Vda. de Eduque vs.

Ocampo
GR L-222, 26 April 1950
Second Division, Moran (CJ)
Facts: On 16 February 1935, Dr. Jose Eduque secured two loans from
MarianoOcampo de Leon, DonaEscolastica delos Reyes and Don Jose M. Ocampo,
with amount s of P40,000 andP15,000, both payablewithin 20 years with
interest of 5% per annum. Payment of the loans was guaranteed bymortgage on
realproperty. On 6 December 1943, Salvacion F. Vda de Eduque, as
administratrix of theestate of Dr. JoseEduque, tendered payment by means of
a cashiers check representing Japanese Warnotes to Jose M.Ocampo, who
refused payment. By reason of such refusal, an action was brought andthe
cashiers check wasdeposited in court. After trial, judgment was rendered
against Ocampo compelling himto accept the amount,to pay the expenses of
consignation, etc. Ocampo accepted the judgment as to thesecond loan but
appealed asto the first loan.
Issue: Whether there is a tender of payment by means of a cashiers check
representingwar notes?
Held: Japanese military notes were legal tender during the Japanese
occupation; andOcampo impliedlyaccepted the consignation of the cashiers
check when he asked the court that he bepaid the amount of thesecond loan
(P15,000). It is a rule that a cashiers check may constitute a sufficient
tender where no objection is made on this ground.

Negotiable Instruments Case Digest: Roman Catholic Bishop Of Malolos V. IAC

(1990)
G.R. No. 72110 November 16, 1990
FACTS: July 7, 1971: A contract over the land was executed between the
Roman Catholic Bishop of Malolos (bishop) as vendor and the through its
then president, Mr. Carlos F. Robes, as vendee, stipulating for a
downpayment of P23,930 and the balance of P100,000 plus 12% interest per
annum to be paid within 4 years from execution of the contract.
The contract likewise provides for cancellation, forfeiture of previous
payments, and reconveyance of the land in case of failure to pay within the
period
March 12, 1973: private respondent, through its new president, Atty. Adalia
Francisco, addressed a letter 6 to Father Vasquez, parish priest of San
Jose Del Monte, Bulacan, requesting to be furnished with a copy of the
subject contract and the supporting documents
July 17, 1975: after the expiration of the stipulated period for payment,
Atty. Francisco wrote the formal request that her company be allowed to
pay the principal amount of P100,000 in 3 equal installments of 6 months
each with the 1st installment and the accrued interest of P24,000 to be
paid immediately upon approval
July 29, 1975: Bishop through its counsel, Atty. Carmelo Fernandez,
formally denied the request but granted a grace period of 5 days from the
receipt of the denial to pay the total balance of P124,000
August 4, 1975: private respondent, through its president, Atty. Francisco,
wrote the counsel of the petitioner requesting an extension of 30 days from
to fully settle its account. - denied
RTC: favored Bishop declaring the down payment as forfeited.
ISSUE: W/N there is tender of payment by issuance of a certified check?
HELD: NO. RTC reinstated.
Tender of payment involves a positive and unconditional act by the obligor
of offering legal tender currency as payment to the obligee for the
formers obligation and demanding that the latter accept the same.
Tender of payment cannot be presumed by a mere inference from surrounding
circumstances.
Sheer proof of sufficient available funds to meet more than the total
obligation within the grace period - NOT sufficient
On the contrary, the respondent court finds itself remiss in overlooking or
taking lightly the more important findings of fact made by the trial court
which are entitled to great weight on appeal and should be accorded full
consideration and respect and should not be disturbed unless for strong and
cogent reasons certified personal check which is not legal tender nor the
currency stipulated, and therefore, can not constitute valid tender of
payment.
Since a negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as payment.

DEVELOPMENT BANK OF RIZAL vs. SIMA WEI, ET AL.

G.R. No. 85419 March 9, 1993
FACTS: Respondent Sima Wei executed and delivered to petitioner Bank a
promissory note engaging to pay the petitioner Bank or order the amount of
P1,820,000.00. Sima Wei subsequently issued two crossed checks payable to
petitioner Bank drawn against China Banking Corporation in full settlement
of the drawer's account evidenced by the promissory note. These two checks
however were not delivered to the petitioner-payee or to any of its
authorized representatives but instead came into the possession of
respondent Lee Kian Huat, who deposited the checks without the petitionerpayee's indorsement to the account of respondent Plastic Corporation with
Producers Bank.
Inspite of the fact that the checks were crossed and
payable to petitioner Bank and bore no indorsement of the latter, the
Branch Manager of Producers Bank authorized the acceptance of the checks
for deposit and credited them to the account of said Plastic Corporation.
ISSUE: Whether petitioner Bank has a cause of action against Sima Wei for
the undelivered checks?
RULING: No.
A negotiable instrument must be delivered to the payee in
order to evidence its existence as a binding contract. Section 16 of the
NIL provides that every contract on a negotiable instrument is incomplete
and revocable until delivery of the instrument for the purpose of giving
effect thereto.
Thus, the payee of a negotiable instrument acquires no
interest with respect thereto until its delivery to him.
Without the
initial delivery of the instrument from the drawer to the payee, there can
be no liability on the instrument.
Petitioner however has a right of
action against Sima Wei for the balance due on the promissory note.

SPOUSES TIBAJIA v. COURT OF APPEALS and EDEN TAN

G. R. No. 100290, June 4, 1993
FACTS: A suit of collection of sum of money was filed by Eden Tan against
the spouses. A writ of attachment was issued, the Deputy Sheriff filed a
return stating that a deposit made by Tibajia in the amount of P442,750 in
another case, had been garnished by him. RTC ruled in favor of Eden Tan and
ordered the spouses to pay her an amount in excess of P3,000,000. Court of
Appeals modified the decision by reducing the amount for damages. Tibajia
Spouses delivered to Sheriff Bolima the total money judgment of P398483.70.
Tan refused to accept the payment and insisted that the garnished funds be
withdrawn to satisfy the judgment obligation.
ISSUE: Whether or not payment by means of check is considered payment in
legal tender
RULING: The ruling applies the statutory provisions which lay down the rule
that a check is not legal tender and that a creditor may validly refuse
payment by check, whether it be a managers check, cashiers or personal
check. The decision of the court of Appeals is affirmed.
NO. A check, whether a managers check or ordinary check, is not legal
tender, and an offer of a check in payment of a debt is not a valid tender
of payment and may be refused receipt by the obligee or creditor. A check
is not legal tender and that a creditor may validly refuse payment by
check, whether it be a managers, cashiers or personal check. The Supreme
Court stressed that, We are not, by this decision, sanctioning the use of
a check for the payment of obligations over the objection of the creditor.

