1.

Chan Wan vs Tan Kim

Tan Kim and her husband (Chen So) issued 11 checks payable to cash or bearer to be
drawn against their account with the Equitable Banking Corporation. The checks were
negotiated to the White House Shoe Supply (company). White House then deposited the
checks to their China Bank account. China Bank then presented the checks to Equitable
Bank but the checks were returned because Equitable Bank then had no funds to cover the
checks. China Bank then stamped the checks with Account Closed and Non negotiable
China Bank Corporation.

But somehow, Chan Wan got hold of these checks (Chan Wan was not able to explain in
court how he got hold of the checks). Chan Wan now wants to encash the checks but
Equitable Bank refused accept the said checks.

ISSUE: Whether or not Chan Wan is a holder in due course.

HELD: No. As a general rule, a dishonored check/instrument may still be negotiated either
by indorsement or delivery and the holder may be a holder in due course provided that he
received no notice regarding the dishonor of the instrument. In this case, the checks were
already crossed on their face hence Chan Wan was properly notified of the dishonor of the
checks at the time of his acquisition.

But may Chan Wan still recover?

Yes. The Negotiable Instruments Law does not provide that a holder who is not a holder in
due course, may not in any case, recover on the instrument. The holder may recover
directly from the drawee, in this case Tan Kim and Chen So, unless the drawees have a
valid excuse in refusing payment. The only disadvantage of a holder who is not a holder in
due course is that the negotiable instrument is subject to defense as if it were non-
negotiable. The case was remanded to the lower court for a proper determination as to how
Chan Wan acquired the checks and to determine if he is indeed entitled to payment based
on some other transactions involving those checks.

2. Metropolitan Bank & Trust Company vs. Court of Appeals

G.R. No. 88866 February, 18, 1991
Cruz, J.:

Facts:
Eduardo Gomez opened an account with Golden Savings and deposited 38
treasury warrants. All warrants were subsequently indorsed by Gloria Castillo as
Cashier of Golden Savings and deposited to its Savings account in Metrobank
branch in Calapan, Mindoro. They were sent for clearance. Meanwhile, Gomez is not
allowed to withdraw from his account, later, however, exasperated over Floria
repeated inquiries and also as an accommodation for a valued client Metrobank
decided to allow Golden Savings to withdraw from proceeds of the warrants. In turn,
Golden Savings subsequently allowed Gomez to make withdrawals from his own
account. Metrobank informed Golden Savings that 32 of the warrants had been
dishonored by the Bureau of Treasury and demanded the refund by Golden Savings
of the amount it had previously withdrawn, to make up the deficit in its account. The
demand was rejected. Metrobank then sued Golden Savings.

Issue:
1. Whether or not Metrobank can demand refund agaist Golden Savings with regard
to the amount withdraws to make up with the deficit as a result of the dishonored
treasury warrants.
2. Whether or not treasury warrants are negotiable instruments

Held:
No. Metrobank is negligent in giving Golden Savings the impression that the
treasury warrants had been cleared and that, consequently, it was safe to allow
Gomez to withdraw. Without such assurance, Golden Savings would not have
allowed the withdrawals. Indeed, Golden Savings might even have incurred liability
for its refusal to return the money that all appearances belonged to the depositor,
who could therefore withdraw it anytime and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings
deposited them to its account with Metrobank. Golden Savings had no clearing
facilities of its own. It relied on Metrobank to determine the validity of the warrants
through its own services. The proceeds of the warrants were withheld from Gomez
until Metrobank allowed Golden Savings itself to withdraw them from its own
deposit.
Metrobank cannot contend that by indorsing the warrants in general, Golden
Savings assumed that they were genuine and in all respects what they purport to
be, in accordance with Sec. 66 of NIL. The simple reason that NIL is not applicable
to non negotiable instruments, treasury warrants.

No. The treasury warrants are not negotiable instruments. Clearly stamped
on their face is the word: non negotiable. Moreover, and this is equal significance,
it is indicated that they are payable from a particular fund, to wit, Fund 501. An
instrument to be negotiable instrument must contain an unconditional promise or
orders to pay a sum certain in money. As provided by Sec 3 of NIL an unqualified
order or promise to pay is unconditional though coupled with: 1st, an indication of a
particular fund out of which reimbursement is to be made or a particular account to
be debited with the amount; or 2nd, a statement of the transaction which give rise
to the instrument. But an order to promise to pay out of particular fund is not
unconditional. The indication of Fund 501 as the source of the payment to be made
on the treasury warrants makes the order or promise to pay not conditional and
the warrants themselves non-negotiable. There should be no question that the
exception on Section 3 of NIL is applicable in the case at bar.

