example: a note signed in the business name by the proprietor
Both cases involve incomplete and delivered instruments (Sec 14).
In the Patrimonio case, the Court absolved Alvin Patrimonio of SIGNATURE OF AGENT [SECTIONS 19-20]
liability because when he issued the said checks, he gave specific Agent may escape personal liability when:
instructions to Gutierrez in which the latter chose not to follow when o He is duly authorized
he acquired a loan from Marasigan. o He adds words to his signature indicating that he
signs in as an agent
“The petitioner can validly set up the personal defense that o He discloses the principal
the blanks were not filled up in accordance with the authority
he gave. Consequently, Marasigan has no right to enforce SIGNATURE BY PROCURATION [SECTION 21]
payment against the petitioner and the latter cannot be  Procuration – the act by which a principal gives power to
obliged to pay the face value of the check.” another to act in his place as he could himself
 Similar to an agent or proxy
On the other hand, in the Bank of America case, the Court therein
 “P.p.” = Per procuration
ruled that because of their negligence, Bank of America is liable to
 Effect: it gives a warning that the agent has but a limited
PRCI but only to a certain extent. The Court herein considered the
authority, so that it is the duty of the person dealing with
contributory negligence on the part of the President and Vice
him to inquire into the extent of his authority
President of PRCI which lead to the unauthorized withdrawal of
funds. The Court found the President and Vice President grossly
INDORSEMENT BY MINOR OR CORPORATION [SECTION 22]
negligent in the pre-signing of the checks.
Minor – contracts entered into by minors are voidable.
B. SIGNATURE Other incapacitated persons – insane, deaf-mutes who do not know
 General Rule: Only persons whose signatures appear on an how to write
instrument are liable thereon. Corporation – indorsement made by a corporation is considered to
 Exceptions: be an ultra vires act or acts beyond its powers.
o Where a person signs in a trade name or assumed
name (Sec. 18, par. 2) Note: Minority is a personal defense which may be set up by parties
o The principal is liable if a duly authorized agent other than the minor; but it is a real defense available to the minor.
sings on his own behalf (Sec. 19) The minor may also disaffirm and recover the instrument from a
o Forgery; the forger is liable (Sec. 23) holder in due course.
o Where the acceptor makes his acceptance of a bill FORGERY [SECTION 23] [MEMORIZE]
on a separate paper (Sec. 134)
o Where a person makes a written promise to accept Sec. 23. Forged signature; effect of. - When a signature is forged
the bill before it is drawn (Sec. 135) or made without the authority of the person whose signature it
purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under
such signature, unless the party against whom it is sought to enforce
such right is precluded from setting up the forgery or want of  Sempio vouched for the genuineness of Jong’s signature.
authority. Satisfied with the genuineness of the signature of Jong, Syfu
authorized the bank’s encashment of the check to
SECTION 23 FORGED SECTION 15 INCOMPLETE
Gonzaga.
SIGNATURE AND UNDELIVERED
 Kyu, discovered the encashment. Kyu examined the
 Material details:  No material detail checkbook and found that the last blank check was missing.
available  Signature is present and  Jong learned of the encashment of the check, and realized
 No signature VALID that his signature had been forged. Samsung Construction
filed a Complaint for violation of Section 23 of the NIL.
 There is an exception  No exception
 Both sides presented expert witnesses to determine the
genuineness of the signatures.
EFFECTS  Samsung: NBI Document Expert, Rhoda Flores (FORGED)
 Real defenses (available against any holder)  FEBTC: Rosario C. Perez, a document examiner from the
 Frees the owner of the instrument from liability PNP Crime Laboratory (GENUINE)
