1.

Borromeo vs Sun the execution of the deed of assignment in blank, to be filled up

G.R. No. 75908. October 22, 1999 whenever needed. The same explains the discrepancy between the
Purisima, J: date of the deed of assignment and the date when the signature was
affixed thereto.
DOCTRINE:
The NIL can be applied but only by analogy if the instrument *Sec. 14. Blanks; when may be filled. - Where the instrument is
is not negotiable and there is no law that can be applied. wanting in any material particular, the person in possession thereof
has a prima facie authority to complete it by filling up the blanks
FACTS: therein. And a signature on a blank paper delivered by the person
Federico O. Borromeo (F.O.B.), Inc. allegedly executed a making the signature in order that the paper may be converted into a
Deed of Assignment dated January 16, 1974 assigning 23,223 of its negotiable instrument operates as a prima facie authority to fill it up
shares of stock registered in the name of Federico O. Borromeo as such for any amount. In order, however, that any such instrument
(BORROMEO) to Amancio Sun (SUN). SUN brought an action when completed may be enforced against any person who became a
against F.O.B. to compel the transfer to his name the said shares of party thereto prior to its completion, it must be filled up strictly in
stock. SUN averred that all the shares of stock of F.O.B. Inc. accordance with the authority given and within a reasonable time.
registered in the name of BORROMEO belonged to him, as the said But if any such instrument, after completion, is negotiated to a holder
shares were placed in the name of BORROMEO ‘only to give the in due course, it is valid and effectual for all purposes in his hands,
latter personality and importance in the business world.’ and he may enforce it as if it had been filled up strictly in accordance
BORROMEO disclaimed any participation in the execution of with the authority given and within a reasonable time.
the Deed of Assignment theorizing that his supposed signature
thereon was forged. 2. GSIS vs CA
The lower court and the CA declared the questioned G.R. No. L-40824. February 23, 1989.
signature as the genuine signature of BORROMEO. The Deed of Regalado, J:
Assignment is dated January 16, 1974 but the questioned signature
was found to be circa 1954-1957. Pertinent records reveal that the DOCTRINE:
subject Deed of Assignment is embodied in blank form for the The provisions of the NIL are not applicable to non-
assignment of shares with authority to transfer such shares in the negotiable instruments.
books of the corporation. It was clearly intended to be signed in blank
to facilitate the assignment of shares from one person to another at FACTS:
any future time. Spouses Mr. and Mrs. Isabelo Racho (RACHOS) together
with spouses Mr. and Mrs. Flaviano Lagasca (LAGASCAS) executed
ISSUE: two deeds of mortgage in favor of GSIS in connection with two loans
WON the NIL may be applied in this case. granted by the latter. A parcel of land co-owned by the RACHOS and
LAGASCAS was given as security under the aforesaid two deeds.
HELD: They also executed a “promissory note” which states in part:
YES, but only by analogy. This is similar to Section 14* of
the NIL where the blanks may be filled up by the holder, the signing “…for value received, we the undersigned…JOINTLY,
in blank being with the assumed authority to do so. Indeed, as the SEVERALLY, and SOLIDARILY, promise to pay the GSIS
shares were registered in the name of BORROMEO just to give him the sum of P11,500…”
personality and standing in the business community, SUN had to
have a counter evidence of ownership of the shares involved. Thus,
 The LAGASCAS executed an “Assumption of Mortgage” unconditional promise or order to pay a sum certain in money; (c)
under which they obligated themselves to assume the aforesaid Must be payable on demand, or at a fixed or determinable future
obligation to the GSIS and to secure the release of the mortgage time; (d) Must be payable to order or to bearer; and (e) Where the
covering the portion of land belonging to the RACHOS which was instrument is addressed to a drawee, he must be named or
mortgaged to the GSIS. This undertaking was not fulfilled. otherwise indicated therein with reasonable certainty.
GSIS extrajudicially foreclosed the mortgage and caused the
mortgaged property to be sold at public auction. 3 George Kauffman, plaintiff
The RACHOS filed a complaint against GSIS and the
LAGASCAS. They prayed that the extrajudicial foreclosure made on PNB, defendant
their property be declared null and void by reason that they signed G.R. NO. 16454, September 29,1921
the mortgage contracts not as sureties or guarantors for the
LAGASCAS but as accommodation parties. FACTS
The lower court dismissed the complaint for failure to
George A. Kauffman, was the president of a domestic corporation known as
establish a cause of action. The CA reversed the lower court’s
the Philippine Fiber and Produce Company. On October 9, 1918, George B.
decision. Wicks, treasurer of the company, presented himself in the Philippine National
On submitting their case to the SC, both the LAGASCAS and Bank in Manila and requested that a telegraphic transfer of $45,000 should
RACHOS relied on the provisions of Section 29* of the NIL. be made to the plaintiff in New York City, upon account of the Philippine
Fiber and Produce Company. The total cost of said transfer would be P90,
ISSUE: 355.50.  Accordingly, Wicks drew and delivered a check for that amount on
the Philippine National Bank; and the same was accepted by the PNB. On
WON Section 29 of the NIL is applicable in this case.
the same day the Philippine National Bank dispatched to its New York
agency a cablegram. Upon receiving this telegraphic message, the bank's
HELD: representative in New York sent a cable message in reply suggesting the
NO, the applicable laws are the provisions of the Civil Code advisability of withholding this money from Kauffman, in view of his
and special laws on mortgage. reluctance to accept certain bills of the Philippine Fiber and Produce
The promissory note and mortgage deeds are clearly not Company. PNB dispatched another message to withhold the Kauffman
negotiable instruments. These documents do not comply with the payment. Kauffman presented himself at the office of the Philippine National
Bank in New York City on October 15, 1918, and demanded the money.
fourth requisite to be considered as such under Section 1** of the
However, the message from PNB, directing the withholding of payment had
NIL because they are neither payable to order nor to bearer. The been received in New York, and payment was therefore refused.
note is payable to a specified party, the GSIS. Therefore, Section 29
of the NIL is not applicable in this case.  The plaintiff Kauffman instituted the present action in the Court of First
Instance of the city of Manila to recover said sum, with interest and costs;
* Sec. 29. Liability of accommodation party. - An accommodation and judgment having been there entered favourably to the plaintiff, the
defendant appealed.
party is one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the ISSUE
purpose of lending his name to some other person. Such a person is
liable on the instrument to a holder for value, notwithstanding such Whether or not plaintiff Kauffman has right of action against defendant PNB.
holder, at the time of taking the instrument, knew him to be only an (According to PNB cause of action would not be in favor of the plaintiff who
had taken no part at all in the transaction nor had entered into any contract
accommodation party.
with the plaintiff, but in favor of the Philippine Fiber and Produce Company,
** Section 1. Form of negotiable instruments. - An instrument to be the party which contracted in its own name with the defendant.)
negotiable must conform to the following requirements: (a) It must be
in writing and signed by the maker or drawer; (b) Must contain an HELD
YES, Kauffman has right of action. The provisions of the Negotiable Angel dela Cruz delivered the said certificates of time (CTDs) to
Instruments Law can come into operation there must be a document in herein Caltex Philippines, plaintiff, in connection with his purchased of fuel
existence of the character described in section 1 of the Law; and no rights products from the latter (Original Record, p. 208).
properly speaking arise in respect to said instrument until it is delivered. In
the case before us there was an order, it is true, transmitted by the defendant In March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the
bank to its New York branch, for the payment of a specified sum of money to
Sucat Branch Manger, that he lost all the certificates of time deposit in
George A. Kauffman. But this order was not made payable "to order or "to
bearer," as required in subsection (d) of that Act; and inasmuch as it never dispute. Mr. Tiangco advised said depositor to execute and submit a
left the possession of the bank, or its representative in New York City, there notarized Affidavit of Loss, as required by defendant bank's procedure, if he
was no delivery in the sense intended in section 16 of the same Law. In this desired replacement of said lost CTDs. On March 18, 1982, Angel dela Cruz
connection it is unnecessary to point out that the official receipt delivered by executed and delivered to defendant bank the required Affidavit of Loss. On
the bank to the purchaser of the telegraphic order cannot itself be viewed in the basis of said affidavit of loss, 280 replacement CTDs were issued in favor
the light of a negotiable instrument, although it affords complete proof of the of said depositor
obligation actually assumed by the bank.
On March 25, 1982, Angel dela Cruz negotiated and obtained a loan
The second paragraph of article 1257 of the Civil Code. Should the contract
contain any stipulation in favour of a third person, he may demand its from defendant bank in the amount of Eight Hundred Seventy Five Thousand
fulfilment, provided he has given notice of his acceptance to the person Pesos (P875,000.00). On the same date, said depositor executed a
bound before the stipulation has been revoked. notarized Deed of Assignment of Time Deposit which stated, among
others, that he (de la Cruz) surrenders to defendant bank "full control of
The right of the plaintiff to maintain the present action is clear or it is the indicated time deposits from and after date" of the assignment and
undeniable that the bank's promise to cause a definite sum of money to be
further authorizes said bank to pre-terminate, set-off and "apply the
paid to the plaintiff in New York City is a stipulation in his favour. It will be
noted that under the paragraph cited a third person seeking to enforce said time deposits to the payment of whatever amount or amounts may
compliance with a stipulation in his favour must signify his acceptance before be due" on the loan upon its maturity
it has been revoked. In this case the plaintiff clearly signified his acceptance
to the bank by demanding payment. In November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex
(Phils.) Inc., went to the defendant bank's Sucat branch and presented for
verification the CTDs declared lost by Angel dela Cruz alleging that the same
4. CALTEX (PHILIPPINES), INC., petitioner, were delivered to herein plaintiff "as security for purchases made with Caltex
Philippines, Inc."
vs.
On November 26, 1982, defendant received a letter from herein
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY,
plaintiff formally informing it of its possession of the CTDs in question and of
respondents.
its decision to pre-terminate the same.
G.R. No. 97753 August 10, 1992
On December 8, 1982, plaintiff was requested by herein defendant to
  furnish the former "a copy of the document evidencing the guarantee
agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel dela
FACTS Cruz" obligation against which plaintiff proposed to apply the time deposits.
No copy of the requested documents was furnished herein defendant.
Security Bank and Trust Company, defendant, a commercial banking Accordingly, defendant bank rejected the plaintiff's demand and claim for
institution, through its Sucat Branch issued 280 certificates of time deposit payment of the value of the CTDs in a letter dated February 7, 1983
(CTDs) in favor of one Angel dela Cruz who deposited with herein defendant
the aggregate amount of P1,120,000.00, In April 1983, the loan of Angel dela Cruz with the defendant bank
matured and fell due and on August 5, 1983, the latter set-off and applied the 2. that petitioner did not become a holder in due course of the said
time deposits in question to the payment of the matured loan certificates of deposit; and
3. in disregarding the pertinent provisions of the Code of Commerce
relating to lost instruments payable to bearer. 4

TRIAL COURT
HELD
In view of the foregoing, plaintiff filed the instant complaint, praying
that defendant bank be ordered to pay it the aggregate value of the (1)
certificates of time deposit of P1,120,000.00 plus accrued interest and
The instant petition is bereft of merit. A sample text of the certificates
compounded interest therein at 16% per annum, moral and exemplary
of time deposit is reproduced below to provide a better understanding of the
damages as well as attorney's fees.
issues involved in this recourse.
After trial, the court a quo rendered its decision dismissing the instant
complaint. 3
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
COURT OF APPEALS Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
On appeal, the CA court affirmed the lower court's dismissal of the Rate 16%
complaint.
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
court ruled that the CTDs in question are non-negotiable instruments,
nationalizing as follows: This is to Certify that B E A R E R has deposited in this Bank the sum
of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT
OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to
. . . While it may be true that the word "bearer" appears rather boldly in the said depositor 731 days. after date, upon presentation and surrender
CTDs issued, it is important to note that after the word "BEARER" stamped of this certificate, with interest at the rate of 16% per cent per annum.
on the space provided supposedly for the name of the depositor, the words
"has deposited" a certain amount follows. The document further provides that (Sgd. Illegible) (Sgd. Illegible)
the amount deposited shall be "repayable to said depositor" on the period
—————————— ———————————
indicated. Therefore, the text of the instrument(s) themselves manifest with
clarity that they are payable, not to whoever purports to be the "bearer" but AUTHORIZED SIGNATURES 5
only to the specified person indicated therein, the depositor. In effect, the
appellee bank acknowledges its depositor Angel dela Cruz as the person
who made the deposit and further engages itself to pay said depositor the
amount indicated thereon at the stipulated date

We disagree with these findings and conclusions, and hereby hold that the
ISSUE CTDs in question are negotiable instruments. Section 1 Act No. 2031,
otherwise known as the Negotiable Instruments Law, enumerates the
1. the subject certificates of deposit are non-negotiable despite being requisites for an instrument to become negotiable
clearly negotiable instruments
 The CTDs in question undoubtedly meet the requirements of the were delivered as payment for the fuel products or as a security has been
law for negotiability. The parties' bone of contention is with regard to dissipated and resolved in favor of the latter by petitioner's own authorized
requisite (d) set forth above. The accepted rule is that the negotiability or and responsible representative himself.
non-negotiability of an instrument is determined from the writing, that is, from
the face of the instrument itself. 9 In the construction of a bill or note, the When respondent bank, as defendant in the court below, moved for a
intention of the parties is to control, if it can be legally ascertained. 10 While bill of particularity therein, plaintiff corporation opposed the motion. 18 Had it
the writing may be read in the light of surrounding circumstances in order to produced the receipt prayed for, it could have proved, if such truly was the
more perfectly understand the intent and meaning of the parties, yet as they fact, that the CTDs were delivered as payment and not as security..
have constituted the writing to be the only outward and visible expression of
their meaning, no other words are to be added to it or substituted in its stead.
The duty of the court in such case is to ascertain, not what the parties may Under the foregoing circumstances, this disquisition in Intergrated Realty
have secretly intended as contradistinguished from what their words express, Corporation, et al. vs. Philippine National Bank, et al. 20 is apropos:
but what is the meaning of the words they have used. What the parties meant
must be determined by what they said. 11 …If it was intended to secure the payment of money, it must
be construed as a pledge; but if there was some other
Contrary to what respondent court held, the CTDs are intention, it is not a pledge. However, even though a transfer,
negotiable instruments. The documents provide that the amounts if regarded by itself, appears to have been absolute, its object
deposited shall be repayable to the depositor. And who, according to and character might still be qualified and explained by
the document, is the depositor? It is the "bearer." The documents do contemporaneous writing declaring it to have been a deposit
not say that the depositor is Angel de la Cruz and that the amounts of the property as collateral security. It has been said that a
deposited are repayable specifically to him. Rather, the amounts are to transfer of property by the debtor to a creditor, even if
be repayable to the bearer of the documents or, for that matter, sufficient on its face to make an absolute conveyance, should
whosoever may be the bearer at the time of presentment. be treated as a pledge if the debt continues in inexistence
and is not discharged by the transfer, and that accordingly the
If it was really the intention of respondent bank to pay the amount to
use of the terms ordinarily importing conveyance of absolute
Angel de la Cruz only, it could have with facility so expressed that fact in
ownership will not be given that effect in such a transaction if
clear and categorical terms in the documents, instead of having the word
they are also commonly used in pledges and mortgages and
"BEARER" stamped on the space provided for the name of the depositor in
therefore do not unqualifiedly indicate a transfer of absolute
each CTD. On the wordings of the documents, therefore, the amounts
ownership, in the absence of clear and unambiguous
deposited are repayable to whoever may be the bearer thereof.
language or other circumstances excluding an intent to
pledge.

(2)

The next query is whether petitioner can rightfully recover on the CTDs. This Petitioner's insistence that the CTDs were negotiated to it begs the question.
time, the answer is in the negative. Unfortunately for petitioner, although the Under the Negotiable Instruments Law, an instrument is negotiated
CTDs are bearer instruments, a valid negotiation thereof for the true purpose when it is transferred from one person to another in such a manner as
and agreement between it and De la Cruz, as ultimately ascertained, requires to constitute the transferee the holder thereof, 21 and a holder may be
both delivery and indorsement. For,although petitioner seeks to deflect the payee or indorsee of a bill or note, who is in possession of it, or the
this fact, the CTDs were in reality delivered to it as a security for De la bearer thereof. 22 In the present case, however, there was no negotiation
Cruz' purchases of its fuel products. Any doubt as to whether the CTDs in the sense of a transfer of the legal title to the CTDs in favor of
petitioner in which situation, for obvious reasons, mere delivery of the On the other hand, the assignment of the CTDs made by Angel de
bearer CTDs would have sufficed. Here, the delivery thereof only as la Cruz in favor of respondent bank was embodied in a public
security for the purchases of Angel de la Cruz (and we even disregard the instrument. 27 With regard to this other mode of transfer, the Civil Code
fact that the amount involved was not disclosed) could at the most specifically declares:
constitute petitioner only as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be effected by mere
delivery of the instrument since, necessarily, the terms thereof and the
Art. 1625. An assignment of credit, right or action shall produce
subsequent disposition of such security, in the event of non-payment of the
no effect as against third persons, unless it appears in a public
principal obligation, must be contractually provided for.
instrument, or the instrument is recorded in the Registry of
Property in case the assignment involves real property.

The pertinent law on this point is that where the holder has a lien on
the instrument arising from contract, he is deemed a holder for value to the
Respondent bank duly complied with this statutory requirement.
extent of his lien. 23 As such holder of collateral security, he would be a
Contrarily, petitioner, whether as purchaser, assignee or lien holder of the
pledgee but the requirements therefor and the effects thereof, not being
CTDs, neither proved the amount of its credit or the extent of its lien nor the
provided for by the Negotiable Instruments Law, shall be governed by the
execution of any public instrument which could affect or bind private
Civil Code provisions on pledge of incorporeal rights, 24 which inceptively
respondent. Necessarily, therefore, as between petitioner and respondent
provide:
bank, the latter has definitely the better right over the CTDs in question.

