COMMERCIAL LAW NOTES property of the debtor, and has

resorted to all the legal remedies

against the debtor.
CONTRACT OF GUARANTY  The conditions for the exercise of the
benefits of excussion (refer to ART.
 What is Credit Transaction? 2059)
 Sources of Credit transaction  The Creditor who is negligent in
(Contract of Loan) govern by Civil exhausting the property pointed out
code 1933 shall suffer the loss, to the extent of
-Mutuum (Consumable like money) said property, for the insolvency of the
and Commodatum (Book) debtor resulting from such negligence.
 Guaranty, Surety, PPSA  The creditor shall ask the court to
 Promissory Note is a contract of loan notify the guarantor of the action. The
(elements: Maker/Borrower, promise guarantor may appear so that he may,
to pay the amount, period, stipulation if so desire, set up such defenses as are
of interest) granted him by law. (in cases of
 What is contract of Guaranty? excussion is available)
-it is a contract whereby a person,  The compromise between the creditor
called the guarantor, binds himself to and the principal debtor benefits the
the creditor to fulfill the obligation of guarantor but does not prejudice him.
the principal debtor in case the latter (Same if compromise between creditor
should fail to do so. and the guarantor)
 Characteristics of a Contract of  The guarantor of a guarantor shall
guaranty enjoy the benefit of excussion, both
a. Nominate with respect to the guarantor and to
b. Consensual the principal debtor.
c. Gratuitous (exception: where there  The obligation to answer for the same
is a stipulation to the contrary) is divided among all (this is in the case
d. Accessory of several guarantors of only one
e. Can be Security for future debts debtor and of the same debt.) Unless
f. Governed by Statute of Frauds solidarity has been expressly
 A married woman may guarantee an stipulated. The creditor cannot claim
obligation without the husband’s from the guarantors except the shares
consent, but shall not thereby bind the which they are respectively bound to
conjugal partnership, except in cases pay.
provided by law.  The guarantor who pays for a debt
 A guarantor may bind himself for less, must be indemnified by the latter.
but not for more than the principal (Total amount, legal interest,
debtor (both amount and the onerous expenses, damages)
nature of conditions) Note: however, that if the debt was for a period
 A Guaranty is not, presumed, it must and the guarantor paid it before it became due,
be express and cannot extend to more he cannot demand reimbursement of the debtor
until the expiration of the period unless the
than what is stipulated. payment has been ratified by the debtor.
 A person who possesses integrity,  The guarantor who pays is subrogated
capacity to bind himself, and sufficient by virtue thereof to all the rights
property to answer for the obligation which the creditor had against the
which he guarantees can act as debtor. If the guarantor has
guarantor. compromised with the creditor, he
 The guarantor CANNOT be cannot demand of the debtor more
compelled to pay the creditor unless than what he has really paid.
the latter has exhausted all the

Page 1 of 28
 If the guarantor should pay without mortgages, and preferences of the
notifying the debtor, the latter may former.
enforce against him all the defenses  Bond, is commonly understood to
which he could have set up against the mean an undertaking that is
creditor at the time the payment was sufficiently secured, and not cash or
made. And the debtor is not being currency. Whenever surety bonds are
aware of the payment, repeats the submitted, they are subject to any
payment, the former has no remedy objections as to their sufficiency or as
whatever against the debtor, but only to the solvency of the bondsman.
against the creditor. Nevertheless, in  Bondsman, is a surety offered in virtue
case of a gratuitous guaranty, if the of a provision of law or a judicial
guarantor was prevented by a order. He must have the qualification
fortuitous event from advising the required of the guarantor under the
debtor of the payment, and the creditor law.
becomes insolvent, the debtor shall  Judicial bondsman cannot demand the
reimburse the guarantor for the paid exhaustion of the property of the
amount. principal debtor. Likewise, a sub-
 Instances when the guarantor, even surety in the same case, cannot
before having paid, may proceed demand the exhaustion of the property
against the principal debtor. (please of the debtor or of the surety.
refer to page 380 of the book)  Case 1:
 Effects of guaranty as between co- 1. The obligation of the surety
guarantors in case payment has been cannot be extended by implication
made in virtue of judicial demand, or beyond its specific limits.
when the principal debtor or one of the 2. A guarantor may bind himself for
guarantors is insolvent. (refer to page less, but not for more than the
381) principal debtor.
 CAUSES for EXTINGUISMENT of 3. The limits of Chans Inc.’s
Guaranty liabilities must be determined
a. Principal obligation is from the suretyship agreement it
extinguished had signed.
b. Same causes as all other  Case 2:
obligations 1. A guaranty may be given to secure
c. If creditor voluntary accepts future debts.
immovable or other properties in  Case 3:
payment of the debt (even if he 1. If the benefits of excussion is
should afterwards lose the same waived, the guarantor can be
through eviction or conveyance of directly compelled by the creditor
property) to pay the entire debt even without
d. Release in favor of one of the the exhaustion of the debtor’s
guarantors, without consent of the properties.
others, benefits all to the extent of
the share of the guarantor to
whom it has been granted; SURETY
e. Extension granted to the debtor by
the creditor without the consent of  Suretyship is when a person binds
guarantor; or himself solidarily with the principal
f. When by some act of the creditor, debtor.
the guarantors even though they  Contract of Suretyship is an agreement
are solidary liable cannot be whereby a party, called the surety,
subrogated to the rights, guarantees the performance by another

Page 2 of 28
 party, called principal or obligor, of an benefit from the
obligation or undertaking in favor of transaction
another party, called the obligee. between the
(obligor=debtor, obligee=creditor) creditor and the
 Contract of a Surety is secondary only solidary debtors
to a valid principal obligation, but his Entitled to Right for
liability to the creditor or promisee of obtain reimbursement
indemnification is subject to
the principal is said to be direct,
for the entire deductions
primary, and absulote; in other words,
amount pertaining to his
he is directly and equally bound with share or at times
the principal. even pertaining
 There is a required format of a to his
contract of suretyship because it is a proportionate
promise to answer for the debt, share in the
default, or miscarriage of another; portion that
hence, pursuant to Statute of Frauds, it should have
must in writing and subscribed by the been paid by an
party charged or by the latter’s duly insolvent
authorized agent. Otherwise, it would solidary debtor.
be unenforceable.  Accomodation surety V. Compensated
 Surety V. Guaranty Surety
Accomodation-without motive of
Guaranty Surety pecuniary gain
Binds himself to He is solidarily Compensated- for profit
the creditor to liable with the  Any change in the principal contract,
fulfill the principal debtor. which materially alters the principal’s
obligation of the obligations would, in effect, constitute
principal debtor an implied novation of the surety
in case the latter
contract.
fails to do so.
 Yes, a surety agreement can secure an
Guarantor is Surety is
secondarily primarily liable. obligation in the absence of a written
liable. contract evidencing the principal
Insurer of Insurer of the obligation. Thus, an oral agreement
solvency of debt which has all the essential requisites
debtor (a surety for validity may be guaranteed by a
(a guarantor promises to pay surety contract.
agrees that the the principal’s  The SC held that if the surety upon
creditor, after debt if the demand fails to pay, he can be held
proceeding principal will liable for interest, even if in thus
against the not pay) paying, its liability becomes more that
principal, may the principal obligation. The surety’s
proceed against liability for the payment of interest is
the guarantor if
not by reason of the suretyship
the principal is
agreement itself but because of the
unable to pay)
 Surety v. Solidary co-debtor delay in the payment of its obligation
under the said agreement.
Surety Solidary co-  Jurisprudence:
debtor 1. FGU Insurance Corporation v.
Not a party to A party to the Sps. Floro and Eufemia Roxas,
the obligation; obligation G.R. Nos. 189526 and 189656,
and does not August 9, 2017

