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No one saves us but ourselves. No one ca and no one may.

We ourselves must walk

the path.

The drawer can compel the drawee bank to re-credit the amount of the
forged check, he being not a party to the instrument. Forgery renders the
forged signature totally inoperative. Additionally, the drawee-bank is charged
with knowledge of the drawers signature.
The drawee bank has no right of recourse against the collecting bank. Having
gone through he normal course of clearing, the latter can assume that the
check was properly drawn by the drawer. The drawee bank is charged with
knowledge of the drawers signature. The negligence, if at all, is attributed
more to the drawee bank than the collecting bank.
Or, the drawee bank ca have a recourse against the collecting bank, because
the latter must be deemed to have warranted or guaranteed previous
Recourse may be had against the endorser because of his warranty.
The drawee bank cannot proceed against the endorser, under the doctrine of
comparative negligence. It is the drawee bank who had access to the
signature specimen of the drawer, which is the proximate cause of the loss.
As between the endorser and the drawee, it is the latter that is more

A(d)B(d)C(si)D(si)E(d)F.A did not pay F.

B, not being an indorser, may only be held liable for breach of warranty.
C, under the si, can be held 2ndarily liable to D and E, (DE) having derived
their title under Cs special indorsement. C, cannot be held liable to F
because F obtained the instrument by mere delivery from E, hence did not
obtain title from Cs indorsement.
D, secondarily liable to E, E having derived title from D thru his indorsement,
but not to F.
E, can only be held liable to F for breach of warranty. But not as indorser.
Secondary liablity requires due notice of dishonor, unless excused.

PM---I promise to Pay A P100 3 years after the unconditional withdrawal of the US
of its military base in the Phil.

Not negotiable. Sec. 1. WUPOD. Must be payable to bearer.

Must be unconditional
The negotiability not affected by its being undated, the holder is implicitly
authorized to place the date thereof. Sec. 13 or consider it as dated as of
date of issue.

PM---X A(minor)(i)B(i)C(had knowledge of As minority)..C sues X for note.

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No one saves us but ourselves. No one ca and no one may. We ourselves must walk
the path.
X cannot invoke the defense of minority because Sec. 22 says title would
pass even if the one who indorsed it is a minor. Also, minority as a real
defense can only be set up by the minor himseld and lack of consideration is
not a defense against a holder in due course.
PMpayable to B or order. Signed A. B(i)CD(steal&forged C)(i)E(i)F(hdc)
If B indorsed it in blank, hence it became a bearer instrument, Cs
indorsement is not necessary to preserve the juridical relation between
parties prior to the forgery and parties after the forgery. On the assumption
the F is a holder in due course, F can hold A,B,and D liable.
o Liability of A=primary=maker
o Liability of D=primary=forger
o Liability of B=secondary=indorser
If F was not HDC, he acquires no better right than that of his immediate
transferor, hence cannot claim against A,B,C, cannot be held liable.
If B, specially indorsed the instrument, Cs signature would be essential to
pass title to the instrument. Cs signature forged by D, would be inoperative.
Hence all prior parties to the forgery can raise the real defense of forgery
against all parties subsequent thereto.
Test to determine of instrument is negotiable?

See Sec. 1 WUPOD on the face of the instrument.

Intrinsic validity is of no moment.
Acceptance or non-acceptance by the drawee would be irrelevant

J accommodated M-maker. J indorsed the PM. Then, instrument negotiated to

J liable. Sec. 29. Accommodation party is liable on the instrument to a holder
for value, notwithstanding the holder at the time of taking said instrument
knew him to be only an accommodation party. This is the nature and essence
of accommodation.

Mr. P sought to borrow money from Mr. C for the amount of P200K. C agreed in the
form of post-dated crossed check. Before the due date of the check it was
discounted by P to N. On maturity, N, deposited the check to his account but was
dishonored. N sued P. the Court dismissed the case. Rule. (see State investments
House vs IAC, g.r. 72764, 1989)

Court correct. The check was crossed. It should have forwarned N that it was
issued for a specific purpose. Hence n cannot be a holder in due course. He
subject to the defense of breach of trust that C can raise.

By: eniale

No one saves us but ourselves. No one ca and no one may. We ourselves must walk
the path.

In the event that L, in fact, had sufficient legal reasons to issue the stop
payment order, he may sue BPI for paying against his order. The waiver
executed by L did not mean that it need not exercise due diligence to protect
the interest of its account holder. It is not amiss to state that the drawee,
unless the instrument had earlier been accepted by it, is not bound to honor
payment to the holder of the check that thereby excludes it from any liability
if it were to comply with the stop payment order. Sec. 61.

