NEGOTIABLE INSTRUMENTS LAW Based on the Syllabus of Atty. Valerie Gayle J. Patac, the Book of Hector S.

Book of Hector S. De Leon & USC EH 404 2016-17 Notes

I. INTRODUCTION Later, Firestone Tire & Rubber Co. (Plaintiff/Firestone) and Fojas-Arca entered
A. APPLICATION AND PURPOSE OF NIL into a Franchised Dealership Agreement whereby Fojas Archa has the
The Act applies only to negotiable instruments or to those instruments which privilege to purchase on credit and sell plaintiff’s products, amounting to P4,
meet the requirements laid down in Section 1 of the law. 896,000. In payment of these purchases, Fojas-Arca delivered six special
withdrawal slips upon LBP. Consequently, these were deposited by Firestone
Sec. 1. Form of Negotiable Instruments — An instrument to be negotiable in its current account with Citibank. All six withdrawal slips were honored
must conform to the following requirements: and paid by LBP. This circumstance made Firestone believe that the
(a) It must be in writing and signed by the drawer; succeeding withdrawal slips would be equally sufficiently funded.
(b) Must contain an unconditional promise or order to pay a sum certain in
However, on December 14, 1978, Firestone was informed by Citibank that the
money;
TWO special withdrawal slips were dishonored and not paid for the reason of
(c) Must be payable on demand, or at a fixed or determinable future time;
NO ARRANGEMENT. By this, Firestone wrote a demand upon LBP for the
(d) Must be payable to order or to bearer; and
satisfaction of the damages suffered by it, but due to LBP’s refusal to heed
(e) Where the instrument is addressed to a drawee, he must be named or
such demand, plaintiff filed this complaint.
otherwise indicated with reasonable certainty.
LBP’s Assertions:
What about those not provided in the Act?
(1) The transactions mentioned by Firestone are that of Firestone and Fojas-
It shall be governed by the provisions of existing legislation or in default
Arca only, and which, LBP is not involved, for which reason defendant is not
thereof, by the rules of the law merchant. The Civil Code has no effect on its
duty bound to notify nor give notice of anything to plaintiff.
provisions except to supply any deficiency in cases not covered by the Act.
(2) LBP denied that the withdrawal slips were honored by them, they merely
(Art 18)
verified w/n the signatures were authentic, and w/n funds were sufficient. If
Firestone treated such slips as checks then Firestone has to blame itself for
B. CHARACTERISTICS OR FEATURES OF A NEGOTIABLE INSTRUMENT
gross negligence treating the withdrawal slips as check when it is clearly
NEGOTIABILITY stated that the withdrawal slips are non-negotiable.
A quality or attribute of a bill or note whereby it may pass from hand to
hand similar to money; so as to give the holder in due course the right to hold LOWER COURTS’ RULING
the instrument and collect the sum payable for himself free from any infirmity RTC: Dismissed.
in the instrument or defect in the title of any of the prior parties, or defenses CA: Denied appeal, and affirmed RTC decision. LBP was not negligent in not
available to them among themselves. requiring a passbook under said transaction. The special withdrawal slips in
question were not purposely given the appearance of checks, contrary to
The rule that one can pass no better title to personal property than he, petitioner's assertions, and thus should not have been mistaken for checks.
himself has, does not apply to negotiable instruments. As such, when one
who innocently takes currency from a finder not knowing that it is derived ISSUE: W/N LBP (defendant) should be held liable for damages suffered by
from theft, he can hold it against the world. Including the true owner. Firestone, due to its allegedly belated notice of non-payment of the subject
withdrawal slips.
EXAMPLE:
Suppose S sells and delivers goods to B who later refuses to pay for HELD: No. Petitioner Firestone admitted that the withdrawal slips were non-
them as they, in fact, are not as ordered. In a suit by S against B for negotiable. Hence, the giving of immediate notice of dishonor of negotiable
the price, B can successfully raise breach of contract by S as a instruments do not apply in this case. Thus, respondent bank was under no
defense. If S assigns the account to X, B can interpose the same obligation to give such notice that it would not make payment.
defense against X notwithstanding the fact that X did not know of
any dispute between S and B when X bought B's account. As Citibank could not have missed the non-negotiable nature of the withdrawal
assignee X stands in the shoes of S, his assignor. slips. The essence of negotiability which characterizes a negotiable paper as
a credit instrument lies in its freedom to circulate freely as a substitute for
Assume now that B had issued to S his promissory note for the money. The withdrawal slips in question lacked this character.
price of the goods. If S sues B on the note, the defense of breach of
contract is available to B. But if S negotiates the note to Y who Fiduciary Duty of Bank to scrutinize
takes the note under such circumstances as to make him a holder The fact that the other withdrawal slips were honored and paid by respondent
in due course, B can no longer interpose such defense against Y. bank was no license for Citibank to presume that subsequent slips would be
honored and paid immediately. By doing so, it failed in its fiduciary duty to
A bona fide holder, however, while free from personal defenses available to treat the accounts of its clients with the highest degree of care.
prior parties among themselves, is subject to real defenses that might have
obtained between them. Ratio: Why Citibank and Firestone should bear the risk The withdrawal slips
were not checks, as Firestone admits. Citibank was not bound to accept the
ACCUMULATION OF CONTRACTS withdrawal slips as valid mode of deposit. But having erroneously accepted it,
The most important feature of negotiable instruments is the accumulation of Citibank, and Firestone, must bear the risks attendant to the acceptance.
secondary contracts as they are transferred from one person to another.
Once an instrument is issued, additional parties can become involved. Petition is denied. CA decision affirmed.

EXAMPLE: C. FUNCTION AND IMPORTANCE OF NEGOTIABLE INSTRUMENTS

Suppose A issues a promissory note payable to the order of B for  As substitute for money – Although they do not constitute as legal
the sum stated therein. Here, the contract is only between A and B. tender, and are not actual money, they are used as a subtitute for
A is primarily liable. money and can be passed freely from hand to hand in the
commercial markets.
If B transfers his right to the instrument to C, B thereby enters into
a new contract with C whereby B binds himself to pay in C in case Why? What is the purpose of the law?
A, the maker, does not pay the note. Here, B is secondarily liable. - To place negotiable instruments on equal footing with money so
The primary contract is that between A and B. The transfer of the that it would be freely accepted without question in commercial
note to C makes a secondary contract between B and C. transactions, thereby facilitate trade.
 As a medium of exhange for most commercial transactions –
CASE: negotiable papers, particularly checks, constitute the media of
FIRESTONE TIRE AND RUBBER CO. vs COURT OF APPEALS exchange for most commercial transactions. Without NP, more
AND LUZON DEV’T BANK money (coins or bank bills) would be in circulation.
| G.R. No. 113236 | March 5, 2001  As a medium of credit transactions – A man does not always have
property or valuable property rights which he can turn into cash at
TOPIC FROM THE SYLLABUS: NEGOTIABILITY any time. However, these tilings measure his credit and avails
The essence of negotiability which characterizes a negotiable paper as a credit himself of his credit by executing a promissory note.
instrument lies in its freedom to circulate freely as a substitute for money. The What is its purpose as regards to credit transactions?
withdrawal slips in question lacked this character. - Allow men of undoubted credit to carry on a business enterprise
upon their promissory notes, bills of exchange and checks knowing
FACTS that other businessmen will treat these promises as cash.
Luzon Development Bank (Defendant/LBP) is a banking corporation. One of its
clients, the Fojas-Arca Company, maintained a special savings account with EXAMPLE:
defendant, to which the LBP allowed withdrawals of funds through the S sells goods to B who gives a check or a promissory note payable until a
medium of special withdrawal slips. future date. Since S would have to wait until maturity date to collect, this

