CALTEX v CA and Security Bank and Trust Company(SBTC) 1

| deposited shall be repayable to the depositor. And who, according

Regalado, J. (1992) to the document, is the depositor? It is the "bearer." The
documents do not say that the depositor is Angel de la Cruz and
RATIO DECIDENDI that the amounts deposited are repayable specifically to him.
[1]The negotiability or non-negotiability of an instrument is Rather, the amounts are to be repayable to the bearer of the
determined from the writing, that is, from the face of the documents or, for that matter, whosoever may be the bearer at the
instrument itself. On the wordings of the documents, the amounts time of presentment.
deposited are repayable to whoever may be the bearer thereof. On the wordings of the documents, the amounts deposited are repayable
[2]Where the holder has a lien on the instrument arising from to whoever may be the bearer thereof. De la Cruz is the depositor insofar
contract, he is deemed a holder for value to the extent of his lien. as SBTC is concerned, but obviously other parties not privy to the
transaction between them would not be in a position to know that the
FACTS depositor is not the bearer stated in the CTDs. Hence, the situation would
require any party dealing with the CTDs to go behind the plain import of
• SBTC issued certificates of time deposits (CTDs) in favor of Angel
what is written thereon to unravel the agreement of the parties thereto
del a Cruz. De la Cruz delivered the CTDs to Caltex in connection
through facts aliunde. This need for resort to extrinsic evidence is what is
with his purchase of fuel products from the latter. Later on, Dela
sought to be avoided by the NIL.
Cruz informed SBTC that he lost the CTDs. SBTC issued
replacement CTDs on the basis of Dela Cruz’s affidavit of loss. De
[2]Caltex cannot recover
la Cruz then assigned the CTDs in favor of SBTC.
Although the CTDs are bearer instruments, a valid negotiation thereof for
• Sometime later, Caltex presented the CTDs that were declared
the true purpose and agreement between it and De la Cruz requires both
lost by De la Cruz, stating that they were delivered to it assecurity
delivery and indorsement. The CTDs were in reality delivered to it as a
for the purchases of fuel made. The bank refused to verify the
security for De la Cruz' purchases of its fuel products. In the case at
CTDs and rejected Caltex’s claim for payment. Caltex instituted an
bar,t here was no negotiation in the sense of a transfer of the legal title to
action, praying that the bank be ordered to pay.
the CTDs in favor of Caltex. Here, the delivery hereof only as security for
• RTC: dismissed the complaint
the purchases of de la Cruz could at the most constitute petitioner only
• CA: affirmed RTC’s decision (the text of the instrument(s)
as a holder for value by reason of his lien. Accordingly, a negotiation
themselves manifest that they are payable, not to whoever
for such purpose cannot be effected by mere delivery of the
purports to be the "bearer" but only to the specified person
instrument since, necessarily, the terms thereof and the
indicated therein, the depositor. SBTC acknowledges its depositor
subsequent disposition of such security, in the event of non-
De la Cruz as the person who made the deposit and further
payment of the principal obligation, must be contractually provided
engages itself to pay said depositor the amount indicated thereon
for. The pertinent law on this point is that where the holder has a lien
at the stipulated date.)
on the instrument arising from contract, he is deemed a holder for
value to the extent of his lien. As such holder of collateral security,
ISSUE/HELD
he would be a pledgee but the requirements therefor and the
[1]WoN the CTDs are negotiable (i.e. won it met all requirements effects thereof, not being provided for by the NIL shall be governed
of the NIL, especially sec 1d: must be payable to order or to by the Civil Code provisions on pledge of incorporeal rights.
bearer)—YES
[2]WoN Caltex can recover on the CTDs—NO DISPOSITIVE
Petition denied.
RATIO
[1]The CTDs are negotiable instruments
The CTDs in question undoubtedly meet the requirements of the law for
negotiability. The accepted rule is that the negotiability or non-negotiability
of an instrument is determined from the writing, that is, from the face of
the instrument itself. The documents provide that the amounts

