Professional Documents
Culture Documents
Bian 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. Bians defense was that the
promissory note was not negotiable because it was mentioned that it was subject to chattel mortgage.
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.
even have incurred liability for its refusal to return the money that all appearances belonged to the
depositor, who could therefore withdraw it anytime and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings
deposited them to its account with Metrobank. Golden Savings had no clearing facilities of its own. It
relied on Metrobank to determine the validity of the warrants through its own services. The proceeds
of the warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to
withdraw them from its own deposit.
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that
they were genuine and in all respects what they purport to be, in accordance with Sec. 66 of NIL.
The simple reason that NIL is not applicable to non negotiable instruments, treasury warrants.
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: 1 st, 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.
Held:
No. Metrobank is negligent in giving Golden Savings the impression that the treasury warrants
had been cleared and that, consequently, it was safe to allow Gomez to withdraw. Without such
assurance, Golden Savings would not have allowed the withdrawals. Indeed, Golden Savings might
Held:
No. It is not disputed that the Philippine postal statutes were patterned after similar statutes in
force in United States. The Weight of authority in the United States is that postal money orders are not
negotiable instruments, the reason being that in establishing and operating a postal money order
system, the government is not engaged 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 instruments.
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.
To put a stop to this scheme, PNB closed the current account of PEMSLA.
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
Negotiable Instruments Case Digest: Philippine National Bank V. Erlando Rodriguez (2008)
Lessons Applicable: Fictitious Persons (Negotiable Instruments Law)
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
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
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.
ISSUE: W/N the 69 checks are payable to order for not being issued to fictitious persons thereby
dismissing PNB from liability
As was customary, the spouses would replace the postdated checks with their
own checks issued in the name of the members.
It was PEMSLAs policy not to approve applications for loans of members with
outstanding debts.
GR: when the payee is fictitious or not intended to be the true recipient of the proceeds,
the check is considered as a bearer instrument (Sections 8 and 9 of the NIL)
The distinction between bearer and order instruments lies in their manner of negotiation
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.
US jurisprudence: fictitious if the maker of the check did not intend for the payee to in
fact receive the proceeds of the check
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer
bears the loss
When faced with a check payable to a fictitious payee, it is treated as a bearer instrument
that can be negotiated by delivery
EX: However, there is a commercial bad faith exception to the fictitious-payee rule. A
showing of commercial bad faith on the part of the drawee bank, or any transferee of the check
for that matter, will work to strip it of this defense. The exception will cause it to bear the loss.
underlying theory: one cannot expect a fictitious payee to negotiate the check
by placing his indorsement thereon
lack of knowledge on the part of the payees, however, was not tantamount to a lack of
intention on the part of respondents-spouses that the payees would not receive the checks
proceeds
PNB did not obey the instructions of the drawers when it accepted absent indorsement,
forged or otherwise. It was negligent in the selection and supervision of its employees
September, 1950
SAN MIGUEL v. PUZON, JR. G.R. No. 167567 September 22, 2010
Related law: Sec. 16; Sec. 12; NIL; Delivery for the purpose of giving eect to an instrument (i.e. for
payment) FACTS: Puzon was a dealer of San Miguel Corporation (SMC). Puzon purchased SMC
products on credit. SMC requires him to issue postdated checks equivalent to the value of the
products purchased to ensure payment. The checks are to be return to Puzon once he settles his credit.
In one instance, Puzon went to SMC Sales Oce and allegedly requested to see particular checks that
he gave to SMC. When he got hold of them, he allegedly immediately left the oce with the checks.
SMC demanded for the return of the checks which Puzon ignored. As such, SMC filed a complaint
against him for theft. The prosecutor however found no probable cause for theft because of SMC and
Puzons relationship as one of creditor-debtor and recommended dismissal. Hence, this petition.
