Mercantile Law

Recent Rulings on NEGOTIABLE INSTRUMENTS

FedEx Corporation v. Antonio G.R. No. 199455, June 27, 2018

(J. Leonen)

It is settled in jurisprudence that checks, being only negotiable instruments, are only substitutes for money and are not legal tender; more so when the check has a named payee and is not payable to bearer. In Philippine Airlines, Inc. v. Court of Appeals, this Court ruled that the payment of a check to the sheriff did not satisfy the judgment debt as checks are not considered legal tender. This has been maintained in other cases decided by this Court. In Cebu International Finance Corporation v. Court of Appeals, this Court held that the debts paid in a money market transaction through the use of a check is not a valid tender of payment as a check is not legal tender in the Philippines. Further, in Bank of the Philippine Islands v. Court of Appeals, this Court held that “a check, whether a manager’s check or ordinary check, is not legal tender.”

There is no question that checks, whether payable to order or to bearer, so long as they comply with the requirements under Section 1 of the Negotiable Instruments Law, are negotiable instruments.

Check — Barring any extrajudicial or judicial demand that may toll the 10-year prescription period and any evidence which may indicate any other time when the obligation to pay is due, the cause of action based on a check is reckoned from the date indicated on the check; if the check is undated, the cause of action is reckoned from the date of the issuance of the check. (Evangelista vs. Screenex, Inc., G.R. No. 211564, Nov. 20, 2017)

—      It is a negotiable instrument, written and signed by a drawer containing an unconditional order to pay on demand a sum certain in money; it is an undertaking that the drawer will pay the amount indicated thereon. (Evangelista vs. Screenex, Inc., G.R. No. 211564, Nov. 20, 2017)

—      By definition, a check is a bill of exchange drawn on a bank ‘payable on demand.’ It is a negotiable instrument – written and signed by a drawer containing an unconditional order to pay on demand a sum certain in money. It is an undertaking that the drawer will pay the amount indicated thereon. Section 119 of the NIL, however, states that a negotiable instrument like a check may be discharged by any other act which will discharge a simple contract for the payment of money, to wit:

Sec. 119. Instrument; how discharged. – A negotiable instrument is discharged:

(a) By payment in due course by or on behalf of the principal debtor;

(b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation;

(c) By the intentional cancellation thereof by the holder;

(d) By any other act which will discharge a simple contract for the payment of money;

(e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right. (Emphasis supplied)

A check therefore is subject to prescription of actions upon a written contract. Article 1144 of the Civil Code provides:

Article 1144. The following actions must be brought within ten years from the time the right of action accrues:

1) Upon a written contract;

2) Upon an obligation created by law;

3) Upon a judgment.

Barring any extrajudicial or judicial demand that may toll the 10-year prescription period and any evidence which may indicate any other time when the obligation to pay is due, the cause of action based on a check is reckoned from the date indicated on the check.(BENJAMIN EVANGELISTA, Petitioner, v. SCREENEX, INC. G.R. No. 211564, November 20, 2017)

Bank of America held that, in cases involving the unauthorized payment of valid checks, the drawee bank becomes liable to the drawer for the amount of the checks but the drawee bank, in turn, can seek reimbursement from the collecting bank. The rationale of this rule on sequence of recovery lies in the very basis and nature of the liability of a drawee bank and a collecting bank in said cases. 

As the recent case of BDO Unibank v. Lao explains:

The liability of the drawee bank is based on its contract with the drawer and its duty to charge to the latter’s accounts only those payables authorized by him. A drawee bank is under strict liability to pay the check only to the payee or to the payee’s order. When the drawee bank pays a person other than the payee named in the check, it does not comply with the terms of the check and violates its duty to charge the drawer’s account only for properly payable items.

On the other hand, the liability of the collecting bank is anchored on its guarantees as the last endorser of the check. Under Section 66 of the Negotiable Instruments Law, an endorser warrants “that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting.”

It has been repeatedly held that in check transactions, the collecting bank generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. If any of the warranties made by the collecting bank turns out to be false, then the drawee bank may recover from it up to the amount of the check.

(METROBANK v. JUNNEL’S MARKETING CORPORATION, PURIFICACION DELIZO, AND BANK OF COMMERCE, G.R. No. 235511, June 20, 2018)

Promissory notes –– A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it on the date and under the conditions agreed upon by the borrower and the lender; the promissory note is the best evidence to prove the existence of the loan; in this case, by affixing his signature on the promissory note, which contained the words “FOR VALUE RECEIVED,” respondent acknowledged receipt of the proceeds of the loan in the stated amount and committed to pay the same under the conditions stated therein. (Phil. Nat’l. Bank vs. Cua, G.R. No. 199161, April 18, 2018)

Accommodation party — Lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other party or parties thereto; an accommodation party is one who meets all the following three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person. (Virata vs. Ng Wee, G.R. No. 220926, July 05, 2017)

—      The accommodation party cum surety in a negotiable instrument is deemed an original promisor and debtor from the beginning; he is considered in law as the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since their liabilities are so interwoven as to be inseparable. (Virata vs. Ng Wee, G.R. No. 220926, July 05, 2017)

Presumption of consideration — Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value. (Ubas, Sr. vs. Chan, G.R. No. 215910, Feb. 06, 2017)

—      When an instrument is no longer in the possession of the person who signed it and it is complete in its terms, a valid and intentional delivery by him is presumed until the contrary is proved; a check constitutes an evidence of indebtedness and is a veritable proof of an obligation. (Ubas, Sr. vs. Chan, G.R. No. 215910, Feb. 06, 2017)

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