Object 1

FOR RECIT 02/14/22

D. Kinds

1. Section 126, 185, NIL

SEC. 126. Bill of exchange defined.— A bill of exchange is an unconditional order in writing addressed by one
person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand
or at a fixed or determinable future time a sum certain in money to order or to bearer.

SEC. 185. Check defined.— A check is a bill of exchange drawn on a bank payable on demand. Except as
herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to
a check.

a. Bill of Exchange v. Check

2. Section 184, NIL

SEC. 184. Promissory note defined.— A negotiable promissory note within the meaning of this Act is
an unconditional premise in writing made by one person to another, signed by the maker, engaging to
pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer.
Where a note is drawn to the maker's own order, it is not complete until indorsed by him.

3. Promissory Note v. Bill of Exchange

E. Parties

1. Sections 191, 131, NIL

SEC. 191. Definitions and meaning of terms.— In this Act, unless the context otherwise requires—
"Acceptance" means an acceptance completed by delivery or notification;
"Action" includes counterclaim and set-off;
"Bank" includes any person or association of persons carrying on the business of banking, whether
incorporated or not;
"Bearer" means the person in possession of a bill or note which is payable to bearer ;
"Bill" means bill of exchange, and "note" means negotiable promissory note;
"Delivery" means transfer of possession, actual or constructive, from one person to another;
"Holder" means the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof;
"Indorsement" means an indorsement completed by delivery;
"Instrument" means negotiable instrument;
"Issue" means the first delivery of the instrument, complete in form, to a person who takes it as a
holder;
"Person" includes a body of persons, whether incorporated or not;
"Value" means valuable consideration;
"Written" includes printed, and "writing" includes print.

SEC. 131. Referee in case of need.— The drawer of a bill and any indorser may insert thereon the
name of a person to whom the holder may resort in case of need; that is to say, in case the bill is
dishonored by nonacceptance or nonpayment. Such person is called the referee in case of need. It is in
the option of the holder to resort to the referee in case of need or not, as he may see fit.
F. Incidents or Stages in the Life

Incidents in “Life” of Negotiable Instrument

1. Preparation and signing
2. Issue
3. Negotiation
4. Presentment for acceptance, in certain kinds of bills of exchange
5. Acceptance
6. Dishonor by non-acceptance
7. Presentment for payment
8. Dishonor by non-payment
9. Notice of dishonour
10. Protest, in some cases
11. Discharge

Issue - the first delivery of the instrument, complete in form, to a person who takes it as a holder.
Delivery - transfer of possession, actual or constructive, from one person to another

Holder – refers to the:

a. If ORDER instrument - The payee or indorsee of a bill or note who is in possession of it, or
b. If BEARER instrument - The bearer thereof (sec.191)

Bearer - the person in possession of a bill or note which is payable to bearer

NEGOTIABILITY

Negotiability - it is that attribute or property whereby a bill or note or check may pass from hand to
hand similar to money, so as to give the holder in due course the right to hold the instrument and to
collect the sum payable for himself free from defenses.

SEC. 30. What constitutes negotiation— An instrument is negotiated when it is transferred from one
person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer,
it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder
completed by delivery. (ACT 2031)

1. Caltex (Philippines), Inc. v. CA, 212 SCRA 448 (1992)

Facts:
The Security Bank and Trust Company, a commercial banking institution issued 280 Certificate
of time deposit (CTDs) in favor of Angel Dela Cruz who deposited with the Security Bank the total
amount of P1.2 Million. Angel delivered the CTDs to Caltex, in connection with his purchased of fuel
products from the latter.
Subsequently, Angel informed the bank that he lost all the CTDs, and thus executed an affidavit
of loss to facilitate the issuance of the replacement CTDs. Angel negotiated and obtained a loan from
Security Bank in the amount of P875, 000 and executed a notarized Deed of Assignment of Time
Deposit.
When Caltex presented said CTDs for verification with the bank and formally informed the
bank of its decision to pre-terminate the same, the bank rejected Caltex’ claim and demand for payment
of the value of the CTDs after the latter failed to furnish the former a copy of the document evidencing
the guarantee agreement with Angel dela Cruz, as well as details of obligation of Angel dela Cruz as
requested. In 1983, dela Cruz’ loan matured and the bank set-off and applied the time deposits as
payment for the loan.
Caltex filed a complaint which was dismissed on the ground that the subject certificates of
deposit are non-negotiable.

Issues:
1. Whether or not the subject CTDs are negotiable.
2.  Whether or not petitioner is a holder in due course of the CTDs.

Ruling:

1. YES. The CTDs in question are negotiable instruments for it meets the requirements of the law for
negotiability. Section 1 Act No. 2031 enumerates the requisites for an instrument to become negotiable:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.

The accepted rule is that the negotiability or non-negotiability of an instrument is determined

from the writing, that is, from the face of the instrument itself. In the construction of a bill or note, the
intention of the parties is to control, if it can be legally ascertained.
The documents provide that the amounts deposited shall be repayable to the depositor – the
“bearer.” The documents do 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 be repayable to the bearer of the
documents or, for that matter, whosoever may be the bearer at the time of presentment.

2. No. Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred from
one person to another in such a manner as to constitute the transferee the holder thereof, and a holder
may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.
In the present case, however, there was no negotiation 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 bearer
CTDs would have sufficed. Here, the delivery thereof only as security for the purchases of Angel de la
Cruz could at the most 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 subsequent disposition of such security, in the event of non-
payment of the principal obligation, must be contractually provided for.

2. Phil. Bank of Commerce v. Aruego, 102 SCRA 530 (1981)

Facts:
Jose Aruego obtained a credit accommodation from the Philippine Bank of Commerce to
facilitate the payment of printing of “World Current Events”, the periodical he is publishing. Thus, for
every printing of the periodical, the printer, Encal Press and Photo Engraving, collected the cost of
printing by drawing a draft against the plaintiff, said draft being sent later to the defendant for
acceptance.
As an added security for the payment of the amounts advanced to Encal Press and Photo-
Engraving, the plaintiff bank also required defendant Aruego to execute a trust receipt in favor of said
bank wherein said defendant undertook to hold in trust for plaintiff the periodicals and to sell the same
with the promise to turn over to the plaintiff the proceeds of the sale of said publication to answer for
the payment of all obligations arising from the draft. The Philippine Bank of Commerce instituted an
action against Aruego to recover the cost of printing of the latter’s periodical. Aruego contends that he
signed the drafts only as an accommodation party and only as an agent of the Philippine Education
Foundation Company where he is president and should be made liable only after a showing that the
drawer is incapable of paying. He also contends that the drafts signed by him were not really bills of
exchange but mere pieces of evidence of indebtedness because payments were made before acceptance.

ISSUES:
(a) Whether or not the drafts may be considered negotiable bills of exchange.
(b)Whether Aruego can be held liable by the petitioner although he signed the supposed bills of
exchange only as an agent of Philippine Education Foundation Company.
(c) Whether or not an accommodation party is liable.
RULING:

(a) Whether or not the drafts may be considered negotiable bills of exchange.

(a) YES. Under the Negotiable Instruments Law, a bill of exchange is an unconditional order in
writting addressed by one person to another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in
money to order or to bearer. As long as a commercial paper conforms with the definition of a bill of
exchange, that paper is considered a bill of exchange. The nature of acceptance is important only in the
determination of the kind of liabilities of the parties involved, but not in the determination of whether a
commercial paper is a bill of exchange or not.
b. Whether Aruego can be held liable by the petitioner although he signed the supposed bills of
exchange only as an agent of Philippine Education Foundation Company.

(b) Yes. Aruego did not disclose in any of the drafts that he accepted that he was signing as
representative of the Philippine Education Foundation Company. Aruego contends that he signed the
supposed bills of exchange as an agent of the Philippine Education Foundation Company where he is
president.
Section 20 of the Negotiable Instruments Law provides that "Where the instrument contains or a
person adds to his signature words indicating that he signs for or on behalf of a principal or in a
representative capacity, he is not liable on the instrument if he was duly authorized; but the mere
addition of words describing him as an agent or as filing a representative character, without disclosing
his principal, does not exempt him from personal liability."
An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that
he was signing as a representative of the Philippine Education Foundation Company. He merely signed
as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his principal,
Aruego is personally liable for the drafts he accepted.

(c) Whether or not an accommodation party is liable.

(c) YES. Such person is liable on the instrument to a holder for value, notwithstanding such holder, at
the time of the taking of the instrument knew him to be only an accommodation party. In lending his
name to the accommodated party, the accommodation party is in effect a surety for the latter. He lends
his name to enable the accommodated party to obtain credit or to raise money. He receives no part of
the consideration for the instrument but assumes liability to the other parties thereto because he wants
to accommodate another. In the instant case, Aruego signed as a drawee/acceptor. Under the Negotiable
Instrument Law, a drawee is primarily liable. Thus, he should not have signed as an acceptor/drawee
because in doing so, he became primarily and personally liable for the drafts.

