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NEGOTIABLE INSTRUMENT
Sesbreno vs CA
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 non-negotiable 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 "nonassignable." It contained no stipulation which prohibited Philfinance from assigning or transferring
such note, in whole or in part.
**Anonnegotiableinstrumentmaynotbenegotiatedbutmaybeassignedortransferred,absentanexpress
prohibitionagainstassignmentortransferwrittenonthefaceoftheinstrument.

Roman Catholic of Malolos v IAC

Facts:
The property subject matter of the contract consists of a parcel of land in the Province of
Bulacan, issued and registered in the name of the petitioner which it sold to the private
respondent.
On July 7, 1971, the subject contract over the land in question was executed between the
petitioner as vendor and the private respondent through its then president, Mr. Carlos F. Robes,
as vendee, stipulating for a downpayment of P23,930.00 and the balance of P100,000.00 plus
12% interest per annum to be paid within four (4) years from execution of the contract. The
contract likewise provides for cancellation, forfeiture of previous payments, and reconveyance of
the land in question in case the private respondent would fail to complete payment within the
said period.
After the expiration of the stipulated period for payment, Atty. Adalia Francisco (president of the
company who bought land) wrote the petitioner a formal request that her company be allowed to
pay the principal amount of P100,000.00 in three (3) equal installments of six (6) months each
with the first installment and the accrued interest of P24,000.00 to be paid immediately upon
approval of the said request.

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The petitioner formally denied the said request of the private respondent, but granted the latter
a grace period of five (5) days from the receipt of the denial to pay the total balance of
P124,000.00. The private respondent wrote the petitioner requesting an extension of 30 days
from said date to fully settle its account but this was still denied.
Consequently, Atty. Francisco wrote a letter directly addressed to the petitioner, protesting the
alleged refusal of the latter to accept tender of payment made by the former on the last day of
the grace period. But the private respondent demanded the execution of a deed of absolute sale
over the land in question
Atty. Fernandez, wrote a reply to the private respondent stating the refusal of his client to
execute the deed of absolute sale so the petitioner cancelled the contract and considered all
previous payments forfeited and the land as ipso facto reconveyed.
From a perusal of the foregoing facts, we find that both the contending parties have conflicting
versions on the main question of tender of payment.
According to the trial court:
. . . What made Atty. Francisco suddenly decide to pay plaintiffs obligation on tender her
payment, when her request to extend the grace period has not yet been acted upon? Atty.
Franciscos claim that she made a tender of payment is not worthy of credence.
The trial court considered as fatal the failure of Atty. Francisco to present in court the certified
personal check allegedly tendered as payment or, at least, its xerox copy, or even bank records
thereof.
Not satisfied with the said decision, the private respondent appealed to the IAC. The IAC
reversed the decision of the trial court. The IAC, in finding that the private respondent had
sufficient available funds, ipso facto concluded that the latter had tendered payment.
ISSUE:
Whether or not the finding of the IAC that Atty. Francisco had sufficient available funds did tender
payment for the said obligation.
Whether or not an offer of a check is a valid tender of payment of an obligation under a contract
which stipulates that the consideration of the sale is in Philippine Currency.
HELD:
1. No. 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. Thus, tender of payment cannot be presumed by a mere inference from
surrounding circumstances. At most, sufficiency of available funds is only affirmative of the
capacity or ability of the obligor to fulfill his part of the bargain. The respondent court was
therefore in error.
2. No. In the case of Philippine Airlines v. Court of Appeals:
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. 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. The tender of payment
by the private respondent was not valid for failure to comply with the requisite payment in legal
tender or currency stipulated within the grace period
the DECISION of the IAC is hereby SET ASIDE and ANNULLED and the DECISION of the trial court
is REINSTATED.

Pio Barretto Realty Development Corporation vs Court of Appeals

360 SCRA 127 Mercantile Law Negotiable Instruments Law Check Payments Due Diligence in
Presenting Checks for Payment
Honor Moslares and Pio Barretto Realty Development Corporation are disputing over the estate of Nicolai
Drepin, represented by Atty. Tomas Trinidad. To settle the dispute, and while the case was in court, they
entered into a Compromise Agreement by which they agreed to have the estate in dispute be sold; that in
case Moslares was able to buy the property first, he should pay P3,000,000.00 to Barretto Realty
(representing the amount of investments by Barretto Realty in the estate); that should Barretto Realty buy