Page 3 of 28
Facts: 4. Whether the liabilities of the
Spouses Roxas to Dominguez may be
This case originates from a Contract of
set off against any liability of FGU
Building Construction entered into on
Insurance Corporation.
May 22, 1979, between respondents
Spouses Floro and Eufemia Roxas and 5. Whether the Court of Appeals erred
Rosendo P. Dominguez, Jr., with in remanding the case for the proper
Philippine Trust Company (Philtrust computation of
Bank) funding the cost of materials
the other claims of the Philippine
and supplies. Spouses Roxas agreed to
Trust Company against the Spouses
finance labor costs, and Dominguez
Roxas.
obtained a performance bond from
FGU Insurance Corporation (FGU). 6. The liability of Philtrust Bank for
Dominguez later requested an the unauthorized release of
adjustment of the contract price and construction funds.
claimed non-payment of agreed
installments from the Spouses Roxas, Court’s Decision:
leading to his cessation of work. The Supreme Court partially granted
Consequently, Dominguez pursued the petitions, confirming FGU’s and
legal action against the Spouses Roxas Dominguez’s liability to pay the
and Philtrust Bank for the amounts Spouses Roxas and/or Philtrust Bank
due, and FGU was brought into the the amount stipulated in the surety
dispute over its liability under the bond with interests. It also ordered
surety bond. Dominguez to pay the Spouses Roxas
The Regional Trial Court ruled in and/or Philtrust Bank for liquidated
favor of Dominguez, modifying the and other damages, and it held the
contractual agreements and holding Spouses Roxas liable to Dominguez
the Spouses Roxas liable for various for spe cific amounts with interests.
payments to Dominguez. The Court of FGU was allowed to offset its liability
Appeals, however, found the contracts against Dominguez’s collectibles from
valid and FGU liable under the surety the Spouses Roxas, who, in turn, were
bond, modifying the lower court’s found liable to Philtrust Bank for
decision and awarding damages to the specific loan amounts and interests.
parties involved. The case was remanded to the trial
court for execution.
Issues:
Doctrine:
1. Whether FGU Insurance
Corporation is liable for the full The liability of a surety is determined
amount of its Surety Bond rather than strictly in accordance with the actual
just the cost overrun on account of terms of the performance bond it
Dominguez’s non-completion of the issued, and it may set up
project. compensation against the amount
owed by the creditor to the principal.
2. Whether the Spouses Roxas are
entitled to liquidated damages under
the Contract for Building 2. Development Bank of the
Construction. Philippines v. Hon. Emmanuel C.
Carpio, et al., G.R. No. 195450,
3. Whether there is a factual basis for February 1, 2017
the award of amounts with interest in
favor of Dominguez.

Page 4 of 28
 3.Carmelita Borlongan v. Banco de  A stipulation forbidding the owner
Oro, G.R. Nos. 217617 and 218540, from alienating the mortgaged
April 5, 2017, citing Spouses Ching v. immovable is void.
Court of Appeals, 423 SCRA 356,  The mortgage credit may be alienated
2004 or assigned to a third person, in whole
or in part, with the formalities required
4.Trade and Investment Development
by law.
Corporation of the Philippines.
 The following requisites are essential
(Formerly Philippine Export and
for the constitution of a REM;
Foreign Loan Guarantee Corporation)
1. It is constituted to secure the
vs. Asia Paces Corporation, G.R. No.
fulfillment of a principal
187403, February 12, 2014;
obligation;
5.Go Tong Electrical Supply Co., Inc. vs. BPI 2. The mortgagor must be the
Family Savings Bank, Inc., G.R. No. 187487, absolute owner of the real estate
June 29, 2015 mortgaged;
3. The mortgagor has the free
disposal of the property, and in the
absence thereof, that he is legally
authorized for the purpose.
REAL ESTATE MORTGAGE LAW
Note:
 REM is a contract whereby the
debtor secures to the creditor the Third persons who are not parties to
fulfillment of the principal the property, and in the absence
obligation, specially subjecting to thereof, that he is legally authorized
such security immovable property for the purpose.
or real rights over immovable In order that the mortgage may be
property, in case the principal validly constituted, that the document
obligation is not fulfilled at the in which it appears be recorded in the
time stipulated. Registry of Property. If the instrument
 Characteristics of REM; is not recorded, the mortgage is
a. It is a real right nevertheless binding between the
b. It is an accessory contract parties. Between the parties to a
c. It is indivisible mortgage, the non-registration of a
d. It is inseparable REM deed is immaterial to its validity.
e. The object of the contract is Recording in the Registry of Property
immovable property or is only necessary in order to bind
alienable real rights over third person.
immovable property.  The defective notarization of a REM
 Yes, the building erected on the land agreement merely strips it of its public
belonging to another can be character and reduces it to a private
constituted in a valid REM, because document thus, does not render the
the SC held that the inclusion of transaction invalid. And the measure
“building” as a separate and distinct to test the validity of such document is
from land in the enumeration in Art. preponderance of evidence.
415 of the Civil Code can only mean  The mortgagee may either file an
that a building is by itself an action for specific performance to
immovable property. compel payment of the loan or he may
 Inseparable characteristics of a real foreclose the mortgage extra-
estate mortgage means a real right judicially.
following the property.

Page 5 of 28
 The mere filing of action for specific newspaper of general circulation.
performance to collect the loan is (EXP: when the parties stipulate that
tantamount to a waiver or personal notice is additionally required
abandonment of the mortgage lien. to be given to the mortgagor.) failure
Thus, should the mortgagee obtain to abide will render the foreclosure
adverse judgment in the collection proceeding null and void.
case, he can no longer foreclose the  Case:
real estate mortgage. If it is realized 1. Ana is correct. Sec. 20 of the
that foreclosure is not sufficient to condominium act does not grant
satisfy the loan, mortgagee can file an condominium corporations the
action for collection to enforce special authority or power
payment of deficiency. required to carry out an
 Case: extrajudicial foreclosure. Without
When the redemption period expired, the required authority, the
ABC Corp became the owner of the condominium corporation cannot
subject property. Thus, Sps. Santos initiate extrajudicial foreclosure
simply hold the amount collected in proceedings under Act no. 3135. It
trust -with the obligation to return the may only enforce its lien through
same to their rightful owners. an ordinary collection suit or
 The mortgagor does not lose judicial foreclosure proceedings as
ownership of the mortgaged property provided under rule 68 of the rules
after foreclosure because he has of court.
redemption right under the law. It is 2. Individual buyers of condominium
only when he fails to redeem the real units or subdivision lots, while
estate mortgage within the period having privity with developer-
prescribed by law that the mortgage mortgagors, should be excluded
may consolidate title to the property, form the issuance or
resulting in the mortgagor’s loss of implementation of a writ of
ownership thereof. possession if they are actually
 The validity of accessory contracts occupying the unit or lot.
mainly flows form the validity of the
JURISPRUDENCE
principal contracts. A real estate
mortgage is in the nature of an 1. Paradigm Development
accessory contracts; thus, its validity Corporation of the Philippines vs.
depends on the validity of the loan Bank of the Philippine Islands,
contract. 826 SCRA 267, G.R. No. 191174
 Blanket mortgage or Dragnet clause June 7, 2017
It is the stipulation extending the
coverage of a mortgage to advances or
loans other than those already 2. Boston Equity Resources, Inc. et
obtained or specified in the contract. al. v. Edgardo D. Del Rosario,
(must be specifically described within G.R. No. 193228, November 27,
the terms of the mortgage contract.) 2017
 REM agreement does not cover
obligations incurred prior to the
execution of the mortgage instrument. 3. Security Bank Corporation v. Sps.
 Personal notice to the mortgagor in Rodrigo and Erlinda Mercado,
extrajudicial foreclosure proceedings G.R. Nos. 192934 and 197010,
is NOT necessary. It only requires the June 27, 2018
posting of sale in three public places
and the publication of that notice in a