ISSUE/S: 1. Was there probable cause for theft? HELD: 1. None. One of the essential elements of
theft is the taking of a personal property belonging to another. A such, it is necessary to ascertain
whether the ownership of the checks were transferred to SMC. If SMC owns the checks, then there is
probable cause for theft, otherwise, there is none. According to the Sec. 12 of the NIL, the person to
whom an instrument is delivered acquires the title to it. The delivery mentioned in Sec. 12 must be
read in conjunction with Sec. 16 of the NIL which says that the delivery must be for the purpose of
giving eect to the instrument. Since the checks were given merely as security and not as payment for
the credit, then the checks were not delivered so as to give eect to them. As such, ownership was not
transferred to SMC. Hence, the checks that Puzon allegedly took were not properties belonging to
another. Consequently, there is no probable cause for theft. Prepared by: Daniel John A. Fordan !1
Bengzon, J.:
Facts:
RCBC vs. Hi-Tri Development Corp. and Luz R. Bakunawa, G.R. No. 192413, June 13, 2012
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 w3as dishonored
for insufficiency of funds. With this, Ang Tek Lian was convicted of estafa.
Facts:
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 drawers
indorsement. However, if the bank is not sure of the bearers identity or financial solvency, it has the
right to demand identification or assurance against possible complication, such as forgery of drawers
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.
Millan paid the spouses Bakunawa P1,019,514.29 as down payment for the purchase of six (6) lots
with the Spouses Bakunawa giving Millan the Owners Copies of TCTs of said lots.
Due to some obstacles, the sale did not push through; so Spouses Bakunawa rescinded the sale and
offered to return to Millan her down. However, Millan refused to accept back the down payment.
Consequently, the Spouses Bakunawa, through their company, Hi-Tri took out on October 28, 1991, a
Managers Check from RCBC-Ermita in the amount of P 1,019,514.29, payable to Millans company
Rosmil and used this as one of their basis for a complaint against Millan.
The Spouses Bakunawa retained custody of RCBC Managers Check and refrained from cancelling or
negotiating it. Millan was also informed that the Managers Check was available for her withdrawal,
she being the payee.
On January 31, 2003, without the knowledge of Spouses Bakunawa, RCBC reported the
"P 1,019,514.29-credit existing in favor of Rosmil to the Bureau of Treasury as among its "unclaimed
balances" as of January 31, 2003. On December 14, 2006, the Republic, through the Office of the
Solicitor General (OSG), filed with the RTC the action for Escheat.
On April 30, 2008, Spouses Bakunawa settled amicably their dispute with Millan. Spouses Bakunawa
tried to recover the P1,019,514.29 under Managers Check but they were informed that the amount
was already subject of the escheat proceedings before the RTC.
The trial court ordered the deposit of the escheated balances with the Treasurer and credited in favor
of the Republic. Respondents claim that they were not able to participate in the trial, as they were not
informed of the ongoing escheat proceedings. Later motion for reconsideration was denied.
CA reversed the RTC ruling. CA pronounced that RTC Clerk of Court failed to issue individual
notices directed to all persons claiming interest in the unclaimed balances. CA held that the Decision
and Order of the RTC were void for want of jurisdiction.
Issue:
Whether or not the allocated funds may be escheated in favor of the Republic
fund is still held by the bank. As a result, the assigned fund is deemed to remain part of the account of
Hi-Tri, which procured the Managers Check. The doctrine that the deposit represented by a
managers check automatically passes to the payee is inapplicable, because the instrument although
accepted in advance remains undelivered. Hence, respondents should have been informed that the
deposit had been left inactive for more than 10 years, and that it may be subjected to escheat
proceedings if left unclaimed.
Held:
There are sufficient grounds to affirm the CA on the exclusion of the funds allocated for the payment
of the Managers Check in the escheat proceedings.
An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank
(drawee), requesting the latter to pay a person named therein (payee) or to the order of the payee or to
the bearer, a named sum of money. The issuance of the check does not of itself operate as an
assignment of any part of the funds in the bank to the credit of the drawer. Here, the bank becomes
liable only after it accepts or certifies the check. After the check is accepted for payment, the bank
would then debit the amount to be paid to the holder of the check from the account of the depositordrawer.
