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:

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.

G.R. No. 72593 April 30, 1987

CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and RODOLFO T. VERGARA
vs.
IFC LEASING AND ACCEPTANCE CORPORATION

Facts:
 The petitioner-corporation is engaged in the logging business. It needed two tractors to
operate in its concession area in Davao Oriental
 Atlantic Gulf & Pacific Company of Manila, through its sister company and marketing arm,
Industrial Products Marketing (the "seller-assignor), after inspecting the job site, sold two
tractors to the petitioner with the assurance that the tractors were fit for the job and giving
 the corresponding warranty of ninety (90) days performance of the machines and
availability of parts
 The petitioner agreed to purchase the units on installment and paid the down payment of
P210,000.00. The following documents were simultaneously executed:
o Sales invoice
o Deed of Sale with Chattel Mortgage with Promissory Note between Industrial
Products Marketing and Consolidated Plywood
o Deed of Assignment executed by Industrial Products Marketing assigning its rights
and interests in the promissory note with chattel mortgage in favor of respondent
IFC Leasing and Finance Corp.

 One of the tractors broke down barely 14 days after the delivery and the other one likewise
broke down after another 9 days
 The units turned out to be unserviceable even after repairs undertaken by the seller-
assignor. Consequently, the petitioner refused to pay the installments on the balance of
the purchase price until the seller fulfilled its obligations under the 90-day warranty.
Arrangements to recondition and resell the units to recover the costs were initiated by the
petitioner but were unheeded by the seller.
 The assignee financing corporation thereafter filed a suit against Consolidated Plywood
for the collection of the unpaid balance on the sale and the accruing interest thereon,
amounting to over one million pesos.
 The trial and appellate courts both ruled in favor of the financing corporation and ordered
Consolidated Plywood to pay the unpaid balance plus interest, hence the instant petition.

Issue:
Whether or not the promissory note in question is a negotiable instrument and if so, whether the
respondent-assignee is a holder in due course thereof, barring any defenses that the petitioner
may have against it

Ruling:
NO. The promissory note in question is not a negotiable instrument and the respondent is not a
holder in due course thereof.

The pertinent portion of the note is as follows:

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 (P 1,093,789.71), 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. 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.
xxx xxx xxx
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. . . .
xxx xxx xxx
 These are the only two ways by which an instrument may be made payable to order. There
must always be a specified person named in the instrument. It means that the bill or note is
to be paid to the person designated in the instrument or to any person to whom he has
indorsed and delivered the same. Without the words "or order" or"to the order of, "the
instrument is payable only to the person designated therein and is therefore non-negotiable.
Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a
negotiable instrument but will merely "step into the shoes" of the person designated in the
instrument and will thus be open to all defenses available against the latter."

Therefore, considering that the subject promissory note is not a negotiable instrument, it follows
that the respondent can never be a holder in due course but remains a mere assignee of the note
in question. Thus, the petitioner may raise against the respondent all defenses available to it as
against the seller-assignor Industrial Products Marketing.

Even conceding for purposes of discussion that the promissory note in question is a negotiable
instrument, the respondent cannot be a holder in due course for a more significant reason.
Sections 52 and 56 of the Negotiable Instruments Law provide that:
xxx xxx xxx
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:
xxx xxx xxx
xxx xxx xxx
(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
xxx xxx xxx
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.

A mere perusal of the documents evidencing the sale on installment of the tractors show that they
were all executed on the same day by and among the buyer, seller-assignor, and the assignee-
financing company. Therefore, the respondent had actual knowledge of the fact that the seller-
assignor's right to collect the purchase price was not unconditional, and that it was subject to the
condition that the tractors -sold were not defective. The respondent knew that when the tractors
turned out to be defective, it would be subject to the defense of failure of consideration and cannot
recover the purchase price from the petitioners.