Art. 2095. Incorporeal rights, evidenced by negotiable

(3)
instruments, . . . may also be pledged. The instrument proving
the right pledged shall be delivered to the creditor, and if Finally, petitioner faults respondent court for refusing to delve into the
negotiable, must be indorsed. question of whether or not private respondent observed the requirements of
the law in the case of lost negotiable instruments and the issuance of
Art. 2096. A pledge shall not take effect against third persons if
replacement certificates therefor, on the ground that petitioner failed to raised
a description of the thing pledged and the date of the pledge
that issue in the lower court. 28
do not appear in a public instrument.
On this matter, we uphold respondent court's finding that the aspect of
alleged negligence of private respondent was not included in the stipulation
Aside from the fact that the CTDs were only delivered but not indorsed, of the parties and in the statement of issues submitted by them to the trial
petitioner failed to produce any document evidencing any contract of pledge court.
or guarantee agreement between it and Angel de la Cruz. 25 Consequently,
Still, even assuming arguendo that said issue of negligence was
the mere delivery of the CTDs did not legally vest in petitioner any right
raised in the court below, petitioner still cannot have the odds in its favor. A
effective against and binding upon respondent bank. The requirement under
close scrutiny of the provisions of the Code of Commerce laying down the
Article 2096 aforementioned is not a mere rule of adjective law prescribing
rules to be followed in case of lost instruments payable to bearer, which it
the mode whereby proof may be made of the date of a pledge contract, but a
invokes, will reveal that said provisions, even assuming their applicability to
rule of substantive law prescribing a condition without which the execution of
the CTDs in the case at bar, are merely permissive and not mandatory. The
a pledge contract cannot affect third persons adversely.
very first article cited by petitioner speaks for itself.
 FACTS:

Art 548. The dispossessed owner, no matter for what cause it Petitioner bought a car from Viologo Motor Sales Company, which was
may be, may apply to the judge or court of competent secured by a promissory note, which was later on indorsed to Filinvest
jurisdiction, asking that the principal, interest or dividends due Finance, which financed the transaction. Petitioner later on defaulted in
or about to become due, be not paid a third person, as well her installment payments, allegedly due to the fraud imputed by VMS in
as in order to prevent the ownership of the instrument that a selling her a different vehicle from what was agreed upon.  This default in
duplicate be issued him. (Emphasis ours.) payment prompted Filinvest Finance to initiate a case against petitioner. 

xxx xxx xxx The trial court decided in favor of Filinvest, to which the appellate court

upheld by increasing the amount to be paid.

It is the contention of petitioner that since the agreement between her and
The use of the word "may" in said provision shows that it is not mandatory the motor company was inexistent, none had been assigned in favor of
but discretionary on the part of the "dispossessed owner" to apply to the private respondent.  
judge or court of competent jurisdiction for the issuance of a duplicate of the
lost instrument. Where the provision reads "may," this word shows that it is ISSUE: Whether or not the promissory note is negotiable which will bar
not mandatory but discretional. 34 The word "may" is usually permissive, not completely all defenses of Salas against VMS.
mandatory. 35 It is an auxiliary verb indicating liberty, opportunity, permission
and possibility. 36 HELD: YES! VALID!

Moreover, as correctly analyzed by private respondent, 37 Articles Petitioner’s liability on the promissory note, the due execution and

548 to 558 of the Code of Commerce, on which petitioner seeks to genuineness of which she never denied under oath, is under the foregoing
anchor respondent bank's supposed negligence, merely established, factual milieu, as inevitable as it is clearly established.  
on the one hand, a right of recourse in favor of a dispossessed owner
 
or holder of a bearer instrument so that he may obtain a duplicate of the
same, and, on the other, an option in favor of the party liable thereon The records reveal that involved herein is not a simple case of assignment
who, for some valid ground, may elect to refuse to issue a replacement of credit as petitioner would have it appear, where the assignee merely
of the instrument. Significantly, none of the provisions cited by petitioner steps  into  the  shoes  of,  is  open  to  all  defenses  available  against  and 
categorically restricts or prohibits the issuance a duplicate or replacement can enforce payment only to the same extent as, the assignor-vendor.
instrument sans compliance with the procedure outlined therein, and none
establishes a mandatory precedent requirement therefor. The instrument to be negotiable must contain the so-called words of
negotiability. There are only 2 ways for an instrument to be payable to order. 
WHEREFORE, on the modified premises above set forth, the petition is There must always be a specified person named in the instrument and the
DENIED and the appealed decision is hereby AFFIRMED. bill or note is to be paid to the person designated in the instrument or  to any
person to whom he has indorsed and delivered the same.  Without the words
“or order” or “to the order of”, the instrument is payable
5. Janita Salas vs CA and First Finance & Leasing Corporation
only to the person designated therein and is thus non-negotiable. Any
G.R. No. 76788; January 22, 1990 subsequent purchaser thereof will not enjoy the advantages of being a holder
in due course but will merely step into the shoes of the person
Doctrine: A holder in due course shall have a clean title over the negotiable designated in the instrument and will thus be open to the defenses available
instrument. against the latter.  
 In the case at bar, the promissory notes is earmarked with negotiability and he is relieved from any liability arising from the note
Filinvest is a holder in due course.    inasmuch as the loan had been paid by de Jesus by
means of a check dated 17 April 1997; and that, in any
Section 1. Form of negotiable instruments. – An instrument to be negotiable event, the issuance of the check and respondent's
must confirm to the following requirements: acceptance thereof novated or superseded the note.
a. It must be in writing and signed by the maker of drawer; Respondent tendered a reply to Petitioner Garcia's
b. Must contain an unconditional promise or order to pay a sum certain answer, thereunder asserting that the loan remained
in money; unpaid for the reason that the check issued by de Jesus
c. Must be payable on demand or at a fixed or determinable future time; bounced, and that Petitioner Garcia's answer was not even
d. Must be payable to order or to bearer; and accompanied by a certificate of non-forum shopping.
e. Where the instrument is addressed to a drawee, he must be named de Jesus asserted in his Answer with Counterclaim
or otherwise indicated therein with reasonable certainty. that out of the supposed P400,000.00 loan, he received
only P360,000.00, the P40,000.00 having been advance
6. Garcia v. Llamas, G.R. No. 154127, [December 8, 2003] interest thereon for two months, that is, for January and
February 1997; that in fact, he paid the sum of
Doctrine: As the note was made payable to a specific person, it is covered
P120,000.00 by way of interests; that this was made when
by the general provisions of the Civil Code and not the NIL.
[respondent's] daughter, one Nits Llamas-Quijencio,
Facts: received from the Central Police District Command at
Bicutan, Taguig, Metro Manila, the sum of P40,000.00,
representing the peso equivalent of his accumulated leave
This case started out as a complaint for sum of
credits, another P40,000.00 as advance interest, and still
money and damages by [Respondent] Dionisio Llamas
another P40,000.00 as interest for the months of March
against [Petitioner] Romeo Garcia and Eduardo de Jesus.
and April 1997; that he had difficulty in paying the loan and
The complaint alleged that on 23 December 1996,
had asked respondent for an extension of time; that
petitioner and de Jesus borrowed P400,000.00 from
respondent acted in bad faith in instituting the case,
[respondent]; that, on the same day, they executed a
respondent having agreed to accept the benefits de Jesus
promissory note wherein they bound themselves jointly
would receive for his retirement, but respondent
and severally to pay the loan on or before 23 January 1997
nonetheless filed the instant case while his retirement was
with a 5% interest per month; that the loan has long been
being processed.
overdue and, despite repeated demands, petitioner and de
Jesus have failed and refused to pay it; and that, by
reason of their unjustified refusal, respondent was Issue: Whether or not the defense that petitioner was only an
compelled to engage the services of counsel to whom he accommodation party had any basis
agreed to pay 25% of the sum to be recovered from
petitioner and de Jesus, plus P2,000.00 for every
appearance in court. Held: No.
Resisting the complaint, Petitioner Garcia, in his
answer, averred that he assumed no liability under the Accommodation Party
promissory note because he signed it merely as an
accommodation party for de Jesus; and, alternatively, that
Petitioner avers that he signed the promissory note merely as an Doctrine: When acknowledgement becomes a Promise to Pay. An
accommodation party; and that, as such, he was released as obligor when acknowledgment of a debt becomes a promise to pay by the addition of
respondent agreed to extend the term of the obligation. words implying a promise of payment, such as, “payable,” “payable on a
given day,” “payable on demand”.
This reasoning is misplaced, because the note herein is not a negotiable
instrument. The note reads: Facts:
"PROMISSORY NOTE
In this intestate of Luther Young and Pacita Young who died in
"P400,000.00 1954 and 1952 respectively, Pacifica Jimenez presented for payment
"RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum four promissory notes signed by Pacita for different amounts totalling
of FOUR HUNDRED THOUSAND PESOS, Philippine twenty-one thousand pesos (P21,000).
Currency payable on or before January 23, 1997 at No. Acknowledging receipt by Pacita during the Japanese
144 K-10 St. Kamias, Quezon City, with interest at the rate occupation, in the currency then prevailing, the administrator manifested
of 5% per month or fraction thereof. IcAaEH willingness to pay provided adjustment of the sums be made in line with
"It is understood that our liability under this loan is jointly the Ballantyne schedule.
and severally [sic]. The claimant objected to the adjustment insisting on full payment
"Done at Quezon City, Metro Manila this 23rd day of in accordance with the notes.
December, 1996."  Applying doctrines of this Court on the matter, the Hon. Primitivo
L. Gonzales, Judge, held that the notes should be paid in the currency
prevailing after the war, and that consequently plaintiff was entitled to
By its terms, the note was made payable to a specific person rather than to
recover P21,000 plus attorneys fees for the sum of P2,000.
bearer or to order — a requisite for negotiability under Act 2031, the
Negotiable Instruments Law (NIL). Hence, petitioner cannot avail himself of Hence this appeal.
the NIL's provisions on the liabilities and defenses of an accommodation Executed in the month of August 1944, the first promissory note
party. Besides, a non-negotiable note is merely a simple contract in writing read as follows:
and is evidence of such intangible rights as may have been created by the
"Received from Miss Pacifica Jimenez the total
assent of the parties.  The promissory note is thus covered by the general
amount of P10,000 ten thousand pesos payable six
provisions of the Civil Code, not by the NIL.
months after the war, without interest."
Even granting arguendo that the NIL was applicable, still, petitioner would be
The other three notes were couched in the same terms, except
liable for the promissory note. Under Article 29 of Act 2031, an
as to amounts and dates.
accommodation party is liable for the instrument to a holder for value even if,
at the time of its taking, the latter knew the former to be only an There can be no serious question that the notes were promises
accommodation party. The relation between an accommodation party and to pay "six months after the war," the amounts mentioned.
the party accommodated is, in effect, one of principal and surety — the But the important question, which obviously compelled the
accommodation party being the surety. 33 It is a settled rule that a surety is administrator to appeal, is whether the amounts should be paid, peso for
bound equally and absolutely with the principal and is deemed an original peso, or whether a reduction should be made in accordance with the
promisor and debtor from the beginning. The liability is immediate and direct. well-known Ballantyne schedule.
This matter of payment of loans contracted during
the Japanese occupation has received our attention in
7. Jimenez v. Bucoy, G.R. No. L-10221, [February 28, 1958]
 many litigations after the liberation. The gist of our other words, if over and above the mere acknowledgment of the debt
adjudications, in so far as material here, is that if the loan there may be collected from the words used a promise to pay it, the
could be paid during the Japanese occupation, the instrument may be regarded as a promissory note. 1 Daniel, Neg. Inst.
Ballantyne schedule should apply with corresponding sec. 36 et seq.; Byles, Bills, 10, 11, and cases cited . . .. "Due A. B. $325,
reduction of the amount.1 However, if the loan was payable on demand," or, "I acknowledge myself to be indebted to A in
expressly agreed to be payable only after the war or after $109, to be paid on demand, for value received," or, "I O. U. $85 to be
liberation, or became payable after those dates, no paid on May 5th," are held to be promissory notes, significance being
reduction could be effected, and peso-for-peso payment given to words of payment as indicating a promise to pay." 1 Daniel Neg.
shall be ordered in Philippine currency.  2 "The Ballantyne Inst. see. 39, and cases cited. (Cowan vs. Hallack, (Colo.) 13 Pacific
Conversion Table does not apply where the monetary Reporter 700, 703.).
obligation, under the contract, was not payable during the
Japanese occupation but until after one year counted from
the date of ratification of the Treaty of Peace concluding 8. FIRESTONE TIRE AND RUBBER COMPANY OF THE PHILIPPINES V.
the Greater East Asia War." (Arellano vs. De Domingo, CA  
101 Phil., 902.)
[G.R. No. 113236. March 5, 2001]
"When a monetary obligation is contracted during
the Japanese occupation, to be discharged after the war, DOCTRINE:
the payment should be made in Philippine Currency."
(Kare et al. vs. Imperial et al., 102 Phil., 173.) The  essence  of  negotiability  which  characterizes  a  negotiable  paper  as 
a credit  instrument  lies  in  its  freedom  to  be  a  substitute  for  money.   
Now then, as in the case before us, the debtor undertook to pay
"six months after the war," peso for peso payment is indicated. FACTS:

Fojas-Arca and Firestone Tire entered into a franchising agreement wherein

Issue: Whether or not acknowledgment of a debt may become a promissory the former had the privilege to purchase on credit the latter’s products.  In
note paying for these products, the former could pay through special withdrawal
slips.  In turn, Firestone would deposit these slips with Citibank.  Citibank
Held: would then honor and pay the slips.   Citibank automatically credits the
The appellant administrator calls attention to the fact that the notes account of Firestone then merely waited for the same  to  be  honored  and
contained no express promise to pay a specified amount. We declare the paid  by  Luzon  Development  Bank.    As this was the circumstances,
point to be without merit. In accordance with doctrines on the matter, the
note herein-above quoted amounted in effect to "a promise to pay ten Firestone believed in the sufficient funding of the slips until there was a time
thousand pesos six months after the war, without interest." And so of the that  Citibank  informed  it  that  one  of  the  slips  was  dishonored.    It
other notes. 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.   
"An acknowledgment may become a promise by the addition of
words by which a promise of payment is naturally implied, such as, ISSUE:
"payable," "payable" on a given day, "payable on demand," "paid . . .
when called for," . . . . (10 Corpus Juris Secundum p. 523.). Whether or not the withdrawal slips were negotiable instruments?

"To constitute a good promissory note, no precise words of contract are To whom notice of dishonor must be given?
necessary, provided they amount, in legal effect, to a promise to pay. In
HELD: Enrique Montinola sought to purchase from Manila Post Office ten
money orders of 200php each payable to E. P. Montinola. Montinola offered
The withdrawal slips, at the outset, are non-negotiable.  Hence, the rule on to pay with the money orders with a private check. Private check were not
immediate notice of dishonor is non-applicable to the case at hand.  Thus, generally accepted in payment of money orders, the teller advised him to see
the bank was under no obligation to give immediate notice that it wouldn't the Chief of the Money Order Division, but instead of doing so, Montinola
make payment on the subject withdrawal slips.    Citibank should have managed to leave the building without the knowledge of the teller. Upon the
known that withdrawal slips are not negotiable instruments.    It couldn't disappearance of the unpaid money order, a message was sent to instruct all
expect then the slips be treated like checks by other entities.  Payment or banks that it must not pay for the money order stolen upon presentment. The
notice of dishonor from respondent bank couldn't be expected immediately in Bank of America received a copy of said notice. However, The Bank of
contrast to the situation involving checks.  In the case at bar, Citibank relied America received the money order and deposited it to the appellant’s account
on the fact that LDB honored and paid upon clearance. Mauricio Soriano, Chief of the Money Order Division notified
the withdrawal slips which made it automatically credit the account of the Bank of America that the money order deposited had been found to have
Firestone with the amount of the subject withdrawal slips then merely waited been irregularly issued and that, the amount it represented had been
for LDB to honor and pay the same.  It bears stressing though that Citibank deducted from the bank’s clearing account. The Bank of America debited
couldn't have missed the non-negotiable character of the slips.  appellant’s account with the same account and give notice by mean of debit
The essence of negotiability which characterizes a negotiable paper as a memo.
credit instrument lies in  its  freedom  to  be  a  substitute  for  money.    The
withdrawal slips in question lacked this character. In the ordinary and usual ISSUE:
course of banking operations, current account deposits are accepted by the Whether or not the postal money order in question is a negotiable
bank on the basis of deposit slips prepared and signed by the depositor, or instrument.
the latters agent or representative, who indicates therein the current account
number to which the deposit is to be credited, the name of the depositor or HELD:
current account holder, the date of the deposit, and the amount of the deposit NO. It is not disputed that the Philippine postal statutes were
either in cash or in check. The withdrawal slips deposited patterned after similar statutes in force in United States. The Weight of
were not checks as Firestone admits and Citibank generally was not bound authority in the United States is that postal money orders are not negotiable
to accept the withdrawal slips as a valid mode of deposit.  Nonetheless, instruments, the reason being that in establishing and operating a postal
Citibank erroneously accepted the same as money order system, the government is not engaged in commercial
such and thus, must bear the risks attendant to the acceptance of the transactions but merely exercises a governmental power for the public
instruments.  Firestone and Citibank could not now shift the risk to LDB for benefit. Moreover, some of the restrictions imposed upon money orders by
their committed mistake.  postal laws and regulations are inconsistent with the character of negotiable
instruments. For instance, such laws and regulations usually provide for not
9. Lee vs CA – Dominguez
more than one endorsement; payment of money orders may be withheld
10) Philippine Education v. Soriano under a variety of circumstances.
GR L-22405, 30 June 1971
11. Abubakar v. Auditor General
DOCTRINE: Postal money orders are not negotiable instruments. Some of G.R. No. L-1405
the restrictions imposed upon money orders by postal laws and regulations July 31, 1948
are inconsistent with the character of negotiable instruments. 81 PHIL 359-361

