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, LUCIA CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO, respondents. FACTS Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and countersigned by its Auditor. Six of these were directly payable to Gomez while the others appeared to have been indorsed by their respective payees, followed by Gomez as second indorser. 1 All these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. 2 Gloria Castillo went to the Calapan branch several times to ask whether the warrants had been cleared. Gomez was meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an accommodation for a "valued client," the petitioner says it finally decided to allow Golden Savings to withdraw from the proceeds of the warrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. Eventually, 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had been dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account.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 Whether or not the treasury warrants involved in this case are not negotiable instruments. HELD The treasury warrants are non-negotiable instruments. It would appear to the Court that Metrobank was indeed 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 the proceeds thereof from his account with it. Without such assurance, Golden Savings would not have allowed the withdrawals.
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. A no less important consideration is the circumstance that the treasury warrants in question are not negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501. The following sections of the Negotiable Instruments Law, especially the underscored parts, are pertinent: Sec. 1. — Form of negotiable instruments. — An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. xxx xxx xxx Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with — (a) 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 (b) A statement of the transaction which gives rise to the instrument judgment. But an order or promise to pay out of a particular fund is not unconditional. The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay "not unconditional" and the warrants themselves non-negotiable. NARCISA BUENCAMINO, AMADA DE LEON-ERAÑA, ENCARNACION DE LEON and BIENVENIDO B. ERAÑA vs C. HERNANDEZ FACTS
Negotiable Instruments Law Case Digest
however. shall be authorized to use the same for payment of land taxes or obligations due and payable in favor of the Government and such other uses or purposes provided for by Section 10 of Republic Act No. only upon the expiration of the five-year period there in specified. The petitioners were thus obliged to settle in cash the 1957 tax obligation aforementioned. The petitioners maintain that the 5-year restriction against encashment referred merely and exclusively to the time when the certificates may be converted to cash and not anymore to the utility of the said instruments as substitutes for tax obligations. for which she was issued four (4) Certificates of Deposit each certificate representing the amount of $15. 50% or P1. 1400.000. Absolute Deed of Sale) Availing themselves of what they considered was their contractual and statutory rights under the certificate. to accept or reject the said certificates. The respondent Treasurer refused to accept the same and claimed that as per the opinion rendered by the Secretary of Finance.746. represented by the Solicitor General..000. The Secretary of Finance. from 1963 to 1992. Negotiable Instruments Law) The 5-year period within which the certificates could not be encashed was an expression of the time for payment contrary to paragraph (b) of the last law cited. however. The certificates were to mature in 60 days and were payable to bearer at 4. which argued that he was not a necessary party to the case as he was not the officer with the duty of collecting taxes. the respondent Treasurer explained that he could not accept the certificates offered as Quezon City was then in great need of funds. LTA for short. As a result. The condition in the certificate regarding its encashment only after the lapse of five years from the date of execution of the Deed of Sale of Hacienda de Leon was adopted or taken from the Memorandum Agreement Under the deed of sale.00. The certificates bore the word "accrued. it was discretionary on his part. purchased from the petitioners Narcisa Buencamino. otherwise known as the Land Reform Act of 1955. however. FAR EAST BANK AND TRUST COMPANY vs ESTRELLA O. QUERIMIT FACTS Estrella O. within five (5) years. however. or on presentation.000. To the above petition. dated July 31. and other members of the de Leon family their hacienda in Talavera. a Memorandum Agreement was executed on the said date which expressly declared that the LTA was purchasing the hacienda upon petition of the tenants thereof in accordance with Republic Act No.000. Subsequently. or a total amount of $60. HELD YES. they resolve themselves into the single question of whether or not the said certificates where drawn payable on demand as required by Section 9 of Republic Act 1400. 