CEBU INTERNATIONAL V. CA
316 SCRA 488
FACTS: Petitioner
is
a
quasi-banking
institution
involved
in
money
market transactions.
Alegre invested with petitioner P500,000.
Petitioner issued then a promissory note, which would mature approximately
after a month. The note covered for Alegres placement plus interest. On
the maturity of the note, petitioner issued a check payable to Alegre,
covering the whole amount due.
It was drawn from petitioners current
account in BPI.
When the
wife
of
Alegre
tried
to
deposit
the
check, the bank dishonored the
check.
Petitioner
was
notified
of
this
matter
and
Alegre
demanded
the immediate
payment
in
cash.
In
turn,
petitioner
promised to replace the check on the impossible premise that the first
issued be returned to them.
This prompted Alegre to file a complaint
against petitioner and petitioner in turn, filed a case against BPI
for
allegedly
unlawfully
deducting
from
its account counterfeit
checks. The trial court decided in favor of Alegre.
ISSUE: Whether or not the Negotiable Instruments Law
the money market transaction held
between petitioner and Alegre?

is

applicable

to

HELD: Considering
the
nature
of
the
money
market
transaction,
Article 1249 of the CC is the applicable provision should be applied. A
money market has been
defined
to
be
a
market
dealing
in
standardized
short-term
credit instruments
where
lenders
and
borrowers dont deal directly with each other but through a middleman
or dealer in the open market.
In a money market
transaction,
the
investor is the lender who loans his money to a borrower through a
middleman or dealer.
In the case at bar, the transaction is in the nature of a
loan.
Petitioner accepted the check but when he tried to encash it, it
was dishonored. The holder has an immediate recourse against the
drawer,
and
consequently could immediately file an action for the
recovery of the value of the check.
Further, in a loan transaction, the obligation to pay a sum certain in
money may be paid in money, which is the legal tender or, by the use of a
check. A check is not legal tender, and therefore cannot constitute valid
tender of
payment.

Sesbreno vs. Court of Appeals

GR 89252, 24 May 1993
FACTS: Petitioner Sesbreno made a money market placement in the amount of
P300,000
with
the
Philippine
Underwriters
Finance
Corporation
(PhilFinance), with a term of 32 days. PhilFinance issued to Sesbreno the
Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory
Note, the Certificate of Securities Delivery Receipt indicating the sale of
the note with notation that said security was in the custody of Pilipinas
Bank, and postdated checks drawn against the Insular Bank of Asia and
America for P304,533.33 payable on March 13, 1981.
The checks were
dishonored for having been drawn against insufficient funds.
Pilipinas
Bank never released the note, nor any instrument related thereto, to
Sesbreno; but Sesbreno learned that the security which was issued on April
10, 1980, maturing on 6 April 1981, has a face value of P2,300,833.33 with
PhilFinance as payee and Delta Motors as maker; and was stamped nonnegotiable on its face. As Sesbreno was unable to collect his investment
and interest thereon, he filed an action for damages against Delta Motors
and Pilipinas Bank.
Delta Motors contents that said promissory note was
not intended to be negotiated or otherwise transferred by Philfinance as
manifested by the word "non-negotiable" stamped across the face of the
Note.
ISSUE: Whether the non-negotiability of a promissory note prevents its
assignment?
RULING: A negotiable instrument, instead of being negotiated, may also be
assigned or transferred. The legal consequences of negotiation and
assignment of the instrument are different. A non-negotiable instrument may
not be negotiated but may be assigned or transferred, absent an express
prohibition against assignment or transfer written in the face of the
instrument.
The subject promissory note, while marked "non-negotiable,"
was not at the same time stamped "non-transferable" or "non-assignable." It
contained no stipulation which prohibited Philfinance from assigning or
transferring such note, in whole or in part.
**A non-negotiable instrument may not be negotiated but may be assigned or
transferred, absent an express prohibition against assignment or transfer
written on the face of the instrument.

Baldomero Inciong, Jr. vs Court of Appeals

257 SCRA 578 Mercantile Law Negotiable Instruments in General
Signature of Makers Guaranty
FACTS: In February 1983, Rene Naybe took out a loan from Philippine Bank of
Communications (PBC) in the amount of P50k. For that he executed a
promissory note in the same amount. Naybe was able to convince Baldomero
Inciong, Jr. and Gregorio Pantanosas to co-sign with him as co-makers. The
promissory note went due and it was left unpaid. PBC demanded payment from
the three but still no payment was made. PBC then sue the three but PBC
later released Pantanosas from its obligations. Naybe left for Saudi Arabia
hence cant be issued summons and the complaint against him was
subsequently dropped. Inciong was left to face the suit. He argued that
that since the complaint against Naybe was dropped, and that Pantanosas was
released from his obligations, he too should have been released.
ISSUE: Whether or not Inciong should be held liable.
HELD: Yes. Inciong is considering himself as a guarantor in the promissory
note. And he was basing his argument based on Article 2080 of the Civil
Code which provides that guarantors are released from their obligations if
the creditors shall release their debtors. It is to be noted however that
Inciong did not sign the promissory note as a guarantor. He signed it as a
solidary co-maker.
A guarantor who binds himself in solidum with the principal debtor does not
become a solidary co-debtor to all intents and purposes. There is a
difference between a solidary co-debtor and a fiador in solidum (surety).
The latter, outside of the liability he assumes to pay the debt before the
property of the principal debtor has been exhausted, retains all the other
rights, actions and benefits which pertain to him by reason of the fiansa;
while a solidary co-debtor has no other rights than those bestowed upon
him.
Because the promissory note involved in this case expressly states that the
three signatories therein 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 (PBC) to determine against whom he
will enforce collection. Consequently, the dismissal of the case against
Pontanosas may not be deemed as having discharged Inciong from liability as
well. As regards Naybe, suffice it to say that the court never acquired
jurisdiction over him. Inciong, therefore, may only have recourse against
his co-makers, as provided by law.