Page 6 of 28
 4. Gotesco Properties, Inc. v.  Prescribed form of a security
Solidbank Corporation, now agreement must be in written contract
Metropolitan Bank and Trust signed by the parties.
Company, G.R. No. 209452, July  A description of collateral shall be
26, 2017 considered sufficient (whether specific
or general)
 Yes, A security agreement may
5. Philippine National Bank v. provide for the creation of security
Lilibeth S. Chan, G.R. No. interest in future property or after-
206037, March 13, 2017 acquired assets, but the security
interest in that property is created only
6. Makilito B. Mahinay v. Dura Tire when the grantor acquires rights in it
& Rubber Industries, Inc., G.R. or the power to encumber. (Limited to
No. 194152, June 5, 2017 the value of the encumbered asset)
7. Sps. Ellis and Carolina Miles v.  A security interest in personal
Ronnie Bautista Lao, G.R. No. property shall extend to its identifiable
209544, November 22, 2017 or traceable proceeds. (Proceeds and
commingled funds) Refer to page 405
 A security interests in a tangible asset
that is commingled in a mass extends
to the mass, but such interest shall be
PERSONAL PROPERTY SECURITY ACT limited to the same proportion of the
(RA NO. 11057) mass as the quantity of the
 Control Agreement encumbered asset bore to the quantity
An agreement in writing between the of the entire mass immediately after
grantor and the secured creditor which the commingling.
perfects the security interests over an  Yes, a security agreement may provide
intangible asset. for security interest in accounts
 Purchase Money Security Interest receivable arising from;
Refers to a security interests in goods 1. A contract for the supply or lease
taken by the seller to secure the price of goods or services other than
or by a person who gives value to financial services;
enable the grantor to acquire the goods 2. A construction contract or contract
to the extent that the credit is used for for the sale or lease of real
that purpose. property;
 Registry 3. A contract for the sale, lease, or
Refers to the centralized and license of intellectual property.
nationwide electronic registry  Any stipulation limiting the grantor’s
established in the Land Registration right to create a security interest shall
Authority (“LRA”) where notice of a be void.
security interest and a lien in personal  The creation of a security interest in a
property may be registered. receivable does not, without the
 The scope of the application of PPSA consent of the debtor of the receivable,
is to all transactions of any form that affect its rights and obligations,
secure an obligation with personal including the payment terms contained
property, whether it is a tangible or an in the contract giving rise to the
intangible asset, except interests in receivable. (???)
aircrafts, civil aviation authority,  A security interest shall be perfected
interests in ships. shall be perfected when it has been
created and the secured creditor has
taken on of the following:

Page 7 of 28
 Intangible:  Rules with respect to priority of
 Registration/Possession security interest;
 Control GR:
if intangible, control agreement will
Tangible
be the basis. (e.g. deposit account,
 Registration investment property, electronic non-
 Possession intermediated securities/ shares of
 An initial notice of security interest is stocks by a notation of the security
deemed sufficient if; interests in the books, electronic
1. It identifies the grantor by an securities not held with an
identification number; intermediary)
2. It identifies the secured creditor or if tangible, possession will be the
an agent of the secured creditor by basis. (e.g. security certificate,
name; instrument or negotiable instrument,
3. It provides an address for the livestock securing an obligation
grantor and secured creditor or its incurred to enable the grantor to obtain
agent; food or medicine for the livestock)
4. It describes the collateral; priority and right of retention,
5. The prescribed fee has been possession will be the basis.
tendered, or an arrangement has (e.g. services or materials with respect
been made for payment of fees by to the goods)
other means. Priority rules on purchase money
 A notice may be registered before a security interest, registration within 3
security agreement is concluded. Once business day, will be the basis
a security agreement is concluded, the (e.g. purchase money security interest
date of registration of the notice shall in equipment and its proceeds, in
be reckoned from the date the notice consumers goods, in inventory,
was registered. (notice to the whole intellectual property, or livestocks)
world) (inventory and livestock is an
 A notice shall be effective at the time exemption)
it is discoverable on the records of the  The secured creditor may enforce its
registry, and shall remain effective for security interest whether through a
the duration of the term indicated in judicial process or through an
the notice unless a continuation notice extrajudicial process, including the
is registered before the term lapses. sale of the secured assets through
 A notice may be amended by the either a public or private disposition
registration of an amended notice that (please refer to page 413)
identifies the initial notice by its Note:
registration number and provides new 1. The secured creditor may take
information. possession of the collateral
 The grantor may give a written without judicial process if the
demand to the secured creditor to security agreement so stipulates,
amend or terminate the effectiveness provided, that possession can be
of the notice. (refer to page 409) taken without a breach of the
 The effectiveness of a notice may be peace. If it is a fixture, and the
terminated by registering a termination secured creditor has the priority
notice that identifies the initial notice over all owners and mortgages,
by its registration number and each may remove the fixture from the
secured creditor who authorizes the real property to which it is affixed
registration of the termination notice. without judicial process. The

Page 8 of 28
 secured creditor shall exercise due participation by the general public.
care in removing the fixture. Moreover, the secured creditor may
2. If upon default, the secured buy the collateral at any public
creditor cannot take possession of disposition, or at a private disposition
collateral without breach of the but only if the collateral is of a kind
peace, the secured creditor may that is customarily sold on a
proceed as follows; please refer to recognized market or the subject of
page 413 widely distributed standard price
 Yes, Even if another secured creditor quotations.
or a lien holder has commenced If you are in the possession, you can
enforcement, a secured creditor whose actually dispose it.
security interest has priority (higher- No pactum commissorium because it
ranking) over that of the enforcing will not automatically transfer
secured creditor or lien holder shall be ownership and extinguish credit
entitled to take over the enforcement liability.
process.  The proceeds of disposition shall be
 Rules on recovery in special case; applied in the ff.;
Upon default, the secured creditor a. Reasonable expenses
may, without judicial process: b. Satisfaction of the obligation
a. Accounts receivable- instruct the secured by the security interest of
account debtor of an account the enforcing secured creditor
receivable to make payment to the c. Satisfaction of obligations secured
secured creditor, and apply such by any subordinate security
payment to the satisfaction of the interest or lien in the collateral
obligation secured by the security a. Surplus will be accounted to the
interest after deducting the grantor, unless otherwise agreed, the
secured creditors reasonable debtor it liable for any deficiency.
collection expenses. b. The reasonable expenses
b. Negotiable document-proceed to c. Value of the loss and deterioration (as
the negotiable document or goods long as they performed as a good
covered by the negotiable father of the family)
document;  Any person who is entitled to receive
c. Deposit account-in a deposit a notification of disposition is entitled
account maintained by the secured to redeem the collateral by paying or
creditor, apply the balance of the otherwise performing the secured
deposit account to the obligation obligation in full, including the
secured by the deposit account. reasonable cost of enforcement.
 After default, a secured creditor may  After default, the secured creditor may
sell or otherwise dispose of the propose to the debtor and grantor to
collateral, publicly or privately, in its take all or part of the collateral in total
present condition or following any or partial satisfaction of the secured
commercially reasonable preparation obligation. (notice is the only
or processing. requirement)
 Not later that ten 10 days before  Case:
disposition of the collateral, the 1. All claims against the bank should
secured creditor shall notify the be filed in the liquidation
grantor. proceeding. This holds true
 Guidelines on private and public regardless of whether or not the
disposition; claim is initially disputed in a
The secured creditor may dispose of court or agency before it is filed
the collateral through sale open to with the liquidation court.

