REVIEWER FOR QUIZ NO.

1 IN BAM 213

NEGOTIABLE INSTRUMENTS

1.1 Negotiable Instrument and Governing Laws

- Written contracts for the payment of money; by its form, intended as a substitute for
money and intended to pass from hand to hand, to give the holder in due course the
right to hold the same and collect the sum due.
- The governing laws of negotiable instruments are:
a. Code of Commerce
b. The New Civil Code will be used as suppletory only.
c. Negotiable Instrument Law
d. Foreign Law can also be used as a governing law of negotiable instrument.
1.1.1 Features of Negotiable Instrument
- Its characteristics are:
a. Negotiability - right of transferee to hold the instrument and collect the sum due.
b. Accumulation of Secondary Contracts - instrument is negotiated from person to
person.
1.1.2 Requisites of Negotiability
a. It must be in writing and signed by the maker or drawer;
b. Must contain an unconditional promise or order to pay a sum certain in money;
c. Must be payable on demand, or at a fixed or determinable future time;
d. Must be payable to order or to bearer; and
e. Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
1.2 Construction in Case of Ambiguities in a Negotiable Instrument
- Where the language of the instrument is ambiguous or there are omissions therein, the
following rules of construction apply:
a. Where the sum payable is expressed in words and also in figures and there is a
discrepancy between the two, the sum denoted by the words is the sum payable; but if
the words are ambiguous or uncertain, reference may be had to the figures to fix the
amount;
b. Where the instrument provides for the payment of interest, without specifying the date
from which interest is to run, the interest runs from the date of the instrument, and if
the instrument is undated, from the issue thereof;
c. Where the instrument is not dated, it will be considered to be dated as of the time it was
issued;
d. Where there is a conflict between the written and printed provisions of the instrument,
the written provisions prevail;
e. Where the instrument is so ambiguous that there is doubt whether it is a bill or note,
the holder may treat it as either at his election;
f. Where a signature is so placed upon the instrument that it is not clear in what capacity
the person making the same intended to sign, he is to be deemed an indorser;
g. Where an instrument containing the word "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon.
1.3 Compare Holder for Value from Holder in Due Course
- Holder for value is someone who has given something of value in exchange for a
negotiable instrument. This can include acquiring a security interest in the instrument
and accepting the instrument in payment of an antecedent claim. Another term for this
is a bona fide holder for value.
- RIGHTS OF THE HOLDER
a. A holder may sue in his own name.
b. A holder may receive payment.
- A holder in due course holds the instrument from any defect of title of prior parties and
payee form defenses available to prior parties among themselves and may enforce
payment of the instrument for the full amount thereof against all parties liable thereon.
- REQUISITE OF A HOLDER IN DUE COURSE
a. Receives the instrument complete and regular on its face.
b. Became a holder before maturity and had no idea it was dishonoured if that’s the
case.
c. Takes the instrument for value and in good faith.
d. At the time he took the instrument, no defect on the title of the person
negotiating.
- RIGHTS OF A HOLDER IN DUE COURSE
a. Holds the instrument free from any defect.
b. Free from defenses available to prior parties among themselves.
c. May enforce payment of the instrument for the full amount against all parties
liable.
1.4 Shelter Principle
- Status as a holder in due course (HDC) may strengthen the rights of a holder to receive payment
on a negotiable instrument. When a holder may not qualify as an HDC, the shelter rule is a
separate principle that may protect her rights. Pursuant to the shelter rule, the transferee of a
negotiable instrument receives all of the rights of the transferor of the instrument, unless the
transfer is carried out by fraud or illegal means. This is important in situations where the
transferor is a holder in due course, but the transferee is not.

Example: A HDC may gift the negotiable instrument to the transferee. In this case, the transferee did
not provide value for the instrument and does not qualify as a holder in due course. The shelter rule
will allow the transferee to receive all of the rights of the transferor (a holder in due course) and
receive the heightened protection. This rule makes the paper more marketable for the holder in due
course.

The shelter rule provides liquidity to a HDC who, after accepting an instrument, learns of a defense
against its enforcement. The HDC could validly transfer the instrument to another holder who has
notice of the underlying defense. The new holder would have the same rights as the HDC. It is
important to note that, if a holder in due course learns that there is a valid defense against
enforcement or that the underlying obligation has been discharged, she must disclose that
information to the transferee who provides value for the instrument. If not, the transfer by the HDC
to the new holder could be deemed fraudulent. This would destroy the shelter principle protections.