Serrano vs. Court of Appeals, 130 SCRA 327 [1984]

FACTS: On or about January 1, 1965, upon application of the SYSTEM, Group
Mortgage Redemption Policy No. GMR-1 was issued by Private Life Insurance
Companies operating in the Philippines for a group life insurance policy on
the lives of housing loan mortgagors of the SYSTEM. Under this Group
Mortgage Redemption scheme, a grantee of a housing loan of the SYSTEM is
required to mortgage the house constructed out of the loan and the lot on
which it stands. The SYSTEM takes a life insurance on the eligible
mortgagor to the extent of the mortgage indebtedness such that if the
mortgagor dies, the proceeds of his life insurance under the Group
Redemption Policy will be used to pay his indebtedness to the SYSTEM.
On November 10, 1967, the SYSTEM approved the real estate mortgage loan of
the late Bernardo G. Serrano for P37,400.00 for the construction of the
applicant's house. On December 26, 1967, a partial release in the amount of
P35,400.00 was effected. On March 8, 1968, Captain Serrano died, the SYSTEM
closed his housing loan account to the released amount of P35,400.00. On
December 2, 1968, the petitioner (widow of the late Bernardo G. Serrano)
sent a letter addressed to the Chairman of the Social Security Commission
requesting that the benefits of the Group Mortgage Redemption Insurance be
extended to her. Such letter was disapproved by the Commission through a
resolution on the ground that the late Captain Serrano was not yet covered
by the Group Mortgage Redemption Insurance policy at the time of his death.
On November 10, 1967, the SYSTEM approved the real estate mortgage loan of
the late Bernardo G. Serrano for P37,400.00 for the construction of the
applicant's house. On December 26, 1967, a partial release in the amount of
P35,400.00 was effected. On March 8, 1968, Captain Serrano died, the SYSTEM
closed his housing loan account to the released amount of P35,400.00. On
December 2, 1968, the petitioner (widow of the late Bernardo G. Serrano)
sent a letter addressed to the Chairman of the Social Security Commission
requesting that the benefits of the Group Mortgage Redemption Insurance be
extended to her. Such letter was disapproved by the Commission through a
resolution on the ground that the late Captain Serrano was not yet covered
by the Group Mortgage Redemption Insurance policy at the time of his death.
Issues: 1.
Whether or not the late Bernardo G. Serrano is eligible for
coverage under Group Mortgage Redemption Insurance Policy.
2.
Whether or not insurance coverage takes effect from the
beginning of the amortization period of such Mortgage Loan or partial
release of Mortgage Loan.
Held:
1.
There can be no doubt as to the eligibility of the late Captain
Serrano for coverage under Section 1 of Article II of the Group
Mortgage Redemption Insurance Policy as he was a mortgagor of the
Social Security System not over the age of 65 nearest his birthday at
the time when the mortgage loan was granted to him. Section 2 of
Article II of the Group Mortgage Redemption Insurance Policy provides
that insurance coverage shall be "automatic" and limited only by the
amount of insurance and age requirement. Under said Section 2,
mortgage redemption insurance is not just automatic; it is compulsory
for all qualified borrowers.
2.
Applying Article 1374 of the new Civil Code, the mortgagor in the instant case
was already covered by the insurance upon the partial release of the loan. The various
stipulations of a contract shall be interpreted together, attributing to the doubtful ones
that sense which may result from all of them taken jointly. The ambiguity in Section 3 of

Article II should be resolved in favor of the petitioner. "The interpretation of obscure

words or stipulations in a contract shall not favor the party who caused the obscurity"
(Article 1377, Civil Code). The Court have held that provisions, conditions or exceptions
tending to work a forfeiture of insurance policies should be construed most strongly
against those for whose benefit they are inserted, and most favorably toward those against
whom they are intended to operate.

Philippine Education Co., Inc. vs Mauricio Soriano, et al

39 SCRA 587 Commercial Law Negotiable Instruments Law Postal Money
Orders Not Negotiable Instruments
Facts:In April 1958, a certain Enrique Montinola was purchasing ten money
orders from the Manila Post Office. Each money order was worth P200.00.
Montinola offered to pay the money orders via a private check but the
cashier told him he cannot pay via a private check. But still somehow,
Montinola was able to leave the post office with the money orders without
him paying for them.
Days later, the missing money orders were discovered. Meanwhile, the
Philippine Education Co., Inc. (PECI) presented one of the missing postal
money orders before the Bank of America. The money order was initially
credited and so P200.00 was deposited in PECIs account with the bank. But
then later the post office, through Mauricio Soriano (Chief of the Money
Order Division of the Post Office), advised the bank that the money order
was irregularly issued hence the P200.00 was debited back from PECIs
account.
PECI is now invoking that the money order was duly negotiated to them and
thus they are entitled to the amount it represents.
ISSUE: Whether or not postal money orders are negotiable instruments.
HELD: No. Postal money orders are not negotiable instruments. The rationale
behind this rule is the fact that in establishing and operating a postal
money order system, the government is not engaging in commercial
transactions but merely exercises a governmental power for the public
benefit. In fact, postal money orders are subject to a lot of restrictions
limiting their negotiability. Particularly in this case, as far back as
1948, there was already an agreement between Bank of America and the Manila
Post Office, that in case the post office would have an adverse claim
against any Bank of America depositor involving postal money orders issued
by the post office, all amounts cleared in relation thereto shall be
refunded back to the post offices account with the bank this in itself
is already a limitation in the negotiability and nature of the postal money
orders issued by the post office because of the special conditions
attached.

