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Negotiable Instruments Law Case 1-6 Midterm Syllabus

G.R. No. L-22405

June 30, 1971

PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,vs.

On April 23, 1958 one of the above-mentioned money orders numbered 124688 was
received by appellant as part of its sales receipts. The following day it deposited the
same with the Bank of America, and one day thereafter the latter cleared it with the
Bureau of Posts and received from the latter its face value of P200.00.

MAURICIO A. SORIANO, ET AL., defendant-appellees.


Marcial Esposo for plaintiff-appellant.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio
G. Ibarra and Attorney Concepcion Torrijos-Agapinan for defendants-appellees.

On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order
Division of the Manila Post Office, acting for and in behalf of his co-appellee,
Postmaster Enrico Palomar, notified the Bank of America that money order No.
124688 attached to his letter had been found to have been irregularly issued and that,
in view thereof, the amount it represented had been deducted from the banks
clearing account. For its part, on August 2 of the same year, the Bank of America
debited appellants account with the same amount and gave it advice thereof by
means of a debit memo.

DECISION
DIZON, J.:
An appeal from a decision of the Court of First Instance of Manila dismissing the
complaint filed by the Philippine Education Co., Inc. against Mauricio A. Soriano,
Enrico Palomar and Rafael Contreras.

On October 12, 1961 appellant requested the Postmaster General to reconsider the
action taken by his office deducting the sum of P200.00 from the clearing account of
the Bank of America, but his request was denied. So was appellants subsequent
request that the matter be referred to the Secretary of Justice for advice. Thereafter,
appellant elevated the matter to the Secretary of Public Works and Communications,
but the latter sustained the actions taken by the postal officers.

On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post
Office ten (10) money orders of P200.00 each payable to E.P. Montinola with
address at Lucena, Quezon. After the postal teller had made out money orders
numbered 124685, 124687-124695, Montinola offered to pay for them with a private
check As private checks 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 building with his own check and the ten(10)
money orders without the knowledge of the teller.

In connection with the events set forth above, Montinola was charged with theft in
the Court of First Instance of Manila (Criminal Case No. 43866) but after trial he
was acquitted on the ground of reasonable doubt.

On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid
money orders, an urgent message was sent to all postmasters, and the following day
notice was likewise served upon all banks, instructing them not to pay anyone of the
money orders aforesaid if presented for payment. The Bank of America received a
copy of said notice three days later.

(a) To countermand the notice given to the Bank of America on September 27, 1961,
deducting from the said Banks clearing account the sum of P200.00 represented by
postal money order No. 124688, or in the alternative indemnify the plaintiff in the
same amount with interest at 8-% per annum from September 27, 1961, which is
the rate of interest being paid by plaintiff on its overdraft account;

On January 8, 1962 appellant filed an action against appellees in the Municipal Court
of Manila praying for judgment as follows:
WHEREFORE, plaintiff prays that after hearing defendants be ordered:

Negotiable Instruments Law Case 1-6 Midterm Syllabus


(b) To pay to the plaintiff out of their own personal funds, jointly and severally,
actual and moral damages in the amount of P1,000.00 or in such amount as will be
proved and/or determined by this Honorable Court: exemplary damages in the
amount of P1,000.00, attorneys fees of P1,000.00, and the costs of action.
Plaintiff also prays for such other and further relief as may be deemed just and
equitable.
On November 17, 1962, after the parties had submitted the stipulation of facts
reproduced at pages 12 to 15 of the Record on Appeal, the above-named court
rendered judgment as follows:
WHEREFORE, judgment is hereby rendered, ordering the defendants to
countermand the notice given to the Bank of America on September 27, 1961,
deducting from said Banks clearing account the sum of P200.00 representing the
amount of postal money order No. 124688, or in the alternative, to indemnify the
plaintiff in the said sum of P200.00 with interest thereon at the rate of 8-% per
annum from September 27, 1961 until fully paid; without any pronouncement as to
cost and attorneys fees.
The case was appealed to the Court of First Instance of Manila where, after the
parties had resubmitted the same stipulation of facts, the appealed decision
dismissing the complaint, with costs, was rendered.
The first, second and fifth assignments of error discussed in appellants brief are
related to the other and will therefore be discussed jointly. They raise this main issue:
that the postal money order in question is a negotiable instrument; that its nature as
such is not in any way affected by the letter dated October 26, 1948 signed by the
Director of Posts and addressed to all banks with a clearing account with the Post
Office, and that money orders, once issued, create a contractual relationship of
debtor and creditor, respectively, between the government, on the one hand, and the
remitters payees or endorses, on the other.
It is not disputed that our postal statutes were patterned after statutes in force in the
United States. For this reason, ours are generally construed in accordance with the
construction given in the United States to their own postal statutes, in the absence of

any special reason justifying a departure from this policy or practice. The weight of
authority in the United States is that postal money orders are not negotiable
instruments (Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers National
Bank, 30 Fed. 912), the reason behind this rule being that, in establishing and
operating a postal money order system, the government is not engaging in
commercial transactions but merely exercises a governmental power for the public
benefit.
It is to be noted in this connection that 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 (49 C.J. 1153).
Of particular application to the postal money order in question are the conditions laid
down in the letter of the Director of Posts of October 26, 1948 (Exhibit 3) to the
Bank of America for the redemption of postal money orders received by it from its
depositors. Among others, the condition is imposed that in cases of adverse claim,
the money order or money orders involved will be returned to you (the bank) and
the, corresponding amount will have to be refunded to the Postmaster, Manila, who
reserves the right to deduct the value thereof from any amount due you if such step is
deemed necessary. The conditions thus imposed in order to enable the bank to
continue enjoying the facilities theretofore enjoyed by its depositors, were accepted
by the Bank of America. The latter is therefore bound by them. That it is so is clearly
referred from the fact that, upon receiving advice that the amount represented by the
money order in question had been deducted from its clearing account with the
Manila Post Office, it did not file any protest against such action.
Moreover, not being a party to the understanding existing between the postal
officers, on the one hand, and the Bank of America, on the other, appellant has no
right to assail the terms and conditions thereof on the ground that the letter setting
forth the terms and conditions aforesaid is void because it was not issued by a
Department Head in accordance with Sec. 79 (B) of the Revised Administrative
Code. In reality, however, said legal provision does not apply to the letter in question
because it does not provide for a department regulation but merely sets down certain
conditions upon the privilege granted to the Bank of America to accept and pay
postal money orders presented for payment at the Manila Post Office. Such being the

Negotiable Instruments Law Case 1-6 Midterm Syllabus


case, it is clear that the Director of Posts had ample authority to issue it pursuant to
Sec. 1190 of the Revised Administrative Code.