The Corporation is not liable on the check as an accommodation party. The

act of the corporation in accommodating a friend of the president, is ultra
vires. While it may be legally possible for a corporation, whose business is to
provide financial accommodations in the ordinary course of business, such as
one given by a financing company, to be an accommodation party, this
situation is not the case.

Considering that both the president and the vice president were signatories
to the accommodation, they themselves can be subject to the liabilities of
accommodation parties to the instrument in their personal capacity.
(crisologo vs ca.)

The drawee bank must exercise the highest diligence in safeguarding the accounts
of its client-depositors. The bank is also charged with genuineness of the signatures
of its current account holders.

PM---L issued a Pm to E, authorizing the latter to fill up the amount of 1000 but E
filled up 5000. EJ who had knowledge, then D
D can enforce payment against L for 5k. Sec. 14. D is a holder in due course
and breach of trust cannot be raised by L to D because it is only a personal
What is meant by unreasonable time as applied to presentment?

With respect to a check, reasonable time means not more than six months
from the date of issue. Beyond said period, it is unreasonable time and the
check becomes stale.
Gemma, the drawer is not liable. Aside from the check being already stale,
Gemma is also discharged from liability under the check, being a drawer and
a person whose liability is secondary, this is due to the giving of dishonor
beyond the period allowed by law. The giving of NOD on April 27, 114 is more
than 1 month from March 5, 1994 when the check was dishonored. Since it is
not shown that Gemma and the holder resided in the same place, the period
within which to give notice of dishonor must be the same time that the notice
would reach Gemma if sent by mail.

By: eniale

No one saves us but ourselves. No one ca and no one may. We ourselves must walk
the path.

Po issued a postdated crossed check in favor of Jose, in payment of newsprint which

the latter promised to deliver. Jose sold and negotiated the check to excel. Excel did
not ask Jose the purpose of crossinf the check. Jose failed to deliver the newsprint.
Po ordered stop payment.
Effects of crossing a check:
1. The check is for deposit only in the account of the payee.
2. The check may be indorsed only once in favor of a person who has an
account with a bank.
3. The check is issued for a specific purpose and the person who takes it
not in accordance with said purpose does not become a holder in due
course and is not entitled to payment thereunder.
Otherwise stated, it serves as a warning to the holder thereof that the
check has been issued for a definite purpose so that the holder must
inquire if he has receives theh check pursuant to that purpose,
otherwise, he is not a holder in due course.
Failure on the part of excel to inquire as to said purpose prevented excel from
becoming a holder in due course, as such failure or refusal constituted bad
faith. And it is subject to the personal defense that Po can set up against Jose.

ABCD(stole&forged C's signature)EF(hdc)

A found that the goods were defective. E did not inquire D.
Rights of F against a,b,E?
F has no right to claim against A, B, and C, who are parties prior to the
forgery. Parties to an instrument prior to the forgery cannot be held liable by
any party who became such at or subsequent to the forgery.
E can be held liable. Party subsequent to the forgery and indorser.

Dragon cannot collect from C. The instrument are crossed checks which were
intended for s specific purpose. The failure or refusal to inquire resulted in bad faith.
Guilty of gross negligence amounting to legal absence of good faith.
Case of State investment. G.r. 101163.

Holder in due course free from any defect of title of prior parties and free
from defenses available to prior parties among themselves.
If not privy to the prupose which the check was originally issued, the drawer
of the check cannot raise the defense of absence of consideration.

By: eniale

No one saves us but ourselves. No one ca and no one may. We ourselves must walk
the path.

The only grpund for the discharged of the check was payment as against a
holder in due course even if the check was originally issued merely for
She cannot unilaterally discharge herself from liability by her mere
expediency of withdrawing her funds from the drawee bank.

Once a bearer instrument, always a bearer instrument.

A(bd)B(si)C(bi)DE(stole&forged ds signature)F.drawee Bank refuses to
pay F.
Rights of F against A.

F can enforce payment against A as it was a bearer instrument. It could be

negotiated by mere delivery despite the presence of special indorsements.
The forged signature is unnecessary to presume the juridical relation
between the parties prior to the forgery and the parties after the forgery. The
only party who can raise the defense of forgery against the holder in due
course is the person whose signature is forged.

In case of dishonor both by drawee and drawer, can F hold any of B, C, and D
liable secondarily on the instrument?

Only B and C can be held liable by F. The instrument at the time of forgery
was payable to bearer. Also, the instrument was indorsed in blank by C to D.
D whose signature was forged cannot be held liable.

Conspiracy between bank bookkeeper and client allowing honoring checks even if

Bank cannot recover. When the bank honored the check, it became an
acceptor and as such, the bank became primarily and directly liable to the
payee/holder. The recourse is aginst the client and employee.