1957. She opened a dollar savings account in petitioner's Harrison Plaza branch. Nueva Ecija for a total consideration of P2. the petitioners tendered once more the same certificates in payment of their 1958 realty taxes and the respondent Treasurer similarly rejected the tender. present for encashment the negotiable land certificates amounting to ONE MILLION THREE HUNDRED SEVENTY THREE THOUSAND PESOS (P1. they could. . In effect. The parties to the sale agreed that of the full price of P2. " the ones issue to the petitioners were payable to bearer not on demand but. and Encarnacion de Leon. still be used for the settlement of tax liabilities at any time after their issue in accordance with Section 10 of the same Act. The petitioner bank's manager Negotiable Instruments Law Case Digest Page 10 . however. the LTA filed a timely answer sustaining the petitioners' stand.373. On the other hand. the money deposited with accrued interest would be "rolled over" by the bank and annual interest would accumulate automatically. 7.00. ISSUE Whether or not the refusal of respondent Treasurer to accept the land certificates to be legally justified. For the purpose. Querimit worked as internal auditor of the Philippine Savings Bank (PSB) for 19 years. were payable to bearer only after the lapse of five years from a given period. (page 4. Obviously then. They failed to comply with the requirements of Republic Act No.00) but nevertheless. We hold the refusal of the respondent Treasurer to accept the land certificates to be legally justified.000. 1400 within the said period of five (5) years from this date. the petitioners contend that although the certificates issued could not really be encashed within the period therein mentioned. Under the above-mentioned law. also filed an answer. the respondent Treasurer.373.The Land Tenure Administration. the requirement that they should be payable on demand was not met since an instrument payable on demand is one which (a) is expressed to be payable on demand. the above condition was — That the VENDORS shall not." which meant that if they were not presented for encashment or pre-terminated prior to maturity.5% interest per annum. . 1400 because while Section 9 of that Act inquires that "negotiable land certificates shall be issued in denominations of one thousand pesos or multiples of one thousand pesos and shall be payable to bearer on demand .00. the petitioners presented two of them to the respondent City Treasurer in payment of certain 1957 realty tax obligations to Quezon City. the land certificates "shall be payable to bearer on demand. Amada de LeonEraña.00. invoking his discretion in the premises.00 was to be paid in cash and the balance in negotiable land certificates. 1400.000." (Section 9) The one issued. or at sight. And.746. the petitioners filed the instant mandamus proceedings with the Court of First Instance of Quezon City. The respondent Treasurer contends that the certificates in question were not issued strictly in accordance with the provisions of Republic Act No. or (b) expresses no time for payment (Sec.
undelivered and unwithdrawn by her. document of title or security payable to bearer or indorsed in blank. PHILIPPINE NATIONAL BANK vs. The PEMSLA checks. the latter filed a complaint. including interest earned. Spouses Rodriguez would rediscount the postdated checks issued to members whenever the association was short of funds. one who pleads payment has the burden of proving it. or to some other person or his order. must be made to someone authorized to receive it is applicable to the payment of certificates of deposit. 810480-4 under the account name Erlando T. the general rule is that the burden rests on the defendant to prove payment. This was an irregular procedure made possible through the facilitation of Edmundo Palermo. Petitioner claims that it did not demand the surrender of the subject certificates of deposit since respondent's husband. was one of the bank's senior managers. on the other hand. some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan accounts. The PEMSLA checks issued for these loans were then given to the spouses for rediscounting.  A bank acts at its peril when it pays deposits evidenced by a certificate of deposit. The debtor has the burden of showing with legal certainty that the obligation has been discharged by payment. the bearer and lawful holder of the subject certificates of deposit. In line with their business. She used her savings in the Bank of the Philippine Islands (BPI) to pay for the trip and for her husband's medical expenses. As petitioner FEBTC refused respondent's demands. an association of PNB employees. respondent sent a demand letter to petitioner FEBTC. in order to discharge a debt. The principles governing other types of bank deposits are applicable to certificates of deposit. she was told that her husband had withdrawn the money in deposit. RODRIGUEZ and NORMA RODRIGUEZ FACTS Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National Bank (PNB). a bank will be protected in making payment to the holder of a certificate indorsed by the payee. to "[t]he person in possession of an instrument. ISSUE Whether the subject certificates of deposit have already been paid by petitioner. the certificates of deposit were clearly marked payable to "bearer. To subvert this policy. The trial court rendered judgment for respondent. without its production and surrender after proper indorsement. whereby the relation of debtor and creditor between the bank and the depositor is created. HELD