1.

KAUFMAN vs PNB, September 29, 1921

KAUFFMAN vs. PNB

FACTS:
George Kauffman was the president of a domestic corporation engaged in the
exportation of hemp from the PH, known as the Philippine Fiber and Produce
Company (PFPC). Its Board of Directors declared a dividend of P100,000 from its
surplus earnings, of which the plaintiff was entitled P98,000. This amount was
placed to his credit on the books of the company.

George Wicks, company treasurer, presented himself in the exchange department

of PNB Manila and requested that a telegraphic transfer of $45,000 should be
made to the plaintiff in NYC, upon account of PFPC. He was informed that the total
cost of said transfer, including exchange and cost of message, would be
P90,355.50. Wicks, drew and delivered a check; and the same was accepted by
PNB. As evidence of this transaction, a document was made out and delivered to
Wicks, which is referred to by the bank's assistant cashier as its OR.

PNB dispatched to its New York agency a cablegram which says:

“Pay George Kauffman, New York, account Philippine Fiber Produce Co., $45,000.
(Sgd.) PHILIPPINE NATIONAL BANK, Manila.”
Upon receipt of telegraphic message, bank's representative in NYC sent a cable
message in reply suggesting the advisability of withholding this money from
Kauffman, in view of his reluctance to accept certain bills of the PFPC. PNB
acquiesced in this and dispatched to its NY agency another message to withhold
the Kauffman payment as suggested.

Meanwhile, Wicks, cabled to Kauffman in NY, advisied him that $45,000 had been
placed to his credit in the NY agency of PNB; in response, Kauffman presented
himself at the office of the PNB in NYC, and demanded the money. By this time,
however, the message from PNB, directing the withholding of payment had been
received in NY, and payment was refused.

Plaintiff (Kauffman) instituted the present action in CFI Manila to recover said
sum, with interest and costs. Judgment was entered favorably to the plaintiff,
thus the defendant appealed.
During transaction, PFPC did not have on deposit in PNB adequate money to pay the
check for P90,355.50, which was delivered in payment of the telegraphic order;
but company did have credit to that extent, or more, for overdraft in current
account, and the check in question was charged as an overdraft against PFPC and
has remained on the books of the bank as an interest-bearing item.
Also, no evidence has been introduced tending to show failure of consideration with
respect to the amount paid for said telegraphic order. It is true that in the
defendant's answer, it is suggested that the failure of the bank to pay over the
amount of this remittance to the plaintiff in NYC, pursuant to its agreement, was
due to a desire to protect the bank in its relations with PFPC, whose credit was
secured at the bank by warehouse receipts on Philippine products; and it is alleged
that after the exchange in question was sold the bank found that it did not have
sufficient to warrant payment of the remittance. In view, however, of the failure
of the bank to substantiate these allegations, or to offer any other proof showing
failure of consideration, it must be assumed that the obligation of the bank was
supported by adequate consideration.
The defense is mainly, if not exclusively, based upon the proposition that, inasmuch
as the plaintiff was not a party to the contract with the bank for the transmission
of this credit, no right of action can be vested in him for the breach. "In this
situation," — we here quote the words of the appellant's brief, — "if there exists a
cause of action against the defendant, it would not be in favor of the plaintiff who
had taken no part at all in the transaction nor had entered into any contract with
the plaintiff, but in favor of the PFPC, the party which contracted in its own name
with the defendant."
The facts show that the defendant bank for a valuable consideration paid by PFPC,
agreed to cause a sum of money to be paid to the plaintiff in NYC; and the question
is whether the plaintiff can maintain an action against the bank for the
nonperformance of said undertaking. Is the lack of privity with the contract on the
part of the plaintiff fatal to the maintenance of an action by him?

ISSUE:
WON the document was a negotiable instrument / WON the right of action exists

RULING: NO, does not conform to requisites of Sec 1 / YES, it is a stipulation

pour autrui.
For the provisions of the NIL to come into operation, there must be a document in
existence of the character described in section 1 of the Law; and no rights
properly speaking arise in respect to said instrument until it is delivered. In the
case before us there was an order, it is true, transmitted by the defendant bank
to its New York branch, for the payment of a specified sum of money to George
Kauffman. But this order was not made payable "to order or "to bearer," as
required in subsection (d) of that Act; and inasmuch as it never left the possession
of the bank, or its representative in NYC, there was no delivery in the sense
intended in section 16 of the same Law. In this connection it is unnecessary to
point out that the official receipt delivered by the bank to the purchaser of the
telegraphic order, and already set out above, cannot itself be viewed in the light of
a negotiable instrument, although it affords complete proof of the obligation
actually assumed by the bank.