In the case of Commercial Credit Corporation v. Orange Country Machine Works (34 Cal. 2d 766)
involving similar facts, it was held that in a very real sense, the finance company was a moving
force in the transaction from its very inception and acted as a party to it. When a finance company
actively participates in a transaction of this type from its inception, it cannot be regarded as a
holder in due course of the note given in the transaction. It follows that the respondent's rights
under the promissory note involved in this case are subject to all defenses that the petitioners
have against the seller-assignor for Section 58 of the Negotiable Instruments Law provides that
"in the hands of any holder other than a holder in due course, a negotiable instrument is subject
to the same defenses as if it were non-negotiable. ... "
ROMEO C. GARCIA VS. DIONISIO V. LLAMAS, G.R. NO. 154127. DECEMBER 8, 2003

Facts: A complaint for sum of money was filed by respondent Dionisio Llamas against Petitioner
Romeo Garcia and Eduardo de Jesus alleging that the two borrowed Php 400, 000 from him.
They bound themselves jointly and severally to pay the loan on or before January 23, 1997 with
a 15% interest per month. The loan remained unpaid despite repeated demands by respondent.

Petitioner resisted the complaint alleging that he signed the promissory note merely as an
accommodation party for de Jesus and the latter had already paid the loan by means of a
check and that the issuance of the check and acceptance thereof novated or superseded
the note.

The trial court rendered a judgment on the pleadings in favor of the respondent and directed
petitioner to pay jointly and severally respondent the amounts of Php 400, 000 representing the
principal amount plus interest at 15% per month from January 23, 1997 until the same shall
have been fully paid, less the amount of Php 120,000 representing interests already paid.

The Court of Appeals ruled that no novation, express or implied, had taken place when
respondent accepted the check from de Jesus. According to the CA, the check was issued
precisely to pay for the loan that was covered by the promissory note jointly and severally
undertaken by petitioner and de Jesus. Respondent’s acceptance of the check did not serve to
make de Jesus the sole debtor because first, the obligation incurred by him and petitioner was
joint and several; and second, the check which had been intended to extinguish the obligation
bounced upon its presentment.

Issues: (1) Whether or not there was novation of the obligation

(2) Whether or not petitioner is free from liability on the promissory note as an accommodation
party?

Held: For novation to take place, the following requisites must concur: (1) There must be a
previous valid obligation; (2) the parties concerned must agree to a new contract; (3) the old
contract must be extinguished; and (4) there must be a valid new contract.

The parties did not unequivocally declare that the old obligation had been extinguished by the
issuance and the acceptance of the check or that the check would take the place of the note.

(2) By its terms, the note was made payable to a specific person rather than bearer to or
order—a requisite for negotiability. Hence, petitioner cannot avail himself of the NIL’s provisions
on the liabilities and defenses of an accommodation party. Besides, a non-negotiable note is
merely a simple contract in writing and evidence of such intangible rights as may have been
created by the assent of the parties. The promissory note is thus covered by the general
provisions of the Civil Code, not by the NIL.

Even granting that the NIL was applicable, still petitioner would be liable for the note. An
accommodation party is liable for the instrument to a holder for value even if, at the time of its
taking, the latter knew the former to be only an accommodation party. The relation between an
accommodation party and the party accommodated is, in effect, one of principal and surety. It is
a settled rule that a surety is bound equally and absolutely with the principal and is deemed an
original promissory debtor from the beginning. The liability is immediate and direct.
G.R. No. 166018 June 4, 2014
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE
BRANCHES, Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent;
x-----------------------x
G.R. No. 167728
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE
BRANCHES, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.

NATURE: Petitions for review on certiorari assailing the Decision and Resolution of the CA. The
respective Decisions in the said cases similarly reversed and set aside the decisions of the CTA
and dismissed the petition of Petitioner HSBC.

FACTS:
1. HSBC performs custodial services on behalf of its investor-clients with respect to their
passive investments in the Philippines, particularly investments in shares of stocks in
domestic corporations. As a custodian bank, HSBC serves as the collection/payment
agent.

2. HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which
are managed by HSBC through instructions given through electronic messages. The said
instructions are standard forms known in the banking industry as SWIFT, or "Society for
Worldwide Interbank Financial Telecommunication." In purchasing shares of stock and
other investment in securities, the investor-clients would send electronic messages from
abroad instructing HSBC to debit their local or foreign currency accounts and to pay the
purchase price therefor upon receipt of the securities.

3. Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid
Documentary Stamp Tax (DST) from September to December 1997 and also from
January to December 1998 amounting to P19,572,992.10 and P32,904,437.30,
respectively.

4. BIR, thru its then Commissioner, issued BIR Ruling to the effect that instructions or advises
from abroad on the management of funds located in the Philippines which do not involve
transfer of funds from abroad are not subject to DST. A documentary stamp tax shall be
imposed on any bill of exchange or order for payment purporting to be drawn in a foreign
country but payable in the Philippines.

a. While the payor is residing outside the Philippines, he maintains a local and
foreign currency account in the Philippines from where he will draw the
money intended to pay a named recipient. The instruction or order to pay
shall be made through an electronic message. Consequently, there is no
negotiable instrument to be made, signed or issued by the payee.
 b. Such electronic instructions by the non-resident payor cannot be considered as a
transaction per se considering that the same do not involve any transfer of funds
from abroad or from the place where the instruction originates. Insofar as the local
bank is concerned, such instruction could be considered only as a memorandum
and shall be entered as such in its books of accounts. The actual debiting of the
payor’s account, local or foreign currency account in the Philippines, is the actual
transaction that should be properly entered as such. Under the Documentary
Stamp Tax Law, the mere withdrawal of money from a bank deposit, local or
foreign currency account, is not subject to DST, unless the account so maintained
is a current or checking account, in which case, the issuance of the check or bank
drafts is subject to the documentary stamp tax.
c. Likewise, the receipt of funds from another bank in the Philippines for deposit to
the payee’s account and thereafter upon instruction of the non-resident depositor-
payor, through an electronic message, the depository bank to debit his account
and pay a named recipient shall not be subject to documentary stamp tax. It should
be noted that the receipt of funds from another local bank in the Philippines by a
local depository bank for the account of its client residing abroad is part of its
regular banking transaction which is not subject to documentary stamp tax.

5. With the above BIR Ruling as its basis, HSBC filed on an administrative claim for the
refund of allegedly representing erroneously paid DST to the BIR
6. As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the
matter to the CTA, which favored HSBC and ordered payment of refund or issuance of tax
credit.
7. However, the CA reversed decisions of the CTA and ruled that the electronic messages
of HSBC’s investor-clients are subject to DST.
a. DST is levied on the exercise by persons of certain privileges conferred by law for
the creation, revision, or termination of specific legal relationships through the
execution of specific instruments, independently of the legal status of the
transactions giving rise thereto.

ISSUE: Whether or not the electronic messages are considered transactions pertaining to
negotiable instruments that warrant the payment of DST.
HELD: NO.

The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied on the
acceptance or payment of "a bill of exchange purporting to be drawn in a foreign country but
payable in the Philippines" and that "a bill of exchange is an unconditional order in writing
addressed by one person to another, signed by the person giving it, requiring the person to whom
it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money
to order or to bearer."

The Court further agrees with the CTA that the electronic messages of HSBC’s investor-clients
containing instructions to debit their respective local or foreign currency accounts in the
Philippines and pay a certain named recipient also residing in the Philippines is not the transaction
contemplated under Section 181 of the Tax Code as such instructions are "parallel to an automatic
bank transfer of local funds from a savings account to a checking account maintained by a
depositor in one bank." The Court favorably adopts the finding of the CTA that the electronic
messages "cannot be considered negotiable instruments as they lack the feature of negotiability,
which, is the ability to be transferred" and that the said electronic messages are "mere
memoranda" of the transaction consisting of the "actual debiting of the [investor-client-payor’s]
local or foreign currency account in the Philippines" and "entered as such in the books of account
of the local bank," HSBC.