NO. As was customary. respondent accompanied her husband Dominador Querimit to the United States for medical treatment.. unless it has notice of the invalidity of the indorsement or the holder's want of title. She went to petitioner FEBTC to withdraw her deposit but. They took out loans in the names of unknowing members. respondent reiterated her request for updating and payment of the certificates of deposit." which means. since "the evidence by the [respondent] stands unrebutted that the subject certificates of deposit until now remain unindorsed. Even where the plaintiff must allege non-payment. The appeals court stated that petitioner FEBTC failed to prove that the certificates of deposit had been paid out of its funds. They maintained savings and demand/checking accounts. The principle that payment. Petitioner presented certified true copies of documents showing that payment had been made. Court of Appeals affirmed the decision of the trial court. Rodriguez). namely. they had a discounting3arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA). ERLANDO T. Her husband died and Estrella returned to the Philippines. In return. to the order of the depositor. Dominador Querimit. without the knowledge or consent of the latter. It was PEMSLA’s policy not to approve applications for loans of members with outstanding debts." Petitioner should not have paid respondent's husband or any third party without requiring the surrender of the certificates of deposit. Thus. FEBTC alleged that it had given respondent's late husband Dominador an "accommodation" to allow him to withdraw Estrella's deposit. PEMSLA was likewise a client of PNB PEMSLA regularly granted loans to its members. In another letter.  As a rule. to her dismay.assured respondent that her deposit would be renewed and earn interest upon maturity even without the surrender of the certificates if these were not indorsed and withdrawn. 810624-6 under the account name Erlando and/or Norma Rodriguez). Negotiable Instruments Law Case Digest Page 11 rather than on the plaintiff to prove payment. The finding of the trial court on this point. is that petitioner did not pay either respondent Estrella or her husband the amounts evidenced by the subject certificates of deposit. Respondent kept her dollars in the bank so that they would earn interest and so that she could use the fund after she retired. Through counsel. Jr. and PNBig Demand Deposit (Checking/Current Account No. as are the rules governing promissory notes when they contain an unconditional promise to pay a sum certain of money absolutely. as affirmed by the Court of Appeals. PNBig Demand Deposits (Checking/Current Account No. The Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from the named payees. The officers carried this out by forging the indorsement of the named payees in the checks. A certificate of deposit is defined as a written acknowledgment by a bank or banker of the receipt of a sum of money on deposit which the bank or banker promises to pay to the depositor. In this case. In 1989. . The spouses were engaged in the informal lending business. the spouses would replace the postdated checks with their own checks issued in the name of the members. Naturally. were deposited by the spouses to their account. the spouses issued their personal checks (Rodriguez checks) in the name of the members and delivered the checks to an officer of PEMSLA. treasurer of PEMSLA and bank teller in the PNB Branch. Petitioner bank failed to prove that it had already paid Estrella Querimit.
if payable to order. Sections 8 and 9 of the NIL states: SEC. If the payee is not the intended recipient of the proceeds of the check. or (d) When the name of the payee does not purport to be the name of any person. The amounts were duly debited from the Rodriguez account. and that spouses Rodriguez and PEMSLA conspired with each other to accomplish this money-making scheme. The payees in the checks were "fictitious payees" because they were not the intended payees at all. – The instrument is payable to bearer – (a) When it is expressed to be so payable. Rather. under Section 9(c) of the NIL. existing. Under Section 30 of the NIL. were deposited as usual to the PEMSLA savings account. To put a stop to this scheme. a check made expressly payable to a non-fictitious and existing person is not necessarily an order instrument.Petitioner PNB eventually found out about these fraudulent acts. Thus. It ruled that PNB (defendant) is liable to return the value of the checks. when the payee is fictitious or not intended to be the true recipient of the proceeds. It is negotiable by mere delivery.14 Thus. or (c) When it is payable to the order of a fictitious or non-existing person. 9. it is negotiated by the indorsement of the holder completed by delivery. HELD The checks are order instruments. however. PNB closed the current account of PEMSLA. thus they do not require indorsement for negotiation. the payee is considered a "fictitious" payee and the check is a bearer instrument. drawer. However. and living payee may also be "fictitious" if the maker of the check did not intend for the payee to in fact receive the proceeds of the check. or (c) The drawee."11 It is either an order or a bearer instrument. As a rule. 8. does not require an indorsement to be validly negotiated." who are well-known characters in Philippine mythology. or (b) When it is payable to a person named therein or bearer. What constitutes negotiation. or (e) Where the only or last indorsement is an indorsement in blank.12 (Underscoring supplied) The distinction between bearer and order instruments lies in their manner of negotiation. are bearer instruments because the named payees are fictitious and non-existent. The provision reads: SEC. checks issued to "Prinsipe Abante" or "Si Malakas at si Maganda. because the PEMSLA checks given as payment were returned. 