Page 9 of 28
 2. As a consequence of the
receivership, the closed bank may
sue and be sued only through it
receiver, the Philippine deposit
insurance corporation. Any action
filed by the closed bank without
its receiver may be dismissed.
JURISPRUDENCE
1. Cancio v. Performance Foreign
Exchange Corp., G.R. No. 182307, June 6,
2018
2. Yngson, Jr. v. Philippine National
Bank, G.R. No. 171132, August 15, 2012, 692
PHIL 576-586
3. Landl & Company (Phil.) Inc. v.
Metropolitan Bank & Trust Co., G.R. No.
159622, July 30, 2004, 479 PHIL 562-577
4. Spouses Chin Kong Choi et al v
UCPB GR 207747 Mar 11, 2015
5. Ramos v. Philippine National Bank,
G.R. No. 178218, December 14, 2011, 678
PHIL 727-751
6. Yuliongsiu v. Philippine National
Bank, G.R. No. L-19227, [February 17, 1968],
130 PHIL 575-583
7. Mitsui Bussan Kaisha (Ltd.) v.
Hongkong & Shanghai Banking Corp., G.R.
No. 11079, [January 12, 1917], 36 PHIL 27-58
8. RCBC v Royal Cargo Corporation GR
179756 Oct 2, 2009 9. Metropolitan Bank v.
G7P Builders, Inc. Et Al G.R. No. 189509
Nov 23, 2015
10. Metropolitan Bank v. S.F.
Naguiat Enterprises, Inc.
G.R. 178407 Mar 18, 2015

Page 10 of 28
 supervision over the operations of
banks. It shall have a regulatory
and examination powers over
money service business. BSP is
also concern in maintaining price
stability conducive to a balanced
and sustainable growth of the
economy and employment, etc.
 .
 26. The BSP is considered the
lender of last resort because it can
lend to banks and similar
TOPICS
institutions under financial distress
The New Central Bank (RA 7653 and RA
11211)
when they have no other means to
Law on Secrecy of Bank Deposits (RA 1405) raise funds.
General Banking Law of 2000 (RA 8791)
Philippine Deposit Insurance Corporation Act
(RA 3591, as amended) c. Corporate powers

 27. The BSP is authorized to adopt,

alter, and use a corporate seal
The New Central Bank Act (RA 7653 and RA which shall be judicially noticed; to
11211)
enter into contracts; to lease or own
real and personal property; and to
 The creation of this law is
sell or otherwise dispose of the
constitutionally guaranteed.
same; to sue and be sued; and
Meaning a law must be submitted.
otherwise to do and perform any
and all things that may be
a. State Policies
necessary or proper to carry out the
 23. The State shall maintain a
purpose of the charter creating it.
central monetary authority that
They also have the power to
shall function and operate as an
acquire and hold assets,
independent and accountable body
compromise, condone or release
corporate in the discharge of its
any claim to the BSP.
mandated responsibilities
 28. BSP corporate power of
concerning money, banking and
litigation evidently refers to civil
credit. (Central monetary authority
case only. (Mandamus will not lie
is established)
to compel the prosecuting officer)
b. Creation of BSP
d. Operations of the Bangko
 24. BSP=is a GOCC which the law
Sentral ng Pilipinas
has established to be the
i. Authority to obtain data
independent central monetary
and information
authority of the country.
 29. BSP has a supervisory and
 25. The BSP shall provide policy
regulatory power that is why they
directions in the areas of money,
have power to issue a subpoena.
banking, and credit. It shall have

Page 11 of 28
 (Governor or any representative
may issue subpoena). Those who e. Bank deposits and investments
refuse the subpoena may be
punished for contempt.  33. The loan or financial
 BSP can also collect report from accommodation granted to the
banks and government office, director, officer, or stockholder
instrumentalities and GOCC shall be subject to the following
(subject to prevailing requirements; (Approval
confidentiality law) requirement, Reportorial
requirement, the amount of the
loan shall not exceed the book
ii. Supervision and value of his paid-up contribution
examination and the amount of his
 30. BSP’s supervisory and unencumbered deposit.)
regulatory powers to the operations
of banks. f. Prohibitions
 31. GR: No restraining order or  34. Prohibited acts of BSP
injunction shall be issued by the personnel. (Please refer to page 87)
court enjoining the BSP from
examining any institution subject g. Examinations and fees
to its supervision or examination,  35. The supervising and examining
unless there is convincing proof department examine the operations
that the action of the BSP is plainly of banks and quasi-banks shall be
arbitrary. an interval of at least 12 months
 EXP: Certiorari Power between regular examinations
 32. BSP’s supervisory and except if it is an special
regulatory powers include; examination.
-conduct of examination to
determine compliance h. Monetary Board; powers and
-overseeing to ascertain that laws functions
and regulations are complied with  36. The powers and functions of
-Regular investigation monetary board are exercised by
-inquiring into the solvency and the seven members appointed by
liquidity of the institution. the president for term of six years.
 RTC has no jurisdiction to hear and  37. The transfer and acquisitions,
decide a suit that seek to place a or series thereof, of at least ten
bank under receivership or under a percent (10%) of the voting shares
management committee. The in banks or quasi-banks shall
authority is lodged with the BSP. require the prior approval of BSP.
 The only time courts jurisdiction (same with selling or conveying
will be allowed once the monetary stockholders) There is no legal
board had acted and only in the effect if there is no approval from
ground of excess of jurisdiction or the BSP. The transferor is still
with grave abuse of discretion as to become liable.
amount to lack or excess of
jurisdiction.

Page 12 of 28
 i. How the BSP handles banks in realizable assets, cannot continue
distress in business, willfully violated a
a. Conservatorship cease and desist order.
 Liquid and Solvent are two
requirements of banks  BSP will appoint receiver once the
 If banks are not liquid (insufficient bank cannot recover. They will just
cash) the BSP will now enter to refer to the report of the
protect the depositors. They will conservatorship.
now be under
CONSERVATORSHIP.  43. The receiver shall immediately
 38. The BSP may appoint gather and take charge of all the
conservator, or receiver, or direct assets and liabilities of the
the closure and liquidation of the institution and administer the same
financially distressed bank. for the benefit of its creditor. The
 39. When the Monetary Board bank receiver has only the power of
finds that a bank or quasi-bank is in administration it cannot exercise
a state of continuing inability or acts of strict ownership. The
unwillingness to maintain the properties of the bank may be sold
liquidity deemed adequate to only to pay its debts.
protect its depositor and creditors,
the Monetary Board will appoint a  44. Legal effects when a bank is
conservator to take charge of the place under receivership;
assets, liabilities, and management
of the said institution. a. Suspend the authority of the bank
 The Conservator should be and its director
competent and knowledgeable in b. Banks shall be forbidden to do
bank operations and management. business.
Conservatorship is only for 1 year. c. The criminal case for violation of
 40. The appointment of a BP 22 against a bank placed under
conservator will not result the receivership by the monetary Board
closure and liquidation of a bank. may be dismissed.
They will just oversee the d. The receiver shall immediately
operations of the bank. gather and take charge of all the
 41. Conservator is not allowed to assets and liabilities of the
declare void the existing contract institution, administer the same for
that was entered by the banks. the benefit of its creditors, and
Except if the law is not applicable exercise the general powers of a
or defective. receiver.
 42. Upon the report of the head of  Conservatorship and receivership
the supervising or examining can exist independently. This is not
department, the Monetary Board a step by step process.
finds that bank or quasi-bank has  Conservatorship the bank retains its
notified the BSP regarding the personality while the receivership
unilateral closure or announced does not retain its personality
publicly or dormant for at least because it is considered close.
(60) days, has insufficient Purpose of receivership is to