There are checks of a special type called managers or cashiers checks. These are bills of exchange
drawn by the banks manager or cashier, in the name of the bank, against the bank itself. Typically, a
managers or a cashiers check is procured from the bank by allocating a particular amount of funds to
be debited from the depositors account or by directly paying or depositing to the bank the value of
the check to be drawn. Since the bank issues the check in its name, with itself as the drawee, the
check is deemed accepted in advance. Ordinarily, the check becomes the primary obligation of the
issuing bank and constitutes its written promise to pay upon demand.
Nevertheless, the mere issuance of a managers check does not ipso facto work as an automatic
transfer of funds to the account of the payee. In case the procurer of the managers or cashiers check
retains custody of the instrument, does not tender it to the intended payee, or fails to make an
effective delivery, we find the following provision on undelivered instruments under the Negotiable
Instruments Law applicable:
Sec. 16. Delivery; when effectual; when presumed. Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As
between immediate parties and as regards a remote party other than a holder in due course, the
delivery, in order to be effectual, must be made either by or under the authority of the party making,
drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to
have been conditional, or for a special purpose only, and not for the purpose of transferring the
property in the instrument. But where the instrument is in the hands of a holder in due course, a valid
delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed.
And where the instrument is no longer in the possession of a party whose signature appears thereon, a
valid and intentional delivery by him is presumed until the contrary is proved.
Petitioner acknowledges that the Managers Check was 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 the Managers Check offered by respondents, the latter retained custody of the instrument
instead of cancelling it. As the Managers Check neither went to the hands of Rosmil nor was it
further negotiated to other persons, the instrument remained undelivered. Petitioner does not dispute
the fact that respondents retained custody of the instrument.
Since there was no delivery, presentment of the check to the bank for payment did not occur. An order
to debit the account of respondents was never made. In fact, petitioner confirms that the Managers
Check was never negotiated or presented for payment to its Ermita Branch, and that the allocated
transaction may not be estopped by it. "Estoppel cannot be sustained by mere argument or doubtful
inference x x x." CASA is not barred from questioning BPIs error even after the lapse of the period
given in the notice.
However, the restrictive indorsee acquires the right to receive payment and
bring any action thereon as any indorser, but he can no longer transfer his rights as such
indorsee where the form of the indorsement does not authorize him to do so.
When it violated its internal rules that second endorsements are not to be accepted without
the approval of its branch managers and it did accept the same upon the mere approval of Boon,
a chief accountant, it contravened the tenor of its obligation at the very least, if it were not
actually guilty of fraud or negligence
drawee Bank did not discover the irregularity with respect to the acceptance of checks
with second indorsement for deposit even without the approval of the branch manager despite
periodic inspection conducted by a team of auditors from the main office constitutes negligence
on the part of the bank in carrying out its obligations to its depositors
Gempesaw
FACTS:
to pay their debts of her supplies, she draws checks against her account
she signed each and every crossed check without bothering to verify the
accuracy of the checks against the corresponding invoices because she reposed full and implicit
trust and confidence on her bookkeeper.
although the Bank notified her of all checks presented to and paid by the bank,
petitioner did not verify he correctness of the returned checks, much less check if the payees
actually received the checks in payment for the supplies she received
It was only after the lapse of more 2 years that petitioner found out about the
fraudulent manipulations of her bookkeeper
January 23, 1985: Gempesaw filed against Philippine Bank of Communications (drawee
Bank) for recovery of the money value of 82 checks charged against the Gempesaw's account
on the ground that the payees' indorsements were forgeries
CA: affirmed
HELD: NO. REMANDED to the trial court for the reception of evidence to determine the exact
amount of loss suffered by the petitioner, considering that she partly benefited from the issuance of
the questioned checks since the obligation for which she issued them were apparently extinguished,
such that only the excess amount over and above the total of these actual obligations must be
considered as loss of which one half must be paid by respondent drawee bank to herein petitioner.
