Summary: Sesbreno vs. Court of Appeals (GR 89252, 24 lack of cause of action, with costs against Sesbreno.

Sesbreno
May 1993) appealed to the Court of Appeals (CA GR CV 15195). In a
Sesbreno vs. Court of Appeals Decision dated 21 March 1989, the Court of Appeals denied
[GR 89252, 24 May 1993] the appeal. Sesbreno moved for reconsideration of the above
Third Division, Feliciano (J): 4 concur Decision, without success. Sesbreno filed the Petition for
Facts: On 9 February 1981, Raul Sesbreño made a money Review on Certiorari.
market placement in the amount of P300,000.00 with the Issue: Whether the marking “non-negotiable” in DMC PN 2731
Philippine Underwriters Finance Corporation (Philfinance), prohibited Philfinance from assigning or transferring the same
Cebu Branch; the placement, with a term of 32 days, would to Sesbreno.
mature on 13 March 1981. Philfinance, also on 9 February Held: The negotiation of a negotiable instrument must be
1981, issued the following documents to Sesbreno: (a) the distinguished from the assignment or transfer of an
Certificate of Confirmation of Sale, "without recourse," 20496 instrument whether that be negotiable or non-negotiable.
of 1 Delta Motors Corporation Promissory Note (DMC PN) 2731 Only an instrument qualifying as a negotiable instrument
for a term of 32 days at 17.0 % per annum; (b) the Certificate under the relevant statute may be negotiated either by
of Securities Delivery Receipt 16587 indicating the sale of indorsement thereof coupled with delivery, or by delivery
DMC PN 2731 to Sesbreno, with the notation that the said alone where the negotiable instrument is in bearer form. A
security was in custodianship of Pilipinas Bank, as per negotiable instrument may, however, instead of being
Denominated Custodian Receipt (DCR) 10805 dated 9 negotiated, also be assigned or transferred. The legal
February 1981; and (c) post-dated checks payable on 13 consequences of negotiation as distinguished from assignment
March 1981 (i.e., the maturity date of Sesbreno's of a negotiable instrument are, of course, different. A non-
investment), with Sesbreno as payee, Philfinance as drawer, negotiable instrument may, obviously, not be negotiated; but
and Insular Bank of Asia and America as drawee, in the total it may be assigned or transferred, absent an express
amount of P304,533.33. On 13 March 1981, Sesbreno sought prohibition against assignment or transfer written in the face
to encash the post-dated checks issued by Philfinance. of the instrument: "The words 'not negotiable,' stamped on
However, the checks were dishonored for having been drawn the face of the bill of lading, did not destroy its assignability,
against insufficient funds. On 26 March 1981, Philfinance but the sole effect was to exempt the bill from the statutory
delivered to Sesbreno the DCR 10805 issued by Pilipinas Bank provisions relative thereto, and a bill, though not negotiable,
(Pilipinas). On 2 April 1981, Sesbreno approached Ms. may be transferred by assignment; the assignee taking
Elizabeth de Villa of Pilipinas, Makati Branch, and handed to subject to the equities between the original parties." Herein,
her a demand letter informing the bank that his placement DMC PN No. 2731, while marked "non-negotiable," was not at
with Philfinance in the amount reflected in the DCR 10805 the same time stamped "non-transferrable" or "non-
had remained unpaid and outstanding, and that he in effect assignable." It contained no stipulation which prohibited
was asking for the physical delivery of the underlying Philfinance from assigning or transferring, in whole or in part,
promissory note. Sesbreno then examined the original of the that Note. Further, there is nothing in the letter of
DMC PN 2731 and found: that the security had been issued on agreement dated 10 April 1980 between Delta and Philfinance
10 April 1980; that it would mature on 6 April 1981; that it which can be reasonably construed as a prohibition upon
had a face value of P2,300,833.33, with Philfinance as Philfinance assigning or transferring all or part of DMC PN
"payee" and Delta Motors Corporation (Delta) as "maker;" and 2731, before the maturity thereof. It is scarcely necessary to
that on face of the promissory note was stamped "NON- add that, even had this "Letter of Agreement" set forth an
NEGOTIABLE." Pilipinas did not deliver the Note, nor any explicit prohibition of transfer upon Philfinance, such a
certificate of participation in respect thereof, to Sesbreno. prohibition cannot be invoked against an assignee or
Sesbreno later made similar demand letters, dated 3 July transferee of the Note who parted with valuable
1981 and 3 August 1981, again asking Pilipinas for physical consideration in good faith and without notice of such
delivery of the original of DMC PN 2731. Pilipinas allegedly prohibition. It is not disputed that Sesbreno was such an
referred all of Sesbreno's demand letters to Philfinance for assignee or transferee.