FACTS: Doctrine: NEGOTIABLE INSTRUMENTS LAW; PAYMENT OUT OF

PARTICULAR FUND, NOT UNCONDITIONAL. — A treasury warrant
"payable from the appropriation for food administration," is actually an order on its face the words "payable from the appropriation for food administration,"
for payment out of "a particular fund," and is not unconditional, and does not is actually an order for payment out of "a particular fund," and is not
fulfill one of the essential requirements of a negotiable instrument. In the unconditional, and does not fulfill one of the essential requirements of a
United States, government warrants for the payment of money are not negotiable instrument. (Section 3 last sentence and section 1[b] of the
negotiable instruments nor commercial papers. Negotiable Instruments Law.) In the United States, government warrants for
the payment of money are not negotiable instruments nor commercial paper.
Facts:
12. MPTC V. CA
Treasury warrant No. A-2867376 for P1,000 was issued in favor of Placido S.
Urbanes on December 10, 1941, but is now in the hands of herein petitioner GR NO. 88866 FEB. 18, 1991
Benjamin Abubakar. The Auditor General refused to authorize its payment.
For his refusal, the respondent gave two reasons: first, because the money DOCTRINE: Treasury warrants are not negotiable instruments.
available for the redemption of treasury warrants issued before January 2,
1942, is appropriated by Republic Act No. 80 (Item F-IV-8) and this warrant FACTS: Eduardo Gomez opened an account with Golden Savings and
does not come within the purview of said appropriation; and second, because deposited 38 treasury warrants. On various dates, all these warrants were
one of the requirements of his office had not been complied with, namely, subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and
that it must be shown that the holders of warrants covering payment or deposited to its Saving Account in the Metrobank branch in Capalan,
replenishment of cash advances for official expenditures (as this warrant is) Mindoro. They were then sent for clearing by the branch office to the principal
received them in payment of definite government obligations. office of Metrobank, which forwarded them to the Bureau of Treasury for
special clearing. More than two weeks after the deposits, Castillo went to
Issue: Whether the Auditor General erred in refusing to permit payment out of Calapan branch several times to ask whether the warrants had been cleared.
the particular appropriation in Item F-IV-8 of Republic Act No. 80. Accordingly, Gomez was not allowed to withdraw from his account. Later,
however, ‘exasperated” over Castillo’s repeated inquiries and also an
Ruling: No. There is no doubt as to the authenticity and date of the treasury accommodation for a “valued client’, the petitioner then finally decided to
warrant. There is no question that it was regularly indorsed by the payee and allow Golden Saving to withdraw from the proceeds of the warrants.
is now in the custody of the herein petitioner who is a private individual. On
In turn, Golden Savings subsequently allowed Gomez to make
the other hand, it is admitted that the warrant was originally made payable to
withdrawals from his account. On July 21, 1979, Metrobank informed Golden
Placido S. Urbanes in his capacity as disbursing officer of the Food
Savings that 32 of the warrants had been dishonored by the Bureau of
Administration for "additional cash advance for Food Production Campaign in
Treasury on July 19, 1979, and demanded the refund by Golden Savings of
La Union" . It is thus apparent that this is a treasury warrant issued in favor of
the amount it had previously withdrawn, to make up the deficit in its account.
a public officer or employee and held in possession by a private individual.
The demand was rejected. Metrobank the sued Golden Savings.
Such being the case, the Auditor General can hardly be blamed for not
authorizing its redemption out of an appropriation specifically for "treasury Issue: Whether petitioner can hold Golden Savings liable as an indorser of
warrants issued . . . in favor of and held in possession by private individuals." the treasury warrants based on the fact that the treasury warrants involved in
(Republic Act No. 80, Item F- IV-8.) This warrant was not issued in favor of a this case are not negotiable instruments.
private individual. It was issued in favor of a government employee.
Held: No. The treasury warrants are not negotiable instruments. Clearly
The petitioner argues that he is a holder in good faith and for value of a stamped on their face is the word: “non-negotiable.” Moreover, and this is
negotiable instrument and is entitled to the rights and privileges of a holder in equal significance, it is indicated that they are payable from a particular fund,
due course, free from defenses. But this treasury warrant is not within the to wit, Fund 501. An instrument to be negotiable instrument must contain an
scope of the negotiable instruments law. For one thing, the document bearing unconditional promise or orders to pay a sum certain in money. As provided
by Sec 3 of NIL an unqualified order or promise to pay is unconditional Bank of the Philippines. On January 18, 1953, Plaintiff-Appellant sent bills or
though coupled with: 1st, an indication of a particular fund out of which statements of collection to Defendant-Appellee but the latter failed and
reimbursement is to be made or a particular account to be debited with the refused to effect payment thereof.
amount; or 2nd, a statement of the transaction which give rise to the
instrument. But an order to promise to pay out of particular fund is not Issue: Whether or not defendant is under obligation to deliver such amount in
unconditional. The indication of Fund 501 as the source of the payment to be pesos as were the equivalent of $14,449.15?
made on the treasury warrants makes the order or promise to pay “not
Held: Yes. He is under obligation to deliver such amount in pesos as were
conditional” and the warrants themselves non-negotiable. There should be
the equivalent of $14,449.15. The document is negotiable and is governed by
no question that the exception on Section 3 of NIL is applicable in the case at
the Negotiable Instruments Law. The draft is a foreign bill of exchange,
bar.
because, drawn in New York, it is payable here. (See. 129 Negotiable
13. PNB v. Zulueta Instruments Law.) The Court also stated that although the amount payable is
G.R. No. L-7271, August 30, 1957 expressed in dollars — not current money here — it is still negotiable, for it
may be discharged with pesos of equivalent amount.

Doctrine: An instrument is still negotiable although the amount to be paid is

expressed in currency that is not legal tender so long as it is expressed in 14. Philippine National Bank v. Sps. Erlando and Norma Rodriguez
money.
G.R. No. 170325 September 26, 2008
Facts: Defendant-Appellee applied for a commercial letter of credit with
Facts: Respondent-spouses were clients of petitioner with savings and
Plaintiff-Appellant, Philippine National Bank (Manila), and was granted on
demand/checking accounts. The spouses were engaged in the informal
November 6, 1948, in favor of Otis Elevator Co. for $14,449.15 for the
lending business. They had a discounting arrangement with PEMSLA, an
purchase of an electric passenger elevator; on May 17, 1949, and under the
association of PNB employees. PEMSLA was likewise a client of PNB.
said letter of credit Otis Elevator Co. drew a 90 day sight draft for $14,449.15
PEMSLA regularly granted loans to its members and whenever the
which draft was duly presented to and accepted by Defendant-Appellee on
association was short of funds, the spouses would rediscount the postdated
July 6, 1949. Said acceptance matured on October 4, 1949. Upon
checks issued to members. The spouses would replace the postdated
Defendant-Appellee's signing a 90day trust receipt on June 3, 1949, Plaintiff-
checks with their own issued in the name of the members.
Appellant released to Defendant-Appellee the covering documents of the
shipment. In the meantime, debit advice was received from Plaintiff- It was PEMSLA’s policy not to approve applications for loans of members
Appellant's New York Agency to the effect that it advanced or paid the draft with outstanding debts. To subvert this, some PEMSLA officers devised a
to Otis Elevator Co. on May 17, 1949, and charged Plaintiff-Appellant the scheme. They took out loans in the names of unknowing members, without
sum of $14,467.21 representing the face value of the draft plus $18.06 as 1/8 the knowledge or consent of the latter. The PEMSLA checks issued for these
of 1% commission. After the maturity date (October 4, 1949) Plaintiff- loans were given to the spouses for rediscounting. The officers carried this
Appellant presented the draft to Defendant-Appellee for payment but the out by forging the indorsement of the named payees. In return, the spouses
latter failed, neglected and refused to pay. issued their personal checks in the name of the members and the PEMSLA
checks, on the other hand, were deposited by the spouses to their account.
In January, 1951, Congress passed House Bill No. 1513, now
Meanwhile, the spouses’ checks were deposited directly by PEMSLA to its
Republic Act No. 601, approved on March 28, 1951, imposing a 17% special
savings account without any indorsement from the named payees. Petitioner
excise tax (otherwise known as foreign exchange tax) on the value in
eventually found out about these fraudulent acts. To put a stop to it, petitioner
Philippine peso of foreign exchange sold by the Central Bank of the
closed the current account of PEMSLA. As a result, the PEMSLA checks
Philippines or its authorized agents. Plaintiff-appellant, as any other
deposited by the spouses were dishonoured. The spouses’ checks, however,
commercial bank in the Philippines, is an authorized agent of the Central
were deposited to PEMSLA’s account. The amounts were duly debited from For the fictitious-payee rule to be available as a defense, PNB must show
the spouses’ account. Thus, the spouses incurred losses. The spouses filed that the makers did not intend for the named payees to be part of the
a complaint against PEMSLA and petitioner. They contended that because transaction involving the checks.
PNB credited the checks to the PEMSLA account even without
indorsements, PNB violated its contractual obligation to them. Petitioner paid The subject checks are presumed order instruments. This is because
the wrong payees, thus, it should bear the loss. Petitioner argued, inter alia, petitioner failed to present sufficient evidence to defeat the claim of the
that the spouses did not intend for the named payees to receive the proceeds spouses that the named payees were the intended recipients of the
of the checks. Consequently, the payees were considered as “fictitious proceeds. The bank failed to satisfy a requisite condition of a fictitious-payee
payees”. Being checks made to fictitious payees which are bearer situation. Because of this failure, the fictitious-payee rule does not apply.
instruments, the checks were negotiable by mere delivery. Thus, the checks are to be deemed payable to order and the drawee bank
bears the loss.
Issue: Whether the checks are payable to order or to bearer
15. Ang Tek Lian vs. CA
Held: A check that is payable to a specified payee is an order instrument.
However, under section 9 of the NIL, a check is payable to a specified payee GR L-2516; September 25, 1950
may nevertheless be considered as a bearer instrument if it is payable to the
J. Bengzon
order of a fictitious or non-existing person, and such fact is known to the
person making it so payable. An actual, existing, and living payee may also DOCTRINE: A check drawn payable to the order of "cash" is a check
be fictitious if the maker of the check did not intend for the payee to in fact payable to bearer, and the bank may pay it to the person presenting it for
receive the proceeds of the check. Thus, a check made expressly payable to payment without the drawer's indorsement.
a non-fictitious and existing person is not necessarily an order instrument. If
the payee is not the intended recipient of the proceeds of the check, the FACTS: Petitioner Ang Tek Lian drew check upon China Banking
payee is considered a fictitious payee and the check is a bearer instrument. Corporation, payable to the order of “cash” in the amount of Php 4,000,
despite knowing he had no funds. He delivered the check to Lee Hua Hong in
In a fictitious-payee situation, the drawee bank is absolved from liability and exchange for money. The next day, Lee Hua Hong presented the check to
the drawer bears the loss. When faced with a check payable to a fictitious drawee bank but it was dishonored for insufficiency of funds.
payee, it is treated as a bearer instrument that can be negotiated by delivery.
The underlying theory is that one cannot expect a fictitious payee to The Court of First Instance of Manila convicted petitioner of estafa for the
negotiate the check by placing his indorsement theron. Since the maker issuance of the check.
knew his limitation, he must have intended for the instrument to be
negotiated by mere delivery. The Court of Appeals affirmed the verdict of the CFI believing Lee Hua Hong
who testified that Petitioner Ang Tek Lian brought the check to him in
However, there is a commercial bad faith exception to the fictitious-payee exchange of money as he was badly in need of the money and could not
rule. A showing of commercial bad faith on the part of the drawee bank, or withdraw it from the bank since it was already closed. Petitioner further
any transferee of the check for that matter, will work to strip it of this defense. assured that he had sufficient funds in the bank. Despite repeated efforts to
The exception will cause it to bear the loss. Commercial bad faith is present if notify him that the check had been dishonored, petitioner could not be found
the transferee of the check acts dishonestly, and is a party to the fraudulent until he was summoned for the complaint filed against him, and that he has
scheme. The transferee acts dishonestly where it has actual knowledge of not yet paid the amount of the check.
facts and circumstances that amount to bad faith, thus itself becoming a
participant in a fraudulent scheme. ISSUE: W/N PETITIONER CAN BE HELD LIABLE FOR ESTAFA, SINCE
THE CHECK WAS PAYABLE TO THE ORDER OF “CASH”?
HELD: Yes, petitioner is properly held liable for estafa.
“Without defalcation, value received; and to hereby
Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes authorize any attorney in the Philippine Islands, in case
swindling committed by issuing a check knowing at that time he had no funds this note be not paid at maturity, to appear in my name and
in bank or that it were not sufficient to cover the amount without informing the confess judgment for the above sum with interest, cost
of suit and attorney's fees of ten (10) per cent for
payee." It was explained in a jurisprudence that estafa is committed by
collection, a release of all errors and waiver of all rights
issuing either a check to accomplish the deceit. to inquisition and appeal, and to the benefit of all laws
exempting property, real or personal, from levy or sale.”

The Manila Oil Refining and By-Products Company, Inc. failed to pay
It is argued, however, that as the check had been made payable to "cash" the promissory note on demand. The Philippine National Bank brought action
and had not been endorsed by Ang Tek Lian, the defendant is not guilty of in the Court of First Instance of Manila, to recover P61,000, the amount of the
the offense charged. note, together with interest and costs. Mr. Elias N. Rector, an attorney
associated with the Philippine National Bank, entered his appearance in
representation of the defendant, and filed a motion confessing judgment. The
defendant, however, in a sworn declaration, objected strongly to the
Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to unsolicited representation of attorney Recto. Later, attorney Antonio
the order of "cash" is a check payable to bearer, and the bank may pay it to Gonzalez appeared for the defendant and filed a demurrer, and when this
the person presenting it for payment without the drawer's indorsement. was overruled, presented an answer. The trial judge rendered judgment on
the motion of attorney Recto in the terms of the complaint.

ISSUE: Whether or not a provision in a promissory note whereby in case the

But in circumstances were the bank is not sure of the bearer’s identity or same is not paid at maturity, the maker authorizes any attorney to appear
and confess judgment thereon for the principal amount, with interest, costs,
financial solvency, it has the right to demand identification and/or assurance
and attorney's fees, and waives all errors, rights to inquisition, and appeal,
against possible complications. and all property exceptions is valid?
As stated by the Court of Appeals, the form of the check in this case was RULING:
totally unconnected with its dishonor since, it was returned unsatisfied NO. The Court held that the Negotiable Instruments Law, in section
because the drawer had insufficient funds – not because the drawer’s 5, provides that "The negotiable character of an instrument otherwise
indorsement was lacking. negotiable is not affected by a provision which ". . . (b) Authorizes a
confession of judgment if the instrument be not paid at maturity." We do not
16. PNB v. Manila Oil Refining believe, however, that this provision of law can be taken to sanction
G.R. No. L-18103, June 8, 1922, 43 Phil 444 judgments by confession, because it is a portion of a uniform law which
merely provides that, in jurisdiction where judgment notes are recognized,
Malcolm, J.: such clauses shall not affect the negotiable character of the instrument.
“Warrants of attorney are void as against public policy, because they Moreover, the same section of the Negotiable Instruments. Law concludes
enlarge the field for fraud, because under these instruments the with these words: "But nothing in this section shall validate any provision or
promissor bargains away his right to a day in court…” stipulation otherwise illegal."

FACTS: Judgments by confession as appeared at common law were

The manager and treasurer of Manila Oil Refining & By-Products considered an amicable, easy, and cheap way to settle and secure debts.
Company, Inc. executed and delivered to Philippine National Bank (PNB) a They are a quick remedy and serve to save the court's time. They also save
promisorry note whereby the company promises to pay to the order of PNB the time and money of the litigants and the government the expenses that a
the amount of P61,000. The note contains the following stipulations: long litigation entails. In one sense, instruments of this character may be
considered as special agreements, with power to enter up judgments on After defendant Casals talked with plaintiff's sales engineer, he was referred
them, binding the parties to the result as they themselves viewed it. to plaintiff's executive vice-president, Apolonio Javier, for negotiation in
On the other hand, are disadvantages to the commercial world which connection with the manner of payment. When Javier asked for cash
outweigh the considerations just mentioned. Such warrants of attorney are
payment for the skidders, defendant Casals informed him that his
void as against public policy, because they enlarge the field for fraud,
because under these instruments the promissor bargains away his corporation, defendant Casville Enterprises, Inc., had a credit line with
right to a day in court, and because the effect of the instrument is to defendant Equitable Banking Corporation. Thus, Casville and Nell agreed
strike down the right of appeal accorded by statute. The recognition of that the former will open a letter of credit in Equitable Banking Corporation in
such a form of obligation would bring about a complete reorganization of favor of the latter for the payment of the garrett skidders. Nell agreed to
commercial customs and practices, with reference to short-term obligations. advance the marginal deposit necessary for the opening of the letter of credit.
It can readily be seen that judgement notes, instead of resulting to the Although the marginal deposit was supposed to be produced by defendant
advantage of commercial life in the Philippines might be the source of abuse
Casville Enterprises, plaintiff agreed to advance the necessary amount in
and oppression, and make the courts involuntary parties thereto. If the bank
has a meritorious case, the judgement is ultimately certain in the courts. order to facilitate the transaction. Accordingly, plaintiff issued a check, which
reads, “Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF
We are of the opinion that warrants of attorney to confess CASVILLE ENTERPRISES, INC.” and drawn against First National City
judgment are not authorized nor contemplated by our law. We are Bank. Nell entrusted the delivery of the check to Casals because it believed
further of the opinion that provisions in notes authorizing attorneys to that no one, including Casals, could encash the same as it was payable to
appear and confess judgments against makers should not be Equitable Banking Corp. alone. Casville in turn delivered three post-dated
recognized in this jurisdiction by implication and should only be
checks to Nell as collateral.
considered as valid when given express legislative sanction.