1
Krystel Bautista

DIGEST GROUP | NEGO VASQUEZ

Page 1 of 12
Development Bank of Rizal v Sima Wei2 | Campos, Jr., J. (1993)
RATIO DECIDENDI
Without delivery of said checks to payee, the former did not acquire
any right or interest therein and cannot therefore assert any cause
of action founded on those checks.
FACTS
 Development Bank of Rizal (Bank) extended a loan to Sima Wei.
 Sima Wei executed a promissory note, engaging to pay the Bank or
order the amount of P1,820,000 on or before 24 June 1983. Sima Wei
made partial payments leaving a balance of P1.032 million.
 On 18 November, Sima Wei issued two crossed checks payable to
the Bank drawn against Chinabank. The checks were issued as full
settlement of the remaining balance but were not delivered to the
Bank.
 For some reason, the checks went to the possession of Lee Kian Huat,
who deposited the checks without Sima Wei’s indorsement to the
account of Plastic Corporation with Producers Bank.
 Relying on the assurances of the president of the Plastic Corporation,
the checks were accepted and deposited on Plastic Corporations
account even without the indorsement and even if they were crossed
checks.
TC—Dismissed the complaint of the Bank
CA—Affirmed dismissal
ISSUE/HELD
Whether the bank has a cause of action against any of the
defendants.—NO.
RATIO
 Normal parties to a check are the drawer, the payee and the drawee
bank.
o Customarily, there are printed pieces of paper that
provides blanks for the name of the payee, the amount and the
signature of the drawer, to be filled by the drawer.
o The mere fact of filling up the blanks and signing does
NOT give rise to any liability on his part, until and unless the
check is delivered to the payee or his representative.
 A negotiable instrument, like a check, is not only a written evidence
of a contract right, but is also a species of property. Section 16, of the
NIL provides: “Every contract on a negotiable instrument is incomplete
2 3
CELENI GUINTO
DIGEST GROUP | NEGO VASQUEZ
Page 2 of 12
until delivery of the instrument for the purpose of giving effect thereto.
xxx “
 Therefore, without the delivery of the said checks to the Bank (the
payee), the Bank did not acquire any right or interest therein, and
cannot therefore assert any cause of action, founded on said checks,
whether against the drawer Sima Wei or against the Producers Bank or
any of the other respondents.
 If the allegations turned out to be true, it won’t be the bank that will
have a cause of action against Sima Wei, it will be Sima Wei who will
have a cause of action against co-defendants (Plastic Corporation,
Prudential Bank).
 Sima Wei is still liable to her obligation under the promissory note,
which is completely independent of the crossed-checks
DISPOSITIVE
Dismissal AFFIRMED, remanded to check Sima Wei’s liability under the PN.
Charles Lee V. CA3 | De Leon, Jr., J. (2002)
RATIO DECIDENDI
Under Sect. 24 of the Negotiable Instruments Law, every
negotiable instrument is deemed prima facie to have been issued
for valuable consideration and every person whose signature
appears thereon to have become a party for value.
FACTS
- Charles Lee, as President of MICO, wrote Philippine Bank of
Communications (PBCom) requesting a grant of a discounting
credit line in the sum of 3 million pesos.
- On the same day, Lee again requested for another discounting
loan/credit line of 3 million pesos.
- Mico later on availed 3 loans in the amount of 1 million each. In all
3 loans, upon maturity, MICO caused them to be renewed.
o MICO through its Vice-President and General Manager
Mariano Sio executed a Deed of Real Estate Mortgage
over its properties to secure the loan.
o On 26 March 1979, Lee, Suy, Sio, Yap and Velasco
executed a Surety Agreement in favor of PBCom.
- MICO again applied for a loan in the amount of 4 million pesos
which was approved by PBCom. MICO availed of the loan.
- The proceeds of all the loan agreements were credited to MICO’s
current checking account with PBCom.
PAT HERNANDEZ
 - To induce PBCom to increase the credit line, another surety
agreement was executed by the same persons in the 1st surety
agreement.
- On 2 July 1981, MICO filed with the PBCom an application for a
domestic letter of credit in the sum of PHP 348, 000. It was
approved.
o The domestic letter of credit was negotiated and accepted
by MICO.
o MICO paid the letter of credit to a supplier of
merchandise. After the supplier was paid, MICO executed
a trust receipt in favor of PBCOM.
- Upon maturity of all credit availments, PBCom made a demand for
payment.
- MICO failed to pay and PBCom extra-judicially foreclosed MICO’s
property. After the sale, an unpaid balance of PHP 5, 441, 663.90
remained.
- MICO likewise still had another standing obligation in the sum of
PHP 461,600.06 representing its trust receipts liabilities to PBCom.
o PBCom demanded settlement of the aforesaid obligations
from the sureties under the surety agreement.
- The sureties refused to acknowledge their obligations to PBCom.
- PBCom thus filed a case MICO and the sureties.
ISSUE/HELD
[1] WoN the proceeds of the loans and letters of credit transactions
were ever delivered to MICO – YES
[2] WoN the sureties may be held liable under the 2 surety
agreements - YES
RATIO
[1] The proceeds were delivered to MICO.
- Under Sect. 24 of the Negotiable Instruments Law, every
negotiable instrument is deemed prima facie to have been
issued for valuable consideration and every person whose
signature appears thereon to have become a party for
value.
- Negotiable instruments which are meant to be substitutes for
money, must conform to the following requisites:
o It must be in writing
o It must be signed by the maker or drawer;
o It must contain an unconditional promise or order to pay
a sum certain in money;
o It must be payable on demand or at a fixed or
determinable future time;
o It must be payable to order or to bearer;
DIGEST GROUP | NEGO VASQUEZ
Page 3 of 12
o Where it is a bill of exchange, the drawee must be named
or otherwise indicated with reasonable certainty.
- Letters of credit and trust receipts are not negotiable instruments.
- There is a presumption that drafts drawn in connection
with letters of credit have sufficient consideration.
- There is nothing unusual in the fact that the drafts presented in
evidence by PBCom were not made payable to PBCom.
o Modern letters of credit are usually not made between
natural persons. They involve bank-to-bank transactions.
o Parties to a commercial letter of credit include:
 The buyer or the importer
 The seller, also referred to as the beneficiary
 The opening bank which is usually the buyer’s
bank which actually issues the letter of credit
 The notifying bank which is the correspondent
bank of the opening bank through which it
advises the beneficiary of the letter of credit
 Negotiating bank which is usually any bank in
the city of the beneficiary
 The paying bank which buys or discounts the
drafts contemplated by the letters of credit
 The confirming bank which, upon the request of
the beneficiary, confirms the letter of credit
issued by the opening bank.