3. Salas v. CA, 181 SCRA 296 (1990)

FACTS:
Petitioner Juanita Salas bought a motor vehicle from the Violago Motor Sales Corporation
(VMS) as evidenced by a promissory note. The note was subsequently endorsed to Filinvest Finance &
Leasing Corporation which financed the purchase.
Petitioner defaulted in her installments allegedly due to a discrepancy in the engine and chassis
numbers of the vehicle delivered to her and those indicated in the sales invoice, certificate of
registration and deed of chattel mortgage, which fact she discovered when the vehicle figured in an
accident. Due to her failure to pay Filinvest filed a collection suit.
The trial court ordered petitioner to pay the defendant. They both appealed the decision to the
Court of Appeals. In her appeal, she did not implead VMS as a party to the case because she already
sued VMS for “breach of contract with damages” in another case.
The Court of Appeals modified the decision and ordered the petitioner to pay the defendant sum
of P54,908.30 at 14% per annum. Her motion for reconsideration was denied.

ISSUE: Whether or not the promissory note is a negotiable instrument which will bar completely all
the available defenses of the petitioner against private respondent.

RULING:
 The questioned promissory note is a negotiable instrument because it complied with all the
requisites provided for by law:
[a] that it is in writing and signed by the maker Juanita Salas;
[b] that it contains an unconditional promise to pay the amount of P58,138.20;
[c] that it is payable at a fixed or determinable future time which is “P1,614.95 monthly for 36 months
due and payable on the 21 st day of each month starting March 21, 1980 thru and inclusive of Feb. 21,
1983;”
[d] that it is payable to Violago Motor Sales Corporation, or order and as such,
[e] that the drawee is named or indicated with certainty.

The instrument in order to be considered negotiable must contain the so-called “words of negotiability
— i.e., must be payable to “order” or “bearer”.
Under Section 8 of the Negotiable Instruments Law, there are only two ways by which an
instrument may be made payable to order. There must always be a specified person named in the
instrument and the 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 only to the person designated therein and is therefore non-negotiable. Any
subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable
instrument, but will merely “step into the shoes” of the person designated in the instrument and will
thus be open to all defenses available against the latter.
The instrument is payable to order where it is drawn payable to the order of a specified person
or to him or his order. (Consolidated Plywood Industries Inc. vs. IFC Leasing and Acceptance
Corporation, 149 SCRA 448)
The note was negotiated by indorsement in writing on the instrument itself payable to the Order
of Filinvest Finance and Leasing Corporation. It is an indorsement of the entire instrument.

1. Requisites of Negotiability
a. Section 1(a), NIL

SECTION 1. Form of negotiable instrument.—An instrument to be negotiable must conform to the

following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.

1. Must be in writing, signed by the maker or drawer;

- Otherwise it cannot be a substitute for money.
- Signature may be in any form like initial or mark. No particular location.

i. Inciong v. CA, 257 SCRA 578 (1996)

FACTS:
On February 3, 1983, petitioner Baldomero Inciong Jr., co-signed a promisory note worth
P50,000 together with Rene Naybe and Gregorio Pantonasas, holding themselves jointly and severallly
liable to creditor, Philippine Bank of Communications (PBC).
The due date expired without the promissors having paid their obligation even after demands
were sent, hence, a complaint for collection of the sum of P50,000 was filed against the obligors.
The complaint was dismissed for failure of the plaintiff to prosecute the case, but the lower
court reconsidered and the summonses were eventually served. As prayed for by PBCOM, the lower
court dismissed the case against defendant Pantanosas. With co-defendant Naybe in Saudi Arabia, only
the summons to co-maker Inciong was duly served.
The lower court rendered its decision holding petitioner solidarily liable. He was ordered to pay
PBC the amount of P50, 000.00 plus interest.
Petitioner appealed the said decision to the Court of Appeals which affirmed it. The petitioner
moved for reconsideration, which was later on denied by the respondent Court of Appeals.

ISSUE:
Whether or not the dismissal of the complaint against Naybe, the principal debtor, and against
Pantanosas, his co-maker, constituted a release of his obligation.

RULING:
No. The dismissal of the complaint on the other two (2) obligors did not release Petitioner
because he is a solidary debtor to the obligation. Each of the three (3) obligors bound themselves to be
JOINTLY and SEVERALLY liable to pay the sum of money to PBC. Therefore, the creditor, can
demand from either of the three (3) the performance of the obligation.
Under Art. 1207 of the Civil Code, when there are two or more debtors in one and the same
obligation, the presumption is that the obligation is joint so that each of the debtors is liable only for a
proportionate part of the debt. There is a solidarity liability only when the obligation expressly so
states, when the law so provides or when the nature of the obligation so requires.
In the case at bar, petitioner signed the promissory note as a solidary co-maker
and not as a guarantor. The promissory note involved in this case expressly stated that the three (3)
signatories are jointly and severally liable, any one, some or all of them may be proceeded against for
the entire obligation. The choice is left to the solidary creditor to determine against whom he will
enforce. *** The term jointly and severally indicates that all parties are equally
responsible for carrying out the full terms of an agreement.
For example, if a bank lends $100,000 to two people jointly and
severally, both of those people are equally responsible for making sure that the total amount of the loan is repaid
to the bank. If the loan is in default, the bank may choose to pursue either for repayment of the entire
outstanding balance.

ii. HSBC v. CIR, G.R. No. 166018, June 4, 2014

Facts:
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE
BRANCHES (HSBC) performs custodial services on behalf of its investor-clients with respect to their
passive investments in the Philippines, particularly investments in shares of stocks in domestic
corporations. As a custodian bank, HSBC serves as the collection/payment agent.
 HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which are
managed by HSBC through instructions given through electronic messages. The said instructions are
standard forms known in the banking industry as SWIFT, or “Society for Worldwide Interbank
Financial Telecommunication.”
Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid
Documentary Stamp Tax (DST) from September to December 1997 and also from January to
December 1998 amounting to P19,572,992.10 and P32,904,437.30, respectively.
BIR, thru its then Commissioner, issued BIR Ruling to the effect that instructions or advises
from abroad on the management of funds located in the Philippines which do not involve transfer of
funds from abroad are not subject to DST. A documentary stamp tax shall be imposed on any bill of
exchange or order for payment purporting to be drawn in a foreign country but payable in the
Philippines.
a. While the payor is residing outside the Philippines, he maintains a local and foreign currency account in
the Philippines from where he will draw the money intended to pay a named recipient. The instruction or order to pay
shall be made through an electronic message. Consequently, there is no negotiable instrument to be made, signed or
issued by the payee.
b. Such electronic instructions by the non-resident payor cannot be considered as a transaction per se
considering that the same do not involve any transfer of funds from abroad or from the place where the instruction
originates. Under the Documentary Stamp Tax Law, the mere withdrawal of money from a bank deposit, local or
foreign currency account, is not subject to DST, unless the account so maintained is a current or checking account, in
which case, the issuance of the check or bank drafts is subject to the documentary stamp tax.
c. Likewise, the receipt of funds from another bank in the Philippines for deposit to the payee’s account and
thereafter upon instruction of the non-resident depositor-payor, through an electronic message, the depository bank to
debit his account and pay a named recipient shall not be subject to documentary stamp tax.

With the above BIR Ruling as its basis, HSBC filed on an administrative claim for the refund of
allegedly representing erroneously paid DST to the BIR
As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the
matter to the Court of Tax Appeals (CTA), which favored HSBC and ordered payment of refund or
issuance of tax credit.
However, the CA reversed decisions of the CTA and ruled that the electronic messages of
HSBC’s investor-clients are subject to DST.
a. DST is levied on the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the execution of specific
instruments, independently of the legal status of the transactions giving rise thereto.
ISSUE:
Whether or not the electronic messages are considered transactions  pertaining to negotiable
instruments that warrant the payment of DST.
Ruling:
 NO. The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied
on the acceptance or payment of “a bill of exchange purporting to be drawn in a foreign country but
payable in the Philippines” and that “a bill of exchange is an unconditional order in writing addressed
by one person to another, signed by the person giving it, requiring the person to whom it is addressed to
pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer.”
The Court further agrees with the CTA that the electronic messages of HSBC’s investor-clients
containing instructions to debit their respective local or foreign currency accounts in the Philippines
and pay a certain named recipient also residing in the Philippines is not the transaction contemplated
under Section 181 of the Tax Code as such instructions are “parallel to an automatic bank transfer of
local funds from a savings account to a checking account maintained by a depositor in one bank.” The
Court favorably adopts the finding of the CTA that the electronic messages “cannot be considered
negotiable instruments as they lack the feature of negotiability, which, is the ability to be
transferred” and that the said electronic messages are “mere memoranda” of the transaction
consisting of the “actual debiting of the [investor-client-payor’s] local or foreign currency
account in the Philippines” and “entered as such in the books of account of the local bank,”
HSBC.
The instructions given through electronic messages that are subjected to DST in these cases are
not negotiable instruments as they do not comply with the requisites of negotiability under Section 1 of
the Negotiable Instruments Law.
The electronic messages are not signed by the investor-clients as supposed drawers of a bill of
exchange; they do not contain an unconditional order to pay a sum certain in money as the payment is
supposed to come from a specific fund or account of the investor-clients; and, they are not payable to
order or bearer but to a specifically designated third party. Thus, the electronic messages are not bills of
exchange. As there was no bill of exchange or order for the payment drawn abroad and made payable
here in the Philippines, there could have been no acceptance or payment that will trigger the imposition
of the DST under Section 181 of the Tax Code.

b. Sections 1(b), 3, 4, 5, 2, NIL

Sec. 1 (b) Certainty of sum payable
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
with reasonable certainty.