Petitioner completed the checks by signing them as drawer and thereafter authorized her
employee Alicia Galang to deliver to payees
GR: drawee bank who has paid a check on which an indorsement has been forged cannot
charge the drawer's account for the amount of said check
EX: where the drawer is guilty of such negligence which causes the bank to honor such a
check or checks.
Under the NIL, the only kind of indorsement which stops the further negotiation of an
instrument is a restrictive indorsement which prohibits the further negotiation thereof.
Sec. 36. When indorsement restrictive. - An indorsement is restrictive which either chanrobles virtual
law library
(a) Prohibits further negotiation of the instrument; or
xxx xxx xxx
LOZANO VS MARTINEZ
Facts:
Petitioners were charged with violation of Batas Pambansa Bilang 22 (Bouncing Check Law). They
moved seasonably to quash the informations on the ground that the acts charged did not constitute an
offense, the statute being unconstitutional. The motions were denied by the respondent trial courts,
except in one case, wherein the trial court declared the law unconstitutional and dismissed the case.
The parties adversely affected thus appealed.
Issue:
Held:
1.
The enactment of BP 22 is a valid exercise of the police power and is not repugnant to the
constitutional inhibition against imprisonment for debt. The gravamen of the offense
punished by BP 22 is the act of making and issuing a worthless check or a check that is
dishonored upon its presentation for payment. It is not the non-payment of an
obligation which the law punishes. The law is not intended or designed to coerce a debtor
to pay his debt. The thrust of the law is to prohibit, under pain of penal sanctions, the
making of worthless checks and putting them in circulation. Because of its deleterious
effects on the public interest, the practice is proscribed by the law. The law punishes the
act not as an offense against property, but an offense against public order.
Unlike a promissory note, a check is not a mere undertaking to pay an amount of money. It
is an order addressed to a bank and partakes of a representation that the drawer
has funds on deposit against which the check is drawn, sufficient to ensure payment upon
its presentation to the bank. There is therefore an element of certainty or assurance that the
instrument will be paid upon presentation. For this reason, checks have become widely
accepted as a medium of payment in trade and commerce. Although not legal tender,
checks have come to be perceived as convenient substitutes for currency in commercial
and financial transactions. The basis or foundation of such perception is confidence. If
such confidence is shaken, the usefulness of checks as currency substitutes would be
greatly diminished or may become nil. Any practice therefore tending to destroy that
confidence should be deterred for the proliferation of worthless checks can only
create havoc in trade circles and the banking community.
The effects of the issuance of a worthless check transcends the private interests of the
parties directly involved in the transaction and touches the interests of the community at
large. The mischief it creates is not only a wrong to the payee or holder, but also an injury
to the public. The harmful practice of putting valueless commercial papers in circulation,
multiplied a thousand fold, can very wen pollute the channels of trade and
commerce, injure the banking system and eventually hurt the welfare of society and the
public interest.
2. The freedom of contract which is constitutionally protected is freedom to enter into
lawful contracts. Contracts which contravene public policy are not lawful. Besides, we
must bear in mind that checks can not be categorized as mere contracts. It is a commercial
instrument which, in this modem day and age, has become a convenient substitute for
money; it forms part of the banking system and therefore not entirely free from the
regulatory power of the state.