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 NEGOTIABLE INSTRUMENTS LAW Based on the Syllabus of Atty. Valerie Gayle J. Patac, the Book of Hector S. De Leon & USC EH 404 2016-17 Notes

is a form of extending credit to a buyer. Now S may wish to sell the The respondents refused to pay on the ground that they had already paid
instrument to a bank (or a third person) for immediate cash. In order to their obligation to FEBTC.
induce the bank (indorsee) which would have to wait for the maturity
before receiving payment, to buy the instrument, S accepts a discount of FEBTC filed a Complaint for Replevin and Damages against the respondents
say, 10% of the face amount. with the Metropolitan Trial Court (MeTC) of Manila praying for the delivery of
the vehicle, with an alternative prayer for the payment plus interest and/or
The bank, in effect, pays less than the amount it will eventually collect as
late payment charges per annnum from May 18, 1997 until fully paid.
a way of charging S (seller) interest in advance as compensation for its
role in the transaction.
Spouses’ Counterarguments:
(1) They alleged that they delivered eight postdated checks to the Auto
CASE: Financing Department of FEBTC covering the amount due, and attached an
MITRA V. PEOPLE OF THE PHILIPPINES Acknowledgement Receipt in their answer, which showed that FEBTC received
| G.R. No. 191404 | July 5, 2010 the checks.
(2) Spouses also averred that they did not receive any notice from the
TOPIC FROM THE SYLLABUS: Function and Importance of Negotiable drawee banks or from FEBTC that these checks were dishonored. Considering
Instruments (As a substitute for money) that the checks were issued three years from the complaint, they believed in
“A check is a negotiable instrument that serves as a substitute for money and good faith that their obligation had already been fully paid.
as a convenient form of payment in financial transactions and obligations.”
During trial, Mr. Vicente Magpusao testied that he had been connected with
FACTS FEBTC since 1994 and had assumed the position of Account Analyst since its
Petitioner Mitra was the Treasurer, and Cabrera (now deceased) is the merger with BPI. He admitted that they had, in fact, received the eight checks
President of Lucky Nine Credit Corporation (LNCC). Private respondent Tarcelo from the respondents. However, two of these checks (Landbank Check No.
invested money in LNCC between 1996 and 1999. Tarcelo was then issued 0610947 and FEBTC Check No. 17A00-11551P) amounting to P23,692.00 were
checks equivalent to the amounts he invested plus interest. dishonored. He recalled that the remaining two checks were not deposited
anymore due to the previous dishonor of the two checks. He said that after
When Tarcelo presented the checks for payment, they were dishonored for deducting these payments, the total outstanding balance of the obligation
the reason of “account closed.” Tarcelo made demands on LNCC but was represented the last four monthly installments.
frustrated. Hence, he filed seven informations for violation of BP22 in the total
amount of P925,000.00 with the MTCC in Batangas City. LOWER COURTS’ RULING
MTC: Dismissed the case and granted the respondent spouses’ counterclaim
LOWER COURT’S RULING for damages.
MTCC Ruling: MTCC found Mitra guilty. Petitioners appealed to the RTC RTC: Set aside MTC’s decision upon appeal and ordered the spouses to pay
contending that they signed the seven checks in blank. the amount claimed by the petitioner.
RTC Ruling: RTC affirmed the MTCC decision. Mitra filed a petition for review CA: Reversed RTC’s decision and reinstated MTC’s decision. CA denied
contending that there was no proper service of the notice of dishonor on her. motion for reconsideration.
CA: CA dismissed her petition for lack of merit. Hence, this petition.
ISSUE: WON tender of checks constitutes payment and WON the respondents
ISSUE/S: were able to prove full payment of their obligation
W/N the elements of violation of BP 22 must be proved beyond reasonable
doubt HELD: No. A check is not a legal tender and, therefore, cannot constitute as
W/N there is a proper service of notice of dishonor and demand to pay to the valid tender of payment.
petitioners (SC not a trier of facts)
Mere delivery of checks does not discharge the obligation under a judgment.
HELD: No. The purpose of BP 22 in declaring the mere issuance of a bouncing The obligation is not extinguished and remains suspended until the payment
check as a malum prohibitum is to punish the offender in order to deter him by commercial document is actually realized. Furthermore, as correctly
and others from committing the offense. observed by the RTC, the acknowledgement receipt is only proof that
respondents delivered eight checks in payment of the amount due.
No. The 2nd issue is factual and is not proper for review. It is not the function Apparently, this will not suffice to establish actual payment.
of the Court to re-examine the findings of facts by the CA.
To establish their defense, the respondents therefore had to present proof,
RATIO RE: TOPIC not only that they delivered the checks to the petitioner, but also that the
A check is a negotiable instrument that serves as a substitute for money and checks were encashed. The respondents failed to do so. Had the checks been
as a convenient form of payment in financial transactions and obligations. The actually encashed, the respondents could have easily produced the cancelled
use of checks as payment allows commercial and banking transactions to checks as evidence to prove the same. Instead, they merely averred that they
proceed without the actual handling of money. It permits commercial and believed in good faith that the checks were encashed because they were not
banking transactions to be carried out quickly and efficiently. BP 22 is there to notified of the dishonor of the checks and three years had already lapsed
prevent the damage caused by unfunded checks that adversely affect since they issued the checks.
confidence in our commercial and banking activities, injuring public interest.
Because of the failure of the respondents to present sufficient proof of
CASE: payment, it was no longer necessary for the petitioner to prove non-payment,
BANK OF THE PHILIPPINE ISLANDS vs. SPOUSES REYNALDO particularly proof that the checks were dishonored. The burden of evidence is
AND VICTORIA ROYECA shifted only if the party upon whom it is lodged was able to adduce
| G.R. No. 176664 | July 21, 2008 preponderant evidence to prove its claim.

TOPIC FROM THE SYLLABUS: NEGOTIABLE INSTRUMENT AS SUBSTITUTE FOR Ratio:

MONEY Although negotiable instruments do not constitute as a legal tender (Art.
Settled is the rule that payment must be made in legal tender. A check is not a 1249, ibid.), and are not money, they are used as a substitute for money.
legal tender and, therefore, cannot constitute a valid tender of payment. Since However, a negotiable instrument differs from money, in that the former is
a negotiable instrument is only a substitute for money, the delivery of a check valuable or worthless depending upon the financial ability of the parties to
does not, by itself operate as payment, such as in the case at bar. them.

FACTS: Spouses Reynaldo and Victoria Royeca (respondents) executed and In the case at bar, two post-dated checks dishonored thus, rendering it
delivered to Toyota Shaw, Inc. a Promissory Note payable in 48 equal monthly worthless. In addition, as a check is not a legal tender, it therefore, cannot
installments, with a maturity date of August 18, 1997. The Promissory Note constitute a valid tender of payment. Since a negotiable instrument is only a
provides for a penalty of 3% for every month or fraction of a month that an substitute for money, the delivery of a check does not, by itself operate as
installment remains unpaid. To secure payment of said Promissory Note, payment.
respondents executed a Chattel Mortgage in favor of Toyota.

Toyota, with notice to respondents, executed a Deed of Assignment, CASE:

transferring all its rights, title, and interest in the Chattel Mortgage to Far East CEBU INTERNATIONAL FINANCE CORP. v. CA
Bank and Trust Company (FEBTC). I G.R. No. 123031 I October 12, 1999
TOPIC FROM THE SYLLABUS: FUNCTION AND IMPORTANCE OF NEGOTIABLE
Claiming that the respondents failed to pay four (4) monthly amortizations INSTRUMENTS
covering the period from May 18, 1997 to August 18, 1997, FEBTC sent a Article 1249 of the New Civil Code deals with a mode of extinction of an
formal demand to respondents asking for the payment thereof, plus penalty. obligation and expressly provides for the medium in the "payment of debts."