SEC. 2. Certainly as to sum ; what constitutes.—The sum payable sum is a sum certain within the
meaning of this Act, although it is to be paid—
(a) With interest; or
(b) By stated installments^ or
(c) By stated installments, with a provision that upon default in payment of any installment or of
interest the whole shall become due; or
(d) With exchange, whether at a fixed rate or at the current rate; or
(e) With costs of collection or an attorney's fee, in case payment shall not be made at maturity.

SEC. 3. When promise is unconditional.—An unqualified order or promise to pay is unconditional

within the meaning of this Act, though coupled with—
(a) An indication of a particular fund out of which reimbursement is to be made, or a particular account
to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument. But an order or promise to pay out
of a particular fund is not unconditional.

But an order or promise to pay out of a particular fund is not unconditional.

SEC. 4. Determinable future time; what constitutes.—An instrument is payable at a determinable

future
time, within the meaning of this Act, which is expressed to be payable—
(a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time specified therein; or
(c) On or at a fixed period after the occurrence of a specified event, which is certain to
happen, though the time of happening be uncertain.
An instrument payable upon a contingency is not negotiable, and the happening of the event does not
cure the defect.

SEC. 5. Additional provisions not affecting negotiability.—An instrument which contains an order
or promise to do any act in f addition to the payment of money is not negotiable. But the negotiable
character of an instrument otherwise negotiable is not affected by a provision which—
(a) Authorizes the sale of collateral securities in case the instrument be not paid at maturity; or
(b) Authorizes a confession of judgment if the instrument be not paid at maturity; or
(c) Waives the benefit of any law intended for the advantage or protection of the obligor; or
(d) Gives the holder an election to require something to be done in lieu of payment of money.

But nothing in this section shall validate any provision or stipulation otherwise illegal.

Interest stipulated but not specified – legal interest.

Interest not stipulated – legal interest will be paid when the debtor incurs in delay (Art. 2209, NCC)
Interest due shall earn legal interest from the time it is judicially demanded (Art. 2212, NCC)

Note: NI need not be payable in legal tender.

i. Jimenez v. Bucoy, 103 Phil. 40 (1958)
FACTS:
During the Japanese occupation, Pacita Young issued three promissory notes to Pacifica
Jimenez. The total sum of the notes was P21k. All three promissory notes were couched in this manner:
Received from Miss Pacifica Jimenez the total amount of ___________ payable six months after the
war, without interest.
When the promissory notes became due, Jimenez presented the notes for payment. Pacita and
her husband died and so the notes were presented to the administrator of the estate of the spouses (Dr.
Jose Bucoy). Bucoy manifested his willingness to pay but he said that since the loan was contracted
during the Japanese occupation the amount should be reduced and the Ballantyne Schedule should be
used, that is peso-for-yen (which would lower the amount due from P21k). Bucoy also pointed out that
nowhere in the notes can be seen an express “promise” to pay because of the absence of the words “I
promise to pay.”

ISSUE: Whether or not Bucoy is correct.

HELD: No. The Ballantyne Schedule may not be used here because the debt is not payable during the
Japanese occupation. It is expressly stated in the notes that the amounts stated therein are payable “six
months after the war.”. Therefore, no reduction could be effected, and peso-for-peso payment shall be
ordered in Philippine currency.
The notes also amounted in effect to a promise to pay the amounts indicated therein. An
acknowledgment may become a promise by the addition of words by which a promise of payment is
naturally implied, such as, “payable,” “payable on a given day,” “payable on demand,” “paid . . . when
called for,” . . . To constitute a good promissory note, no precise words of contract are necessary,
provided they amount, in legal effect, to a promise to pay. In other words, if over and above the mere
acknowledgment of the debt there may be collected from the words used a promise to pay it, the
instrument may be regarded as a promissory note.

ii. People v. Francisco, CA-G.R. Nos. 05130-05141-CR, August 23, 1966

People v. Francisco, C.A., No. 05130-41-CR, August 23, 1966, 64 O.G. 537, 541, cited in Luis B.
Reyes, The Revised Penal Code, Book II (14th ed., 1998), p. 234. In People v. Francisco, the Court of
Appeals ruled that "the cash disbursement vouchers here in question are not negotiable instruments
nor are they defined and regulated by the Code of Commerce. They are nothing more than receipts
evidencing payment to borrowers of the loans extended to them and as such are private documents
only.

Examples of commercial documents:

(a) Letters of exchange, letters of credit, drafts, trade acceptances, checks, notes or pagares issued in
the course of a business transaction, quedans, bonds, books of accounts, and in general, any
negotiable instrument. (People vs. Francisco, 10 C.A. Rep.
341, citing Viada, 2 Cod. Pen. 419-420)

iii. Firestone Tire & Rubber Co. of the Phils. v. CA, G.R. No. 113236, March 5, 2001
Facts:
Forjas-Arca Enterprise Company is maintaining a special savings account with Luzon
Development Bank, the latter authorized and allowed withdrawals of funds though the medium of
special withdrawal slips. These are supplied by Fojas-Arca. Fojas-Arca purchased on credit with
FirestoneTire & Rubber Company, in payment Fojas-Arca delivered a 6 special withdrawal slips. In
turn, these were deposited by the Firsestone to its bank account in Citibank. With this, relying on such
confidence and belief Firestone extended to Fojas-Arca other purchase on credit of its products but
several withdrawal slips were dishonored and not paid. As a consequence, Citibank debited the
plaintiff’s account representing the aggregate amount of the two dishonored special withdrawal slips.
Fojas-Arca averred that the pecuniary losses it suffered are a caused by and directly attributes to
defendant’s gross negligence as a result Fojas-Arca filed a complaint.

Issue:
Whether or not the acceptance and payment of the special withdrawal slips without the
presentation of the depositor’s passbook thereby giving the impression that it is a negotiable instrument
like a check.

RULING
No. Withdrawal slips in question were non negotiable instrument. Hence, the rules governing
the giving immediate notice of dishonor of negotiable instrument do not apply. The essence of
negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to
circulate freely as a substitute for money. The withdrawal slips in question lacked this character.

iv. Elizalde & Co., Inc. v. Biñan Transportation Co., CA-G.R. No. 12037- R, April 6, 1990
Elizalde v Binan
Negotiable Instruments Law – Negotiable Instruments in General – 58 OG 5886 – Unconditional Promise To Pay
FACTS:
Biñan Transportation Company bought two motor vehicles.  They signed a promissory note and to secure payment,
they mortgaged the motor vehicles.  The promissory notes were negotiated and were not paid.  So Elizalde who was holding
the promissory note sued.  Biñan’s defense was that the promissory note was not negotiable because it was mentioned that it
was subject to chattel mortgage.
ISSUE: Whether the note was negotiable.

HELD:  Yes.  For reference to mortgage to destroy negotiability, the promise to pay must be burdened with the terms and
conditions of the chattel mortgage.  Since the reference to the chattel mortgage did not make the promise to pay burdened
with the terms and conditions of the chattel mortgage, the promissory note was still negotiable.

v. Metrobank v. CA, 194 SCRA 169 (1991)

Facts:
Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants.
All warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and
deposited to its Savings account in Metrobank branch in Calapan, Mindoro. They were sent for
clearance. Meanwhile, Gomez is not allowed to withdraw from his account, later, however,
“exasperated” over Floria repeated inquiries and also as an accommodation for a “valued” client
Metrobank decided to allow Golden Savings to withdraw from proceeds of the warrants. In turn,
Golden Savings subsequently allowed Gomez to make withdrawals from his own account. Metrobank
informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury and
demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the
deficit in its account. The demand was rejected. Metrobank then sued Golden Savings.