Topic 2: Interpretation of Instruments Section 17

Casals immediately deposited the check issued by Nell with Equitable
Banking Corp. and the bank teller accepted the same for deposit in Casville’s
17. EQUITABLE BANKING CORPORATION vs. THE HONORABLE checking account. Casville then withdrew all of the amount deposited.
INTERMEDIATE APPELLATE COURT AND THE EDWARD J. NELL CO.

G.R. No. 74451, May 25, 1988

When Nell tried to encash the three checks given by Casville as collateral,
they were dishonored because they were drawn against a closed account.
Nell inquired about the letter of credit and it discovered that no letter of credit
CIVIL LAW; OBLIGATIONS AND CONTRACTS; INTERPRETATION OF was opened in its favor. Nell, thus, sued Casville, Casals, and Equitable
CONTRACTS; AMBIGUITY IN THE CONTRACT SHALL BE CONSTRUED Banking Corp. for the recovery of the amount
AGAINST THE PARTY WHO CAUSED IT. — The subject check was
equivocal and patently ambiguous because by making the check read; "Pay
to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE
ISSUE: Whether or not defendant Equitable Banking Corporation is liable for
ENTERPRISES, INC." the payee ceased to be indicated with reasonable
the loss suffered by plaintiff Nell.
certainty in contravention of Section 8 of the Negotiable Instruments Law.

FACTS: Defendant Casville Enterprises, Inc., through defendant Liberato

Casals, bought from plaintiff Edward J. Nell Co. two units of garrett skidders.
HELD: No, Equitable Banking Corporation is not liable to Nell. Nell should (g) Where an instrument containing the word “I promise to pay” is
bear the loss as it was through its own acts, which put it into the power of signed by two or more persons, they are deemed to be jointly and
Casals and Casville Enterprises to perpetuate the fraud against it. severally liable thereon.

FACTS:

The check was not initially non-negotiable. Neither was it cross-checked. A promissory note dated march 12, 1954 was executed by Vicente Legarda,
The rubber-stamping transversally on the face of the check was only made president of Concepcion Mining Company, and Jose Sarte. On the face of
the bank teller in accordance with customary bank practice, and not by Nell the promissory note partially reads:
as the drawer of the check, and simply meant that thereafter the same check
could no longer be negotiated. NINETY DAYS after date, for value received, I promise to pay to the
order of the Philippine National Bank . . . .

The promissory note matured and without payment from the makers. PNB
The payee was not indicated with reasonable certainty in contravention of sued Concepcion Mining and Sarte.
Section 8 of the Negotiable Instruments Law. As worded, it could be
Upon the filing of the complaint the defendants presented their answer in
accepted as deposit to the account of the party named therein after the
which they allege that the co-maker the promissory note Don Vicente L.
symbols of A/C, or payable to the bank as trustee, or as an agent, for
Legarda died on February 24, 1946 and his estate is in the process of judicial
Cassville with the latter being the ultimate beneficiary.
determination in Special Proceedings No. 29060 of the Court of First
Instance of Manila. On the basis of this allegation it is prayed, as a special
defense, that the estate of said deceased Vicente L. Legarda be included as
Section 8. When payable to order. – The instrument is payable to order party-defendant. The court in its decision ruled that the inclusion of said
where it is drawn payable to the order of a specified person or to him or defendant is unnecessary and immaterial
his order. It may be drawn payable to the order of:
ISSUE:

Whether or not the estate of Legarda should be included in the suit.

a. A payee who is not maker, drawer, or drawee; or
b. The drawer or maker; or HELD:
c. The drawee; or
d. Two or more payees jointly; or No. There is no need for pursuant to Section 17 (g) of the Negotiable
e. One or some of several payees; or Instruments Law:
f. The holder of an office for the time being.
18. PNB V. CONCEPTION MINING

G.R. No. L-16968 SEC. 17. Construction where instrument is ambiguous. — Where the
language of the instrument is ambiguous or there are omissions
DOCTRINE: therein, the following rules of construction apply:
SEC. 17. Construction where instrument is ambiguous. — Where the (g) Where an instrument containing the word “I promise to pay” is
language of the instrument is ambiguous or there are omissions signed by two or more persons, they are deemed to be jointly and
therein, the following rules of construction apply: severally liable thereon.
And Article 1216 of the Civil Code of the Philippines also provides as follows: Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide
Manufacturing, Inc. as defendant and substitute Pinch Manufacturing
ART. 1216. The creditor may proceed against any one of the solidary debtors Corporation it its place.
or some of them simultaneously. The demand made against one of them
shall not be an obstacle to those which may subsequently be directed against ISSUE:
the others so long as the debt has not been fully collected. Whether or not private respondent Fermin Canlas is solidarily liable
with the other defendants, namely Pinch Manufacturing Corporation and
In view of the above quoted provisions, and as the promissory note was
Shozo Yamaguchi, on the nine promissory notes
executed jointly and severally by the same parties, namely, Concepcion
Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the payee
HELD:
of the promissory note had the right to hold any one or any two of the signers
YES. The court held that private respondent Fermin Canlas is
of the promissory note responsible for the payment of the amount of the note.
solidarily liable on each of the promissory notes bearing his signature.
This judgment of the lower court should be affirmed.
Under the Negotiable lnstruments Law, persons who write their names on the
19) Republic Planters v. CA face of promissory notes are makers and are liable as such. By signing the
GR No 93073. December 21, 1992 notes, the maker promises to pay to the order of the payee or any holder
according to the tenor thereof. Based on the above provisions of law, there is
DOCTRINE: Co-maker cannot escape liability arising therefrom. Persons no denying that private respondent Fermin Canlas is one of the co-makers of
who write their names on the face of promissory notes are makers and are the promissory notes. As such, he cannot escape liability arising therefrom.
liable as such.
Where an instrument containing the words "I promise to pay" is signed by two
FACTS: or more persons, they are deemed to be jointly and severally liable thereon.
Defendant Shozo Yamaguchi and private respondent Fermin Canlas An instrument which begins" with "I" ,We" , or "Either of us" promise to, pay,
were President/Chief Operating Officer and Treasurer respectively, of when signed by two or more persons, makes them solidarily liable. The fact
Worldwide Garment Manufacturing, Inc.. By virtue of Board Resolution No.1 that the singular pronoun is used indicates that the promise is individual as to
dated August 1, 1979, defendant Shozo Yamaguchi and private respondent each other; meaning that each of the co-signers is deemed to have made an
Fermin Canlas were authorized to apply for credit facilities with the petitioner independent singular promise to pay the notes in full.
Republic Planters Bank in the forms of export advances and letters of
In the case at bar, the solidary liability of private respondent Fermin Canlas is
credit/trust receipts accommodations. Petitioner bank issued nine promissory
made clearer and certain, without reason for ambiguity, by the presence of
notes.
the phrase "joint and several" as describing the unconditional promise to pay
to the order of Republic Planters Bank. A joint and several note is one in
On the right bottom margin of the promissory notes appeared the
which the makers bind themselves both jointly and individually to the payee
signatures of Shozo Yamaguchi and Fermin Canlas above their printed
so that all may be sued together for its enforcement, or the creditor may
names with the phrase "and (in) his personal capacity" typewritten below.
select one or more as the object of the suit. A joint and several obligation in
common law corresponds to a civil law solidary obligation; that is, one of
On February 5, 1982, petitioner bank filed a complaint for the several debtors bound in such wise that each is liable for the entire amount,
recovery of sums of money covered among others, by the nine promissory and not merely for his proportionate share. By making a joint and several
notes with interest thereon, plus attorney's fees and penalty charges. The promise to pay to the order of Republic Planters Bank, private respondent
complainant was originally brought against Worldwide Garment Fermin Canlas assumed the solidary liability of a debtor and the payee may
choose to enforce the notes against him alone or jointly with Yamaguchi and FACTS:
Pinch Manufacturing Corporation as solidary debtors.
The petitioner is a corporation engaged in the logging business. It
Sec. 14. Blanks: when may be filled. — Where the instrument is wanting in had plans of adding roads and having simultaneous logging projects along
any material particular, the person in possesion thereof has a prima facie side the roads but they need 2 more tractors. Atlantic Gulf & Pacific
authority to complete it by filling up the blanks therein. ... In order, however, Company of Manila, through its sister company and marketing arm, Industrial
that any such instrument when completed may be enforced against any Products Marketing (the "seller-assignor") offered to sell the petitioner 2 used
person who became a party thereto prior to its completion, it must be filled up tractors. The seller-assignor assured the petitioner that the tractors are fit for
strictly in accordance with the authority given and within a reasonable time... the job and gave them a warranty of 90 days. For this reason, the petitioner
agreed to purchase the tractors on installment and paid the down payment.
Proof that the notes were signed in blank was only the self-serving The seller-assignor issued the sales invoice for the two tractors and a deed
testimony of private respondent Fermin Canlas, as determined by the trial of sale with chattel mortgage with promissory note was executed.
court, so that the trial court ''doubts the defendant (Canlas) signed in blank Simultaneously, the seller-assignor assigned its rights and interest in the
the promissory notes". We chose to believe the bank's testimony that the chattel mortgage in favor of the respondent.
notes were filled up before they were given to private respondent Fermin
Canlas and defendant Shozo Yamaguchi for their signatures as joint and The seller-assignor delivered the tractors to the petitioner’s job site.
several promissors. For signing the notes above their typewritten names, A few days after, the tractors broke down. Petitioner informed the seller-
they bound themselves as unconditional makers. We take judicial notice of assignor of what happened. In response to this, the seller-assignor sent its
the customary procedure of commercial banks of requiring their clientele to mechanics to fix the units but they found out that the tractors were no longer
sign promissory notes prepared by the banks in printed form with blank serviceable. Because of this, the business operations of the petitioner was
spaces already filled up as per agreed terms of the loan, leaving the delayed and advised the seller-assignor that the payments of the installments
borrowers-debtors to do nothing but read the terms and conditions therein as listed in the promissory note will be delayed until the latter fulfills its
printed and to sign as makers or co-makers. When the notes were given to obligation under its warrant.
private respondent Fermin Canlas for his signature, the notes were complete
in the sense that the spaces for the material particular had been filled up by The petitioner then asked the seller-assignor to have the units
the bank as per agreement. The notes were not incomplete instruments; reconditioned and sell them. The proceeds of which will be given to the
neither were they given to private respondent Fermin Canlas in blank as he respondent and the excess will be divided between the seller-assignor and
claims. Thus, Section 14 of the NegotiabIe Instruments Law is not applicable. petitioner. The seller-assignor did not respond.

The respondent then filed a complaint against the petitioner for the
recovery of the principal sum, interest and costs of suit. The petitioners
Topic 3: Modes of Transfer: Assignment vs Negotiation answered praying for the dismissal of the complaint and for the respondent to
pay the former damages and costs of suit.
20. CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and
RODOLFO T. VERGARA, petitioners, vs. IFC LEASING AND Trial court ruled in favor of the respondent, that the respondent was a
ACCEPTANCE CORPORATION, respondent. holder in due course of the promissory note and may enforce payment of the
instrument for the full amount against all the parties liable. Petitioners
G.R. No. 72593 April 30, 1987 appealed to the IAC but the latter affirmed the trial court’s decision.

DOCTRINE: When there is a breach of warranty, the general rule is that the ISSUE/S: WON the promissory note is a negotiable instrument
liability extends to its assignees unless the latter is a holder in due course.
HELD:
No. checks, with petitioner as payee, Philfinance as drawer, and Insular Bank of
Asia and America as drawee.
It’s clear that the seller-assignor breached it warranty and is
therefore liable. This liability as a general rule, extends to the corporation to Petitioner sought to encash the postdated checks but was dishonored for
whom it assigned its rights and interests unless the assignee is a holder in having been drawn against insufficient funds. Philfinance delivered to
due course of the promissory note in question, assuming the note is petitioner the DCR issued by respondent.
negotiable, in which case the latter's rights are based on the negotiable
instrument and assuming further that the petitioner's defenses may not Petitioner demanded payment from respondent Pilipinas Bank. He also
prevail against it. informed that the amount reflected in DCR No. 10805 remained unpaid and
outstanding and that he was asking for the physical delivery of the
In consideration of Sec. 1(d) of the NIL which requires that a promissory note. Petitioner then examined the original of the DMC PN No.
promissory note must be payable to order or bearer, the promissory note is 2731 and found: that the security had been issued on 10 April 1980; that it
not a negotiable instrument. Thus the respondent can never be a holder in would mature on 6 April 1981; that it had a face value of P2,300,833.33, with
due course but is an assignee. The petitioner may raise against the the Philfinance as "payee" and private respondent Delta Motors Corporation
respondent all the defenses available to it as against the seller-assignor. ("Delta") as "maker;" and that on face of the promissory note was stamped
"NON NEGOTIABLE." Pilipinas did not deliver the Note, nor any certificate of
SC annulled and set aside the decision of the IAC. participation in respect thereof, to petitioner.

21. Sesbreño vs. CA Similar demand letters were sent to Pilipinas. Pilipinas allegedly referred all
of the demand letters to Philfinance for written instructions. However, no
GR L-2516; September 25, 1950
instructions were given and as such, Pilipinas never released DMC PN nor
J. Feliciano any other instrument.

DOCTRINE:

DMC PN No. 2731, while marked "non-negotiable," was not at the same time A written demand to respondent Delta Motors was also sent. However, it
stamped "non-transferable" or "non-assignable." It contained no stipulation denied liability explaining that it had previously agreed with Philfinance to
which prohibited Philfinance from assigning or transferring, in whole or in offset its DMC PN No. 2731 against Philfinance PN No. 143-A issued in favor
part, that Note. of Delta Motors.

Philfinance was then placed under the joint management of the Securities
and Exchange Commission and the Central Bank and delivered to the SEC
FACTS: DMC PN No. 2731.

Petitioner Raul Sesbreño made a money market placement with Philippine For failure to collect his investment and interest, he filed an action for
Underwriters Finance Corporation, with a term of 32 days, and was issued: a) damages with the Regional Trial Court against respondent Delta Motors and
Certificate of Confirmation of Sale of Delta Motors Corporation Promissory Pilipinas Bank. It was however dismissed for lack of merit and lack of cause
Note No. 2731 “DMC PN”; b) Certificate of securities Delivery Receipt No. of action. Upon appeal, the same was denied by the Court of Appeals and
16587 indicating the sale of DMC PN No. 2731 to petitioner, with the notation held that it is Philfinance is solely and legally obligated to return the
that the said security was in custodianship of Pilipinas Bank, as per investment of petitioner, together with its earnings, and to answer all the
Denominated Custodian Receipt ("DCR") No. 10805; and c) post-dated damages.
ISSUE: Sometime in May 1992, Josephine Aguilar canvassed prices of cars from
different car dealers. On May 23, 1992, World Cars, Inc. sent its
W/N DELTA MOTORS CORPORATION’S PROMISSORY NOTE NO. 2731 representative Joselito Perez and Vangie Tayag to the Aguilar residence in
AS STAMPED “NON-NEGOTIABLE” CANNOT BE NEGOTIATED OR New Manila, Quezon City. Josephine decided to purchase a white 1992
TRANSFERRED? Nissan California at the agreed price of P370, 000.00, payable in 90 days.
The Aguilars issued 3 checks in favour of World Cars payable to Perez who
HELD: DMC PN NO. 2731, was validly transferred through assignment. was authorized to receive the payment.