WHEREFORE, the appealed decision being in accordance with law, the same is
hereby affirmed with costs.

are subject to a lot of restrictions limiting their negotiability. Particularly in this case,
as far back as 1948, there was already an agreement between Bank of America and
the Manila Post Office, that in case the post office would have an adverse claim
against any Bank of America depositor involving postal money orders issued by the
post office, all amounts cleared in relation thereto shall be refunded back to the post
offices account with the bank this in itself is already a limitation in the
negotiability and nature of the postal money orders issued by the post office because
of the special conditions attached.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee,


Barredo and Villamor, JJ., concur.

G.R. No. 97753 August 10, 1992

In view of the foregoing, We do not find it necessary to resolve the issues raised in
the third and fourth assignments of error.

Castro and Makasiar, JJ., took no part.

CALTEX (PHILIPPINES), INC., petitioner,vs.


COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.

39 SCRA 587 Commercial Law Negotiable Instruments Law Postal Money


Orders Not Negotiable Instruments
In April 1958, a certain Enrique Montinola was purchasing ten money orders from
the Manila Post Office. Each money order was worth P200.00. Montinola offered to
pay the money orders via a private check but the cashier told him he cannot pay via a
private check. But still somehow, Montinola was able to leave the post office with
the money orders without him paying for them.
Days later, the missing money orders were discovered. Meanwhile, the Philippine
Education Co., Inc. (PECI) presented one of the missing postal money orders before
the Bank of America. The money order was initially credited and so P200.00 was
deposited in PECIs account with the bank. But then later the post office, through
Mauricio Soriano (Chief of the Money Order Division of the Post Office), advised
the bank that the money order was irregularly issued hence the P200.00 was debited
back from PECIs account.
PECI is now invoking that the money order was duly negotiated to them and thus
they are entitled to the amount it represents.
ISSUE: Whether or not postal money orders are negotiable instruments.
HELD: No. Postal money orders are not negotiable instruments. The rationale
behind this rule is the fact that in establishing and operating a postal money order
system, the government is not engaging in commercial transactions but merely
exercises a governmental power for the public benefit. In fact, postal money orders

Bito, Lozada, Ortega & Castillo for petitioners.


Nepomuceno, Hofilea & Guingona for private.
REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the decision
promulgated by respondent court on March 8, 1991 in CA-G.R. CV No.
23615 1 affirming with modifications, the earlier decision of the Regional Trial Court
of Manila, Branch XLII, 2 which dismissed the complaint filed therein by herein
petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and adopted by
respondent court, appears of record:
1. On various dates, defendant, a commercial banking institution, through its Sucat
Branch issued 280 certificates of time deposit (CTDs) in favor of one Angel dela
Cruz who deposited with herein defendant the aggregate amount of P1,120,000.00,
as follows: (Joint Partial Stipulation of Facts and Statement of Issues, Original
Records, p. 207; Defendants Exhibits 1 to 280);

Negotiable Instruments Law Case 1-6 Midterm Syllabus


CTD CTD
Dates Serial Nos. Quantity Amount
22
Feb.
26
Feb.
2
Mar.
4
Mar.
5
Mar.
5
Mar.
5
Mar.
8
Mar.
9
Mar.
9
Mar.
9
Mar.

Total
===== ========

82
82
82
82
82
82
82
82
82
82
82

90101
74602
74701
90127
74797
89965
70147
90001
90023
89991
90251
280

to
to
to
to
to
to
to
to
to
to
to

90120
74691
74740
90146
94800
89986
90150
90020
90050
90000
90272

20
90
40
20
4
22
4
20
28
10
22

P80,000
360,000
160,000
80,000
16,000
88,000
16,000
80,000
112,000
40,000
88,000

P1,120,000

2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in
connection with his purchased of fuel products from the latter (Original Record, p.
208).

Cruz) surrenders to defendant bank full control of the indicated time deposits from
and after date of the assignment and further authorizes said bank to pre-terminate,
set-off and apply the said time deposits to the payment of whatever amount or
amounts may be due on the loan upon its maturity (TSN, February 9, 1987, pp. 6062).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex
(Phils.) Inc., went to the defendant banks Sucat branch and presented for verification
the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to
herein plaintiff as security for purchases made with Caltex Philippines, Inc. by said
depositor (TSN, February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter (Defendants Exhibit 563)
from herein plaintiff formally informing it of its possession of the CTDs in question
and of its decision to pre-terminate the same.
8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the
former a copy of the document evidencing the guarantee agreement with Mr. Angel
dela Cruz as well as the details of Mr. Angel dela Cruz obligation against which
plaintiff proposed to apply the time deposits (Defendants Exhibit 564).
9. No copy of the requested documents was furnished herein defendant.

3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the
Sucat Branch Manager, that he lost all the certificates of time deposit in dispute. Mr.
Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss,
as required by defendant banks procedure, if he desired replacement of said lost
CTDs (TSN, February 9, 1987, pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the
required Affidavit of Loss (Defendants Exhibit 281). On the basis of said affidavit of
loss, 280 replacement CTDs were issued in favor of said depositor (Defendants
Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from
defendant bank in the amount of Eight Hundred Seventy Five Thousand Pesos
(P875,000.00). On the same date, said depositor executed a notarized Deed of
Assignment of Time Deposit (Exhibit 562) which stated, among others, that he (de la

10. Accordingly, defendant bank rejected the plaintiffs demand and claim for
payment of the value of the CTDs in a letter dated February 7, 1983 (Defendants
Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and
fell due and on August 5, 1983, the latter set-off and applied the time deposits in
question to the payment of the matured loan (TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint, praying that
defendant bank be ordered to pay it the aggregate value of the certificates of time
deposit of P1,120,000.00 plus accrued interest and compounded interest therein at
16% per annum, moral and exemplary damages as well as attorneys fees.
After trial, the court a quo rendered its decision dismissing the instant complaint. 3

Negotiable Instruments Law Case 1-6 Midterm Syllabus


On appeal, as earlier stated, respondent court affirmed the lower courts dismissal of
the complaint, hence this petition wherein petitioner faults respondent court in ruling
(1) that the subject certificates of deposit are non-negotiable despite being clearly
negotiable instruments; (2) that petitioner did not become a holder in due course of
the said certificates of deposit; and (3) in disregarding the pertinent provisions of the
Code of Commerce relating to lost instruments payable to bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to provide a
better understanding of the issues involved in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS:
FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 & 00
CTS Pesos, Philippine Currency, repayable to said depositor 731 days. after date,
upon presentation and surrender of this certificate, with interest at the rate
of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)

. . . While it may be true that the word bearer appears rather boldly in the CTDs
issued, it is important to note that after the word BEARER stamped on the space
provided supposedly for the name of the depositor, the words has deposited a
certain amount follows. The document further provides that the amount deposited
shall be repayable to said depositor on the period indicated. Therefore, the text of
the instrument(s) themselves manifest with clarity that they are payable, not to
whoever purports to be the bearer but only to the specified person indicated
therein, the depositor. In effect, the appellee bank acknowledges its depositor Angel
dela Cruz as the person who made the deposit and further engages itself to pay said
depositor the amount indicated thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that the CTDs in
question are negotiable instruments. Section 1 Act No. 2031, otherwise known as the
Negotiable Instruments Law, enumerates the requisites for an instrument to become
negotiable, viz:
(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.
The CTDs in question undoubtedly meet the requirements of the law for
negotiability. The parties bone of contention is with regard to requisite (d) set forth
above. It is noted that Mr. Timoteo P. Tiangco, Security Banks Branch Manager way
back in 1982, testified in open court that the depositor referred to in the CTDs is no
other than Mr. Angel de la Cruz.

AUTHORIZED SIGNATURES 5
xxx xxx xxx
Respondent court ruled that the CTDs in question are non-negotiable instruments,
rationalizing as follows:

Atty. Calida:

Negotiable Instruments Law Case 1-6 Midterm Syllabus


q In other words Mr. Witness, you are saying that per books of the bank, the
depositor referred (sic) in these certificates states that it was Angel dela Cruz?

the parties may have secretly intended as contradistinguished from what their words
express, but what is the meaning of the words they have used. What the parties
meant must be determined by what they said. 11

witness:
a Yes, your Honor, and we have the record to show that Angel dela Cruz was the one
who cause (sic) the amount.
Atty. Calida:
q And no other person or entity or company, Mr. Witness?
witness:
a None, your Honor. 7
xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor identified in all of these certificates of time
deposit insofar as the bank is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, 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. 9 In the construction of a bill or note, the intention of the parties is to control, if
it can be legally ascertained. 10 While the writing may be read in the light of
surrounding circumstances in order to more perfectly understand the intent and
meaning of the parties, yet as they have constituted the writing to be the only
outward and visible expression of their meaning, no other words are to be added to it
or substituted in its stead. The duty of the court in such case is to ascertain, not what

Contrary to what respondent court held, the CTDs are negotiable instruments. The
documents provide that the amounts deposited shall be repayable to the depositor.
And who, according to the document, is the depositor? It is the bearer. The
documents do not say that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him. Rather, the amounts are to be repayable
to the bearer of the documents or, for that matter, whosoever may be the bearer at the
time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la
Cruz only, it could have with facility so expressed that fact in clear and categorical
terms in the documents, instead of having the word BEARER stamped on the
space provided for the name of the depositor in each CTD. On the wordings of the
documents, therefore, the amounts deposited are repayable to whoever may be the
bearer thereof. Thus, petitioners aforesaid witness merely declared that Angel de la
Cruz is the depositor insofar as the bank is concerned, but obviously other parties
not privy to the transaction between them would not be in a position to know that the
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 what is written thereon
to unravel the agreement of the parties thereto through facts aliunde. This need for
resort to extrinsic evidence is what is sought to be avoided by the Negotiable
Instruments Law and calls for the application of the elementary rule that the
interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time,
the answer is in the negative. The records reveal that Angel de la Cruz, whom
petitioner chose not to implead in this suit for reasons of its own, delivered the CTDs
amounting to P1,120,000.00 to petitioner without informing respondent bank thereof
at any time. Unfortunately for petitioner, although the CTDs are bearer instruments,
a valid negotiation thereof for the true purpose and agreement between it and De la
Cruz, as ultimately ascertained, requires both delivery and indorsement. For,
although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it
as a security for De la Cruz purchases of its fuel products. Any doubt as to whether

Negotiable Instruments Law Case 1-6 Midterm Syllabus


the CTDs were delivered as payment for the fuel products or as a security has been
dissipated and resolved in favor of the latter by petitioners own authorized and
responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q.
Aranas, Jr., Caltex Credit Manager, wrote: . . . These certificates of deposit were
negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel products
(Emphasis ours.) 13 This admission is conclusive upon petitioner, its protestations
notwithstanding. Under the doctrine of estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon. 14 A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon them. 15 In the law
of evidence, whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular thing true, and to act
upon such belief, he cannot, in any litigation arising out of such declaration, act, or
omission, be permitted to falsify it. 16
If it were true that the CTDs were delivered as payment and not as security,
petitioners credit manager could have easily said so, instead of using the words to
guarantee in the letter aforequoted. Besides, when respondent bank, as defendant in
the court below, moved for a bill of particularity therein 17 praying, among others,
that petitioner, as plaintiff, be required to aver with sufficient definiteness or
particularity (a) the due date or dates of payment of the alleged indebtedness of
Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that
the CTDs were delivered to it by De la Cruz as payment of the latters alleged
indebtedness to it, plaintiff corporation opposed the motion. 18 Had it produced the
receipt prayed for, it could have proved, if such truly was the fact, that the CTDs
were delivered as payment and not as security. Having opposed the motion,
petitioner now labors under the presumption that evidence willfully suppressed
would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Inte
Realty Corporation, et al. vs. Philippine National Bank, et al. 20 is apropos:

rgrated

. . . Adverting again to the Courts pronouncements in Lopez, supra, we quote


therefrom:

The character of the transaction between the parties is to be determined by their


intention, regardless of what language was used or what the form of the transfer was.
If it was intended to secure the payment of money, it must be construed as a pledge;
but if there was some other intention, it is not a pledge. However, even though a
transfer, if regarded by itself, appears to have been absolute, its object and character
might still be qualified and explained by contemporaneous writing declaring it to
have been a deposit of the property as collateral security. It has been said that a
transfer of property by the debtor to a creditor, even if sufficient on its face to make
an absolute conveyance, should be treated as a pledge if the debt continues in
inexistence and is not discharged by the transfer, and that accordingly the use of the
terms ordinarily importing conveyance of absolute ownership will not be given that
effect in such a transaction if they are also commonly used in pledges and mortgages
and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the
absence of clear and unambiguous language or other circumstances excluding an
intent to pledge.
Petitioners insistence that the CTDs were negotiated to it begs the question. Under
the Negotiable Instruments Law, an instrument is negotiated when it is transferred
from one person to another in such a manner as to constitute the transferee the holder
thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof. 22 In the present case, however, there was no
negotiation in the sense of a transfer of the legal title to the CTDs in favor of
petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs
would have sufficed. Here, the delivery thereof only as security for the purchases of
Angel de la Cruz (and we even disregard the fact that the amount involved was not
disclosed) could at the most constitute petitioner only as a holder for value by reason
of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere
delivery of the instrument since, necessarily, the terms thereof and the subsequent
disposition of such security, in the event of non-payment of the principal obligation,
must be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the instrument
arising from contract, he is deemed a holder for value to the extent of his lien. 23 As
such holder of collateral security, he would be a pledgee but the requirements
therefor and the effects thereof, not being provided for by the Negotiable Instruments
Law, shall be governed by the Civil Code provisions on pledge of incorporeal
rights, 24 which inceptively provide:

Negotiable Instruments Law Case 1-6 Midterm Syllabus


Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be
pledged. The instrument proving the right pledged shall be delivered to the creditor,
and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the
thing pledged and the date of the pledge do not appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual
findings of respondent court quoted at the start of this opinion show that petitioner
failed to produce any document evidencing any contract of pledge or guarantee
agreement between it and Angel de la Cruz. 25 Consequently, the mere delivery of the
CTDs did not legally vest in petitioner any right effective against and binding upon
respondent bank. The requirement under Article 2096 aforementioned is not a mere
rule of adjective law prescribing the mode whereby proof may be made of the date of
a pledge contract, but a rule of substantive law prescribing a condition without which
the execution of a pledge contract cannot affect third persons adversely. 26

On this matter, we uphold respondent courts finding that the aspect of alleged
negligence of private respondent was not included in the stipulation of the parties
and in the statement of issues submitted by them to the trial court. 29 The issues
agreed upon by them for resolution in this case are:
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered by the CTDs
against the depositors loan by virtue of the assignment (Annex C).
3. Whether or not there was legal compensation or set off involving the amount
covered by the CTDs and the depositors outstanding account with defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate the CTDs before
the maturity date provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of
respondent bank was embodied in a public instrument. 27 With regard to this other
mode of transfer, the Civil Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce no effect as against
third persons, unless it appears in a public instrument, or the instrument is recorded
in the Registry of Property in case the assignment involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily,
petitioner, whether as purchaser, assignee or lien holder of the CTDs, neither proved
the amount of its credit or the extent of its lien nor the execution of any public
instrument which could affect or bind private respondent. Necessarily, therefore, as
between petitioner and respondent bank, the latter has definitely the better right over
the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of
whether or not private respondent observed the requirements of the law in the case of
lost negotiable instruments and the issuance of replacement certificates therefor, on
the ground that petitioner failed to raised that issue in the lower court. 28

6. Whether or not the parties can recover damages, attorneys fees and litigation
expenses from each other.
As respondent court correctly observed, with appropriate citation of some doctrinal
authorities, the foregoing enumeration does not include the issue of negligence on
the part of respondent bank. An issue raised for the first time on appeal and not
raised timely in the proceedings in the lower court is barred by estoppel. 30 Questions
raised on appeal must be within the issues framed by the parties and, consequently,
issues not raised in the trial court cannot be raised for the first time on appeal. 31
Pre-trial is primarily intended to make certain that all issues necessary to the
disposition of a case are properly raised. Thus, to obviate the element of surprise,
parties are expected to disclose at a pre-trial conference all issues of law and fact
which they intend to raise at the trial, except such as may involve privileged or
impeaching matters. The determination of issues at a pre-trial conference bars the
consideration of other questions on appeal.32
To accept petitioners suggestion that respondent banks supposed negligence may be
considered encompassed by the issues on its right to preterminate and receive the

Negotiable Instruments Law Case 1-6 Midterm Syllabus


proceeds of the CTDs would be tantamount to saying that petitioner could raise on
appeal any issue. We agree with private respondent that the broad ultimate issue of
petitioners entitlement to the proceeds of the questioned certificates can be premised
on a multitude of other legal reasons and causes of action, of which respondent
banks supposed negligence is only one. Hence, petitioners submission, if accepted,
would render a pre-trial delimitation of issues a useless exercise. 33

restricts
or
prohibits
the
issuance
a
duplicate
or
replacement
instrument sans compliance with the procedure outlined therein, and none establishes
a mandatory precedent requirement therefor.

Still, even assuming arguendo that said issue of negligence was raised in the court
below, petitioner still cannot have the odds in its favor. A close scrutiny of the
provisions of the Code of Commerce laying down the rules to be followed in case of
lost instruments payable to bearer, which it invokes, will reveal that said provisions,
even assuming their applicability to the CTDs in the case at bar, are merely
permissive and not mandatory. The very first article cited by petitioner speaks for
itself.

SO ORDERED.

Art 548. The dispossessed owner, no matter for what cause it may be, may apply to
the judge or court of competent jurisdiction, asking that the principal, interest or
dividends due or about to become due, be not paid a third person, as well as in order
to prevent the ownership of the instrument that a duplicate be issued him. (Emphasis
ours.)
xxx xxx xxx
The use of the word may in said provision shows that it is not mandatory but
discretionary on the part of the dispossessed owner to apply to the judge or court
of competent jurisdiction for the issuance of a duplicate of the lost instrument. Where
the provision reads may, this word shows that it is not mandatory but
discretional. 34 The word may is usually permissive, not mandatory. 35 It is an
auxiliary verb indicating liberty, opportunity, permission and possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the
Code of Commerce, on which petitioner seeks to anchor respondent banks supposed
negligence, merely established, on the one hand, a right of recourse in favor of a
dispossessed owner or holder of a bearer instrument so that he may obtain a
duplicate of the same, and, on the other, an option in favor of the party liable thereon
who, for some valid ground, may elect to refuse to issue a replacement of the
instrument. Significantly, none of the provisions cited by petitioner categorically

WHEREFORE, on the modified premises above set forth, the petition is


DENIED and the appealed decision is hereby AFFIRMED.

Narvasa, C.J., Padilla and Nocon, JJ., concur.


Negotiable Instruments Law Negotiable Instruments in General 212 SCRA 448
Bearer Instrument Certificate of Time Deposit
In 1982, Angel de la Cruz obtained certificates of time deposit (CTDs) from Security
Bank and Trust Company for the formers deposit with the said bank amounting to
P1,120,000.00. The said CTDs are couched in the following manner:
This is to Certify that B E A R E R has deposited in this Bank the sum
of _______ Pesos,
Philippine
Currency,
repayable
to
said
depositor _____ days. after date, upon presentation and surrender of this certificate,
with interest at the rate of ___ % per cent per annum.
Angel de la Cruz subsequently delivered the CTDs to Caltex in connection with the
purchase of fuel products from Caltex.
In March 1982, Angel de la Cruz advised Security Bank that he lost the CTDs. He
executed an affidavit of loss and submitted it to the bank. The bank then issued
another set of CTDs. In the same month, Angel de la Cruz acquired a loan of
P875,000.00 and he used his time deposits as collateral.
In November 1982, a representative from Caltex went to Security Bank to present
the CTDs (delivered by de la Cruz) for verification. Caltex advised Security Bank
that de la Cruz delivered Caltex the CTDs as security for purchases he made with the
latter. Security Bank refused to accept the CTDs and instead required Caltex to

Negotiable Instruments Law Case 1-6 Midterm Syllabus


present documents proving the agreement made by de la Cruz with Caltex. Caltex
however failed to produce said documents.

LUCIA CASTILLO, MAGNO CASTILLO and GLORIA


CASTILLO, respondents.

In April 1983, de la Cruz loan with Security bank matured and no payment was
made by de la Cruz. Security Bank eventually set-off the time deposit to pay off the
loan.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

Caltex sued Security Bank to compel the bank to pay off the CTDs. Security Bank
argued that the CTDs are not negotiable instruments even though the word bearer
is written on their face because the word bearer contained therein refer to depositor
and only the depositor can encash the CTDs and no one else.
ISSUE: Whether or not the certificates of time deposit are negotiable.
HELD: Yes. The CTDs indicate that they are payable to the bearer; that there is an
implication that the depositor is the bearer but as to who the depositor is, no one
knows. It does not say on its face that the depositor is Angel de la Cruz. If it was
really the intention of respondent bank to pay the amount to Angel de la Cruz only, it
could have with facility so expressed that fact in clear and categorical terms in the
documents, instead of having the word BEARER stamped on the space provided
for the name of the depositor in each CTD. On the wordings of the documents,
therefore, the amounts deposited are repayable to whoever may be the bearer thereof.
Thus, de la Cruz is the depositor insofar as the bank is concerned, but obviously
other parties not privy to the transaction between them would not be in a position to
know that the depositor is not the bearer stated in the CTDs.
However, Caltex may not encash the CTDs because although the CTDs are bearer
instruments, a valid negotiation thereof for the true purpose and agreement between
Caltex and De la Cruz, requires both delivery and indorsement. As discerned from
the testimony of Caltex representative, the CTDs were delivered to them by de la
Cruz merely for guarantee or security and not as payment.
G.R. No. 88866 February 18, 1991

Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia
Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan
Association, Inc.

CRUZ, J.:p
This case, for all its seeming complexity, turns on a simple question of negligence.
The facts, pruned of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches
throughout the Philippines and even abroad. Golden Savings and Loan Association
was, at the time these events happened, operating in Calapan, Mindoro, with the
other private respondents as its principal officers.
In January 1979, a certain 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
On various dates between June 25 and July 16, 1979, 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

METROPOLITAN BANK & TRUST COMPANY, petitioner, vs.


COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC.,

10

Negotiable Instruments Law Case 1-6 Midterm Syllabus


More than two weeks after the deposits, Gloria Castillo went to the Calapan branch
several times to ask whether the warrants had been cleared. She was told to wait.
Accordingly, 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. 3 The first withdrawal was made on July 9, 1979, in the amount of
P508,000.00, the second on July 13, 1979, in the amount of P310,000.00, and the
third on July 16, 1979, in the amount of P150,000.00. The total withdrawal was
P968.000.00. 4

and credit to such account such amount existing before the debit
was made including the amount of P812,033.37 in favor of
defendant Golden Savings and Loan Association, Inc. and
thereafter, to allow defendant Golden Savings and Loan
Association, Inc. to withdraw the amount outstanding thereon
before the debit;

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. The last withdrawal was made on July
16, 1979.

5. Ordering the plaintiff to pay the defendant Spouses Magno


Castillo and Lucia Castillo attorney's fees and expenses of
litigation in the amount of P100,000.00.

4. Ordering the plaintiff to pay the defendant Golden Savings and


Loan Association, Inc. attorney's fees and expenses of litigation in
the amount of P200,000.00.

SO ORDERED.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had
been dishonored by the Bureau of Treasury on July 19, 1979, 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 in the Regional
Trial Court of Mindoro. 5 After trial, judgment was rendered in favor of Golden
Savings, which, however, filed a motion for reconsideration even as Metrobank filed
its notice of appeal. On November 4, 1986, the lower court modified its decision
thus:

On appeal to the respondent court, 6 the decision was affirmed, prompting Metrobank
to file this petition for review on the following grounds:
1. Respondent Court of Appeals erred in disregarding and failing to
apply the clear contractual terms and conditions on the deposit
slips allowing Metrobank to charge back any amount erroneously
credited.
(a) Metrobank's right to charge back is not limited to instances
where the checks or treasury warrants are forged or unauthorized.

ACCORDINGLY, judgment is hereby rendered:


1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of
defendant Golden Savings and Loan Association, Inc. and
defendant Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings
Account No. 2498 of the sum of P1,754,089.00 and to reinstate

(b) Until such time as Metrobank is actually paid, its obligation is


that of a mere collecting agent which cannot be held liable for its
failure to collect on the warrants.
2. Under the lower court's decision, affirmed by respondent Court
of Appeals, Metrobank is made to pay for warrants already
dishonored, thereby perpetuating the fraud committed by Eduardo
Gomez.

11

Negotiable Instruments Law Case 1-6 Midterm Syllabus


3. Respondent Court of Appeals erred in not finding that as
between Metrobank and Golden Savings, the latter should bear the
loss.
4. Respondent Court of Appeals erred in holding that the treasury
warrants involved in this case are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, 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; with such assurance, there was no reason
not to allow the withdrawal. Indeed, Golden Savings might even have incurred
liability for its refusal to return the money that to all appearances belonged to the
depositor, who could therefore withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings
deposited them to its account with Metrobank. Golden Savings had no clearing
facilities of its own. It relied on Metrobank to determine the validity of the warrants
through its own services. The proceeds of the warrants were withheld from Gomez
until Metrobank allowed Golden Savings itself to withdraw them from its own
deposit. 7 It was only when Metrobank gave the go-signal that Gomez was finally
allowed by Golden Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have exercised more care in
checking the personal circumstances of Gomez before accepting his deposit does not
hold water. It was Gomez who was entrusting the warrants, not Golden Savings that
was extending him a loan; and moreover, the treasury warrants were subject to
clearing, pending which the depositor could not withdraw its proceeds. There was no
question of Gomez's identity or of the genuineness of his signature as checked by
Golden Savings. In fact, the treasury warrants were dishonored allegedly because of
the forgery of the signatures of the drawers, not of Gomez as payee or indorser.
Under the circumstances, it is clear that Golden Savings acted with due care and
diligence and cannot be faulted for the withdrawals it allowed Gomez to make.

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved


was not trifling more than one and a half million pesos (and this was 1979). There
was no reason why it should not have waited until the treasury warrants had been
cleared; it would not have lost a single centavo by waiting. Yet, despite the lack of
such clearance and notwithstanding that it had not received a single centavo from
the proceeds of the treasury warrants, as it now repeatedly stresses it allowed
Golden Savings to withdraw not once, not twice, but thrice from
the uncleared treasury warrants in the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about
the clearance and it also wanted to "accommodate" a valued client. It "presumed"
that the warrants had been cleared simply because of "the lapse of one week." 8 For a
bank with its long experience, this explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the conditions
printed on the dorsal side of the deposit slips through which the treasury warrants
were deposited by Golden Savings with its Calapan branch. The conditions read as
follows:
Kindly note that in receiving items on deposit, the bank obligates
itself only as the depositor's collecting agent, assuming no
responsibility beyond care in selecting correspondents, and until
such time as actual payment shall have come into possession of
this bank, the right is reserved to charge back to the depositor's
account any amount previously credited, whether or not such item
is returned. This also applies to checks drawn on local banks and
bankers and their branches as well as on this bank, which are
unpaid due to insufficiency of funds, forgery, unauthorized
overdraft or any other reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a
collecting agent for Golden Savings and give it the right to "charge back to the
depositor's account any amount previously credited, whether or not such item is
returned. This also applies to checks ". . . which are unpaid due to insufficiency of
funds, forgery, unauthorized overdraft of any other reason." It is claimed that the said
conditions are in the nature of contractual stipulations and became binding on
Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.

12

Negotiable Instruments Law Case 1-6 Midterm Syllabus


Doubt may be expressed about the binding force of the conditions, considering that
they have apparently been imposed by the bank unilaterally, without the consent of
the depositor. Indeed, it could be argued that the depositor, in signing the deposit
slip, does so only to identify himself and not to agree to the conditions set forth in
the given permit at the back of the deposit slip. We do not have to rule on this matter
at this time. At any rate, the Court feels that even if the deposit slip were considered
a contract, the petitioner could still not validly disclaim responsibility thereunder in
the light of the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings,
Metrobank seems to be suggesting that as a mere agent it cannot be liable to the
principal. This is not exactly true. On the contrary, Article 1909 of the Civil Code
clearly provides that
Art. 1909. The agent is responsible not only for fraud, but also
for negligence, which shall be judged 'with more or less rigor by
the courts, according to whether the agency was or was not for a
compensation.
The negligence of Metrobank has been sufficiently established. To repeat for
emphasis, it was the clearance given by it that assured Golden Savings it was already
safe to allow Gomez to withdraw the proceeds of the treasury warrants he had
deposited Metrobank misled Golden Savings. There may have been no express
clearance, as Metrobank insists (although this is refuted by Golden Savings) but in
any case that clearance could be implied from its allowing Golden Savings to
withdraw from its account not only once or even twice but three times. The total
withdrawal was in excess of its original balance before the treasury warrants were
deposited, which only added to its belief that the treasury warrants had indeed been
cleared.
Metrobank's argument that it may recover the disputed amount if the warrants are not
paid for any reason is not acceptable. Any reason does not mean no reason at all.
Otherwise, there would have been no need at all for Golden Savings to deposit the
treasury warrants with it for clearance. There would have been no need for it to wait
until the warrants had been cleared before paying the proceeds thereof to Gomez.
Such a condition, if interpreted in the way the petitioner suggests, is not binding for
being arbitrary and unconscionable. And it becomes more so in the case at bar when

it is considered that the supposed dishonor of the warrants was not communicated to
Golden Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in giving
express or at least implied clearance to the treasury warrants and allowing payments
therefrom to Golden Savings. But that is not all. On top of this, the supposed reason
for the dishonor, to wit, the forgery of the signatures of the general manager and the
auditor of the drawer corporation, has not been established. 9 This was the finding of
the lower courts which we see no reason to disturb. And as we said in MWSS v.
Court of Appeals: 10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA
238). It must be established by clear, positive and convincing
evidence. This was not done in the present case.
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

13

Negotiable Instruments Law Case 1-6 Midterm Syllabus


(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. There should be no question that the exception on
Section 3 of the Negotiable Instruments Law is applicable in the case at bar. This
conclusion conforms to Abubakar vs. Auditor General 11 where the Court held:
The petitioner argues that he is a holder in good faith and for value
of a negotiable instrument and is entitled to the rights and
privileges of a holder in due course, free from defenses. But this
treasury warrant is not within the scope of the negotiable
instrument law. For one thing, 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 and does not fulfill one of the essential requirements
of a negotiable instrument (Sec. 3 last sentence and section [1(b)]
of the Negotiable Instruments Law).

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 non-negotiable treasury warrants. The
indorsement was made by Gloria Castillo not for the purpose of guaranteeing the
genuineness of the warrants but merely to deposit them with Metrobank for clearing.
It was in fact Metrobank that made the guarantee when it stamped on the back of the
warrants: "All prior indorsement and/or lack of endorsements guaranteed,
Metropolitan Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine
Islands, 12 but we feel this case is inapplicable to the present controversy. That case
involved checks whereas this case involves treasury warrants. Golden Savings never
represented that the warrants were negotiable but signed them only for the purpose of
depositing them for clearance. Also, the fact of forgery was proved in that case but
not in the case before us. Finally, the Court found the Jai Alai Corporation negligent
in accepting the checks without question from one Antonio Ramirez notwithstanding
that the payee was the Inter-Island Gas Services, Inc. and it did not appear that he
was authorized to indorse it. No similar negligence can be imputed to Golden
Savings.
We find the challenged decision to be basically correct. However, we will have to
amend it insofar as it directs the petitioner to credit Golden Savings with the full
amount of the treasury checks deposited to its account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00, from
which Gomez was allowed to withdraw P1,167,500.00 before Golden Savings was
notified of the dishonor. The amount he has withdrawn must be charged not to
Golden Savings but to Metrobank, which must bear the consequences of its own
negligence. But the balance of P586,589.00 should be debited to Golden Savings, as
obviously Gomez can no longer be permitted to withdraw this amount from his
deposit because of the dishonor of the warrants. Gomez has in fact disappeared. To
also credit the balance to Golden Savings would unduly enrich it at the expense of
Metrobank, let alone the fact that it has already been informed of the dishonor of the
treasury warrants.

14

Negotiable Instruments Law Case 1-6 Midterm Syllabus


WHEREFORE, the challenged decision is AFFIRMED, with the modification that
Paragraph 3 of the dispositive portion of the judgment of the lower court shall be
reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00
only and thereafter allowing defendant Golden Savings & Loan
Association, Inc. to withdraw the amount outstanding thereon, if
any, after the debit.
SO ORDERED.
G.R. No. 89252 May 24, 1993
RAUL SESBREO, petitioner, vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND
PILIPINAS BANK, respondents.

notation that the said security was in custodianship of Pilipinas


Bank, as per Denominated Custodian Receipt ("DCR") No. 10805
dated 9 February 1981; and
(c) post-dated checks payable on 13 March 1981 (i.e., 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 13 March 1981, petitioner sought to encash the postdated checks issued by
Philfinance. However, the checks were dishonored for having been drawn against
insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by
private respondent Pilipinas Bank ("Pilipinas"). It reads as follows:
PILIPINAS BANK
Makati Stock Exchange Bldg.,
Ayala Avenue, Makati,
Metro Manila

Salva, Villanueva & Associates for Delta Motors Corporation.


Reyes, Salazar & Associates for Pilipinas Bank.

February 9, 1981

VALUE DATE

FELICIANO, J.:
On 9 February 1981, petitioner Raul Sesbreo made a money market placement in
the amount of P300,000.00 with the Philippine Underwriters Finance Corporation
("Philfinance"), Cebu Branch; the placement, with a term of thirty-two (32) days,
would mature on 13 March 1981, Philfinance, also on 9 February 1981, issued the
following documents to petitioner:
(a) the Certificate of Confirmation of Sale, "without recourse," No.
20496 of one (1) Delta Motors Corporation Promissory Note
("DMC PN") No. 2731 for a term of 32 days at 17.0% per annum;

TO Raul Sesbreo
April 6, 1981

MATURITY DATE
NO. 10805
DENOMINATED CUSTODIAN RECEIPT

(b) the Certificate of securities Delivery Receipt No. 16587


indicating the sale of DMC PN No. 2731 to petitioner, with the

15

Negotiable Instruments Law Case 1-6 Midterm Syllabus


This confirms that as a duly Custodian Bank, and upon instruction
of PHILIPPINE UNDERWRITES FINANCE CORPORATION,
we have in our custody the following securities to you [sic] the
extent herein indicated.

SERIAL MAT. FACE ISSUED REGISTERED AMOUNT


NUMBER DATE VALUE BY HOLDER PAYEE

2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33


UNDERWRITERS
FINANCE CORP.

delivery of the underlying promissory note. Petitioner then examined the original of
the DMC PN No. 2731 and found: that the security had been issued on 10 April
1980; that it would mature on 6 April 1981; that it had a face value of P2,300,833.33,
with the Philfinance as "payee" and private respondent Delta Motors Corporation
("Delta") as "maker;" and that on face of the promissory note was stamped "NON
NEGOTIABLE." Pilipinas did not deliver the Note, nor any certificate of
participation in respect thereof, to petitioner.
Petitioner later made similar demand letters, dated 3 July 1981 and 3 August
1981, 2 again asking private respondent Pilipinas for physical delivery of the original
of DMC PN No. 2731. Pilipinas allegedly referred all of petitioner's demand letters
to Philfinance for written instructions, as has been supposedly agreed upon in
"Securities Custodianship Agreement" between Pilipinas and Philfinance.
Philfinance did not provide the appropriate instructions; Pilipinas never released
DMC PN No. 2731, nor any other instrument in respect thereof, to petitioner.

We further certify that these securities may be inspected by you or


your duly authorized representative at any time during regular
banking hours.

Petitioner also made a written demand on 14 July 1981 3 upon private respondent
Delta for the partial satisfaction of DMC PN No. 2731, explaining that Philfinance,
as payee thereof, had assigned to him said Note to the extent of P307,933.33. Delta,
however, denied any liability to petitioner on the promissory note, and explained in
turn that it had previously agreed with Philfinance to offset its DMC PN No. 2731
(along with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of
Delta.