The right of the plaintiff to maintain the present action is clear enough; it is
undeniable that the bank's promise to cause a definite sum of money to be paid to
the plaintiff in NYC is a stipulation in his favor; and the circumstances under which
that promise was given disclose an evident intention on the part of the contracting
parties that the plaintiff should have the money upon demand in NYC. The
recognition of this unqualified right in the plaintiff to receive the money implies in
our opinion the right in him to maintain an action to recover it.
The right of action exists, and the judgment must be affirmed. Costs against the
appellant (PNB).
2. GSIS vs CA, GR L-40824, February 23, 1989

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner, -versus- COURT OF

APPEALS and MR. & MRS. ISABELO R. RACHO, Respondent.

G.R. No. L-40824, SECOND DIVISION, February 23, 1989, REGALADO, J.

FACTS:

Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the spouses Mr.
and Mrs Flaviano Lagasca, executed a deed of mortgage, dated November 13, 1957,
in favor of petitioner Government Service Insurance System (hereinafter referred
to as GSIS) and subsequently, another deed of mortgage, dated April 14, 1958, in
connection with two loans granted by the latter in the sums of P 11,500.00 and P
3,000.00, respectively. A parcel of land covered by Transfer Certificate of Title
No. 38989 of the Register of Deed of Quezon City, co-owned by said mortgagor
spouses, was given as security under the aforesaid two deeds. They also executed a
'promissory note" which states in part:

... for value received, we the undersigned ... JOINTLY, SEVERALLY

and SOLIDARILY, promise to pay the GOVERNMENT SERVICE
INSURANCE SYSTEM the sum of . . . (P 11,500.00) Philippine Currency, with
interest at the rate of six (6%) per centum compounded monthly payable
in . . . (120)equal monthly installments of . . . (P 127.65) each.

On July 11, 1961, the Lagasca spouses executed an instrument denominated

"Assumption of Mortgage" under which they obligated themselves to assume the
aforesaid obligation to the GSIS and to secure the release of the mortgage
covering that portion of the land belonging to herein private respondents and which
was mortgaged to the GSIS. This undertaking was not fulfilled. Upon failure of the
mortgagors to comply with the conditions of the mortgage, particularly the
payment of the amortizations due, GSIS extrajudicially foreclosed the mortgage
and caused the mortgaged property to be sold at public auction on December 3,
1962.
More than 2 years after, Spouses Racho filed a complaint against GSIS and
Spouses Lagasca praying  that the extrajudicial foreclosure be declared null and
void. They allege that they signed the mortgage contracts not as sureties for the
Lagasca spouses but merely as accommodation party.

ISSUE: Whether the promissory note is negotiable?

RULING:

NO. In submitting their case to this Court, both parties relied on the provisions of
Section 29 of Act No. 2031, otherwise known as the Negotiable Instruments Law,
which provide that an accommodation party is one who has signed an instrument as
maker, drawer, acceptor of indorser without receiving value therefor, but is held
liable on the instrument to a holder for value although the latter knew him to be
only an accommodation party. This approach of both parties appears to be
misdirected and their reliance misplaced. The promissory note hereinbefore
quoted, as well as the mortgage deeds subject of this case, are clearly not
negotiable instruments. These documents do not comply with the fourth
requisite to be considered as such under Section 1 of Act No. 2031 because
they are neither payable to order nor to bearer. The note is payable to a
specified party, the GSIS. Absent the aforesaid requisite, the provisions of
Act No. 2031 would not apply; governance shall be afforded, instead, by the
provisions of the Civil Code and special laws on mortgages. As earlier indicated,
the factual findings of respondent court are that private respondents signed the
documents "only to give their consent to the mortgage as required by GSIS", with
the latter having full knowledge that the loans secured thereby were solely for the
benefit of the Lagasca spouses. This appears to be duly supported by sufficient
evidence on record. Indeed, it would be unusual for the GSIS to arrange for and
deduct the monthly amortizations on the loans from the salary as an army officer
of Flaviano Lagasca without likewise affecting deductions from the salary of
Isabelo Racho who was also an army sergeant. Then there is also the undisputed
fact, as already stated, that the Lagasca spouses executed a so-called "Assumption
of Mortgage" promising to exclude private respondents and their share of the
mortgaged property from liability to the mortgagee. There is no intimation that
the former executed such instrument for a consideration, thus confirming that
they did so pursuant to their original agreement.
3. SESBRENO vs CA, GR 89252, May 24, 1993