the property first, it should pay P1,000,000.00 to Moslares (representing interest). The compromise
agreement was approved by the judge (Judge Perfecto Laguio).
Barretto Realty was able to buy the property first hence it delivered a managers check worth
P1,000,000.00 to Moslares but the latter refused to accept the same. Barretto Realty filed a petition before
the trial court to direct Moslares to comply with the Compromise Agreement. Barretto Realty also
consigned the check payment with the court. The judge issued a writ of execution against Moslares and
the sheriff also delivered the check to Moslares which the latter accepted. However, three years later,
Moslares filed a motion for reconsideration alleging that the check payment did not amount to legal tender
and that he never even encashed the check. The judge agreed with Moslares.
ISSUE: Whether or not the judge was correct.
HELD: No. There was already a final and executory order issued by the same judge three years prior. The
same may no longer be amended regardless of any claim or error or incorrectness (save for clerical errors
only). It is true that a check is not a legal tender and while delivery of a check produces the effect of
payment only when it is encashed, the rule is otherwise if the debtor (Barretto Realty) was prejudiced by
the creditors (Moslares) unreasonable delay in presentment. Acceptance of a check implies an
undertaking of due diligence in presenting it for payment. If no such presentment was made, the drawer
cannot be held liable irrespective of loss or injury sustained by the payee. Payment will be deemed
effected and the obligation for which the check was given as conditional payment will be discharged.

Metrobank vs. CA
Metropolitan Bank & Trust Company vs. Court of Appeals
G.R. No. 88866
February, 18, 1991
Cruz, J.:
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.

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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 2 nd, 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.
Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be
judged 'with more or less rigor by the courts, according to whether the agency was or was not for a
compensation.

Golden Savings acted with due care and diligence

Forgery cannot be presumed. It must be established by clear, positive and convincing

evidence. -here not proven
treasury warrants in question are not negotiable instruments

stamped on their face is the word "non-negotiable"

indicated that they are payable from a particular fund

Sec. 1. Form of negotiable instruments. 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.
xxx xxx xxx
Sec. 3. When promise is unconditional. An unqualified order or promise to pay is unconditional
within the meaning of this Act though coupled with
(a) An indication of a particular fund out of which reimbursement is to be made or a particular
account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument judgment.
But an order or promise to pay out of a particular fund is not unconditional.

TRADERS ROYAL BANK V. CA

269 SCRA 15
FACTS:
Filriters through a Detached Agreement transferred ownership to Philfinance a Central Bank Certificate of
Indebtedness. It was only through one of its officers by which the CBCI was conveyed without authorization from
the company. Petitioner and Philfinance later entered into a Repurchase agreement, on which petitioner
bought the CBCI from Philfinance. The latter agreed to repurchase the CBCI but failed to do so. When the
petitioner tried to have it registered in its name in the CB, the latter didn't want to recognize the transfer.

HELD:

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The CBCI is not a negotiable instrument. The instrument provides for a promise to pay the registered owner
Filriters. Very clearly, the instrument was only payable to Filriters. It lacked the words of negotiability which
should have served as an expression of the consent that the instrument may be transferred by negotiation.
The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom
to circulate as a substitute for money. Hence, freedom of negotiability is the touchstone relating to the protection
of holders in due course, and the freedom of negotiability is the foundation for the protection, which the law
throws around a holder in due course. This freedom in negotiability is totally absent in a certificate of
indebtedness as it merely acknowledges to pay a sum of money to a specified person or entity for a period
of time.
The transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by
the negotiable instruments law. The pertinent question then iswas the transfer of the CBCI from Filriters
to Philfinance and subsequently from Philfinance to TRB, in accord with existing law, so as to entitle TRB to
have the CBCI registered in its name with the Central Bank? Clearly shown in the record is the fact that
Philfinances title over CBCI is defective since it acquired the instrument from Filriters fictitiously. Although the
deed of assignment stated that the transfer was for value received, there was really no consideration
involved. What happened was Philfinance merely borrowed CBCI from Filriters, a sister corporation. Thus,
for lack of any consideration, the assignment made is a complete nullity. Furthermore, the transfer wasn't in
conformity with the regulations set by the CB. Giving more credence to rule that there was no valid transfer or
assignment to petitioner.

ADDITIONAL FACTS:
Filriters Guaranty Assurance Corporation (FGAC) is the owner of several Central Bank Certificates of
Indebtedness (CBCI). These certificates are actually proof that FGAC has the required reserve investment
with the Central Bank to operate as an insurer and to protect third persons from whatever liabilities FGAC
may incur. In 1979, FGAC agreed to assign said CBCI to Philippine Underwriters Finance Corporation
(PUFC). Later, PUFC sold said CBCI to Traders Royal Bank (TRB). Said sale with TRB comes with a right
to repurchase on a date certain. However, when the day to repurchase arrived, PUFC failed to repurchase
said CBCI hence TRB requested the Central Bank to have said CBCI be registered in TRBs name.
Central Bank refused as it alleged that the CBCI are not negotiable; that as such, the transfer from FGAC
to PUFC is not valid; that since it was invalid, PUFC acquired no valid title over the CBCI; that the
subsequent transfer from PUFC to TRB is likewise invalid.
TRB then filed a petition for mandamus to compel the Central Bank to register said CBCI in TRBs name.
TRB averred that PUFC is the alter ego of FGAC; that PUFC owns 90% of FGAC; that the two
corporations have identical sets of directors; that payment of said CBCI to PUFC is like a payment to
FGAC hence the sale between PUFC and TRB is valid. In short, TRB avers that that the veil of corporate
fiction, between PUFC and FGAC, should be pierced because the two corporations allegedly used their
separate identity to defraud TRD into buying said CBCI.