Caltex (Philippines), Inc. vs Court of Appeals

212 SCRA 448 Mercantile Law Negotiable Instruments Law Negotiable Instruments in General
Bearer Instrument Certificate of Time Deposit

FACTS: In 1982, Angel de la Cruz obtained certificates of time deposit

(CTDs) from Security Bank and Trust Company for the formers deposit with
the said bank amounting to P1,120,000.00. The said CTDs are couched in the
following manner:
This is to Certify that B E A R E R has deposited in this Bank the sum of
_______ Pesos, Philippine Currency, repayable to said depositor _____ days.
after date, upon presentation and surrender of this certificate, with
interest at the rate of ___ % per cent per annum.
Angel de la Cruz subsequently delivered the CTDs to Caltex in connection
with the purchase of fuel products from Caltex.
In March 1982, Angel de la Cruz advised Security Bank that he lost the
CTDs. He executed an affidavit of loss and submitted it to the bank. The
bank then issued another set of CTDs. In the same month, Angel de la Cruz
acquired a loan of P875,000.00 and he used his time deposits as collateral.
In November 1982, a representative from Caltex went to Security Bank to
present the CTDs (delivered by de la Cruz) for verification. Caltex advised
Security Bank that de la Cruz delivered Caltex the CTDs as security for
purchases he made with the latter. Security Bank refused to accept the CTDs
and instead required Caltex to present documents proving the agreement made
by de la Cruz with Caltex. Caltex however failed to produce said documents.
In April 1983, de la Cruz loan with Security bank matured and no payment
was made by de la Cruz. Security Bank eventually set-off the time deposit
to pay off the loan.
Caltex sued Security Bank to compel the bank to pay off the CTDs. Security
Bank argued that the CTDs are not negotiable instruments even though the
word bearer is written on their face because the word bearer contained
therein refer to depositor and only the depositor can encash the CTDs and
no one else.
ISSUE: Whether or not the certificates of time deposit are negotiable.
HELD: Yes. The CTDs indicate that they are payable to the bearer; that
there is an implication that the depositor is the bearer but as to who the
depositor is, no one knows. It does not say on its face that the depositor
is Angel de la Cruz. 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.
Thus, de la Cruz is the depositor insofar as the bank is concerned, but
obviously other parties not privy to the transaction between them would not

be in a position to know that the depositor is not the bearer stated in the
CTDs.
However, Caltex may not encash the CTDs because although the CTDs are bearer
instruments, a valid negotiation thereof for the true purpose and agreement
between Caltex and De la Cruz, requires both delivery and indorsement. As
discerned from the testimony of Caltex representative, the CTDs were delivered
to them by de la Cruz merely for guarantee or security and not as payment.

Negotiable Instruments Case Digest: Traders Royal Bank V. CA (1997)

G.R. No. 93397 March 3, 1997
Lessons Applicable: Requisites of negotiability to antedated and postdated
instruments (Negotiable Instrument Law)
FACTS:
Filriters (assigned) > Philfinance (still under the name of
Filriters assigned) > Traders Royal Bank = ? (valid or not)
November 27, 1979: Filriters Guaranty Assurance Corporation (Filriters)
executed a "Detached Assignment whereby Filriters, as registered owner,
sold, transferred, assigned and delivered unto Philippine Underwriters
Finance Corporation (Philfinance) all its rights and title to Central Bank
Certificates of Indebtedness (CBCI) of P500k and having an aggregate value
of P3.5M
The Detached Assignment contains an express authorization executed by the
transferor intended to complete the assignment through the registration of
the transfer in the name of PhilFinance
February 4, 1981: Traders Royal Bank (Traders) entered into a Repurchase
Agreement w/ PhilFinance whereby in consideration of the sum of
P500,000.00, PhilFinance sold, transferred and delivered a CBCI w/ a face
value of P500K which CBCI was among those previously acquired by
PhilFinance from Filriters
PhilFinance failed to repurchase on the agreed date of maturity, April 27,
1981, when the checks it issued in favor of petitioner were dishonored for
insufficient funds
Philfinance transferred and assigned all, its rights and title in the CBCI
to Traders
Respondent failed and refused to register the transfer as requested, and
continues to do so notwithstanding petitioner's valid and just title over
the same and despite repeated demands in writing
Traders prayed for the registration by the Central Bank of the subject CBCI
in its name.
CA affirmed RTC: subsequent assignment in favor of Traders Royal Bank null
and void and of no force and effect.
Philfinance acquired no title or rights under CBCI which it could assign or
transfer to Traders and which it can register with the Central Bank
instrument is payable only to Filriters, the registered owner
ISSUE: W/N the CBCI is a negotiable instrument
HELD:

NO. Petition is dismissed. CA affirmed.

CBCI is not a negotiable instrument in the absence of words of

negotiability within the meaning of the negotiable instruments law (Act
2031)
certificate of indebtedness
= certificates for the creation and maintenance of a permanent improvement
revolving fund
similar to a "bond" properly understood as acknowledgment of an obligation
to pay a fixed sum of moneyusually used for the purpose of long term loans
Philfinance merely borrowed the CBCI from Filriters, a sister corporation.
lack of any consideration = assignment is a complete nullity
Filriters to Philfinance did not conform to the "Rules and Regulations
Governing Central Bank Certificates of Indebtedness" (Central Bank Circular
No. 769, series of 1980) under which the note was issued.
Published in the Official Gazette on November 19, 1980, Section 3 thereof
provides that any assignment of registered certificates shall not be valid
unless made . . . by the registered owner thereof in person or by his
representative duly authorized in writing
Alfredo O. Banaria, who signed the deed of assignment purportedly for and
on behalf of Filriters, did not have the necessary written authorization
from the BOD
Traders, being a commercial bank, cannot feign ignorance of Central Bank
Circular 769, and its requirements.
The fact that Filfinance owns majority shares in Filriters is not by itself
a ground to disregard the independent corporate status of Filriters.
Traders knew that Philfinance is not registered owner of the CBCI.
The fact that a non-owner 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.
Nemo potest nisi quod de jure potest no man can do anything except what
he can do lawfully.