- A trust receipt is a security transaction intended to aid in
financing importers and retail dealers who do not have
sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire
credit except through utilization, as collateral of the merchandise
imported or purchased.
o It is a document of security pursuant to which a bank
acquires a “security interest” in the goods under trust
receipt.
o Under a letter of credit-trust receipt arrangement, a bank
extends a loan covered by a letter of credit with the trust
receipt as a security for the loan.
[2] The sureties are liable under the 2 surety agreement.
- The documents presented by PBCom proves the solidary obligation
of MICO and the sureties.
DISPOSITIVE
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV
No. 27480 entitled “Philippine Bank of Communications vs. Mico Metals
Corporation, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard
Velasco and Alfonso Co” is AFFIRMED in toto.
Jimenez vs Bucoy4 | Cruz, J. (1991)
RATIO DECIDENDI
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.
FACTS
- in this intestate of Luther and Pacita Young, Pacifica Jimenez presented
for payment 4 promissory notes signed by Pacita for different amounts.
- acknowledging receipt by Pacita during the Japanese occupation, in the
currency prevailing, the administrator manifested willingness to pay
provided adjustment of the sums be made in line with the Ballantyne
schedule.
- claimant objected to the adjustment insisting on full payment of notes
- the promissory notes read: “ received from Jimenez P10,000 payable 6
months after the war, w/o interest”
- LC held that the notes should be paid in the currency prevailing after the
war
ISSUE/HELD
WoN the amounts should be paid, peso for pesos or WoN a reduction
should be made in accordance with the well-known Ballantyne schedule?
RATIO
GR: If the loan could be paid during the Japanese occupation, the
Ballantyne schedule should apply with corresponding reduction of amount.
EXCEPTION: If the loan was expressly agreed to be payable only after
those dates, no reduction could be effected, and peso-for-peso payment
shall be ordered in Philippine currency.
In this case, the debtor undertook to pay “6 months after the war,” peso
for peso payment is indicated.
The appellant administrator calls attention to the fact that the notes
contained no express promise to pay a specified amount. This has no
merit. The note here amounted to a “promise to pay 10,000 six months
after the war, w/o interest”
An acknowledgment may become a promise by the addition of words by
w/c a promise of payment is naturally implied such as, “payable,”
“payable” on a given day,” “payable on demand,” “paid when called for.”
4 5
ROS NONATO
DIGEST GROUP | NEGO VASQUEZ
Page 4 of 12
To constitute a good promissory note, no precise words of contract are
necessary provided they amount, in legal effect, to a promise to pay. Thus,
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.
DISPOSITIVE
Judgment affirmed with modification.
The Philippine Bank of Commerce v. Aruego5 | Fernandez, J. (1981)
RATIO DECIDENDI
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.
FACTS
- The Philippine Bank of Commerce (PBCOM) instituted against Jose
M. Aruego a civil case for the recovery of a total sum of PHP 35,
000.
- PBCOM alleged 22 causes of action pertaining to 22 transactions
entered into by PBCOM and Aruego.
- The sum sought to be recovered represents the cost of the
printing of “World Current Events,” a periodical published by
Aruego. To facilitate payment of the printing, Aruego obtained a
credit accommodation from PBCOM.
- For every printing of World Current Events, the printer, collected
the cost of printing by drawing a draft against PBCOM. As an
added security, PBCOM required Aruego to execute a trust receipt
in favor of PBCOM where Aruego undertook to hold in trust for
PBCOM the periodicals and to sell the same with the promise to
turn over to PBCOM the proceeds of the sale of said publication.
ISSUE/HELD
WoN Aruego is liable on the negotiable instruments – YES
RATIO
- Aruego’s 1st defense is that he signed the supposed bills of
exchange as an agent of the Philippine Education Foundation
Company.
PAT HERNANDEZ
 o Sect. 20 of the NIL provides that “Where the instrument Commissioner of Customs vs. Capistrano6 | Paras, C., J.; June 30,
contains or a person adds to his signature words 1960
indicating that he signs for on behalf of a principal or in a
representative capacity, he is not liable on the instrument
if he was duly authorized.
o But the mere addition of words describing him as an RATIO DECIDENDI
agent or as filing a representative character,
without disclosing his principal, does not exempt The Philippine peso bills when attempted to be exported may be deemed to
him from personal liability. have been taken out of domestic circulation as legal tender and treated as
o Aruego did not disclose in the draft that he was commodity. Hence, they may be forfeited pursuant to CB Circular No. 37 in
signing as a representative of Philippine Education relation to Sec. 1363 (f) of the Revised Administrative Code.
Foundation Company.
o For failure to disclose his principal, Aruego is personally
liable for the drafts he accepted.
- Aruego contends that he signed the drafts only as an FACTS
accommodation party.
o An accommodation party is one who has signed the Caridad Capistrano, a passenger bound for Hongkong, was subjected to
instrument as maker, drawer, indorser, without customary search by a woman agent of the Bureau of Customs and found
receiving value therefore and for the purpose of in her person 156 pieces of Philippine 50-Peso Bills, 17 pieces of US 20-
lending his name to some other person. In lending Dollar bills, and one p(1) piece of US 10-Dollar bill, although her license
his name to the accommodated party, the from the Central Bank allowed her to carry only $200 ($50 in cash, &150 in
accommodation party is in effect a surety for the latter. traveler’s check). The bills were seized for alleged violation of CB Circular
 Aruego signed as drawee/acceptor. Under the Nos. 42 and 55, in relation to Sec. 1363 (f) of the Revised Administrative
NIL, the drawee is primarily liable. Code.
- Aruego also 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.
o A bill of exchange is an unconditional order in writing In the seizure and forfeiture proceedings:
addressed by one person to another, signed by the
person giving it, requiring the person to whom it is Collector of Customs
addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order – ordered the forfeiture in favor of the Phil. Govt.
or to bearer.
o 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 Commissioner of Customs
commercial paper is a bill of exchange or not.
– affirmed.
DISPOSITIVE
WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court
of First Instance of Manila denying the petition for relief from the judgment
rendered in said case is hereby affirmed, without pronouncements as to Court of Tax Appeals
costs.
– The 156 pieces of Philippine 50-Peso bills were ordered returned to
Capistrano.
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Micha Arias