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 NEGOTIABLE INSTRUMENTS LAW Based on the Syllabus of Atty. Valerie Gayle J. Patac, the Book of Hector S. De Leon & USC EH 404 2016-17 Notes

It provides that: "The payment of debts in money shall be made in the amount of 50,000 pesos for each. Thereafter, the payee (Victoriano)
currency stipulated, and if it is not possible to deliver such currency, then in negotiated the checks to petitioner State Investment House, Inc. (State).
the currency, which is legal tender in the Philippines. The delivery of
promissory notes payable to order, or bills of exchange or other mercantile Moulic failed to sell the jewelry, so she returned them to Victoriano before
documents shall produce the effect of payment only when they have been the maturity of the checks. The checks could no longer be retrieved as they
cashed, or when through the fault of the creditor they have been impaired. had already been negotiated. Consequently, the checks were dishonoured for
insufficiency of funds upon maturity of payment. State allegedly informed
FACTS: Moulic of the dishonour of the checks and requested instead for cash
Cebu International Finance Corporation (CIFC), a quasi-banking institution, is payment, though Moulic denies receiving said notice.
engaged in money market operations. On April 25, 1991, private respondent,
Vicente Alegre, invested with CIFC, five hundred thousand (P500,000.00) State sued to recover of the value of the checks plus attorney’s fees.
pesos, in cash. Petitioner issued a promissory note to mature on May 27,
1991. The note for five hundred sixteen thousand, two hundred thirty-eight Moulic contends that she incurred no obligation as the jewelry had never
pesos and sixty-seven centavos (P516,238.67) covered private respondent's been sold and the checks were negotiated without her consent.
placement plus interest at twenty and a half (20.5%) percent for thirty-two
(32) days. LOWER COURT’S RULING
RTC dismissed the complaint and ordered State to pay Moulic attorney’s fees.
On May 27, 1991, CIFC issued BPI Check No. 513397 (hereinafter the CHECK) CA affirmed the RTC on the ground that the Notice of Dishonor to MOULIC
for five hundred fourteen thousand, three hundred ninety pesos and ninety- was made beyond the period prescribed by the Negotiable Instruments Law.
four centavos (P514,390.94) in favor of the private respondent as proceeds of The sale of the jewelry was never effected; the checks, therefore, ceased to
his matured investment plus interest. The CHECK was drawn from petitioner's serve their purpose as security for the jewelry.
current account number 0011-0803- 59, maintained with the Bank of the
Philippine Islands (BPI), main branch at Makati City. On June 17, 1991, private ISSUES:
respondent's wife deposited the CHECK with Rizal Commercial Banking Corp. WON State was a holder of the checks in due course.
(RCBC), in Puerto Princesa, Palawan. BPI dishonored the CHECK with the WON State may exact payment from Moulic.
annotation, that the "Check (is) Subject of an Investigation." BPI took custody
of the CHECK pending an investigation of several counterfeit checks drawn HELD: Yes to both. Sec. 52 of the Negotiable Instruments Law provides-
against CIFC's aforestated checking account. BPI used the check to trace the
perpetrators of the forgery. What constitutes a holder in due course. — A holder in due course is a holder
who has taken the instrument under the following conditions: (a) That it is
On February 25, 1992, private respondent Alegre filed a complaint for complete and regular upon its face; (b) That he became the holder of it before
recovery of a sum of money against the petitioner with the Regional Trial it was overdue, and without notice that it was previously dishonored, if such
Court of Makati (RTC-Makati). On July 13, 1992, CIFC sought to recover its lost was the fact; (c) That he took it in good faith and for value; (d) That at the time
funds and formally filed against BPI, a separate civil action for collection of a it was negotiated to him he had no notice of any infirmity in the instrument or
sum of money with the RTC-Makati. The collection suit alleged that BPI defect in the title of the person negotiating it.
unlawfully deducted from CIFC's checking account, counterfeit checks.
All requirements were present when the checks were negotiated to State,
The money market transaction between the petitioner and the private thus, they are holders in due course.
respondent is in the nature of a loan. The private respondent accepted the
CHECK, instead of requiring payment in money. Yet, when he presented it to Also, Moulic, as drawer, is liable for the value of the checks she issued to the
RCBC for encashment, as early as June 17, 1991, the same was dishonored by holder in due course, State, without prejudice to any action for recompense
non-acceptance, with BPI's annotation: "Check (is) subject of an she may pursue against the Victorianos as Third-Party Defendants who had
investigation." These facts were testified to by BPI's manager. Under these already been declared as in default. The petition is granted.
circumstances, and after the notice of dishonor, the holder has an immediate
right of recourse against the drawer, and consequently could immediately file CASE:
an action for the recovery of the value of the check. In a loan transaction, the OSMENA VS CITIBANK
obligation to pay a sum certain in money may be paid in money, which is the | G.R. No. 141278 | March 23, 2004
legal tender or, by the use of a check. A check is not a legal tender, and
therefore cannot constitute valid tender of payment. TOPIC FROM SYLLABUS:
Function and Importance of Negotiable Instruments
LOWER COURT’S RULING: The Negotiable Instruments Law was enacted for the purpose of facilitating,
RTC- rendered judgment in favor of Vicente Alegre. not hindering or hampering transactions in commercial paper. Thus, the said
CA- affirmed the decision of the trial court statute should not be tampered with haphazardly or lightly. Nor should it be
brushed aside in order to meet the necessities in a single case.
ISSUE: Whether or not a check is of legal tender thereby extinguishing the
obligation of Cebu International Finance Corp. to pay Alegre. FACTS
Petitioner Michael Osmena filed for damages against Citibank and Associated
HELD: NO. According to Article 1249 of the New Civil Code, "The payment Bank, alleging that he purchased from Citibank the amount of P1,545,000
of debts in money shall be made in the currency stipulated, and if it is not payable to respondent Frank Tan (Tan). Later, Osmena knew that the
possible to deliver such currency, then in the currency, which is legal tender in manager’s check was deposited with Associated Bank to the account of Julius
the Philippines.” Dizon. Due to the payment by the respondents of the check to an improper
The obligation is not extinguished and remains suspended until the payment party and the absence of any indorsement by the payee for the check, as per
by commercial document is actually realized. Although the value of the check knowledge of Osmena, it would turn out that Tan did not receive the value
was deducted from the funds of CIFC, it was not delivered to Alegre therefore, thereof. As such, Osmena demanded from respondent Citibank the
it did not not ipso facto operate as a discharge or payment. reimbursement of the check, and upon refusal to heed such request, this
complaint.
RATIO:
"Since a negotiable instrument is only a substitute for money and not money, Respondent Citibank answered that the payment of the check was made by it
the delivery of such an instrument does not, by itself, operate as payment. A in due course. Since a manager’s check is normally purchased in favor of a
check, whether a manager's check or ordinary check, is not legal tender, and third party, the identity of whom in most cases is unknown to the issuing
an offer of a check in payment of a debt is not a valid tender of payment and bank, its only responsibility is to ascertain the genuineness of the check.
may be refused receipt by the obligee or creditor. Mere delivery of checks
does not discharge the obligation under a judgment. The obligation is not LOWER COURTS’ RULING
extinguished and remains suspended until the payment by commercial TC: Dismissed the action, ordered Tan to pay Osmena P1, 545,000
document is actually realized (Art. 1249, Civil Code, par. 3.)" CA: Affirmed TC’s decision

CASE: Osmena’s appeal before SC:

STATE INVESTMENT HOUSE, INC., vs. COURT OF APPEALS Julius Dizon was not a holder of the check in due course, he could not validly
and NORA B. MOULIC negotiate the check. The latter was not even a transferee in due course
| G.R. No. 101163 | January 11, 1993 because respondent Tan, the payee, did not endorse the said check. The
position of the respondent Bank is akin to that of a bank accepting a check for
FACTS deposit wherein the signature of the payee or endorsee has been forged.
Nora Moulic issued to Victoriano, as a security for pieces of jewelry to be sold
on commission, two postdated Equitable Banking corporation checks in the ISSUE: W/N Julius Dizon could validly negotiate the check

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 NEGOTIABLE INSTRUMENTS LAW Based on the Syllabus of Atty. Valerie Gayle J. Patac, the Book of Hector S. De Leon & USC EH 404 2016-17 Notes

HELD: Yes. Respondent Associated Bank successfully supported its assertion Petitioner Loreta Serrano bought pieces of jewelry from Niceta Ribaya. The
that Tan and Dizon were one and the same person. The check was endorsed petitioner, then in need of money, instructed her private secretary, Josene
by Julius Dizon and deposited to Associated Bank. Indeed, the evidence shows Rocco, to pawn the jewelry. Josena Rocco went to private respondent Long
that the amount was in the name of Frank Tan, who also uses the alias Julius Life Pawnshop, Inc. ("Long Life"), pledged the jewelry with its principal owner
Dizon. and General Manager, Yu An Kiong, and then absconded with the money and
the pawn ticket. The pawnshop ticket issued to Josena Rocco stipulated that it
Osmena counters that such use of an alas is illegal, but this is an irrelevant was redeemable "on presentation by the bearer."
casuistry that does not retract from the fact that Tan as Julius Dizon encashed
and deposited the P1,545,000.00. All told, the petitioner’s allegation that Three months later, Niceta Ribaya was informed that a pawnshop ticket issued
respondent Tan did not receive the proceeds of the check is belied by the by Long Life was being offered for sale. She was told that the ticket probably
evidence on record and attendant circumstances. Respondent Tan did not covered jewelry she once owned and which jewelry had been pawned by one
appeal the decision of the RTC. Josena Rocco.

