PNB vs Rodriguez (GR No. 170325, Sept 2008)

Fictitious Payee rule – According to Sec. 9 of the NIL, if a negotiable instrument is 1payable to the order of a fictitious or inexistent person (Sec. 9c) and such fact is known to the person making it so payable, the instrument is a bearer instrument. An actual, existing, and living payee may also be “fictitious” if the 2maker of the check did not intend for the payee to in fact receive the proceeds of the check . In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss.

EXCEPTION to the Fictitious Payee rule: However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense. The exception will cause it to bear the loss. Commercial bad faith is present if the transferee of the check acts 1dishonestly, and 2is a party to the fraudulent scheme.

Order vs Bearer instrument – bearer can be negotiated by delivery and there is no need for indorsement, unlike an order instrument (Sec. 30)