written instructions, as had been supposedly agreed upon in a [The issue whether Delta is liable for the value of the
"Securities Custodianship Agreement" between Pilipinas and promissory to Sesbreno was resolved through Articles 1279
Philfinance. Philfinance never did provide the appropriate and 1636 of the New Civil Code as to compensation, and
instructions; Pilipinas never released DMC PN 2731, nor any Article 1285 of the same as to the assignment of creditor's
other instrument in respect thereof, to petitioner. Sesbreno rights. The Court held that since Sesbreno failed to notify
also made a written demand on 14 July 1981 upon Delta for Delta of the assignment of the creditor's (Philfinance) rights
the partial satisfaction of DMC PN 2731, explaining that at any time before the maturity date of DMC PN 2731, and
Philfinance, as payee thereof, had assigned to him said Note because the record is bare of any indication that Philfinance
to the extent of P307,933.33. Delta, however, denied any had itself notified Delta of the assignment to Sesbreno, the
liability to Sesbreno on the promissory note, and explained in Court was compelled to uphold the defense of compensation
turn that it had previously agreed with Philfinance to offset raised by Delta. The Court, however, held that Philfinance
its DMC PN 2731 (along with DMC PN 2730) against Philfinance remained liable to Sesbreno under the terms of the
PN 143-A issued in favor of Delta. In the meantime, assignment made by Philfinance to Sesbreno. As to the issue
Philfinance, on 18 June 1981, was placed under the joint of Pilipinas’ liability to Sesbreno, on the other hand, the
management of the Securities and Exchange Commission Court held that Pilipinas must respond to Sesbreno for
(SEC) and the Central Bank. Pilipinas delivered to the SEC damages sustained by him arising out of its breach of duty.
DMC PN 2731, which to date apparently remains in the By failing to deliver the Note to Sesbreno as depositor-
custody of the SEC. As Sesbreno had failed to collect his beneficiary of the thing deposited -- when Pilipinas
investment and interest thereon, he filed on 28 September purported to require and await the instructions of
1982 an action for damages with the Regional Trial Court Philfinance, in obvious contravention of its undertaking
(RTC) of Cebu City, Branch 21, against Delta and Pilipinas. under the DCR to effect physical delivery of the Note upon
The trial court, in a decision dated 5 August 1987, dismissed receipt of "written instructions" from Sesbreño -- Pilipinas
the complaint and counterclaims for lack of merit and for
effectively and unlawfully deprived Sesbreno of the Note Issue: Whether the postal money order is a negotiable
deposited with it. – Civil Law II issues, MVG.] instrument.
Philippine Education Co. Inc. vs. Soriano (GR L-22405, 30 Held: Philippine postal statutes were patterned after similar
June 1971) statutes in force in the United States. For this reason,
Philippine Education Co. Inc. vs. Soriano Philippine postal statutes are generally construed in
[GR L-22405, 30 June 1971] accordance with the construction given in the United States
En Banc, Dizon (J): 8 concur, 2 took no part to their own postal statutes, in the absence of any special
Facts: On 18 April 1958 Enrique Montinola sought to purchase reason justifying a departure from this policy or practice. The
from the Manila Post Office 10 money orders of P200.00 each weight of authority in the United Status is that postal money
payable to E. P. Montinola with address at Lucena, Quezon. orders are not negotiable instruments, the reason behind this
After the postal teller had made out money orders numbered rule being that, in establishing and operating a postal money
124685, 124687-124695, Montinola offered to pay for them order system, the government is not engaging in commercial
with a private check. As private checks were not generally transactions but merely exercises a governmental power for
accepted in payment of money orders, the teller advised him the public benefit. Some of the restrictions imposed upon
to see the Chief of the Money Order Division, but instead of money orders by postal laws and regulations are inconsistent
doing so, Montinola managed to leave the building with his with the character of negotiable instruments. For instance,
own check and the 10 money orders without the knowledge of such laws and regulations usually provide for not more than
the teller. On the same date, 18 April 1958, upon discovery of one endorsement; payment of money orders may be withheld
the disappearance of the unpaid money orders, an urgent under a variety of circumstances.