Medel vs Court of Appeals, 299 SCRA 481;

GR No. 131622, November 27, 1998,
FACTS: Defendants obtained a loan from Plaintiff in the amount P50, 000.00, payable in 2
months and executed a promissory note. Plaintiff gave only the amount of P47, 000.00 to
the borrowers and retained P3, 000.00 as advance interest for 1 month at 6% per month.
Defendants obtained another loan from Defendant in the amount of P90, 000.00, payable in 2
months, at 6% interest per month. They executed a promissory note to evidence the loan and
received only P84, 000.00 out of the proceeds of the loan.
For the third time, Defendants secured from Plaintiff another loan in the amount of P300,
000.00, maturing in 1 month, and secured by a real estate mortgage. They executed a
promissory note in favor of the Plaintiff. However, only the sum of P275, 000.00, was
given to them out of the proceeds of the loan.
Upon maturity of the three promissory notes, Defendants failed to pay the indebtedness.
Defendants consolidated all their previous unpaid loans totalling P440, 000.00, and sought
from Plaintiff another loan in the amount of P60, 000.00, bringing their indebtedness to a
total of P50,000.00. They executed another promissory note in favor of Plaintiff to pay
the sum of P500, 000.00 with a 5.5% interest per month plus 2% service charge per annum,
with an additional amount of 1% per month as penalty charges.
On maturity of the loan, the Defendants failed to pay the indebtedness which prompt the
Plaintiffs to file with the RTC a complaint for collection of the full amount of the loan
including interests and other charges.
Declaring that the due execution and genuineness of the four promissory notes has been
duly proved, the RTC ruled that although the Usury Law had been repealed, the interest
charged on the loans was unconscionable and revolting to the conscience and ordered the
payment of the amount of the first 3 loans with a 12% interest per annum and 1% per month
as penalty.
On appeal, Plaintiff-appellants argued that the promissory note, which consolidated all
the unpaid loans of the defendants, is the law that governs the parties.
The Court of Appeals ruled in favor of the Plaintiff-appellants on
Usury Law has become legally inexistent with the promulgation by the
of Circular No. 905, the lender and the borrower could agree on any
charged on the loan, and ordered the Defendants to pay the Plaintiffs
plus 5.5% per month interest and 2& service charge per annum , and 1%
charges.

the ground that the

Central Bank in 1982
interest that may be
the sum of P500,000,
per month as penalty

Defendants filed the present case via petition for review on certiorari.
Issue: WON the stipulated 5.5% interest rate per month on the loan in the sum of P500,
000.00 is usurious.
Held: No. A stipulated rate of interest at 5.5% per month on the P500, 000.00 loan is
excessive, iniquitous, unconscionable and exorbitant, but it cannot be considered
usurious because Central Bank Circular No. 905 has expressly removed the interest
ceilings prescribed by the Usury Law and that the Usury Law is now legally inexistent.
Doctrine: A CB Circular cannot repeal a law. Only a law can repeal another law.
Jurisprudence provides that CB Circular did not repeal nor in a way amend the Usury Law
but simply suspended the latters effectivity (Security Bank and Trust Co vs RTC). Usury

has been legally non-existent in our jurisdiction. Interest can now be charged as lender
and borrower may agree upon.
Law: Article 2227, Civil Code
The courts shall reduce equitably liquidated damages, whether intended as an indemnity or
a penalty if they are iniquitous or unconscionable.
Note: While the Usury Law ceiling on interest rates was lifted by the CB Circular 905,
nothing in the said circular could possibly be read as granting carte blanche authority to
lenders to raise interest rates to levels which would either enslave their borrowers or
lead to a haemorrhaging of their assets (Almeda vs. CA, 256 SCRA 292 [1996]).

RADIOWEALTH

FINANCE

V. INTERNATIONAL
182 SCRA 862

CORPORATE BANK

FACTS: The
petitioner
entered
into
a
Credit
Facilities
agreement
with
Interbank.
This
is
secured
by
a
promissory
note,
trust
receipts,
security arrangements, which
included provisions on payment of attorneys fees and costs
of
collection in case of default.
The petitioner failed to
pay.
A compromise agreement was entered into by the parties but
this agreement failed to include the attorneys fees and costs of
collection.
The trial court reduced the percentage of attorneys
fees in its decision.
HELD: The courts may modify the attorneys fees previously agreed
upon where the
amount
appears
to
be
unconscionable
and
unreasonable.
For
the
law recognizes
the
validity
of
stipulations
included
in
documents
such
as negotiable
instruments and mortgages with respect.
The fees in this case are
reasonable and fair.

Benjamin Abubakar vs The Auditor General

81 Phil. 359 Commercial Law Negotiable Instruments Law Treasury
Warrants
FACTS: In 1941, a treasury warrant was issued in favor of Placido Urbanes,
a government employee in the province of La Union. The said treasury
warrant was meant to augment the Food Production Campaign in the said
province. It was then negotiated by Urbanes to Benjamin Abubakar, a private
individual. When Abubakar sought to have the treasury warrant encashed, the
Auditor General denied payment because first of, it is against the
appropriating law (Republic Act 80)
to authorize payments to private
individuals when it comes to treasury warrants. Abubakar then contends that
he is entitled to encash as he was a holder in good faith.
ISSUE: Whether or not a treasury warrant is a negotiable instrument.
HELD: No. A treasury warrant is not a negotiable instrument. One of the
requirements of a negotiable instrument is that it must be unconditional.
In Section 3 of the Negotiable Instruments Law, an order or promise to pay
out of a particular fund makes the instrument conditional. A treasury

warrant, like the one in this case, comes from a particular fund, a
particular appropriation. In this case, it was written on the face of the
treasury warrant that it is payable from the appropriation for food
administration. Thus, it is not negotiable for being conditional.
NOTE the difference: However, an instrument is negotiable if it merely
mentions/indicates a particular fund out of which reimbursement is to be
made. This does not make the instrument conditional because it does not say
that such particular fund is the source of payment. It is only a notice to
the drawee that he can reimburse himself out of that particular fund after
paying the payee. As to the source of payment to the payee, there is no
mention of it.

Metropolitan Bank & Trust Company vs. Court of Appeals

G.R. No. 88866

Cruz, J.:

February, 18, 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:
1. Whether or not Metrobank can demand refund agaist Golden Savings with
regard to the amount withdraws to make up with the deficit as a result of the
dishonored treasury warrants.
2. Whether or not treasury warrants are negotiable instruments
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 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: 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.