The liability of X,Y and Z under the promissory note is joint thus the fact that Z was
not impleaded in the case wunt prevent A from recovering their proportionate share
in the liability.

Problem: 100 points

A issued a promissory note payable to b or bearer. A delivered the note to B. B
indorsed the note to C. C placed the note in his drawer, which was stolen by the
janitor,X. X indorsed the note to D by forging Cs signature. D indorsed the note to E
who in turn delivered the note to F, a holder in due course, without indorsement.
Discuss the individual liablities to F of A, B, and C.

By: eniale

No one saves us but ourselves. No one ca and no one may. We ourselves must walk
the path.
A is liable to F. A the maker of theh promissory note, A is directly liable to F who is a
holder in dure course. The presence of special indorsements notwithstanding, since
these dont detract from the fact that a beaer instrument is always a bearer
B, as general indorser is liable to F. (memorize section 66).
C is not liable to F. F cant trace his title t0 C. I was Cs signature that was forged.

PM--Pay to CD or his Order P1000..signed AB.

ABCD(ib)EFGH(stole). GH presented to AB for payment, which the latter paid.

EF cannot anymore claim payment from AB. EF is not a holder of the

promissory note. To make presentment for payment, it is necessary to exhibit
the instrument, which EF cannot do because he is not in possession thereof.
CD cannot be held liable to EF because, he negotiated the instrument by
mere delivery. Section 65.
Warranty where negotiation by delivery and so forth. Every
person negotiating an instrument by delivery or by a qualified
indorsement warrants:
a) That the instrument is genuine and in all respects what it
purports to be;
b) That he has good title to it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair
the validity of the instrument or render it valueless.
But when negotiation is by delivery only, the warranty extends
in favor of holder other than the immediate transferee.
The provisions of subdivisions (c) of this section do not apply to
a person negotiating public or corporation securities other than
bills and notes.
A crossed check is one with two parallel lines drawn diagonally across its
face or across a corner thereof.
A cancelled check is one marked or stamped paid and/or cancelled by or
on behalf of a drawee bank to indicate payment thereof.

Under Section 23, forgery is a real defense. The forged check is wholly inoperative
in relation to the CX. CX cannot be held liable thereon by anyone, not even a holder
in due course. Under a forged signature of the drawer, there is no valid instrument
that would give rise to a contract which can be the basis or source of liability on the
part of the drawer. The drawee bank has no right or authority to touch the drawers
funds deposited with the drawee bank.

What is a crossed check what the effects of crossing a check.

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No one saves us but ourselves. No one ca and no one may. We ourselves must walk
the path.

It I a warning to the drawee bank that payment must be made to the right
party, otherwise the bank has no authority to use the drawers funds
deposited with the bank. To be assured that it will avoid any mistake in
paying to the wring paty, bank adopted the policy that crossed checks must
be deposited in the payees account. When withdrawal is made, the banks
can be sure that they are paying to the right oarty. Later, jurisprudence
added to the development of crossed checks in that the crossing becomes a
warning also to whoever deals with the said instrument to inquire as to the
purpose of its issuance. Otherwise, of somwthing wrong happens to the
payment thereof, that person canot claim to be a holder in due course.
Hence, he is subject to the personal defense on the part od the drawer that
there is breach of trust committed by the payee in not complying with the
drawers instruction.
An irregular indorser, not otherwise a party to the instrument, places his
signature thereon in blank before delivery to add credit thereto. A general
indorser is a regular party to the instrument like a maker, drawer, or acceptor
and he signs upon delivery of the instrument. While an irregular indorser
signs for accommodation, a regular indorser signs for valuable consideration.

What is a negotiable instrument? Give characteristics of a negotiable instrument.

Distinguish negotiable instrument and negotiable documents of title.
Discuss the legal consequences when a bank honors a forged check.
A bank which honors a check wherein the drawers signature was forged,
must bear the loss, because it has the legal duty to ascertain that the
drawers signature is genuine before encashing a check. The liability chain
ends with the drawee bank.
On the other hand, if the drawee bank pays under forged indorsemtn, the
drawee bank is still liable to the payee as it has guaranteed the genuineness
of all prior indorsements. However, the drawee bank may generally pass
liability back through the collection chain to the party who obtained the check
from the forger and from the forger himself.

R issued a check for 1M which he used to pay S ffor killing his political enemy.
a) It is a negotiable instrument. The validity of the consideration is not one of
the requisites of a negotiable instrument. It merely constitutes a defect of
b) S does not have a cause of action against R in case of dishonor by the drawee
bank because S is not a holder in due course, thus R, can raise the defense
that the check was issued to an illegal consideration.
c) If it was negotiated by S to T who took the instrument in good faith and for
value, then R may be held secondarily liable. In this case, T is a holder in due
course, hence R cannot raise the defense of illegality of the consideration.