GSIS vs Court of Appeals and Mr. & Mrs. Racho, GR No. L-40824 February
23, 1989
 (Negotiable Instruments payable to order or to bearer)

Facts: Spouses Racho together with Spouses Lagasca executed a deed of mortgage
in favor of GSIS in connection with 2 loans granted by the latter in the sums of
p11,500.00 and p3,000.00, respectively. A parcel of land co-owned by the
mortgagor spouses was govern as security under the aforesaid deeds and executed
a promissory note promising to pay the said amounts to GSIS jointly, severally and
solidarily.

The Lagasca spouses executed an instrument obligating themselves in the

assumption of the aforesaid obligation and to secure the release of the mortgage.
Failing to comply with the conditions of the mortgage, GSIS extrajudicially
foreclosed the mortgage and caused the property to be sold at public auction.
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: WON the promissory note and mortgage deeds are negotiable.

Held: No. Section 29 of the NIL provides that an accommodation party is one who
has signed an instrument as maker, drawer, acceptor of indorser without receiving
value therefore, but is held liable on the instrument to a holder for value although
the latter knew him to be only an accommodation party.
Both parties appears to be misdirected and their reliance misplaced. The promissory
note, as well as the mortgage deeds subject of this case, are clearly not negotiable
instrument because it did not comply with the fourth requisite to be considered as
such under Sec. 1 of the NIL they are neither payable to order nor to bearer. The
note is payable to a specified party, the GSIS.

Kauffman vs PNB, GR No. 16454 September 29, 1921, digested

Posted by Pius Morados on January 4, 2012

(Negotiable Instruments)

Facts: Plaintiff was entitled to the sum of P98,000 from the surplus earnings of Philippine Fiber & Produce Company
(PFPC) which was placed to his credit on the companys books. The PFPC treasurer requested from PNB Manila that
a telegraphic transfer of S45,000 should be made to the plaintiff in NY upon account of PFPC. The treasurer drew and
delivered a check for the amount of P90,355 on the PNB which is the total costs o said transfer. As evidence, a
document was made out and delivered to the PFPC treasurer which is referred to by the banks assistant cashier as
its official receipt.

On the same day the Philippine National Bank dispatched to its New York agency a cablegram to the following effect:

Upon receipt of the telegraphic message, the banks representative advised the withholding of the money from
Kauffman, in view of his reluctance to accept certain bills of the PFPC. The PNB agreed and sent to its NY agency
another message to withhold the payment as suggested.

Upon advice of the PFPC treasurer that S45,000 had been placed to his credit, he presented himself at the PNB NY
and demanded the money but was refused due to the direction of the withholding of payment.
Issue: WON plaintiff has a right over the money withhold.

Held: No. Provisions of the NIL can 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.

The order transmitted by PNB to its NY branch, for the payment of a specified sum of money to the plaintiff was not
made payable to order or to bearer, as required in subsection (d) of that Act; and inasmuch as it never left he
possession of the bank, or its representative in NY, there was no delivery in the sense intended in section 16 of the
same Law.

In connection, it is unnecessary to point out that the official receipt delivered by the bank to the purchaser of the
telegraphic order cannot itself be viewed in the light of a negotiable instrument, although it affords complete proof of
the obligation actually assumed by the bank.

Borromeo vs. Sun

Borromeo vs Sun
G.R. No. 75908. October 22, 1999
PURISIMA, J

Facts:

Amancio Sun brought before the then Court of the First Instance of Rizal an action
against Lourdes O. Borromeo (in her capacity as corporate secretary), Federico O.
Borromeo and Federico O. Borromeo (F.O.B.), Inc., to compel the transfer to his
name in the books of F.O.B., Inc., shares of stock registered in the name of Federico
O. Borromeo, as evidenced by a Deed of Assignment. Private respondent averred
that all the shares of stock of F.O.B. Inc. registered in the name of Federico O.
Borromeo belong to him, as the said shares were placed in the name of Federico O.
Borromeo 'only to give the latter personality and importance in the business world.'
On the other hand, petitioner Federico O. Borromeo disclaimed any participation in
the execution of the Deed of Assignment, theorizing that his supposed signature
thereon was forged. LL

The lower court of origin came out with a decision declaring the questioned
signature on subject Deed of Assignment as the genuine signature of Federico O.
Borromeo. After considering the testimonies of the two expert witnesses for the
parties and after a careful and judicious study and analysis of the questioned
signature as compared to the standard signatures. On appeal by petitioners, the
Court of Appeals adjudged as forgery the controverted signature of Federico O.
Borromeo. Amancio Sun interposed a motion for reconsideration of the said
decision, contending that Segundo Tabayoyong, petitioners' expert witness, is not a
credible witness. Acting on the aforesaid motion for reconsideration, the Court of
Appeals reconsidered its decision.