Note: An exception to the shelter rule is that it does not apply if the holder in due course transfers
the instrument back to a prior holder who was aware of its non-enforceable status and proceeded to
transfer it to a holder in due course.
1.5 Accommodation Party
- Accommodation Party is a person who signs negotiable instrument or commercial paper or
agreement for the purpose of being a surety for another party (called accommodated party) to
the instrument to help accommodated party obtain a loan or an extension of credit.
Accommodation party can sign in any capacity such as maker, drawer, accepter, or endorser.
Accommodation party signs negotiable instrument without any direct or indirect benefit,
compensation, or consideration. Accommodation Party signs it as a favor to the person who
owes money, and becomes liable on it to all parties except the accommodated party.
Accommodated party agrees to pay the instrument and to indemnify accommodation party for
any losses incurred in paying it. Generally accommodation is done when the creditworthiness of
the accommodated party does not satisfy the person taking the negotiable instrument.
Accommodation Party is also called, in the case of a promissory note, an accommodation maker.

BOUNCING CHECKS LAW

- The acts must be fraudulent, that is, the acts must be characterized by, or founded on, deceit,
trick or cheat. Note that while in false pretences the deceit consists in the use of deceitful words,
in fraudulent acts the deceit consists principally in deceitful acts.
- This being also estafa by means of deceit, the fraudulent acts must be performed prior to or
simultaneously with the commission of the fraud. Like in other forms of deceit, the offender
must be able to obtain something from the offended party because of the fraudulent acts, that
is, without which, the offended party would not have parted with it.
- By postdating a check, or issuing a check in payment of an obligation when the offender had no
funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the
check. The failure of the drawer of the check to deposit the amount necessary to cover his check
within three (3) days from receipt of notice from the bank and I or the payee or holder that said
check has been dishonored for lack or insufficiency of funds shall be prima facie evidence of
deceit constituting false pretence or fraudulent act. (Art. 315, No. 2[d], as amended by Rep. Act
No. 4885, approved June 17, 1967)

Estafa by postdating a check or issuing a check in payment of an obligation.

Elements:

1. That the offender postdated a check, or issued a check in payment of an obligation;

2. That such postdating or issuing a check was done when the offender had no funds in the bank, or his
funds deposited therein were not sufficient to cover the amount of the check.

The check issued must be genuine, and not falsified.

The act of signing a check with a fictitious name and falsely pretending that said check could be cashed
at the bank, the accused knowing that it could not be cashed, and on the strength of such false pretense
the accused obtained from the offended party a certain amount in exchange for the worthless check,
constitutes estafa by means of false pretense under paragraph 2(a), and not estafa by postdating or
issuing a check under paragraph 2(d) of Art. 315. (People vs. Bisquera, C.A., 51 O.G. 248)

If the check is falsified and the same is cashed with the bank, or exchanged for cash, the crime
committed is estafa through falsification of a commercial document.
The check must be postdated or issued in payment of an obligation contracted at the time of the
issuance and delivery of the check.

The phrase "By postdating a check, or issuing such check in payment of an obligation" in Art. 315,
No. 2(d), is not changed by Republic Act No. 4885, except that the word "such" is replaced by the
article "a" in relation to the check issued. The elimination of the word "such" is in accordance with
the decision of the Supreme Court in the case of People vs. Fernandez, 59 Phil. 619, that the word as
used in the first line of subsection (d) is an error in the English translation, and that the provision
does not apply exclusively to postdated checks.

The meaning given to the phrase, "in payment of an obligation", is that the check should not be
postdated or issued in payment of pre-existing obligation.

Thus, when a check was issued in payment of a debt contracted prior to such issuance, there is no
estafa, even if there is no fund in the bank to cover the amount of the check. (People vs. Lilius, 59
Phil. 339) The reason for the rule is that deceit, to constitute estafa, should be the efficient cause of
the defraudation as such should be either prior to, or simultaneously with, the act of fraud. (People
vs. Fortuno, 73 Phil. 407)

The crime of estafa under Art. 315, par. No. 2(d), Revised Penal Code, notwithstanding the
amendment, remains and continues to be a form of swindling by means of deceit. The phrase "prior
to, or simultaneously with, the commission of the fraud" indicates that to constitute this form of
estafa, the fraudulent act of postdating or issuing a check in payment of an obligation should be the
efficient cause of defraudation and as such it should be either prior to, or simultaneously with, the
act of fraud, x x x The offender must be able to obtain money or other property from the offended
party because of the issuance and delivery of a check, whether postdated or not, that is, the latter
would not have parted with his money or other property were it not for the issuance of check.
(People vs. Cua, C.A., 72 O.G. 3182)