Baldomero Inciong, Jr. vs Court of Appeals

257 SCRA 578 Mercantile Law Negotiable Instruments in General Signature of Makers Guaranty
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.
FACTS:
A promissory note was issued by petitioner together with 2 others jointly and severally, to make them liable to
PBC. Thereafter was a default on the payment of the note. PBC proceeded against Inciong and in the action filed
by the bank, the court decided in its favor.
HELD:
Where the promissory note expressly states that the three signatures therein are jointly and severally liable,
any one or some or all of them may be proceeded against for the entire obligationthe choice is left to the
solidary creditor to determine against whom he will enforce collection.

Negotiable Instruments Case Digest: Republic Planters Bank V. CA (1992)

G.R. No. 93073 December 21, 1992
Lessons Applicable: Incomplete instruments to rules of construction (Negotiable Instrument Law)
FACTS:

Shozo Yamaguchi (President/Chief Operating Officer) and Fermin Canlas (Treasurer) by virtue of Board
Resolution of Worldwide Garment Manufacturing, Inc were authorized to apply for credit facilities with the
Republic Planters Bank in the forms of export advances and letters of credit/trust receipts
accommodations.

9 promissory notes with Worldwide Garment Manufacturing, Inc. was apparently rubber stamped
above the signatures of Yamaguchi and Canlas were issued to Republic Planters Bank

December 20, 1982: Worldwide Garment Manufacturing, Inc. changed its corporate name to Pinch
Manufacturing Corporation

February 5, 1982: Republic Planters filed a complaint for the recovery of sums of money

Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pretrial conference despite due notice

Fermin Canlas denied having issued the promissory notes as an officer of Pinch Manufacturing
Corporation and when he issued said promissory notes in behalf of Worldwide Garment Manufacturing,
Inc., it was in blank (typewritten entries not appearing when he signed)

ISSUE: W/N Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing
Corporation and Shozo Yamaguchi on the 9 promissory notes because they are negotiable and ruled by the
Negotiable Instruments Law

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HELD: CA absolving Fermin Canlas is REVERSED and SET ASIDE. Judgement is hereby rendered declaring
private respondent Fermin Canlas jointly and severally liable on all 9 promissory notes with the following sums
and at 16% interest per annum

Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes
are makers and are liable as such.
Fermin Canlas

one of the co-makers of the promissory notes

cannot escape liability arising therefrom

made clearer and certain, without reason for ambiguity, by the presence of the phrase
"joint and several" as describing the unconditional promise to pay to the order of Republic Planters Bank
Severally and jointly or solidarily liable

"I promise to pay" is signed by 2 or more persons

"I" ,We" , or "Either of us" promise to, pay, when signed by two or more persons

"and (in) his personal capacity" below the signatures of the makers - immaterial and will not affect to the
liability of Fermin Canlas as a joint and several debtor of the notes.

With or without it, he is primarily liable as a co-maker of each of the notes and his liability is that
of a solidary debtor

A change in the corporate name does not make a new corporation, and whether effected by special act
or under a general law, has no affect on the identity of the corporation, or on its property, rights, or liabilities

The corporation continues, as before, responsible in its new name for all debts or other liabilities
which it had previously contracted or incurred.

GR: officers or directors under the old corporate name bear no personal liability for acts done or
contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in
their capacity as agent of the old corporation and the change of name meant only the continuation of the
old juridical entity, the corporation bearing the same name is still bound by the acts of its agents if
authorized by the Board.

EX: Under the Negotiable Instruments Law, the liability of a person signing as an agent is specifically
provided for as follows:

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

Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is
acting in a representative capacity or the name of the third party for whom he might have acted as agent,
the agent is personally liable to take holder of the instrument and cannot be permitted to prove that he was
merely acting as agent of another and parol or extrinsic evidence is not admissible to avoid the agent's
personal liability.

incomplete stereotype printed form of promissory notes generally used by commercial banking
institutions to be signed by their clients in obtaining loans.

blank spaces to be filled up on material particulars such as payee's name, amount of the loan, rate of
interest, date of issue and the maturity date.

An incomplete instrument which has been delivered to the borrower for his signature is
governed by Section 14 of the Negotiable Instruments Law:

Sec. 14. Blanks: when may be filled. Where the instrument is wanting in any material particular, the person
in possesion thereof has a prima facie authority to complete it by filling up the blanks therein. ... In order,

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however, that any such instrument when completed may be enforced against any person who became a party
thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a
reasonable time...