DIGEST GROUP | NEGO VASQUEZ

Page 5 of 12
– The circulars did not authorize the seizure and forfeiture of the Philippine
peso bills carried in excess of that allowed by the Central Bank regulations.
Sec. 1363 (f) of the Revised Administrative Code cannot be invoked with
respect to the Philippine Peso bills because it referred merely to
“merchandise or prohibited importation or exportation”.
– CTA took judicial notice of the fact that the US Dollar has already ceased
to be legal tender in the Philippine and that it could be bought and sold in
the country, hence falling within the “merchandise”. But the same is not
true for the Philippine Peso.
Commissioner of Customs appealed to the Supreme Court.
ISSUE/HELD
W/N the excess Philippine Peso bills can be forfeited? – YES.
RATIO
The term merchandise as used in the Revised Administrative Code includes
goods, wares, and in general anything that may be the subject of
importation and exportation. As Philippine money may be exported or
brought out of the country, it can be said that it is a commodity – an object
of trade. Such exportation ultimately affects the stability of the peso hence,
the CB Circulars were issued to prohibit their exportation subject to certain
exceptions.
DISPOSITIVE
CTA decision reversed.
DIGEST GROUP | NEGO VASQUEZ
Page 6 of 12
Consolidated Plywood Industries, Inc. vs. IFC Leasing 7 | Paras, C.,
J.; June 30, 1960
RATIO DECIDENDI
A promissory note which lacks the words of negotiability – “must be
payable to ‘order’ or ‘bearer’” is not a negotiable instrument. Without the
words ‘or order’ or ‘to the order of’, the instrument is payable only to the
person designated therein, and is therefore non-negotiable. Any
subsequent purchase thereof will not enjoy the advantage of being a holder
of a negotiable instrument, but will merely ‘step into the shoes of the
person designated’ in the instrument and will thus be open to all defenses
available against the latter.
FACTS
Consolidated Plywood is a corporation engaged in the logging business. As
its business required the construction of roads, it ordered from Industrial
Products Marketing (IPM) two (2) used tractors. Upon the assurance and
warranty of IPM that the tractors were fit for the job, Consolidated
proceeded with the sale. They agreed to purchase in installment and
executed a deed of sale with chattel mortgage with promissory note.
Simultaneously, IPM assigned, by means of a deed of assignment, its right
and interest in the chattel mortgage in favor of IFC Leasing.
During the period covered by the warranty the tractors broke down and
were found to be no longer serviceable. As such, Consolidated sought that
the tractors be pulled out form the site and rescinded its contract with IPM.
IFC, on the other hand, filed a complaint against Consolidated for recovery
of the principal sum and accrued interests arising from its failure to pay the
balance from its purchase of the tractors.
Trial Court
7
Micha Arias
– ruled in favor of IFC finding it a holder in due course of the promissory
notes and entitled to collect the amount in issue. Consolidated’s Motion for
Reconsideration denied.
CA – affirmed.
On Breach of Warranty. The warranty lies only between Consolidated
and IPM, and does not include IFC. The breach of warranty is therefore not
a defense available to Consolidated either to withdraw from the contract
and/or demand a proportionate reduction of the price with damages in
either case.
On Being a Holder in Due Course of the Promissory Note. The
promissory note is a negotiable instrument which was discounted or sold to
IFC. It had all the essential elements of a negotiable instrument and was
properly transferred to IFC, pursuant to the requirements of the NIL,
making IFC a holder in due course.
ISSUE/HELD
W/N the promissory note is a negotiable instrument so as to bar completely
all the available defenses of Consolidated against IFC? – NO.
RATIO
IPM is liable to Consolidated for its breach of warranty. This liability as a
general rule, extends to the corporation to whom it assigned its rights and
interests unless the assignee is a holder in due course of the promissory
note in question, assuming the note is negotiable, in which case, it shall be
free from all defenses Consolidated would have against it.
In this case, the promissory note lacked the words of negotiability – “must
be payable to ‘order’ or ‘bearer’”. Therefore it is not a negotiable
instrument. These words serve as an expression of consent that the
instrument may be transferred. This consent is indispensable since a maker
DIGEST GROUP | NEGO VASQUEZ
Page 7 of 12
assumes greater risk under a negotiable instrument than under a non-
negotiable one.
There are only two ways by which an instrument can be payable to order.
There must always be a specified person named in the instrument. It
means that the bill or note is to be paid to the person designated in the
instrument or to any person to whom he has indorsed and delivered the
same. Without the words ‘or order’ or ‘to the order of’, the instrument is
payable only to the person designated therein, and is therefore non-
negotiable. Any subsequent purchase thereof will not enjoy the advantage
of being a holder of a negotiable instrument, but will merely ‘step into the
shoes of the person designated’ in the instrument and will thus be open to
