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NAME: Rhobie S.

Corbo
SUBJECT: Negotiable Instruments Law
TOPIC: Concept of Negotiable Instruments

GOVERNMENT SERVICE INSURANCE SYSTEM vs. COURT OF APPEALS


170 SCRA 533, FEBRUARY 23, 1989
FACTS:
Private respondents, Mr. and Mrs. Isabelo R. Racho, together with spouses Mr. and
Mrs Flaviano Lagasca, executed a deed of mortgage, dated November 13, 1957, in
favor of petitioner GSIS and subsequently, another deed of mortgage, dated April
14, 1958, in connection with two loans granted by the latter in the sums of P
11,500.00 and P 3,000.00, respectively. A parcel of land covered by Transfer
Certificate of Title No. 38989 of the Register of Deed of Quezon City, co-owned by
said mortgagor spouses, was given as security under the two deeds. They also
executed a 'promissory note".
On July 11, 1961, the Lagasca spouses executed an instrument denominated
"Assumption of Mortgage," obligating themselves to assume the said obligation to
the GSIS and to secure the release of the mortgage covering that portion of the land
belonging to spouses Racho and which was mortgaged to the GSIS. This
undertaking was not fulfilled. Upon failure of the mortgagors to comply with the
conditions of the mortgage, particularly the payment of the amortizations due, GSIS
extrajudicially foreclosed the mortgage and caused the mortgaged property to be
sold at public auction on December 3, 1962.
For more than two years, the spouses Racho filed a complaint against the spouses
Lagasca praying that the extrajudicial foreclosure "made on, their property and all
other documents executed in relation thereto in favor of the Government Service
Insurance System" be declared null and void.
The trial court rendered judgment on February 25, 1968 dismissing the complaint
for failure to establish a cause of action. However, said decision was reversed by the
respondent Court of Appeals, stating that, although formally they are comortgagors, the GSIS required their consent to the mortgage of the entire parcel of
land which was covered with only one certificate of title, with full knowledge that
the loans secured were solely for the benefit of the appellant Lagasca spouses who
alone applied for the loan.
ISSUE/S:
Whether the respondent court erred in annulling the mortgage as it affected the
share of private respondents in the reconveyance of their property?

Whether private respondents benefited from the loan, the mortgage and the
extrajudicial foreclosure proceedings are valid?
RULING:
Both parties relied on the provisions of Section 29 of Act No. 2031, otherwise known
as the Negotiable Instruments Law, which provide that an accommodation party is
one who has signed an instrument as maker, drawer, acceptor of indorser without
receiving value therefor, but is held liable on the instrument to a holder for value
although the latter knew him to be only an accommodation party.
The promissory note, as well as the mortgage deeds subject of this case, are clearly
not negotiable instruments. These documents do not comply with the fourth
requisite to be considered as such under Section 1 of Act No. 2031 because they are
neither payable to order nor to bearer. The note is payable to a specified party, the
GSIS. Absent the aforesaid requisite, the provisions of Act No. 2031 would not apply;
governance shall be afforded, instead, by the provisions of the Civil Code and
special laws on mortgages.
As earlier indicated, the factual findings of respondent court are that private
respondents signed the documents "only to give their consent to the mortgage as
required by GSIS", with the latter having full knowledge that the loans secured
thereby were solely for the benefit of the Lagasca spouses.
Contrary to the holding of the respondent court, it cannot be said that private
respondents are without liability under the aforesaid mortgage contracts. The
factual context of this case is precisely what is contemplated in the last paragraph
of Article 2085 of the Civil Code to the effect that third persons who are not parties
to the principal obligation may secure the latter by pledging or mortgaging their
own property. So long as valid consent was given, the fact that the loans were solely
for the benefit of the Lagasca spouses would not invalidate the mortgage with
respect to private respondents' share in the property.
The respondent court, erred in annulling the mortgage insofar as it affected the
share of private respondents or in directing reconveyance of their property or the
payment of the value.
NAME: Rhobie S. Corbo
SUBJECT: Negotiable Instruments Law
TOPIC: Treasury Warrants
METROPOLITAN BANK AND TRUST CO. vs. COURT OF APPEALS
G.R. NO. 88866. FEBRUARY 18, 1991
FACTS:
Various treasury warrants drawn by the Philippine Fish Marketing Authority were
subsequently indorsed by Golden Savings. Petitioner allowed Golden Savings to

withdraw thrice from uncleared treasury warrants as the former was exasperated
over persistent inquiries of the latter after one week. Warrants were later
dishonored by the Bureau of Treasury.
ISSUE:
(a) Whether or not treasury warrants are negotiable instruments.
(b) Whether or not petitioners negligence would bar them for recovery.
RULING:
(a) NO. The indication of fund 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. 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 Section 66 of the Negotiable
Instruments Law. The simple reason is that this law is not applicable to the nonnegotiable treasury warrants.
(b) YES. 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; with such
assurance, there was no reason not to allow the withdrawal. However, withdrawals
released after the notice of the dishonor may be debited as it will result to unjust
enrichment.
NAME: Rhobie S. Corbo
SUBJECT: Negotiable Instruments Law
TOPIC: Postal Money Orders

PHILIPPINE EDUCATION CO. vs. SORIANO


G.R. L-22405
JUNE 30, 1971
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
RULING:
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.
NAME: Rhobie S. Corbo
SUBJECT: Negotiable Instruments Law
TOPIC: Crossed Check
BATAAN CIGAR AND CIGARETTE FACTORY, INC. vs. THE COURT OF APPEALS
G.R. No. 93048. March 3, 1994
FACTS:
Bataan Cigar & Cigarette Factory, Inc. (BCCFI), engaged with King Tim Pua George,
to deliver 2,000 bales of tobacco leaf. BCCFI issued post dated crossed checks in
exchange. Trusting King's words, BCCFI issued another post-dated cross check for
another purchase of tobacco leaves.
During these time, King was dealing with State Investment House Inc.. On two
separate occasions King sold the post-dated cross checks to SIHI, that was drawn by
BCCFI in favor of King. Because King failed to deliver the leaves, BCFI issued a stop
payment to all the checks, including those sold to SIHI. The RTC held that SIHI had a
valid claim of being a holder in due course and to collect the checks issued by
BCCFI.
ISSUE:
Whether SIHI is a holder in due course.

RULING:
The SC held that SIHI is not a holder in due course thus granting the petition of
BCCFI. The purpose of cross checks is to avoid those bouncing or encashing of
forged checks. Cross checks have the following effects: it cannot be encashed but
only deposited in a bank; it can only be negotiated on its respective bank once; it
serves as a warning to the hiolder that it has been issued for a defienite purpose
thus making SIHI not a holder in due course.
Still, SIHI can collect from the immediate indorser, in this case, George King.