message was sent to all postmasters, and the following day Summary: Philippine National Bank vs. Manila Oil Refining
notice was likewise served upon all banks. instructing them & By-Products Company, Inc. (GR L-18103, 8 June 1922)
not to pay anyone of the money orders aforesaid if presented Philippine National Bank vs. Manila Oil Refining & By-
for payment. The Blank of America received a copy of said Products Company, Inc.
notice 3 days later. On 23 April 1958 one of the above [GR L-18103, 8 June 1922]
mentioned money orders numbered 124688 was received by First Division, Malcolm (J): 6 concur
Philippine Education Co. as part of its sales receipts. The Facts: On 8 May 1920, the manager and the treasurer of the
following day it deposited the same with the Bank of Manila Oil Refining & By-Products Company, Inc,. executed
America, and one day thereafter the latter cleared it with and delivered to the Philippine National Bank (PNB), a
the Bureau of Posts and received from the latter its face written instrument reading as follows: "RENEWAL. P61,000.00
value of P200.00. On 27 September 1961, Mauricio A. Soriano, MANILA, P.I., May 8, 1920. On demand after date we promise
Chief of the Money Order Division of the Manila Post Office, to pay to the order of the Philippine National Bank sixty-one
acting for and in behalf of Post-master Enrico Palomar, thousand only pesos at Philippine National Bank, Manila, P.I.
notified the Bank of America that money order 124688 Without defalcation, value received; and do hereby authorize
attached to his letter had been found to have been any attorney in the Philippine Islands, in case this note be not
irregularly issued and that, in view thereof, the amount it paid at maturity, to appear in my name and confess judgment
represented had been deducted from the bank's clearing for the above sum with interest, cost of suit and attorney's
account. For its part, on August 2 of the same year, the Bank fees of ten (10) per cent for collection, a release of all errors
of America debited Philippine Education Co.'s account with and waiver of all rights to inquisition and appeal, and to the
the same amount and gave it advice thereof by means of a benefit of all laws exempting property, real or personal, from
debit memo. On 12 October 1961 Philippine Education Co. levy or sale. Value received. No. —— Due —— MANILA OIL
requested the Postmaster General to reconsider the action REFINING & BY-PRODUCTS CO., INC., (Sgd.) VICENTE SOTELO,
taken by his office deducting the sum of P200.00 from the Manager. MANILA OIL REFINING & BY-PRODUCTS CO., INC.,
clearing account of the Bank of America, but his request was (Sgd.) RAFAEL LOPEZ. Treasurer." The Manila Oil Refining &
denied. So was Philippine Education Co.'s subsequent request By-Products Company, Inc. failed to pay the promissory note
that the matter be referred to the Secretary of Justice for on demand. PNB brought action in the Court of First Instance
advice. Thereafter, Philippine Education Co. elevated the of Manila, to recover P61,000, the amount of the note,
matter to the Secretary of Public Works and Communications, together with interest and costs. Mr. Elias N. Recto, an
but the latter sustained the actions taken by the postal attorney associated with PNB, entered his appearance in
officers. In connection with the events set forth above, representation of Manila Oil, and filed a motion confessing
Montinola was charged with theft in the Court of First judgment. Manila Oil, however, in a sworn declaration,
Instance of Manila (Criminal Case 43866) but after trial he objected strongly to the unsolicited representation of
was acquitted on the ground of reasonable doubt. On 8 attorney Recto. Later, attorney Antonio Gonzalez appeared
January 1962 Philippine Education Co. filed an action against for Manila Oil and filed a demurrer, and when this was
Soriano, et al. in the Municipal Court of Manila. On 17 overruled, presented an answer. The trial judge rendered
November 1962, after the parties had submitted the judgment on the motion of attorney Recto in the terms of the
stipulation of facts, the municipal court rendered judgment, complaint. In the Supreme Court, the question of first
ordering Soriano, et al. to countermand the notice given to impression raised in the case concerns the validity in this
the Bank of America on 27 September 1961, deducting from jurisdiction of a provision in a promissory note whereby in
said Bank's clearing account the sum of P200.00 representing case the same is not paid at maturity, the maker authorizes
the amount of postal money order 124688, or in the any attorney to appear and confess judgment thereon for the
alternative, to indemnify Philippine Education Co. in the said principal amount, with interest, costs, and attorney's fees,
sum of P200.00 with interest thereon at the rate of 8-1/2% and waives all errors, rights to inquisition, and appeal, and
per annum from 27 September 1961 until fully paid; without all property exemptions.