Suspecting that it was the same jewelry she had sold to petitioner Loreta
CASE:
Serrano, Niceta informed petitioner of this offer and suggested that she go to
PHIL. EDUCATION V. SORIANO
the Long Life pawnshop to check the matter out. Petitioner went to Long Life,
| G.R. No. L-22405 | June 30, 1971
verified that indeed her missing jewelry was pledged there and told Yu An
Kiong not to permit anyone to redeem the jewelry because she was the lawful
TOPIC FROM THE SYLLABUS: Function and Importance of Negotiable
owner thereof. Petitioner claims that Yu An Kiong agreed.
Instruments (As a substitute for money)
“Postal money orders are not negotiable instruments, the reason behind this
Petitioner then went to the Manila Police Department to report the loss, and
rule being that, in establishing and operating a postal money order system,
filed a complaint against Josena Rocco. On the same date, Detective Corporal
the government is not engaging in commercial transactions but merely
Mateo went to the pawnshop, showed Yu An Kiong petitioner's report and
exercises a governmental power for the public benefit.”
left the latter a note asking him to hold the jewelry and notify the police in
case someone should redeem the same. However, Yu An Kiong permitted one
Tomasa de Leon, exhibiting the appropriate pawnshop ticket, to redeem the
FACTS
jewelry the next day.
On April 18, 1958, Enrique Montinola sought to purchase from the Manila
Post Office ten money orders of P200.00 each payable to Montinola.
Hence, petitioner filed a complaint damages against Long Life for failure to
Montinola offered to pay for them with a private check. As checks were not
hold the jewelry and for allowing its redemption without first notifying
generally accepted in payment of money orders, the teller advised him to see
petitioner or the police.
the Chief of Money Order Division. However, Montinola managed to leave
with the money orders and his own check.
LOWER COURTS’ RULING:
CFI: Rendered a decision in favor of petitioner Loreta Seranno.
Upon discovery of the disappearance, an urgent message was sent to all
CA: Dismissed the complaint and reversed the CFI’s decision on appeal. The
postmasters, instructing them not to pay anyone of the money orders if
CA gave credence to Yu An Kiong's testimony that neither petitioner nor
presented for payment. The Bank of America received a copy of the notice
Detective Mateo ever apprised him of the misappropriation of petitioner's
three days later.
loan, or obtained a commitment from him not to permit redemption of the
jewelry.
On April 23, 1958, one of the money orders was received by petitioner as part
of its sales receipts. It deposited with Bank of America and cleared it with the
ISSUE: WON the pawn ticket was a negotiable instrument and;
Bureau of Posts and received the face value of P200.00.
WON it dissolved Yu An Kiong’s duty to hold the things pledged and to give
notice to petitioner and the police of any effort to redeem them
On Sept. 27, 1961, Soriano notified the Bank of America that the money order
was irregularly issued and that, the amount it represented was deducted from
HELD: No. A pawn ticket is not a negotiable instrument under the Negotiable
the bank’s clearing account.
Instruments Law nor a negotiable document of title under Articles 1507, et
seq. of the Civil Code.
On Jan. 8, 1962, petitioners filed an action against respondents in the
Municipal Court of Manila praying for the notice to be countermanded and to
Having been notified by petitioner and the police that jewelry pawned to it
pay the plaintiff damages.
was either stolen or involved in an embezzlement of the proceeds of the
pledge, private respondent pawnbroker became duty bound to hold the
LOWER COURT’S RULING
things pledged and to give notice to petitioner and the police of any effort to
MTC Ruling: MTC ruled in favor of petitioners.
redeem them. Such a duty was imposed by Article 21 of the Civil Code. 6 The
Court of First Instance Ruling: CFI reversed the decision. Hence this petition.
circumstance that the pawn ticket stated that the pawn was redeemable by
the bearer, did not dissolve that duty.
ISSUE: W/N the postal money order is a negotiable instrument.
If a third person who claimed to be the owner thereof, redeemed the things
HELD: No. Petitioners averred that postal money order is a negotiable
pledged a day after petitioner and the police notified Long Life, the prudent
instrument; that its nature is not in any way affected by the letter signed by
recourse of the pawnbroker was to file an interpleader suit, impleading both
the Director of Posts and that money orders, once issued, create a contractual
petitioner and the third person. The respondent pawnbroker was, of course,
relationship of debtor and creditor between the government and the
entitled to demand payment of the loan extended on the security of the
remitters payees, or endorsees.
pledge before surrendering the jewelry, upon the assumption that it had given
the loan in good faith and was not a "fence" for stolen articles and had not
In the cases of Bolognesi v. US and US v. Stock Drawers National Bank held
conspired with the faithless Josena Rocco or with a third person. Respondent
that postal money orders are not negotiable instruments. The reason behind
pawnbroker acted in reckless disregard of that duty in the instant case and
this rule being that, in establishing and operating a postal money order
must bear the consequences, without prejudice to its right to recover
system, the government is not engaging in commercial transactions but
damages from Josefina Rocco.
merely exercises a governmental power for the public benefit.
Ratio:
RATIO RE: TOPIC
The pawn ticket is not a negotiable instrument and will not absolve
The postal statutes are patterned after similar statutes in force in the US. For
respondent pawnbroker from his duty to hold the things pledged and to give
this reason, ours are generally construed in accordance with the construction
notice to petitioner and the police of any effort to redeem the pawn. Having
given in the United States to their own postal statytes, in the absence of any
failed to uphold his duty, the respondent pawnbroker must bear the
special reason justifying a departure from this policy or practice.
consequences.

CASE: D. FORMS OF NEGOTIABLE INSTRUMENTS

LORETA SERRANO vs. COURT OF APPEALS and LONG LIFE PAWNSHOP, INC.
 Common Forms
| G.R. No. L-45125 | April 22, 1991 |
 Special Types
COMMON FORMS
TOPIC FROM THE SYLLABUS: NEGOTIABILITY
1. Promissory Note – an unconditional promise in writing made by
A pawn ticket is not a negotiable instrument under the Negotiable
one person to another, signed by the maker, engaging to pay on
Instruments Law nor a negotiable document of title under Articles 1507, et
demand, or at a fixed or determinable future time, a sum certain in
seq. of the Civil Code.
money to order or to bearer. Where a note is drawn to maker’s
own order, it is not complete until indorsed by him (sec 184).
FACTS:
 Certificates of Deposits

