Basic Principles and Jurisprudence on Negotiable Instruments Law 2012 Edition - Piad-libre

1CONCEPTUAL FRAMEWORK

l. Birth/Creation of Negotiable Instruments (sec. 10-29)II. Life (sec. 30-69) Negotiability Holder in due course PartiesIII. Death (sec. 70-189) Proceedings Defenses Discharge

ACT NO. 2031February 03, 1911

THE NEGOTIABLE INSTRUMENTS LAW

IntroductionHistory and Development

The term commercial paper refers to written promises orobligations to pay sums of money that arise from the use of suchinstruments as drafts, promissory notes, checks and tradeacceptances. (The most common instruments are checks andpromissory notes.)4 However, the term commercial paper in itsbroadest sense may refer to either negotiable or non-negotiableinstruments.

During the early part of the Middle Ages, merchants andtraders had to carry gold and silver to pay for the goods theypurchased at the various international fairs. Obviously theseprecious metals were continually subject to loss or theft throughthe perils of travel.5

To eliminate the dangers of this sort, merchants began todeposit their gold and silver with bankers. When they needed

4 Business Law Text and Cases, Second Edition, Howell, Allison, Henley,1981, page 400

5 Ibid.

Basic Principles and Jurisprudence on the Negotiable Instruments Law2

funds to pay for goods they had purchased, they drew on themby giving the seller a written order addressed to the bank, tellingit to deliver part of the gold or silver to the seller. These orders,called bills of exchange, were thus substitutes for money. Today,checks and the drafts and promissory notes that are payable ondemand serve this same basic purpose.6

The second major purpose of commercial paper is to serveas credit device; this came about as a logical extension of theinitial use of commercial paper. Soon after bills of exchangebecame established as substitutes for money, merchants whowished to purchase goods on credit discovered that sellers weresometimes willing to accept bills of exchange that were not payableuntil a stated time in the futuresuch as ninety days after date.If the seller was satisfied as to the commercial reputation of thebills drawer (the purchaser), he would take such an instrument(called a time bill or draft) and wait until the maturity date to collectit. In this way the seller/payee extended credit to the buyer/drawer.7

Soon thereafter ways were devised by which payees couldsell these instruments to third parties, usually banks, and receiveimmediate cash in return. Since the banks would then have towait for the maturity dates before receiving payment, the payeeswould have to sell them the paper at a discountthat is, perhapsfive or ten percent less than the face amount. This meant, ineffect, that the purchasing banks were charging the sellers interestin advance as compensation for their role in the transaction.8

Today, because of the widespread use of time notes anddrafts, the credit aspect of commercial paper is as important tothe business community as its substitute for money aspect.9

The negotiability of bills of exchange and promissory notes

originated in the customs of merchants. The statute of Anne, which

is declaratory of the common law, established the negotiability of

promissory notes.10

6 Ibid. (italics supplied)7 Ibid, pages 401-402.8 Ibid.9 Ibid.10 Laws of Bills and Notes, Charles P. Norton, Third Edition, 1900, p. 1

3Negotiable Instrument; definition

A negotiable instrument is a special contract which on itsface is signed by the maker or drawer, making an unqualifiedpromise or order to pay on demand or at a fixed or determinablefuture time, a sum certain in money, to order or bearer, and whenit is addressed to a drawee, the latter must be named or otherwiseindicated therein with reasonable certainty.

Or simply stated: It is a special contract which complieswith the requirements laid down under Section 1 of the NegotiableInstruments Law.

Purpose of the enactment of the Negotiable Instruments Law

The Negotiable Instruments Law was enacted for thepurpose of facilitating, not hindering or hampering transactions incommercial paper. Thus, the said statute should not be tamperedwith haphazardly or lightly. Nor should it be brushed aside inorder to meet the necessities in a single case.11

Functions of a Negotiable Instrument

1. Substitute for moneymerchants often do not want tocarry cash for fear of loss or theft.

2. Credit devicesome forms of negotiable instrumentsextend credit from one party to another.

3. Recordkeeping devicethese records are used forfinancial statements, tax returns, and the like.

Negotiable Instrument as a substitute for money

The essence of negotiability which characterizes anegotiable paper as a credit instrument lies in its freedom tocirculate freely as a substitute for money.12 (Firestone Tire &Rubber Company of the Philippines vs. Court of Appeals and

Luzon Development Bank, G.R. No. 113236, March 5, 2011,

[Quisumbing, J.])

11 State Investment House, Inc. v. Court of Appeals, 217 SCRA 32 (1993),cited in Osmea vs. Citibank, March 23, 2004

12 Traders Royal Bank vs. Court of Appeals, 269 SCRA 15, 26 (1997)


Since a negotiable instrument is only a substitute for moneyand not money, the delivery of such an instrument does not, byitself, operate as payment (See. 189, Act 2031 on Neg. Inst..; Art.1249, Civil Code; Bryan Landon Co. v. American Bank, 7 Phil.255; Tan Suncor v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check,whether a managers check or ordinary cheek, is not legal tender,and an offer of a check in payment of a debt is not a valid tenderof payment and may be refused receipt by the obligee or creditor.Mere delivery of checks does not discharge the obligation undera judgment. The obligation is not extinguished and remainssuspended until the payment by commercial document is actuallyrealized (Art. 1249, Civil Code, par. 3).13

Words of Negotiability

The language of negotiability which characterize anegotiable paper as a credit instrument is its freedom to circulateas a substitute for money. Hence, freedom of negotiability is thetouchstone relating to the protection of holders in due course,and the freedom of negotiability is the foundation for the protectionwhich the law throws around a holder in due course (11 Am. Jur.2d, 32).

As held in Caltex (Philippines), Inc vs. Court of Appeals,14

The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing,that is, from the face of the instrument itself. In theconstruction of a bill or note, the intention of the parties is tocontrol, if it can be legally ascertained. While the writingmay be read in the light of the surrounding circumstance inorder to more perfectly understand the intent and meaningof the parties, yet as they have constituted the writing to bethe only outward and visible expression of their meaning,no other words are to be added to it or substituted in itsstead. The duty of the court in such case is to ascertain,not what the parties may have secretly intended ascontradistinguished from what their words express, but whatis the meaning of the words they have used. What theparties meant must be determined by what they said.

13 Philippine Airlines, Inc. vs. Court of Appeals, G.R. No. L-49188, Jan. 30,1990, [Gutierrez, J.]

14 G.R. No. 97753, August 10, 1992, 212 SCRA 448, emphasis ours

5Quasi-Negotiable Instruments

In one case, that of Capco vs. Macaset15, the Supreme Courthad an occasion to rule that: [c]ertificates of stocks are consideredas quasi-negotiable instruments. When the owner or shareholderof these certificates signs the printed form of sale or assignmentat the back of every stock certificate without filling in the blanksprovided for the name of the transferee as well as for the name ofthe attorney-in-fact, the said owner or shareholder, in effect,confers on another all the indicia of ownership of the said stockcertificates. (Campos and Lopez-Campos, Notes and Cases onNegotiable Instruments Law, 1971 ed., p 605)

The phrase quasi-negotiable has been termed as unhappyone; and certainly it is far from satisfactory, as it conveys noaccurate, well-defined meaning. But still it described better thanany other short-hand expression the nature of those instrumentswhich, while not negotiable in the sense of the law merchant, areso framed and so dealt with, as frequently to convey as good atitle to the transferee as it they were negotiable. (Daniel, TheElements of Negotiable Instruments Law, page 27)

Very frequently by application of the principles of estoppels,and to effectuate the ends of justice and the intention of the parties,the courts decree a better title to the transferee than actuallyexisted in his transferrer; and the result reached in many cases isthe same as would be reached if the instrument were negotiable.16

Types of Negotiable Instruments.

The Philippine Negotiable Instruments Law was basicallylifted from the provisions of the United States Uniform CurrencyAct, in which Secs. 13-104 thereof specified four types ofinstruments (e.g. drafts, checks, certificates of deposit, and notes).In the Philippine setting, however, Act 2031 (NegotiableInstruments Law) provides for three (e.g., promissory notes, billsof exchange, checks), noteworthy is the inclusion of Drafts andCertificates of Time Deposit through the decisions of the SupremeCourt interpreting our law on negotiable instruments.

15 G.R. No. 90888, September 13, 199016 Railroad Co. v. Howard, 7 Wall. 415


At present, in Philippine jurisdiction, we generally recognizefive types of negotiable instruments, to wit:

1. Promissory Notes17

2. Bills of Exchange18

3. Check19

4. Draft20

5. Certificates of Time Deposit21

2002 Bar Question:

A. Define the following: (1) a negotiable promissorynote, (2) a bill of exchange and (3) a check. (3%)

B. You are Pedro Cruz. Draft the appropriate contractlanguage for (1) your negotiable promissory note and(2) your check, each containing the essentialelements of a negotiable instrument. (2%)

ANSWER:

A. (1) Sec. 184, Act. 2031it is an unconditional promisein writing made by one person to another, signed bythe maker, engaging to pay on demand, or at a fixedor determinable future time, a sum certain in moneyto order or to bearer.

(2) Sec. 126, Act 2031is an unconditional order inwriting addressed by one person to another, signedby the person giving it, requiring the person to whomit is addressed to pay on demand or at a fixed ordeterminable future time a sum certain in money toorder or to bearer.

(3) Sec. 185, Act 2031it is a bill of exchange drawnon a bank payable on demand.

17 Sec. 184, Act 2031, Negotiable Instruments Law.18 Sec. 126, ibid.19 Sec. 185, ibid.20 BPI vs. Commissioner of Internal Revenue,21 Caltex (Philippines), Inc. vs. Court of Appeals, G.R. No. 97753, August 10,

1992.