NATIONAL BANK V. MANILA OIL REFINING

43 PHIL 444

FACTS:
Manila
Oil
has
issued
a
promissory
note
in
favor
of
National
Bank
which included a provision on a confession of
judgment in case of failure to pay obligation.
Indeed, Manila Oil
has failed to pay on demand. This prompted the bank to file a case
in court, wherein an attorney associated with them entered his
appearance for the defendant. To this the defendant objected.
HELD:
Warrants
of
attorney
to
confess
judgment
arent
authorized
nor contemplated by our law.
Provisions in notes
authorizing
attorneys
to appear and confess judgments against
makers should not be recognized in our jurisdiction by implication
and should only be considered as valid when given express legislative
sanction.

RADERS INSURANCE V. DY ENG BIOK

104 PHIL 806
FACTS: Dy Eng Giok was a provincial sales agent of distillery corporation,
with the responsibility of remitting sales proceeds to the principal
corporation. He has a running balance and to satisfy payment, a
surety bond was issued with petitioner as guarantor, whereby they bound
themselves liable to the distillery corporation.
More purchases was made by Dy Eng Giok and he was able to pay
for these additional purchases. Nonetheless, the payment was first applied
to his
prior
payables.
A
remaining
balance
still
is
unpaid.
Thus, an action was filed against sales agent and surety company.
Judgment was rendered in favor of the corporation.
HELD: The remittances of Dy Eng Giok should first be applied to
the
obligation first contracted by him and covered by the surety
agreement.
First, in the absence
of
express
stipulation,
a
guaranty
or
suretyship
operates prospectively
and
not
retroactively.
It only secures the debts contracted

after
the guaranty
takes
effect.
To
apply
the payment
to the
obligations contracted
before
the
guaranty
would
make
the
surety
answer
for
debts outside the guaranty.
The surety agreement didn't
guarantee the payment of any outstanding balance due from the principal
debtor but only he would
turn out the sales proceeds to the Distileria and this he has done, since
his remittances exceeded the value of the sales during the period
of the guaranty.
Second, since the Dy Eng Bioks obligations prior to the guaranty were not
covered,
and
absent
any
express
stipulation,
any
prior
payment
made should be applied to the debts that were guaranteed since they are to
be regarded as the more onerous debts.

Negotiable Instruments Case Digest: Salas V. CA (1990)

G.R. No. 76788 January 22,1990
Lessons Applicable: Introduction to Negotiable Instruments (Negotiable Instruments Law)
FACTS: February 6, 1980: Juanita Salas bought a motor vehicle from the Violago Motor Sales
Corp. (VMS) for P58,138.20 as evidence by a promissory note
This note was subsequently endorsed to Filinvest Finance &Leasing Corp. (FFLC)
May 21, 1980: Salas defaulted in her installments allegedly due to discrepancies in the
engine and chassis number of the vehicle delivered and discovery of certificate of reg.
and deed of mortgage
VMS initiated for a sum of money at the RTC
RTC: favored VMS
CA: Affirmed
ISSUE: W/N the promissory note is a negotiable which will bar completely all defenses of
Salas against VMS
HELD:

YES. Affirmed

Requisites under the law (Sec. 1 of Negotiable Instruments Law)

it is in writing and signed by the maker (Salas)
it contains an unconditional promise to pay the amount P58,138.20
it is payable at a fixed or determinable future time which is P1,614.95 monthly for
36 months due and payable on the 21st day of each month starting March 21, 1980 thru
and inclusive of Feb 21 1983
It is payable to VMS or order and as such
drawee is named or indicated with certainty
Filinvest = holder in due course

SALAS V. CA
181 SCRA 296
FACTS: Petitioner
bought
a
car
from
Viologo
Motor
Sales
Company,
which
was
secured by a promissory note, which was later on indorsed to Filinvest Finance,
which
financed
the
transaction.
Petitioner
later
on
defaulted
in her
installment payments, allegedly due to the fraud imputed by VMS in
selling her a different vehicle from what was agreed upon.
This default in payment
prompted Filinvest Finance to initiate a case against petitioner. The trial
court decided in favor of Filinvest, to which the appellate court upheld by
increasing the amount to be paid.
It is the contention of petitioner that since the agreement between her and the
motor
company was inexistent, none had been assigned in favor of private respondent.
HELD: Petitioners
liability
on
the
promissory
note,
the
due
execution
and
genuineness of which she never denied under oath, is under the foregoing factual milieu,
as inevitable as it is clearly established.

The records reveal that involved herein is not a simple case of assignment of credit as
petitioner would have it appear, where the assignee merely steps into the shoes
of, is open to all defenses available against and can enforce payment only to the
same extent as, the assignor-vendor.
The
instrument
to
be
negotiable
must
contain
the
so-called
words
of
negotiability.
There are only 2 ways for an instrument to be payable to
order. 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 thus non-negotiable.
Any subsequent purchaser thereof will not enjoy the
advantages of being a
holder
in
due
course
but
will
merely
step
into
the
shoes
of
the
person
designated in the instrument and will thus be open to the defenses available
against the latter.
In the case at bar, the promissory
Filinvest is a holder in due course.

notes

is

earmarked

with

negotiability and

Government Service Insurance System v. Court of Appeals

170 SCRA 533,
February 23, 1989
Facts: Private respondents, Mr. and Mrs. Isabelo R. Racho, together with spouses Mr. and
Mrs Flaviano Lagasca, executed a deed of mortgage, dated November 13, 1957, in favor of
petitioner GSIS and subsequently, another deed of mortgage, dated April 14, 1958, in
connection with two loans granted by the latter in the sums of P 11,500.00 and P 3,000.00,
respectively. A parcel of land covered by Transfer Certificate of Title No. 38989 of the
Register of Deed of Quezon City, co-owned by said mortgagor spouses, was given as security
under the two deeds. They also executed a 'promissory note".
On July 11, 1961, the Lagasca spouses executed an instrument denominated "Assumption of
Mortgage," obligating themselves to assume the said obligation to the GSIS and to secure
the release of the mortgage covering that portion of the land belonging to spouses Racho
and which was mortgaged to the GSIS. This undertaking was not fulfilled. Upon failure of
the mortgagors to comply with the conditions of the mortgage, particularly the payment of
the amortizations due, GSIS extrajudicially foreclosed the mortgage and caused the
mortgaged property to be sold at public auction on December 3, 1962.
For more than two years, the spouses Racho filed a complaint against the spouses Lagasca
praying that the extrajudicial foreclosure "made on, their property and all other
documents executed in relation thereto in favor of the Government Service Insurance
System" be declared null and void.
The trial court rendered judgment on February 25, 1968 dismissing the complaint for
failure to establish a cause of action. However, said decision was reversed by the
respondent Court of Appeals, stating that, although formally they are co-mortgagors, the
GSIS required their consent to the mortgage of the entire parcel of land which was covered
with only one certificate of title, with full knowledge that the loans secured were solely
for the benefit of the appellant Lagasca spouses who alone applied for the loan.
Issues:
Whether the respondent court erred in annulling the mortgage as it affected the
share of private respondents in the reconveyance of their property?
Whether private respondents benefited from
extrajudicial foreclosure proceedings are valid?