SC: Forged signature is wholly inoperative and payment made
through or under such signature is ineffectual. FEBTC was liable
SAMSUNG CONSTRUCTION v. FAR EAST BANK because as a bank, it had the duty to determine whether or not a
signature on a check is forged
FACTS:
ASSOCIATED BANK v. CA
 Samsung Construction Company Phils. (Samsung SC: Although the indorsement on the instrument is forged, parties who
Construction) maintained a current account with Far East warrant or admit the genuineness of the signature in question and
Bank and Trust Company (FEBTC). Jong Kyu Lee, its Project those who, by their acts, silence or negligence are estopped from
Manager, was the sole signatory to the bank’s accounts. The setting up the defense of forgery.
company’s accountant, Kyu Yong Lee, kept the checks.
 A certain Roberto Gonzaga presented for payment an The act of Associated Bank of stamping the words ―all indorsement
FEBTC Check amounting to P999,500. / lack of indorsement are guaranteed is actually an admission of the
 After making sure that there were enough funds to cover the instrument‘s validity, hence the defense of forgery is unavailable to it.
check, the bank teller (Justiani) compared the signature
appearing on the check with the signature card of Jong with Negligence negates the defense of forgery
the bank.
 Justiani was satisfied that the signature was authentic. TRADERS ROYAL BANK v. RADIO PHILIPPINES NETWORK
 The same was done by the senior assistant cashier (Velez),
and another bank officer (Syfu). • SC: By encashing in favor of unknown persons checks which were
 Syfu then noticed that Jose Sempio III was also in the bank. on their face payable to the BIR, a government agency which can
only act only through its agents, petitioner did so at its peril and
 Sempio was well known to Syfu and the other bank officers
must suffer the consequences of the unauthorized or wrongful
because he is the assistant accountant of Samsung
endorsement.
Construction.
  Considering that both Rubia and Bayani were long-time
customers and knowing the fact that Bayani is a good man,
BPI v. CASA MONTESSORI Evangelista agreed to rediscount the check
 However, when Evangelista deposited the check in her
SC: Banks must observe the highest level of diligence account with the Far East Bank and Trust company on
September 11, 1992, the check was dishonored for the
MWSS v. CA reason that Bayani had closed the said account with PSBank
 The dishonoring of the check was evidenced by a stamp at
SC: Forgery cannot be presumed. It must be established by clear,
its dorsal portion
positive, and convincing evidence. This was not done in the present
 Evangelista then informed Rubia that the said check was
case.
dishonored and demanded the return of her Php 55,000
C. CONSIDERATION  Rubia, in her reply, stated that she was only requested by
Bayani to have the check rediscounted
EFFECT OF WANT OF CONSIDERATION [SECTION 28]  A series of finger pointing ensued but ultimately it led to
 Absence of consideration – void contract Evangelista filing a case against Bayani for violating BP22
 Lack of consideration is a personal defense  Bayani, in his defense stated that there was no valuable
 Knowledge of lack of consideration disqualifies a person to consideration when Evangelista issued the check. He did not
be a holder in due course. receive the Php 55,000.
 Partial payment entitles the person holding the instrument to  It must be noted that Bayani merely stated the fact that he
the partially paid amount only. did not receive the money from Evangelista; no further effort
 Pro tanto – to the extent was given by Bayani to prove so.
 RTC: ruled against Bayani
CAYANAN v. NORTH STAR  CA: confirmed the decision by the RTC
SC: Upon the issuance of a check, in the absence of evidence to the ISSUE: Whether or not Bayani’s defense of lack of valuable
contrary, it is presumed that it was issued for valuable consideration.
consideration is valid