7B. (1) September 1, 2002

I promise to pay Pancho Dela Torre, or order,ONE HUNDRED THOUSAND PESOS (Php100,000.00), on December 25, 2002.

(Sgd)Pedro Cruz

(2) Bank of the Philippine Islands-Malate, ManilaSeptember 1, 2002

Pay to the order of Pancho Dela Torre, theamount of ONE HUNDRED THOUSAND PESOS(Php 100,000.00).

(Sgd)Pedro Cruz

1. What is a Promissory Note?

It is an unconditional promise in writing made by one personto another, signed by the maker, engaging to pay on demand, orat a fixed or determinable future time, a sum certain in money toorder or to bearer. (Sec. 184, Negotiable Instruments Law)

In the case of Pentacapital Investment Corporation vs.Makilito B. Mahinay,22 citing Sierra vs. Court of Appeals,23 it washeld that:

A promissory note is a solemn acknowledgment of a debtand a formal commitment to repay it on the date and underthe conditions agreed upon by the borrower and the lender.A person who signs such an instrument is bound to honor itas a legitimate obligation duly assumed by him through thesignature he affixes thereto as a token of his good faith. Ifhe reneges on his promise without cause, he forfeits thesympathy and assistance of this Court and deserves insteadits sharp repudiation.

22 G.R. No. 171736, July 5, 2010, [Nachura, J.:]23 G.R. No. 90270, July 24, 1992, 211 SCRA 785, 795


Test to determine a promissory note

To constitute a good promissory note, no precise words ofcontract are necessary, provided they amount, in legal effect, to apromise to pay. In other words, if over and above the mereacknowledgment of the debtor there may be collected from thewords used a promise to pay it, the instrument may be regardedas a promissory note. (Jimenez vs. Bucoy, G.R. No. L-10221,February 28, 1958, [Bengzon, J.])

Due A. B. $325, payable on demand, or I acknowledgemyself to be indebted to A in $ 109, to be paid on demand, forvalue received, or I.O.U. $85 to be paid on May 5th, are held tobe promissory notes, significance being given to words of paymentas indicating a promise to pay. (1 Daniel Neg. Inst., see 39 andcases cited [Cowan vs. Hallack, (Colo.) 13 Pacific Reporter 700,

703) (Supra)

An acknowledgment may become a promise by the additionof words by which a promise of payment is naturally implied, suchas, payable, payable on a given day, payable on demand,paidwhen called for,(10 Corpus Juris Secundump p. 523.)(supra)

Who are the parties to a Promissory Note?

The maker, he is the person who drafted and issued thepromissory note, and made a promise that upon demand or at afixed or determinable future time, he will pay a sum certain inmoney to order or to bearer to the holder of the instrument or to aholder in due course.

The payee, is the person in whose favor the promissorynote was issued.

Intimidation, vitiation of consent in promissory notes

Carmela Brobio Mangahas vs. Eufrocina BrobioG.R. No. 183852, October 20, 2010

NACHURA, J.:

9FACTS: On January 10, 2002, Pacifico S. Brobio (Pacifico) diedintestate, leaving three parcels of land. He was survivedby his wife, respondent Eufrocina A. Brobio, and fourlegitimate and three illegitimate children; petitionerCarmela Brobio Mangahas is one of the illegitimatechildren.

On May 12, 2002, the heirs of the deceased executeda Deed of Extrajudicial Settlement of Estate of the LatePacifico Brobio with Waiver. In the Deed, petitioner andPacificos other children, in consideration of their loveand affection for respondent and the sum ofP150,000.00, waived and ceded their respective sharesover the three parcels of land in favor of respondent.According to petitioner, respondent promised to giveher an additional amount for her share in her fathersestate. Thus, after the signing of the Deed, petitionerdemanded from respondent the promised additionalamount, but respondent refused to pay, claiming thatshe had no more money.

A year later, while processing her tax obligations withthe Bureau of Internal Revenue (BIR), respondent wasrequired to submit an original copy of the Deed. Leftwith no more original copy of the Deed, respondentsummoned petitioner to her office on May 31, 2003and asked her to countersign a copy of the Deed.Petitioner refused to countersign the document,demanding that respondent first give her the additionalamount that she promised. Considering the value ofthe three parcels of land (which she claimed to be worthP20M), petitioner asked for P1M, but respondentbegged her to lower the amount. Petitioner agreed tolower it to P600, 000.00. Because respondent did nothave the money at that time and petitioner refused tocountersign the Deed without any assurance that theamount would be paid, respondent executed apromissory note. Petitioner agreed to sign the Deedwhen respondent signed the promissory note whichread


31 May 2003

This is to promise that I will give [a] (sic) FinancialAssistance to CARMELA B. MANGAHAS the amountof P600,000.00 Six Hundred Thousand only on June15, 2003.

(SGD)EUFROCINA A. BROBIO

When the promissory note fell due, respondent failedand refused to pay despite demand. Petitioner madeseveral more demands upon respondent but the latterkept on insisting that she had no money.

ISSUES: Was intimidation used to execute the promissory notesubject of the case?

RULING: Contracts are voidable where consent thereto is giventhrough mistake, violence, intimidation, undueinfluence, or fraud. In determining whether consent isvitiated by any of these circumstances, courts are givena wide latitude in weighing the facts or circumstancesin a given case and in deciding in favor of what theybelieve actually occurred, considering the age, physicalinfirmity, intelligence, relationship, and conduct of theparties at the time of the execution of the contract andsubsequent thereto, irrespective of whether the contractis in a public or private writing.

Nowhere is it alleged that mistake, violence, fraud, orintimidation attended the execution of the promissorynote. Still, respondent insists that she was forced intosigning the promissory note because petitioner wouldnot sign the document required by the BIR. In one case,the Court in characterizing a similar argument byrespondents therein held that such allegation istantamount to saying that the other party exerted undueinfluence upon them. However, the Court said that thefact that respondents were forced to sign thedocuments does not amount to vitiated consent.

11

There is undue influence when a person takes improperadvantage of his power over the will of another,depriving the latter of a reasonable freedom of choice.For undue influence to be present, the influence exertedmust have so overpowered or subjugated the mind ofa contracting party as to destroy his free agency,making him express the will of another rather than hisown.

Respondent may have desperately needed petitionerssignature on the Deed, but there is no showing thatshe was deprived of free agency when she signed thepromissory note. Being forced into a situation does notamount to vitiated consent where it is not shown thatthe party is deprived of free will and choice. Respondentstill had a choice: she could have refused to executethe promissory note and resorted to judicial means toobtain petitioners signature. Instead, respondent choseto execute the promissory note to obtain petitionerssignature, thereby agreeing to pay the amountdemanded by petitioner.

Contrary to the CAs findings, the situation did notamount to intimidation that vitiated consent. There isintimidation when one of the contracting parties iscompelled to give his consent by a reasonable andwell-grounded fear of an imminent and grave evilupon his person or property, or upon the personor property of his spouse, descendants, orascendants. Certainly, the payment of penalties fordelayed payment of taxes would not qualify as areasonable and well-grounded fear of an imminentand grave evil. (emphasis supplied) We join the RTCin holding that courts will not set aside contracts merelybecause solicitation, importunity, argument,persuasion, or appeal to affection was used to obtainthe consent of the other party. Influence obtained bypersuasion or argument or by appeal to affection is notprohibited either in law or morals and is not obnoxiouseven in courts of equity.


Question:

Does the reference to the penalty charges in thepromissory note constitute substantial compliance withthe disclosure requirement of the Truth in Lending Act?

ANSWER:

Yes.

The Court has affirmed that financial charges are amplydisclosed if stated in the promissory note.

In the case of Development Bank of the Philippines vs.Arcilla, Jr. The Court there said, Under Circular 158 of the CentralBank, the lender is required to include the information requiredby R.A. 3765 in the contract covering the credit transaction or anyother document to be acknowledged and signed by the borrower.In addition, the contract or document shall specify additionalcharges, if any, which will be collected in case certain stipulationsin the contract are not met by the debtor. In this case, thepromissory notes signed by the Yus contained data, includingpenalty charges, required by the Truth in Lending Act. They cannotavoid liability based on a rigid interpretation of the Truth in LendingAct that contravenes its goal. (Bank of the Philippine Islands, Inc.vs. Sps Yu, G.R. No. 184122 January 20, 2010, [Abad, J.])