Page 13 of 28
 protect the creditor and depositor  52. The designation of conservator
of the bank. is not a precondition to the
 45. Case: Z bank appointment of a receiver.
(PDIC is the receiver of the banks.)  53. Conservator is appointed if the
a. The act of the Pres. Is not valid bank is in continuing state of lack
because the bank is already of liquidity to protect the interest of
under receivership. Thus, the the bank creditor and depositors
Pres has no controlling power while Receiver is appointed to an
because the banks is already insolvent bank. Conservator will
close. take charge of the assets and
b. No, the investor cannot enforce liabilities and the management of
right to purchase of the the bank while Receiver will
property because the property immediately gather the assets and
in question can be disposed liabilities and administer and
only for the purpose of paying exercise the general powers. The
the debts of Z bank or for the Banks is allowed to do business if
benefits of its creditors. under conservatorship while not
 46. The bank under a receivership allowed to do business if under
cannot be granted new loans and receivership. Conservatorship is
accept new deposits. only for 1 year while receivership
 47. Banks under receivership will based on the statutory grounds
cannot be rehabilitated. and might proceed with liquidation
 48. The PDIC under the charter of the closed bank.
that created it is considered the  54 and 56. Rationale of the “close
receiver of closed banks. now, hear later” is to protect the
 49. A closed bank under deposit and the creditor of the bank
receivership can only sue or be because it is in viewed with public
sued through its receiver, the interest. It is also a valid exercise
PDIC. of police power to protect the
 Case: creditors, debtors, stockholders,
No, the PDIC, as the fiduciary of and the general public.
the properties of a closed bank,  55. BSP is not required to conduct
may prosecute or defend the case an audit of the bank before
by or against the said bank as a ordering its closure. Only report of
representative party while the bank the head of the supervising or
will remain as the real party in examining department is necessary.
interest. The closed bank under  57. If you are under examination
receivership can only sue or be you cannot file injunction to
sued through its receiver, the restrain BSP, because the power of
PDIC. the BSP is constitutionally
 “Close now, hear later” guaranteed.
 51. The designation of the  58. Remedy available to the bank
conservator and receiver shall be to set aside the order of BSP
vested exclusively with the designating a conservator,
Monetary Board. appointing a receiver or directing
the closure or liquidating of the

Page 14 of 28
 bank is Petition of Certiorari under assist in the economic
rule 65 if the action was taken in development of the country.
excess of jurisdiction or with such  It is unlawful for any official or
grave abuse of discretion as to lack employee of a banking institution
or excess of jurisdiction. (Note that to disclose or allow the
appeal is not a remedy) examination or inquiry by any
 59. Jurisprudence where Central person, government official,
Bank are in bad faith. (Page 100) bureau, or office, other than those
 60. Power of the BSP is not for excepted by law, any information
judicial determination thus cannot concerning Philippine currency
entertain declaratory relief. bank deposits of whatever nature
 62. Case: Hermosa bank and kind, as well as investment in
(Proceeding in the RTC should be government securities.
referred to PDIC, except if the rule  All bank officials and employees
in the change in jurisdiction is are covered by the prohibition.
curative in character.)  Items covered by the prohibition;
 63. Case: Family bank (no a. All Philippine currency bank
injunction, no grave abuse of deposits
discretion because they only do b. Trust funds and any sum of
their power in case, RTC acting as money invested in the bank
a liquidation court, has no power to which the bank may use for
overrule the findings of the loan and similar transactions.
Monetary Board.) c. Deposits
 64 to 66. All notes and coins  In what cases may information on
issued by the BSP shall be legal Philippine currency bank deposits,
tender for all debts, both public and as well as investment in
private. (1=1000, .25=100) government securities, be
 67. Notes and coins called in for disclosed, examined or looked into
replacement shall remain legal without violating the law?
tender for a period of one (1) year a. Written permission of the
from date of call. depositor;
b. In case of impeachment;
c. In case of order of a competent
Law on Secrecy of Bank Deposits (RA court in any of the following cases:
1405) i. In case of bribery or dereliction
of duty of public officials;
ii. Where the subject matter of
 Purpose; litigation is the money deposited;
1. To give encouragement to the iii. Prosecution for unexplained
people to deposit their money wealth (plunder is akin to
in banking institutions and to unexplained
discourage private hoarding; wealth);25
and iv. Prosecution for violation of the
2. So that the people‘s money anti-graft and corrupt practices act;
may be properly utilized by v. In case of violation of the anti-
banks in authorized loans to money laundering law; and,

Page 15 of 28
 vi. Garnishment of bank deposits. insolvent debtor’s deposits does
not bind the latter who was not a
NB. Under R.A. No. 1405, the party and signatory to the said
issuance of court order is limited to agreement.
bribery or dereliction of duty of
Order of a competent court
public officials and where the
subject matter of litigation is the  Senate Blue Ribbon Committee,
money deposited. The rest of the OSI-BSP and a Prosecutor cannot
enumeration is based on subpoena the bank because they are
jurisprudence and the other not a competent court.
laws.  Exemption of court order;
d. The BIR may inquire into the a. in an examination to determine
deposit and other related gross estate of a decedent.
information to determine the gross b. In an investigation for violation
estate of the deceased taxpayer for of Anti-graft and corrupt
computation of estate practices.
tax; c. In an investigation by the
e. The BIR may also inquire into ombudsman
bank deposits if there is an offer of d. In an impeachment proceeding.
compromise of tax liability on e. In an examination to determine
account of financial incapacity to gross estate of a decedent.
pay his tax liability;
f. Disclosure by the bank to the  Supreme Court held that the
National Treasurer of information
concerning dormant deposits under Ombudsman can only examine bank
the Unclaimed Balances law; deposit accounts upon compliance with the
g. PDIC and/or BSP may inquire following requisites:
into or examine deposit accounts a. There is a case pending before a court of
and all information related thereto competent jurisdiction;
in case there is a finding of unsafe
and unsound banking practice; b. The account holder and the bank official
h. BSP may, the course of a must be informed of the examination;
periodic or special examination, c. The account to be examined must be
check the clearly identified; and,
compliance of a covered institution
with the requirements of AMLA d. The examination must be limited to the
and its implementing rules and account specified.
regulations; If there is no pending case yet, but only an
j. In case of amendment or repeal investigation by the Ombudsman, any
of the law. order for the examination of the bank
Written permission of the depositor account is premature. (but according to a
jurisprudence, it is not enough that there is
 Case: a pending criminal investigation; the
No, the Joint Motion to Approve Ombudsman must comply with the
Agreement executed by the parties abovementioned formalities.)
on waiver of confidentiality of the
 Case:
Page 16 of 28
 The petition for the examination of  Banks is an entity engaged in
the account of “D” should be lending of funds from the public in
denied. Because the “money the form of deposits.
deposited” itself should be the  Elements;
subject matter of the litigation. a. They lend money to public
b. Funds are obtained from public,
Violation of the anti-money laundering
meaning 20 or more lenders
law
c. Funds are obtained from public
 AMLC need to obtain court order through deposits.
form Court of Appeals before  The General banking law provides
inquiring or examining the bank civil and criminal liabilities not
except in cases; only to the corporations but to the
a. Kidnapping for ransom directors and officers of the bank
b. Violations of comprehensive when they engaged in illegal
dangerous drugs. banking.
c. Hijacking, destructive arson,  Requirement for the grant of a
murder. banking license;
d. Felonies and offenses a. The entity must be a stock
punishable under penal laws of corporation
their country. b. The funds are from the public
e. Terrorism and conspiracy to meaning 20 or more lenders
commit terrorism. c. The satisfied the minimum
 Depositors written consent or bank requirement of the Monetary
inquiry order issued by the Board.
competent court is needed before  Foreigner can be elected directors
AMLC can order a bank to inquire of a domestic bank but not
the bank account of the depositor. appointed officer
 Foreign individuals and non-
Garnishment of bank deposit banking corporation may own or
 Garnishment is only available to control 40% of the voting stocks of
peso savings account not to dollar a domestic bank.
accounts or foreign deposits.  Classification of Bank (take note)
Foreign deposits can only be a. Universal banks (power to
examined with the consent of the invest house)
depositors. b. Commercial banks (issue
 Banks may also disclose letter of credits, accept
information about the Philippine deposits)
bank deposits to a writ of c. Thrift banks (saving and
garnishment provided that the case mortgage bank)
isincidental to the execution d. Rural banks (credits
process. facilities to farmers)
e. Cooperative Banks
(organized under
cooperative code)
f. Islamic banks