Issue:
Whether or not treasury warrants are negotiable instruments

Held:
No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is the
word: non negotiable.” Moreover, and this is equal significance, it is indicated that they are payable
from a particular fund, to wit, Fund 501. An instrument to be negotiable instrument must contain an
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 though coupled with: 1st, an indication of a
particular fund out of which reimbursement is to be made or a particular account to be debited with the
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 unconditional. The indication of Fund 501 as the source of the
payment to be made on the treasury warrants makes the order or promise to pay “not conditional” and
the warrants themselves non-negotiable. There should be no question that the exception on Section 3 of
NIL is applicable in the case at bar.

vi. Phil. Education Co., Inc. v. Soriano, 39 SCRA 587 (1971)

FACTS:
Enrique Montinola irregularly got hold of 10 money orders from Manila Post Office. Upon discovery
of the disappearance of unpaid money orders, instructions to postmasters and banks were sent to not
honor said my orders. Philippine Education Co. Inc. received one money order as part of its sales
receipt and deposited same with Bank of America which was subsequently cleared with the Bureau of
Posts. More than a year later, the appellee Chief of the Money Order Division of the Manila Post Office
informed the bank about the irregularity and deducted the amount. Appellant requested the Postmaster
General to reconsider but his request was denied. Montinola was charged with theft but was acquitted.
Appellant filed an action for indemnification in the Municipal Court of Manila which rendered a
decision favorable to appellant.

ISSUE:
Is postal money order a negotiable instrument?

RULING:
No, postal money orders are not negotiable instruments because in establishing and operating a postal
money order system, the government is not engage in commercial transactions but merely exercises a
governmental power for the public benefit. Moreover some of the restrictions imposed upon money
orders by postal laws and regulations are inconsistent with the character of negotiable instrument. For
instance, such laws and regulations usually provide for not more than one endorsement; payment of
money orders may be withheld under a variety of circumstances
vii. Abubakar v. Auditor General, 31 Phil. 359 (1948)

FACTS:
Treasury Warrant A-2867376 was issued in favor of Placide S. Urbanes on 10 December 1941
for P1,000, but is now in the hands of Benjamin Abubakar. The Auditor refused to authorize the
payment of the treasury warrant. Abubakar contends that he is a holder in good faith and for value and
thus, entitled to the rights and privileges of a holder in due course.

Issue: Whether or not Abubakar is a holder in due course.

Held:
A treasury warrant is not a negotiable instrument; it being an order for payment out of a “particular
fund”, and is not unconditional and does not fulfill one of the essential requirements of a negotiable
instrument. Therefore, a holder of a treasury warrant cannot argue that he is a holder in good faith and
for value of a negotiable instrument and thus entitled to the rights and privileges of a holder in due
course, free from defenses.

viii. PNB v. Zulueta, 101 Phil. 1071 (1957)

FACTS:
On October 26, 1948, Jose Zulueta applied for a commercial letter of credit with PNB, which
was granted in favor of Otis Elevator Co. in New York City, USA for $14,449.15. On May 17, 1949,
Otis Page 8 of 77 Elevator drew a 90-day sight draft which was duly presented to and accepted by
Zulueta. Said acceptance matured on October 4, 1949. A debit advise was received from Zulueta’s New
York agency to the effect that it paid the draft to Otis Elevator Co., and was charged against PNB. After
the maturity date, PNB presented the draft to Zulueta, but the latter refused to pay.

ISSUES:
1. Whether or not the draft is a negotiable instrument.
2. Whether or not the rate of exchange is determined by the rate at the time the bill should have been
paid.

RULING:

1. The document is a negotiable instrument and is governed by the Negotiable Instruments Law. The
draft is a foreign bill of exchange because, although drawn in New York, it is payable in the
Philippines. Although the amount payable is expressed in dollars – not current money in the Philippines
– it is still negotiable for it may be discharged with pesos of equivalent amount.

2. There are decisions in America to the effect that, “the rate of exchange in effect at the time the bill
should have been paid” controls. Such decisions agree with the provisions of the Bills of Exchange Act
of England and could be taken as enunciating the correct principle, inasmuch as our Negotiable
Instruments Law copied the American Uniform Negotiable Instruments Law, which in turn was based
largely on the Bills of Exchange Act of England. There is one decision applying the rate of exchange at
the time the judgment is entered. However, this view is rejected because it related to a bill expressly
made payable in a foreign currency. The theory would probably produce undesirable effects upon
commercial documents, for it would make the amount uncertain, the parties to the bill unable to foresee
the day judgment would be rendered.

b. Sections 1(c), 7, 4, 2, NIL 

SECTION 1. Form of negotiable instrument.—An instrument to be negotiable must conform to the

following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.

SEC. 7. When payable on demand.—An instrument is payable on demand—

(a) Where it is expressed to be payable on demand, or at sight, or on presentation; or
(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so
issuing, accepting, or indorsing it, payable on demand.

SEC. 4. Determinable future time; what constitutes.—An instrument is payable at a determinable

future
time, within the meaning of this Act, which is expressed to be payable—(a) At a fixed period after date
or sight; or
(b) On or before a fixed or determinable future time specified therein; or
(c) On or at a fixed period after the occurrence of a specified event, which is certain to
happen, though the time of happening be uncertain.
An instrument payable upon a contingency is not negotiable, and the happening of the event does not
cure the defect.

SEC. 2. Certainly as to sum ; what constitutes.—The sum payable sum is a sum certain within the
meaning of this Act, although it is to be paid—
(a) With interest; or
(b) By stated installments^ or
(c) By stated installments, with a provision that upon default in payment of any
installment or of interest the whole shall become due; or
(d) With exchange, whether at a fixed rate or at the current rate; or
(e) With costs of collection or an attorney's fee, in case payment shall not be made at
maturity.

c. Sections 1(d), 9, 8, NIL 

SECTION 1. Form of negotiable instrument.—An instrument to be negotiable must conform to the
following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.

SEC. 9. When payable to bearer.—The instrument is payable to bearer—

(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or (c) When it is payable to the
order of a fictitious or person, and such fact was known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) When the only or last indorsement is an indorsement in blank, sufficient terms.

SEC. 8. When payable to order.—The instrument is payable to order where it is drawn payable to the
order of a specified person or to him or his order. It may be drawn payable to the order of—
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order the payee must be named or otherwise indicated therein with
reasonable certainty.

i. Instruments Payable to Order v. Instruments Payable to Bearer

The distinction between bearer and order instruments lies in their manner of

negotiation
•order instrument - requires an indorsement from the payee or holder before
it may be validly negotiated
•bearer instrument - mere delivery

ii. Consolidated Plywood Industries, Inc. v. IFC Leasing & Acceptance Corp.,  149 SCRA 448 (1987)

FACTS:
Petitioner is a corporation engaged in the logging business which was in need for 2 additional
tractors for its operation.
Industrial Products Marketing (seller-assignor) then offered to sell to petitionercorporation two
(2) used Allis Crawler tractors.
Petitioner purchased said equipments in instalment basis UNDER A NINETY (90) DAY
WARRANTY; thereafter, the seller assignor issued a sales invoice and the parties (petitioner and seller-
assignor IPM) executed a deed of sale with chattel mortgage and PROMISSORY NOTE, which reads:
“For value received, I/ we jointly and severally PROMISE TO PAY TO THE INDUSTRIAL
PRODUCTS MARKETING, the sum of 1,093,789.1 xxx xxx xxx”
Subsequently, the seller-assignor assigned its rights & interests in the mortgage in favour of
respondent IFC Leasing through a deed of assignment.
Barely 14 days after the delivery of the tractors, one of it broke down, nine days after which the
second one broke down as well. Although, the seller-assignor sent mechanics for the repairs, the units
were no longer serviceable.
Petitioner-corporation then asked the seller-assignor to pull out the units, have them
reconditioned, and re-sell them, proceeds of said sales to be given to respondent IFC. However,
petitioner-corporation did not received any response from IPM.
Respondent IFC leasing then filed a complaint for recovery of the principal sum of
P1,093,789.71 against herein petitioner-corporation which was granted by the RTC and subsequently
affirmed by the Intermediate Appellate Court. Now, petitioner-corporation claims that the
PROMISSORY NOTE is NOT a negotiable instrument as it is not payable to order or bearer. Which
will have the effect of: (1) respondent IFC not being a holder in due course; (2) the transfer of rights
between IPM and IFC being merely that of a mere assignment; (3) respondent being vulnerable to all of
the available defences that the petitioner-corporation may raise as against the seller assignor IPM.

ISSUE:
WON the PN between the petitioner-corporation and seller assignor IPM, which was
subsequently assigned to the respondent IFC is a negotiable instrument.