Issue: WON the signature of Frederico O. Borromeo in the Deed of Assignments is a

genuine signature.

Held:

Pertinent records reveal that the subject Deed of Assignment is embodied in blank
form for the assignment of shares with authority to transfer such shares in the
books of the corporation. It was clearly intended to be signed in blank to facilitate
the assignment of shares from one person to another at any future time. This is

similar to Section 14 of the Negotiable Instruments Law where the blanks may be
filled up by the holder, the signing in blank being with the assumed authority to do
so. Indeed, as the shares were registered in the name of Federico O. Borromeo just
to give him personality and standing in the business community, private respondent
had to have a counter evidence of ownership of the shares involved. Thus, the
execution of the deed of assignment in blank, to be filled up whenever needed. The
same explains the discrepancy between the date of the deed of assignment and the
date when the signature was affixed thereto.

While it is true that the 1974 standard signature of Federico O. Borromeo is to the
naked eye dissimilar to his questioned signature circa 1954-1957, which could have
been caused by sheer lapse of time, Col. Jose Fernandez, respondent's expert
witness, found the said signatures similar to each other after subjecting the same to
stereomicroscopic examination and analysis because the intrinsic and natural
characteristic of Federico O. Borromeo's handwriting were present in all the
exemplar signatures used by both Segundo Tabayoyong and Col. Jose Fernandez.

Sesbreno vs CA

Sesbreno vs. Court of Appeals

GR 89252, 24 May 1993

FACTS:

Petitioner Sesbreno made a money market placement in the amount of P300,000 with the
Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance
issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation
Promissory Note, the Certificate of Securities Delivery Receipt indicating the sale of the note
with notation that said security was in the custody of Pilipinas Bank, and postdated checks
drawn against the Insular Bank of Asia and America for P304,533.33 payable on March 13,
1981. The checks were dishonored for having been drawn against insufficient funds. Pilipinas
Bank never released the note, nor any instrument related thereto, to Sesbreno; but Sesbreno
learned that the security which was issued on April 10, 1980, maturing on 6 April 1981, has a
face value of P2,300,833.33 with PhilFinance as payee and Delta Motors as maker; and was
stamped non-negotiable on its face. As Sesbreno was unable to collect his investment and
interest thereon, he filed an action for damages against Delta Motors and Pilipinas Bank. Delta
Motors contents that said promissory note was not intended to be negotiated or otherwise
transferred by Philfinance as manifested by the word "non-negotiable" stamped across the face
of the Note.

ISSUE:

Whether the non-negotiability of a promissory note prevents its assignment.

RULING:

A negotiable instrument, instead of being negotiated, may also be assigned or transferred. The
legal consequences of negotiation and assignment of the instrument are different. A non-
negotiable instrument may not be negotiated but may be assigned or transferred, absent an
express prohibition against assignment or transfer written in the face of the instrument. The
subject promissory note, while marked "non-negotiable," was not at the same time stamped
"non-transferable" or "non-assignable." It contained no stipulation which prohibited Philfinance
from assigning or transferring such note, in whole or in part.

Benjamin Abubakar vs The Auditor General

In 1941, a treasury warrant was issued in favor of Placido Urbanes, a government

employee in the province of La Union. The said treasury warrant was meant to augment the
Food Production Campaign in the said province. It was then negotiated by Urbanes to
Benjamin Abubakar, a private individual. When Abubakar sought to have the treasury
warrant encashed, the Auditor General denied payment because first of, it is against the
appropriating law (Republic Act 80) to authorize payments to private individuals when it
comes to treasury warrants. Abubakar then contends that he is entitled to encash as he was
a holder in good faith.
ISSUE: Whether or not a treasury warrant is a negotiable instrument.