Sesbreño vs Court of Appeals

FACTS:

 Raul Sesbreno made a money market placement in the amount of P300,000 with
the Philippine Underwriters Finance Corporation (PhilFinance).
 PhilFinance issued a Certificate of Confirmation of Sale “without recourse”
from Delta Motors Corporation Promissory Note, a Certificate of securities
indicating the sale to petitioner, with the notation that the said security was in
custodianship of Pilipinas Bank which on the face of said note was stamped
“NON-NEGOTIABLE,” and post-dated checks payable with petitioner as payee,
Philfinance as drawer.
 Later, the checks were dishonored for having been drawn against insufficient
funds.
 Petitioner later made demand letters again asking private respondent Pilipinas
for physical delivery of the original promissory note by Delta Motors (DMC PN
No. 2731).
 Petitioner also made a written demand upon private respondent Delta for the
partial satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee
thereof, had assigned to him said Note to the extent of P307,933.33. Delta,
however, denied any liability to petitioner on the promissory note.
 As petitioner failed to collect his investments, he filed an action for damages
against Delta Motors and Pilipinas Bank before the RTC of Cebu City.
 RTC dismissed the complaint for lack of merit. When appealed to CA, it was
denied.
 Petitioner admits that the instrument (DMC PN No. 2731) is non-negotiable.
However, he contends that the instrument was validly transferred to him,
hence, Delta Motors being the maker of the instrument is obligated to pay him
in proportion of the instrument assigned to him by the payee PhilFinance.
 Delta Motors contends that DMC PN No. 2731 was not intended to be
negotiated or otherwise transferred by Philfinance as manifested by the word
"non-negotiable" stamp across the face of the Note and because maker Delta
and payee Philfinance intended that this Note would be offset against the
outstanding obligation of Philfinance represented by Philfinance PN No. 143-A
issued to Delta as payee.
ISSUE: WoN the non-negotiability of a promissory note prevents it from being
transferred or assigned.

RULING:

NO. It is important to bear in mind that the negotiation of a negotiable instrument

must be distinguished from the assignment or transfer of an instrument whether
that be negotiable or non-negotiable.

It is true that Only an instrument qualifying as a negotiable instrument under the

relevant statute may be negotiated either by indorsement thereof coupled with
delivery, or by delivery alone where the negotiable instrument is in bearer form.
However, a negotiable instrument, instead of being negotiated, can be assigned or
transferred. The legal consequences of negotiation as distinguished from
assignment of a negotiable instrument are, of course, different. A non-negotiable
instrument may, obviously, not be negotiated; but it may be assigned or
transferred, absent an express prohibition against assignment or transfer written
in the face of the instrument.

With the forgoing, since there appears no express prohibition on transferring and
assigning on the face of the instrument, the same may validly be assigned and
transferred.
4. PHIL EDUCATION CO., INC vs SORIANO, June 30, 1971

Philippine Education Co., Inc. vs. Soriano (1971)

G.R. No. L-22405 | 1971-06-30
Facts:

On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post
Office ten (10) money orders of P200.00 each payable to E. P. Montinola with
address at Lucena, Quezon. After the postal teller had made out money orders
numbered 124685, 124687-124695, Montinola offered to pay for them with a
private check. As private checks were not generally accepted in payment of money
orders, the teller advised him to see the Chief of the Money Order Division, but
instead of doing so, Montinola managed to leave the building with his own check and
the ten (10) money orders without the knowledge of the teller.

Upon discovery of the disappearance of the unpaid money orders, a notice was
served by the Director of Posts upon all banks instructing them not to pay anyone
on the money orders. The Bank of America received a copy of said notice three
days later.

On April 23, 1958,money order No. 124688 was received by Philippine Education
Co., Inc. as part of its sales receipts. The following day it deposited the same with
the Bank of America, and one day thereafter the latter cleared it with the Bureau
of Posts and received from the latter its face value of P200.00.

On September 27, 1961, Mauricio Soriano, Chief of the Money Order Division of
the Manila Post Office notified the Bank of America that money order No. 124688
had been found to have been irregularly issued and that the amount it represented
had been deducted from the bank's clearing account. The bank thereafter debited
the same amount from Philippine Education Co., Inc.

Montinola was thereafter charged with theft in the CFI Manila but after trial he
was acquitted on the ground of reasonable doubt.