RULING:
NO. Par. (d), Section 1 of the NIL requires hat a promissory note “must be payable to order or
bearer. An instrument to be considered negotiable MUST CONTAIN the so-called ‘WORDS OF
NEGOTIABILITY’ - i.e. must be payable to ‘order’ or ‘bearer’. These words serve as an expression
of consent that the instrument may be transferred. This consent is indispensable since a maker assumes
greater risk under a negotiable instrument than under a non-negotiable one. There are only two way by
which an instrument may be made payable to order: There must be a specified person named in the
instrument which means that the bill or note is to be paid to the person designated in the instrument OR
to any person to whom he has endorsed and delivered the same.
WITHOUT THE WORDS ’TO ORDER’ OR ’TO THE ORDER OF’, THE INSTRUMENT IS
PAYABLE ONLY TO THE PERSON DESIGNATED THEREIN AND IS THEREFORE NON-
NEGOTIABLE. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a
negotiable instruments, but will merely step into the shoes of the person designated in the instrument
and will thus be open to all defences available against the latter. In this case, it is patent that the subject
promissory note is not a negotiable instrument. It follows that the respondent can never be a holder in
due course but remains a mere assignee of the PN.
Thus, the petitioner-corporation may raise against the respondent all defences available to it as
against the seller assignor IPM (in this case the defence against IPM’s breach of the 90-day warranty,
liability of which extending to the corporation to whom it assigned its rights and interests unless the
assignee is a holder in due course of the promissory note).

Thus: the subject PN is a non-negotiable instrument and the respondent IFC is not a holder in
due course but a MERE ASSIGNEE, to whom the liability for the breach of warranty committed by the
seller-assignor to the petitioner-corporation extends. Further (you may disregard), the petitioner-
corporation merely exercised its power to rescind its agreement with the seller-assignor in view of the
non compliance of IPM with what is incumbent upon him (warranty), sustaining the RTC and the
appellate court’s judgment will result to unjust enrichment on the part of the seller-assignor and
respondent IFC at the expense of the petitioner-corporation.

iii. PNB v. Rodriguez, G.R. No. 170325, September 26, 2008 

FACTS:
•Spouses Erlando and Norma Rodriguez were engaged in the informal lending business and had
a discounting arrangement with the Philnabank Employees Savings and Loan Association
(PEMSLA), an association of PNB employees
•The association maintained current and savings accounts with Philippine National Bank (PNB)
•PEMSLA regularly granted loans to its members.  Spouses Rodriguez would rediscount the
postdated checks issued to members whenever the association was short of funds.  
•As was customary, the spouses would replace the postdated checks with their own checks issued in
the name of the members.
•It was PEMSLA’s policy not to approve applications for loans of members with outstanding
debts.  
•To subvert  this policy, some PEMSLA officers devised a scheme to obtain additional loans despite
their outstanding loan accounts.  
•They took out loans in the names of unknowing members, without the knowledge or consent of
the latter.  
•The officers carried this out by forging the indorsement of the named payees in the checks
•Rodriguez checks were deposited directly by PEMSLA to its savings account without any
indorsement from the named payees. 
•This was an irregular procedure made possible through the facilitation of Edmundo Palermo, Jr.,
treasurer of PEMSLA and bank teller in the PNB Branch. 
•this became the usual practice for the parties.
•November 1998-February 1999: spouses issued 69 checks totalling to P2,345,804.  These were
payable to 47 individual payees who were all members of PEMSLA
•PNB eventually found out about these fraudulent acts
•To put a stop to this scheme, PNB closed the current account of PEMSLA.  
•As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the
reason “Account Closed.” 
•The amounts were duly debited from the Rodriguez account
•Spouses filed a civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative of
Philnabankers (MCP), and PNB.  
•PNB credited the checks to the PEMSLA account even without indorsements = PNB violated its
contractual obligation to them as depositors - so PNB should bear the losses
•RTC: favored Rodriguez
•makers,  actually did not intend for the named payees to receive the proceeds of the checks
= fictitious payees (under the Negotiable Instruments Law) = negotiable by mere delivery
 •CA: Affirmed - checks were obviously meant by the spouses to be really paid to PEMSLA =
payable to order

ISSUE:
Whether the subject checks are payable to order or to bearer and who bears the loss?
HELD:
As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds,
the check is considered as a bearer instrument. A check is a bill of exchange drawn on a bank payable
on demand.[11] It is either an order or a bearer instrument. Sections 8 and 9 of the NIL states:
SEC. 8. When payable to order. The instrument is payable to order where it is drawn payable to the
order of a specified person or to him or his order. It may be drawn payable to the order of
(a) A payee who is not maker, drawer, or drawee; or
(b)The drawer or maker; or
(c) The drawee; or
(d)Two or more payees jointly; or
(e)One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or otherwise indicated therein with
reasonable certainty.
SEC. 9. When payable to bearer. The instrument is payable to bearer
(a)When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such fact is known to the
person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) Where the only or last indorsement is an indorsement in blank.[12] (Underscoring supplied)
PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers
accepted the 69 checks for deposit to the PEMSLA account even without any indorsement from the
named payees. It bears stressing that order instruments can only be negotiated with a valid
indorsement.
A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the
NIL, a check payable to a specified payee may nevertheless be considered as a bearer instrument if it is
payable to the order of a fictitious or non-existing person, and such fact is known to the person making
it so payable.
A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by
the payee is apparently grossly negligent in its operations.This Court has recognized the unique public
interest possessed by the banking industry and the need for the people to have full trust and confidence
in their banks. For this reason, banks are minded to treat their customers accounts with utmost care,
confidence, and honesty.
In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of the
drawer and to pay the check strictly in accordance with the drawers instructions, i.e., to the named
payee in the check. It should charge to the drawers accounts only the payables authorized by the latter.
Otherwise, the drawee will be violating the instructions of the drawer and it shall be liable for the
amount charged to the drawers account.
In the case at bar, respondents-spouses were the bank’s depositors. The checks were drawn against
respondents-spouses’ accounts. PNB, as the drawee bank, had the responsibility to ascertain the
regularity of the indorsements, and the genuineness of the signatures on the checks before accepting
them for deposit. Lastly, PNB was obligated to pay the checks in strict accordance with the instructions
of the drawers.  Petitioner miserably failed to discharge this burden.
The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of
indorsement, forged or otherwise.  The facts clearly show that the bank did not pay the checks in strict
accordance with the instructions of the drawers, respondents-spouses.  Instead, it paid the values of the
checks not to the named payees or their order, but to PEMSLA, a third party to the transaction between
the drawers and the payees.
Moreover, PNB was negligent in the selection and supervision of its employees.  The trustworthiness of
bank employees is indispensable to maintain the stability of the banking industry.  Thus, banks are
enjoined to be extra vigilant in the management and supervision of their employees.

iv. Ang Tek Lian v. CA, G.R. No. L-2516, September 25, 1950

Facts:
Ang Tek Lian knowing that he had no funds therefor, drew a check upon China Banking
Corporation payable to the order of “cash”. He delivered it toLee Hua Hong in exchange for money.
The check was presented by Lee Hua hong to the drawee bank for payment, but it was dishonored for
insufficiency of funds, the balance of the deposit of Ang Tek Lian on both dates being P335 only.
Petitioner was sued for estafa. In his defense, however, he argues that as the check had been made
payable to “cash” and had not been endorsed by Ang Tek Lian, the defendant is not guilty of the offense
charged.
Issue:
Whether or not the check issued by Ang Tek Lian that is payable to the order to “cash” and not
have been indorsed by Ang Tek Lian, making him not guilty for the crime of estafa.

Held:
No.Under Sec. 9 of NIL a check drawn payable to the order of “cash” is a check payable to
bearer and the bank may pay it to the person presenting it for payment without the drawer’s
indorsement. However, if the bank is not sure of the bearer’s identity or financial solvency, it has the
right to demand identification or assurance against possible complication, such as forgery of drawer’s
signature, loss of the check by the rightful owner, raising of the amount payable, etc. But where the
bank is satisfied of the identity or economic standing of the bearer who tenders the check for collection,
it will pay the instrument without further question; and it would incur no liability to the drawer in thus
acting.

v. Caltex (Philippines), Inc. v. CA, 212 SCRA 448 (1992)

Facts:
The Security Bank and Trust Company, a commercial banking institution issued 280 Certificate
of time deposit (CTDs) in favor of Angel Dela Cruz who deposited with the Security Bank the total
amount of P1.2 Million. Angel delivered the CTDs to Caltex, in connection with his purchased of fuel
products from the latter.
Subsequently, Angel informed the bank that he lost all the CTDs, and thus executed an affidavit
of loss to facilitate the issuance of the replacement CTDs. Angel negotiated and obtained a loan from
Security Bank in the amount of P875, 000 and executed a notarized Deed of Assignment of Time
Deposit.
When Caltex presented said CTDs for verification with the bank and formally informed the
bank of its decision to pre-terminate the same, the bank rejected Caltex’ claim and demand for payment
of the value of the CTDs after the latter failed to furnish the former a copy of the document evidencing
the guarantee agreement with Angel dela Cruz, as well as details of obligation of Angel dela Cruz as
requested. In 1983, dela Cruz’ loan matured and the bank set-off and applied the time deposits as
payment for the loan.
Caltex filed a complaint which was dismissed on the ground that the subject certificates of
deposit are non-negotiable.