BAYANI v. PEOPLE HELD:

 NO
FACTS:
 Petitioner cannot evade criminal liability by merely
 Alicia Rubia arrived at the grocery store of Dolores
stating that he did not receive the money
Evangelista and subsequently asked the latter to rediscount
 It was shown during the trial that Evangelista rediscounted
her PSBank check amounting to Php 55,000
the check and gave the Php 55,000 to Rubia after the latter
 The check was drawn by Leodegario Bayani, petitioner
endorsed the same; therefore, it must be considered that
herein, against his account with PSBank and then post-
Evangelista is a holder in due course
dated August 29, 1992
  According to Section 28 of the NIL, absence or failure of EUFRONICA did not have the money that time, she
consideration is a matter of defense only as against any executed a promissory note.
person not in due course
 Moreover in Section 24 of the NIL, it is presumed that there  When the promissory note fell due, EUFROCINA failed and
is a valid consideration; mere denial of receipt of the money refused to pay despite demand. Thus, CARMELA filed a
Complaint for Specific Performance with Damages against
cannot overcome this presumption
EUFROCINA. EUFROCINA answered that she was forced
to sign the promissory note and claimed that the undertaking
MANGAHAS v. BRIOBIO was nit supported by any consideration.

FACTS: RTC: ruled in favor of CARMELA. There was no undue influence

 Pacifico Brobio died intestate, leaving 3 parcels of land. He constituted on the part of Eufrocina’s consent. In fact, Eufrocina
was survived by his wife, 4 legitimate children and 3 acted in bad faith and took advantage of the trust and confidence
illegitimate children. Carmela had reposed in her.
 PETITIONER Carmela Brobio Mangahas is one of the
illegitimate children of Pacifico. CA: reversed RTC. There was a complete absence of consideration
 May 12, 2002: DEED OF EXTRAJUDICIAL SETTLEMENT in the execution of the promissory note, note, which made it
OF ESTATE of the Late Pacifico Brobio with Waiver was inexistent and without any legal force and effect. The real reason
executed by the heirs. The heirs, in consideration of their why Eufrocina executed the promissory note was to secure
love and affection to RESPONDENT (Eufrocina Brobio) and Carmela’s signature. The waiver of Carmela’s share in the properties
the sum of P150,000, waived and ceded their respective may not be considered as the consideration of the promissory note,
shares over the 3 parcels of land to EUFROCINA. since Carmela signed the Deed way back in 2002 and she had
already received the consideration of P150,000 for signing the same.
 CARMELA said that EUFROCINA promised to give her an
additional amount for her share in her father’s estate. The CA also found that intimidation attended the signing of the
promissory note. Eufrocina needed the signature of Carmela in order
 After signing the Deed, CARMELA demanded from to comply with a BIR requirement, hence, Eufrocina was forced to
respondent the promised additional amount, but sign the promissory note to assure Carmela that the money
EUFROCINA refused to pay because she had no money. promised to her would be paid.

 A year later, EUFRONICA was required to submit an original ISSUE: WON the CA erred when it found that the promissory note
copy of the Deed for tax declarations with BIR. Since she did was without consideration.
not have a copy, she asked CARMELA to countersign a
copy of the Deed. CARMELA refused; she demanded HELD:
Eufrocina to give the additional amount she (Eufrocina)
promised. YES. Section 24 of the NIL provides that “A contract is presumed to
be supported by cause or consideration.” The presumption that a
 CARMELA asked for 1 Million, but EUFROCINA begged to contract has sufficient consideration cannot be overthrown by a mere
lower the amount. It was settled at P600,000. Since assertion that it has no consideration.
To overcome the presumption, the alleged lack of consideration  Upon presentment of the aforesaid checks for payment, they
must be shown by preponderance of evidence. The burden to were dishonored by the bank for having been drawn against
prove lack of consideration rests upon whoever alleges it, insufficient funds or closed account.
which, in the present case, is Eufrocina. She failed to prove that  Santia thus demanded payment from PLCC and Aglibot of the
the promissory note was not supported by any consideration. face value of the checks, but neither of them heeded his
From her testimony and her assertions in the pleadings, it is clear demand.
that the promissory note was issued for a cause or consideration,
which, at the very least, was Carmela’s signature on the document. SC: By issuing her own post-dated checks, Aglibot thereby
bound herself personally and solidarily to pay Santia, and
It may very well be argued that if such was the consideration, it was dismissed her claim that she issued her said checks in her official
inadequate. Nonetheless, even if the consideration is inadequate, capacity as PLCC’s manager merely to guarantee the investment of
the contract would not be invalidated, unless there has been Santia.
fraud, mistake, or undue influence (none of which was proven in
the case). It noted that she could have issued PLCC’s checks, but instead she
chose to issue her own checks, drawn against her personal account
SC: No vitiated consent. Mangahas merely took advantage of the with Metrobank.
situation because she already experienced being on the short end of
the deal. LIM v. SABAN