The notes were not incomplete instruments; neither were they given to private respondent Fermin
Canlas in blank as he claims. Thus, Section 14 of the NegotiabIe Instruments Law is not applicable.

Negotiable Instruments Case Digest: Caltex (Phils.) Inc. V. CA And Security Bank And Trust
Co. (1992)
G.R. No. 97753 August 10, 1992
Lessons Applicable: Requisites of negotiability to antedated and postdated instruments (Negotiable
Instrument Law)
FACTS:

Security Bank and Trust Company (Security Bank), a commercial banking institution, through
its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of Angel dela Cruz who
deposited with Security Bank the total amount of P1,120,000

Angel delivered the CTDs to Caltex for his purchase of fuel products

March 18, 1982: Angel informed Mr. Tiangco, the Sucat Branch Manager that he lost all CTDs,
submitted the required Affidavit of Loss and received the replacement

March 25, 1982: Angel dela Cruz negotiated and obtained a loan from Security Bank in the
amount of P875,000 and executed a notarized Deed of Assignment of Time Deposit

November, 1982: Mr. Aranas, Credit Manager of Caltex went to the Sucat branch to verify the
CTDs declared lost by Angel

November 26, 1982: Security Bank received a letter from Caltex formally informing it of its
possession of the CTDs in question and of its decision to pre-terminate the same.

December 8, 1982: Caltex was requested by Security Bank to furnish:

a copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz

the details of Mr. Angel's obligation against which Caltex proposed to apply the time
deposits

Security Bank rejected Caltex demand for payment bec. it failed to furnish a copy of its
agreement w/ Angel

April 1983, the loan of Angel dela Cruz with Security Bank matured

August 5, 1983: CTD were set-off w/ the matured loan

Caltex filed a complaint praying the bank to pay 1,120,000 plus 16% interest

CA affirmed RTC to dismiss complaint

ISSUE:
1.

W/N the CTDs are negotiable

2.

W/N Caltex as holder in due course can rightfully recover on the CTDs

HELD: Petition is Denied and appealed decision is affirmed.

1. YES.
Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the
requisites for an instrument to become negotiable, viz:
(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 -check
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
with reasonable certainty.

The documents provide that the amounts deposited shall be repayable to the depositor
depositor = bearer

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

negotiability or non-negotiability of an instrument is determined from the writing, that is, from
the face of the instrument itself
2. NO.

although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and
agreement between it and De la Cruz, as ultimately ascertained, requires both delivery and
indorsement

CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel

products

There was no negotiation in the sense of a transfer of the legal title to the CTDs in favor
of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have
sufficed.

Where the holder has a lien on the instrument arising from contract, he is deemed a holder for
value to the extent of his lien.

As such holder of collateral security, he would be a pledgee but the requirements

therefor and the effects thereof, not being provided for by the Negotiable Instruments Law, shall
be governed by the Civil Code provisions on pledge of incorporeal rights:

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Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The
instrument proving the right pledged shall be delivered to the creditor, and if negotiable, must be
indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and
the date of the pledge do not appear in a public instrument.
Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons,
unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in
case the assignment involves real property.

Loreto De La Victoria vs Jose Burgos

245 SCRA 374 Mercantile Law Negotiable Instruments Law Delivery of Negotiable Instruments
Paychecks of Public Officers

Raul Sebreo filed a complaint for damages against Fiscal Bienvenido Mabanto Jr. of Cebu City. Sebreo
won and he was awarded the payment of damages. Judge Burgos ordered De La Victoria, custodian of
the paychecks of Mabanto, to hold the checks and convey them to Sebreo instead. De La Victoria
assailed the order as he said that the paychecks and the amount thereon are not yet the property of
Mabanto because they are not yet delivered to him; that since there is no delivery of the checks to
Mabanto, the checks are still part of the public funds; and the checks due to the foregoing cannot be the
proper subject of garnishment.

ISSUE: Whether or not De La Victoria is correct.

HELD: Yes. Under Section 16 of the Negotiable Instruments Law, every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect
thereto. As ordinarily understood, delivery means the transfer of the possession of the instrument by the
maker or drawer with intent to transfer title to the payee and recognize him as the holder thereof.

Negotiable Instruments Case Digest: Astro Electronics Corp. V. Phil. Export And Foreign Loan
Guarantee Corp. (2003)
G.R. No. 136729 September 23 ,2003
Lessons Applicable: Promissory notes and checks (Negotiable Instruments Law)
FACTS:

Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting P3M
w/ interest and secured by 3 promissory notes:

December 14, 1981: P600,000.00

December 14, 1981: P400,000.00

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August 27, 1981: P2,000,000.00

Roxas signed twice the promissory notes

as President of Astro

in his personal capacity

Roxas also signed a Continuing Surety ship Agreement in favor of Philtrust Bank, as President
of Astro and as surety

Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of 70%
of Astros loan, subject to the condition that upon payment by Philguanrantee, it shall be
proportionally subrogated to the rights of Philtrust against Astro

Upon Astros failure to pay, Philguarantee paid 70% of the guaranteed loan to Philtrust.