all defenses available against the latter.
Sec. 58, NIL provides that “in the hands of any holder other than the
holder in due course, a negotiable instrument is subject to the same
defenses as if it were non-negotiable”. IFC knew that when the tractors
turned out to be defective, it would be subject to the defense of failure of
consideration and cannot recover the purchase price from Consolidated.
Having failed to present any evidence to prove that it had no knowledge of
any fact, which would justify its act of taking the promissory note as not
amounting to bad faith, it cannot be held a holder in due course.
DISPOSITIVE
Complaint dismissed. CA decision annulled and set aside.
Salas v Court of Appeals8 | Fernan, J. (1990)
RATIO DECIDENDI
An instrument in order to be considered negotiable must contain
the so-called “words of negotiability” – i.e., must be payable to
‘order’ or ‘bearer’.
FACTS
8
ALAIN B. BAGUISI
 • On February 6, 1980, Juanita Salas (Salas) bought a motor
vehicle from Violago Motor Sales Corporation (VMS) as evidenced
by a promisorry note (PN).
• This PN was subsequently endorsed to Filinvest Finance and
Leasing Corporation (Filinvest) which financed the purchase.
• Salas figured in an accident on May 9, 1980. Because of this
incident, she discovered discrepancy in the engine and chassis
numbers of the vehicle delivered to her and those indicated in the
sales invoice, certificate of registration and deed of chattel
mortgage.
• Salas intentionally defaulted in her installments because of the
alleged fraud. She argues that in the light of the provision of the
law on sales by description, which she alleges is applicable on this
case, NO CONTRACT EVER EXISTED between her and VMS and
therefore none had been assigned in favor of Filinvest.
• Filinvest filed civil case for a sum of money against Salas before
RTC.
• RTC – “ordering defendant to pay the plaintiff… with interest…
and… attorney’s fee.”
• Salas and Filinvest appealed the decision to Court of Appeals.
• CA –
o Salas signed the promissory note, due execution and
genuineness of which she never denied under oath
o Salas even paid twice in consideration of the PN
o Salas therefore liable to Filinvest
o RTC Decision modified as to sum of payment. Affirmed in
all other respects.
• Thus this petition for review on certiorari of the decision of the CA.
ISSUE/HELD
WoN the PN in question is a negotiable instrument which will bar
completely all the available defenses of Salas against Filinvest.
—YES the questioned promissory note shows that it is a negotiable
instrument having complied with the requisites under the law.
RATIO
• An instrument in order to be considered negotiable must contain
the so-called “words of negotiability – i.e., must be payable to
“order” or “bearer”.
• PN: “For value received, I/We jointly and severally, promise to
pay VMS or order… the sum of… to be payable… in installments…”
and “PAY TO THE ORDER OF FILINVEST”
• PN signed and issued by Salas complied with the requirements of
the law:
DIGEST GROUP | NEGO VASQUEZ
Page 8 of 12
o It is in writing and signed by the maker Salas
o It contains an unconditional promise to pay the amount
of pesos.
o It is payable at a fixed or determinable future time which
is “P1K+ monthly for 36 months due and payable on the
21st day of each month starting March 21, 1980 thru and
inclusive of Feb. 21, 1983.”
o It is payable to VMS, or order and as such
o The drawee is named or indicated with certainty
• Filinvest is a holder in due course. Accordingly, it holds the
instrument free from any defect of title of prior parties, and free
from defenses available to prior parties among themselves, and
may enforce payment of the instrument for the full amount
thereof.
• Even assuming for the sake of argument that there is an iota of
truth is Salas’ allegation that there was in fact deception made
upon her in that the vehicle she purchased was different from that
actually delivered to her, this matter cannot be passed upon in the
case before us, where VMS was never impleaded as a party.
Whatever issue is raised or claim presented against VMS must be
resolved in the “breach of contract” case.
DISPOSITIVE
The assailed decision is hereby AFFIRMED.
Bank of America, NT & SA9 | Vitug, J. (1993)
RATIO DECIDENDI
As a negotiating bank, Bank of America has a right to recourse
against the issuer bank and until reimbursement is obtained, Inter-
Resin, as the drawer of the draft, continues to assume a contingent
liability thereon.
FACTS
• Bank of America received an irrevocable letter of credit issued by
the Bank of Ayudhya for the account of General Chemicals of
Thailand in the amount of US$ 2,782,000.00 to cover the sale the
sale of plastic ropes and “agricultural files” with Bank of America
as the advising bank and the Inter-Resin Industrial Corporation as
beneficiary.
9
PAT HERNANDEZ
 • The Bank of America wrote Inter-Resin informing it of the letter of
credit. Upon receipt of the letter-advise, Inter-Resin sent Atty.
Tanay to Bank of America to have the letter of credit confirmed.
o The bank did not confirm it.
o An employee of the bank however said that there was no
need for confirmation because the letter of credit would
not have been transmitted if it were not genuine.
• Between 26 March to 10 April 1981, Inter-Resin sought to make a
partial availment under the letter of credit.