30. and such fact is known to the person making it so payable. ISSUE Whether the subject checks are payable to order or to bearer and who bears the loss. The CA concluded that the checks were obviously meant by the spouses to be really paid to PEMSLA. It may be drawn payable to the order of – (a) A payee who is not maker. When payable to bearer. This usually occurs when the maker places a name of an existing payee on the check for convenience or to cover up an illegal activity. Thus." The corresponding Rodriguez checks. If payable to bearer. RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). the check is considered as a bearer instrument. on the other hand. or drawee. we are more convinced by the strong and credible evidence for the defendant-appellant with regard to the plaintiffs-appellees’ and PEMSLA’s business arrangement – that the value of the rediscounted checks of the plaintiffs-appellees would be deposited in PEMSLA’s account for payment of the loans it has approved in exchange for PEMSLA’s checks with the full value of the said loans. and such fact is known to the person making it so payable. As a result. A bearer instrument. or (f) The holder of an office for the time being. it is negotiated by delivery. – An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. The CA found that the checks were bearer instruments. The court a quo declared: Not swayed by the contention of the plaintiffs-appellees (Spouses Rodriguez) that their cause of action arose from the alleged breach of contract by the defendant-appellant (PNB) when it paid the value of the checks to PEMSLA despite the checks being payable to order. When payable to order. spouses Rodriguez incurred losses from the rediscounting transactions. Negotiable Instruments Law Case Digest Page 12 . A check that is payable to a specified payee is an order instrument. an order instrument requires an indorsement from the payee or holder before it may be validly negotiated. the PEMSLA checks deposited by the spouses were returned or dishonored for the reason "Account Closed. or (d) Two or more payees jointly. A review of US jurisprudence yields that an actual. A check is "a bill of exchange drawn on a bank payable on demand. – The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. the payee must be named or otherwise indicated therein with reasonable certainty. a check payable to a specified payee may nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person. SEC. or (b) The drawer or maker. or (e) One or some of several payees. Where the instrument is payable to order.
For the fictitious-payee rule to be available as a defense. was authorized to make payment to the bearer of the check. and to determine the capability of the "Used" tractors being offered. Consequently. Thus.16 In the said case. the fictitious-payee rule does not apply.17 However. Likewise. will work to strip it of this defense. When the corporation filed an action against the bank to recover the amount of the checks. A showing of commercial bad faith on the part of the drawee bank. This rule is justified for otherwise. In order to ascertain the extent of work to which the tractors were to be exposed. the bank’s thesis shows that the payees did not have knowledge of the existence of the checks.972. it needed two (2) additional units of tractors. Because of a failure to show that the payees were "fictitious" in its broader sense. it will be most convenient for the maker who desires to escape payment of the check to always deny the validity of the indorsement. IFC LEASING AND ACCEPTANCE CORPORATION FACTS The petitioner is a corporation engaged in the logging business. CONSOLIDATED PLYWOOD INDUSTRIES. and RODOLFO VERGARA vs. or any transferee of the check for that matter. the payee is considered as a fictitious payee.50 against the account of the corporation without authority from the latter. was not tantamount to a lack of intention on the part of respondents-spouses that the payees would not receive the checks’ proceeds. it is treated as a bearer instrument that can be negotiated by delivery. xxx The principle that the fictitious-payee rule extends protection even to non-bank transferees of the checks. Martin was also an officer of the GSFCBA but did not have signing authority. applicable when the transferee "acts dishonestly – where it has actual knowledge of facts and circumstances that amount to bad faith. the drawee bank is absolved from liability and the drawer bears the loss. HENRY WEE. In the case under review: the Rodriguez checks were payable to specified payees. offered to sell to petitioner-corporation two (2) "Used" Allis Crawler Tractors. however. the claim was denied. petitionercorporation requested the seller-assignor to inspect the job site. the subject checks are