any pronouncement as to costs and attorney's fees." The case Issue [1]: Whether the Negotiable Instruments Law (Act No.
was appealed to the Court of First Instance of Manila where, 2031) expressly recognized judgment notes, enforcible under
after the parties had resubmitted the same stipulation of the regular procedure.
facts, the appealed decision dismissing the complaints with Held [1]: The Negotiable Instruments Law, in section 5,
costs, was rendered. Philippine Education Co. appealed. provides that "The negotiable character of an instrument
otherwise negotiable is not affected by a provision which (b) the machines and availability of parts. With said assurance
Authorizes confession of judgment if the instrument be not and warranty, and relying on the IPM's skill and judgment,
paid at maturity"; but this provision of law cannot be taken to CPII through Henry Wee and Rodolfo T. Vergara, president
sanction judgments by confession, because it is a portion of a and vice-president, respectively, agreed to purchase on
uniform law which merely provides that, in jurisdictions installment said 2 units of "Used" Allis Crawler Tractors. It
where judgments notes are recognized, such clauses shall not also paid the down payment of P210,000.00. On 5 April 1978,
affect the negotiable character of the instrument. Moreover, IPM issued the sales invoice for the 2 units of tractors. At the
the same section of the Negotiable Instruments Law same time, the deed of sale with chattel mortgage with
concludes with these words: "But nothing in this section shall promissory note was executed. Simultaneously with the
validate any provision or stipulation otherwise illegal." execution of the deed of sale with chattel mortgage with
Issue [2]: Whether provisions in notes authorizing attorneys promissory note, IPM, by means of a deed of assignment,
to appear and confess judgments against makers should not assigned its rights and interest in the chattel mortgage in
be recognized in Philippine jurisdiction by implication. favor of IFC Leasing and Acceptance Corporation.
Held [2]: Judgments by confession as appeared at common Immediately thereafter, IPM delivered said 2 units of "Used"
law were considered an amicable, easy, and cheap way to tractors to CPII's jobsite and as agreed, IPM stationed its own
settle and secure debts. They are quick remedy serve to save mechanics to supervise the operations of the machines.
the court's time. Time also save time and money of the Barely 14 days had elapsed after their delivery when one of
litigants and the government the expenses that a long the tractors broke down and after another 9 days, the other
litigation entails. In one sense, instruments of this character tractor likewise broke down. On 25 April 1978, Vergara
may be considered as special agreements, with power to formally advised IPM of the fact that the tractors broke down
enter up judgments on them, binding the parties to the result and requested for IPM's usual prompt attention under the
as they themselves viewed it. On the other hand, are warranty. In response to the formal advice by Vergara, IPM
disadvantages to the commercial world which outweigh the sent to the jobsite its mechanics to conduct the necessary
considerations just mentioned. Such warrants of attorney are repairs, but the tractors did not come out to be what they
void as against public policy, because they enlarge the field should be after the repairs were undertaken because the
for fraud, because under these instruments the promissor units were no longer serviceable. Because of the breaking
bargains away his right to a day in court, and because the down of the tractors, the road building and simultaneous
effect of the instrument is to strike down the right of appeal logging operations of CPII were delayed and Vergara advised
accorded by statute. The recognition of such form of IPM that the payments of the installments as listed in the
obligation would bring about a complete reorganization of promissory note would likewise be delayed until IPM
commercial customs and practices, with reference to short- completely fulfills its obligation under its warranty. Since the
term obligations. It can readily be seen that judgment notes, tractors were no longer serviceable, on 7 April 1979, Wee
instead of resulting to the advantage of commercial life the asked IPM to pull out the units and have them reconditioned,
Philippines might be the source of abuse and oppression, and and thereafter to offer them for sale. The proceeds were to
make the courts involuntary parties thereto. If the bank has a be given to IFC Leasing and the excess, if any, to be divided
meritorious case, the judgment is ultimately certain in the between IPM and CPII which offered to bear 1/2 of the
courts. The Court is of the opinion thus that warrants of reconditioning cost. No response to this letter was received
attorney to confess judgment are not authorized nor by CPII and despite several follow-up calls, IPM did nothing
contemplated by Philippine law; and that provisions in notes with regard to the request, until the complaint in the case