E. ACCOMMODATION PARTY [SECTION 29] SC: In order to be an accommodation party, one must meet all three
 Exception to SECTION 28 regarding pro tanto. requisites, viz:
 The holder in due course can ask for the full payment. (1) He signed the instrument as maker, drawer, acceptor, or
 An accommodation party acts like a surety. indorser;
 An accommodation party signs on behalf of another for the (2) He did not receive value for the signature; and
purpose of lending his name. (3) He signed for the purpose of lending his name to some other
 When the accommodation party makes payment to the person.
holder of a note, he has the right to sue the accommodated
party for reimbursement. F. NEGOTIATION

AGLIBOT v. SANTIA NEGOTIATION v. ASSIGNMENT

FACTS: 1. NEGOTIATION [SECTION 30]

 Private respondent-complainant Engr. Ingersol L. Santia SITUATION:
(Santia) loaned the amount of P2,500,000.00 to Pacific Php 10,000.00 Promissory Note
Lending & Capital Corporation (PLCC), through its Manager, Maker: A
petitioner Fideliza J. Aglibot (Aglibot). Holder: E
 The loan was evidenced by a Promissory Note dated July 1,
2003, issued by Aglibot in behalf of PLCC, payable in one year ABCDE
subject to interest at 24% per annum.
 E can collect from A because he possesses the rights of a Php 10,000.00 Promissory Note dated December 30,
holder 2017
Maker: A
2. ASSIGNMENT Holder: F obtained the instrument December 15, 2017
SITUATION:
Php 10,000.00 Non-Negotiable Promissory Note ABCDEF
Maker: A
Holder: E
*F rediscounted the money to A for Php 9,800.00
ABCDE on December 16, 2017 (needed money ASAP)

