89252May 24, 1993] DOCTRINE A non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred absent an express prohibition against assignment or transfer written on the face of the instrument. FACTS On February 9, 1981, Petitioner Raul Sesbreño made a money market transaction with the Philippine Underwriters Finance Corporation (Philfinance) amounting to P300,000 with a maturity date 32 days later. In return Sesbreño received from Philfinance several securities; (1) A share of a promissory note issued by Delta Motors Corp. (a respondent) to Philfinance, for a term of 32 days at 17.0% per annum; (2) A certificate of securities delivery stating that the said promissory note was in possession of Pilipinas Bank (another respondent), under custodianship, as per Denominated Custodian Receipt ("DCR") No. 10805 dated February 9, 1981; and (3) Post-dated checks payable on March 13, 1981 (the maturity date of petitioner's investment), with petitioner as payee, Philfinance as drawer, and Insular Bank of Asia and America as drawee, in the total amount of P304, 533.33. On the date of maturity of his investment, Sesbreño sought to encash the checks given to him. They were however dishonored for having been drawn against insufficient funds. Later Philfinance approached Sesbreño delivering to him a letter stating that the promissory note (from Delta) assigned to him can be claimed from Pilipinas Bank upon his demand. Sesbreño made such demand from Pilipinas Bank and subsequently he was able to inspect the promissory note from Delta and he discovered that on the face of the instrument is stamped the words “NON NEGOTIABLE”. Later, Pilipinas Bank rejected delivering the promissory note to Sesbreño stating that they were awaiting instructions from Philfinance. As Sesbreño was unable to collect his investment and interest thereon, he filed an action for damages against Delta Motors and Pilipinas Bank. ISSUE Whether or not non-negotiability of a promissory note prevents its assignment. HELD A 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 Promissory Note, although marked “non-negotiable,” was not at the same time stamped “non-transferrable” or “nonassignable.” It contained no stipulation which prohibited Philfinance from transferring or assigning, in whole or in part, that note. Neither is the consent of Delta necessary for the validity and enforceability of the assignment in favor of petitioner. However, petitioner still cannot collect on the said promissory note. The rights of an assignee are not any greater than the rights of the assignor, since the assignee is merely substituted in the place of the

assignor and that the assignee acquires his rights subject to the equities (i. Such failure caused prejudice against the petitioner. The Court ruled that it is Pilipinas Bank who should be liable to pay Sesbreño the amount for its refusal to deliver the note to Sesbreño upon his demand. the defenses) which the debtor could have against the original assignor before notice of the assignment was given to the debtor.e. Pilipinas Bank had no right to refuse delivery of the note to Sesbreño. Delta cannot be compelled to pay its debt twice. At the time that Delta was first put to notice of the assignment in petitioner’s favor. The conclusion reached by the court is of course without prejudice to the right of Pilipinas Bank to be reimbursed by Philfinance. Petitioner notified Delta of his rights as assignee only after compensation had taken place by operation of law because the offsetting instruments (the obligation of Philfinance and that of Delta under the promissory note) had both reached maturity. such failure was clearly a breach of its duty as custodian. .. the note had already been discharged by compensation.

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