presumed order instruments. Considering that respondents-spouses were transacting with PEMSLA and not the individual payees. This is because. For its program of logging activities the opening of additional roads. it is uncontroverted that the payees were actual. Negotiable Instruments Law Case Digest Page 13 . the checks are to be deemed payable to order. Said the US Supreme Court in Getty: there is a "commercial bad faith" exception to UCC 3-405. Cognizant of petitioner-corporation's need and purpose. were "fictitious" in its broader context. INC. and simultaneous logging operations along the route of said roads. The underlying theory is that one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. it is understandable that they relied on the information given by the officers of PEMSLA that the payees would be receiving the checks. the drawee bank bears the loss. the corporation Mueller & Martin was defrauded by George L. in case of controversy. regardless of whether prior indorsements were genuine or not. and is a party to the fraudulent scheme. Liberty Insurance Bank. though existing persons. What remains to be determined is if the payees.. Thus. The US Supreme Court held in Mueller that when the person making the check so payable did not intend for the specified payee to have any part in the transactions. through its sister company and marketing arm. existing. one of its authorized signatories. Verily.In a fictitious-payee situation. he must have intended for the instrument to be negotiated by mere delivery. This lack of knowledge on the part of the payees. Martin placed the rubber stamp of the GSFCBA and signed his own name as indorsement. At most. The exception will cause it to bear the loss.15 The fictitious-payee rule is best illustrated in Mueller & Martin v. there is a commercial bad faith exception to the fictitious-payee rule. He then successfully drew the funds from Liberty Insurance Bank for his own personal profit. When faced with a check payable to a fictitious payee. the US Supreme Court held that Liberty Insurance Bank. The check is then considered as a bearer instrument to be validly negotiated by mere delivery. the drawer of the check will bear the loss. The bank failed to satisfy a requisite condition of a fictitiouspayee situation – that the maker of the check intended for the payee to have no interest in the transaction. At the back of the checks. the seller-assignor assured petitioner-corporation that the "Used" Allis Crawler Tractors which were being offered were fit for the job. It is unrefuted that the 69 checks were payable to specific persons. Martin drew seven checks payable to the German Savings Fund Company Building Association (GSFCBA) amounting to $2. After conducting said inspection. Martin. Thus. This despite the fact that the fictitious payee was purposely named without any intention that the payee should receive the proceeds of the check. Atlantic Gulf & Pacific Company of Manila. as drawee. PNB failed to present sufficient evidence to defeat the claim of respondents-spouses that the named payees were the intended recipients of the checks’ proceeds. Industrial Products Marketing a corporation dealing in tractors and other heavy equipment business. as found by both lower courts. Commercial bad faith is present if the transferee of the check acts dishonestly. thus itself becoming a participant in a fraudulent scheme. PNB must show that the makers did not intend for the named payees to be part of the transaction involving the checks. and living persons who were members of PEMSLA that had a rediscounting arrangement with spouses Rodriguez. And since the maker knew this limitation.
With said assurance and warranty. WHEN PAYABLE TO ORDER. the road building and simultaneous logging operations of petitionercorporation were delayed and petitioner Vergara advised the seller-assignor that the payments of the installments as listed in the promissory note would likewise be delayed until the seller-assignor completely fulfills its obligation under its warranty. must be payable to 'order' or 'bearer'. The seller-assignor sent to the job site its mechanics to conduct the necessary repairsbut the tractors did not come out to be what they should be after the repairs were undertaken because the units were no longer serviceable. — The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. president and vicepresident. SEC. 1979. It is patent then.00). Negotiable Instruments Law Case Digest Page 14 assuming the note is negotiable. in which case the latter's rights are based on the negotiable instrument and assuming further that the petitioner's defenses may not prevail against it. agreed to purchase on installment said two (2) units of "Used" Allis Crawler Tractors. Section 1 of the Negotiable Instruments Law requires that a promissory note "must be payable to order or bearer.. 