According to Section 50 of the NIL, reacquiring of

E cannot collect from A. Notification is needed.
original party is ALLOWED and can still be negotiated
In this case, A had no prior notification regarding the
provided that the instrument itself has not yet matured.
assignment of D to E. There is no privity of contract
between A and E.
*A re-issues the check to X, X issues the
3. STRIKING OUT INDORSEMENTS [SECTION 48] instrument to Y, Y to Z
SITUATION:
Php 10,000.00 Promissory Note
A  B  C  D  E  F  A maker; re-issues it
Maker: A to  X  Y  Z
Holder: F
Z can ask payment from A upon maturity of the
ABCDEF instrument.
A cannot go after the prior indorsers for it will result to a
multiplicity of actions [SECTION 50]
*F strikes out the indorsement of C
MODES OF NEGOTIATION
A  B  C (x)  D (x)  E (x)  F
 PRESUMPTION OF DELIVERY
o Where the instrument is no longer in the possession
According to Section 48 of the NIL, the subsequent indorses of a party whose signature appears thereon, a valid
after C will not be liable anymore as to the instrument. and intentional delivery by him is presumed until the
contrary is proven
4. WHEN PRIOR PARTY MAY NEGOTIATE INSTRUMENT o If it is in the hands of a holder in due course, the
[SECTION 50] presumption is conclusive.
SITUATION:  PRESUMPTION AS TO DATE
o Date is not an essential element of negotiability
 oAn undated instrument is considered to be dated as Securities delivery receipt, and post-dated checks payable on
of the time it was issued March 13, 1981.
 PAYABLE TO ORDER  On 13 March 1981, petitioner sought to encash the postdated
o Delivery + indorsement is required checks issued by Philfinance. However, the checks were
o If it cannot be indorsed anymore more specifically, it dishonored for having been drawn against insufficient funds.
is already impossible to sign or indorse the  On 26 March 1981, Philfinance delivered to petitioner the
instrument due to the number of indorsers, the DCR No. 10805 issued by private respondent Pilipinas Bank.
holder must attach a piece of paper (alonge) if he  Petitioner approached Ms. Elizabeth de Villa of private
wants to negotiate the instrument futher respondent Pilipinas, Makati Branch, and handed her a
demand letter informing the bank that his placement with
o The alonge must be permanently attached to the
Philfinance had remained unpaid and outstanding, and that
instrument for it to be valid
he in effect was asking for the physical delivery of the
 PAYABLE TO BEARER underlying promissory note.
o Delivery alone would suffice  Petitioner also made a written demand on 14 July 1981 upon
private respondent Delta for the partial satisfaction of DMC
CALTEX v. CA (supra) PN No. 2731.
 Delta, however, denied any liability to petitioner on the
SC: In the present case, however, there was no negotiation in the promissory note, and explained in turn that it had previously
sense of a transfer of the legal title to the CTDs in favor of petitioner agreed with Philfinance to offset its DMC PN No. 2731 (along
in which situation, for obvious reasons, mere delivery of the bearer with DMC PN No. 2730) against Philfinance PN No. 143-A
CTDs would have sufficed. Here, the delivery thereof only as security issued in favor of Delta.
for the purchases of Angel de la Cruz (and we even disregard the  Philfinance, on 18 June 1981, was placed under the joint
fact that the amount involved was not disclosed) could at the most management of the Securities and Exchange Commission
constitute petitioner only as a holder for value by reason of his lien. ("SEC") and the Central Bank. Pilipinas delivered to the SEC
Accordingly, a negotiation for such purpose cannot be effected by DMC PN No. 2731.
mere delivery of the instrument since, necessarily, the terms thereof  As petitioner had failed to collect his investment and interest
and the subsequent disposition of such security, in the event of non- thereon, he filed on 28 September 1982 an action for
payment of the principal obligation, must be contractually provided damages with the Regional Trial Court ("RTC") of Cebu City,
for. Branch 21, against private respondents Delta and Pilipinas.
Complaint was dismissed.
SESBREÑO v. CA  Petitioner appealed to respondent Court of Appeals. The
Court of Appeals denied the appeal.
FACTS:
 Petitioner Raul Sesbreño made a money market placement in ISSUE: WON a non-negotiable promissory note is assigned
the amount of P300,000.00 with the Philippine Underwriters
Finance Corporation ("Philfinance"), Cebu Branch; the HELD:
placement, with a term of thirty-two (32) days, would mature  Yes.
on 13 March 1981, Philfinance, also on 9 February 1981,  It is important to bear in mind that the negotiation of a
issued a Certificate of Confirmation of Sale, Certificate of negotiable instrument must be distinguished from the
assignment or transfer of an instrument whether that be
 negotiable or non-negotiable. Only an instrument Constitutes the indorser as a mere assignor of the
qualifying as a negotiable instrument under the relevant title to the instrument
statute may be negotiated either by indorsement thereof 5. Conditional Indorsement
coupled with delivery, or by delivery alone where the  The indorser imposes some other condition to his
negotiable instrument is in bearer form. A negotiable liability, or on the indorsee’s right to collect the
instrument may, however, instead of being negotiated, proceeds of the instrument