The Aguilars signed the promissory note binding them to be jointly and

Only an instrument qualifying as a negotiable instrument under the relevant
severally liable to World Cars in the amount of P301,992.00, payable in 12
statute may be negotiated either by indorsement thereof coupled with months, with a monthly amortization of P25,166.00 and a late payment
delivery, or by delivery alone where the negotiable instrument is in bearer charge of 5% per month on each unpaid instalment from due date until fully
form. A negotiable instrument may, however, instead of being negotiated, paid. By Josephine’s claim, at the time she and her husband signed the
also be assigned or transferred. The legal consequences of negotiation as promissory note, its date, May 30, 1992, and the due date of the monthly
distinguished from assignment of a negotiable instrument are, of course, amortization which was agreed to be every 3rd day of each month starting
different. A non-negotiable instrument may, obviously, not be negotiated; but July 1992 were not reflected therein. The Aguilars did execute too a chattel
mortgage in favour of World Cars which embodied a deed of assignment in
it may be assigned or transferred, absent an express prohibition against
favour of Citytrust Finance Corporation. Josephine’s claim, the date May 30,
assignment or transfer written in the face of the instrument. 1992 appearing in the chattel mortgage cum deed of assignment was not yet
filled up at the time she and her husband signed it.
DMC PN No. 2731, while marked "non-negotiable," was not at the same time
stamped "non-transferable" or "non-assignable." It contained no stipulation Spouses Aguilar received letters from Citytrust, advising them of overdue
which prohibited Philfinance from assigning or transferring, in whole or in account and unpaid installments for the months of August to December 1992
part, that Note. plus accumulated penalty charges. World Cars‘ Vice President Domondon
informed Spouses Aguilar that the last payment had not been received. The
Nothing in the Letter of Agreement entered into by Delta Motors and spouses Aguilar thus filed a complaint or "annulment of chattel mortgage plus
Philfinance can be reasonably construed as a prohibition for assigning or damages" against Citytrust and World Cars before the Regional Trial Court
(RTC) of Quezon City. RTC ruled in favour of the Aguilars. The appellate
transferring DMC PN No. 2731 court modified that of trial court giving effect to the promissory note and its
derivative instruments.
The consent of Delta Motors was not necessary for the validity and
enforceability of the assignment in favor of petitioner. Delta's argument that
Philfinance's sale or assignment of part of its rights to DMC PN No. 2731
constituted conventional subrogation, which required its (Delta's) consent, is ISSUE
quite mistaken. Conventional subrogation, which in the first place is never Whether or not CA erred in ruling that the promissory note and derivative
lightly inferred, must be clearly established by the unequivocal terms of the instruments were null and void for the same were not really intended to
substituting obligation or by the evident incompatibility of the new and old produce legal effect
obligations on every point. Nothing of the sort is present in the instant case.
HELD
22. Sps. Ferdinand and Jospehine Aguilar, Petitioners
Yes. Clearly, Perez was the agent of World Cars and was duly authorized to
Citytrust Finance Corporation, Respondent accept payment for the car. Josephine’s testimony that before issuing the
checks in the name of Perez, she verified from his supervisor and the latter
G.R. No. 159592 confirmed Perez’ authority to receive payment remains unrefuted by World
Cars. In fact, World Cars admitted in its Answer with Counterclaim that
FACTS "[w]hat was actually paid [by the Aguilars] and received by [it] was
[Josephine’s] check in the amount of P148, 000.00 as down payment for the Spouses Lim were charged before the RTC of Malabon with estafa
said car." Parenthetically, as earlier stated, when Josephine spoke to World and seven counts of violation of B.P. 22.
Cars’ Vice President Domondon, the latter informed her that the last payment Spouses Lim are the President and Treasurer of Rigi Bilt Industries
had not been received.45 This information of Domondon does not jibe with the
that Linton Commercial Company, Inc (Linton) had been transacting for
claim of World Cars that it received only Josephine’s first check in the
amount of P148, 000.00 as downpayment. years. Spouses Lim purchased goods from Linton and issued 7 SOLIDBANK
checks simultaneously with the delivery as payment. When presented to the
Since Spouses Aguilar payment to Perez is deemed payment to World Cars, drawee bank for payment the checks were dishonored as payment on the
the promissory note, chattel mortgage and other accessory documents they checks had been stopped and/or for insufficiency of funds to cover the
executed which were to take effect only in the event the checks would amounts. Despite demands of Linton, Spouses Lim refused to make good the
be dishonoured were deemed nullified, all the checks having been cleared. checks or pay the value of the deliveries. Salvador Alfonso, signature verifier
Since the condition for the instruments to become effective was fulfilled, the of SOLIDBANK Grace Park Branch, Kalookan City, where the Spouses Lim
obligation on the part of the spouses Aguilar to be bound thereby did not maintained an account, testified that the 7 checks were ordered by the
arise and World Cars did not thus acquire rights thereunder following Art.
Spouses to stop payment and the reason for which is due to insufficiency of
1181 of the Civil Code which provides that in conditional obligations, the
acquisition of rights, as well as the extinguishment or loss of those already funds. RTC of Malabon held Spouses Lim guilty of estafa and violation of
acquired, shall depend upon the happening of the event which constitutes the B.P. 22. Upon appeal, the CA acquitted the charge on estafa but affirmed
condition. As no right against the Spouses Aguilar was acquired by World their charge in violation of B.P. 22.
Cars under the promissory note and chattel mortgage, it had nothing to
assign to Citytrust. Consequently, Citytrust cannot enforce the instruments Issue:
against the spouses Aguilar, for an assignee cannot acquire greater rights
Whether or not, RTC of Malabon has jurisdiction over the case as the
than those pertaining to the assignor.
drawee bank is in Kalookan City.
At all events, the Spouses Aguilar having fully paid the car before they
became aware of the assignment of the instruments to Citytrust when they Held:
received notice thereof by Citytrust, they were released of their obligation Jurisdiction lies with RTC Malabon since: 1. The 7 checks were
thereunder. The Civil Code so provides that the debtor who, before having issued to Linton at its place of business in Balut, Navotas; 2. They were
knowledge of the assignment, pays his creditor, shall be released from the delivered to Linton at the same place; 3. They were dishonored in Kalookan
obligation Cty; and 4. Petitioners had knowledge of the insufficiency of their funds in
SOLIDBANK at the time the checks were issued. Although Linton sent a
collector who received the checks from petitioners at their place of business
Topic 4: Modes of Transfer: Delivery in Kalookan City, they were actually issued and delivered to Linton at its
place of business in Balut, Navotas. The receipt of the checks by the
23.Manuel Lim and Rosita Lim Vs. CA / GR 107898 / December 19, 1995
collector of Linton is not the issuance and delivery to the payee in
contemplation of the law. The collector was not the person who could take
Doctrine:
the checks as a holder with the intent to transfer title thereto. As stated in
Under Section 191 of the NIL the term “issue” means the first delivery of the
Section 191 of NIL, the term “issue” means the first delivery of the instrument
instrument complete in form to a person who takes it as holder… the place
complete in form to a person who takes it as a holder. On the other hand, the
where the bills were written, signed, or dated does not necessarily fix or
term “holder” refers to the payee or indorsee of a bill or note who is in
determine the place where they were executed. What is decisive importance
possession of it.
is the delivery thereof.

24. LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in

Facts:
his personal capacity as garnishee,petitioner, 
vs. HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII, Cebu City, been released through petitioner by the Department of Justice. Upon service
and RAUL H. SESBREÑO, respondents. of the writ of garnishment, petitioner as custodian of the checks was under
G.R. No. 111190 June 27, 1995 obligation to hold them for the judgment creditor. There was no sufficient
reason for petitioner to hold the checks because they were no longer
government funds and presumably delivered to the payee.
DOCTRINE: Under Sec. 16 of the Negotiable Instruments Law, every With regard to the contempt charge, the trial court was not morally
contract on a negotiable instrument is incomplete and revocable convinced of petitioner's guilt. For, while his explanation suffered from
until  delivery  of the instrument for the purpose of giving effect thereto . procedural infirmities nevertheless he took pains in enlightening the court by
sending a written explanation. The explanation however was not submitted to
RTC the trial court for action since the stenographic reporter failed to attach it to
RAUL H. SESBREÑO filed a complaint for damages against the record. 
Assistant City Fiscals Bienvenido N. Mabanto, Jr., and Dario D. Rama, Jr., On 20 April 1993 the motion for reconsideration was denied. The trial
before the Regional Trial Court of Cebu City. After trial judgment was court explained that it was not the duty of the garnishee to inquire or judge for
rendered ordering the defendants to pay P11,000.00 to the plaintiff. The himself whether the issuance of the order of execution, writ of execution and
decision having become final and executory, the trial court ordered its notice of garnishment was justified. His only duty was to turn over the
execution. garnished checks to the trial court which issued the order of execution. 5
On 15 January 1992 a writ of execution was issued.
On 4 February 1992 a notice of garnishment was served on ISSUES
petitioner Loreto D. de la Victoria as City Fiscal of Mandaue City where (1) whether a check still in the hands of the maker or its duly authorized
defendant Mabanto, Jr., was then detained. The notice directed petitioner not representative is owned by the payee before physical delivery to the latter:
to disburse, transfer, release or convey to any other person except to the and,
deputy sheriff concerned the salary checks or other checks, monies, or cash (2) whether the salary check of a government official or employee funded
due or belonging to Mabanto, Jr., under penalty of law. 1 with public funds can be subject to garnishment.
 On 10 March 1992 private respondent (Sesbreno) filed a motion
before the trial court for examination of the garnishees. HELD:
(1)
CA Garnishment is considered as a species of attachment for reaching credits
On 25 May 1992 the petition pending before the Court of Appeals belonging to the judgment debtor owing to him from a stranger to the
was dismissed. litigation. 
As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is
RTC public funds. He receives his compensation in the form of checks from the
Thus the trial court, finding no more legal obstacle to act on the Department of Justice through petitioner as City Fiscal of Mandaue City and
motion for examination of the garnishees, directed petitioner (De la Victoria) head of office. Under Sec. 16 of the Negotiable Instruments Law, every
on 4 November 1992 to submit his report showing the amount of the contract on a negotiable instrument is incomplete and revocable
garnished salaries of Mabanto, Jr., within fifteen (15) days from receipt. until  delivery  of the instrument for the purpose of giving effect thereto . As
On 24 November 1992 private respondent (Sesbreno) filed a motion to ordinarily understood, delivery means the transfer of the possession of
require petitioner (De la Victoria) to explain why he should not be cited in the instrument by the maker or drawer   with intent to transfer title to the
contempt of court for failing to comply with the order of 4 November 1992. payee and recognize him as the holder thereof.  7
On 19 January 1993 petitioner (De la Victoria) moved to quash the Sec. 16 of the Negotiable Instruments Law which states: "And where
notice of garnishment claiming that he was not in possession of any money, the instrument is no longer in the possession of a party whose signature
funds, credit, property or anything of value belonging to Mabanto, Jr., except appears thereon, a valid and intentional delivery by him is presumed." Yet,
his salary and RATA checks, but that said checks were not yet properties the presumption is not conclusive because the last portion of the provision
of Mabanto, Jr., until delivered to him and claim that they were still says "until the contrary is proved."
public funds which could not be subject to garnishment.
On 9 March 1993 the trial court denied both motions and ordered The salary check of a government officer or employee such
petitioner to immediately comply. 3 It opined that the checks had already as a teacher does not belong to him before it is physically
 delivered to him. Until that time the check belongs to the relying on the assurance of respondent Samson Tung, President of Plastic
government. Accordingly, before there is actual delivery of Corporation, that the transaction was legal and regular, instructed the cashier
the check, the payee has no power over it; he cannot assign of Producers Bank to accept the checks for deposit and to credit them to the
it without the consent of the Government.
account of said Plastic Corporation, inspite of the fact that the checks were
(2)
As a necessary consequence of being public fund, the checks may crossed and payable to DBR and bore no indorsement of the latter. Hence,
not be garnished to satisfy the judgment. 9 The rationale behind this doctrine DBR filed the complaint for sum of money against Sima Wei, Lee Kian Huat,
is obvious consideration of public policy. Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation and Producers
General Rule : "[I]t is not incumbent upon the garnishee to inquire or Bank of the Philippines. The defendants filed a motion to dismiss for no
to judge for itself whether or not the order for the advance execution of a cause of consideration wherein the trial court granted.
judgment is valid."
Exceptions: a defect on the face of the writ or actual knowledge by
Issue:
the garnishee of lack of entitlement on the part of the garnisher.
In the case at bench, it was incumbent upon petitioner to inquire into Whether or not, DBR has cause of action against the defendants.
the validity of the notice of garnishment as he had actual knowledge of the
non-entitlement of private respondent to the checks in question. Held:
Consequently, we find no difficulty concluding that the trial court exceeded its None. A cause of action is defined as an act or omission of one party
jurisdiction in issuing the notice of garnishment concerning the salary checks in violation of the legal right or rights of another.
of Mabanto, Jr., in the possession of petitioner. The normal parties to a check are the drawer, the payee and the
drawee bank. Courts have long recognized the business custom of using
25.Development Bank of Rizal Vs. Sima Wei, et. Al. / GR 85419 / March
printed checks where blanks are provided for the date of issuance, the name
9, 1993
of the payee, the amount payable and the drawer's signature. All the drawer
has to do when he wishes to issue a check is to properly fill up the blanks
Doctrine:
and sign it. However, the mere fact that he has done these does not give rise
Section 16 NIL, Every contract on a negotiable instrument is incomplete and
to any liability on his part, until and unless the check is delivered to the payee
revocable until delivery of the instrument for the purpose of giving effect
or his representative. A negotiable instrument, of which a check is, is not only
thereto… thus, the payee of a negotiable instrument acquires no interest with
a written evidence of a contract right but is also a species of property. Just as
respect thereto until its delivery to him.
a deed to a piece of land must be delivered in order to convey title to the
grantee, so must a negotiable instrument be delivered to the payee in order
Facts:
to evidence its existence as a binding contract. Section 16 of the Negotiable
Development Bank of Rizal (DBR) extended a loan to Sima under a
Instruments Law, which governs checks, provides in part:
promissory note engaging to pay the former or order the amount of P1.82mio
Every contract on a negotiable instrument is incomplete and
on or before June 24, 1983 with interest at 32% per annum. Sima Wei made
revocable until delivery of the instrument for the purpose of
partial payments on the note but leaving a balance. On November 18. 1983,
giving effect thereto. . . .
Sima Wei issued two crossed checks payable to DBR drawn against China
Thus, the payee of a negotiable instrument acquires no interest with respect
Banking Corporation for the amount of P1.5mio. The said checks were
thereto until its delivery to him. 3 Delivery of an instrument means transfer of
allegedly issued in full settlement of the drawer's account evidenced by the
possession, actual or constructive, from one person to another. Without the
promissory note. These two checks were not delivered to the DBR or to any
initial delivery of the instrument from the drawer to the payee, there can be
of its authorized representatives. For reasons not shown, these checks came
no liability on the instrument. Moreover, such delivery must be intended to
into the possession of Lee Kian Huat, who deposited the checks without the
give effect to the instrument.
DBR's indorsement (forged or otherwise) to the account of Plastic
The stated checks were not delivered to the payee, DBR. Without the
Corporation, at the Balintawak branch, Kaloocan City, of the Producers Bank.
delivery of said checks to DBR, it did not acquire any right or interest therein
Cheng Uy, Branch Manager of the Balintawak branch of Producers Bank,
and cannot therefore assert any cause of action, founded on said checks,
whether against the drawer Sima Wei or against the Producers Bank or any would have issued a statement to that effect, and repeatedly reminded the
of the other respondents. However, unless Sima Wei proves that she has Corporation that the deposit would be considered dormant absent any fund
been relieved from liability on the promissory note by some other cause, DBR movement. Since the Corporation never received any statements of account
from RCBC to that effect, and more importantly, never received any single
has a right of action against her for the balance due thereon.
letter from RCBC noting the absence of fund movement and advising the
26. RCBC v. Hi-Tri Development Corp & Luz Bakunawa Corporation that the deposit would be treated as dormant.” The trial court
G.R # 192413 June 13, 2012 ordered the deposit of the escheated balances with the Treasurer and
credited in favor of the Republic.
Facts:
RTC issued an Order denying the motion of respondents. The trial court
Luz [R.] Bakunawa and her husband Manuel, now deceased are registered explained that the Republic had proven compliance with the requirements of
owners of six (6) parcels of land covered by TCT Nos. 324985 and 324986 of publication and notice, which served as notice to all those who may be
the Quezon City Register of Deeds, and TCT Nos. 103724, 98827, 98828 affected and prejudiced by the Complaint for Escheat.
and 98829 of the Marikina Register of Deeds. These lots were sequestered
by the Presidential Commission on Good Government. Teresita Millan, CA reversed the decision contending RCBC failed to prove that the latter had
through her representative, Jerry Montemayor, offered to buy said lots for "P communicated with the purchaser of the Manager’s Check or the designated
6,724,085.71", with the promise that she will take care of clearing whatever payee immediately before the bank filed its Sworn Statement on the dormant
preliminary obstacles there may[]be to effect a "completion of the sale". The accounts held therein. Furthermore bank’s failure to notify respondents
Spouses Bakunawa gave to Millan the Owner’s Copies of said TCTs and in deprived them of an opportunity to intervene in the escheat proceedings and
turn, Millan made a down payment of "P 1,019,514.29" for the intended to present evidence to substantiate their claim, in violation of their right to due
purchase. However, for one reason or another, Millan was not able to clear process & failed to issue individual notices directed to all persons claiming
said obstacles. As a result, the Spouses Bakunawa rescinded the sale and interest in the unclaimed balances, as well as to require them to appear after
offered to return to Millan her down payment of P 1,019,514.29. Milan publication and show cause why the unclaimed balances should not be
refused and by reason of w/c Spouses, through their company Hi-Tri, took a deposited with the Treasurer of the Philippines hence this appeal.
Manager’s Check in the amount of P 1,019,514.29 from RCBC Ermita
Branch, payable to Millan’s company Rosmil Realty and Development Issue: Whether or not the allocated funds may be escheated in favor of the
Corporation ("Rosmil") c/o Teresita Millan. During the pendency of the case, Republic?
since as advised by the counsel of the spouses to retain custody of the check
and to refrain from cancelling or negotiating it, and without the knowledge of Held: No. There are sufficient grounds to affirm the CA on the exclusion of
[Hi-Tri and Spouses, RCBC reported the "P 1,019,514.29-credit existing in the funds allocated for the payment of the MC in escheat proceedings.
favor of Rosmil" to the Bureau of Treasury as among its "unclaimed
balances” which was signed and posted by Florentino N. Mendoza, Manager An ordinary check refers to a bill of exchange drawn by a depositor (drawer)
and Head of RCBC’s Asset Management, Disbursement & Sundry on a bank (drawee), requesting the latter to pay a person named therein
Department. Subsequently 3 years after, a case was filed to the RTC the (payee) or to the order of the payee or to the bearer, a named sum of money.
action below for Escheat by the OSG. Both parties agreed to an amicable The issuance of the check does not of itself operate as an assignment of any
settlement of P3M however during the negotiations and evidently prior to said part of the funds in the bank to the credit of the drawer. Here, the bank
settlement, they were dismayed when they were informed that the amount becomes liable only after it accepts or certifies the check. After the check is
was already subject of the escheat proceedings before the RTC. A letter was accepted for payment, the bank would then debit the amount to be paid to
sent to RCBC stating “ the deposit that was supposed to be allocated for the the holder of the check from the account of the depositor-drawer.
payment of the Manager’s Check was supposed to remain part of the
Corporation[’s] RCBC bank account, which, thereafter, continued to be There are checks of a special type called manager’s or cashier’s checks.
actively maintained and operated. For this reason, We hereby demand your These are bills of exchange drawn by the bank’s manager or cashier, in the
confirmation that the amount of Php 1,019,514.29 continues to form part of name of the bank, against the bank itself. Typically, a manager’s or a
the funds in the Corporation’s RCBC bank account, since pay-out of said cashier’s check is procured from the bank by allocating a particular amount
amount was never ordered. We wish to point out that if there was any of funds to be debited from the depositor’s account or by directly paying or
attempt on the part of RCBC to consider the amount indicated in the depositing to the bank the value of the check to be drawn. Since the bank
Manager’s Check separate from the Corporation’s bank account, RCBC
issues the check in its name, with itself as the drawee, the check is deemed Dy's driver went to the branch office to pick up stocks of snack foods. He
accepted in advance. Ordinarily, the check becomes the primary obligation of introduced himself to the checker, Mary Jane D. Maraca, who upon
the issuing bank and constitutes its written promise to pay upon demand. confirming Dy's credit with the main office, gave him merchandise worth
Nevertheless, the mere issuance of a manager’s check does not ipso facto P106,579.60. In return, the driver handed her a blank Far East Bank and
work as an automatic transfer of funds to the account of the payee. In case Trust Company (FEBTC) Check with Check No. 553602. The check was
the procurer of the manager’s or cashier’s check retains custody of the signed by Dy though it did not indicate a specific amount. Another transaction
instrument, does not tender it to the intended payee, or fails to make an was made on July 1 with the amount of Php226,794.35 in exchange for
effective delivery, we find the following provision on undelivered instruments Check No. 553615 w/c was again brought and picked up by Dy’s driver.
under the Negotiable Instruments Law applicable Delivery receipts issued to the driver were of without signature but was
however filled later on by Evelyn Ong, accountant of W.L Foods. Checks
“ Sec. 16. Delivery; when effectual; when presumed. – Every contract on a were dishonoured by reason of insufficiency of funds in the said account.
negotiable instrument is incomplete and revocable until delivery of the Later on a letter was sent to W.L foods indicating Check # 553602 was
instrument for the purpose of giving effect thereto. As between returned to drawee bank for the reason of stop payment order and then
immediate parties and as regards a remote party other than a holder in due drawn against uncollected deposits and not because of insufficiency of funds.
course, the delivery, in order to be effectual, must be made either by or Dy's savings deposit account ledger reflected a balance of P160,659.39 as of
under the authority of the party making, drawing, accepting, or July 22, 1992. This, however, included a regional clearing check for P55,000
indorsing, as the case may be; and, in such case, the delivery may be which he deposited on July 20, 1992, and which took five (5) banking days to
shown to have been conditional, or for a special purpose only, and not clear. Hence, the inward check was drawn against the yet uncollected
for the purpose of transferring the property in the instrument. But where the deposit. Despite demand, Dy ignored such. 2 charges of estafa as well as
instrument is in the hands of a holder in due course, a valid delivery violation of B.P 22 were likewise filed against Dy. Dy was arrested and
thereof by all parties prior to him so as to make them liable to him is pleaded not guilty. RTC convicted Dy of the crimes charged. CA affirmed. A
conclusively presumed. And where the instrument is no longer in the motion for reconsideration was filed but was denied hence this appeal.
possession of a party whose signature appears thereon, a valid and
intentional delivery by him is presumed until the contrary is proved.” Issue: WON the honorable CA gravely erred in finding that the prosecution
has proven the guilt of accused beyond reason doubt of ESTAFA on 2
In the case at hand, petitioner acknowledges that the Manager’s Check was counts.
procured by respondents, and that the amount to be paid for the check would
be sourced from the deposit account of Hi-Tri. When Rosmil did not accept Held: YES but only with regards to the 2nd check.
the Manager’s Check offered by respondents, the latter retained custody of
the instrument instead of cancelling it. As the Manager’s Check neither went “Section 191 of the Negotiable Instruments Law14 defines "issue" as the first
to the hands of Rosmil nor was it further negotiated to other persons, the delivery of an instrument, complete in form, to a person who takes it as a
instrument remained undelivered. Petitioner does not dispute the fact that holder. Significantly, delivery is the final act essential to the negotiability of an
respondents retained custody of the instrument. Since there was no delivery, instrument. Delivery denotes physical transfer of the instrument by the maker
presentment of the check to the bank for payment did not occur. An order to or drawer coupled with an intention to convey title to the payee and recognize
debit the account of respondents was never made therefore there was no him as a holder. It means more than handing over to another; it imports such
complete delivery. transfer of the instrument to another as to enable the latter to hold it for
himself.”
27. Dy v. People
G.R # 158312 Nov. 14, 2008 “SEC. 14. Blanks; when may be filled.-Where the instrument is wanting in
any material particular, the person in possession thereof has a prima facie
Facts: John Dy, under the business name Dyna Marketing, has been the authority to complete it by filling up the blanks therein. And a signature on a
distributor of W.L. Food Products in Naga City, Bicol. Dy would pay W.L. blank paper delivered by the person making the signature in order that the
Foods in either cash or check upon pick up of stocks of snack foods at the paper may be converted into a negotiable instrument operates as a prima
latter's branch or main office in Quezon City. At times, he would entrust the facie authority to fill it up as such for any amount.”
payment to one of his drivers.
In the case at hand, even if the checks were given to W.L. Foods in blank, FACTS:
this alone did not make its issuance invalid. When the checks were delivered
to Lim, through his employee, he became a holder with prima facie authority Puzon was a dealer of beer from SMC and purchased products on
to fill the blanks therefore the law presumes agency to fill up the blanks. credit. As business practice and to ensure payment, SMC required him to
Because of this, the burden of proving want of authority or that the authority issue postdated checks but would be returned once the transactions were
granted was exceeded, is placed on the person questioning such authority.
settled in full. On Dec. 31, 2000 purchased on credit and gave SMC 2 checks
Petitioner failed to fulfill this requirement.
to cover the transaction. Jan. 23, 2001 Puzon went to the SMC Sales office
This was a clear acknowledgment of receipt of the goods, when he with his accountant to see a check but when he got a hold of one of the
expressed willingness to pay W.L. Foods, or to replace the dishonored checks he issued, he immediately left the office.
checks, which gave rise to his duty to maintain or deposit sufficient funds to
cover the amount of the checks. SMC demanded Puzon to return the checks but he ignored the
demand. Hence, SMC filed a complaint against him for theft.
Prima facie evidence of deceit was established against petitioner with regard
to FEBTC Check No. 553615 (2nd check) which was dishonored for Prosecutor’s office recommended the dismissal of the case for lack
insufficiency of funds. The letter of petitioner's counsel dated November 10, of evidence. DOJ affirmed.
1992 shows beyond reasonable doubt that petitioner received notice of the
dishonor of the said check for insufficiency of funds. Petitioner, however, CA agreed with the previous decision on the ground that the postdated
failed to deposit the amounts necessary to cover his check within three checks were issued by Puzon merely as a security for the payment of his
banking days from receipt of the notice of dishonor. Hence, as provided for
purchases and that these were not intended to be encashed. Therefore SMC
by law, the presence of deceit was sufficiently proven.
never acquired ownership over the checks and they are duty bound to return
Petitioner failed to overcome the said proof of deceit. The trial court found no the checks after the transactions were settled.
pre-existing obligation between the parties. The existence of prior
transactions between Lim and Dy alone did not rule out deceit because each ISSUE/S: WON delivery of the checks vested SMC with ownership
transaction was separate, and had a different consideration from the others.
Aside from the existing business relations between petitioner and W.L. HELD:
Foods, the primary inducement for the latter to part with its stocks of snack
foods was the issuance of the check in payment of the value of the said NO.
stocks.
One of the essential elements of Theft is that the said property
Since it good faith is a defense of ESTAFA — good faith may be manifested belongs to another. It is important to determine whether ownership of subject
by making arrangements for payment with the creditor and exerting best check was transferred to SMC. Under Sec. 12 Antedated and postdated of
efforts to make good the value of the checks. However petitioner presented NIL, “…the person to whom an instrument so dated is delivered acquires title
no proof of good faith. Noticeably absent from the records is sufficient proof
thereto as of the date of delivery…” However the party delivering the
of sincere and best efforts on the part of petitioner for the payment of the
value of the check that would constitute good faith and negate deceit. instrument must intend to give effect to it. In this case, since the check was
not given as payment there being no intent to give effect to the instrument,
28. SAN MIGUEL CORPORATION, petitioner, vs. BARTOLOME PUZON, then the ownership of the check was not transferred.
JR., respondent.
SC denied the petition.
G.R. No. 167567 September 22, 2010
29. Rafael Lunaria v. People of the Philippines
DOCTRINE: Ownership over postdated check is not transferred upon
G.R. No. 160127 November 11, 2008
delivery if the party delivering the instrument did not intend to give effect to it.
Facts: Petitioner entered into a partnership agreement with private Because of the presumption of authority, the burden of proof that there was
complainant Nemesio Artaiz in the conduct of a money-lending business, no authority or that authority granted was exceeded is carried by the person
with the former as industrial partner and the latter the financer. At the start of who questions such authority.
the business, petitioner would first inform Artaiz of the amount of the
proposed loan, then the latter would issue a check charged against his Records show that petitioner had not proven lack of authority on the part of
account in the bank (proceeds of which will of to a borrower), while petitioner Artaiz to fill up such blanks. Having failed to prove lack of authority, it can be
would in turn issue a check to Artaiz corresponding to the amount lent plus presumed that Artaiz was within his rights to fill up blanks on the check.
the agreed share of interest. The lending business progressed satisfactorily
Topic 5: Modes of Transfer: Indorsement
between the parties and sufficient trust was established that they both agreed
to issue pre-signed checks to each other, for their mutual convenience. The
30. WETTLAUFER V BAXTER / 125 S. W. 741, KY / I9IO
checks were signed but had no payee’s name, date or amount, and each
was given the authority to fill these blanks based on each other’s advice. The
arrangement ended when Artaiz was no longer willing to continue the Doctrine: The usual form of a negotiable instrument is a provision for
partnership. One of the checks issued by petitioner to Artaiz was payment to order or bearer, and indorsement of a note in blank does not
dishonoured for insufficient funds. When Artaiz went to petitioner to ask why convert a non-negotiable instrument to a negotiable one.
the check bounced, petitioner told Artaiz that he had been implicated in a
murder case and therefore could not raise the money to fund the check. FACTS:
Petitioner requested Artaiz not to deposit the other checks that would
become due. Later on, petitioner was acquitted. Petitioner allegedly went to A note was executed to Baxter by the Buffalo Carriage Top Company. The
Artaiz’s residence where both had an accounting. It was supposedly agreed note contained the following:“January 15, 1906, after date we promise to pay
that petitioner owed Artaiz P844,000 and petitioner issued a post-dated Baxter 250 USD at Buffalo, NY.”
check for it. When the check became due and demandable, Artaiz deposited
Baxter wrote his name on the blank of the note and discounted it with
it. The check was dishonoured as the account had been closed. A demand
Wettlaufer.
letter was sent. According to Artaiz, petitioner proposed that his house and
lot be given as security but later on he refused to give it. Hence this case. This was done before the maturity of the note. Payment was refused by the maker (Buffalo
Petitioner argued, inter alia, that the subject check was not “made” or “drawn” Carriage) upon presentment and subsequently Baxter was notified of its dishonor. Baxter
within the contemplation of the law. rejected the claim and defended upon the ground that the note was not a negotiable instrument
and he could not be held liable unless a suit was brought on it after it became due against the
Issue: Whether or not the subject check was duly “made” or “drawn” and
maker (Buffalo Carriage) and has been prosecuted to insolvency.
“issued” by petitioner
Wettlaufer, argued that the note may not have been a negotiable instrument but has been
Held: Citing the NIL, petitioner said that he could no have “drawn” and
converted into a negotiable note by Baxter’s indorsement. Hence, the liability
“issued” the subject check because “it was not complete in form at the time it
of the parties must be governed by the negotiable instruments act.
was given”. It should be borne in mind that the exchange of the pre-signed
checks without date and amount between the parties had been their practice ISSUES:
for almost a year by virtue of their money-lending business. They had
authority to fill up blanks upon information that a check can then be issued. 1. W/N the note was a negotiable instrument
Thus, under Negotiable Instruments Law, Section 14 of which reads: “Blanks, 2.  W/N the signing of Baxter of his name at the back of the note
when may be filled. – Where the instrument is wanting in any material converted it into a negotiable one.
particular, the person in possession thereof has prima facie authority to
complete it by filling up the blanks therein”. This practice is allowed. HELD:
 1. NO. In order to make a note or a bill negotiable, the words "to order" company of Ng Sambok Sons negotiated and indorsed the note in favor of
or "to bearer," or equivalent words, must be used in the body of the Metropol Financing & investment Corporation. Villaruel defaulted in the
note. This note which was payable to Baxter alone and did not payment, upon presentment of the promissory note he failed to pay the
contain the words “to order” or “bearer” was not a negotiable instrument. promissory note as demanded, hence Ng Sambok Sons Motors Co., Ltd.
notified Sambok as indorsee that the promissory note has been dishonored
Section 1. An instrument to be negotiable must conform to the and demanded payment. Sambok failed to pay. Ng Sambok Sons filed a
following requirements: xxx (4) must be payable to the order of a specified person complaint for the collection of sum of money. During the pendency of the
or bearer”. case Villaruel died. Sambok argues that by adding the words “with recourse”
in the indorsement of the note, it becomes a qualified indorser, thus, it does
Without words of negotiability purchasers take the bill or note subject not warrant that in case that the maker failed to pay upon presentment it will
to all defenses which were available between the original parties pay the amount to the holder.

2. No. Even if Baxter indorsed the note in blank or signed his name at
the back of it, he did not convert the note into a negotiable one.
Issue: Whether or not Sambok Motors Co is a qualified indorser, thus it is not
Sec. 9. When payable to bearer. - The instrument is payable to liable upon the failure of payment of the maker.
bearer: xxx (e) When the only or last indorsement is an indorsement
in blank.
Held: NO.
The above provision does not mean that an indorsement in blank
converts a non- negotiable note on its face and by its terms into a negotiable A qualified indorserment constitutes the indorser a mere assignor of the title
one. The provision is merely intended to describe/designate the conditions to the instrument. It may be made by adding to the indorser’s signature the
under which a note which is negotiable on its face might become words “without recourse” or any words of similar import. Such indorsement
payable to bearer. If it was originally non-negotiable, as against the original relieves the indorser of the general obligation to pay if the instrument is
parties, it will not be rendered negotiable by subsequent transfer in dishonored but not of the liability arising from warranties on the instrument
negotiable form. as provided by section 65 of NIL. However, Sambok indorsed the note “with
recourse” and even waived the notice of demand, dishonor, protest and
Baxter by signing his name on the back of the note became merely presentment.
an assignor and not liable, unless a suit was brought on it against the
maker, the Buffalo Carriage Top Company, and it prosecuted to Recourse means resort to a person who is secondarily liable after the default
insolvency. of the person who is primarily liable. Sambok by indorsing the note “with
recourse” does not make itself a qualified indorser but a general indorser who
31. Metropol Financing and Investment Corporation vs Sambok Motors is secondarily liable, because by such indorsement, it agreed that if Villaruel
Company and Ng Sambok Sons Motors Co., Ltd. fails to pay the not the holder can go after it. The effect of such indorsement
is that the note was indorsed without qualification. A person who indorses
G.R. No. L-39641; February 28, 1983 without qualification engages that on due presentment, the note shall be
accepted or paid, or both as the case maybe, and that if it be dishonored, he
Doctrine: After an instrument is dishonored by non-payment in an indorsed will pay the amount thereof to the holder. The words added by Sambok do
instrument, the person secondarily liable thereon ceases to be such and not limit his liability, but rather confirm his obligation as general indorser.
becomes a principal debtor.