Philippine Education Co., Inc. filed an action against appellees Mauricio A. Soriano,
Enrico Palomar and Rafael Contreras in the Municipal Court of Manila. The court
ruled in favor of plaintiff ordering the defendants (appellees) to countermand the
notice given to the Bank of America deducting from said Bank's clearing account
the sum of P200.00 representing the amount of postal money order No. 124688,

On appeal to the CFI, the complaint was dismissed. Philippine Education Co., Inc.
filed an appeal arguing that the postal money order is a negotiable instrument; that
its nature as such is not in anyway affected by the letter signed by the Director of
Posts and addressed to the banks, and that, money orders, once issued, create a
contractual relationship of debtor and creditor, respectively, between the
government, on the one hand, and the remitters payees or endorsees, on the other.

Issue: Whether or not postal money orders are negotiable instruments.

Ruling: NO. Postal money orders are not negotiable instruments. 

Our postal statutes were patterned after similar statutes in force in the
United States. For this reason, ours are generally construed in accordance with
the construction given in the United States to their own postal statutes, in the
absence of any special reason justifying a departure from this policy or practice.
The weight of authority in the United Status is that  postal money orders are
not negotiable instruments  (Bolognesi vs. US) The reason behind this rule
being that, in establishing and operating a postal money order system,
the  government is not engaging in commercial transactions but merely
exercises a governmental power for the public benefit . More over some of the
restrictions imposed upon money orders by postal laws and regulations are
inconsistent with the character of negotiable instruments. For instance, such
laws and regulations usually provide for not more than one endorsement ;
payment of money orders may be withheld under a variety of circumstances
 In the letter of the Director of Posts to the Bank of America for the
redemption of postal money orders, the condition is imposed that "in cases of
adverse claim, the money order or money orders involved will be returned to you
(the bank) and the corresponding amount will have to be refunded to the
Postmaster, Manila, who reserves the right to deduct the value thereof from any
amount due you if such step is deemed necessary." The conditions thus imposed in
order to enable the bank to continue enjoying the facilities theretofore enjoyed by
its depositors, were accepted by the Bank of America. The latter is therefore
bound by them. This is evident from the fact that, upon receiving advice that the
amount represented by the money order in question had been deducted from its
clearing account with the Manila Post Office, it did not file any protest against
such action.
5. PHIL BANK OF COMMERCE vs ARUEGO, January 31, 1981

THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee, vs. JOSE M.

ARUEGO, defendant-appellant.
G.R. Nos. L-25836-37 | 1981-01-31

FACTS:
 On December 1, 1959, the Philippine Bank of Commerce instituted against
Jose M. Aruego a Civil Case for the recovery of the total sum of about
P35,000.00. The sum sought to be recovered represents the cost of the
printing of "World Current Events," a periodical published by the defendant.
 To facilitate the payment of the printing the defendant obtained a credit
accommodation from the plaintiff. Thus, for every printing of the "World
Current Events," the printer, Encal Press and Photo-Engraving, collected the
cost of printing by drawing a draft against the plaintiff, said draft being
sent later to the defendant for acceptance.
 Aruego filed a motion to dismiss the complaint on the ground that the
complaint did not state a cause of action because he was just an
accommodating party only for the printing company and will only be liable in
the event that the drawer fails to pay its obligation to the bank.
 TC – declared Aruego in default; ordered to pay the bank.
 The defendant contends that the drafts signed by him were not really bills
of exchange but mere pieces of evidence of indebtedness because payments
were made before acceptance.

ISSUE: W/N the drafts were bill of exchange and thus liable to the petitioner.

HELD: YES.
 Under the Negotiable Instruments Law, 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. As long as a commercial paper conforms with the definition of a bill
of exchange, that paper is considered a bill of exchange. The nature of
acceptance is important only in the determination of the kind of liabilities of
 the parties involved, but not in the determination of whether a commercial
paper is a bill of exchange or not.
 An inspection of the drafts accepted by the defendant shows that nowhere
has he disclosed that he was signing as representative of the Philippine
Education Foundation Company. He merely signed as follows: "JOSE ARUEGO
(Acceptor) (SGD) JOSE ARUEGO." For failure to disclose his principal,
Aruego is personally liable for the drafts he accepted.
 It is evident then that the defendant's appeal cannot prosper. To grant the
defendant's prayer will result in a new trial which will serve no purpose and
will just waste the time of the courts as well as of the parties because the
defense is nil or ineffective.