the

loan,

the

mortgage

and

the

Held:
Both parties relied on the provisions of Section 29 of Act No. 2031, otherwise known as
the Negotiable Instruments Law, which provide that an accommodation party is one who has
signed an instrument as maker, drawer, acceptor of indorser without receiving value
therefor, but is held liable on the instrument to a holder for value although the latter
knew him to be only an accommodation party.

The promissory note, as well as the mortgage deeds subject of this case, are clearly not
negotiable instruments. These documents do not comply with the fourth requisite to be
considered as such under Section 1 of Act No. 2031 because they are neither payable to
order nor to bearer. The note is payable to a specified party, the GSIS. Absent the
aforesaid requisite, the provisions of Act No. 2031 would not apply; governance shall be
afforded, instead, by the provisions of the Civil Code and special laws on mortgages.
As earlier indicated, the factual findings of respondent court are that private
respondents signed the documents "only to give their consent to the mortgage as required
by GSIS", with the latter having full knowledge that the loans secured thereby were solely
for the benefit of the Lagasca spouses.
Contrary to the holding of the respondent court, it cannot be said that private
respondents are without liability under the aforesaid mortgage contracts. The factual
context of this case is precisely what is contemplated in the last paragraph of Article
2085 of the Civil Code to the effect that third persons who are not parties to the
principal obligation may secure the latter by pledging or mortgaging their own property.
So long as valid consent was given, the fact that the loans were solely for the benefit of
the Lagasca spouses would not invalidate the mortgage with respect to private respondents'
share in the property.
The respondent court, erred in annulling the mortgage insofar as it affected the share of
private respondents or in directing reconveyance of their property or the payment of the
value.

Negotiable Instruments Case Digest: Consolidated Plywood Industries, Inc V.

IFC Leasing And Acceptance Corp. (1987)
G.R. No. 72593 April 30, 1987
Lessons Applicable: Requisites of negotiability
instruments (Negotiable Instruments Law)

to

antedated

and

postdated

FACTS: Consolidated (buyer pays promossor note) > IPM (seller-assignor who
violated warranty) > IFC (holder in due course or merely an assignee?)
Consolidated Plywood Industries, Inc (Consolidated) is a corporation engaged in
the logging business
For the purpose of opening of additional roads and simultaneous logging
operations along the route of roads, it needed 2 additional units of tractors
Atlantic Gulf & Pacific Company of Manila, through its sister company and
marketing arm, Industrial Products Marketing (IPM) (seller-assignor) offered to
sell 2 "Used" Allis Crawler Tractors
IPM inspected the job site and assured that the tractors were fit for the job and
gave a 90-days performance warranty of the machines and availability of parts.
Consolidated purchased on installment.
It paid the down payment of P210,000
April 5, 1978: IPM issued the sales invoice and the deed of sale with chattel
mortgage with promissory note was executed
IPM, by means of a deed of assignment, assigned its rights and interest in the
chattel mortgage in favor of IFC Leasing and Acceptance Corp. (IFC)
After 14 days, one of the tractors broke down and after another 9 days, the other
tractor too
Because of the breaking down of the tractors, the road building and simultaneous
logging operations were delayed
Consolidated unilaterally rescinded the contract w/ IPM
April 7, 1979: Wee of Consolidated 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 and the excess will be divided between:
IPM
Consolidated which offered to bear one-half 1/2 of the reconditioning cost
IPM didn't do anything
IFC filed against Consolidated for the
P1,093,789.71, interest and attorney's fees

recovery

of

the

principal

sum

RTC and CA: favored IFC breach of warranty if any, is not a defense available to
Consolidated either to withdraw from the contract and/or demand a proportionate
reduction of the price with damages in either case
ISSUE: W/N IFC is a holder in due course of the negotiable promissory note so as
to bar completely all the available defenses of the Consolidated against IPM
HELD: CA reversed and set aside consolidated is a victim of warranrty
The Civil Code provides that:
ART. 1561. The vendor shall be responsible for warranty against the hidden
defects which the thing sold may have, should they render it unfit for the use
for which it is intended, or should they diminish its fitness for such use to
such an extent that, had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it; but said vendor shall not
be answerable for patent defects or those which may be visible, or for those
which are not visible if the vendee is an expert who, by reason of his trade or
profession, should have known them.chanroblesvirtualawlibrary chanrobles virtual
law library
ART. 1562. In a sale of goods, there is an implied warranty or condition as to
the quality or fitness of the goods, as follows:
(1) Where the buyer, expressly or by implication makes known to the seller the
particular purpose for which the goods are acquired, and it appears that the
buyer relies on the sellers skill or judge judgment (whether he be the grower or
manufacturer or not), there is an implied warranty that the goods shall be
reasonably fit for such purpose;
xxx xxx xxx chanrobles virtual law library
ART. 1564. An implied warranty or condition as to the quality or fitness for a
particular
purpose
may
be
annexed
by
the
usage
of
trade.chanroblesvirtualawlibrary chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
ART. 1566. The vendor is responsible to the vendee for any hidden faults or
defects in the thing sold even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the
vendor was not aware of the hidden faults or defects in the thing sold. (Emphasis
supplied).
GR: extends to the corporation to whom it assigned its rights and interests
EX: assignee is a holder in due course of the promissory note
assuming the note is negotiable
Consolidated's defenses may not
chanrobles virtual law library

prevail

against

it.chanroblesvirtualawlibrary

Articles 1191 and 1567 of the Civil Code provide that:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.chanroblesvirtualawlibrary chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
ART. 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee
may elect between withdrawing from the contract and demanding a proportionate
reduction of the price, with damages in either case. (Emphasis supplied)