2. Bill of Exchange defined.

A Bill of Exchange is an unconditional order in writingaddressed by one person to another, signed by the person givingit, requiring the person to whom it is addressed to pay on demandor at a fixed or determinable future time a sum certain in moneyto order or to bearer. (Sec. 126, Negotiable Instruments Law)

In the once celebrated case of Manuel Bastida vs. The ActingCommissioner of Customs and The Court of Tax Appeals,24 it washeld that:

[A]s bills exchange they are, fundamentally, negotiableinstruments. And a negotiable instrument is more like

24 G.R. No. L-24011, October 24, 2970, [Castro, J:]

13

money than a contract right or chose in action.25 Assuch, it may be the subject of conversion (Knight vs. Seney290 Ill. 11) or of replevin (Rothwell vs. Taylor 303 Ill. 263.)26

it may also be the subject of sale, like any other goods orwares.27 As the Tax Court aptly observed, checks may bebought and sold like a commodity. As a matter of fact in theUnited States the deposit of a check with a bank isconsidered a sale (Helvering vs. Stein [CA 4] 115 F 2d 468;Burton vs. United States, 196 US 283, 49 L ed 482). Moneyorders, also considered as bills of exchange of limitednegotiability, possess the same attributes as othernegotiable instruments. Thus, they may, be bought and soldlike checks. (emphasis supplied)

As long as a commercial paper conforms with the definitionof a bill of exchange, that paper is considered a bill of exchange.The nature of acceptance is important only in thedetermination of the kind of liabilities of the parties involved,but not in the determination of whether a commercial paperis a bill of exchange or not. (Philippine Bank of Commerce vs.Aruego, G.R. No. L-25836-37, January 31, 1981, [Fernandez, J.])(emphasis supplied)

Illustrative Case:

Philippine Bank of Commerce vs. Jose M. AruegoG.R. Nos. L-25836-37, January 31, 1981

FERNANDEZ, J.:

FACTS: On December 1, 1959, the Philippine Bank ofCommerce instituted an action against Jose M. AruegoCivil Case No. 42066 for the recovery of the total sumof about P35, 000.00 with daily interest thereon fromNovember 17, 1959 until fully paid and commissionequivalent to 3/8% for every thirty (30) days or fractionthereof plus attorneys fees equivalent to 10% of thetotal amount due and costs. The complaint filed by thePhilippine Bank of Commerce contains Twenty-Two

25 Ludwig Teller, Bills and Notes, p. 6 (1948)26 Ibid., pp. 6-727 Ibid., p. 7


(22) causes of action referring to Twenty-Two (22)transactions entered into by the said Bank and Aruegoon different dates covering the period from August 28,1950 to March 14, 1951. The sum sought to berecovered represents the cost of the printing of WorldCurrent Events, a periodical published by thedefendant. To facilitate the payment of the printing thedefendant obtained a credit accommodation from theplaintiff. Thus, for every printing of the World CurrentEvents, the printer Encal Press and Photo Engraving,collected the cost of printing by drawing a draft againstthe plaintiff, said draft being sent later to the defendantfor acceptance. As an added security for the paymentof the amounts advanced to Encal Press and PhotoEngraving, the plaintiff bank also required thedefendant Aruego to execute a trust receipt in favor ofsaid bank wherein said defendant undertook to hold intrust for plaintiff the periodicals and to sell the samewith the promise to turn over to the plaintiff the proceedsof the sale of said publication to answer for the paymentof all obligations arising from the draft.

Defendant contends that the drafts signed by him werenot really bills of exchange but mere pieces of evidenceof indebtedness because payments were made beforeacceptance.

ISSUE: Is his contention tenable?

RULING: The contention is without merit.Under the NegotiableInstruments Law, a bill of exchange is an unconditionalorder in writing addressed by one person to another,signed by the person giving it, requiring the person towhom it is addressed to pay on demand or at a fixed ordeterminable future time a sum certain in money toorder or to bearer. As long as a commercial paperconforms with the definition of a bill of exchange, thatpaper is considered a bill of exchange. The nature ofacceptance is important only in the determination ofthe kind of liabilities of the parties involved, but not inthe determination of whether a commercial paper is abill of exchange or not.

15

From the definition, does the bill of exchange operate as anassignment of funds in the hands of the drawee?

A bill in itself does not operate as an assignment of thefunds in the hands of the drawee available for the payment thereof.(Sec. 127, Negotiable Instruments Law)

Doctrine of Equitable Assignment

The doctrine of equitable assignment is the creature of courtsof equity, and the phrase equitable assignment is used because,by the technicalities of pleadings at law, no legal assignment canbe effectuated.28 It is contended that the bill, whether for the wholeof the fund or debt, or only a part, may be evidence to show anassignment; and that with other circumstances indicating that suchwas the intention, will vest in the holder an exclusive claim to thedebt or fund, and bind it in the hands of the drawee after notice.29

The bill for the entire amount of debt or fund should operate as anequitable assignment thereof.30

Moreover, it may be regarded as a settled doctrine that anorder founded upon a good consideration, given for a specificdebt or fund owing by or in the hands of a third person, operatesas, or rather is evidence of, an equitable assignment of the demandto the holder.31

Who are the parties to a bill of exchange?

The drawer, is the person drawing an instrument makingan unconditional order in writing to the drawee, requiring him topay on demand or at a fixed or determinable future time a sumcertain in money to order or to bearer.

The drawee, is the person being required by the drawerto pay on demand or at a fixed or determinable future time asum certain in money to the payee, or his order, or to the bearerof the instrument.

28 Bank of Commerce v. Bogy, 44 Mo. 15; Grammel v. Cramer, 55 Mich. 20129 Daniel on Negotiable Instruments, page 18; Mandeville v. Welch, 5 Whaet.

277; Buckner v. Sayre, 17 B. Monroe, 754, cited in the Elements ofNegotiable Instruments Law, Daniel, page 8

30 Supra31 The Elements of Negotiable Instruments Law, Daniel, page 9


The payee, is the person in whose favor the bill of exchangewas issued.

What is the rule if the Bill of Exchange is addressed to morethan one drawee?

A bill may be addressed to two or more drawees jointly,whether they are partners of not.

But not to two or more drawees in the alternative or insuccession.

Example:

To: Lancelot Borja and/or Margaux BorjaBo. Obrero, Iloilo City

In the above instance, the drawee is addressed to two ormore persons jointly, whether they are partners or not. Thus,payment of any one of them extinguishes the entire obligation.

To: Lancelot Borja, and in his incapacity or insolvency,Margaux Borja;

Lancelot Borja, Margaux Borja, or Mizpah Borja insuccession.

In the second instance, the bill was addressed to two ormore drawees in the alternative or in succession, such is notallowed under the law.

Bills of exchange are either foreign or inland

Foreign Bill of Exchangewhen drawn in one State orcountry, and made payable in another State or country;32

Inland Bill of Exchangewhen drawn, and made payable,in the same State or country.33

32 The Elements of Negotiable Instruments Law, Daniel, page 533 Ibid

17

Difference between bills and notes

In their original structure, a bill of exchange and a promissorynote do not strongly resemble each other. In a bill, there arethree original parties: drawer, drawee, and payee; in a note onlytwo: maker and payee. In a bill the acceptor is the primary debtor.In a note the maker is the only debtor. But if the note be transferredto a third party by the payee, it becomes strikingly similar to a bill.The indorser becomes then, as it were, the drawer; the maker,the acceptor; and the indorsee, the payee.34 (The Elements of theLaw of Negotiable Instruments, by: John W. Daniel, 1908)

Bank notes or bank bills

Bank notes or bank bills (as they are equally as often called)are the promissory notes of incorporated banks, designed tocirculate like money, and payable to bearer on demand.35

The terms bank notes and bank bills are of the likesignification, and for the purposes of interpretation, both in criminaland civil jurisprudence, are equivalent and interchangeable.36

In form and substance they are promissory notes, and theyare governed by very many of the principles which apply to thenegotiable notes of individuals given in the course of trade. Butthey are designed to constitute a circulating medium, and thiscircumstance imparts to them peculiar characteristics, andessentially varies the rules which govern promissory notes ingeneral. They have been held not securities for money, but moneyitself.37

Chief Characteristics of

Bank Bills

Always payable on demand;38

34 Daniel on Negotiable Instruments, page 2935 The Elements of Negotiable Instruments Law, Daniel, page 15 (Bold

supplied)36 Ibid37 Soutcot v. Watson, 3 Atk. 226; Daniel on Negotiable Instruments, page

1664, ibid38 Daniel on Negotiable Instruments, page 1666


Usually payable to bearer, though sometimes expressedto be payable to a person named or bearer;39

A lawful tender in payment of debts, unless objected tobecause they are not money.40

Bank Notes

Are not, legally speaking, money, but in a popular senseare often spoken of as money, and are conventionallyused in its stead with the like effect.41

3. Draft, defined.

A draft is a form of a bill of exchange used mainly intransactions between persons physically remote from each other,an order made by one person, say the buyer of goods, addressedto a person having in his possession funds of such buyer orderingthe addressee to pay the purchase price to the seller of the goods,and where the order is made by one bank to another, it is referredto as a bank draft. (Bank of the Philippine Islands vs. Commissionof Internal Revenue, 496 SCRA 601)

In order for a draft to work, one of two general conditionsmust exist. Either the drawee must owe the drawer a debt (inwhich case the drawer is simply telling the drawee to pay the debtor a portion of it to a third party) or some kind of agreement orrelationship must exist between the parties under which thedrawee has consented to the drawing of the draft upon him orher. If neither of these conditions existed, obviously the draweewould not obey the order to pay the amount of the draft to thepayee or to any subsequent holder of the instrument.42

A trade acceptance is a draft or bill of exchange drawn bythe seller of the goods on the purchaser of those goods andaccepted (signed) by the purchaser. The purpose of thetransaction is to enable the seller to raise money on the paperbefore the purchasers obligation matures under the salescontract.43

39 Ibid, page 166540 Ibid, page 1672a41 Ibid, page 167242 Business Law Text and Cases, Second Edition, Howell, Allison, Henley,

1981, page 402

19

To illustrate, X corporation has sold goods to Y company.Due to the fact that Y company still wishes to utilize the cashinstead of paying in cash, X corporation (drawer) draws a tradeacceptance on Y company for the purchase of the goods. Theinstrument orders Y company to pay the amount due to the orderof X corporation on a particular future time. It is then presented toan officer of Y company who accepts it by signing the same andreturns it to X corporation. The acceptance in effect, would be apromise of Y company to pay X corporation when the samebecomes due. It can now be negotiated to a third person, say Xcorporations bank and receives cash immediately.