Subsequently, Philguarantee filed against Astro and Roxas a complaint for sum of money with
the RTC

Roxas: alleged that he merely signed the same in blank and the phrases in his personal
capacity and in his official capacity were fraudulently inserted without his knowledge

RTC: favored Philguarantee holding Astro and Roxas jointly and severally liable
if Roxas really intended to sign the instruments merely in his capacity as President of
Astro, then he should have signed only once
CA affirmed RTC

ISSUE: W/N Roxas should be jointly and severally liable with Astro
HELD: YES. CA affirmed

Under the Negotiable Instruments Law, persons who write their names on the face of
promissory notes are makers,promising that they will pay to the order of the payee or any holder
according to its tenor.

even without the phrase personal capacity, Roxas will still be primarily liable as a joint
and several debtor under the notes considering that his intention to be liable as such is
manifested by the fact that he affixed his signature on each of the promissory notes twice which
necessarily would imply that he is undertaking the obligation in 2 different capacities, official and
personal.

3 promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly, severally and
solidarily, promise to pay to PHILTRUST BANK or order...

begins with I, We, or Either of us promise to pay, when signed by two or more persons
= solidarily liable

Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him
in all his rights

Philguarantee has all the right to proceed against petitioner, it is subrogated to the rights
of Philtrust to demand for and collect payment from both Roxas and Astro since it already paid the
value of 70% of roxas and Astro Electronics Corp.s loan obligation

12

Roxas acquiescence is not necessary for subrogation to take place because the
instant case is one of the legal subrogation that occurs by operation of law, and without need of
the debtors knowledge

Philguarantee, as guarantor, became the transferee of all the rights of

Philtrust as against Roxas and Astro because the guarantor who pays is subrogated by virtue
thereof to all the rights which the creditor had against the debtor

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

G.R. No. 85419 March 9, 1993
--complete undelivered

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 petitioner-payee'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.

Negotiable Instruments Case Digest: Francisco V. CA (1999)

G.R. No. 116320 November 29, 1999
Lessons Applicable: Forgery (Negotiable Instruments Law)
FACTS:

June 23, 1977: Adalia Francisco (Francisco) president of A. Francisco Realty & Development
Corporation (AFRDC) and Jaime C. Ong (Ong) President and General Manager of Herby
Commercial & Construction Corporation (HCCC), entered into a contract where HCCC agreed to
undertake the construction of 35 housing units and the development of 35 hectares of land.

HCCC was to be paid on turn-key basis (basis of the completed houses and developed
lands delivered to and accepted by AFRDC and the GSIS)

To facilitate payment, AFRDC executed a Deed of Assignment in favor of HCCC to

enable the it to collect payments directly from the GSIS.

Furthermore, the GSIS and AFRDC put up an Executive Committee Account with the
Insular Bank of Asia & America (IBAA) of P4M from which checks would be issued and co-signed
by petitioner Francisco and the GSIS Vice-President Armando Diaz (Diaz).

February 10, 1978: HCCC filed a complaint w/ the RTC against Francisco, AFRDC and the
GSIS for the collection of the unpaid balance under the Land Development and Construction

13

Contract in the amount of P515,493.89 for completed and delivered housing units and land
development.

Sometime in 1979: Ong discovered that Diaz and Francisco had executed and signed 7
checks drawn against the IBAA and payable to HCCC but were never delivered to HCCC

GSIS gave Francisco custody of the checks since she promised that she would deliver
the same to HCCC.

Francisco forged the signature of Ong, without his knowledge or consent, at the
dorsal portion of the said checks to make it appear that HCCC had indorsed the checks;
Francisco then indorsed the checks for a second time by signing her name at the back of the
checks and deposited the checks in her IBAA savings account

June 7, 1979: Ong filed complaints charging Francisco with estafa thru falsification of
commercial documents - dismmised by the Assistant City Fiscal

According to Francisco, she agreed to grant HCCC the loans in the total amount of
P585K and covered by 18 promissory notes in order to obviate the risk of the non-completion of
the project.

As a means of repayment, Ong allegedly issued a Certification authorizing

Francisco to collect HCCCs receivables from the GSIS

RTC: favored Ong and against IBAA and Francisco

November 21, 1989: IBAA and HCCC entered into a Compromise Agreement which was
approved by the trial court, wherein HCCC acknowledged receipt of the amount of P370,475.00 in
full satisfaction of its claims against IBAA, without prejudice to the right of IBAA to pursue its
claims against Francisco.
CA affirmed RTC
Francisco claims that she was, in any event, authorized to sign Ongs name on the checks by
virtue of the Certification executed by Ong in her favor giving her the authority to collect all the
receivables of HCCC from the GSIS, including the questioned checks.