Consolidated, having unilaterally and extrajudicially rescinded its contract with

the seller-assignor, can no longer sue IPM except by way of counterclaim if IPM
sues it because of the rescission
Considering that paragraph (d), Section 1 of the Negotiable Instruments Law
requires that a promissory note "must be payable to order or bearer" - in this
case it is non-negotiable
= expression of consent that the instrument may be transferred
consent is indispensable since a maker assumes greater risk under a negotiable
instrument than under a non-negotiable one
When instrument is payable to order
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. . . .
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
Even conceding for purposes of discussion that the promissory note in question is
a negotiable instrument, the IFC cannot be a holder in due course due to absence
of GF for knowing that the tractors were defective
SEC. 52. WHAT CONSTITUTES A HOLDER IN DUE COURSE. - A holder in due course is a
holder who has taken the instrument under the following conditions: chanrobles
virtual law library
xxx xxx xxx chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
(c) That he took it in good faith and for value
(d) That the time it was negotiated by him he had no notice of any infirmity in
the instrument of deffect in the title of the person negotiating it
SEC. 56. WHAT CONSTITUTES NOTICE OF DEFFECT. - To constitute notice of an
infirmity in the instrument or defect in the title of the person negotiating the
same, the person to whom it is negotiated must have had actual knowledge of the
infirmity or defect, or knowledge of such facts that his action in taking the
instrument amounts to bad faith. (Emphasis supplied)
We believe the finance company is better able to bear the risk of the dealer's
insolvency than the buyer and in a far better position to protect his interests
against unscrupulous and insolvent dealers. . .

Equitable Banking Corporation vs Intermediate Appellate Court

161 SCRA 518 Mercantile Law Negotiable Instruments Law Negotiable
Instruments in General Certainty of Payee
FACTS: In 1975, Liberato Casals, majority stockholder of Casville Enterprises,
went to buy two garrett skidders (bulldozers) from Edward J. Nell Company
amounting to P970,000.00. To pay the bulldozers, Casals agreed to open a letter
of credit with the Equitable Banking Corporation. Pursuant to this, Nell Company
shipped one of the bulldozers to Casville. Meanwile, Casville advised Nell
Company that in order for the letter of credit to be opened, Casville needs to
deposit P427,300.00 with Equitable Bank, and that since Casville is a little
short, it requested Nell Company to pay the deposit in the meantime.
Nell Company agreed and so
P427,300.00. The check read:

it

eventually

sent

check

in

the

amount

of

Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES,

INC.
Nell Company sent the check to Casville so that it would be the latter who could
send it to Equitable Bank to cover the deposit in lieu of the letter of credit.
Casals received the check, he went to Equitable Bank, and the teller received the
check. The teller, instead of applying the amount as deposit in lieu of the
letter of credit, credited the check to Casvilles account with Equitable Bank.
Casals later withdrew all the P427,300.00 and appropriated it to himself.
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 taken contra proferentem that 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.

Pacifica Jimenez vs Jose Bucoy

103 Phil. 40 Mercantile Law Negotiable Instruments Law
Negotiable Instruments in General Unconditional Promise To Pay
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 Japanee
occupation the amount should be deducted 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 not 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.

Ang Tek Lian vs Court of Appeals

87 Phil. 383 Mercantile Law Negotiable Instruments Law Negotiable
Instruments in General Indorsement to Cash Bearer Instrument
FACTS: In 1946, Ang Tek Lian approached Lee Hua and asked him if he could
give him P4,000.00. He said that he meant to withdraw from the bank but the
banks already closed. In exchange, he gave Lee Hua a check which is
payable to the order of cash. The next day, Lee Hua presented the check
for payment but it was dishonored due to insufficiency of funds. Lee Hua
eventually sued Ang Tek Lian. In his defense, Ang Tek Lian argued that he
did not indorse the check to Lee Hua and that when the latter accepted the
check without Ang tek Lians indorsement, he had done so fully aware of the
risk he was running thereby.
ISSUE: Whether or not Ang Tek Lian is correct.
HELD: No. Under the Negotiable Instruments Law (sec. 9 [d]), a check drawn
payable to the order of cash is a check payable to bearer hence a bearer
instrument, and the bank may pay it to the person presenting it for payment
without the drawers indorsement. Where a check is made payable to the
order of cash, the word cash does not purport to be the name of any
person, and hence the instrument is payable to bearer. The drawee bank need
not obtain any indorsement of the check, but may pay it to the person

presenting it without any indorsement.

319 SCRA 595

PACHECO V. CA

FACTS: Due to dire financial needs of petitioner spouses who

were engaged in the construction
business,
they
secured
loans from Vicencio.
At every loan secured, the lender
compelled the spouses to issue an undated check despite
the
admission
of
spouses
that
their
bank
account
has
insufficient
funds or as on a later date, already closed.
Lender assured
them that the issuance of the check was only evidence of
indebtedness, that it would not be presented to the bank, and it
would be for formalities only. On the date wherein there was an
unpaid balance to the loans secured by the spouses, the lender
had
them
place
a
date
on
two
of
the
later
checks
issued.
Surprised
later
on,
the
spouses
were
charged
with estafa as the checks were presented for encashment and
was dishonored.
HELD: BY MUTUAL AGREEMENT OF
THE PARTIES, THE NEGOTIABLE
CHARACTER OF A CHECK MAY BE WAIVED AND THE INSTRUMENT BE SIMPLY
TREATED AS PROOF OF AN OBLIGATION.
There cannot be deceit on
the part of the spouses because they agreed with the lender at
the time of the issuance and postdating of the checks that
the
same
shall
not
be
encashed
or presented
to
the
bank. As per assurance of the lender, the checks are
nothing but evidence of the loan or security thereof in lieu of
and for the
same purpose as a promissory note.