Nature of Draft, as distinguished from Bill of Exchange

The case of Republic of the Philippines vs. PhilippineNational Bank, et al44, laid down a detailed discussion of thenature of Drafts, to wit:

To begin with, we may say that a demand draft is a bill ofexchange payable on demand (Arnd vs. Aylesworth, 145 Iowa185; Ward vs. City Trust Company, 102 N.Y.S. 50; Bank of

Republic vs. Republic State Bank, 42 S.W. 2d, 27). Consideredas a bill of exchange, a draft is said to be, like the former, an openletter of request from, and an order by, one person on another topay a sum of money therein mentioned to a third person, ondemand or at a future time therein specified (13 Words andPhrases, 371). As a matter of fact, the term draft is often used,and is the common term, for all bills of exchange. And the wordsdraft and bill of exchange are used indiscriminately (Ennis vs.Coshoctan Nat. Bank, 108 S.E., 811; Hinnermann vs. Rosenback,

39 N.Y. 98, 100, 101; Wilson vs. Bechenau, 48 Supp. 272, 275).

On the other hand, a bill of exchange within the meaning ofour Negotiable Instruments Law (Act No. 2031) does not operateas an assignment of funds in the hands of the drawee who is notliable on the instrument until he accepts it. This is the clear importof Section 127. It says: A bill of exchange of itself does not operateas an assignment of the funds in the hands of the drawee availablefor the payment thereon and the drawee is not liable on the billunless and until he accepts the same. In other words, in order

43 Ibid.44 G.R. No. L-16106, December 30, 1961


that a drawee may be liable on the draft and then becomeobligated to the payee it is necessary that he first acceptsthe same. In fact, our law requires that with regard to drafts orbills of exchange there is need that they be presented whetherfor acceptance or for payment within a reasonable time after theirissuance or after their last negotiation thereon as the case maybe (Section 71, Act 2031). Failure to make such presentment willdischarge the drawer from liability or to the extent of the losscaused by the delay (Section 186, Ibid.) (emphasis supplied)

Since it is admitted that the demand drafts herein involvedhave not been presented either for acceptance or for payment,the inevitable consequence is that the appellee bank never hadany chance of accepting or rejecting them. Verily, appellee banknever became a debtor of the payee concerned and as such theaforesaid drafts cannot be considered as credits subject to escheatwithin the meaning of the law.

Demand Draft distinguished from a cashiers or managerscheck

In the very same case of Republic of the Philippines vs.Philippine National Bank, et al, it has been held that: a demanddraft is very different from a cashiers or managers check, contraryto appellants pretense, for it has been held that the latter is aprimary obligation of the bank which issues it and constitutes itswritten promise to pay on demand. Thus, a cashiers check hasbeen clearly characterized In Re Bank of the United States, 277N.Y.S. 96, 100, as follows:

A cashiers check issued by a bank, however, is not anordinary draft. The latter is a bill of exchange payable ondemand. It is an order upon a third party purporting to drawnupon a deposit of funds. (Drinkall vs. Movious State Bank,11 N.D. 10, 88 N.W. 724, 57 L.R.A. 341, 95 Am. St. Rep.

693; State vs. Tyler County State Bank (Tex. Com. App.)

277 S.W. 625, 42 A.L.R. 1347). A cashiers check is of avery different character. It is the primary obligation of thebank which issues it (Nissenbaum vs. State, 38 Ga. App.253, S.E. 776) and constituted its written promise to payupon demand (Steinmetz vs. Schultz, 59 S.D. 603, 241N.W. 734)

21

The following definitions cited by the appellant also confirmthis view:

A cashiers check is a check of the banks cashier on his oranother bank. It is in effect a bill of exchange drawn by abank on itself and accepted in advance by the act of issuance(10 C.J.S. 409)

A cashiers check issued on request of a depositor is thesubstantial equivalent of a certified check and the depositrepresented by the check passes to the credit of thecheckholder, who is thereafter a depositor to that amount.(Lummus Cotton Gin Co. vs. Walker, 70 So. 754, 756, 195Ala. 552)

A cashiers check, being merely bill of exchange drawn bya bank on itself, and accepted in advance by the act ofissuance, is not subject to countermand by the payee afterindorsement, and has the same legal effects as a certificatedeposit or a certified check. (Walker vs. Sellers, 77 So. 715;201 Ala. 189)

A demand draft is not therefore of the same category as acashiers check which should come within the purview of the law.

4. Certificates of Time Deposit; Negotiable Instrument.

A certificate of deposit is a receipt of a bank or banker for acertain sum of money received upon deposit, and it is generallyframed in such a form as to constitute a promissory note, payableto the depositor, or to the depositor or order, or to bearer. (TheElements of Negotiable Instruments Law, Daniel, page 16)

In order, however, to be negotiable, a certificate of depositmust possess the requisite features of certainty in respect toparties, and time and mode of payment and the same causeswhich deprive bills and notes of negotiability would affect it in likemanner. (ibid)

Illustrative case:

Caltex (Philippines), Inc. vs. Court of Appeals and SecurityBank and Trust Company


G.R. No. 97753, August 10, 1992

REGALADO, J.:

Facts: On various dates Security Bank and Trust Company(SBTC) issued 280 certificates of time deposit (CTD)in favor of one Angel dela Cruz who deposited withSBTC the aggregate amount of Php 1,200,000.00. Asample text of the certificates of time deposit isreproduced below:

SECURITY BANKAND TRUST COMPANY6778 Ayala Ave., Makati No. 90101Metro Manila, PhilippinesSUCAT OFFICEP 4,000.00CERTIFICATE OF DEPOSITRate 16%

Date of Maturity FEB. 23, 1984 FEB 22,1982, 19____.

This is to Certify that BEARER has depositedin this Bank the sum of PESOS: FOURTHOUSAND ONLY, SECURITY BANK SUCATOFFICE P4,000 & 00 CTS Pesos, PhilippineCurrency, repayable to said depositor 731 days.after date, upon presentation and surrender ofthis certificate, with interest at the rate of 16%per cent per annum.

(Sgd. Illegible) (Sgd. Illegible)___________ ___________AUTHORIZED SIGNATURES

Angel dela Cruz delivered the said CTDs to Caltex(Philippines) Inc. (Caltex) in connection with hispurchased of fuel products from the latter. Sometimein March 1982, Angel dela Cruz informed SBTC thathe lost all the certificates of time deposit in dispute.On March 25, 1982, Angel dela Cruz negotiated andobtained loan from defendant bank in the amount ofPhp 875,000.00. On the same date, said depositor

23

executed a notarized Deed of Assignment of TimeDeposit stated, among others, that dela Cruzsurrenders to SBTC full control of the indicated timedeposits from and after date of the assignment andfurther authorizes said bank to pre-terminate, set-offand apply the said time deposits to the payment ofwhatever amount or amounts may be due on the loanupon its maturity.

Sometime in 1982, plaintiffs agent went to thedefendant bank and presented for verification the CTDdeclared lost by Angel dela Cruz alleging that the samewere delivered to herein plaintiff as security forpurchases made with Caltex. On November 26 1982,defendant received a letter from herein plaintiff formallyinforming it of its possession of the CTDs in questionand of its decision to pre-terminate the same.Accordingly, defendant bank rejected the plaintiffsdemand and claim for payment of value of the CTDs.In April 1983, the loan in the amount of Php 875,000.00with defendant bank matured and fell due, and the latterset-off and applied the time deposits in question to thepayment of the matured loan.

Plaintiff filed the instant complaint praying that thedefendant bank be ordered to pay it the aggregate valueof the certificates of time deposit of Php 1,120,000.00plus interest and compounded interest therein at 16%per annum, moral and exemplary damages as well asattorneys fees.Trial court rendered its decisiondismissing the instant complaint.

Issue: Whether or not the Certificates of Time Deposit areconsidered as negotiable instruments?

Ruling: The CTDs in question are negotiable instruments.Section 1 Act No. 2031, otherwise known as theNegotiable Instruments Law, enumerates the requisitesfor an instrument to become negotiable.

The CTDs in question undoubtedly meet therequirements of the law for negotiability. The parties


bone of contention is with regard to requisite (d) setforth above. x x x

The documents provide that the amounts depositedshall be repayable to the depositor. And who, accordingto the document, is the depositor? It is the bearer.The documents do not say that the depositor is Angeldela Cruz and that the amounts deposited arerepayable specifically to him. Rather, the amounts areto be repayable to the bearer of the documents or, forthat matter, whosoever may be the bearer at the timeof presentment.

x x x

On this score, the accepted rule is that the negotiabilityor non-negotiability of an instrument is determined fromthe writing, that is, from the fact of the instrument itself45.In the construction of a bill or note, the intention of theparties is to control, if it can be legally ascertained.46

While the writing may be read in the light of thesurrounding circumstances in order to prove perfectlyunderstanding the intent and meaning of the parties,yet as they have constituted the writing to be the onlyoutward and visible expression of their meaning, noother words are to be added to it or substituted instead.The duty of the court in such case is to ascertain, notwhat the parties may have secretly intended ascontradistinguished from what their words express, butwhat is the meaning of the words they have used. Whatthe parties meant must be determined by what theysaid.47

Certificates of Time Deposit; Issued without ValuableConsideration; Not Covered by the Philippine DepositInsurance Corporation.

45 11 Am. Jur. 2d, Bills and Notes, 79.46 Ibid, 86.47 Ibid, 87-88.

25

Illustrative Case:

Philippine Deposit Insurance Corporation vs.Court of Appeals and John Francis Cotaoco

G.R. No. 118917, December 22, 1997

KAPUNAN, J:

Petitioner Philippine Deposit Insurance Corporation (PDIC)seeks the reversal of the decision of the Court of Appeals affirmingwith modification the decision of the Regional Trial Court holdingpetitioner liable for the value of thirteen (13) certificates of timedeposit (CTDs) in the possession of private respondents.