ISSUE: W/N Francisco can sign Ongs name on the checks and it was not forgery
HELD: NO.

Francisco had custody of the checks, as proven by the check vouchers bearing her
uncontested signature

Francisco forged the signature of Ong on the checks to make it appear as if Ong had indorsed
said checks

The Negotiable Instruments Law provides that where any person is under obligation to indorse
in a representative capacity, he may indorse in such terms as to negative personal liability

An agent, when so signing, should indicate that he is merely signing in behalf of the
principal and must disclose the name of his principal; otherwise he shall be held personally liable

Instead of signing Ongs name, Francisco should have signed her own name and
expressly indicated that she was signing as an agent of HCCC

14

(18)SAMSUNG CONSTRUCTION CO PHIL v FEBTC

FACTS: Samsung Construction held an account with Far East Bank. One day a check worth
900,000, payable to cash, was presented by one Roberto Gonzaga in the Makati Branch of Far
East Bank. The check was certified to be true by Jose Sempio, the assistant accountant of
Samsung, who was also present during the time the check was cashed. Later however it was
discovered that no such check was ever approved by the Samsungs head accountant, the
president of the company also never signed any such check.
ISSUE: W/N Far East Bank is liable to reimburse Samsung for cashing out the forged check,
which was drawn from the account of Samsung
HELD: Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law
states that a forged signature makes the instrument wholly inoperative. If payment is made the
drawee (Far East) cannot charge it to the drawers account (Samsung). The fact that the forgery
is clever is immaterial. The forged signature may so closely resemble the genuine as to defy
detection by the depositor himself. And yet, if the bank pays the check, it is paying out with its
own money and not of the depositors. This rule of liability can be stated briefly in these words:
A bank is bound to know its depositors signature. The accusation of negligence on the part of
Samsung was not clearly proven. Absence of proof to the contrary, the presumption is that the
ordinary course of business was followed.

Philippine Commercial International Bank vs Court of Appeals

(2001)
350 SCRA 446 Mercantile Law Negotiable Instruments Law Rights of the Holder What Constitutes
a Holder in Due Course Negligence of the Collecting Bank and the Drawee Bank
There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA and Ford and Citibank), G.R. No.
121479 (Ford vs CA and Citibank and PCIB), and G.R. No. 128604 (Ford vs Citibank and PCIB and CA).
G.R. No. 121413/G.R. No. 121479
In October 1977, Ford Philippines drew a Citibank check in the amount of P4,746,114.41 in favor of the
Commissioner of the Internal Revenue (CIR). The check represents Fords tax payment for the third
quarter of 1977. On the face of the check was written Payees account only which means that the check
cannot be encashed and can only be deposited with the CIRs savings account (which is with Metrobank).
The said check was however presented to PCIB and PCIB accepted the same. PCIB then indorsed the
check for clearing to Citibank. Citibank cleared the check and paid PCIB P4,746,114.41. CIR later
informed Ford that it never received the tax payment.
An investigation ensued and it was discovered that Fords accountant Godofredo Rivera, when the check
was deposited with PCIB, recalled the check since there was allegedly an error in the computation of the
tax to be paid. PCIB, as instructed by Rivera, replaced the check with two of its managers checks.
It was further discovered that Rivera was actually a member of a syndicate and the managers checks
were subsequently deposited with the Pacific Banking Corporation by other members of the syndicate.
Thereafter, Rivera and the other members became fugitives of justice.
G.R. No. 128604
In July 1978 and in April 1979, Ford drew two checks in the amounts of P5,851,706.37 and P6,311,591.73
respectively. Both checks are again for tax payments. Both checks are for Payees account only or for
the CIRs bank savings account only with Metrobank. Again, these checks never reached the CIR.
In an investigation, it was found that these checks were embezzled by the same syndicate to which Rivera
was a member. It was established that an employee of PCIB, also a member of the syndicate, created a
PCIB account under a fictitious name upon which the two checks, through high end manipulation, were

15

deposited. PCIB unwittingly endorsed the checks to Citibank which the latter cleared. Upon clearing, the
amount was withdrawn from the fictitious account by syndicate members.

ISSUE: What are the liabilities of each party?