The rule that the issuance of a bouncing check in payment of a pre-existing obligation does not
constitute estafa has not at all been altered by the amendatory act. (R.A. No. 4885)

Under Article 315(2)(d) of the Revised Penal Code, as amended by Republic Act No. 4885, the false
pretense or fraudulent act must be executed prior to or simultaneously with the commission of the
fraud to constitute estafa. Republic Act No. 4885 did not change the rule established in Article 315(2)
(d) as interpreted in People vs. Lilius, 59 Phil. 339, and People vs. Fortuno, 73 Phil. 407. (People vs.
Sabio, Sr., 86 SCRA 568)

As aptly observed by an eminent commentator on the Revised Penal Code, in order to convict an
accused for estafa under Article 315, par. 2(d), the accused must have obtained the goods because of
the check. (Luis B. Reyes, The Revised Penal Code, 1971 Rev. Ed., p. 664) Indeed, under the
circumstances of this case, it cannot be said that appellants obtained the goods because of the
postdated check they issued. (People vs. Gloria and Cabarles, CA-G.R. No. 15490-CR, July 15, 1975)

When check is issued in substitution of a promissory note it is in payment of pre-existing

obligation.

Thus, when a person purchased merchandise, signed a promissory note therefor, and on the date of
maturity he gave a check for the amount stated in the promissory note, but the check was
dishonored by the bank for lack of funds, that person is not liable for estafa. (People vs. Canlas, C.A.,
38 O.G. 1092)
The accused must be able to obtain something from the offended party by means of the check he
issues and delivers.

Thus, if A bought from the store of B goods worth P200 and issued a worthless check for P200 in
payment of the same, it is appearing that B would not have delivered the goods to A were it not for
the check issued by the latter, the crime committed by A was estafa. Note that A obtained the goods
from B because of the check.

In a case where the accused issued a check to Lee Hua Hong in exchange for P4,000, but the check
was dishonored by the bank for lack of funds, it was held that the accused was guilty of estafa. (Ang
Tek Lian vs. Court of Appeals, 87 Phil. 383) Note that the accused was able to obtain the P4,000
because of the check he issued.

Exception: When the check issued is not "in payment of an obligation."

When postdated checks are issued and intended by the parties only as promissory notes, there is no
estafa even if there are no sufficient funds in the bank to cover the same. People vs. Roque Obieta
(C.A., 52 O.G. 5224) Facts: On July 9, 1953, A sold a Chevrolet used car to B for the agreed price of
P6.450, and the latter delivered to the former on the same date, four postdated checks drawn
against the Philippine Trust Company, the first, for P450 payable on July 7, 1953; the second, for
P2,000 payable on July 28, 1953; the third, for P2,000 payable on August 28, 1953; and the fourth,
for P2,000 payable on September 28, 1953. The amounts of the first and second checks were on the
dates of their maturity paid in full by B to A in the latter's establishment in the City of Manila. Only a
partial payment, however, of P900 was made on the amount of the third check, and the amount
represented by the fourth check was not paid at all. This notwithstanding, A did not present the third
and fourth checks to the Philippine Trust Company for encashment on the dates they respectively fell
due, or on any subsequent dates. The third and fourth checks were endorsed by A to the legal officer
of the United States Naval Base at Sangley Point and the said checks were presented by the said legal
officer to the bank for encashment on February 16, 1954, but they were dishonored for lack of
funds.

Held: It is true that the postdated checks in question were issued in payment of an obligation which
would not have been contracted were they not issued, in view of A's claim that he would not have
transferred ownership of his car were said checks not issued and delivered to him. But these checks
were not intended for presentation and encashment with the bank against which they were drawn;
that they were delivered as mere security for the payment by installments of the purchase price of
A's car, which was the procedure followed by B to space payments of his numerous obligations; and
that the agreement was that it would be redeemed with cash in A's establishment as they fall due.
The said checks were not intended by the parties to be such but only as promissory notes, and that
the complainant knew the risk he was running. Hence, B did not commit the crime of estafa.

When the check is issued by a guarantor, there is no estafa.

When the accused was persuaded to act merely as a guarantor by guaranteeing by means of a check,
the payment of the materials ordered by another person, a fact which was known to the vendor of
the materials, and the check issued was dishonored for lack of funds, the accused is not guilty of
estafa. The check was not issued in payment of an obligation. (People vs. Suarez, 2 C.A. Rep. 982)

"When the offender had no funds in the bank, or his funds deposited therein were not sufficient to
cover the amount of the check."