FACTS: Dr. Javier Villaruel executed a promissory note in favor of Ng

Sambok Sons Motors Co., Ltd. Payable in 12 equal monthly installments with
interest. It is further provided that in case on non-payment of any of the
installments, the total principal sum then remaining unpaid shall become due
and payable with an additional interest. Sambok Motors co., a sister
Sec. 38. Qualified indorsement. – A qualified indorsement constitutes the Practically, all the checks issued and honored by the respondent
indorser a mere assignor of the title to the instrument. It may be made by drawee bank were crossed checks. Aside from the daily notice given to the
adding to the indorser’s signature the words “without recourse” or any words petitioner by the respondent drawee Bank, the latter also furnished her with a
monthly statement of her transactions, attaching thereto all the cancelled
of similar import. Such as indorsement does not impair the negotiable
checks she had issued and which were debited against her current account.
character of the instrument. It was only after the lapse of more two (2) years that petitioner found
out about the fraudulent manipulations of her bookkeeper.
32. GEMPESAW V. CA
G.R. No. 92244 Feb. 9, 1993 All the eighty-two (82) checks with forged signatures of the
payees were brought to Ernest L. Boon, Chief Accountant of
Campos Jr., J: respondent drawee Bank at the Buendia branch, who, without authority
”Under the NIL, the only kind of indorsement which stops the further therefor, accepted them all for deposit at the Buendia branch to the
negotiation of an instrument is a restrictive indorsement which credit and/or in the accounts of Alfredo Y. Romero and Benito Lam.
prohibits the further negotiation thereof.” About thirty (30) of the payees whose names were specifically written
on the checks testified that they did not receive nor even see the
FACTS: subject checks and that the indorsements appearing at the back of the
Petitioner Natividad O. Gempesaw maintains a checking account checks were not theirs.
numbered 13-00038-1 with the Caloocan City Branch of the respondent
drawee Bank (private respondent Philippine Bank of Communications). To Under the rules of the respondent drawee Bank, only a Branch
facilitate payment of debts to her suppliers, petitioner draws checks against Manager and no other official of the respondent drawee bank, may
her checking account with the respondent bank as drawee. Her customary accept a second indorsement on a check for deposit. In the case
practice of issuing checks in payment of her suppliers was as follows: the at bar, all the deposit slips of the eighty-two (82) checks in question were
checks were prepared and filled up as to all material particulars by her initialed and/or approved for deposit by Ernest L. Boon. The Branch
trusted bookkeeper, Alicia Galang, an employee for more than eight (8) Managers of the Ongpin and Elcaño branches accepted the deposits made in
years. After the bookkeeper prepared the checks, the completed checks the Buendia branch and credited the accounts of Alfredo Y. Romero and
were submitted to the petitioner for her signature, together with the Benito Lam in their respective branches. On November 7, 1984, petitioner
corresponding invoice receipts which indicate the correct obligations due and made a written demand on respondent drawee Bank to credit her account
payable to her suppliers. Petitioner signed each and every check without with the money value of the eighty-two (82) checks totalling P1,208.606.89
bothering to verify the accuracy of the checks against the for having been wrongfully charged against her account. Respondent drawee
corresponding invoices because she reposed full and implicit trust and Bank refused to grant petitioner's demand. On January 23, 1985, petitioner
confidence on her bookkeeper. The issuance and delivery of the checks to filed the complaint.
the payees named therein were left to the bookkeeper. Petitioner admitted
that she did not make any verification as to whether or not the checks ISSUE:
were delivered to their respective payees. Although the respondent Whether not the banking rules prohibit the drawee bank from having
drawee Bank notified her of all checks presented to and paid by the checks with more than one indorsement?
bank, petitioner did not verify the correctness of the returned checks,
much less check if the payees actually received the checks in payment RULING:
for the supplies she received. In the course of her business operations NO. The banking rule banning acceptance of checks for deposit or
covering a period of two years, petitioner issued, following her usual practice cash payment with more than one indorsement unless cleared by some bank
stated above, a total of eighty-two (82) checks in favor of several suppliers. officials does not invalidate the instrument; neither does it invalidate the
These checks were all presented by the indorsees as holders thereof to, negotiation or transfer of the said check. In effect, this rule destroys the
and honored by, the respondent drawee Bank. Respondent drawee Bank negotiability of bills/checks by limiting their negotiation by indorsement of only
correspondingly debited the amounts thereof against petitioner's checking the payee. Under the NIL, the only kind of indorsement which stops the
account numbered 30-00038-1. Most of the aforementioned checks were further negotiation of an instrument is a restrictive indorsement which
for amounts in excess of her actual obligations to the various payees prohibits the further negotiation thereof.
as shown in their corresponding invoices.
 Sec. 36. When indorsement restrictive. — An indorsement is (UOB), addressed to the Land Bank of the Philippines, Manila (LBP), and
restrictive which either payable to the respondent company for P380,000.00. respondent Judy Yang,
the assistant general manager of Gold Palace, inquired from petitioner Far
(a) Prohibits further negotiation of the instrument; or
East Bank & Trust Company's (Far East's) SM North EDSA Branch, its
xxx xxx xxx neighbor mall tenant, the nature of the draft. The teller informed her that the
same was similar to a manager's check, but advised her not to release the
In this kind of restrictive indorsement, the prohibition to transfer or pieces of jewelry until the draft had been cleared. Following the bank's
negotiate must be written in express words at the back of the advice, Yang issued Cash Invoice No. 1609 to the foreigner, asked him to
instrument, so that any subsequent party may be forewarned that come back, and informed him that the pieces of jewellery would be released
ceases to be negotiable. However, the restrictive indorsee acquires the when the draft had already been cleared. Respondent Julie Yang-Go, the
right to receive payment and bring any action thereon as any indorser,
manager of Gold Palace, consequently deposited the draft in the company's
but he can no longer transfer his rights as such indorsee where the
form of the indorsement does not authorize him to do so. account with the aforementioned Far East branch on June 2, 1998.

Although the holder of a check cannot compel a drawee bank to When Far East, the collecting bank, presented the draft for clearing to LBP,
honor it because there is no privity between them, as far as the drawer- the drawee bank, the latter cleared the same-UOB's account with LBP was
depositor is concerned, such bank may not legally refuse to honor a debited, and Gold Palace's account with Far East was credited with the
negotiable bill of exchange or a check drawn against it with more than one amount stated in the draft. Respondent then issued Tagoe a check for
indorsement if there is nothing irregular with the bill or check and the drawer P122,000.00 as change since the Draft amounted to P380,000.00.
has sufficient funds. The drawee cannot be compelled to accept or pay the
check by the drawer or any holder because as a drawee, he incurs no liability However, on june 26 of the same year, Land Bank of the Philippines
on the check unless he accepts it. But the drawee will make itself liable to a informed Far Eastern Bank that the Draft had been materially altered to
suit for damages at the instance of the drawer for wrongful dishonor of the bill
resemble the amount. Far Eastern refunded the amount to LBP and debited
or check.
the account of Gold Palace for P168,053.36 without proper notice and only
did so via phonecall to a representative of Gold Palace. Far Eastern then
33. FAR EAST BANK & TRUST COMPANY, petitioner, claimed the remaining amount from Gold Palace, who already utilized a
vs. portion of the money in its account that was acquired from the allegedly
GOLD PALACE JEWELLERY CO., as represented by Judy L. Yang, Julie altered draft. The amount debited at that time was only P168,053.36, and
Yang-Go and Kho Soon Huat, respondent. thus lacked P211,946.64, which they were claiming from respondents.
Respondents refused to do so, and so a case was filed against them.
G.R. No. 168274             August 20, 2008
The RTC rendered its July 30, 2001 Decision in favor of Far East,
Ponente: NACHURA, J.: ordering Gold Palace to pay the former P211,946.64 as actual damages and
P50,000.00 as attorney's fees. The trial court ruled that, on the basis of its
Doctrine: the acceptor, by accepting the instrument, engages that he will pay warranties as a general indorser, Gold Palace was liable to Far East.
it according to the tenor of his acceptance. The Tenor of the acceptance is
determined by the terms of the bill/instrument. On appeal, the CA, in the assailed March 15, 2005 Decision, reversed
the ruling of the trial court and awarded respondents' counterclaim. It
Facts: On or about sometime in June of 1998, several pieces of Jewelry with ruled in the main that Far East failed to undergo the proceedings on the
an amount of P258,000.00 was acquired on purchase by Samual Tagoe, a protest of the foreign draft or to notify Gold Palace of the draft's dishonor;
foreign national, from Gold Palace Jewellery Co. in SM North Edsa. In thus, Far East could not charge Gold Palace on its secondary liability as an
payment of the same, he offered Foreign Draft No. M-069670 issued by the indorser. The appellate court further ruled that the drawee bank had cleared
United Overseas Bank (Malaysia) BHD Medan Pasar, Kuala Lumpur Branch the check, and its remedy should be against the party responsible for the
alteration. Considering that, in this case, Gold Palace neither altered the draft        
nor knew of the alteration, it could not be held liable.       (b) The existence of the payee and his then capacity to indorse. 

" The foregoing considered, we affirm the ruling of the appellate court to the
extent that Far East could not debit the account of Gold Palace, and for doing
ISSUE: W/N Far Eastern should be favored and Gold Palace should be liable so, it must return what it had erroneously taken. Far East's remedy under the
for the altered Foreign Draft law is not against Gold Palace but against the drawee-bank or the person
responsible for the alteration. That, however, is another issue which we do
not find necessary to discuss in this case."
HELD: NO. The decision of the CA is affirmed. the fact that the drawee bank
cleared and paid the subject foreign draft and forwarded the amount thereof Topic 6: Consideration
to the collecting bank. The latter then credited to Gold Palace's account the
payment it received. Following the plain language of the law, the drawee, by
the said payment, recognized and complied with its obligation to pay in 34. VICKY C. TY, petitioner, vs. PEOPLE OF THE PHILIPPINES,
accordance with the tenor of his acceptance. The tenor of the acceptance is respondent.
determined by the terms of the bill as it is when the drawee accepts.
[G.R. No. 149275. September 27, 2004]
LBP could no longer repudiate the payment it erroneously made to a due
course holder. We note at this point that Gold Palace was not a participant in Doctrine: Sec. 24. Presumption of consideration. - Every negotiable
the alteration of the draft, was not negligent, and was a holder in due course-
instrument is deemed prima facie to have been issued for a valuable
it received the draft complete and regular on its face, before it became
overdue and without notice of any dishonor, in good faith and for value, and consideration; and every person whose signature appears thereon to have
absent any knowledge of any infirmity in the instrument or defect in the title of become a party thereto for value.
the person negotiating it. Having relied on the drawee bank's clearance and
payment of the draft and not being negligent (it delivered the purchased Facts:
jewelry only when the draft was cleared and paid), respondent is amply
protected by the said Section 62. Commercial policy favors the protection of Vicky C. Ty (Ty)
anyone who, in due course, changes his position on the faith of the drawee
bank's clearance and payment of a check or draft. Gold Palace is protected - Tys mother Chua Lao So Un was confined at the Manila Doctors
by Section 62 of the NIL, its collecting agent, Far East, should not have Hospital (hospital) from 30 October 1990 until 4 June 1992
debited the money paid by the drawee bank from respondent company's - Ty signed the Acknowledgment of Responsibility for Payment in the
account. When Gold Palace deposited the check with Far East, the latter, Contract of Admission dated 30 October 1990
under the terms of the deposit and the provisions of the NIL, became an - the total liability of the mother in the amount of P657,182.40
agent of the former for the collection of the amount in the draft. The - Tys sister, Judy Chua, was also confined at the hospital from 13 May
subsequent payment by the drawee bank and the collection of the amount by 1991 until 2 May 1992, incurring hospital bills in the amount of
the collecting bank closed the transaction insofar as the drawee and the P418,410.55.
holder of the check or his agent are concerned. - The total hospital bills of the two patients amounted to
P1,075,592.95.
Sec.  62.  Liability  of  acceptor.  -  The  acceptor,  by  accepting  the - Ty executed a promissory note wherein she assumed payment of the
instrument, engages that he will pay it according to the tenor of his obligation in installments.
acceptance and admits: - To assure payment of the obligation, she drew several postdated
  checks against Metrobank payable to the hospital. The seven (7)
(a)  The  existence  of  the  drawer,  the  genuineness  of  his checks, each covering the amount of P30,000.00, were all deposited
signature, and his  capacity and authority to draw the instrument; on their due dates. But they were all dishonored by the drawee bank
and and returned unpaid to the hospital due to insufficiency of funds, with
the Account Closed advice.
 - MDH sent demand letters to Ty by registered mail. Section 24 of the Negotiable Instruments Law creates a presumption that
- she was filed with seven (7) Informations for violation of B.P. 22 every party to an instrument acquired the same for a consideration or for
against Ty before the RTC of Manila value. In alleging otherwise, Ty has the onus to prove that the checks were
- cases were consolidated and jointly tried. At her arraignment, Ty
issued without consideration. She must present convincing evidence to
pleaded not guilty
- For her defense, Ty claimed that she issued the checks because of overthrow the presumption.
an uncontrollable fear of a greater injury. She averred that she was
forced to issue the checks to obtain release for her mother whom the A scrutiny of the records reveals that petitioner failed to discharge her burden
hospital inhumanely and harshly treated and would not discharge of proof. Valuable consideration may in general terms, be said to consist
unless the hospital bills are paid. either in some right, interest, profit, or benefit accruing to the party who
makes the contract, or some forbearance, detriment, loss or some
responsibility, to act, or labor, or service given, suffered or undertaken by the
RTC other aide.
- finding Ty guilty of seven (7) counts of violation of B.P. 22 and Simply defined, valuable consideration means an obligation to give, to do, or
sentencing her to a prison term. The dispositive part of the Decision
not to do in favor of the party who makes the contract, such as the maker or
reads:
o CONSEQUENTLY, the accused Vicky C. Ty, for her acts of indorser
issuing seven (7) checks in payment of a valid obligation,
In this case, Tys mother and sister availed of the services and the facilities of
which turned unfounded on their respective dates of
maturity, is found guilty of seven (7) counts of violations of the hospital. For the care given to her kin, Ty had a legitimate obligation to
Batas Pambansa Blg. 22, and is hereby sentenced to suffer pay the hospital by virtue of her relationship with them and by force of her
the penalty of imprisonment of SIX MONTHS per count or a signature on her mothers Contract of Admission acknowledging responsibility
total of forty-two (42) months. for payment, and on the promissory note she executed in favor of the
hospital.
CA Anent Tys claim that the obligation to pay the hospital bills was not her
personal obligation because she was not the patient, and therefore there was
- affirmed the judgment of the trial court with modification. It set aside
the penalty of imprisonment and instead sentenced Ty to pay a fine no consideration for the checks, the case of Bridges v. Vann, et al. tells us
of sixty thousand pesos (P60,000.00) equivalent to double the that it is no defense to an action on a promissory note for the maker to say
amount of the check, in each case. that there was no consideration which was beneficial to him personally; it is
- Neither was the Court of Appeals convinced that there was no sufficient if the consideration was a benefit conferred upon a third person, or
valuable consideration for the issuance of the checks as they were a detriment suffered by the promisee, at the instance of the promissor.
issued in payment of the hospital bills of Tys mother.
It is enough if the obligee foregoes some right or privilege or suffers some
detriment and the release and extinguishment of the original obligation of
Issue:
George Vann, Sr., for that of appellants meets the requirement. Appellee
Whether or not there is valuable consideration on the part of Vicky Ty accepted one debtor in place of another and gave up a valid, subsisting
obligation for the note executed by the appellants. This, of itself, is sufficient
Held: YES consideration for the new notes.

As to the issue of consideration, it is presumed, upon issuance of the checks, WHEREFORE, the instant Petition is DENIED and the assailed Decision of
in the absence of evidence to the contrary, that the same was issued for the Court of Appeals, dated 31 July 2001, finding petitioner Vicky C. Ty
valuable consideration. GUILTY of violating Batas Pambansa Bilang 22 is AFFIRMED with
MODIFICATIONS. Petitioner Vicky C. Ty is ORDERED to pay a FINE - Pursuant to SC Administrative Circular No. 12-2000, the penalty of
equivalent to double the amount of each dishonored check subject of the imprisonment imposed by the lower court was deleted. For each
seven cases at bar with subsidiary imprisonment in case of insolvency in criminal case, the appellate court imposed a fine of P150,000, with
subsidiary imprisonment in case of insolvency. Finding that no
accordance with Article 39 of the Revised Penal Code. She is also ordered to
written notice of dishonor or demand letter had been sent to
pay private complainant, Manila Doctors Hospital, the amount of Two petitioner regarding EBC Check No. 22976158, the CA acquitted him
Hundred Ten Thousand Pesos (P210,000.00) representing the total amount in Criminal Case No. 18202-89.
of the dishonored checks. Costs against the petitioner.
Issue:
35. KENNETH NGO, petitioner, vs. PEOPLE OF THE PHILIPPINES,
respondent. Whether or not there is consideration to be held liable for BP 22

[G.R. No. 155815. July 14, 2004] Held:

Doctrine: Consideration Pertinent to the present case, the elements of the offense under the first
situation of BP 22 are the following:
Facts:
(1) the making, drawing and issuance of any check to apply on account or for
Kenneth Ngo value;

- For settlement of the indebtedness he had incurred with Northern Hill (2) the maker, drawer or issuer knows at the time of issue that he does not
Development Corporation, he issued eight postdated checks payable have sufficient funds in or credit with the drawee bank for the payment of
to complainant (Paul Gotianse) and all drawn against the Equitable
such check in full upon its presentment; and
Banking Corporation.
- The first five checks were honored by the drawee bank but the three
(3) the check is subsequently dishonored by the drawee bank for
postdated checks were dishonored for the reason drawn against
insufficient funds. insufficiency of funds or credit or would have been dishonored for the same
- Following the dishonor, notices of dishonor and demand were sent to reason had not the drawer, without any valid cause, ordered the bank to stop
[petitioner] by complainant [Paul Gotianse]. Despite this, however, no payment.
payment or arrangement with the drawee bank was made by Ong.
- Three separate Informations were filed before the Regional Trial The claim that the prosecution failed to prove that the check had been issued
Court, Branch 15, Davao City against the petitioner charging him with to apply on account or for value in favor of Paul Gotianse is irrelevant.
Violation of Batas Pambansa Blg. 22
- Upon arraignment on September 29, 1989, he entered a plea of not The law does not require that the payee of a check be the same as the
guilty to all the charges. obligee of the obligation in consideration for which the check has been
issued. Pertinent is a criminal law authoritys explanation of the term to apply
RTC
on account or for value:
- the lower court rendered a decision convicting the [petitioner] on the
three (3) criminal cases It should be noted that BP Blg. 22 punishes the making or drawing and
CA issuing of any check that is subsequently dishonored, even in payment of
pre-existing obligation, as indicated in Section 1 thereof by the phrase to
- The CA ruled that all the elements of a violation of BP 22 with regard apply on account. Section 1 also punishes the making or drawing and issuing
to Criminal Case Nos. 18200-89 and 18201-89 had been proven of a check that is subsequently dishonored, in payment of an obligation
beyond reasonable doubt. contracted at the time of the issuance of the check, as indicated by the words
for value. x x x.
When the checks were issued by petitioner to Paul Gotianse as payee, they dishonored for insufficiency of funds while the other three checks were
were issued to apply on account; that is, to settle the formers obligation to the dishonored because of a stop payment order from petitioner.
latters principal -- Northern Hill Development. In this regard, the Court also
notes that the trial court found that petitioner had agreed to settle his debt to
the company by issuing the checks payable to its agent, Gotianse. Clearly,
North Star, through its counsel, wrote petitioner informing him that the checks
the prosecution proved the first element of a violation of BP 22.
he issued had been dishonored. North Star demanded payment, but
36. BPI vs CA - Dominguez petitioner failed to settle his obligations. Hence, North Star instituted Criminal
Case Nos. 166549-53 charging petitioner with violation of Batas Pambansa
Blg. 22, or the Bouncing Checks Law, before the Metropolitan Trial Court
37. ENGR. JOSE E. CAYANAN vs. NORTH STAR INTERNATIONAL (MeTC) of Makati City. After trial, the MeTC found petitioner guilty beyond
TRAVEL, INC. reasonable doubt of violation of B.P. 22. On appeal, the Regional Trial Court
(RTC) acquitted petitioner of the criminal charges. The RTC also held that
G.R. No. 172954, October 5, 2011 there was no basis for the imposition of the civil liability on petitioner. The
Court of Appeals reversed the ruling of the RTC and held petitioner civilly
CHECK; ISSUANCE FOR CONSIDERATION. – Upon issuance of a check,
liable for the value of the subject checks.
in the absence of evidence to the contrary, it is presumed that the same was
issued for valuable consideration which may consist either in some right,
interest, profit or benefit accruing to the party who makes the contract, or
some forbearance, detriment, loss or some responsibility, to act, or labor, or ISSUE: Whether or not the petitioner should be civilly liable to North Star for
service given, suffered or undertaken by the other side. Under the NIL law, it the value of the checks
is presumed that every party to an instrument acquires the same for a
consideration or for value.