HELD: G.R. No. 121413/G.R. No. 121479

PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a collecting bank has been negligent
in verifying the authority of Rivera to negotiate the check. It failed to ascertain whether or not Rivera can
validly recall the check and have them be replaced with PCIBs managers checks as in fact, Ford has no
knowledge and did not authorize such. A bank (in this case PCIB) which cashes a check drawn upon
another bank (in this case Citibank), without requiring proof as to the identity of persons presenting it, or
making inquiries with regard to them, cannot hold the proceeds against the drawee when the proceeds of
the checks were afterwards diverted to the hands of a third party. Hence, PCIB is liable for the amount of
the embezzled check.
G.R. No. 128604
PCIB and Citibank are liable for the amount of the checks on a 50-50 basis.
As a general rule, a bank is liable for the negligent or tortuous act of its employees within the course and
apparent scope of their employment or authority. Hence, PCIB is liable for the fraudulent act of its
employee who set up the savings account under a fictitious name.
Citibank is likewise liable because it was negligent in the performance of its obligations with respect to its
agreement with Ford. The checks which were drawn against Fords account with Citibank clearly states
that they are payable to the CIR only yet Citibank delivered said payments to PCIB. Citibank however
argues that the checks were indorsed by PCIB to Citibank and that the latter has nothing to do but to pay
it. The Supreme Court cited Section 62 of the Negotiable Instruments Law which mandates the Citibank,
as an acceptor of the checks, to engage in paying the checks according to the tenor of the acceptance
which is to deliver the payment to the payees account only.
But the Supreme Court ruled that in the consolidated cases, that PCIB and Citibank are not the only
negligent parties. Ford is also negligent for failing to examine its passbook in a timely manner which could
have avoided further loss. But this negligence is not the proximate cause of the loss but is merely
contributory. Nevertheless, this mitigates the liability of PCIB and Citibank hence the rate of interest, with
which PCIB and Citibank is to pay Ford, is lowered from 12% to 6% per annum.

Philippine Commercial International Bank vs Court of Appeals

(2001)

FACTS:
Ford Philippines filed actions to recover from the drawee bank Citibank and collecting bank PCIB the
value of several checks payable to the Commissioner of Internal Revenue which were embezzled
allegedly by an organized syndicate. What prompted this action was the drawing of a check by
Ford, which it deposited to PCIB as payment and was debited from their Citibank account. It later
on found out that the payment wasnt received by the Commissioner. Meanwhile, according to the
NBI report, one of the checks issued by petitioner was withdrawn from PCIB for alleged mistake in the
amount to be paid. This was replaced with managers check by PCIB, which were allegedly stolen by
the syndicate and deposited in their own account.

16

The trial court decided in favor of Ford.

ISSUE:
Has Ford the right to recover the value of the checks intended as payment to CIR?
HELD:
The checks were drawn against the drawee bank but the title of the person negotiating the same was
allegedly defective because the instrument was obtained by fraud and unlawful means, and the
proceeds of the checks were not remitted to the payee. It was established that instead paying the
Commissioner, the checks were diverted and encashed for the eventual distribution among
members
of
the
syndicate.
Pursuant to this, it is vital to show that the negotiation is made by the perpetrator in breach of
faith amounting to fraud. The person negotiating the checks must have gone beyond the authority given
by his principal. If the principal could prove that there was no negligence in the performance of his
duties, he may set up the personal defense to escape liability and recover from other parties who,
through
their
own
negligence,
allowed
the
commission
of
the
crime.
It should be resolved if Ford is guilty of the imputed contributory negligence that would defeat its
claim for reimbursement, bearing in mind that its employees were among the members of the syndicate. It
appears although the employees of Ford initiated the transactions attributable to the organized
syndicate, their actions were not the proximate cause of encashing the checks payable to CIR.
The degree of Fords negligence couldnt be characterized as the proximate cause of the injury to
parties. The mere fact that the forgery was committed by a drawer-payors confidential employee
or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the
forged paper upon the bank, doesnt entitle the bank to shift the loss to the drawer-payor, in the absence of
some
circumstance
raising
estoppel
against
the
drawer.
Note: not only PCIB but also Citibank is responsible for negligence. Citibank was negligent in the
performance of its duties as a drawee bank. It failed to establish its payments of Fords checks
were made in due course and legally in order.

Negotiable Instruments Case Digest: Associated Bank V. CA (1996)

G.R. No. 107382/G.R. No. 107612
January 31, 1996
Lessons Applicable: Forgery (Negotiable Instruments Law)
FACTS:

The Province of Tarlac maintains a current account with the Philippine National Bank (PNB)
Tarlac Branch where the provincial funds are deposited.

Checks issued by the Province are signed by the Provincial Treasurer and
countersigned by the Provincial Auditor or the Secretary of the Sangguniang Bayan.

A portion of the funds of the province is allocated to the Concepcion Emergency Hospital

drawn to the order of "Concepcion Emergency Hospital, Concepcion, Tarlac" or "The

Chief, Concepcion Emergency Hospital, Concepcion, Tarlac."

The checks are released by the Office of the Provincial Treasurer and received for the
hospital by its administrative officer and cashier.

17

January 1981:Upon post-audit by the Provincial Auditor, it was discovered that the hospital did
not receive several allotment checks

February 19, 1981: After the checks were examined, they learned that 30 checks of P203,300
were encashed by Fausto Pangilinan, with the Associated Bank acting as collecting bank.
Fausto Pangilinan

administrative officer and cashier of payee hospital until his retirement on

February 28, 1978, collected the questioned checks from the office of the Provincial Treasurer
sought to encash the 1st check with Associated Bank

Jesus David, manager of Associated Bank refused and suggested that Pangilinan deposit the
check in his personal savings account with the same bank

Pangilinan was able to withdraw the money when the check was cleared and paid by
the drawee bank, PNB.