Issue:
Whether or not the subject CTDs are negotiable.

RULING:
We disagree with these findings and conclusions, and hereby hold that the CTDs in question are
negotiable instruments. The CTDs in question undoubtedly meet the requirements of the law for
negotiability.
the CTDs are negotiable instruments. The documents provide that the amounts deposited shall
be repayable to the depositor. And who, according to the document, is the depositor? It is the "bearer."
The documents do 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 be repayable to the bearer of the documents
or, for that matter, whosoever may be the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it
could have with facility so expressed that fact in 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 each
CTD. On the wordings of the documents, therefore, the amounts deposited are repayable to whoever
may be the bearer thereof.
 d. Sections 1(e), 128, 130, NIL

SECTION 1. Form of negotiable instrument.—An instrument to be negotiable must conform to the

following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwiseindicated
therein with reasonable certainty.

SEC. 128. Bill addressed to more than one drawee.— A bill may be addressed to two or more
drawees jointly, whether they are partners or not; but not to two or more drawees in the alternative or in
succession.

SEC. 130. When bill may be treated as promissory note.— Where in a bill drawer and drawee are
the same person, or where the drawee is a fictitious person, or a person not having capacity to contract,
the holder may treat the instrument, at his option, either as a bill of exchange or a promissory note.

B. Omissions and Provisions that do Not Affect Negotiability

1. Sections 3, 5-6, 11-13, 24, 73, 75, 109, NIL

SEC. 3. When promise is unconditional.—An unqualified order or promise to pay is unconditional

within the meaning of this Act, though coupled with—
(a) An indication of a particular fund out of which reimbursement is to be made, or a
particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument.
But an order or promise to pay out of a particular fund is not unconditional.

SEC. 5. Additional provisions not affecting negotiability.—An instrument which contains an order
or promise to do any act in f addition to the payment of money is not negotiable. But the negotiable
character of an instrument otherwise negotiable is not affected by a provision which—
(a) Authorizes the sale of collateral securities in case the instrument be not paid at maturity; or
(b) Authorizes a confession of judgment if the instrument be not paid at maturity; or
(c) Waives the benefit of any law intended for the advantage or protection of the obligor; or
(d) Gives the holder an election to require something to be done in lieu of payment of money.
But nothing in this section shall validate any provision or stipulation otherwise illegal.

SEC. 6. Omissions; seal; particular money.—The validity and negotiable character of an instrument
are not affected by the fact that—
(a) It is not dated; or
(b) Does not specify the value given, or that any value has been given therefor; or
(c) Does not specify the place where it is drawn or the place where it is payable; or
(d) Bears a seal; or
(e) Designates a particular kind of current money in which payment is to be made.
But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the
consideration to be stated in the instrument.

SEC. 11. Date, presumption as to.—Where the instrument or an acceptance or any indorsement
thereon is dated, such date is deemed prima facie to be the true date of the making, drawing,
acceptance, or indorsement, as the case may be.

SEC. 12. Antedated and postdated.—The instrument is not invalid for the reason only that it is
antedated or postdated, provided this is not done for an illegal or fraudulent purpose. The person to
whom an instrument so dated is delivered acquires the title thereto as of the date of delivery.

SEC. 13. When date may be inserted.—Where an instrument expressed to be payable at a fixed
period after date is issued undated, or where the acceptance of an instrument payable at a fixed period
after sight is undated, any holder may insert therein the true date of issue or acceptance, and the
instrument
shall be payable accordingly. The insertion of a wrong date does not avoid the instrument in the hands
of a subsequent holder in due course; but as to him, the date so inserted is to be regarded as the true
date.

SEC. 24. Presumption of consideration.—Every negotiable instrument is deemed prima facie to have
been issued for a valuable consideration; and every person whose signature appears thereon to have
become a party thereto for value.

SEC. 73. Place of presentment.—Presentment for payment is made at the proper place,—
(a) Where a place of payment is specified in the instrument and it is there presented;
(b) Where no place of payment is specified, but the address of the person to make payment is given in
the instrument and it is there presented;
(c) Where no place of payment is specified and no address is given and the instrument is presented at
the usual place of business or residence of the person to make payment;
(d) In any other case if presented to the person to make payment wherever he can be found, or if
presented at his last known place of business or residence.

SEC. 75. Presentment where instrument payable at bank.— Where Payable at bank. the instrument
is payable at a bank, presentment for payment must be made during banking hours, unless the person to
make payment has no funds there to meet it at any time during the day, in which case presentment at
any hour before the bank is closed on that day is sufficient.

SEC. 109. Waiver of notice.— Notice of dishonor may be waived, either before the time of giving
notice has arrived or after the omission to give clue notice, and the waiver may be express or implied.

2. San Miguel Corp., v. Puzon, Jr., G.R. No. 167568, September 22, 2010

FACTS:
Respondent Puzon was a dealer of beer products of petitioner SMC for Parañaque City. Puzon
purchased SMC products on credit. To ensure payment and as a business practice, SMC required him
to issue postdated checks equivalent to the value of the products purchased on credit before the same
were released to him. Said checks were returned to Puzon when the transactions covered by these
checks were paid or settled in full.
Subsequently, Puzon purchased products on credit amounting to P11,820,327 for which he
issued, and gave to SMC, BPI Check Nos. 27904 (for P309,500.00) and 27903 (for P11,510,827.00) to
cover the said transaction. Puzon visited SMC office and while on the same place, the former requested
to see BPI Check No. 17657.
However, when he got hold of BPI Check No. 27903 which was attached to a bond paper
together with BPI Check No. 17657 he allegedly immediately left the office with his accountant,
bringing the checks with them. SMC sent a demand letter to Puzon, however, the latter ignored it. Thus,
SMC filed a complaint.

ISSUE: Whether the postdated checks were issued by Puzon in payment of his beer purchases or were
used merely as security to ensure payment of his obligation.

HELD:

THE CHECK WAS NOT GIVEN AS PAYMENT OF RESPONDENT’S OBLIGATION. To determine

whether the ownership of the subject check was transferred to SMC, it is RELEVANT to consider the
INTENT OF THE RESPONDENT. On this point, the Negotiable Instrument Law provides:

Sec. 12. Antedated and postdated – The instrument is not invalid for the reason only that it is antedated
or postdated, provided this is not done for an illegal or fraudulent purpose. The person to whom an
instrument so dated is delivered acquires the title thereto as of the date of delivery. (Underscoring
supplied.)

It must be emphasized that the term “delivery” used in the aforementioned provision means that
the party delivering did so for the purpose of giving effect thereto. Otherwise, it cannot be said that
there has been delivery of the negotiable instrument. Once there is delivery, the person to whom the
instrument is delivered gets the title to the instrument completely and irrevocably.
 To apply, if the subject check was given by Puzon to SMC in payment of the obligation, the
purpose of giving effect to the instrument is evident thus title to or ownership of the check was
transferred upon delivery. However, if the check was not given as payment, there being no intent to give
effect to the instrument, then ownership of the check was not transferred to SMC. The evidence of SMC
failed to establish that the check was given in payment of the obligation of Puzon.
There was no provisional receipt or official receipt issued for the amount of the check. What
was issued was a receipt for the document, a “POSTDATED CHECK SLIP.” Furthermore, the
evidence proves that the check was accepted, not as payment, but in accordance with the long-standing
policy of SMC to require its dealers to issue postdated checks to cover its receivables. The check was
only meant to cover the transaction and in the meantime Puzon was to pay for the transaction by some
other means other than the check. This being so, title to the check did not transfer to SMC; it remained
with Puzon.
Hence, the checks was not given as payment of respondent’s obligation but were used merely as
security to ensure payment of his obligation.