The mere fact that the drawer had insufficient or no funds in the bank to cover the check at the time
he postdated or issued a check, is sufficient to make him liable for estafa.
Republic Act No. 4885 eliminated the phrase "the offender knowing that at the time he had no
funds in the bank."

In view of the elimination of that phrase, it is not now a defense that the drawer, through oversight,
did not know that he had insufficient or no funds in the bank when he postdated or issued the
check. He should verify first the amount of his deposit before postdating or issuing a check.

Under subparagraph (d), paragraph 2, Article 315 of the Revised Penal Code, as amended by
Republic Act No. 4885, it is not necessary that the drawer should know at the time that he issued the
check that the funds deposited in the bank were not sufficient to cover the amount of the check.
(People vs. Bool, et al., 18 C.A. Rep. 741)

RA 4885 merely established the prima facie evidence of deceit and eliminated the requirement that
the drawer inform the payee that he had no funds in the bank, or the funds deposited by him were
not sufficient to cover the amount of the check. (Villarta vs. Court of Appeals, 150 SCRA 336)

Prima facie evidence of deceit.

The failure of the drawer of the check to deposit the amount necessary to cover his check within
three (3) days from receipt of notice from the bank and/or the payee or holder that said check has
been dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit constituting
false pretense or fraudulent act. (Second sentence of Rep. Act No. 4885)

It will be noted that if the drawer of the check is able to deposit the amount necessary to cover his
check within three (3) days from receipt of notice that said check has been dishonored, he is not
liable for estafa.

The explanatory note of Senate Bill No. 413, which became Republic Act No. 4885 states:

"It is true that a check may be dishonored without any fraudulent pretense or fraudulent act of the
drawer. Hence, the drawer is given three days to make good the said check by depositing the
necessary funds to cover the amount thereof. Otherwise, a prima facie presumption will arise as to
existence of fraud, which is an element of the crime of estafa."

Good faith is a defense in a charge of estafa by postdating or issuing a check.

Thus, where the accused issued a postdated check, believing in good faith that he would be able to
deposit in the bank, sufficient funds to pay said check when presented for collection, but, contrary to
his expectations, was unable to make the necessary deposit, he cannot be held guilty of the crime of
estafa, it appearing that a few days before the due date, foreseeing his inability to raise the amount
of the check, the accused went to see the complainant and asked him not to present the check to
the bank for collection and at the same time offered to pay the amount thereof in installments to
which the latter agreed. (People vs. Villapando, 56 Phil. 31)

Stopping payment of check.

While there are times in business transactions when one is justified in stopping payment of checks
issued by him, if checks were issued by defendant and he received money for them and stopped
payment and did not return the money and if at the time the check was issued, he had the intention
of stopping payment, he is guilty of estafa. (U.S. vs. Poe, 39 Phil. 466)
The person who uses the check may also be liable.

One who got hold of a check issued by another, knowing that the drawer had no sufficient funds in
the bank, and used the same in the purchase of goods, is guilty of estafa. (People vs. Isleta, et al., 61
Phil. 332)

Petitioner's act in negotiating directly and personally the postdated check issued by his co-accused
and then obtaining value from complainant through deceit and fraudulent representations, is the
efficient cause which constitute estafa under par. 2(d) of Art. 315 of the Revised Penal Code. Though
he did not issue nor indorse the postdated checks, he is still liable for estafa because of his guilty
knowledge that his co-accused had no funds in the bank when he negotiated it. (Zagado vs. Court of
Appeals, 178 SCRA 146)

The payee or person receiving the check must be defrauded.

The payee or person who received the check must be damaged or prejudiced.

Presidential Decree No. 818, which took effect on October 22, 1975, amends Article 315 of the
Revised Penal Code by increasing the penalties for estafa committed by means of bouncing checks,
as follows:

SECTION 1. Any person who shall defraud another by means of false pretences or fraudulent acts
as denned in paragraph 2(d) of Art. 315 of the Revised Penal Code, as amended by Republic Act
No. 4885, shall be punished by: CHECK ON FILE PAGE 826.

Application of P.D. No . 818 . Presidential Decree No. 818

Applies only to estafa under paragraph 2 (d) of Article 315, and does not apply to other forms of
estafa under the other paragraphs of the same article. (See People vs. Villaraza, 81 SCRA 95) Hence,
the penalty prescribed in P.D. No. 818, not the penalty provided for in Article 315, should be
imposed when the estafa committed is covered by paragraph 2(d) of Article 315.

BATAS PAMBANSA NOTES ON THE PDF FILE PAGE 826 – 837

LAW ON SECRECY ON BANK DEPOSITS: LINK IN ONLY ME