PNB did not return the questioned checks within twenty-four hours, but several
days later

After forging the signature of Dr. Adena Canlas who was chief of the payee hospital,
Pangilinan followed the same procedure for the other checks.

All the checks bore the stamp of Associated Bank which reads "All prior endorsements
guaranteed ASSOCIATED BANK.

CA affrimed RTC: Associated to reimburse PNB and ordering PNB to pay Province of Tarlac

ISSUE: W/N PNB and Associated Bank should be held liable

HELD: YES. PARTIALLY GRANTED. The collecting bank, Associated Bank, shall be liable to PNB for
50% of P203,300
Sec. 23. FORGED SIGNATURE, EFFECT OF. When a signature is forged or made without
authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain
the instrument, or to give a discharge therefor, or to enforce payment thereof against any party
thereto, can be acquired through or under such signature unless the party against whom it is sought
to enforce such right is precluded from setting up the forgery or want of authority.

GR

A forged signature, whether it be that of the drawer or the payee, is wholly inoperative
and no one can gain title to the instrument through it.

A person whose signature to an instrument was forged was never a party and never
consented to the contract which allegedly gave rise to such instrument.

EX: where "a party against whom it is sought to enforce a right is precluded from setting up the
forgery or want of authority."

Parties who warrant or admit the genuineness of the signature in question and those
who, by their acts, silence or negligence are estopped from setting up the defense of forgery, are
precluded from using this defense.

Indorsers, persons negotiating by delivery and acceptors are warrantors of the

genuineness of the signatures on the instrument

18

In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the
instrument. Hence, when the indorsement is a forgery, only the person whose signature is forged
can raise the defense of forgery against a holder in due course

In order instruments, the signature of its rightful holder (here, the payee hospital) is essential to
transfer title to the same instrument. When the holder's indorsement is forged all parties prior to
the forgery may raise the real defense of forgery against all parties subsequent thereto.

An indorser of an order instrument warrants "that the instrument is genuine and in all
respects what it purports to be; that he has a good title to it; that all prior parties had capacity to
contract; and that the instrument is at the time of his indorsement valid and subsisting

A collecting bank where a check is deposited and which indorses the check upon
presentment with the drawee bank = indorser

So even if the indorsement on the check deposited by the banks's client is

forged, the collecting bank is bound by his warranties as an indorser and cannot set up the
defense of forgery as against the drawee bank.

The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay
the check to the order of the payee.
The drawer's instructions are reflected on the face and by the terms of the check.

Payment under a forged indorsement is not to the drawer's order. then is that the
drawee bank may not debit the drawer's account and is not entitled to indemnification from the
drawer. 25 The risk of loss must perforce fall on the drawee bank.

GR: drawee bank may not debit the drawer's account and is not entitled to indemnification from
the drawer - risk of loss must perforce fall on the drawee bank
EX:

if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care
that substantially contributed to the making of the forged signature, the drawer is precluded
from asserting the forgery

If at the same time the drawee bank was also negligent to the point of substantially
contributing to the loss, then such loss from the forgery can be apportioned between the
negligent drawer and the negligent bank

In cases involving a forged check, where the drawer's signature is forged, the drawer can
recover from the drawee bank.

In cases involving checks with forged indorsements, the drawee bank canseek reimbursement
or a return of the amount it paid from the presentor bank or person

However, a drawee bank has the duty to promptly inform the presentor of the forgery
upon discovery. If the drawee bank delays in informing the presentor of the forgery, thereby
depriving said presentor of the right to recover from the forger, the former is deemed negligent
and can no longer recover from the presentor

Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement
shall be returned within twenty-Sour (24) hours after discovery of the forgery but in no event
beyond the period fixed or provided by law for filing of a legal action by the returning bank. Section
23 of the PCHC Rules deleted the requirement that items bearing a forged endorsement should
be returned within twenty-four hours.

19

Since PNB did not return the questioned checks within twenty-four hours,
but several days later, Associated Bank alleges that PNB should be considered negligent and not
entitled to reimbursement of the amount it paid on the checks.

More importantly, by reason of the statutory warranty of a general indorser in section 66 of the
Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged
indorsement and presents it to the drawee bank guarantees all prior indorsements, including the
forged indorsement

In this case, the checks were indorsed by the collecting bank (Associated Bank) to the
drawee bank (PNB)

The stamp guaranteeing prior indorsements is not an empty rubric which a bank
must fulfill for the sake of convenience

It is within the bank's discretion to receive a check for no banking

institution would consciously or deliberately accept a check bearing a forged indorsement. When a
check is deposited with the collecting bank, it takes a risk on its depositor.