authorizing attorneys to appear and confess judgments was filed by IFC Leasing against CPII, Wee, and Vergara. The
against makers should not be recognized in this jurisdiction complaint was filed by IFC Leasing against CPII, et al. for the
by implication and should only be considered as valid when recovery of the principal sum of P1,093,789.71, accrued
given express legislative sanction. interest of P151,618.86 as of 15 August 1979, accruing
Summary: Consolidated Plywood Industries Inc. vs. IFC interest there after at the rate of 12% per annum, attorney's
Leasing and Acceptance Corp. (GR 72593, 30 April 1987) fees of P249,081.71 and costs of suit. CPII, et al. filed their
Consolidated Plywood Industries Inc. vs. IFC Leasing and amended answer praying for the dismissal of the complaint
Acceptance Corp. and asking the trial court to order IFC leasing to pay them
[GR 72593, 30 April 1987] damages in an amount at the sound discretion of the court,
Second Division, Gutierrez Jr. (J): 5 concur P20,000.00 as and for attorney's fees, and P5,000.00 for
Facts: Consolidated Plywood Industries Inc. (CPII) is a expenses of litigation, among others. In a decision dated 20
corporation engaged in the logging business. It had for its April 1981, the trial court rendered judgment, ordering CPII,
program of logging activities for the year 1978 the opening of et al. to pay jointly and severally in their official and
additional roads, and simultaneous logging operations along personal capacities the principal sum of P1,093,798.71 with
the route of said roads, in its logging concession area at accrued interest of P151,618.86 as of 15 August 1979 and
Baganga, Manay, and Caraga, Davao Oriental. For this accruing interest thereafter at the rate of 12% per annum;
purpose, it needed 2 additional units of tractors. Cognizant of and attorney's fees equivalent to 10% of the principal and to
CPII's need and purpose, Atlantic Gulf & Pacific Company of pay the costs of the suit. On 8 June 1981, the trial court
Manila, through its sister company and marketing arm, issued an order denying the motion for reconsideration filed
Industrial Products Marketing (IPM), a corporation dealing in by CPII, et al. CPII, et al.appealed to the Intermediate
tractors and other heavy equipment business, offered to sell Appellate Court. On 17 July 1985, the Intermediate Appellate
to CPII 2 "Used" Allis Crawler Tractors, 1 an HD-21-B and the Court issued the decision affirming in toto the decision of the
other an HD-16-B. In order to ascertain the extent of work to trial court. CPII et al.'s motion for reconsideration was denied
which the tractors were to be exposed, and to determine the by the Intermediate Appellate Court in its resolution dated 17
capability of the "Used" tractors being offered, CPII requested October 1985, a copy of which was received by CPII, et al. on
the seller-assignor to inspect the jobsite. After conducting 21 October 1985. CPII, et al. filed the petition for certiorari
said inspection, IPM assured CPII that the "Used" Allis Crawler under rule 45 of the Rules of Court.
Tractors which were being offered were fit for the job, and Issue: Whether the promissory note in question is a
gave the corresponding warranty of 90 days performance of negotiable instrument.
Held: The pertinent portion of the note provides that ""FOR
VALUE RECEIVED, I/we jointly and severally promise to pay to
the INDUSTRIAL PRODUCTS MARKETING, the sum of ONE
MILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTY
NINE PESOS & 71/100 only (P1,093,789.71), Philippine
Currency, the said principal sum, to be payable in 24 monthly
installments starting July 15, 1978 and every 15th of the
month thereafter until fully paid." Considering that paragraph
(d), Section 1 of the Negotiable Instruments Law requires that
a promissory note "must be payable to order or bearer," it
cannot be denied that the promissory note in question is not
a negotiable instrument. The instrument in order to be
considered negotiable must contain the so called "words of
negotiability" — i.e., must be payable to "order" or "bearer."
These words serve as an expression of consent that the
instrument may be transferred. This consent is indispensable
since a maker assumes greater risk under a negotiable
instrument than under a non-negotiable one. Without the
words "or order" or "to the order of," the instrument is
payable only to the person designated therein and is
therefore non-negotiable. Any subsequent purchaser thereof
will not enjoy the advantages of being a holder of a
negotiable instrument, but will merely "step into the shoes"
of the person designated in the instrument and will thus be
open to all defenses available against the latter. Therefore,
considering that the subject promissory note is not a
negotiable instrument, it follows that IFC Leasing can never
be a holder in due course but remains a mere assignee of the
note in question. Thus, CPII may raise against IFC Leasing all
defenses available to it as against IPM. This being so, there
was no need for CPII to implead IPM when it was sued by IFC
Leasing because CPII's defenses apply to both or either of
them.