General Banking Law RA No. 8791

Page 17 of 28
 g. Other classifications of  Limitations of the banks to grant
banks as determined by the loans;
Monetary Board of BSP. a. The loan given by the banks
 A foreign bank cannot acquire real should not exceeds 25% of its
properties. net worth of such bank.
 The diligence required of banks is b. Loans granted to DOSRI must
more that of a good father where conform to certain procedural
the fiduciary nature of their and substantive requirement
relationship with their depositors is otherwise criminal sanctions
concerned. may be imposed.
 Distinguish banks from quasi- c. Prescribe loans against real
banks and trust entities estate shall not exceed 75% of
 Powers of a Bank; the appraised value.
a. All powers necessary to d. Grants loans only the amount
perform in commercial banking for the periods of time essential
b. Invest in equities for the effective completion of
c. Power to purchase or acquire the operation to be finance
shares of capital stocks e. Amortization schedule of bank
d. May acquire real property. loans and other credit
accommodations shall be
(Note of 5yrs limitation foreclosure- any
adapted to the nature of the
real property held by banks may be
operations to be financed.
disposed within a period of 5yrs or
 DOSRI transaction may be subject
prescribed by monetary board)
to approval, reporting, and ceiling
 Limitation on the power of the requirements.
banks  Fringed benefit to the DOSRI is
 Foreign entity cannot own a real not subject approval of the board
property. and does not need a guarantor.
 (Services) A bank can accept  Case: The information filed for
document and valuable objects estafa and violation of DOSRI law
(What is the nature of the will not negate each other.
contracts) Debtor and creditor  Violations of the DOSRI law may
 Safety deposit box subject the officer to the penal
 Case: provisions of the new central bank
The diligence required of banks is act and his positions may be
ore than that of a good father of a declared vacant.
family. The banks may be held  The 3 different kinds of sale with
liable if they failed in the exercise respect to the property of the
of this diligence. Thus, failure to debtor/mortgagor;
keep the important documents 1. Ordinary execution sale
related to their client’s loan 2. Judicial Foreclosure sale
transaction may be held them 3. Extrajudicial Foreclosure sale
liable.  Right of redemption in relation to
 Bank deposits are governed by the mortgage;
law on loans not a trust agreement. a. No right of redemption to
judicial foreclosure (only

Page 18 of 28
 equity of redemption la), but in payable on demand, or at sight,
extrajudicial foreclosure if the or on presentation, or b.) in
mortgagee is a bank the which no time for payment is
mortgagor has 1 year to redeem expressed.]
form the registration of the d. It must be payable to order or
order confirming the sale of the to a bearer; and
real property. [it may be drawn payable to
 GR: Redemption period is 1 year the order of;
but it was reduced to 3 months if a. -a payee who is not maker,
the mortgagor is a juridical person drawer, or drawee; or
b. the mortgagee is a bank c. if the -the drawer or maker; or
mode of foreclosure is -the drawee, or
extrajudicial. -d. two or more payees jointly;
or
-the holder of an office for the
time being.
NEGOTIABLE INSTRUMENTS On the other hand, the
LAW instrument is payable to
bearer;
Forms and Interpretation
-when it is expressed to be so
 A negotiable instrument is a payable; or
contract for the payment of sum of -when it is payable to a person
money which contains the named therein or bearer; or
requisites of negotiability under -when it is payable to the order
Section 1 of Negotiable of a fictitious or non-existing
Instruments Law (NIL) person, and such fact was
 Requisites: known to the person making it
a. It must be in writing and signed so payable; or
by the maker or drawer; [ -when the name of the payee
“writing”- typewritten, manual does not purport to be the
written, electronic documents. name of any person; or
“Signed” = individual who -when the only or last
make, trade name or assume indorsement is an indorsement
named, agent, endorsed] in blank.]
b. It must contain an e. Where the instrument is
unconditional promise or order addressed to a drawee, he must
to pay a sum certain in money; be named or otherwise
[a promise or order to pay is indicated therein with
unconditional if it not subject reasonable certainty.
to the happening of an [a bill may be addressed to 2
uncertain event.] or more drawees jointly
c. It must be payable on demand whether they are partners or
or at a fixed or determinable not, but not to 2 or more
future time; drawees in the alternative or in
[payable in demand if; a.) succession.]
where it is expressed to be  Kinds of NI;

Page 19 of 28
 a. Promissory Note course a better right to the
(unconditional promise in instrument, compared to a mere
writing) assignee of a nonnegotiable
b. Bill of Exchange instrument.
(unconditional order in writing  The validity and negotiable
addressed by one) character of an instrument are not
c. Check (it is a bill of exchange affected by the fact that it
drawn on a bank payable on designates a particular kind of
demand) current money in which payment is
 Functions of NI is as a substitute to be made.
for money. (e.g. CHECKS)  An instrument payable to the order
 The debtor cannot compel the of a fictious or non-existing person,
creditor to accept checks in and such fact was known to the
payment of an obligation because person making it so payable, is
checks representing demand payable to bearer because the
deposits do not have legal tender underlying theory is that one
power and their acceptance in the cannot expect a fictitious payee to
payment of debts, both public and negotiate the instrument by placing
private, is at the option of the his indorsement thereon.
creditor. Provided that the check  Case: PAGE 674. PNB bears the
that has been cleared and credited loss because the fictitious-payee
to the amount of the creditor shall rule does not apply in this case.
be equivalent to a delivery to the PNB failed to satisfy a fictitious-
creditor of cash in an amount equal payee situation that the maker of
to the amount credited to his the checks intended for payee to
account. have no interests in the
 Check are not legal tender; the transactions.
creditor has the option to accept or  The validity and negotiable
reject them. character of an instrument are not
affected by the fact that;
Requisites of negotiability
a. It is not dated
 The test is whether on the face of b. Does not specify the value
the instrument and without regard given, or that any value has
to extraneous circumstances, it been given therefor
conforms to the elements of c. Does not specify the place
negotiability under sec. 1 of the where it is drawn or the place
NIL. There is jurisprudence that by where it is payable
mutual agreement of the parties, d. Bears a seal
the negotiable character of a check e. Designates a particular kind of
may be waived and the instrument current money in which
may be treated simply as proof of payment is to be made.
an obligation. But this agreement
cannot be enforced against third
persons. Kinds of Negotiable Instrument
 The significance if an instrument is
 Certificates of deposits and bonds
negotiable give the holder in due
are similar to promissory notes and