3. PNB v. Manila Oil Refining & By-Products Co., Inc., 43 Phil. 445 (1922)

Facts:
On 8 May 1920, the manager and the treasurer of the Manila Oil Refining & By-Products
Company, Inc,. executed and delivered to the Philippine National Bank (PNB), a written instrument
reading as follows: "RENEWAL. P61,000.00 MANILA, P.I., May 8, 1920. On demand after date we
promise to pay to the order of the Philippine National Bank sixty-one thousand only pesos at Philippine
National Bank, Manila, P.I. Without defalcation, value received; and do hereby authorize any attorney
in the Philippine Islands, in case this note be not paid at maturity, to appear in my name and confess
judgment for the above sum with interest, cost of suit and attorney's fees of ten (10) per cent for
collection, a release of all errors and waiver of all rights to inquisition and appeal, and to the benefit of
all laws exempting property, real or personal, from levy or sale. Value received. No. —— Due ——
MANILA OIL REFINING & BY-PRODUCTS CO., INC., (Sgd.) VICENTE SOTELO, Manager.
MANILA OIL REFINING & BY-PRODUCTS CO., INC., (Sgd.) RAFAEL LOPEZ. Treasurer." The
Manila Oil Refining & By-Products Company, Inc. failed to pay the promissory note on demand. PNB
brought action in the Court of First Instance of Manila, to recover P61,000, the amount of the note,
together with interest and costs. Mr. Elias N. Recto, an attorney associated with PNB, entered his
appearance in representation of Manila Oil, and filed a motion confessing judgment. Manila Oil,
however, in a sworn declaration, objected strongly to the unsolicited representation of attorney Recto.
Later, attorney Antonio Gonzalez appeared for Manila Oil and filed a demurrer, and when this was
overruled, presented an answer. The trial judge rendered judgment on the motion of attorney Recto in
the terms of the complaint.
 In the Supreme Court, the question of first impression raised in the case concerns the validity in
this jurisdiction of a provision in a promissory note whereby in case the same is not paid at maturity,
the maker authorizes any attorney to appear and confess judgment thereon for the principal amount,
with interest, costs, and attorney's fees, and waives all errors, rights to inquisition, and appeal, and all
property exemptions.

Issue [1]: Whether the Negotiable Instruments Law (Act No. 2031) expressly recognized judgment
notes, enforcible under the regular procedure.
Held [1]: The Negotiable Instruments Law, in section 5, provides that "The negotiable character of an
instrument otherwise negotiable is not affected by a provision which (b) Authorizes confession of
judgment if the instrument be not paid at maturity"; but this provision of law cannot be taken to
sanction judgments by confession, because it is a portion of a uniform law which merely provides that,
in jurisdictions where judgments notes are recognized, such clauses shall not affect the negotiable
character of the instrument. Moreover, the same section of the Negotiable Instruments Law concludes
with these words: "But nothing in this section shall validate any provision or stipulation otherwise
illegal."
No, a judgment note will not affect the negotiable character of the instrument. However, judgment note
is not valid and effective. Warrants of attorney to confess judgment are void as against public policy
because they enlarge the field for fraud, under these instruments the promissor bargains away his right
a day in court, and the effect of instrument is to strike down the right of appeal accorded by statute.
Issue [2]: Whether provisions in notes authorizing attorneys to appear and confess judgments against
makers should not be recognized in Philippine jurisdiction by implication.
Held [2]: Judgments by confession as appeared at common law were considered an amicable, easy, and
cheap way to settle and secure debts. They are quick remedy serve to save the court's time. Time also
save time and money of the litigants and the government the expenses that a long litigation entails. In
one sense, instruments of this character may be considered as special agreements, with power to enter
up judgments on them, binding the parties to the result as they themselves viewed it. On the other hand,
are disadvantages to the commercial world which outweigh the considerations just mentioned. Such
warrants of attorney are void as against public policy, because they enlarge the field for fraud, because
under these instruments the promissor bargains away his right to a day in court, and because the effect
of the instrument is to strike down the right of appeal accorded by statute. The recognition of such form
of obligation would bring about a complete reorganization of commercial customs and practices, with
reference to short-term obligations. It can readily be seen that judgment notes, instead of resulting to
the advantage of commercial life the Philippines might be the source of abuse and oppression, and
make the courts involuntary parties thereto. If the bank has a meritorious case, the judgment is
ultimately certain in the courts. The Court is of the opinion thus that warrants of attorney to confess
judgment are not authorized nor contemplated by Philippine law; and that provisions in notes
authorizing attorneys to appear and confess judgments against makers should not be recognized in this
jurisdiction by implication and should only be considered as valid when given express legislative
sanction.
III. INTERPRETATION OF INSTRUMENTS 
A. Section 17, NIL 
SEC. 17. Construction where instrument is ambiguous.—Where construction. the language of the instrument
is ambiguous or there are omissions therein, the following rules of construction apply:
(a) Where the sum payable is expressed in words and also in figures and there is a
discrepancy between the two, the sum denoted by the words is the sum payable; but if the words are ambiguous
or uncertain, reference may be had to the figures to fix the amount;
(b) Where the instrument provides for the payment of interest, without specifying the
date from which interest is to run, the interest runs from the date of the instrument, and if the instrument is
undated, from the issue thereof;
(c) Where the instrument is not dated, it will be considered to be dated as of the time it
was issued;
(d) Where there is a conflict between the written and printed provisions of the instrument, the written provisions
prevail;
(e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note,
the holder may treat it as either at his election;
(f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the
same intended to sign, he is to be deemed an indorser;
(g) Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are
deemed to be jointly and severally liable thereon.

B. Equitable Banking Corp. v. IAC, 161 SCRA 518 (1988) 

Equitable Bank vs IAC 1988161 SCRA 518 Mercantile Law Negotiable Instruments Law Negotiable
Instruments in General Certainty of Payee
FACTS:
Nell Company issued a check to help Casals and Casville Enterprises obtain a  letter  of  credit  from 
Equitable  Banking  in  connection  with  equipment,  a garrett  skidder,  which  Casals  and  Casville 
were  buying  from  Nell.    Nell indicated  the  payee  as  follows  “EQUITABLE  BANKING 
CORPORATION  A/C
CASVILLE ENTERPRISES INC.”
 
Casals deposited the check with the bank and the bank teller accepted the same  and  in 
accordance  with  customary  bank  practice,  stamped  in  the check  the  words  “non-negotiable”.   
The  amount  was  withdrawn  after  the deposit.
 
This  prompted  Nell  to  file  a  case  against  the  bank,  Casals  and  Casville.  While  the  instant 
case  was  being  tried,  Casals  and  Casville  assigned  the garrett skidder to plaintiff which credited
in favor of defendants the amount of P450,000, as partial satisfaction of its claim against them.   
ISSUE: Whether or not Equitable Bank is liable to cover for the loss.

HELD:No. The subject check was equivocal and patently ambiguous. Reading on the wordings of the
check, the payee thereon ceased to be indicated with reasonable certainty in contravention of Section 8
of the Negotiable Instruments Law. As worded, it could be accepted as deposit to the account of the
party named after the symbols A/C, or payable to the Bank as trustee, or as an agent, for Casville
Enterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity is to be
takencontraproferentemthat is, construed against Nell Company who caused the ambiguity and could
have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code,
provides:Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.
ANOTHER RULING:

Equitable is not liable to Nell.  Nell should bear the loss as it was through its own acts, which put it
into the power of Casals and Casville Enterprises to perpetuate the fraud against it.  
 
The  check  wasn’t  initially  non-negotiable.    Neither  was  it  cross-checked.  The rubber-stamping
transversally on the face of the check was only made the bank teller in accordance with customary
bank practice, and not by Nell as  the  drawer  of  the  check,  and  simply  meant  that  thereafter 
the  same
check could no longer be negotiated.
 
The payee was not indicated with reasonable certainty in contravention of Section 8.  As worded, it
could be accepted as deposit to the account of the party named therein after the symbols  of A/C, or
payable to the bank as trustee,  or  as  an  agent,  for  Casville  with  the  latter  being  the  ultimate
beneficiary. 

C. State Investment House, Inc. v. CA, 217 SCRA 32 (1993) 

01 State Investment House, Inc. vs. Court of Appeals S

TATE INVESTMENT HOUSE, INC., petitioner, vs. COURT OF APPEALS and NORA B. MOULIC,
respondents 217 SCRA 32 G.R. No. 101163 JANUARY 11, 1993
Drawer, Nora B. Moulic Payee, Corazon Victoriano
STATE INVESTMENT, a holder in due course of the 2 checks

FACTS:
Corazon Victoriano provided pieces of jewelry to Nora Moulic so that the latter may sell the
same. As security for the jewelries, Moulic issued to Victoriano two post-dated checks in the aggregate
amount of P100,000.00. Moulic was not able to sell the jewelries so she returned the same to
Victoriano. Victoriano was however unable to return the checks hence Moulic withdrew all her funds
from the bank. Apparently, the checks were negotiated by Victoriano to State Investment House, Inc.
So when the checks were dishonored, State Investment demanded Moulic to pay. Moulic refused to pay
because she said the checks were merely used as security for the jewelry. Moulic further averred that
she received no notice of dishonor.

ISSUE: Whether or not State Investment House is entitled to be paid.

HELD:
Yes. State Investment is a holder in due course as it met all the requirements to be one pursuant
to Section 52 of the Negotiable Instruments Law. In particular, it is clearly shown that: (a) on their
faces the post-dated checks were complete and regular: (b) State Investment bought these checks from
Victoriano, before their due dates; (c) State Investment took these checks in good faith and for value,
(d) State Investment was never informed nor made aware that these checks were merely issued to
Victoriano as security and not for value. 2 Further, there is no need to issue a notice of dishonor to
Moulic. After Moulic withdrew her funds, she could not have expected her checks to be honored. It
would only be futile for State Investment to be sending her notices of dishonor for the two checks.