HELD: No. A treasury warrant is not a negotiable instrument. One of the requirements of a
negotiable instrument is that it must be unconditional. In Section 3 of the Negotiable
Instruments Law, an order or promise to pay out of a particular fund makes the instrument
conditional. A treasury warrant, like the one in this case, comes from a particular fund, a
particular appropriation. In this case, it was written on the face of the treasury warrant that it
is payable from the appropriation for food administration. Thus, it is not negotiable for
being conditional.

NOTE the difference: However, an instrument is negotiable if it merely mentions/indicates

a particular fund out of which reimbursement is to be made. This does not make the
instrument conditional because it does not say that such particular fund is the source of
payment. It is only a notice to the drawee that he can reimburse himself out of that particular
fund after paying the payee. As to the source of payment to the payee, there is no mention
of it.

PECO vs. Soriano

Philippine Education Co. vs. Soriano

L-22405 June 30, 1971

Dizon, J.:

Facts:

Enrique Montinola sought to purchase from Manila Post Office ten money
orders of 200php each payable to E. P. Montinola. Montinola offered to pay with the
money orders with a private check. Private check 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
without the knowledge of the teller. Upon the disappearance of the unpaid money
order, a message was sent to instruct all banks that it must not pay for the money
order stolen upon presentment. The Bank of America received a copy of said notice.
However, The Bank of America received the money order and deposited it to the
appellants account upon clearance. Mauricio Soriano, Chief of the Money Order
Division notified the Bank of America that the money order deposited had been
found to have been irregularly issued and that, the amount it represented had been
deducted from the banks clearing account. The Bank of America debited
appellants account with the same account and give notice by mean of debit memo.
Issue:

Whether or not the postal money order in question is a negotiable

instrument

Held:

No. It is not disputed that the Philippine postal statutes were patterned after similar
statutes in force in United States. The Weight of authority in the United States is
that postal money orders are not negotiable instruments, the reason being that in
establishing and operating a postal money order system, the government is not
engaged in commercial transactions but merely exercises a governmental power for
the public benefit. Moreover, 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.

Pacifica Jimenez vs Jose Bucoy

During the Japanese occupation, Pacita Young issued three promissory notes to Pacifica
Jimenez. The total sum of the notes was P21k. All three promissory notes were couched in
this manner:

Received from Miss Pacifica Jimenez the total amount of ___________ payable six months
after the war, without interest.

When the promissory notes became due, Jimenez presented the notes for payment. Pacita
and her husband died and so the notes were presented to the administrator of the estate of
the spouses (Dr. Jose Bucoy). Bucoy manifested his willingness to pay but he said that
since the loan was contracted during the Japanee occupation the amount should be
deducted and the Ballantyne Schedule should be used, that is peso-for-yen (which would
lower the amount due from P21k). Bucoy also pointed out that nowhere in the not can be
seen an express promise to pay because of the absence of the words I promise to pay

ISSUE: Whether or not Bucoy is correct.

HELD: No. The Ballantyne schedule may not be used here because the debt is not payable
during the Japanese occupation. It is expressly stated in the notes that the amounts stated
therein are payable six months after the war. Therefore, no reduction could be effected,
and peso-for-peso payment shall be ordered in Philippine currency.

The notes also amounted in effect to a promise to pay the amounts indicated therein. An
acknowledgment may become a promise by the addition of words by which a promise of
payment is naturally implied, such as, payable, payable on a given day, payable on
demand, paid . . . when called for, . . . To constitute a good promissory note, no precise
words of contract are necessary, provided they amount, in legal effect, to a promise to pay.
In other words, if over and above the mere acknowledgment of the debt there may be
collected from the words used a promise to pay it, the instrument may be regarded as a
promissory note

10 same with 8

Caltex vs CA

Caltex (Philippines) Inc. vs. CA

GR 97753, 10 August 1992

-negotiability

FACTS:

Security Bank and Trust Co. issued 280 certificates of time deposit (CTD) in favor of one Mr.
Angel dela Cruz who deposited with the bank P1.12 million. Dela Cruz delivered the CTDs to
Caltex in connection with his purchase of fuel products from the latter. Subsequently, dela Cruz
informed the bank that he lost all the CTDs, and thus executed an affidavit of loss to facilitate
the issuance of the replacement CTDs. When Caltex presented said CTDs for verification with
the bank and formally informed the bank of its decision to preterminate the same, the bank
rejected Caltex claim and demand as Caltex failed to furnish copies of certain requested
documents. In 1983, dela Cruz loan matured and the bank set-off and applied the time
deposits as payment for the loan. Caltex filed a complaint which was dismissed on the ground
that the subject certificates of deposit are non-negotiable.