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 Bank Notes the aggregate amount of P1,120,000.00. Angel dela Cruz delivered the said
 Due Bills certificates of time deposit (CTDs) to herein plaintiff, Caltex, in connection
 Bonds with his purchase of fuel products from the latter. After some time, dela Cruz
informed Mr. Tiangco, the Sucat branch manager, that he lost all the
2. Bill of Exchange – an unconditional order in writing addressed by certificates of time deposit. Mr. Tiangco advised dela Cruz to execute and
one person to another, signed by the person giving it, requiring the submit a notarized Affidavit of Loss. Angel dela Cruz negotiated and obtained
person to whom it is addressed, to pay on demand or at a fixed or a loan from defendant bank and executed a notarized Deed of Assignment of
determinable future time a sum certain in money to order or to Time Deposit.
bearer (sec 126).
 Drafts Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc. went to the
 Trade Acceptances defendant bank's Sucat branch and presented for verification the CTDs
 Banker’s Acceptances declared lost by Angel dela Cruz alleging that the same were delivered to
Caltex as security for purchases made with Caltex Philippines, Inc. by said
(SPECIAL FORM OR KIND OF BILL OF EXCHANGE) depositor, dela Cruz. Caltex was requested by Security Bank to furnish a copy
3. Bank Check – a bill of exchange drawn on a bank payable on of the document evidencing the guarantee agreement with Mr. Angel dela
demand. Except as otherwise provided, the provisions of NIL Cruz as well as 'the details of Mr. Angel dela Cruz' obligations against which
applicable to a bill of exchange payable on demand, apply to a Caltex proposed to apply the time deposits. However, no copy of the
check. requested documents was furnished so Security Bank rejected Caltex’s
demand for payment. The loan matured and the time deposits were
II. GENERAL CONCEPTS terminated and then applied to the payment of the loan of Angel dela Cruz.
Petitioner Caltex demands the payment of the certificates but to no avail.
NON-NEGOTIABLE INSTRUMENT
An instrument which is not negotiable, that is, an instrument which does not
LOWER COURT’S RULING:
meet the requirements laid down to qualify an instrument as a negotiable one
RTC- dismissed the complaint filed therein by Caltex against private
(section 1 of NIL), or an instrument which in its inception was negotiable but
respondent bank.
has lost its quality of negotiability. Non-negotiable instruments are covered
CA- respondent court affirmed the lower court's dismissal of the complaint
by the Civil Code.
ISSUE:
Example: When instrument is Payable only to a specified person. A negotiable
WON the Certificates of Time Deposit (CTD) are Negotiable Instruments.
instrument ceases to be negotiable if the endorsement stated prohibits
WON the petitioner can rightfully recover the CTDs.
further negotiation.
HELD:
MONEY
A) YES. The documents provide that the amounts deposited shall be repayable
Coined or stamped by public authority and has its value fixed by public
to the depositor. The documents do not say that the depositor is Angel de la
authority, It is a medium of exchange authorized or adopted by a government
Cruz and that the amounts deposited are repayable specifically to him. Rather,
as part of its currency.
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
BILL OF EXCHANGE
really the intention of respondent bank to pay the amount to Angel de la Cruz
This theory states that the drawer has funds in the hands of the drawee it is at
only, it could have with facility so expressed that fact in clear and categorical
least presumed that the former must have made arrangements with the latter
terms in the documents, instead of having the word "BEARER" stamped on the
so that he will honor the bill.
space provided for the name of the depositor in each CTD.
III. FORM AND INTERPRETATION
B) NO. The records reveal that Angel de la Cruz, whom petitioner chose not to
Relevant Provision (WUDON)
implead in this suit for reasons of its own, delivered the CTDs amounting to
Section 1. Form of Negotiable Instruments. – An instrument, to be negotiable P1,120,000.00 to petitioner without informing respondent bank thereof at any
must conform to the following requirements: time. Unfortunately for petitioner, although the CTDs are bearer instruments,
(a) It must be in writing and signed by the maker or drawer; a valid negotiation thereof for the true purpose and agreement between it
(b) Must contain an unconditional promise or order to pay a sum certain in and De la Cruz, as ultimately ascertained, requires both delivery and
money; indorsement. For, although petitioner seeks to deflect this fact, the CTDs were
(c) Must be payable on demand, or at a fixed or determinable future time; in reality delivered to it as a security for De la Cruz' purchases of its fuel
(d) Must be payable to order or to bearer; and products.
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty. RATIO:
Negotiability or non-negotiability of an instrument is determined from the
The requirements above A-D, are necessary in order that a promissory note writing, that is, from the face of the instrument itself. In the construction of a
may be negotiable, while A-E are necessary in order that a bill of exchange bill or note, the intention of the parties is to control, if it can be legally
may be negotiable. ascertained. While the writing may be read in the light of surrounding
circumstances in order to more perfectly understand the intent and meaning
The above requisites are deemed essential for the security of commercial of the parties, yet as they have constituted the writing to be the only outward
transactions as they enable one to tell at a glance whether or not an and visible expression of their meaning, no other words are to be added to it
instrument is negotiable and accordingly, to gauge the risks involved in taking or substituted in its stead.
it as security.
B. MUST BE IN WRITING AND SIGNED BY THE MAKER OR DRAWER
A. DETERMINATION OF NEGOTIABILITY Form of writing – Any form of writing will do. It can also be printed,
A negotiable instrument, briefly stated, is a contractual obligation to pay typewritten, or stamped, as long as there is a manifestation in physical form of
money. However, whether or not an instrument is negotiable or non- the language of your obligation.
negotiable depends entirely on its form and content. In determining the
negotiability of an instrument, the following must be considered: Material – There is no requirement as to the material used. It can be on any
material as long as it can be transferred from one hand to another.
(1) the whole of the instrument;
(2) only what appears on the face of the instrument; and SIGNED BY THE MAKER OR DRAWER
(3) the provisions of the Negotiable Instruments Law especially Section Difference between maker and drawer
1 thereof which gives the requirements of negotiability.
- A maker is the one who makes a promise to pay in a promissory
A valid instrument is not necessarily negotiable. Every negotiable instrument note. He is personally liable to pay.
is presumed to be a contract but not every contract is a negotiable - A drawer is the one who issues a bill of exchange to order a
instrument. payment to be made. He orders someone to make the payment.

CASE: Note: Maker or drawer does not have to be the one who writes, as long as
CALTEX PHILIPPINES v. CA he/she is the one who signs.
I G.R. No. 97753 I August 10, 1992
Location of the signature – The signature may appear in any part of the
instrument. It can appear at the back or on the face of the instrument. There
FACTS:
is no requirement on where the signature should be placed.
Security Bank and Trust Company (Security Bank), a commercial banking
institution, through its Sucat Branch issued 280 certificates of time deposit It can be signed anywhere provided that such signature signifies the intention
(CTDs) in favor of one Angel dela Cruz who deposited with herein defendant by the maker or drawer to be bound by the instrument
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Type of signature – There is no requirement, as long as there is intent to be When is sum considered certain in money?
bound. A sum is certain in money if it can be determined on its face or that which can
 If the signature was a heart: Valid be computed without resorting to any extrinsic evidence. If the instrument
 If the signature was “Nadine”: Still Valid calls for an act other than the payment of money, it is not negotiable because
a negotiable instrument is intended as a substitute for money.
There is no requirement as to what signature you’ll place, for as long as that
mark or signature or whatever initials you place are indicators of the intent to Example: “Sum of 1,000,000” – It is determinable but the question is in what
be bound by the instrument. form is the 1,000,000? You have to indicate the currency, the full amount
including the denomination of the amount.
Note: If one runs counter to the usual practices of a particular place, wherein
she’s supposed to make a signature using her name or at least one that is The reason for the requirement is that money is the one standard of value in
artistic enough not to indicate it as any other person’s name, then it may actual business. All other commodities may rise and fall in value but in theory,
prevent the instrument from being accepted. It can affect the acceptability of money always measures this rise and fall and remains the same. With this
the instrument if she doesn’t comply with the usual practices. Then again, as requirement, negotiable instruments acquire a uniform stand of value
to whether it will affect negotiability, it will not. enabling them to pass freely in lieu of money in the business world.

CASE: Statements added to the instrument do not affect its negotiability –

ASTRO ELECTRONICS CORP., vs. PHILIPPINE EXPORT AND FOREIGN LOAN There may be statements added to the instrument but which cannot affect its
GUARANTEE CORP. negotiability and cannot affect the sum being certain in money. The basic test
| G.R. No. 136729 | September 23, 2003 is whether the holder can determine by calculation or computation, the
amount payable when the instrument is due.
FACTS
Astro was granted several loans by the Philippine Trust Company (Philtrust) Note: A promissory note giving the maker the right to ascertain the amount
amounting to P3,000,000.00 with interest and secured by three promissory rightly payable thereunder is non-negotiable.
notes. In each of these promissory notes, it appears that petitioner Roxas
signed twice, as President of Astro and in his personal capacity. WITH INTEREST
Interest at a fixed rate – A provision for the payment of interest is a mere
Thereafter, Philguarantee, with the consent of Astro, promised to pay 70% of incident; it does not render the instrument non- negotiable because it does
Astro’s loan to Philtrust, subject to the condition that upon payment by not make uncertain the sum payable.
Philguarantee of said amount, it shall be proportionally subrogated to the
rights of Philtrust against Astro. Example: "I promise to pay P2 or order P10,000.00, with interest at 15% per
annum – The entire sum is still certain because the principal sum of
As a result of Astro’s failure to pay its loan obligations, despite demands, P10,000.00 is certain and the amount of interest due at any given time can
Philguarantee paid 70% of the guaranteed loan to Philtrust. Subsequently, easily be computed.
Philguarantee filed against Astro and Roxas a complaint for sum of money
with the RTC of Makati. Roxas disclaims any liability on the instruments, Interest at increased or reduced rate – a provision for increased interest rate
alleging, inter alia, that he merely signed the same in blank and the phrases if the note is not paid at maturity or for a reduced rate if payment is made at
"in his personal capacity" and "in his official capacity" were fraudulently or before maturity, or for payment of interest on interests, does not destroy
inserted without his knowledge. negotiability.