HELD: The Court ruled in the affirmative. Petitioner argues that the CA erred
in holding him civilly liable to North Star for the value of the checks since
FACTS: North Star International Travel Incorporated (North Star) is a North Star did not give any valuable consideration for the checks. He insists
corporation engaged in the travel agency business while petitioner is the that the US$85,000 sent to View Sea Ventures was not sent for the account
owner/general manager of JEAC International Management and Contractor of North Star but for the account of Virginia’s investment. He points out that
Services, a recruitment agency. Virginia Balagtas, the General Manager of said amount was taken from Virginia Balagtas’ personal dollar account in
North Star, in accommodation and upon the instruction of its client, petitioner Citibank and not from North Star’s corporate account. Respondent North
herein, sent the amount of US$60,000 to View Sea Ventures Ltd., in Nigeria Star, for its part, counters that petitioner is liable for the value of the five
from her personal account in Citibank Makati. subject checks as they were issued for value. Respondent insists that
petitioner owes North Star plus interest.

On March 29, 1994, Virginia again sent US$40,000 to View Sea Ventures by
telegraphic transfer, with US$15,000 coming from petitioner. Likewise, on Upon issuance of a check, in the absence of evidence to the contrary, it is
various dates, North Star extended credit to petitioner for the airplane tickets presumed that the same was issued for valuable consideration, which may
of his clients, with the total amount of such indebtedness under the credit consist either in some right, interest, profit or benefit accruing to the party
extensions eventually reaching P510, 035. 47. To cover payment of the who makes the contract, or some forbearance, detriment, loss or some
obligations, petitioner issued five checks to North Star. When presented for responsibility, to act, or labor, or service given, suffered or undertaken by the
payment, the checks in the amount of P1, 500,000 and P35, 000 were
other side. Under Section 24 of the Negotiable Instruments Law, “Every G.R. No. 97753 August 10, 1992
negotiable instrument is deemed prima facie to have been issued for a
valuable consideration; and every person whose signature appears  
thereon to have become a party thereto for value.”
FACTS

Security Bank and Trust Company, defendant, a commercial banking

As petitioner alleged that there was no consideration for the issuance of the institution, through its Sucat Branch issued 280 certificates of time deposit
subject checks, it devolved upon him to present convincing evidence to (CTDs) in favor of one Angel dela Cruz who deposited with herein defendant
overthrow the presumption and prove that the checks were in fact issued the aggregate amount of P1,120,000.00,
without valuable consideration.
Angel dela Cruz delivered the said certificates of time (CTDs) to
herein Caltex Philippines, plaintiff, in connection with his purchased of fuel
products from the latter (Original Record, p. 208).
However, petitioner has not presented any credible evidence to rebut the
presumption, as well as North Star’s assertion, that the checks were issued In March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the
as payment for the US$85,000 petitioner owed. Petitioner claims that North Sucat Branch Manger, that he lost all the certificates of time deposit in
Star did not give any valuable consideration for the checks since the dispute. Mr. Tiangco advised said depositor to execute and submit a
US$85,000 was taken from the personal dollar account of Virginia and not notarized Affidavit of Loss, as required by defendant bank's procedure, if he
the corporate funds of North Star. The contention, however, deserves scant desired replacement of said lost CTDs. On March 18, 1982, Angel dela Cruz
consideration. The subject checks, bearing petitioners signature, speak for executed and delivered to defendant bank the required Affidavit of Loss. On
themselves. The fact that petitioner himself specifically named North Star as the basis of said affidavit of loss, 280 replacement CTDs were issued in favor
the payee of the checks is an admission of his liability to North Star and not of said depositor
to Virginia Balagtas, who as manager merely facilitated the transfer of funds.
On March 25, 1982, Angel dela Cruz negotiated and obtained a loan
Indeed, it is highly inconceivable that an experienced businessman like
from defendant bank in the amount of Eight Hundred Seventy Five Thousand
petitioner would issue various checks in sizeable amounts to a payee if these
Pesos (P875,000.00). On the same date, said depositor executed a
are without consideration.
notarized Deed of Assignment of Time Deposit which stated, among
others, that he (de la Cruz) surrenders to defendant bank "full control of
the indicated time deposits from and after date" of the assignment and
further authorizes said bank to pre-terminate, set-off and "apply the
said time deposits to the payment of whatever amount or amounts may
be due" on the loan upon its maturity

In November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex

(Phils.) Inc., went to the defendant bank's Sucat branch and presented for
38. CALTEX (PHILIPPINES), INC., petitioner,
verification the CTDs declared lost by Angel dela Cruz alleging that the same
vs. were delivered to herein plaintiff "as security for purchases made with Caltex
Philippines, Inc."
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY,
respondents. On November 26, 1982, defendant received a letter from herein
plaintiff formally informing it of its possession of the CTDs in question and of
its decision to pre-terminate the same. clarity that they are payable, not to whoever purports to be the "bearer" but
only to the specified person indicated therein, the depositor. In effect, the
On December 8, 1982, plaintiff was requested by herein defendant to appellee bank acknowledges its depositor Angel dela Cruz as the person
furnish the former "a copy of the document evidencing the guarantee who made the deposit and further engages itself to pay said depositor the
agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel dela amount indicated thereon at the stipulated date
Cruz" obligation against which plaintiff proposed to apply the time deposits.
No copy of the requested documents was furnished herein defendant.
Accordingly, defendant bank rejected the plaintiff's demand and claim for
payment of the value of the CTDs in a letter dated February 7, 1983 ISSUE

In April 1983, the loan of Angel dela Cruz with the defendant bank 1. the subject certificates of deposit are non-negotiable despite being
matured and fell due and on August 5, 1983, the latter set-off and applied the clearly negotiable instruments
2. that petitioner did not become a holder in due course of the said
time deposits in question to the payment of the matured loan certificates of deposit; and
3. in disregarding the pertinent provisions of the Code of Commerce
relating to lost instruments payable to bearer. 4
TRIAL COURT
HELD
In view of the foregoing, plaintiff filed the instant complaint, praying
that defendant bank be ordered to pay it the aggregate value of the (1)
certificates of time deposit of P1,120,000.00 plus accrued interest and
compounded interest therein at 16% per annum, moral and exemplary The instant petition is bereft of merit. A sample text of the certificates
damages as well as attorney's fees. of time deposit is reproduced below to provide a better understanding of the
issues involved in this recourse.
After trial, the court a quo rendered its decision dismissing the instant
complaint. 3

COURT OF APPEALS

On appeal, the CA court affirmed the lower court's dismissal of the

complaint.

court ruled that the CTDs in question are non-negotiable instruments,

nationalizing as follows:

. . . While it may be true that the word "bearer" appears rather boldly in the
CTDs issued, it is important to note that after the word "BEARER" stamped
on the space provided supposedly for the name of the depositor, the words
"has deposited" a certain amount follows. The document further provides that
the amount deposited shall be "repayable to said depositor" on the period
indicated. Therefore, the text of the instrument(s) themselves manifest with
 SECURITY BANK Contrary to what respondent court held, the CTDs are
AND TRUST COMPANY negotiable instruments. The documents provide that the amounts
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines deposited shall be repayable to the depositor. And who, according to
SUCAT OFFICEP 4,000.00 the document, is the depositor? It is the "bearer." The documents do
CERTIFICATE OF DEPOSIT
Rate 16%
not say that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him. Rather, the amounts are to
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____ be repayable to the bearer of the documents or, for that matter,
whosoever may be the bearer at the time of presentment.
This is to Certify that B E A R E R has deposited in this Bank the sum
of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT If it was really the intention of respondent bank to pay the amount to
OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to
said depositor 731 days. after date, upon presentation and surrender Angel de la Cruz only, it could have with facility so expressed that fact in
of this certificate, with interest at the rate of 16% per cent per annum. clear and categorical terms in the documents, instead of having the word
"BEARER" stamped on the space provided for the name of the depositor in
(Sgd. Illegible) (Sgd. Illegible)
each CTD. On the wordings of the documents, therefore, the amounts
—————————— ———————————
deposited are repayable to whoever may be the bearer thereof.

AUTHORIZED SIGNATURES 5

(2)

The next query is whether petitioner can rightfully recover on the CTDs. This
time, the answer is in the negative. Unfortunately for petitioner, although the
CTDs are bearer instruments, a valid negotiation thereof for the true purpose
We disagree with these findings and conclusions, and hereby hold that the and agreement between it and De la Cruz, as ultimately ascertained, requires
CTDs in question are negotiable instruments. Section 1 Act No. 2031, both delivery and indorsement. For,although petitioner seeks to deflect
otherwise known as the Negotiable Instruments Law, enumerates the this fact, the CTDs were in reality delivered to it as a security for De la
requisites for an instrument to become negotiable Cruz' purchases of its fuel products. Any doubt as to whether the CTDs
were delivered as payment for the fuel products or as a security has been
The CTDs in question undoubtedly meet the requirements of the
dissipated and resolved in favor of the latter by petitioner's own authorized
law for negotiability. The parties' bone of contention is with regard to
and responsible representative himself.
requisite (d) set forth above. The accepted rule is that the negotiability or
non-negotiability of an instrument is determined from the writing, that is, from When respondent bank, as defendant in the court below, moved for a
the face of the instrument itself. 9 In the construction of a bill or note, the bill of particularity therein, plaintiff corporation opposed the motion. 18 Had it
intention of the parties is to control, if it can be legally ascertained. 10 While produced the receipt prayed for, it could have proved, if such truly was the
the writing may be read in the light of surrounding circumstances in order to fact, that the CTDs were delivered as payment and not as security..
more perfectly understand the intent and meaning of the parties, yet as they
have constituted the writing to be the only outward and visible expression of
their meaning, no other words are to be added to it or substituted in its stead.
The duty of the court in such case is to ascertain, not what the parties may Under the foregoing circumstances, this disquisition in Intergrated Realty
have secretly intended as contradistinguished from what their words express, Corporation, et al. vs. Philippine National Bank, et al. 20 is apropos:
but what is the meaning of the words they have used. What the parties meant
…If it was intended to secure the payment of money, it must
must be determined by what they said. 11
 be construed as a pledge; but if there was some other pledgee but the requirements therefor and the effects thereof, not being
intention, it is not a pledge. However, even though a transfer, provided for by the Negotiable Instruments Law, shall be governed by the
if regarded by itself, appears to have been absolute, its object Civil Code provisions on pledge of incorporeal rights, 24 which inceptively
and character might still be qualified and explained by provide:
contemporaneous writing declaring it to have been a deposit
of the property as collateral security. It has been said that a
transfer of property by the debtor to a creditor, even if
Art. 2095. Incorporeal rights, evidenced by negotiable
sufficient on its face to make an absolute conveyance, should
instruments, . . . may also be pledged. The instrument proving
be treated as a pledge if the debt continues in inexistence
the right pledged shall be delivered to the creditor, and if
and is not discharged by the transfer, and that accordingly the
negotiable, must be indorsed.
use of the terms ordinarily importing conveyance of absolute
ownership will not be given that effect in such a transaction if Art. 2096. A pledge shall not take effect against third persons if
they are also commonly used in pledges and mortgages and a description of the thing pledged and the date of the pledge
therefore do not unqualifiedly indicate a transfer of absolute do not appear in a public instrument.
ownership, in the absence of clear and unambiguous
language or other circumstances excluding an intent to
pledge.
Aside from the fact that the CTDs were only delivered but not indorsed,
petitioner failed to produce any document evidencing any contract of pledge
or guarantee agreement between it and Angel de la Cruz. 25 Consequently,
Petitioner's insistence that the CTDs were negotiated to it begs the question. the mere delivery of the CTDs did not legally vest in petitioner any right
Under the Negotiable Instruments Law, an instrument is negotiated effective against and binding upon respondent bank. The requirement under
when it is transferred from one person to another in such a manner as Article 2096 aforementioned is not a mere rule of adjective law prescribing
to constitute the transferee the holder thereof, 21 and a holder may be the mode whereby proof may be made of the date of a pledge contract, but a
the payee or indorsee of a bill or note, who is in possession of it, or the rule of substantive law prescribing a condition without which the execution of
bearer thereof. 22 In the present case, however, there was no negotiation a pledge contract cannot affect third persons adversely.
in the sense of a transfer of the legal title to the CTDs in favor of
petitioner in which situation, for obvious reasons, mere delivery of the On the other hand, the assignment of the CTDs made by Angel de
bearer CTDs would have sufficed. Here, the delivery thereof only as la Cruz in favor of respondent bank was embodied in a public
security for the purchases of Angel de la Cruz (and we even disregard the instrument. 27 With regard to this other mode of transfer, the Civil Code
fact that the amount involved was not disclosed) could at the most specifically declares:
constitute petitioner only as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be effected by mere
delivery of the instrument since, necessarily, the terms thereof and the
Art. 1625. An assignment of credit, right or action shall produce
subsequent disposition of such security, in the event of non-payment of the
no effect as against third persons, unless it appears in a public
principal obligation, must be contractually provided for.
instrument, or the instrument is recorded in the Registry of
Property in case the assignment involves real property.

The pertinent law on this point is that where the holder has a lien on
the instrument arising from contract, he is deemed a holder for value to the
Respondent bank duly complied with this statutory requirement.
extent of his lien. 23 As such holder of collateral security, he would be a
Contrarily, petitioner, whether as purchaser, assignee or lien holder of the but discretionary on the part of the "dispossessed owner" to apply to the
CTDs, neither proved the amount of its credit or the extent of its lien nor the judge or court of competent jurisdiction for the issuance of a duplicate of the
execution of any public instrument which could affect or bind private lost instrument. Where the provision reads "may," this word shows that it is
respondent. Necessarily, therefore, as between petitioner and respondent not mandatory but discretional. 34 The word "may" is usually permissive, not
bank, the latter has definitely the better right over the CTDs in question. mandatory. 35 It is an auxiliary verb indicating liberty, opportunity, permission
and possibility. 36

Moreover, as correctly analyzed by private respondent, 37 Articles

(3) 548 to 558 of the Code of Commerce, on which petitioner seeks to
anchor respondent bank's supposed negligence, merely established,
Finally, petitioner faults respondent court for refusing to delve into the
on the one hand, a right of recourse in favor of a dispossessed owner
question of whether or not private respondent observed the requirements of
or holder of a bearer instrument so that he may obtain a duplicate of the
the law in the case of lost negotiable instruments and the issuance of
same, and, on the other, an option in favor of the party liable thereon
replacement certificates therefor, on the ground that petitioner failed to raised
who, for some valid ground, may elect to refuse to issue a replacement
that issue in the lower court. 28
of the instrument. Significantly, none of the provisions cited by petitioner
On this matter, we uphold respondent court's finding that the aspect of categorically restricts or prohibits the issuance a duplicate or replacement
alleged negligence of private respondent was not included in the stipulation instrument sans compliance with the procedure outlined therein, and none
of the parties and in the statement of issues submitted by them to the trial establishes a mandatory precedent requirement therefor.
court.
WHEREFORE, on the modified premises above set forth, the petition is
Still, even assuming arguendo that said issue of negligence was DENIED and the appealed decision is hereby AFFIRMED.
raised in the court below, petitioner still cannot have the odds in its favor. A
close scrutiny of the provisions of the Code of Commerce laying down the
rules to be followed in case of lost instruments payable to bearer, which it
invokes, will reveal that said provisions, even assuming their applicability to
the CTDs in the case at bar, are merely permissive and not mandatory. The
very first article cited by petitioner speaks for itself.

Art 548. The dispossessed owner, no matter for what cause it

may be, may apply to the judge or court of competent
jurisdiction, asking that the principal, interest or dividends due
or about to become due, be not paid a third person, as well
as in order to prevent the ownership of the instrument that a
duplicate be issued him. (Emphasis ours.)

xxx xxx xxx

The use of the word "may" in said provision shows that it is not mandatory