The instructions given through electronic messages that are subjected to DST in these cases are
not negotiable instruments as they do not comply with the requisites of negotiability under Section
1 of the Negotiable Instruments Law. The electronic messages are not signed by the investor-
clients as supposed drawers of a bill of exchange; they do not contain an unconditional order to
pay a sum certain in money as the payment is supposed to come from a specific fund or account
of the investor-clients; and, they are not payable to order or bearer but to a specifically designated
third party. Thus, the electronic messages are not bills of exchange. As there was no bill of
exchange or order for the payment drawn abroad and made payable here in the Philippines, there
could have been no acceptance or payment that will trigger the imposition of the DST under
Section 181 of the Tax Code.

In these cases, the electronic messages received by HSBC from its investor-clients abroad
instructing the former to debit the latter's local and foreign currency accounts and to pay the
purchase price of shares of stock or investment in securities do not properly qualify as either
presentment for acceptance or presentment for payment. There being neither presentment for
acceptance nor presentment for payment, then there was no acceptance or payment that could
have been subjected to DST to speak of.

WHEREFORE, the petitions are hereby GRANTED and the Decisions dated May 2, 2002 in CTA
Case No. 6009 and dated December 18, 2002 in CT A Case No. 5951 of the Court of Tax Appeals
are REINSTATED. SO ORDERED.
CALTEX (PHILS.), INC. VS. COURT OF APPEALS AND SECURITY BANK AND TRUST CO.
G.R. NO. 97753, AUG. 10, 1992

FACTS:

Security bank issued Certificates of Time Deposits to Angel dela Cruz. The same were given by
Dela Cruz to Caltex in connection to his purchase of fuel products of the latter. On a later date,
Dela Cruz approached the bank manager, communicated the loss of the certificates and
requested for a reissuance.

Upon compliance with some formal requirements, he was issued replacements. Thereafter, he
secured a loan from the bank where he assigned the certificates as security. Here comes the
petitioner, averred that the certificates were not actually lost but were given as security for
payment for fuel purchases.

The bank demanded some proof of the agreement but the petitioner failed to comply. The loan
matured and the time deposits were terminated and then applied to the payment of the loan.

Petitioner demands the payment of the certificates but to no avail.

ISSUE:

Whether or not the certificates of time deposits (CTDs) are negotiable instruments?

HELD:

Yes. The Court held that the CTDs are negotiable instruments. The CTDs in question undoubtedly
meet the requirements of the law for negotiability.

The Negotiable Instruments Law provides, an instrument to be negotiable must conform to certain
requirements, hence,

It must be in writing and signed by the maker or drawer;

Must contain an unconditional promise or order to pay a sum certain in money;
Must be payable on demand, or at a fixed or determinable future time;
Must be payable to order or to bearer; and
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. And who,
according to the document, is the depositor? It is the “bearer.” The documents do not say that the
depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him.
Rather, the amounts are to be repayable to the bearer of the documents or, for that matter,
whosoever may be the bearer at the time of presentment.

If it was really the intention of respondent bank to pay the amount to Angel de la Cruz
only, it could have with facility so expressed that fact in clear and categorical terms in the
documents, instead of having the word “BEARER” stamped on the space provided for the name
of the depositor in each CTD. On the wordings of the documents, therefore, the amounts
deposited are repayable to whoever may be the bearer thereof.

Thus, petitioner’s aforesaid witness merely declared that Angel 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. Hence, the situation would require any party dealing with the CTDs to go behind the plain
import of what is written thereon to unravel the agreement of the parties thereto through
facts aliunde. This need for resort to extrinsic evidence is what is sought to be avoided
by the Negotiable Instruments Law and calls for the application of the elementary rule that
the interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity.