LIABILITIES OF PARTIES

DEFENSES AGAINST THE HOLDER

2015
Nadine has a checking account with Fair & Square Bank. One day, she lost her checkbook
and the finder was able to forge her signature and encash the forged check. Will Nadine be
able to recover the amount debited from her checking account from Fair & Square Bank?
Justify your answer. (3%)

ANSWER:
Yes, Nadine can recover the amount debited from her checking account from Fair & Square
Bank.

Under Section 23 of the Negotiable Instruments Law, when a signature is forged 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 authority.

In the case at bar, Nadine can raise the real defense of forgery which makes the instrument
inoperative and as a result payment cannot be enforced thereto. Furthermore, the Fair & Square
Bank being a banking institution should have exercised extraordinary diligence in determining
the genuineness of the signature in the instrument because failure to do so would make them
liable for their own negligence. Thus, Nadine can recover the amount debited from her checking
account.

PRESENTMENT FOR PAYMENT

NOTICE OF DISHONOR
DISCHARGE OF NEGOTIABLE INSTRUMENT
2014
Bong bought 300 bags of rice from Ben for P300,000.00. As payment, Bong indorsed to
Bena 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
Baby’s 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 contractfor the payment of money." Is Bong correct? (4%)
Answer:

Bong is not correct. Novation cannot be presumed. Ben, the creditor, did not give
his consent to novation. Parties must expressly disclose their intent to extinguish the old obligation
by creating a new one. Art. 1293. Novation which consists in substituting a new debtor in the place
of the original one, may be made even without the knowledge or against the will of the latter, but
not without the consent of the creditor.

Furthermore, Sec. 119 of the Negotiable Instruments Law applies only if the obligation is
paid by the debtor himself so as to discharge him from his obligation. However, such payment
must be characterized by valid tender. Herein facts do explicitly state that it is wanting of the valid
tender of payment because a check, though a negotiable instrument is not valid tender.

MATERIAL ALTERATION
ACCEPTANCE
PROMISSORY NOTES
2014
Which of the following instruments is negotiable if all the other requirements of
negotiability are met? (1%)

(A) A promissory note with promise to pay out of the U.S. Dollar account of the maker in
XYZ Bank

(B) A promissory note which designates the U.S. Dollar currency in which payment is to
be made

(C) A promissory note which contains in addition a promise to paint the portrait of the
bearer

(D) A promissory note made payable to the order of Jose Cruz or Josefa Cruz

Answer:
Letter (A)

2015
When can you treat a bill of exchange as a promissory note? (3%)

ANSWER:

A bill of exchange can be treated as a promissory note when it has been presented for
acceptance and the drawee bank has accepted the same. The Law on Negotiable Instruments
provides that acceptance has an effect which converts the bill of exchange into an unconditional
promise to pay the sum of money represented by the check, which in turn becomes a binding
contract between the parties, the holder of the instrument and the drawee bank.

CHECKS
2015
Is a manager's check as good as cash? Why or why not? (2%)

ANSWER:
Yes. In a line of jurisprudence, the Supreme Court has held that a manager's check is one
drawn by the bank's manager upon the bank itself. It is similar to a cashier's check both as to
effect and use. A cashier's check is a check of the bank's cashier on his own or another check. In
effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted
in advance by the act of its issuance. It is really the bank's own check and may be treated as a
promissory note with the bank as a maker. The check becomes the primary obligation of the bank
which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is
considered an acceptance thereof. Hence, it is as good as cash when it comes to payment.

LAWS ON BOUNCING CHECKS

2014
A criminal complaint for violation of B.P. 22 was filed by Foton Motors (Foton), an entity
engaged in the business of car dealership, against Pura Felipe (Pura) with the Office of the
City Prosecutor of Quezon City. The Office found probable cause to indict Pura and filed
an information before the Metropolitan Trial Court (MeTC) of Quezon City, for her
issuance of a postdated check in the amount of P1,020,000.00 which was subsequently
dishonored upon presentment due to "Stop Payment."

Pura issued the check because her son, Freddie, attracted by a huge discount of
P220,000.00, purchased a Foton Blizzard 4x2 from Foton. The term of the transaction was
Cash-on-Delivery and no downpayment was required. The car was delivered on May 14,
1997, but Freddie failed to pay upon delivery. Despite non-payment, Freddie took
possession of the vehicle.

Pura was eventually acquitted of the charge of violating B.P. 22 but was found civilly liable
for the amount of the check plus legal interest. Pura appealed the decision as regards the
civil liability, claiming that there was no privity of contract between Foton and Pura. No
civil liability could be adjudged against her because of her acquittal from the criminal
charge. It was Freddie who was civilly liable to Foton, Pura claimed. Pura added that she
could not be an accommodation party either because she only came in after Freddie failed
to pay the purchase price, or six (6) months after the execution of the contract between
Foton and Freddie. Her liability was limited to her act of issuing a worthless check, but by
her acquittal in the criminal charge, there was no more basis for her to be held civilly liable
to Foton. Pura’s act of issuing the subject check did not, by itself, assume the obligation of
Freddie to Foton or automatically make her a party to the contract. Is Pura liable? (5%)

Answer:

Yes. The law provides that every act or omission punishable by law has its accompanying
civil liability. The civil aspect of every criminal case is based on the principle that every person
criminally liable is also civilly liable. A person acquitted of a criminal charge, however, is not
necessarily civilly free because the quantum of proof required in criminal prosecution (proof
beyond reasonable doubt) is greater than that required for civil liability (mere preponderance of
evidence). In order to be completely free from civil liability, a person’s acquittal must be based on
the fact he did not commit the offense. If the acquittal is based merely on reasonable doubt, the
accused may still be held civilly liable since this does not mean he did not commit the act
complained of. It may only be that the facts proved did not constitute the offense charged.

Pura admitted having issued the subject check in the amount of P1,020,000.00 after
Frederick asked her to do it as payment for his obligation with Nissan. Her claim that she issued
the check as a mere "show check" to boost Frederick’s credit standing was not convincing because
there was no credit standing to boost as her son had already defaulted in his obligation to Nissan.
Had it been issued prior to the sale of the vehicle, the "show check" claim could be given credence.
It was not, however, the case here. It was clear that she assumed her son’s obligation with Nissan
and issued the check to pay it.

The crux of the controversy pertains to the civil liability of an accused despite acquittal of
a criminal charge. Such issue is no longer novel. In cases like violation of BP 22, a special law,
the intent in issuing a check is immaterial. Considering the rule in mala prohibita cases, the only
inquiry is whether the law has been breached. Thus, regardless of her intent, she remains civilly
liable because the act or omission, the making and issuing of the subject check, from which her
civil liability arises, evidently exists.