o After being satisfied that the Inter-Resin’s documents
conformed with the conditions expressed in the letter of
credit, Bank of America issued in favor of Inter-Resin a
Cashier’s check for PHP 10,219,093.20.
• On 10 April 1981, the Bank of America wrote Bank of Ayudhya
advising the latter of the availment under the letter of credit and
sought the corresponding reimbursement therefore.
• Inter-Resin for the 2nd time availed under the letter of credit.
• Bank of America stopped the processing upon receipt of a telex
from Bank of Ayudhya declaring the letter of credit fraudulent.
• Bank of America then sued Inter-Resin for the sum that was
availed of in the letter of credit.
ISSUE/HELD
[1] WoN under the letter of credit, the Bank of America has
incurred any liability to Inter-Resin – NO
[2] WoN the Bank of America can recover what it has paid under
the letter of credit when the corresponding draft for partial
availment thereunder and the required documents were later
negotiated with it by Inter-Resin - YES
RATIO
[1]
• A letter of credit is a financial device developed by merchants as a
convenient and relatively safe mode of dealing with sales of goods
to satisfy the seemingly irreconcilable interests of a seller, who
refuses to part with his goods before he is paid, and a buyer, who
wants to have control of the goods before paying.
o To break the impasse, the buyer may be required to
contract a bank to issue a letter of credit in favor of the
seller so that, by virtue of the latter of credit, the issuing
bank can authorize the seller to draw drafts and engage
to pay them upon their presentment simultaneously with
the tender of documents required by the letter of credit.
o The buyer and the seller agree on what documents are to
be presented for payment, but ordinarily they are
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documents of title evidencing or attesting to the
shipment of the goods to the buyer.
• Once the credit is established, the seller ships the goods to the
buyer and in the process secures the required shipping documents
or documents of title.
• To get paid, the seller executes a draft and presents it together
with the required documents to the issuing bank.
• The issuing bank redeems the draft and pays cash to the seller if it
finds that the documents submitted by the seller conform with
what the letter of credit requires.
• The bank then obtains possession of the documents upon paying
the seller.
• The transaction is completed when the buyer reimburses the
issuing bank and acquires the documents entitling him to the
goods. Under this arrangement, the seller gets paid only if he
delivers the documents of title over the goods, while the buyer
acquires said documents and control over the goods only after
reimbursing the bank.
• What characterizes letters of credit, as distinguished from other
accessory contracts, is the engagement of the issuing bank to pay
the seller of the draft and the required shipping documents are
presented to it.
o In turn, this arrangement assures the seller of prompt
payment, independent of any breach of the main sales
contract.
o By this so-called "independence principle," the bank
determines compliance with the letter of credit only by
examining the shipping documents presented; it is
precluded from determining whether the main contract is
actually accomplished or not.
• There would at least be three (3) parties: (a) the buyer, who
procures the letter of credit and obliges himself to reimburse the
issuing bank upon receipts of the documents of title; (b) the bank
issuing the letter of credit, which undertakes to pay the seller
upon receipt of the draft and proper document of titles and to
surrender the documents to the buyer upon reimbursement; and,
(c) the seller, who in compliance with the contract of sale ships
the goods to the buyer and delivers the documents of title and
draft to the issuing bank to recover payment.
• The number of the parties, not infrequently and almost invariably
in international trade practice, may be increased.
o The services of an advising (notifying) bank may be
utilized to convey to the seller the existence of the credit;
o or, of a confirming bank which will lend credence to the
letter of credit issued by a lesser known issuing bank; or,
of a paying bank, which undertakes to encash the drafts
drawn by the exporter.
 o Further, instead of going to the place of the issuing bank
to claim payment, the buyer may approach another bank,
termed the negotiating bank, to have the draft
discounted.
• The liability of the Bank of America depends on the bank’s
participation in that transaction.
• The Bank of America is only an advising and not a confirming bank
as shown by the provisions of the letter of credit itself, letter of
advice, its request for payment of advising fee and the admission
of Inter-Resin that it has paid the same.
• As an advising or notifying bank, Bank of America did not incur
any obligation more than just notifying Inter-Resin of the letter of
credit issued in its favor, let alone to confirm the letter of credit.
o The bare statement of the bank employees, Inter-Resin's
representative, on the authenticity of the letter of credit
certainly did not have the effect of novating the letter of
credit and Bank of America's letter of advise, nor can it
justify the conclusion that the bank must now assume