Page 20 of 28
 they can be NI if they contain the a. Where the instrument is
elements of NI under the NIL. wanting in any material
 Examples of Bills of exchange; particular, the person in
draft, banker’s acceptance, trader’s possession thereof has a
acceptance. prima facie authority to
 Examples of not NI; postal money complete it by filling up the
orders, treasury warrants, blanks therein.
withdrawal slips, bank passbook (is b. And a signature on a blank
considered NI according to paper delivered by the
jurisprudence because it has the person making the signature
same features as certificates of in order that the paper may
deposits), certificate of be converted into a
indebtedness. negotiable instrument
 Case: HSBC (Electronic messages operates as a prima facie
are not bills of exchange as such authority to fill it up as
instructions are parallel to an such for any amount.
automatic bank transfer of local c. In order, however that any
funds from a savings account to a such instrument when
checking account maintained by a completed may be enforced
depositor in one bank. Moreover, against any person who
they cannot be considered as NI became a party thereto prior
because they lack of the feature of to its completion, it must be
negotiability. filled up strictly in
accordance with the
Completion and delivery
authority given and within a
 The payee of a negotiable reasonable time.
instrument acquires title to the d. But if any such instrument,
instrument only upon delivery after completion, is
to him. However, in cases negotiated to a holder in
where the checks were not due course, it is valid and
delivered by the debtor to the effectual for all purposes in
creditor the obligation still his hands, and he may
subsist. enforce it as if it had been
 The delivery should be of the filled up strictly in
purpose of giving effect to the accordance with the
instrument, otherwise, the authority given and within a
payee does not acquire any title reasonable time.
thereto. In case of CALTEX the
Note: in order that one who is not a holder
delivery thereof is only as a
in due course can enforce the instrument
security for the purchase of the
against a party prior to the instrument’s
fuel products and it did not
completion, two requisites must exist: 1.
legally vest in Caltex any right
That the blank must be filled strictly in
effective against and binding
accordance with the authority given; and 2.
upon Security Bank.
It must be filled up within a reasonable
 Rules where the instrument is
time.
incomplete but delivered;

Page 21 of 28
Insertion of dates  C. Yes Dante can recover from
Roldan as Roldan is the general
 Any holder may insert therein the
indorser.
true date of issue or acceptance,
and the instrument shall be payable Complete but undelivered instruments
accordingly. The date so inserted is
 Every contract on a negotiable
to be regarded as the true date. In
instrument is incomplete and
case of dated, it is a prima facie
revocable until delivery of the
evidence to be the true date.
instrument for the purpose of
 The person who is in the
giving effect thereto.
possession of the check, has prima
facie authority to complete it by Signature
filling up the blanks therein.
 The instrument is not invalid for  One who sign in a trade or assumed
the reason only that it is antedated name will be liable to the same
or postdated, provided this is not extent as if he had signed in his
done for an illegal or fraudulent own name.
purpose. The person to whom an  The signature of any party may be
instrument so dated is delivered made by a duly authorized agent.
acquires the title thereto as of the  The liabilities of the one who
date of delivery. signed the instrument is none if he
is duly authorized or if the person
adds to his signature words
indicating that he signs for or on
Incomplete and undelivered
behalf of a principal or in a
instrument
representative capacity.
 Where an incomplete instrument  PROCURATION operates as a
has not been delivered, it will not, notice that the agent has but a
if completed and negotiated limited authority to sign.
without authority, be a valid
contract in the hands of any holder,
as against any person whose Indorsement by minor or
signature was placed thereon Corporation
before delivery.
 Case:  The indorsement or assignment
 a. Dantes cannot enforce the check of the instrument by a
against Jose Reyes, who can raise corporation or by an infant
the defense that the check as passes the property therein,
incomplete and not delivered, when notwithstanding that form want
only stolen and filled up by of capacity the corporation or
Nazareno. infant may incur no liability
 B. incomplete and undelivered thereon.
instrument such as check be not Forgery
valid contract even in the hands of
the holder in due course.  Counterfeiting of any writing,
consisting in the signing of
another’s name with intent to
defraud.
Page 22 of 28
  The effect of forgery is not to Negotiation
automatically declared the
 An instrument is negotiated when it
instrument void but to it will
is transferred from one person to
make the signature inoperative.
another in such manner as to
 If the drawee bank accepts a
constitute the transferee the holder
check despite of the drawer’s
thereof.
forgery, the drawee bank will
 Non-negotiable instrument cannot
be held liable because they
be negotiated.
should be familiar with the
 Mode of negotiation;
signature of its depositors
 A. if payable to bearer, it is
because they furnished the bank
negotiated by mere delivery.
their specimen signature.
 B. if payable to order, it is
 When the drawee bank fails to
negotiated by indorsement and
return a forged check to the
delivery.
collecting bank within 24 hours
 The effect of transfer without an
clearing period, the collecting
indorsement is if the instrument is
bank is absolved form liability.
payable to bearer, this constitutes
Consideration valid negotiation. When the
instrument is payable to order, the
 Is merely a security for the
transferee is not the holder in due
obligation.
course.
 Value means valuable
 Case: (Anna, Bing, Carmen, Dong,
consideration
Emma, Fe)
 Every negotiable instrument is
 Note: it is when the instrument is
deemed prima facie to have been
originally payable to order that the
issued for a valuable consideration;
last mode of indorsement that will
and every person whose signature
determine the mode of subsequent
appears thereon to have become a
negotiation.
party thereto for value.
 Kinds of Indorsement
Accommodation Party a. As to future method of
negotiation (special
 Is the one who signed the indorsement, indorsement in
instrument as maker, drawer, blank)
acceptor, or indorser, without b. As to effect on liability of
receiving value therefor, and for indorser (Absolute/Partial,
the purpose of lending his name to Conditional, Qualified e.g.
some other person. “without recourse”,
 An accommodation party is liable irregular/anomalous,
either as a maker or drawer or successive, joint,)
acceptor or indorser depending on c. As to authority of holder
what capacity he signed the (Restrictive-e.g. “Pay to A
instrument. only”, Facultative=where the
 It is not a valid defense that the indorser expressly gives up
accommodation party did not some of his rights such as when
receive any valuable consideration he waives notice of dishonor,
when he executed the instrument. or presentment and protest.)

Page 23 of 28
  The indorser whose indorsement is 5. May enforce payment of
struck out, and all indorsers instrument for full amount, against
subsequent to him are thereby all parties liable.
relieved form liability on the  Case: Patrimonio and Gutierrez
instrument. Patrimonio is not liable because he
only gives limited authority to
Rights of the Holder
Gutierrez in filling up the blank
1. Holder in due course check and it is for the business
 A holder in due course is one who purpose only.
has taken the instrument under the  Case: a check can be considered as
following condition; (MEMORIZE negotiable instrument even if the
THIS) purpose is to kill his political
a.That is complete and regular enemy. It will be different though
upon its face; (this means that the if the illegality of consideration is
instrument is not lacking of declared by statue like Gecko.
material particulars, note that the
serial number of the check is not
an essential requisites) Liabilities of Parties
b. That he became the holder of it
 Maker
before it was overdue, and
 Liabilities of a maker
without notice that it had been
1. Engages that he will pay it
previously dishonored, if such
according to its tenor,
was the fact;
2. Admits the existence of the
c. That he took it in good faith
payee
and for value;
3. Capacity to indorse
d. That at the time it was
negotiated to him he had no
 Drawer
notice of any infirmity in the
 Liabilities of a drawer;
instrument or defect in the title
1. Admits the
of the person negotiating it.
existence of the
 Payee may be a holder in due
payee and his then
course.
capacity to indorse
 Case: Crossed check is not a
2. Engages that on due
negotiable instrument.
presentment the
 RIGHTS OF A HOLDER IN DUE
instrument will be
COURSE
accepted or paid or
1.to sue on the instrument in his
both according to its
own name
tenor.
2. to receive payment on the
3. If dishonored, he
instrument.
will pay the amount
3. Holds instrument free of any
to the holder.
defect of title of prior parties.
4. Holds instrument free from Primarily liable
defenses available to prior parties
among themselves. 1. Maker
2. Acceptor

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Secondary Liable refused or cannot be
obtained;
1. Drawer
b. Presentment is excused and
2. Indorser
the instrument is overdue
and unpaid.