1978 and every 15th of the month thereafter until fully paid. Because of the breaking down of the tractors. There must always be a specified person named in the instrument.789. that the seller-assignor is liable for its breach of warranty against the petitioner. This consent is indispensable since a maker assumes greater risk under a negotiable instrument than under a non-negotiable one. if any.. Philippine Currency. assigned its rights and interest in the chattel mortgage in favor of the respondent. Barely fourteen (14) days had elapsed after their delivery when one of the tractors broke down and after another nine (9) days. to be payable in 24 monthly installments starting July 15. . considering that the subject promissory note is not a negotiable instrument. xxx xxx xxx When instrument is payable to order. Vergara formally advised the seller-assignor of the fact that the tractors broke down and requested for the sellerassignor's usual prompt attention under the warranty. The proceeds were to be given to the respondent and the excess. The instrument in order to be considered negotiablility-i.000. and Vergara. petitioner-corporation through petitioners Wee and Vergara. Considering that paragraph (d).71). . Wee.e. Rodolfo T. 8. to be divided between the seller-assignor and petitioner-corporation which offered to bear one-half (1/2) of the reconditioning The seller-assignor did nothing with regard to the request. It also paid the down payment of Two Hundred Ten Thousand Pesos (P210. The pertinent portion of the note is as follows: FOR VALUE RECEIVED. on April 7. HELD The promissory note is NOT a negotiable instrument. the sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P 1. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument but will merely "step into the shoes" of the person designated in the instrument and will thus be open to all defenses available against the latter. 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. must contain the socalled 'words of negotiable. 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. the deed of sale with chattel mortgage with promissory note was executed. Since the tractors were no longer serviceable. by means of a deed of assignment. . xxx xxx xxx These are the only two ways by which an instrument may be made payable to order.. it follows that the respondent can never be a holder in due course but remains a mere . until the complaint in this case was filed by the respondent against the petitioners. the other tractor likewise broke down. and relying on the sellerassignor's skill and judgment.. Without the words "or order" or"to the order of. and thereafter to offer them for sale.093. I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING. " it cannot be denied that the promissory note in question is not a negotiable instrument. This liability as a general rule. The seller-assignor. the corporation. These words serve as an expression of consent that the instrument may be transferred. . petitioner Wee asked the seller-assignor to pull out the units and have them reconditioned. "the instrument is payable only to the person designated therein and is therefore nonnegotiable. The seller-assignor issued the sales invoice for the two 2) units of tractors at the same time. ." Therefore. The complaint was filed by the respondent against the petitioners for the recovery of the principal sum and accrued interest ISSUE: Whether or not the promissory note in question is a negotiable instrument so as to bar completely all the available defenses of the petitioner against the respondentassignee. the said principal sum. respectively.
. However. Once there is delivery. SMC appealed. "[T]he essential elements of the crime of theft are the following: (1) that there be a taking of personal property. Even assuming for the sake of argument that the promissory note is negotiable. Antedated and postdated – The instrument is not invalid for the reason only that it is antedated or postdated."13 Negotiable Instruments Law Case Digest Page 15 ." Considering that the second element is that the thing taken belongs to another. Jr. Elizabeth Yu Guray found that the "relationship between [SMC] and [Puzon] appears to be one of credit or creditor-debtor relationship. The CA agreed with the prosecutor that there was no theft.510. SMC required him to issue postdated checks equivalent to the value of the products purchased on credit before the same were released to him. provided this is not done for an illegal or fraudulent purpose.500. SMC sent a letter to Puzon demanding the return of the said checks.327 for which he issued. SAN MIGUEL CORPORATION vs. During that visit Puzon allegedly requested to see BPI Check No. 12. is not a holder in due course. Puzon purchased products on credit amounting to P11. if the check was not given as payment. Rulings of the Prosecutor and the Secretary of Department of Justice (DOJ) The investigating prosecutor. then ownership of the check was not transferred to SMC. However. there being no intent to give effect to the instrument. a "POSTDATED CHECK SLIP." She recommended the dismissal of the case for lack of evidence. Puzon purchased SMC products on credit. On this point the Negotiable Instruments Law provides: Sec. and that it was subject to the condition that the tractors -sold were not defective. (Puzon) owner of Bartenmyk Enterprises. 17657 he allegedly immediately left the office with his accountant. The evidence of SMC failed to establish that the check was given in payment of the obligation of Puzon. To ensure payment and as a business practice.820. The DOJ issued its resolution5 affirming the prosecutor’s Resolution dismissing the case. ISSUE Whether the checks issued by Puzon were payments for his purchases or were intended merely as security to ensure payment. considering that a person cannot be charged with theft for taking personal property that belongs to himself. Puzon ignored the demand hence SMC filed a complaint against him for theft with the City Prosecutor’s Office. even conceding for purposes of discussion that the promissory note in question is a negotiable instrument. 