The facts, as found by the Court of Appeals, are as follows:

On September 22, 1983, plaintiffs-appellees invested inmoney market placements with the Premiere FinancingCorporation (PFC) in the sum of P10,000.00 each for whichthey were issued by the PFC corresponding promissorynotes and checks. On the same date (September 22, 1983),John Francis Cotaoco, for and in behalf of plaintiffs-appellees, went to the PFC to encash the promissory notesand checks, but the PFC referred him to the Regent SavingBank (RSB). Instead of paying the promissory notes andchecks, the RSB, upon agreement of Cotaoco, issued thesubject 13 certificates of time deposit with Nos. 09648 to09660, inclusive, each stating, among others, that the samecertifies that the bearer thereof has deposited with the RSBthe sum of P10,000.00; that the certificate shall bear 14%interest per annum; that the certificate is insured up toP15,000.00 with the PDIC; and that the maturity date thereofis on November 3, 1983 (Exhs. B, B-1 to B-12).

On the aforesaid maturity dated (November 3, 1983),Cotaoco went to the RSB to encash the said certificates.Thereat, RSB Executive Vice President Jose M. Damianrequested Cotaoco for a deferment or an extension of afew days to enable the RSB to raise the amount to pay forthe same (Exh. D). Cotaoco agreed. Despite saidextension, the RSB still failed to pay the value of thecertificates. Instead, RSB advised Cotaoco to file a claimwith the PDIC.


Meanwhile, on June 15, 1984, the Monetary Board of theCentral Bank issued Resolution No. 788 (Exh. 2, Records,p. 159) suspending the operations of the RSB. Eventually,the records of RSB were secured and its deposit liabilitieswere eventually determined. On December 7, 1984, theMonetary Board issued Resolution No. 1496 (Exh. 1)liquidating the RSB. Subsequently, a masterlist or inventoryof the RSB assets and liabilities was prepared. However,the certificates of time deposit of plaintiffs-appellees werenot included in the list on the ground that the certificateswere not funded by the PFC or duly recorded as liabilitiesof RSB.

On September 4, 1984, plaintiffs-appellees filed with thePDIC their respective claims for the amount of the certificates(Exhs. C, C-1 to C-12). Sabina Yu, James Ngkaion,Elaine Ngkaion and Jeffrey Ngkaion, who have similarclaims on their certificates of time deposit with the RSB,likewise filed their claims with the PDIC. To their dismay,PDIC refused the aforesaid claims on the ground that theTraders Royal Bank Check No. 299255 dated September22, 1983 for the amount of P125,846.07 (Exh. B) issuedby PFC for the aforementioned certificates was returned bythe drawee bank for having been drawn against insufficientfunds; and said check was not replaced by the PFC, resultingin the cancellation of the certificates as indebtedness orliabilities of RSB.48

Consequently, on March 31, 1987, private respondents filedan action for collection against PDIC, RSB and the Central Bank.

On September 14, 1987, the trial court, declared the CentralBank in default for failing to file an answer.

On May 29, 1989, the trial court rendered its decisionordering the defendants therein to pay plaintiffs, jointly andseverally, the amount corresponding to the latters certificates oftime deposit.

Both PDIC and RSB appealed. The Central Bank, on theother hand, filed a petition for certiorari, prohibition and mandamus

48 Rollo, pp. 30-31.

27

before the Court of Appeals praying that the writ of executionissued by the trial court against it be set aside.

On February 8, 1995, the Court of Appeals rendered itsdecision granting the Central Banks petition but dismissing theappeals of PDIC and RSB. Hence, this petition by PDIC assigningthe following errors:

I

THE CA ERRED IN HOLDING THAT THE SUBJECT CTDSARE NEGOTIABLE INSTRUMENTS

II

THE CA ERRED IN HOLDING THAT THE CTDS WEREACQUIRED FOR VALUE AND CONSIDERATION

III

THE CA ERRED WHEN IT HELD THAT BECAUSE THE CTDSSTATE THAT THESE WERE INSURED PETITIONER

SHOULD BE HELD LIABLE FOR THE SAME.

We deal jointly with petitioners first and third assignederrors.

Relying on this Courts ruling in Caltex (Philippines), Inc. v.Court of Appeals and Security Bank and Trust Company,49 theCourt of Appeals concluded that the subject CTDs are negotiable.Petitioner, on the other hand, contends that the CTDs are non-negotiable since they do not contain an unconditional promise ororder to pay a sum certain in money nor are they made payableto order or bearer, as required by Section 1 of the NegotiableInstruments Law.

Whether the CTDs in question are negotiable or not is,however, immaterial in the present case. The Philippine DepositInsurance Corporation was created by law and, as such, isgoverned primarily by the provisions of the special law creatingit.50 The liability of the PDIC for insured deposits therefore is

49 212 SCRA 448 (1992).50 Section 4, Corporation Code.


statutory and, under Republic Act No. 3591,51 as amended, suchliability rests upon the existence of deposits with the insured bank,not on the negotiability or non-negotiability of the certificatesevidencing these deposits.

The authority for this conclusion finds support in decisionsby American state courts applying their respective bank guarantylaws. Invariably, the plaintiffs in these cases argued that thenegotiability of the certificates of deposit in their possessionentitled them to be paid out of the bank guaranty fund, a contentionthat the courts uniformly rejected.

Thus, the plaintiffs in Fourth Nat. Bank of Wichita v. Wilson52

argued that:

. . . the court should hold the certificates to be guaranteedbecause they are negotiable instruments, and were acquiredby the present holders in due course; otherwise it is saidcertificates of deposit will be deprived of the quality ofcommercial paper. Certificates of deposit have beenregarded as the highest form of collateral. They are of widecurrency in the banking and business worlds, and areparticularly useful to persons of small means, because theybear interest, and may be readily cashed; therefore todeprive them of the benefit of the guaranty fund would be acalamity. . . .

The Supreme Court of Kansas, however, found the plaintiffscontention to be without merit, ruling thus:

. . . The argument confuses negotiability of commercial paperwith statutory guaranty of deposits. The guaranty issomething extrinsic to all forms of evidence of bankobligation; and negotiability of instruments has nodependence on existence or nonexistence of the guaranty.

. . . Whatever the status of the plaintiffs may be as holdersin due course under the Negotiable Instruments Law, theycannot be assignees of a deposit which was not made, and

51 Entitled An Act Establishing The Philippine Deposit Insurance Corporation,Defining Its Powers And Duties And For Other Purposes.

52 204 Pac. 715 (1992), 110 Kan. 380.

29

cannot be entitled to the benefit of a guaranty which did notcome into existence. . . .

In arriving at the above decision, the Kansas Supreme Courtrelied on its earlier ruling in American State Bank v. Foster,53 whicharose from the same facts as the Fourth National Bank case.There, the Court held:

. . . Even if the plaintiff were to be regarded as an innocentpurchaser of the certificates as negotiable instruments, itssituation would be in no wise bettered so far as relate to aclaim against the guaranty fund. The fund protects depositsonly. And if no deposit is made, or no deposit within theprotection of the guaranty law, the transfer of a certificatecannot impose a liability on the fund. . . . where a certificateof deposit is given under such circumstances that it is notprotected by the guaranty fund, although that fact is notindicated by anything on its face, its indorsement to aninnocent holder cannot confer that quality upon it.

In like fashion did the Supreme Court of Nebraska brushaside a similar contention in State v. Farmers Stale Bank:54

In this contention we think the appellants fail to distinguishbetween the liability of the maker of a negotiable instrument,which rests upon the law pertaining to negotiable paper,and the liability of the guaranty fund, which is purely statutory.The circumstances under which the guaranty fund may beliable are entirely apart from the law pertaining to negotiablepaper. A holder of a certificate of deposit in a bank whoseeks to hold the guaranty fund liable for its payment mustshow that the transaction leading up to the issuance of thecertificate was such that the law holds the guaranty fundliable for its payment. . . .

The Farmers State Bank ruling was reiterated by theNebraska Supreme Court in State v. Home State Bank of Dunning55

and in State v. Kilgore State Bank.56 The same ruling was adoptedby the Supreme Court of South Dakota in Mildenstein v. Hirning.57

53 204 Pac. 709, 110 Kan. 520 (1922).54 196 N.W. 908, 111 Neb. 117 (1923).55 201 N.W. 971, 113 Neb. 93 (1925).56 205 N.W. 297 (1925).


In the case at bar, the Court of Appeals initially found thesubject CTDs to be negotiable. Subsequently, however,respondent court deemed the issue immaterial, albeit for entirelydifferent reasons.

. . . Besides, whether the certificates are negotiable or notis of no moment. The fact remains that the certificatescategorically state that their bearer [sic] have a deposit inthe RSB; that the same will mature on November 3, 1993;and that the certificates are insured by PDIC.58

We disagree with respondent courts rationale. The fact thatthe certificates state that the certificates are insured by PDIC doesnot ipso facto make the latter liable for the same should thecontingency insured against arise. As stated earlier, the depositliability of PDIC is determined by the provisions of R.A. No. 3519,and statements in the certificates that the same are insured byPDIC are not binding upon the latter.

. . . The mere fact that a certificate recites on its face that acertain sum has been deposited, or that officers of the bankmay have stated that the deposit is protected by the guarantylaw, does not make the guaranty fund liable for payment, ifin fact a deposit has not been made . . . . The banks havenothing to do with the guaranty fund as such. It is a fundraised by assessments against all state banks, administeredby officers of the state to protect deposits in banks. . . .59

We come now to petitioners second assigned error.