3. There is no substance in the claim that the statute in question denies equal protection
of the laws or is discriminatory, since it penalizes the drawer of the check, but not the
payee. It is contended that the payee is just as responsible for the crime as the drawer of
the check, since without the indispensable participation of the payee by his acceptance of
the check there would be no crime. This argument is tantamount to saying that, to give
equal protection, the law should punish both the swindler and the swindled. The
petitioners posture ignores the well-accepted meaning of the clause equal protection
of the laws. The clause does not preclude classification of individuals, who may be
accorded different treatment under the law as long as the classification is not unreasonable
or arbitrary. (Lozano vs Martinez, G.R. No. L-63419, December 18, 1986)
1. Citibank is ordered to return to respondent the principal amount of P318,897.34 and P203,150.00
plus 14.5% per annum
2. The remittance of US $149,632.99 from respondents Citibank-Geneva account is declared illegal,
null and void, thus Citibank is ordered to refund said amount in Philippine currency or its equivalent
using exchange rate at the time of payment.
3. Citibank to pay respondent moral damages of P300,000, exemplary damages for P250,000,
attorneys fees of P200,000.
4. Respondent to pay petitioner the balance of her outstanding loans of P1,069,847.40 inclusive off
interest.
FACTS:
The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay bearer, of
if this Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE
CORPORATION, the registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND
PESOS.
Filriters registered owner of Central Bank Certificate of Indebtedness (CBCI). Filriters transferred it
to Philfinance by one of its officers without authorization from the company. Subsequently,
Philfinance transferred same CBCI to Traders Royal Bank (TRB) under a repurchase agreement.
When Philfinance failed to do so, The TRB tried to register in its name in the CBCI. The Central
Bank did not want to recognize the transfer.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action
was originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court, to compel the
Central Bank of the Philippines to register the transfer of the subject CBCI to petitioner Traders Royal
Bank (TRB).
NO. The CBCI is not a negotiable instrument, since the instrument clearly stated that it was payable
to Filriters, and the certificate lacked the words of negotiability which serve as an expression of
consent that the instrument may be transferred by negotiation.
Before the instruments become negotiable instruments, the instrument must conform to the
requirements under the Negotiable Instrument Law. Otherwise instrument shall not bind the parties.
IT'S NULL AND VOID. Obviously the Assignment of certificate from Filriters to Philfinance was
null and void. One of officers who signed the deed of assignment in behalf of Filriters did not have
the necessary written authorization from the Board of Directors of Filriters. For lack of such authority
the assignment is considered null and void.
APPLICABLE LAWS:
Under section 1 of Act no. 2031 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.
Under section 3, Article V of Rules and Regulations Governing Central Bank Certificates of
Indebtedness states that the assignment of registered certificates shall not be valid unless made at the
office where the same have been issued and registered or at the Securities Servicing Department,
Central Bank of the Philippines, and by the registered owner thereof, in person or by his
representative, duly authorized in writing. For this purpose, the transferee may be designated as the
representative of the registered owner. ISSUES & RULING: 1. Whether the CBCI is negotiable
instrument or not.
Clearly shown in the record is the fact that Philfinance's title over CBCI is defective since it
acquired the instrument from Filriters fictitiously. Under 1409 of the Civil Code those contracts
which are absolutely simulated or fictitious are considered void and inexistent from the beginning.
Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a nonowner was disposing of the registered CBCI owned by another entity was a good reason for petitioner
to verify of inquire as to the title Philfinance to dispose to the CBCI.
OTHER NOTES:
1. the mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate
corporate personalities.