 Acceptor Notice of Dishonor

 Liabilities of the acceptor
 When a negotiable instrument
1. The existence of the drawer, the
has been dishonored by non-
genuineness of his signature
acceptance or nonpayment,
and his capacity and authority
notice of dishonor must be
to draw the instrument
given to the drawer and to each
2. The existence of the payee and
indorser, and any drawer or
his then capacity to indorse.
indorser to whom such notice is
 Indorser
not given is discharged.
 Liabilities of indorser
 The effect of notice of dishonor
1. General or unqualified indorser
is the immediate right of
(general indorser warrants that
recourse against the indorser
the note is valid and subsisting)
arises.
2. Qualified indorser (warrants
that the note is genuine)
Warranties Forms of Notice
 Warranties are affirmation of the  The formal requirements of notice
fact on the part of the parties that of dishonor is may be in writing or
impose no direct obligation to pay merely oral and may be given in
in the absence of breach thereof. any terms which sufficiently
identify the instrument and indicate
Presentment for payment
that it has been dishonored by non-
 Presentment for payment is the acceptance or non-payment.
presentation of the instrument,  It may in all cases be given by
whether a note or a bill, to the delivering it personally or through
person primarily liable for the the mails.
purpose of demanding and
Waiver
obtaining payment thereof.
 Presentment for payment is  A notice of dishonor may be
necessary in order to charge the waived, either before the time of
drawer and indorsers. giving notice has arrived or after
the omission to give due notice and
the waiver may be express or
Dishonor by nonpayment implied.

 the instrument is dishonored by Dispensation with notice

nonpayment when
Effect of failure to Give Notice
a. It is duly presented for
payment and payment is  Discharged from any liability

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  Demand letter is an example of effect of the instrument in any
notice of dishonor respect- is a material alteration.
 If it alters the effect of the
Discharge of Negotiable Instrument
instrument.
 Negotiable instrument is  A serial number is not an essential
discharged; requisite for negotiability
a. By payment in due course by or  Monthly interest is also not
on behalf of the principal essential, in the absence of the
debtor interest it will be presumed that it
b. By payment in due course by has the annual interest which is 6%
the party accommodated, where  The effect of the instrument that is
the instrument is made or materially altered is the one who
accepted for accommodation altered is the one who is liable and
c. By the intentional cancellation it can bae enforced according to its
thereof by the holder; original tenor.
d. By any other act which will  The holder in due course can
discharge a simple contract for originally enforce the original
the payment of money. amount to the maker.
e. When the principal debtor  The drawee bank is liable only to
becomes the holder of the the extent of the check prior to
instrument at or after maturity alteration but if found that the
in his own right. drawee bank is negligent they will
 Other example of acts that will become liable on its payment of the
discharge a simple contract for the check according to the tenor of the
payment of money: NOVATION check at the time of payment,
AND PRESCRIPTION (but which is the raised amount.
novation must explicitly stated and  The collecting bank will be liable
declared in unequivocal terms as for the amount of the materially
novation is never presumed and the altered check.
old and the new obligations must  Case: if altered, the holder in due
be incompatible on every point.) course can run after the maker of
the negotiable instrument but only
Material Alteration up to the original amount. But if
 Any alteration which changes; the maker did not pay the indorser
a. The date will be the one liable of the whole
b. Sum payable for principal or amount.
interest
c. The time or place of payment
d. The number or the relations of Acceptance
the parties
 Presentment for acceptance is
e. The medium or currency in
defined as the production of a bill
which payment is to be made or
of exchange to a drawee for
which adds a place of payment
acceptance.
where no place of payment is
 Acceptance is equal to completed
specified, or any other change
by delivery or notification.
or addition which alters the

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  An unconditional promise in PROMISSORY NOTES (CONTRACT
writing to accept a bill before it is OF LOAN)
drawn is deemed an actual
 Promissory note is an
acceptance in favor of every person
unconditional promise in writing
who, upon the faith thereof,
made by one person to another,
receives the bill for value.
signed by the maker, engaging to
(unconditional promise in writing
pay on demand, or at a fixed or
to accept = to acceptance)
determinable future time, a sum
 The drawee is allowed 24 hours
certain in money to order or to
after presentment in which to
bearer. Where a note is drawn to
decide whether or not he will
the makers own order, it is not
accept the bill; but the acceptance,
complete until indorsed by him.
if given, date as of the day of
 The holder of bill of exchange or as
presentation.
a promissory note in the following
 The liability of a drawee who
instance;
retains or destroy a bill delivered
a. Where the instrument is so
will be deemed to have accepted
ambiguous that there is doubt
the same.
whether it is a bill or note.
 Certification= to acceptance
b. Where in a bill the drawer and
Presentment for Acceptance the drawee are the same
person
 Presentment for acceptance must
c. Where the drawee is a
be made;
fictitious person
a. Where the bill is payable after
d. Where the drawee is a person
sight, or in any other case,
not having capacity to
where presentment for
contract.
acceptance is necessary in order
to fix the maturity of the
instrument;
Checks
b. Where the bill expressly
stipulates that it shall be  Check is a bill of exchange drawn
presented for acceptance; on a bank payable on demand.
c. Where the bill is drawn payable  Kinds of checks
elsewhere than at the residence A. cashiers check =drawn by the
or place of business of the cashier of bank. It is a primary
drawee. obligation of the issuing bank
 Presentment for acceptance must and accepted in advance upon
be made by or on behalf of the issuance.
holder at a reasonable hour, on a B. Managers check= drawn by the
business day and before the bill is manager of the bank. Same
overdue, to the drawee or some effect to the cashier’s check
person authorized to accept or C. Memorandum check= an
refuse acceptance on his behalf. evidence of debt against the
drawer
D. Certified check= is an
agreement whereby the bank

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 against whom a check is drawn  Failure to encash the check within
undertakes to pay it at any a period of 10 years or more, not
future time when presented for only resulted in the checks
payment becoming stale but also had the
E. A crossed check= is done by effect of payment
placing two parallel lines
diagonally
 The crossing of check has the
following effects;
a. The check may not be encashed
but only deposited in the bank
b. The check may be negotiated
only once- to the one who has
an account with the bank.
c. The act of crossing the check
serves as a warning to the
holder that the check has been
issued for a definite purpose
and he must inquire if he
received the check pursuant to
this purpose; otherwise, he is
not a holder in due course.
 The crossing of the check is a
warning that the check should be
deposited only in the account of the
payee. When a check is crossed, it
is the duty of the collecting bank to
ascertain that the check is only
deposited to the payees account.
 Manager check and cashiers check
are still subject for clearing.
 A check not presented within a
reasonable time is a stale check.
 The drawer will be discharge from
liability thereon to the extent of the
loss caused by the delay.
 3 Requisites in order that the
drawer may be discharged from
liability;
a. The check is not presented
within a reasonable time after
its issue;
b. The drawer suffers loss
c. The loss suffered by the drawer
is not attributed to the delay.

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