also be assigned or transferred. The legal consequences  Does not prohibit future negotiation regardless of
of negotiation as distinguished from assignment of a whether the condition has been fulfilled or not
negotiable instrument are, of course, different. A non-
negotiable instrument may, obviously, not be
negotiated; but it may be assigned or transferred, PCIB v. CA
absent an express prohibition against assignment or
transfer written in the face of the instrument. FACTS:
 DMC PN No. 2731, while marked "non-negotiable," was not Ford Philippines drew and issued Citibank Check. No. SN 04867 on
at the same time stamped "non-transferable" or "non- October 19, 1977, Citibank Check No. SN 10597 on July 19, 1978
assignable." It contained no stipulation which prohibited and Citibank Check No. SN-16508 on April 20, 1979, all in favor of
Philfinance from assigning or transferring, in whole or in part, the Commissioner of Internal Revenue (CIR) for payment of its
that Note. percentage taxes. The checks were crossed and deposited with the
IBAA, now PCIB, BIR's authorized collecting bank. The first check
KINDS OF INDORSEMENTS was cleared containing an indorsement that "all prior indorsements
and/or lack of indorsements guaranteed." The same, however, was
1. Special Indorsement replaced with two (2) IBAA's managers' checks based on a call and
 Where the name of the payee is specified letter request made by Godofredo Rivera, Ford's General Ledger
 Also known as “specific indorsement” or Accountant, on an alleged error in the computation of the tax due
“indorsement in full” without IBAA verifying the authority of Rivera. These manager's
 Unqualified indorsements checks were later deposited in another bank and misappropriated by
2. Blank Indorsement the syndicate. The last two checks were cleared by the Citibank but
 Specifies no particular indorsee failed to discover that the clearing stamps do not bear any initials.
 Payable to bearer The proceeds of the checks were also illegally diverted or switched
 Checked payable to the order of a named person by officers of PCIB — members of the syndicate, who eventually
and indorsed by him in blank makes it a bearer encashed them. Ford, which was compelled to pay anew the
instrument percentage taxes, sued in two actions for collection against the two
3. Restrictive Indorsement banks on January 20, 1983, barely six years from the date the first
 Worded that it either restricts or prohibits entirely the check was returned to the drawer. The direct perpetrators of the
further negotiation of an instrument, or modifies the crime are now fugitives from justice. In the first case, the trial court
rights of the holder or the liabilities of the indorser held that Citibank and IBAA were jointly and severally liable for the
 Limits the rights of indorsee checks, but on review by certiorari, the Court of Appeals held only
 Destroyes the negotiability of instrument IBAA (PCIB) solely liable for the amount of the first check. In the
4. Qualified Indorsement second case involving the last two checks, the trial court absolved
PCIB from liability and held that only the Citibank is liable for the
checks issued by Ford. However, on appeal, the Court of Appeals
held both banks liable for negligence in the selection and supervision
of their employees resulting in the erroneous encashment of the
checks. These two rulings became the subject of the present
recourse.
SC: The relationship between a holder of a commercial paper and
the bank to which it is sent for collection is that of a principal and an
agent and the diversion of the amount of the check is justified only by
proof of authority from the drawer; that in crossed checks, the
collecting bank is bound to scrutinize the check and know its
depositors before clearing indorsement; that as a general rule, banks
are liable for wrongful or tortuous acts of its agents within the scope
and in the course of their employment; that failure of the drawee
bank to seasonably discover irregularity in the checks constitutes
negligence and renders the bank liable for loss of proceeds of the
checks; that an action upon a check prescribes in ten (10) years; and
that the contributory negligence of the drawer shall reduce the
damages he may recover against the collecting bank.
Indeed, the crossing of the check with the phrase "Payee's Account
Only," is a warning that the check should be deposited only in the
account of the CIR. Thus, it is the duty of the collecting bank
PCIBank to ascertain that the check be deposited in payee's account
only. Therefore, it is the collecting bank (PCIBank) which is bound to
scrutinize the check and to know its depositors before it could make
the clearing indorsement "all prior indorsements and/or lack of
indorsement guaranteed."
METROBANK v. BA FINANCE
SC: The last indorser, generally suffers the loss because it has the
duty to ascertain the genuineness of all prior indorsements
considering that the act of presenting the check for payment to the
drawee is an assertion that the party making the presentment has
done its duty to ascertain the genuineness of prior indorsements.
CREDITS:
1. The Law on Negotiable Instruments by Hector De Leon
(2016)
2. UP College of Law BOC (Commercial Law Reviewer 2015)
3. Digests and Lecture notes from Negotiable Instruments G03
1ST SEM, AY-2017-2018 DLSU College of Law