total liability on the letter of credit.
[2]
• This kind of transaction is what is commonly referred to as a
discounting arrangement.
• This time, Bank of America has acted independently as a
negotiating bank, thus saving Inter-Resin from the hardship of
presenting the documents directly to Bank of Ayudhya to recover
payment.
• As a negotiating bank, Bank of America has a right to
recourse against the issuer bank and until reimbursement
is obtained, Inter-Resin, as the drawer of the draft, continues to
assume a contingent liability thereon.
• While bank of America has indeed failed to allege material facts in
its complaint that might have likewise warranted the application of
the Negotiable Instruments Law and possible then allowed it to
even go after the indorsers of the draft, the bank of America’s
right (as negotiating bank) of recovery from Inter-Resin itself.
• The payment to Inter-Resin has given Bank of America the right of
reimbursement from the issuing bank, Bank of Ayudhya which, in
turn, would then seek indemnification from the buyer (the General
Chemicals of Thailand).
o Since Bank of Ayudhya disowned the letter of credit,
however, Bank of America may now turn to Inter-Resin
for restitution.
• Between the seller and the negotiating bank there is the usual
relationship existing between a drawer and purchaser of drafts.
• Unless drafts drawn in pursuance of the credit are indicated to
be without recourse therefore, the negotiating bank has the
ordinary right of recourse against the seller in the event of
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dishonor by the issuing bank.
Abubakar vs Auditor General10 | Bengzon, J. (1948)
RATIO DECIDENDI
Treasury Warrants is not within the scope of NIL. The document
bearing on its face the words “payable from the appropriation for
food administration,” is actually an order for payment out of a
particular fund and is NOT unconditional – thus it does not fulfill
one essential requirement of a negotiable instrument.
FACTS
µ SC is asked to overrule decision of Auditor General in refusing to
authorize payment of Treasury Warrant.
Respondent Auditor reasoned:
1) money available for redemption of the warrants is appropriated by RA
80, and this does not come w/in purview of said Act;
2) one of the requirements had not been complied with – it must be shown
that holder of warrants covering payment for official expenditures is
received them in payment of definite government obligations.
ISSUE/HELD
WON respondent auditor is correct – YES
WON said Treasury Warrants are negotiable instruments – NO
RATIO
1) WON respondent auditor is correct - YES
µ First reason is sufficiently valid.
µ There is no question that the treasury warrant (TW) was regularly
indorsed by the payee and is now in the custody of herein
petitioner who is a private individual. On the other hand, it is
admitted that the warrant was originally made payable to Placido
Urbanes in his capacity as disbursing officer of the Food
Aministration for “additional cash advance for the Food Production
Campaign.
µ It is thus apparent that this is a TW issued in favor of a public
officer or employee and held in possession of a private
individual.
µ Such being the case, the Respondent Auditor can’t be
blamed for not authorizing its redemption out of an
appropriation specifically for TW issued in favor of and held in
possession by private individuals. This warrant was not issued in
10
♥ iani lauron
 favor of a private individual. Rather, it was issued in favor of a
gov. employee.
- TW issued prior to Jan 2, 1942 amount to more than P4M.
appropriation herein is only for P1,750,000. Obviously
Congress wished to provide for redemption of TW issued to
private individuals, as distinguished from those in favor of
gov. officials.
2) WON said TWs are negotiable instruments – NO
Petitioner: He is a holder in good faith, for value of a negotiable instrument
and is entitled to the rights of a holder in due course.
µ TW is not within the scope of NIL. The document bearing on
its face the words “payable from the appropriation for food
administration,” is actually an order for payment out of a
particular fund and is NOT unconditional – thus it does not
fulfill one essential requirement of a negotiable instrument.
µ In the US, gov. warrants for the payment of money are not
negotiable instruments nor commercial paper.
DISPOSITIVE
Petition dismissed.
Equitable discovered that the endorsements appearing at the back of the
Checks were forged and/or unauthorized or otherwise belong to persons
other than the payees.
Pursuant to the PCHC Clearing Rules and Regulations, Equitable presented
the Checks directly to Banco de Oro to claim reimbursement.
Banco de Oro refused to accept such direct presentation and to reimburse
Equitable.
In accordance with Section 38 of the Clearing House Rules and Regulations,
the dispute was presented for Arbitration.
The Arbiter rendered a decision in favor of Equitable, ordering the PCHC to
debit from the clearing account of Banco de Oro, and to credit the clearing
account of Equitable of the amount of P45,982.23 with interest at the rate
of 12% per annum from date of the complaint and Attorney's fee in the
amount of P5,000.00.
Banco de Oro filed for a motion for reconsideration, but the Board of
Directors of the PCHC affirmed the Arbiter’s decision