Facts:
Consolidated Plywood Industries Inc. (CPII) is a corporation engaged in the logging
business. It had for its program of logging activities the opening of additional roads, and simultaneous
logging operations along the route of said roads. With this, it requires two more units of tractors to
attain its objective. Atlantic Gulf and Pacific Company of Manilas sister company, Industrial
Products Marketing (IPM), offered to sell to CPII 2 "Used" Allis Crawler Tractors. IPM assured CPII
that the "Used" Allis Crawler Tractors which were offered are fit for the job, and gave the
corresponding warranty of 90 days performance of the machines and availability of parts. The
president and vice president of CPII, agreed to purchase on installment said 2 units of "Used" Allis
Crawler Tractors relying on IPMs guarantee. They paid a down payment of 210,000.00. After
issuance of the sales invoice, the deed of sale with chattel mortgage with promissory note was
executed. Simultaneously with the execution of the deed of sale with chattel mortgage with
promissory note, IPM, by means of a deed of assignment, assigned its rights and interest in the chattel
mortgage in favor of IFC Leasing and Acceptance Corporation. Immediately thereafter, IPM
delivered said 2 units of "Used tractors to CPII's jobsite as agreed upon. Eventually, one of the
tractors broke down, 9 days subsequent to the incident; the other tractor also broke down. IPM sent
mechanics to fix the tractors but was unable to do so as the units were not serviceable. Due to this, the
road building and simultaneous logging operations were delayed. The Vice President of CPII advised
IPM that the payments of the installments as listed in the promissory note would likewise be delayed
until IPM completely fulfills its obligation under its warranty. Since the tractors were no longer
serviceable, the President asked IPM to pull out the units and have them reconditioned, and thereafter
to offer them for sale. The proceeds were to be given to IFC Leasing and the excess, if any, to be
divided between IPM and CPII which offered to bear 1/2 of their conditioning cost. No response to
this letter was received by CPII and despite several follow-up calls; IPM did nothing with regard to
the request, until the complaint in the case was filed by IFC Leasing against CPII. The trial court
rendered judgment, ordering CPII, et al. to pay jointly and severally in their official and personal
capacities the principal sum of P1, 093,798.71 with accrued interest. CPII et al.'s motion for
reconsideration was denied by the Intermediate Appellate Court Hence, this case.
Caltex vs CA
FACTS:
Security Bank and Trust Co. issued 280 certificates of time deposit (CTD) in favor of one Mr. Angel
dela Cruz who deposited with the bank P1.12 million. Dela Cruz delivered the CTDs to Caltex in
connection with his purchase of fuel products from the latter. Subsequently, dela Cruz informed the
bank that he lost all the CTDs, and thus executed an affidavit of loss to facilitate the issuance of the
replacement CTDs. When Caltex presented said CTDs for verification with the bank and formally
informed the bank of its decision to preterminate the same, the bank rejected Caltex claim and
demand as Caltex failed to furnish copies of certain requested documents. 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 nonnegotiable.
Issue:
Whether the promissory note in question is a negotiable instrument?
Held:
The pertinent portion of the note provides that ""FORVALUE RECEIVED, I/we jointly
and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of
ONEMILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTYNINE PESOS &
71/100 only (P1,093,789.71), Philippine Currency, the said principal sum, to be payable in 24
monthly installments starting July 15, 1978 and every 15th of the month thereafter until fully paid."
Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a
promissory note "must be payable to order or bearer," it cannot be denied that the promissory note in
question is nota negotiable instrument. 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."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 nonnegotiable one. 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. Therefore, considering that the subject promissory note is not a negotiable instrument, it
follows that IFC Leasing can never be a holder in due course but remains a mere assignee of the note
in question. Thus, CPII may raise against IFC Leasing all defenses available to it as against IPM. This
being so, there was no need for CPII to implead IPM when it was sued by IFC Leasing because CPII's
defenses apply to both or either of them.
ISSUE:
Whether the Certificates of Time Deposit (CTDs) are negotiable instruments.
RULING:
The CTDs in question are negotiable instruments as they meet the requirements of the law for
negotiability as provided for in Section 1 of the Negotiable Instruments Law. The documents provide
that the amounts deposited shall be repayable to the depositor. And according to the document, the
depositor 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.
However, petitioner cannot recover on the CTDs. Although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement between it and dela Cruz, as ultimately
ascertained, requires both delivery and indorsement. In this case, there was no indorsement as the
CTDs were delivered not as payment but only as a security for dela Cruz' fuel purchases.
**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. The CTDs in question are negotiable
instruments as they meet the requirements of the law for negotiability as provided for in Section 1 of
the Negotiable Instruments Law. The documents provide that the amounts deposited shall be
repayable to the depositor. And according to the document, the depositor 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.