OTHER NEGOTIABLE INSTRUMENT DOCTRINES:

State Investment is holder in due course. Moulic must prove that the State is not a holder in due course.
Moulic failed to prove it.
Negotiable Instruments Law; Sec. 52 of the Negotiable Instruments Law provides a prima facie
presumption that the holder of a negotiable instrument is a holder in due course.—Culled from the
foregoing, a prima facie presumption exists that the holder of a negotiable instrument is a holder in due
course. Consequently, the burden of proving that STATE is not a holder in due course lies in the person
who disputes the presumption. In this regard, MOULIC failed. STATE INVESTMENT holds the
instruments free from any defect of title of prior parties, and from defenses available to prior parties
among themselves.

STATE INVESTMENT may enforce full payment of the checks.

Being a holder in due course, State holds the instruments free from any defect of title of prior
parties and from defenses available to prior parties among themselves.—Consequently, STATE is
indeed a holder in due course. As such, it holds the instruments free from any defect of title of prior
parties, and from defenses available to prior parties among themselves; STATE may, therefore, enforce
full payment of the checks.
Post-dated checks as security is not a ground for the discharge of the instrument as against a
holder in due course.
Fact that the post-dated checks were merely issued as security is not a ground for the discharge
of the instrument as against a holder in due course. The only grounds are those outlined in Sec. 119 of
the Negotiable Instruments Law.
 The intentional cancellation contemplated under paragraph C, Sec. 119 is that cancellation
effected by destroying the instrument either by tearing it up, burning it, or writing the word “cancelled”
on the instrument.—Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds
for the discharge of the instrument. But, the intentional cancellation contemplated under paragraph (c)
is that cancellation effected by destroying the instrument either by tearing it up, burning it, or writing
the word “cancelled” on the instrument. The act of destroying the instrument must also be made by the
holder of the instrument intentionally. Since MOULIC failed to get back possession of the post-dated
checks, the intentional cancellation of the said checks is altogether impossible.
The withdrawal of the money from the drawee bank to avoid liability on the checks cannot
prejudice the rights of holders in due course. Such withdrawal renders the drawer, Nora B. Moulic,
liable to STATE, a holder in due course of the checks.
The Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or
hampering transactions in commercial paper. Thus, the said statute should not be tampered with
haphazardly or lightly. Nor should it be brushed aside in order to meet the necessities in a single case.
The withdrawal of the money from the drawee bank to avoid liability on the checks cannot
prejudice the rights of holders in due course. The drawing and negotiation of a check have certain
effects aside from the transfer of title or the incurring of liability in regard to the instrument by the
transferor. The holder who takes the negotiated paper makes a contract with the parties on the face of
the instrument. There is an implied representation that funds or credit are available for the payment of
the instrument in the bank upon which it is drawn. Consequently, the withdrawal of the money from the
drawee bank to avoid liability on the checks cannot prejudice the rights of holders in due course. In the
instant case, such withdrawal renders the drawer, Nora B. Moulic, liable to STATE, a holder in due
course of the checks.

D. PNB v. Concepcion Mining Co., Inc., 5 SCRA 745 (1962) 

E. Republic Planters Bank v. CA, 216 SCRA 738 (1992)
FACTS:

Defendants Shozo Yamaguchi and Fermin Canlas were President/ Chief Operating Officer and Treasurer,

respectively, of Worldwide Garment Manufacturing, Inc. By virtue of a board resolution, the defendants were

authorized to apply for credit facilities with the petitioner Republic Planters Bank in the forms of export

advances and letters of credit/ trust receipts accommodations. Petitioner bank issued nine promissory notes,

each of which were uniformly worded and stated: “… I/we jointly and severally promise to pay to the order of the

Republic Planters Bank…” On the right bottom margin of the promissory notes appeared the signature of the

defendants above their printed names with the phrase “ and (in) his personal capacity” typewritten below.

ISSUE:
Is defendant Fermin Canlas solidarily liable with Shozo Yamaguchi on each of the nine
promissory notes?
RULING:
Yes, he is solidarily liable on each of the promissory notes bearing his signature for the following
reasons:
(a) Under the negotiable instruments law, persons who write their names on the face of promissory
notes are makers and are liable as such. By signing the notes, the maker promise to pay to the order of
the payee or any holder according to the tenor thereof.
(b) Where an instrument containing the words “I promise to pay” is signed by two or more persons they
are deemed to be jointly and severally liable thereon. An instrument which begins with “I”, “We” or
“Either of us” promise to pay, when signed by two or more persons, makes them solidarily liable.

OTHER DOCTRINES:

•GR: officers or directors under the old corporate name bear no personal liability for acts
done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch
as such officers acted in their capacity as agent of the old corporation and the change of
name meant only the continuation of the old juridical entity, the corporation bearing the
same name is still bound by the acts of its agents if authorized by the Board. 
•EX: Under the Negotiable Instruments Law, the liability of a person signing as an agent is
specifically provided for as follows:

Sec. 20.  Liability of a person signing as agent and so forth. Where the instrument contains or
a person adds to his signature words indicating that he signs for or on behalf of a principal ,
or in a representative capacity, he is not liable on the instrument if he was duly authorized;
but the mere addition of words describing him as an agent, or as filling a representative
character, without disclosing his principal, does not exempt him from personal liability.

Where the agent signs his name but nowhere in the instrument has he disclosed the fact that
he is acting in a representative capacity or the name of the third party for whom he might
have acted as agent, the agent is personally liable to take holder of the instrument and
cannot be permitted to prove that he was merely acting as agent of another and parol or
extrinsic evidence is not admissible to avoid the agent's personal liability.
•incomplete stereotype printed form of promissory notes generally used by commercial
banking institutions to be signed by their clients in obtaining loans. 
•blank spaces to be filled up on material particulars such as payee's name, amount of the
loan, rate of interest, date of issue and the maturity date.
•An incomplete instrument which has been delivered to the borrower for his signature is
governed by Section 14 of the Negotiable Instruments Law:

Sec. 14.  Blanks: when may be filled. — Where the instrument is wanting in any material
particular, the person in possesion thereof has a prima facie authority to complete it by filling
up the blanks therein. ... In order, however, that any such instrument when completed may
be enforced against any person who became a party thereto prior to its completion, it must
be filled up strictly in accordance with the authority given and within a reasonable time...
• The notes were not incomplete instruments; neither were they given to private
respondent Fermin Canlas in blank as he claims. Thus, Section 14 of the NegotiabIe
Instruments Law is not applicable.

Sum certain is a clear amount agreed upon in a contract.

Sum certain is a legal phrase referring to a specific amount (usually an amount of
money) that is directly stated in a contract or negotiable instrument (such as a mortgage or
promissory note) at the time the document is written, and which is not open to interpretation
or misinterpretation.

CERTAIN SUM OF MONEY

a    known but not specified or named  

a known but not specified

1. Eleanor will issue a promissory note in favor of Fernando for taking care of  her house
when the former was busy giving away COVID-19 test kits in  Malaybalay. Fernando
requested that the promissory note be payable in the  now defunct Bagong Lipunan
currency notes. Eleanor advised Fernando that  Bagong Lipunan currency notes are not
legal tender which will make the note  non-negotiable. As an alternative, she will make
the note payable in a  currency of coins that are lined with pure gold. Fernando told
Eleanor that  the note will also be non-negotiable because such coins are not used in
the  Philippines. Feeling unsatisfied with their conclusions, Eleanor and Fernando 
sought your advice. Assuming all other requisites of negotiability are present, which of
Eleanor and Fernando’s conclusions is incorrect? (5 points) 

This is how you answer and this is how I expect you to answer your Midterms for you to have
a fighting chance in argumentation even if your answer is incorrect:
1. Answer the question
2. Cite the applicable law, principle, or jurisprudence
3. Apply the cited law, principle, or jurisprudence to the given facts
For example, Quiz item 1: [cited jurisprudence is PNB v. Zulueta, G.R. No. L-7271, August 30,
1957; cited law is Section 6, NIL - If you can't remember the exact jurisprudence or section,
cite generally, like in the example below]

Both Eleanor and Fernando's conclusions that making the instrument payable in Bagong
Lipunan currency notes or in a currency of coins that is lined with pure gold will make it non-
negotiable are incorrect.

The Supreme Court has held that an instrument is still negotiable although the amount to be
paid is expressed in currency that is not legal tender so long as it expressed in money. The
Negotiable Instruments Law states that negotiability is not affected even if the instrument
designates the particular kind of money in which payment is to be made.

In this case, making the note payable in Bagong Lipunan currency notes or in a currency of
coins that are lined in pure gold is still expressed in money. Assuming that all other requisites
of negotiability are present, negotiability of the promissory note is not affected by the
designation that it should be paid in Bagong Lipunan currency notes or in a currency of coins
that are lined in pure gold.
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