Banco de Oro v Equitable Bank (Gancayco,1988)11 Banco de Oro filed a petition for review with the RTC, which also affirmed
the arbiter and PCHC’s decision.

FACTS:
Banco de Oro asserts that since the checks were non-negotiable, PCHC has
In March, April, May and August 1983, Equitable Bank, through its Visa no jurisdiction to adjudicate the dispute arising from them.
Card Department, drew six crossed Manager's check having an aggregate
amount of P45,982.23 and payable to certain member establishments of
Visa Card.
ISSUE:
These Checks were deposited with Banco de Oro to the credit of its
depositor Aida Trencio. WON the checks were non-negotiable, thus denying PCHC jurisdiction over
the case?
Following normal procedure, Banco de Oro stamped the checks with its
guarantee of "all prior endorsements and/or lack of endorsements,”, and
sent them checks for clearing through the Philippine Clearing House
Corporation (PCHC). YES, the checks were non-negotiable, but the PCHC nevertheless has
jurisdiction to adjudicate the dispute arising from them.
Equitable paid the Checks; its clearing account was debited for the value of
the Checks and Banco de Oro's clearing account was credited for the same
amount,
HELD

11
Ixara Maroto

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Having stamped its guarantee of "all prior endorsements and/or lack of
endorsements,” Banco de Oro is now estopped from raising as defense that
the checks under consideration were non-negotiable.

The checks were accepted for deposit by the Banco de Oro stamping
thereon its guarantee, in order that it can clear the said checks with
Equitable. By such deliberate and positive attitude of the petitioner it has
for all legal intents and purposes treated the said cheeks as negotiable
instruments and accordingly assumed the warranty of the endorser when it
stamped its guarantee of prior endorsements at the back of the checks. It
led the Equitable to believe that it was acting as endorser of the checks
and on the strength of this guarantee said respondent cleared the checks in
question and credited the account of the petitioner. Banco de Oro is now
barred from taking an opposite posture by claiming that the disputed
checks are not negotiable instrument.

And although the subject checks are non-negotiable, the responsibility of

Banco de Oro as indorser thereof remains.

A commercial bank cannot escape the liability of an endorser of a check

and which may turn out to be a forged endorsement. Whenever any bank
treats the signature at the back of the checks as endorsements and thus
logically guarantees the same as such there can be no doubt said bank has
considered the checks as negotiable.

The collecting bank or last endorser generally suffers the loss because it
has the duty to ascertain the genuineness of all prior endorsements
considering that the act of presenting the check for payment to the drawee
is an assertion that the party making the presentment has done its duty to
ascertain the genuineness of the endorsements.

While the drawer generally owes no duty of diligence to the collecting bank,
the law imposes a duty of diligence on the collecting bank to scrutinize
checks deposited with it for the purpose of determining their genuineness
and regularity. The collecting bank being primarily engaged in banking
holds itself out to the public as the expert and the law holds it to a high
standard of conduct.

The Court also read through the articles of incorporation of PCHS and said
that the term check as used in the said Articles of Incorporation connote
checks in general use in commercial and business activities. It cannot be
conceived to be limited to negotiable checks only.

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