LOWER COURT’S RULING Example: "I promise to pay P or order P10,000.00 with interest at 18% per
RTC ruled in favour of Philguarantee ordering Astro and Roxas to pay the annum from date until paid; 15% if paid when due” – Here, the payee wants
total obligation, because if Roxas really intended to sign the instruments the obligation to be paid at the due date of the contract, and to secure this, he
merely in his capacity as President of Astro, then he should have signed only binds the debtor to pay an increase of the rate of interest in case of
once in the promissory note. delinquency. The increase (3%) is a penalty. Consequently, the note draws the
CA affirmed the RTC decision. same rate of interest before as after maturity, i.e., 15%.

ISSUE Accrual/rate of interest not specified — If the instrument provides for the
WON Roxas should be jointly and severally liable with Astro. payment of interest:
(1) without stating the date from which interest is to run, it shall be
HELD: Yes. The promissory notes are valid and binding against Astro and computed – from the date of the instrument.
Roxas. As it appears on the notes, Roxas signed twice: first, as president of (2) if the instrument is not dated – from the issue thereof.
Astro and second, in his personal capacity. In signing his name aside from (3) If there is a stipulation for the payment of interest but the rate is
being the President of Astro, Roxas became a co-maker of the promissory not specified – legal rate of 6% (Art. 2209, Civil Code.)
notes and cannot escape any liability arising from it.
BY STATED INSTALLMENTS
Under the Negotiable Instruments Law, persons who write their names on Stated installments, within the meaning of sec.2, means that:
the face of promissory notes are makers, promising that they will pay to the (a) The interest of each installment; and
order of the payee or any holder according to its tenor. Thus, even without (b) The due date of each installment must be fixed in the instrument
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 Example: "I promise to pay P or order the sum of PI,000.00 in two installments
such is manifested by the fact that he affixed his signature on each of the as follows: P500.00, on or before November 1,2010 and P500.00, on or before
promissory notes twice which necessarily would imply that he is undertaking December 1,2010."
the obligation in two different capacities, official and personal.
Note: A promise to pay P1,000.00 in "two installments" or "in installments"
Additionally, as to Roxas’ claim that the phrases "in his personal capacity" and does not fulfill the requirements of the law.
"in his official capacity" were inserted on the notes without his knowledge,
this is untenable. Regardless, he still signed the notes twice. WITH AN ACCELERATION CLAUSE
As aptly found by both the trial and appellate court, Roxas did not offer any The sum is still certain although payable by stated installments with an
explanation why he did so. Thus the presumption is he signed twice knowing acceleration clause.
of the intention for doing so.
Acceleration clause – is a promise that if any installment or interest is not paid
as agreed, the whole shall become due. Such a clause requires full payment of
C. SUM CERTAIN IN MONEY
an instrument immediately upon default on any installment. It does not make
Relevant Provision (ISDEC)
an instrument payable upon contingency (and so non-negotiable) since the
Section 2. Certainty as to sum; what constitutes. — The sum payable is a sum
time of payment will surely come and the exact value of the instrument can
certain within the meaning of this Act, although it is to be paid:
be ascertained.
(a) With interest; or
(b) By stated installments; or
Acceleration dependent on the maker – The maker can avoid the acceleration
(c) By stated installments, with a provision that upon default in payment of
by paying the installments on the due date.
any installment or of interest the whole shall become due; or
(d) With exchange, whether at a fixed rate or at the current rate; or
Example: "I promise to pay P or order P10,000.00 with interest at 15% per
(e) With costs of collection or an attorney's fee, in case payment shall not be
annum in four equal monthly installments beginning July 1, 2010. Upon
made at maturity.
default in payment of any installment or interest, the whole sums shall

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become due and payable." – The payee or holder cannot accelerate the note transaction, does not affect the character of order of promise as being
unless the maker fails to pay an installment. unconditional.

Note: A note providing for acceleration at the option of the holder is non- The condition is imposed not on the order to pay but on the reimbursement
negotiable. which has nothing to do with the negotiable instrument anymore. The
existence of the fund does not extend to the order to pay. It only extends to
Extension Clauses – These are the opposite of acceleration clauses. They the reimbursement. In other words, the fund indicated is not the direct source
appear in instruments with fixed future maturity date and provide that under of payment but only the source of reimbursement which is an act subsequent
certain circumstances, the date shall be further extended. to the payment.

Note: If the right to extend payment is given to the: Example: "Pay to the order of P PI,000.00 and reimburse yourself from the
(a) Holder – the time of payment need not contain a new fixed rentals of my house." – The drawee may pay the amount out of any fund. It is
maturity date or the length of extension does not have to be only the reimbursement that is to come from the rentals.
specified. The reason is that the holder is free to demand payment
at the maturity date or any time after said date. What about if “payable out of a particular fund?”
(b) obligor – the interest of the extension must be specified to keep Non-negotiable as it is not payable "in any event" because the amount to be
the instrument negotiable. If the right to extend is without limit, it paid is made to depend upon the adequacy or existence of the fund
cannot be determined with absolute certainty when the holder will designated. It is immaterial whether or not the fund is in actual existence or is
have the absolute right to be paid. yet to be created. The instrument remains non-negotiable even if the fund is
found to be sufficient at maturity.
WITH EXCHANGE
Payment in foreign currency – a provision for payment of a sum in a foreign The test of negotiability in every case is said to be whether or not the
currency does not impair negotiability because the current rate of exchange at instrument carries the general personal credit of the maker or drawer. If it
any given time may easily be ascertained by inquiry from the banks dealing on does, the instrument is negotiable; if it carries only the credit of a particular
exchange or foreign currencies and such rate is a matter of common fund, the instrument is non-negotiable.
knowledge.
STATEMENT OF TRANSACTIONS WHICH GIVES RISE TO INSTRUMENT
Payment with exchange rate — The provision on payment with exchange The mere recital of the consideration for which the instrument was issued or
applies to instruments drawn in one country and payable in another. In other mere reference to a separate agreement out of which the instrument has
words, exchange is applicable only to foreign bills. arisen does not make it conditional. Such kind of reference has no adverse
legal effect on the negotiability of the instrument
Examples:
(1) M promises to pay P or order $1,000.00 with exchange at 3/4%. Example: "I promise to pay to the order of P P300,000.00 being the price of a
(2) M promises to pay P or order the sum of $1,000.00 with exchange car this day sold and delivered to me." –
at the current rate (or "going rate" or "market rate").
The statement merely identifies the transaction which gives rise to the
Exchange not applicable to inland or domestic bill — If the instrument is both instrument. It does not qualify the order or promise to pay making it
drawn and payable at the same place, there can be no exchange so a conditional. The instrument is to be paid whether or not the contract is
stipulation for payment in exchange may be disregarded. Under Republic Act performed.
No. 8183, every monetary obligation must be paid in Philippine currency
which is legal tender in the Philippines. However, the parties may agree that What about if “Subject to the terms of a loan contract?”
the obligation or transaction shall be settled in any other currency at the time If you are the holder of that instrument and you don’t know what the loan
of payment. contract provides then you may not able to demand payment. It may also be
easy for the loan-maker to say that there is no loan contract or that the terms
D. UNCONDITIONAL PROMISE OR ORDER TO PAY are not complied with. It is made to depend on a separate contract and it sets
Relevant Provision (RS) a condition. It makes the promise conditional.
Section 3. When promise is unconditional. — An unqualified order or promise
to pay is unconditional within the meaning of this Act, though coupled with — What about if “Arose from a loan contract?”
You are made to promise to pay because of a loan contract. Whether or not
(a) An indication of a particular fund out of which reimbursement is to be the contract exist does not matter. It is merely stating a transaction which
made, or a particular account to be debited with the amount; or brings about the promise to pay.
(b) A statement of the transaction which gives rise to the instrument.
The promise to pay here already exists whether or not the loan contract
But an order or promise to pay out of a particular fund is not unconditional. exists. The instrument can stand on its own. It will not affect the negotiability.