In order that a claim for deposit insurance with the PDICmay prosper, the law requires that a corresponding deposit beplaced in the insured bank. This is implicit from a reading of thefollowing provisions of R.A. 3519:

Sec. 1. There is hereby created a Philippine DepositInsurance Corporation . . . which shall insure, as provided,the deposits of all banks which are entitled to the benefitsof insurance under this Act . . . . (Emphasis supplied).

57 207 N.W. 979 (1926).58 Rollo, p. 38.59 State v. Farmers State Bank, supra, note 6.

31

xxx xxx xxx

Sec. 10(a) . . .

xxx xxx xxx

(c) Whenever an insured bank shall have been closed onaccount of insolvency, payment of the insured depositsin such bank shall be made by the Corporation as soonas possible . . . .(Emphasis supplied.)

A deposit as defined in Section 3(f) of R.A. No. 3591, maybe constituted only if money or the equivalent of money is receivedby a bank:

Sec. 3. As used in this Act

(f) The term deposit means the unpaid balance of moneyor its equivalent received by a bank in the usual courseof business and for which it has given or is obliged togive credit to a commercial, checking, savings, time orthrift account or which is evidenced by passbook, checkand/or certificate of deposit printed or issued inaccordance with Central Bank rules and regulations andother applicable laws, together with such otherobligations of a bank which, consistent with bankingusage and practices, the Board of Directors shalldetermine and prescribe by regulations to be depositliabilities of the Bank . . . . (Emphasis ours.)

Did RSB receive money or its equivalent when it issued thecertificates of time deposit? The Court of Appeals, in resolvingwho between RSB and PFC issued the certificates to privaterespondents, answered this question in the negative. A perusal ofthe impugned decision, however, reveals that such finding isgrounded entirely on speculation, and thus, cannot bind thisCourt:60

Equally unimpressive is the contention of PDIC and RSBthat the certificates were issued to PFC which did not acquire

60 Cuizon vs. Court of Appeals, G.R. No. 102096, August 22, 1996.


the same for value because the check issued by the latterfor the certificates bounced for insufficiency of funds. First,granting arguendo that the certificates were originally issuedin favor of PFC, such issuance could only give rise to thepresumption that the amount stated in the certificates havebeen deposited to RSB. Had not PFC deposited the amountstated therein, then RSB would have surely refused to issuethe certificates certifying to such fact. Second, why did notRSB demand that PFC pay the certificates or file a claimagainst PFC on the ground that the latter failed to pay forthe value of the certificates? It could very well be that thereason why RSB did not run after PFC for payment of thevalue of the certificates was because the instruments wereissued to the latter by RSB for value or were already paid toRSB by plaintiffs-appellees. Third, if it is true that at thetime RSB issued the certificates to PFC, the instrumentswere paid for with checks still to be encashed, then why didnot RSB specifically state in the certificates that the validitythereof hinges on the encashment of said check? Fourth,even if it is true that PFC did not deposit with or pay theRSB the amount stated in the certificates, the latter is notbe such reason freed from civil liability to plaintiffs-appellees.For, by issuing the certificates, RSB bound itself to pay theamount stated therein to whoever is the bearer upon itspresentment for encashment. Truly, there is no reason todepart from the established principle that where a bankissues a certificate of deposit acknowledging a deposit madewith a third person or an officer of the bank, or with anotherbank representing it to be the certificate of the bank, uponwhich assurance the depositor accepts it, the bank is liablefor the amount of the deposit (Michis, Banks and Banking,Vol. 5A, pp. 48-49, as cited in the Decision on p. 3 thereof).61

Moreover, such finding totally ignores the evidencepresented by defendants. Cardola de Jesus, RSB DeputyLiquidator, testified that RSB received three (3) checks inconsideration for the issuance of several CTDs, including the onesin dispute. The first check amounted to P159,153.93, the second,P121,665.95, and the third, P125,846.07 In consideration of thethird check, private respondents received thirteen (13) certificatesof deposit with Nos. 09648 to 09660, inclusive, with a value of

61 Id., at 39-40.

33

P10,000.00 each or a total of P130,000.00. To conform with thevalue of the third check, CTD No. 09648 was chopped, and onlythe sum of P5,846.07 was credited in favor of private respondents.The first two checks made good in the clearing while the thirdwas returned for being drawn against insufficient funds.

The check in question appears on the records as Exhibit3 (for Regent),62 and is described in RSBs offer or evidence asTraders Royal Bank Check No. 292555 dated September 22,1983 covering the amount or P125,846.07 . . . issued by PremiereFinancing Corporation.63 At the back of said check are the wordsRefer to Drawer,64 indicating that the drawee bank (Traders RoyalBank) refused to pay the value represented by said check. Byreason of the checks dishonor, RSB cancelled the correspondingas evidence by an RSB ticket dated November 4, 1983.65

These pieces of evidence convincingly show that the subjectCTDs were indeed issued without RSB receiving any moneytherefor. No deposit, as defined in Section 3 (f) of R.A. No. 3591,therefore came into existence. Accordingly, petitioner PDIC cannotbe held liable for value of the certificates of time deposit held byprivate respondents.

ACCORDINGLY, the instant petition is hereby GRANTEDand the decision of the Court of Appeals REVERSED. Petitioneris absolved from any liability to private respondents.

SO ORDERED.

Davide, Jr., Bellosillo and Vitug, JJ., concur.

5. Check defined.

A check is a bill of exchange drawn on a bank payable ondemand. (Sec. 185, Negotiable Instruments Law)

A check is (1) a draft or order (2) upon a bank or bankinghouse, (3) purporting to be drawn upon a deposit of funds (4) forthe payment at all events of a certain sum of money, (5) to a

62 Records, p. 161.63 Id., at 155.64 Exhibit 3-1 (Regent).65 Exhibits 5 and 5-A (Regent); records, p. 163.


certain person therein named, or to him or his order, or to bearer,and (6) payable instantly on demand.66

Except as herein otherwise provided, the provisions of thisAct applicable to a bill of exchange payable on demand apply toa check.

A check which has been cleared and credited to the accountof the creditor shall be equivalent to a delivery to the creditor ofcash in an amount equal to the amount credited to his account.(Equitable PCI Bank vs. Ong, 502 SCRA 119)

Check and Inland Bills of Exchange, distinguished

The Supreme Court of the United States, in the leading caseof Merchants Bank v. State Bank, says of checks when contrastedwith bills of exchange: Bank checks are not inland bills ofexchange, but have many of the properties of such commercialpaper, and many of the rules of the law merchants are alikeapplicable to both. Each is for a specified sum, payable inmoneyin both cases, there is a drawer, a drawee, and payee.Without acceptance, no action can be maintained by the holder,upon either, against drawee. The chief points of difference arethat (1) a check is always drawn on a bank or banker; (2) thedrawer is not discharged by the laches of the holder inpresentment, unless he can show that he has sustained someinjury by the default; (3) it is not due until payment is demanded,and the statute of limitations runs only from that time; (4) it is, byits fact, the appropriation of so much money of the drawer, in thehands of the drawee, to the payment of an admitted liability of thedrawer; (5) it is not necessary that the drawer of a bill shouldhave funds in the hands of the draweea check in such casewould be a fraud.67

A check is a draft or order

A bill is also a draft or order; and it is often said that a checkis, in legal effect, a bill of exchange drawn on a bank or banking

66 Blair & Hoge v. Wilson, 28 Gratt. 170; Ridgely Bank v. Patton, 109 Ill, 484,cited in Daniel, page 17

67 Merchants Bank v. State Bank, 10 Wall. 647, cited in Daniel, page 18(italics supplied)

35

house, with some peculiarities.68 In some cases it is called a billpayable on demand,69 and in others an inland bill, or in the natureof an inland bill, payable on demand;70 and the expression that acheck is like a bill has been criticized on the ground that nihilsimile est idem, whereas checks are bills, or rather bill is thegenus, and check is a species,71 In form a check is a bill on abanking house, and it is perfectly correct to say that it is a bill withsome peculiarities, or in other words, a species of bill of exchange.(Daniel, page 18)

Characteristics of a check

A check has the character of negotiability and at the sametime it constitutes an evidence of indebtedness. By mutualagreement of the parties, the negotiable character of a check maybe waived and the instrument may be treated simply as proof ofan obligation. (Sps. Pacheco vs. Court of Appeals, G.R. No.126670, December 2, 1999, [Ynares-Santiago, J.])

A check is a negotiable instrument that serves as a substitutefor money and as a convenient form of payment in financialtransactions and negotiations. The use of checks as paymentallows commercial and banking transactions to proceed withoutthe actual handling of money, thus, doing away with the need tophysically count bills and coins whenever payment is made. Itpermits commercial and banking transactions to be carried outquickly and efficiently. But the convenience afforded by checksis damaged by unfunded checks that adversely affect confidencein our commercial and banking activities, and ultimately injurepublic interest. (Mitra vs. People of the Philippines, G.R. No.191404, July 5, 2010)

As a general rule, checks and other papers deposited in abank for collection remain the property of the depositor, and thebank performs the service of collection as his agent, even thoughit is authorized to apply the proceeds on a debt of the owner. (7

68 Billgerry v. Branch, 19 Gratt. 418; Cruger v. Armstrong, 3 Johns. Cas. 5;State v. Crawford, 13 La. Ann. 301, ibid

69 Harker v. Anderson, 21 Wend. 372; Edwards on Bills, 396, ibid70 Merchants Bank v. Spicer, 6 Wend. 445; Purell v. Allemong, 22 Gratt. 742,

ibid71 Matter of Brown, 2 Story, 502, ibid


C. J., sec. 245, pp. 597, 598; Richardson vs. New Orleans CoffeeCo., 102 Fed., 785; Philadelphia vs. Eckles, 98 Fed., 485;Commercial Nat. Bank vs. Armstrong, 148 U. S., 50; St. Louis,etc. R. Co. vs. Johnston, 133 U. S., 566; Ward vs. Smith, 19 Lawed., 207; Carpenter vs. National Shawmut Bank, 187 Fed., 1.)72

Is Check considered a legal tender?

A check, whether a managers check or ordinary check, isnot legal tender, and an offer of a check in payment of a debt isnot a valid tender of payment and may be refused receipt by theobligee or creditor. (Tibajia vs. CA, G.R. No. 100290, June 4, 1993,[Padilla, J.]) However, in the case of Fortunado vs. Court ofAppeals73 the Supreme Court stressed that, We are not, by thisdecision, sanctioning the use of a check for the payment ofobligations over the objections of the creditor.

In Cebu International Finance Corporation vs. Courtsof Appeals, Vicente Alegre74, the High Court ruled that: [i]n aloan transaction, the obligation to pay a sum certain in moneymay be paid in money, which is the legal tender or, by the use ofa check. A check is not a legal tender, and therefore cannotconstitute valid tender of payment. In Philippine Airlines, Inc. vs.Court of Appeals75, this Court held that: [s]ince a negotiableinstrument is only a substitute for money and not money, thedelivery of such an instrument does not, by itself, operate aspayment (citation omitted).

Moreover, the following provisions support the ruling of theTibajia case, to wit:

a. Article 1249 (NCC) The payment of debts in money shallbe made in the currency stipulated, and if it is not possibleto deliver such currency, then in the currency which islegal tender in the Philippines.

The delivery of promissory notes payable to order, orbills of exchange or other mercantile documents shall

72 Chinese Grocers Association vs. American Apothecaries Co., G.R. No. L-43667, March 31, 1938, [Villa-Real, J.:]

73 G.R. No. 78556, 25 Paril 1991, 196 SCRA 269.74 G.R. No. 123031, October 12, 199975 18 SCRA 557 (1990)

37

produce the effect of payment only when they have beencashed, or when through the fault of the creditor theymay have been impaired.

In the meantime, the action derived from the originalobligation shall be held in abeyance.

b. Section 1 (R.A. 529) Every provision contained in, ormade with respect to, any obligation which purports togive the obligee the right to require payment in gold orin any particular kind of coin or currency other thanPhilippine currency or in an amount of money of thePhilippines measured thereby, shall be as it is herebydeclared against public policy null and void, and of noeffect, and no such provision shall be contained in, ormade with respect to, any obligation thereafter incurred.Every obligation heretofore and hereafter incurred,whether or not any such provision as to paymentcontained therein or made with respect thereto, shall bedischarged upon payment in any coin or currency whichat the time of payment is legal tender for public andprivate debts.

c. Section 63 (R.A. 265, Central Bank Act) LegalCharacterChecks representing deposit money do nothave legal tender power and their acceptance in thepayment of debts, both public and private, is at the optionof the creditor: Provided, however, that a check whichhas been cleared and credited to the account of thecreditor shall be equivalent to a delivery to the creditorof cash in an amount equal to the amount credited to hisaccount.

However, noteworthy is the fact that the prohibition inSection 1 of R.A. 529 does not apply when:

a. Transactions were the funds involved are the proceedsof loans or investments made directly or indirectly,through bona fide intermediaries or agents, by foreigngovernments, their agencies and instrumentalities, andinternational financial and banking institutions so longas the funds are Identifiable, as having emanated fromthe sources enumerated above;


b. Transactions affecting high priority economic projectsfor agricultural industrial and power development as maybe determined by the National Economic Council whichare financed by or through foreign funds;

c. Forward exchange transactions entered into betweenbanks or between banks and individuals or juridicalpersons;

d. Import-export and other international banking financialinvestment and industrial transactions.

With the exception of the cases enumerated in items (a),(b), (c) and (d) in the foregoing provision, in, which cases theterms of the parties agreement shall apply, every other domesticobligation heretofore or hereinafter incurred whether or not anysuch provision as to payment is contained therein or made withrespect thereto, shall be discharged upon payment in any coin orcurrency which at the time of payment is legal tender for publicand private debts: Provided, that if the obligation was incurredprior to the enactment of this Act and required payment in aparticular kind of coin or currency other than Philippine currency,it shall be discharged in Philippine currency measured at theprevailing rates of exchange at the time the obligation wasincurred, except in case of a loan made in foreign currencystipulated to be payable in the currency in which case the rate ofexchange prevailing at the time of the stipulated date of paymentshall prevail. All coins and currency, including Central Bank notes,heretofore and hereinafter issued and drawn by the Governmentof the Philippines shall be legal tender for all debts, public andprivate. (As amended by RA 4100, Section 1, approved June 19,1964)

Under the above-quoted provision of Republic Act 529, ifthe obligation was incurred prior to the enactment of the Act andrequire payment in a particular kind of coin or currency other thanthe Philippine currency the same shall be discharged in Philippinecurrency measured at the prevailing rate of exchange at the timethe obligation was incurred. As we have adverted to, RepublicAct 529 was enacted on June 16, 1950. In the case now beforeus the obligation of the appellant to pay the appellee the 20% of $140,000.00, or the sum of $ 28,000.00, accrued on August 25,

39

1961, or after the enactment of Republic Act 529. It follows thatthe provision of Republic Act 529 which requires payment at theprevailing rate of exchange when the obligation was incurredcannot be applied. Republic Act 529 does not provide for the rateof exchange for the payment of the obligation incurred after theenactment of said Act. The logical conclusion, therefore, is thatthe rate of exchange should be that prevailing at the time ofpayment. This view finds support in the ruling of this Court in thecase of Engel vs. Velasco & Co.76 where this Court held that evenif the obligation assumed by the defendant was to pay the plaintiffa sum of money expressed in American currency, the indemnityto be followed should be expressed in Philippine currency at therate of exchange at the time of judgment rather than at the rate ofexchange prevailing on the date of defendants breach. This isalso the ruling of American court as follows:

The value of domestic money of a payment made in foreignmoney is fixed with respect to the rate of exchange at the time ofpayment. (70 CJS p. 228)

According to the weight of authority the amount of recoverydepends upon the current rate of exchange, and not the par valueof the particular money involved. (48 C.J. 605-606)

The value in domestic money of a payment made in foreignmoney is fixed in reference to the rate of exchange at the time ofsuch payment. (48 C.J. 605)77

It is to be noted that while an agreement to pay in dollars isdeclared as null and void and of no effect, what the law specificallyprohibits is payment in currency other than legal tender. It doesnot defeat a creditors claim for payment, as it specifically providesthat every other domestic obligationwhether or not any suchprovision as to payment is contained therein or made with respect

thereto, shall be discharged upon payment in any coin or currency

which at the time of payment is legal tender for public and private

debts. A contrary rule would allow a person to profit or enrichhimself inequitable at anothers expense. (Ponce vs. Court ofAppeals, G.R. No. L-49494, May 31, 1979, [Melencio-Herrera,

J.])

76 47 Phil 115, 142.77 Kalalao vs. Luz, G.R. No. L-27782, July 31, 1970.


As held in Eastbound Navigation, Ltd. vs. Juan Ysmael &Co., Inc., 102 Phil 1 (1957), and Arrieta vs. National Rice & CornCorp.78, if there is any agreement to pay an obligation in a currencyother than Philippine legal tender, the same is null and void ascontrary to public policy, pursuant to Republic Act No 529, andthe most that could be demanded is to pay said obligation inPhilippine currency. In other words, what is prohibited by RA No.529 is the payment of an obligation in dollars, meaning that acreditor cannot oblige the debtor to pay him in dollars, even if theloan were given in said currency. In such a case, the indemnity tobe allowed should be expressed in Philippine currency on thebasis of the current rate of exchange at the time of payment.79

(supra)

Exception to the Rule; check not a legal tender.

In the case of Salvacion F. Vda. De Eduque vs. Jose M.Ocampo80, the Supreme Court already upheld that Japanesemilitary notes were legal tender during Japanese occupation. Butappellant argues, further, that the consignation of a cashierscheck, which is not legal tender, is not binding upon him. Thisquestion, however, has never been raised in the lower court. Uponthe contrary, defendant accepted impliedly in the consignation ofthe cashiers check when he himself asked the court that out ofthe money thus consigned he be paid the amount of the secondloan of P15,000. It is a rule that a cashiers check mayconstitute a sufficient tender where no objection is made onthis ground.81

If effect, when there is implied acceptance, it thus operatesas a waiver on the part of the person receiving it to later questionthe same. He is estopped by virtue his act of implied acceptance.

What is a crossed-check?

This is a check with two parallel lines in the upper left handcorner. (Bank of America, NT & SA, vs. Associated Citizens Bank,G.R. No. 141001, 141018, May 21, 2009, [Carpio, J.])

78 10 SCRA 79 (1964)79 Kalalo vs. Luz, 34 SCRA 337 (1970)80 G.R. No. L-222, 26 April 1950, penned by Chief Justice Moran81 62 C.J., p. 670; see also 40 Amer. Jur. P. 764 (emphasis supplied)

41

Under usual practice, crossing a check is done by placingtwo parallel lines diagonally on the left portion of the check. Thecrossing may be special wherein between the two parallel lines iswritten the name of a bank or a business institution, in which casethe drawee should pay only with the intervention of that bank orcompany, or crossing may be general wherein between twoparallel diagonal lines are written the words and Co. or none atall as in the case at bar, in which case the drawee should notencash the same but merely accept the same for deposit. (StateInvestment House vs. Intermediate Appellate Court, G.R. No.