ISSUE:

Whether the Certificates of Time Deposit (CTDs) are negotiable instruments.

RULING:

The CTDs in question are negotiable instruments as they meet the requirements of the law for
negotiability as provided for in Section 1 of the Negotiable Instruments Law. The documents
provide that the amounts deposited shall be repayable to the depositor. And according to the
document, the depositor is the "bearer." The documents do not say that the depositor is Angel
de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the
amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may
be the bearer at the time of presentment. However, petitioner cannot recover on the CTDs.
Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and
agreement between it and dela Cruz, as ultimately ascertained, requires both delivery and
indorsement. In this case, there was no indorsement as the CTDs were delivered not as
payment but only as a security for dela Cruz' fuel purchases.

Firestone Tire vs. CA

Firestone Tire & rubber Co. vs. Court of Appeals

GR No. 113236 March 5, 2001

Quisumbing, J.:

Facts:

Forjas-Arca Enterprise Company is maintaining a special savings account

with Luzon Development Bank, the latter authorized and allowed withdrawals of
funds though the medium of special withdrawal slips. These are supplied by Fojas-
Arca. Fojas-Arca purchased on credit with FirestoneTire & Rubber Company, in
payment Fojas-Arca delivered a 6 special withdrawal slips. In turn, these were
deposited by the Firsestone to its bank account in Citibank. With this, relying on
such confidence and belief Firestone extended to Fojas-Arca other purchase on
credit of its products but several withdrawal slips were dishonored and not paid. As
a consequence, Citibank debited the plaintiffs account representing the aggregate
amount of the two dishonored special withdrawal slips. Fojas-Arca averred that the
pecuniary losses it suffered are a caused by and directly attributes to defendants
gross negligence as a result Fojas-Arca filed a complaint.

Issue:

Whether or not the acceptance and payment of the special withdrawal slips
without the presentation of the depositors passbook thereby giving the impression
that it is a negotiable instrument like a check.
Held:

No. Withdrawal slips in question were non negotiable instrument. Hence, the
rules governing the giving immediate notice of dishonor of negotiable instrument do
not apply. The essence of negotiability which characterizes a negotiable paper as a
credit instrument lies in its freedom to circulate freely as a substitute for money. The
withdrawal slips in question lacked this character.

pnb vs zulueta (not found)

Baldomero Inciong, Jr. vs

Court of Appeals
In February 1983, Rene Naybe took out a loan from Philippine Bank of Communications
(PBC) in the amount of P50k. For that he executed a promissory note in the same amount.
Naybe was able to convince Baldomero Inciong, Jr. and Gregorio Pantanosas to co-sign
with him as co-makers. The promissory note went due and it was left unpaid. PBC
demanded payment from the three but still no payment was made. PBC then sue the three
but PBC later released Pantanosas from its obligations. Naybe left for Saudi Arabia hence
cant be issued summons and the complaint against him was subsequently dropped.
Inciong was left to face the suit. He argued that that since the complaint against Naybe was
dropped, and that Pantanosas was released from his obligations, he too should have been
released.

ISSUE: Whether or not Inciong should be held liable.

HELD: Yes. Inciong is considering himself as a guarantor in the promissory note. And he
was basing his argument based on Article 2080 of the Civil Code which provides that
guarantors are released from their obligations if the creditors shall release their debtors. It is
to be noted however that Inciong did not sign the promissory note as a guarantor. He signed
it as a solidary co-maker.

A guarantor who binds himself in solidum with the principal debtor does not become a
solidary co-debtor to all intents and purposes. There is a difference between a solidary co-
debtor and a fiador in solidum (surety). The latter, outside of the liability he assumes to pay
the debt before the property of the principal debtor has been exhausted, retains all the other
rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-
debtor has no other rights than those bestowed upon him.
Because the promissory note involved in this case expressly states that the three
signatories therein are jointly and severally liable, any one, some or all of them may be
proceeded against for the entire obligation. The choice is left to the solidary creditor (PBC)
to determine against whom he will enforce collection. Consequently, the dismissal of the
case against Pontanosas may not be deemed as having discharged Inciong from liability as
well. As regards Naybe, suffice it to say that the court never acquired jurisdiction over him.
Inciong, therefore, may only have recourse against his co-makers, as provided by law.