By: eniale

No one saves us but ourselves. No one ca and no one may. We ourselves must walk
the path.
Pancho drew a check to Bong and Gerald jointly. Bong indorsed the check and also
forged Gerards indorsement. The payor bank paid the check and charged Panchos
account for the amount of the check. Gerard received nothing from the payment.

The bank shoud recredit the full amount of the check to the account of
pancho. Considering that the check was payable to Bong and Gerard jointly,
the indorsement of Gerard was necessary to negotiate the check. See Sec. 41
o SECTION 41. I n d o r s e m e n t W h e r e P a y a ble t o Tw o o r M o r
e P e r s o n s . Where an instrument is payable to the order of two
or more payees or indorsees who are not partners, all must indorse,
unless the one indorsing has authority to indorse for the others.
Since Bong forged the signature of Gerard, the indorsement was wholly
Pancho was not discharged on the instrument because the payment was not
in due course.(See Sec. 119 and 120)

AB Corp. drew a check for payment to XY bank. The check was given to an officer of
AB who was instructed to deliver it to XY bank. Instead the officer to defraud AB
filled up the check by making himself as the payee and delivered it to XY Bank for
deposit to his personal account. Xy Bank paid. What are the issues? Rule on the
issues determined.
WON instrument delivered?
Won instrument complete?
Won AB can be held liable for the amount of the check?
o Incomplete but delivered. Binding on AB.
As a rule in Nego, a subsequent party may hold a prior party liable but not vice
versa. Give two instance where a prior party may hold a subsequent party liable.
1) In case of an accommodated party.-- An accommodation party may hold the
party accommodated liable to him, even if the party accommodated is a
subsequent party. The relation between them is that of principal and surety.
2) In case of an acceptor for honor.for the same reason, an acceptor for honor
may hold the party for whose honor he accepted a bill of exchange liable to
him. (Sec. 161) A payer for honor is subrogated to the rights of the holder as
regards the party for whose honor he paid and all parties liable to the latter.
(Sec 175)

The shelter principle provides that in the hands of a holder other than a holder in
due course, a negotiable instrument is subject to the same defenses as if it were
non-negotiable. This principle is extended to a holder who is not himself a holder in
due course but derives his title from a holder in due course, provided he himself is
not a party to any fraud or illegality affecting the instrument.

By: eniale

No one saves us but ourselves. No one ca and no one may. We ourselves must walk
the path.
A bank is bound to know its depositors signature is not an inflexible rule in
determining the liablity of a bank in forgery cases. In cases of forgery, the forger
may not necessarily be a depositor of the bank, especially in the case of a drawee
bank. Yet, in many cases of forgery, it is the drawee that is held libale for the loss.

Ldrew a check in favor of P, paramour. Drawee is the wife. B to E. Wife refused

payment upon presentment upon knowledge of illicit relationship with drawer and

Bill was not lawfully dishonored. E was a holder in due course.

Illicit cause or consideration does not adversely affect the negotiability in the
hands of a holder in due course. Sec 1. And Sec. 24.

August 10, 2013
Makati City
Sixty days after date, I promise to pay B or his designated representative th sum of
one hundred thousand pesos from my bpi acct no. 123 if by this due date, the sun
still sets in the west to usher in the evening and rises in the east the following
morning to welcome the day.
Sgd. R

Not negotiable. See section 1. Must not be conditional. This case, conditional
since the payment is to be taken from a particular fund.

Bong bought 300 bags of rice from Ben for P300,000.00. As payment, Bong
indorsed to Ben a Bank of the Philippine Islands (BPI) check issued by Baby in the
amount of P300,000.00. Upon presentment for payment, the BPI check was
dishonored because Babys account from which it was drawn has been closed. To
replace the dishonored check, Bong indorsed a crossed Development Bank of the
Philippines (DBP) check issued also by Baby for P300,000.00. Again, the check was
dishonored because of insufficient funds. Ben sued Bong and Baby on the
dishonored BPI check. Bong interposed the defense that the BPI check was
discharged by novation when Ben accepted the crossed DBP check as replacement
for the BPI check. Bong cited Section 119 of the Negotiable Instruments Law which
provides that a negotiable instrument is discharged "by any other act which will
discharge a simple contract for the payment of money." Is Bong correct? (4%)

By: eniale

No one saves us but ourselves. No one ca and no one may. We ourselves must walk
the path.

By: eniale