NEGOTIABLE INSTRUMENTS NOTES

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES

Page 104 of 190

BY: MA. ANGELA LEONOR C. AGUINALDO

ATENEO LAW 2D BATCH 2010

RULE WHERE THERE IS AN ACCELERATION CLAUSE • It depends whether the clause is optional or automatic • If it is automatic, failure to give notice of dishonor as to a previous

installment will discharge the persons secondarily liable as to the succeeding installments

• If it is optional and it is not exercised, the rule would be the same as where there is no acceleration clause

EXCEPTIONS TO REQUIREMENT OF NOTICE • The law provides for exceptions on failure to give notice would

discharge drawer or indorsers CASE DIGESTS: SECTION 89

139 ASIA BANKING CORPORATION V. JAVIER

44 PHIL 777

FACTS: Chaves drew 2 checks on different occasions against PNB in favor La Insular. These checks were indorsed by the limited partners of La Insular and subsequently deposited by Chaves in his account with Asia Bank. These were then presented for payment by Asia Bank but was dishonored by PNB on reason that there was insufficient funds. This prompted Asia Bank to file a case against one of the partners of La Insular for payment. HELD: When a negotiable instrument is dishonored by non-payment or non-acceptance, notice thereof must be given to the drawer and each of the inodrsers, and those who are not notified shall be discharged from liability, except where this act provides otherwise. According to this, the indorsers are not liable unless they are notified that the instrument is dishonored. Then, under the general principle of law on procedure, it will be incumbent upon plaintiff, who seeks to enforce the defendant’s liability upon these checks as indorser, to establish said liability by proving that notice was given within the time and in the manner required by law. if these facts are not proven, the plaintiff has not sufficiently established the defendant’s liability. There is no proof in record to show that plaintiff has indeed gave any notice to defendant that the checks had been dishonored. Therefore there is no cause of action established. 140 FIRESTONE V. CA

353 SCRA 601

FACTS:

Fojas Arca and Firestone Tire entered into a franchising agreement wherein the former had the privilege to purchase on credit the latter’s products. In paying for these products, the former could pay through special withdrawal slips. In turn, Firestone would deposit these slips with Citibank. Citibank would then honor and pay the slips. Citibank automatically credits the account of Firestone then merely waited for the same to be honored and paid by Luzon Development Bank. As this was the circumstances, Firestone believed in the sufficient funding of the slips until there was a time that Citibank informed it that one of the slips was dishonored. It wrote then a demand letter to Fojas Arca for the payment and damages but the latter refused to pay, prompting Firestone to file an action against it. HELD: The withdrawal slips, at the outset, are non-negotiable. Hence, the rule on immediate notice of dishonor is non-applicable to the case at hand. Thus, the bank was under no obligation to give immediate notice that it wouldn't make payment on the subject withdrawal slips. Citibank should have known that withdrawal slips are not negotiable instruments. It couldn't expect then the slips be treated like checks by other entities. Payment or notice of dishonor from respondent bank couldn't be expected immediately in contrast to the situation involving checks. In the case at bar, Citibank relied on the fact that LDB honored and paid the withdrawal slips which made it automatically credit the account of Firestone with the amount of the subject withdrawal slips then merely waited for LDB to honor and pay the same. It bears stressing though that Citibank couldn't have missed the non-negotiable character of the slips. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to be a substitute for money. The withdrawal slips in question lacked this character. The withdrawal slips deposited were not checks as Firestone admits and Citibank generally was not bound to accept the withdrawal slips as a valid mode of deposit. Nonetheless, Citibank erroneously accepted the same as such and thus, must bear the risks attendant to the acceptance of the instruments. Firestone and Citibank could not now shift the risk to LDB for their committed mistake.

WHAT IF THE SLIPS WERE NEGOTIABLE? • Citibank would be the holder, LDB the drawee, Fojas Arca the drawer

and Firestone would be indorser • Applying the rules on notice of dishonor, Citibank as the “holder”

should have sent the notices of dishonor to Fojas Arca and Firestone,