72764, July 13, 1989, [Fernan, C.J:])

Illustrative Case:

CHAN WAN vs. TAN KIM and CHEN SOG.R. No. L-15380, Sept. 30, 1960

BENGZON, J:

This suit to collect eleven checks totaling P4,290.00 is herefor decision because it involves no issue of fact.

Such checks payable to cash or bearer and drawn bydefendant Tan Kim (the other defendant is her husband) uponthe Equitable Banking Corporation, were all presented for paymentby Chan Wan to the drawee bank, but they were all dishonoredand returned to him unpaid due to insufficient funds and/or causesattributable to the drawer.

At the hearing of the case, in the Manila court of firstinstance, the plaintiff did not take the witness stand. His attorney,however, testified only to identify the checks which are ExhibitsA to K plus the letters of demand upon defendants.

On the other hand, Tan Kim declared without contradictionthat the checks had been issued to two persons named Pinongand Muy for some shoes the former had promised to make andwere intended as mere receipts.

In view of such circumstances, the court declined to orderpayment for two principal reasons: (a) plaintiff failed to prove hewas a holder in due course, and (b) the checks being crossed


checks should not have been deposited instead with the bankmentioned in the crossing.

It may be stated in this connection, that defendants asserteda counterclaim, the court dismissed it for failure of proof, and fromsuch dismissal they did not appeal.

The only issue is, therefore, the plaintiffs right to collect onthe eleven commercial documents.

The Negotiable Instruments Law regulating the issuance ofnegotiable checks, the rights and the liabilities arising therefrom,does not mention crossed checks. Art. 541 of the Code ofCommerce refers to such instruments.82 The bills of ExchangeAct of England of 1882, contains several provisions about them,some of which are quoted in the margin.83

In the case of Philippine National Bank vs. Zulueta, 101Phil., 1071; 55 Off. Gaz., 222, we applied some provisions of saidBills of Exchange Act because the Negotiable Law, originating

82 SEC. 541. The maker or any legal holder of a check shall be entitled toindicate therein that it be paid to certain banker or institution, which heshall do by writing across the face the name of said banker or institution,or only the words and company.

The payment made to a person other than the banker or institutionshall not exempt the person on whom it is drawn, if the payment was notcorrectly made.

83 76. [General and Special Crossing Defined.] (1) Where a check bearsacross its face an addition of (a) The words and company or any abbreviation thereof between twoparallel transverse lines, either with or without the words not negotiable;or(b) Two parallel transverse lines simply, either with or without the wordsnot negotiable; that addition constitutes a crossing, and the cheque iscrossed generally.(2) Where a cheque bears across its face an addition of the name of abanker, either with or without the words not negotiable, that additionconstitutes a crossing, and the cheque is crossed specially and to thatbanker.79. . . . (2) Where the banker on whom a cheque is drawn which is socrossed nevertheless pays the same, or pays the same, or pays a chequecrossed generally otherwise than to a banker, or if crossed speciallyotherwise than to the banker to whom it is crossed, or his agent forcollection being a banker, he is liable to the true owner of the cheque forany loss he may sustain owing to the cheque having been so paid. (Takenfrom Brannans Negotiable Instruments Law, 60th Ed. 1250-1251.)

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from England and codified in the United States, permits resortthereto in matters not covered by it and local legislation.84

Eight of the checks here in question bear across their facetwo parallel transverse lines between which these words arewritten: non-negotiable China Banking Corporation. Thesechecks have, therefore, been crossed specially to the ChinaBanking Corporation, and should have been presented forpayment by China Banking, and not by Chan Wan.85 Inasmuchas Chan Wan did present them for payment himself the Manilacourt said there was no proper presentment, and the liabilitydid not attach to the drawer.

We agree to the legal premises and conclusion. It must beremembered, at this point, that the drawer in drawing the checkengaged that on due presentment, the check would be paid, andthat if it be dishonored . . . he will pay the amount thereof to theholder.86 Wherefore, in the absence of due presentment, thedrawer did not become liable.

Nevertheless we find, on the backs of the checks,endorsements which apparently show they had been depositedwith the China Banking Corporation and were, by the latter,presented to the drawee bank for collection. For instance, on theback of the check Exhibit A (same as in Exh. B), this endorsementappears:

For deposit to the account of White House Shoe Supplywith the China Banking Corporation and then this:

Cleared through the clearing office of Central Bank ofthe Philippines. All prior endorsements and/or lack ofendorsements guaranteed. China BankingCorporation.

And on the back of Exh. G:

84 Sec. 196, Negotiable Instruments Law.85 If it is not presented by said Bank for payment, the drawee runs the risk, in

case of payment to persons not entitled thereto. So the practice is for thedrawee to refuse when presented by individuals. The check is generallydeposited with the bank mentioned in the crossing, so that the latter maytake charge of the collection.

86 Sec. 61. Negotiable Instruments Law.


For deposit to the credit of our account. Viuda e Hijosde Chua Chiong Pio. Peoples Shoe Company.

followed by the endorsement of China Banking Corporationas in Exhibits A and B. All the crossed checks have theclearance endorsement of China Banking Corporation.

These circumstances would seem to show deposit of thechecks with China Banking Corporation and subsequentpresentation by the latter through the clearing office; but as draweehad no funds, they were unpaid and returned, some of themstamped account closed. How they reached his hands, plaintiffdid not indicate. Most probably, as the trial court surmised, thisis not a finding of fact he got them after they had been thusreturned, because he presented them in court with such accountclosed stamps, without bothering to explain. Naturally and rightly,the lower court held him not to be a holder in due course underthe circumstances, since he knew, upon taking them up, that thechecks had already been dishonored.87

Yet it does not follow as a legal proposition, that simplybecause he was not a holder in due course Chan Wan could notrecover on the checks. The Negotiable Instruments Law doesnot provide that a holder88 who is not a holder in due course,may not in any case, recover on the instrument. If B purchasesan overdue negotiable promissory note signed by A, he is not aholder in due course; but he may recover from A,89 if the latter hasno valid excuse for refusing payment. The only disadvantage ofholder who is not a holder in due course is that the negotiableinstrument is subject to defense as if it were non- negotiable.90

(emphasis supplied)

Now what defense did the defendant Tan Kim prove? Thelower courts decision does not mention any; evidently His Honorhad in mind the defense pleaded in defendants answer, but thoughit [is] unnecessary to specify, because the crossing andpresentation incidents sufficed to bar recovery, in his opinion.

87 Sec. 52 (b), Negotiable Instruments Law.88 He was a holder all right, because he had possession of the checks that

were payable to bearer.89 Sec. 51. Negotiable Instruments Law.90 SEC. 58 Negotiable Instruments Law.

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Tan Kim admitted on cross-examination either that thechecks had been issued as evidence of debts to Pinong and Muy,and/or that they had been issued in payment of shoes whichPinong had promised to make for her.

Seeming to imply that Pinong had to make the shoes, sheasserted Pinong had promised to pay the checks for me. Yetshe did not complete the idea, perhaps because she was justanswering cross- questions, her main testimony having referredmerely to their counter-claim.

Needless to say, if it were true that the checks had beenissued in payment for shoes that were never made and delivered,Tan Kim would have a good defense as against a holder who isnot a holder in due course.91

Considering the deficiency of important details on which afair adjudication of the parties right depends, we think the recordshould be and is hereby returned, in the interest of justice, to thecourt below for additional evidence, and such further proceedingsas are not inconsistent with this opinion. With the understandingthat, as defendants did not appeal, their counterclaim must beand is hereby definitely dismissed. So ordered.

Paras, C.J., Padilla, Bautista Angelo, Labrador, Concepcion,

Reyes, J.B.L., Barrera, Gutierrez David, Paredes and Dizon,

JJ., concur.

What are the effects of crossing a check?

It means that it could only be deposited and could not beconverted into cash. Thus, the effect of crossing a check relatesto the mode of payment, meaning that the drawer had intendedthe check for deposit only by the rightful person, i.e., the payeenamed therein. (Bank of America, NT & SA, vs. Associated CitizensBank, G.R. No. 141001, 141018, May 21, 2009, [Carpio, J.])

In Bataan Cigar v. Court of Appeals, the Supreme Courtenumerated the effects of crossing a check as follows:

a.) The check may not be encashed but only deposited inthe bank;

91 Lack of consideration is a defense. (Sec. 28, Negotiable Instruments Law.)


b.) The check may be negotiated only onceto one whohas an account with a bank; and

c.) The act of crossing the check serves as a warning to theholder that the check has been issued for a definitepurpose so that he must inquire if he has received thecheck pursuant to that purpose; otherwise, he is not aholder in due course.

The effect therefore of crossing a check relates to the modeof its presentment for payment. Under Section 72 of theNegotiable Instruments Law, presentment for payment to besufficient must be made (a) by the holder, or by some personauthorized to receive payment on his behalfAs to who the holderor authorized person will depend on the instructions stated on theface of the check. (State Investment House vs. IntermediateAppellate Court, G.R. No. 72764, July 13, 1989, [Fernan, C.J:])

The act of crossing a check serves as a warning to the holderthat the check has been issued for a definite purpose so that theholder thereof must inquire if he has received the check pursuantto that purpose; otherwise, he is not a holder in due course. (Dinovs. Loot, G.R. No. 170912, April 19, 2010, [Carpio, J.])

Duty of the collecting bank when dealing with crossed che

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