17657. bringing the checks with them. Thus. The respondent knew that when the tractors turned out to be defective.12 Otherwise.assignee of the note in question. it cannot be said that there has been delivery of the negotiable instrument. FACTS Respondent Bartolome V. the person to whom the instrument is delivered gets the title to the instrument completely and irrevocably. JR. was a dealer of beer products of petitioner San Miguel Corporation. There was no provisional receipt or official receipt issued for the amount of the check. the petitioner may raise against the respondent all defenses available to it as against the seller-assignor Industrial Products Marketing. Puzon. 27904 (for P309. The problem lies in the reconciliation of accounts and the non-payment of beer empties which cannot give rise to a criminal prosecution for theft. (3) that the taking be done with intent to gain. (Underscoring supplied. together with his accountant. 27903 which was attached to a bond paper together with BPI Check No. Bank of the Philippine Islands (BPI) Check Nos. visited the SMC Sales Office to reconcile his account with SMC. when he got hold of BPI Check No.827. the respondent. Said checks were returned to Puzon when the transactions covered by these checks were paid or settled in full. the purpose of giving effect to the instrument is evident thus title to or ownership of the check was transferred upon delivery. BARTOLOME PUZON. and (5) that the taking be accomplished without the use of violence or intimidation against persons or force upon things.00) and 27903 (forP11. (4) that the taking be done without the consent of the owner. Secondly. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery. and gave to SMC. What was issued was a receipt for thedocument. Puzon. it would be subject to the defense of failure of consideration and cannot recover the purchase price from the petitioners. which took the same with actual knowledge of the foregoing facts so that its action in taking the instrument amounted to bad faith.00) to cover the said transaction. (2) that said property belongs to another. Ruling of the Court of Appeals The CA found that the postdated checks were issued by Puzon merely as a security for the payment of his purchases and that these were not intended to be encashed. It thus concluded that SMC did not acquire ownership of the checks as it was duty bound to return the same checks to Puzon after the transactions covering them were settled.) Note however that delivery as the term is used in the aforementioned provision means that the party delivering did so for the purpose of giving effect thereto. the respondent cannot be a holder in due course for a more significant reason: The respondent had actual knowledge of the fact that the seller-assignor's right to collect the purchase price was not unconditional. If the subject check was given by Puzon to SMC in payment of the obligation. it is relevant to determine whether ownership of the subject check was transferred to petitioner.
Firestone Tire and Rubber vs. there is nothing in the record to show that Firestone knew that there were no funds when it accepted the check. As Ines Chavez is guilty of fraud (bad faith) in the performance of its obligation. the petitioner's demand letter sent to respondent states "As per company policies on receivables. the term "payment" was not used instead the terms "covered" and "cover" were used. the award of attorney’s fees was warranted. When presented to the Security Bank and Trust Co. hence. you have deviated from this policy by forcibly taking away the check you have issued to us to cover the December issuance. he cannot be held guilty of estafa because there is no deceit. Regala (J) Facts: The check was intended as part of the payment of Ines Chaves’ debt. However. all issuances are to be covered by postdated checks. but in accordance with the long-standing policy of SMC to require its dealers to issue postdated checks to cover its receivables. the suit."14 Notably. This being so. observe honesty and good faith. Ines Chaves failed to settle its account. Held: Everyone must in the performance of his duties.Furthermore. GR L-17106. Negotiable Instruments Law Case Digest Page 16 . Herein. The check was only meant to cover the transaction and in the meantime Puzon was to pay for the transaction by some other means other than the check. Ines Chaves & Co. Its conduct wanting in good faith. by Firestone. Where a person issues a postdated check without funds to cover it and informs the payee of this fact. title to the check did not transfer to SMC. Issue: Whether good faith is required in the issuance of a check. the check was returned for insufficiency of funds. Despite repeated demands. 19 October 1966 En Banc. much less that Firestone agreed to take the check with knowledge of the lack of funds. it is liable for damages. The evidence proves that the check was accepted. it remained with Puzon. not as payment.
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