Condition – any future event which may or may not happen. It could also refer CASE:
to a past event not known to the parties which give rise to an obligation or BENJAMIN ABUBAKAR VS THE AUDITOR GENERAL
extinguishes an obligation. | G.R. No. L-1405 | July 31, 1948
Unconditional – it is not contingent on the happening of a future event; not
subject to any condition. TOPIC FROM THE SYLLABUS: UNCONDITIONAL PROMISE OR ORDER TO PAY
The document bearing on its face the words "payable from the appropriation
Promise vs. Order to Pay
for food administration," is actually an order for payment out of "a particular
Promise Order
fund," and is not unconditional, and does not fulfill one of the essential
Pertains to a promissory note Pertains to a bill of exchange
requirements of a negotiable instrument.
Parties – maker and payee Parties – Drawer, Drawee and Payee
It is the person primary liable who Refers to a person directing another FACTS:
obliges himself on the instrument person or himself to pay on the In 1941, a treasury warrant was issued in favor of Urbanes, a gov’t employee
instrument; requires an additional in the province of La Union. The said treasury warrant was meant to augment
act on the person primary liable – Food Production Campaign in the province. It was then negotiated by Urbanes
that is, by accepting the instrument
to Benjamin Abubakar, a private individual. When Abubakar sought to have
Is death a condition? the treasury warrant encashed, the Auditor General denied payment because
No. Death is not considered a condition because everyone is certain to die. It of it against the appropriating law (RA 80) to authorize payments to private
is the exact time when death will happen that is uncertain but death itself is individuals when it comes to treasury warrants. Abubakar then contends that
certain. It is just a period. he is entitled to encash as he was a holder in good faith.
What about death because of cancer?
It is a condition. While everyone dies, it may not be of cancer. It is uncertain to Case did not mention lower court/s ruling.
happen that a person dies because of cancer.
ISSUE: W/N a treasury warrant is a negotiable instrument.
INDICATION OF A PARTICULAR FUND OUT OF WHICH REIMBURSEMENT IS
TO BE MADE OR A PARTICULAR ACCOUNT TO BE DEBITED WITH THE HELD: No. This treasury warrant is not within the scope of the negotiable
AMOUNT instruments law. For one thing, the document bearing on its face the words
"payable from the appropriation for food administration," is actually an order
What about if “Reimburse from a particular fund?” for payment out of "a particular fund," and is not unconditional, and does not
A statement specifying the particular fund from which reimbursement can be fulfill one of the essential requirements of a negotiable instrument.
made or that fund which may be debited or deducted or a statement of the

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CASE: SECTION 1. — Form of negotiable instruments. — An instrument to be

METROBANK V. CA negotiable must conform to the following requirements:
| G.R. No. 88866 | February 18, 1991 (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
TOPIC FROM THE SYLLABUS: UNCONDITIONAL PROMISE OR ORDER TO PAY money; (must comply with section 3)
(c) Must be payable on demand, or at a fixed or determinable future time;
FACTS (d) Must be payable to order or to bearer; and
Metrobank is a commercial bank with branches throughout the Philippines (e) Where the instrument is addressed to a drawee, he must be named or
and even abroad. Golden Savings and Loan Association was, at the time, otherwise indicated therein with reasonable certainty.
operating in Calapan, Mindoro, with the other private respondents as its
principal officers. But an order or promise to pay out of a particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the
On January 1979, Eduardo Gomez opened an account with Golden Savings treasury warrants makes the order or promise to pay “not unconditional” and
and deposited over a period of two months 38 treasury warrants with a total the warrants themselves non-negotiable. Thus, Metrobank cannot contend
value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing that by indorsing the warrants in general, Golden Savings is liable under
Authority and purportedly signed by its General Manager and counter-signed Section 66 for the simple reason that the law is not applicable to non-
by its Auditor. (Treasury warrants are orders by the drawer authorizing negotiable treasury warrants.
someone to pay a sum of money to another)
E. PAYABLE ON DEMAND
Between June 25 – July 16, 1979, all these warrants were subsequently An instrument payable on demand is due and payable immediately after
indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its delivery. It is a present debt due at once.
Savings Account No. 2498 in Metrobank branch in Calapan, Mindoro. They Relevant provision (ET)
were then sent for clearing by the branch office to the principal office of Section 7. When payable on demand. - An instrument is payable on demand:
Metrobank, which forwarded them to the Bureau of Treasury for special (a) Where it is expressed or to be payable on demand, or at sight or on
clearing. presentation;
(b) In which no time for payment is expressed
Gloria Calapan went to the Calapan branch several times to ask whether the
warrants had been cleared. However, “exasperated” over Goria’s repeated Where an instrument is issued, accepted or indorsed when overdue, it is as
inquiries (kuti daw keyoh si Gloria), petitioner decided to allow Golden Savings
regards the person so issuing, accepting or indorsing it, payable on demand.
to withdraw from the proceeds of the warrants. (Note: wala pa na cleared ang
treasury warrants ha, samok lang jud ning mga babae haha jk labyu guys)
Under the first paragraph, an instrument is payable on demand not only as
Total withdrawal was P968,000.00.
between the immediate parties but also as to subsequent parties. On the
other hand, the provision of the second paragraph refers only to immediate
In turn, Golden Savings allowed Gomez to make withdrawals from the
parties since between immediate parties there is no difference between a
“cleared” warrants. Last withdrawal was made on July 16, 1979.
holder in due course and a person not a holder in due course.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants
Where it is expressed or to be payable on demand, or at sight or on
had been dishonored by the Bureau of Treasury and demanded refund by
presentation:
Golden Savings of the amount withdrawn. (such was dishonored due to
forgery of the signatures of the general manager and auditor of the drawer
Example: I promise to pay P10,000 on demand.
corporation PERO this was not established) Demand was rejected. Then
Metrobank sued Golden Savings.
Note: “At sight” applies only to Bills of Exchange where there is a drawee.
They argued that Golden Savings was negligent in checking the personal
“At sight” vs. “Upon Presentation”
circumstances of Gomez before accepting his deposit. Moreover, Metrobank
contended that Sec. 66 of Act 2031 applies.
A. Purpose of “at sight” is for it to be presented to the drawee for
acceptance. When it is accepted by the drawee, that’s when he
Sec. 66. Liability of general indorser. - Every indorser who indorses without
obliges himself to pay on the instrument.
qualification, warrants to all subsequent holders in due course:
B. “Upon presentation” is for the purpose of payment. It is applicable
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the
to both promissory notes and bill of exchange requiring payment
next preceding section; and
from persons primarily liable.
(b) That the instrument is, at the time of his indorsement, valid and
subsisting;
In which no time for payment is expressed:
If the instrument does specify a date as to when it is payable, it is deemed
And, in addition, he engages that, on due presentment, it shall be accepted or
payable on demand
paid, or both, as the case may be, according to its tenor, and that if it be
dishonored and the necessary proceedings on dishonor be duly taken, he
Where an instrument is issued, accepted, or indorsed when overdue, it is as
will pay the amount thereof to the holder, or to any subsequent indorser
regards the person so issuing, accepting or indorsing it, payable on demand:
who may be compelled to pay it.
This is when an instrument is payable on demand only to certain parties. The
type of parties referred to here are “immediate parties”
LOWER COURT’S RULING
RTC Ruling: Judgement was rendered in favor of Golden Savings.
Immediate parties – those who are privy to the transactions.
CA: Affirmed.
Example: I promise to pay 1 M to bearer 10 days after Y dies.
ISSUE/S
(assume Y dies on the 5th)
W/N Metrobank has the right to charge back for the amount withdrawn. (No.
They were negligent. Wala nila gihulat na ma clear siya sa Bureau of Treasury)
Delivery 10 days after the death of Y
W/N treasury warrants are negotiable instruments. Thus, rendering Section 66
When it was delivered on the 15th, it was already demandable but not
of Act 2031 applicable. (No. Sec. 3, Negotiable Instruments Law)
payable on demand because the period has not yet lapsed.
HELD: No. Metrobank was negligent in giving Golden Savings the impression
Delivery beyond 10 days from the death of Y
that the treasury warrants had been cleared and that due to that impression,
It is only after the 15th that it has already become payable on demand
Golden Savings allowed Gomez to withdraw the proceeds from his account.
because that is when the period has lapsed. That is when the last paragraph
Since Golden Savings had no clearing facilities of its own, it relied on
that “the instrument is issued, accepted, or indorsed when it is overdue” only
Metrobank to determine the validity of the warrants through its own services.
applies.
Metrobank allowed Golden Savings to withdraw thrice from the uncleared
treasury warrants for the reason that it was “exasperated” over the persistent
Beyond 10 days from death, but bearer is without knowledge of death of Y
inquiries of Gloria and that it wanted to “accommodate” a valued client. They
But, let’s say, it was transferred on the 16th but C does not know Y is already
would not have lost a single centavo by waiting for the clearance.
dead. Can you say that the instrument is payable on demand in relation to C
who later transferred on the instrument to D on 7/20?
No. The treasury warrants in question are not negotiable instruments. It is
stamped on their face the word “non-negotiable.” Moreover, it is indicated
Ans – No, because C is not an immediate party even if they are actually, in
that they are payable from a particular fund, to wit, Fund 501.
terms of proximity, very close to B. B, is probably the only one, who knows

Tsarina | UV GLS | Pre-midterms | 2nd Yr 2nd Sem | Cases Digests By: j-c-g-c-i Page 8 of 9
 NEGOTIABLE INSTRUMENTS LAW Based on the Syllabus of Atty. Valerie Gayle J. Patac, the Book of Hector S. De Leon & USC EH 404 2016-17 Notes

that Y has already died on 7/5. So that’s means after 10 days of his death, LOWER COURT’S RULING:
payment may already be due, hence can be demanded. CFI: Dismissed petition for mandamus.

But because C doesn’t know it, in relation to D, D cannot demand payment to ISSUE: WON the Negotiable Land Certificates were payable on demand
C right there and then. The instrument as to C, cannot be considered payable
on demand, for the purpose of application of the last paragraph of section 7. HELD: No. An instrument payable on demand is one which (a) is expressed to
be payable on demand, or at sight, or on presentation; or (b) expresses no
The last paragraph, therefore, tells us that there could be an instance when an time for payment (Sec. 7, Negotiable Instruments Law).
instrument is payable on demand only to certain parties.
The Court ruled that the refusal of the respondent treasurer to accept the
If the instrument was indorsed certificates was legally justified. As correctly contended, although land
It would have been easier if the instrument had been indorsed, because it is certificates shall be payable on demand, the ones issued to the petitioners
very easy to say that this party is considered an immediate party because you were payable to bearer only after the lapse of five years from the execution of
can see the date when it was indorsed. the Absolute Deed of Sale. Obviously then, the requisites for an instrument to
be payable on demand was not met as the certificate expressed a time for
CASE: payment. The 5-year period within which the certicates could not be encashed
BUENCAMINO vs HERNANDEZ was an expression of the time for payment contrary to Sec. 7, par. (b) of the
| G.R. No. L-14883 | July 31, 1963 | Negotiable Instruments Law.

TOPIC FROM THE SYLLABUS: PAYABLE ON DEMAND As for the assertion that the certificates may be used for payment of realty
An instrument payable on demand is one which (a) is expressed to be payable taxes, the Court ruled that while section 10 of RA 1400 expressly authorizes
on demand, or at sight, or on presentation; or (b) expresses no time for the use of the said certificates for payment of tax obligations, the said section
payment. (Sec. 7, Negotiable Instruments Law) can only have meant such certificates as were issued strictly in accordance
with Section 9 of the same Act; that the instrument is payable on demand.
FACTS: And as the certificates issued were not payable on demand, then the benefits
On May 11, 1957, the Land Tenure Administration (LTA) purchased the of Section 10 cannot properly be invoked.
hacienda of herein petitioners for a total consideration of P2,746,000.00. For
that purpose, a Memorandum Agreement was executed on the said date Ratio:
which expressly declared that the LTA was purchasing the hacienda upon For instruments to be payable on demand, it must meet the requirements
petition of the tenants thereof in accordance with Republic Act No. 1400, under Sec. 7 of the Negotiable Instruments Law: (a) it is expressed to be
otherwise known as the Land Reform Act of 1955. payable in demand, or at sight, or on presentation; or (b) that no time for
payment is expressed.
The parties to the sale agreed that of the full price, 50% or P1,373,000.00 was
to be paid in cash and the remaining balance in Negotiable Land Certificates. In the case at bar, the 5-year period within which the certificates could not be
The NLC indicated that it was due and payable to BEARER on demand and encashed was an expression of time, contrary to the aforecited law. Thus,
upon presentation at the Central Bank of the Philippines without interest, if order appealed from is affirmed.
presented for payment within five years from the date of issue.
F. DETERMINABLE FUTURE TIME
It further specified that the certificate may not be encashed until after five (5) Relevant Provision (FBA)
years from the date of execution of the Deed of Sale pursuant to the Section 4. Determinable future time; what constitutes. — An instrument is
conditions under the Memorandum Agreement. This condition was then payable at a determinable future time, within the meaning of this Act, which is
ratified by the Cabinet and the President. This stipulation was also expressed to be payable —
incorporated and clarified in the Absolute Deed of Sale executed to formalize (a) At a fixed period after date or sight; or
the terms contained in the Memorandum Agreement. (b) On or before a fixed or determinable future time specified therein; or
(c) On or at a fixed period after the occurrence of a specified event, which is
These provisions provided under the Memorandum Agreement and the certain to happen, though the time of happening be uncertain.
Absolute DOS in relation to the condition in the negotiable land certificate
were implementation of Section 10 of Republic Act No. 1400, which provides An instrument payable upon a contingency is not negotiable, and the
that land certificates may be used by the holder thereof for payment of all tax happening of the event does not cure the defect.
obligations of the holder thereof, or of any debt or monetary obligation of the
holder to the Government or any of its instrumentalities or agencies, including
the rehabilitation Finance Corporation and the Philippine National Bank.

Availing themselves of what they considered was their contractual and

statutory rights under the certificate, the petitioners presented two of them
to the respondent City Treasurer in payment of certain 1957 realty tax
obligations to Quezon City. However, the respondent Treasurer refused to
accept it claiming that as per the opinion of the Secretary of Finance, it was
discretionary on his part to accept or reject it and invoking that discretion, he
explained that QC was in great need of funds. Thus, the petitioners were
obliged to settle their tax obligation in cash.

Subsequently, the petitioners tendered the same certificates once more, in

payment of their 1958 realty taxes and the respondent treasurer similarly
rejected it. As a result, the petitioners filed a petition for mandamus
compelling the respondent treasurer to accept the certificates.

The respondent treasurer did not file an answer but instead, filed a Motion to
Dismiss on the ground that the petition failed to state a cause of action. He
further contended that the certificates in question were not issued strictly in
accordance with the provisions of Republic Act No. 1400 because while
Section 9 of that Act requires that "negotiable land certicates shall be payable
to bearer on demand”, the ones issued to the petitioners were payable to
bearer not on demand, but, only upon the expiration of the five-year period
therein specified.

Petitioners’ counterarguments:
(a) They contended that although the certificates issued could not really be
encashed within the period therein mentioned, they could, however, still be
used for the settlement of tax liabilities at any time after their issue, in
accordance with Section 10 of RA 1400.
(b) They also maintained that the 5-year restriction against encashment
referred merely and exclusively to the time when the certificates may be
converted to cash and not anymore to the utility of the said instrument as
substitutes for tax obligations.

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