Upon your written instructions we shall undertake physical


delivery of the above securities fully assigned to you should this
Denominated Custodianship Receipt remain outstanding in your
favor thirty (30) days after its maturity.

In the meantime, Philfinance, on 18 June 1981, was placed under the joint
management of the Securities and exchange commission ("SEC") and the Central
Bank. Pilipinas delivered to the SEC DMC PN No. 2731, which to date apparently
remains in the custody of the SEC. 4

PILIPINAS BANK
(By Elizabeth De Villa
Illegible Signature)
On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent
Pilipinas, Makati Branch, and handed her a demand letter informing the bank that his
placement with Philfinance in the amount reflected in the DCR No. 10805 had
remained unpaid and outstanding, and that he in effect was asking for the physical

As petitioner had failed to collect his investment and interest thereon, he filed on 28
September 1982 an action for damages with the Regional Trial Court ("RTC") of
Cebu City, Branch 21, against private respondents Delta and Pilipinas. 5 The trial
court, in a decision dated 5 August 1987, dismissed the complaint and counterclaims
for lack of merit and for lack of cause of action, with costs against petitioner.
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a
Decision dated 21 March 1989, the Court of Appeals denied the appeal and held: 6

16

Negotiable Instruments Law Case 1-6 Midterm Syllabus


Be that as it may, from the evidence on record, if there is anyone
that appears liable for the travails of plaintiff-appellant, it is
Philfinance. As correctly observed by the trial court:
This act of Philfinance in accepting the
investment of plaintiff and charging it against
DMC PN No. 2731 when its entire face value
was already obligated or earmarked for set-off or
compensation is difficult to comprehend and
may have been motivated with bad faith.
Philfinance, therefore, is solely and legally
obligated to return the investment of plaintiff,
together with its earnings, and to answer all the
damages plaintiff has suffered incident thereto.
Unfortunately for plaintiff, Philfinance was not
impleaded as one of the defendants in this case at
bar; hence, this Court is without jurisdiction to
pronounce judgement against it. (p. 11, Decision)
WHEREFORE, finding no reversible error in the decision
appealed from, the same is hereby affirmed in toto. Cost against
plaintiff-appellant.
Petitioner moved for reconsideration of the above Decision, without success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in the pleadings,
the Court resolved to give due course to the petition and required the parties to file
their respective memoranda. 7
Petitioner reiterates the assignment of errors he directed at the trial court decision,
and contends that respondent court of Appeals gravely erred: (i) in concluding that he
cannot recover from private respondent Delta his assigned portion of DMC PN No.
2731; (ii) in failing to hold private respondent Pilipinas solidarily liable on the DMC
PN No. 2731 in view of the provisions stipulated in DCR No. 10805 issued in favor r
of petitioner, and (iii) in refusing to pierce the veil of corporate entity between

Philfinance, and private respondents Delta and Pilipinas, considering that the three
(3) entities belong to the "Silverio Group of Companies" under the leadership of Mr.
Ricardo Silverio, Sr. 8
There are at least two (2) sets of relationships which we need to address: firstly, the
relationship of petitioner vis-a-visDelta; secondly, the relationship of petitioner in
respect of Pilipinas. Actually, of course, there is a third relationship that is of critical
importance: the relationship of petitioner and Philfinance. However, since
Philfinance has not been impleaded in this case, neither the trial court nor the Court
of Appeals acquired jurisdiction over the person of Philfinance. It is, consequently,
not necessary for present purposes to deal with this third relationship, except to the
extent it necessarily impinges upon or intersects the first and second relationships.
I.
We consider first the relationship between petitioner and Delta.
The Court of appeals in effect held that petitioner acquired no rights vis-a-vis Delta
in respect of the Delta promissory note (DMC PN No. 2731) which Philfinance sold
"without recourse" to petitioner, to the extent of P304,533.33. The Court of Appeals
said on this point:
Nor could plaintiff-appellant have acquired any right over DMC
PN No. 2731 as the same is "non-negotiable" as stamped on its
face (Exhibit "6"), negotiation being defined as the transfer of an
instrument from one person to another so as to constitute the
transferee the holder of the instrument (Sec. 30, Negotiable
Instruments Law). A person not a holder cannot sue on the
instrument in his own name and cannot demand or receive
payment (Section 51, id.) 9
Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the
Note had been validly transferred, in part to him by assignment and that as a result of
such transfer, Delta as debtor-maker of the Note, was obligated to pay petitioner the
portion of that Note assigned to him by the payee Philfinance.
Delta, however, disputes petitioner's contention and argues:

17

Negotiable Instruments Law Case 1-6 Midterm Syllabus


(1) that DMC PN No. 2731 was not intended to be negotiated or
otherwise transferred by Philfinance as manifested by the word
"non-negotiable" stamp across the face of the Note 10 and because
maker Delta and payee Philfinance intended that this Note would
be offset against the outstanding obligation of Philfinance
represented by Philfinance PN No. 143-A issued to Delta as payee;

DMC PN No. 2731, while marked "non-negotiable," was not at the same time
stamped "non-transferable" or "non-assignable." It contained no stipulation which
prohibited Philfinance from assigning or transferring, in whole or in part, that Note.

(2) that the assignment of DMC PN No. 2731 by Philfinance was


without Delta's consent, if not against its instructions; and

April 10, 1980

(3) assuming (arguendo only) that the partial assignment in favor


of petitioner was valid, petitioner took the Note subject to the
defenses available to Delta, in particular, the offsetting of DMC PN
No. 2731 against Philfinance PN No. 143-A. 11

Delta adduced the "Letter of Agreement" which it had entered into with Philfinance
and which should be quoted in full:

Philippine Underwriters Finance Corp.


Benavidez St., Makati,
Metro Manila.
Attention: Mr. Alfredo O. Banaria
SVP-Treasurer

We consider Delta's arguments seriatim.


GENTLEMEN:
Firstly, it is important to bear in mind that the negotiation of a negotiable instrument
must be distinguished from theassignment or transfer of an instrument whether that
be negotiable or non-negotiable. Only an instrument qualifying as a negotiable
instrument under the relevant statute may be negotiated either by indorsement
thereof coupled with delivery, or by delivery alone where the negotiable instrument
is in bearer form. A negotiable instrument may, however, instead of being negotiated,
also be assigned or transferred. The legal consequences of negotiation as
distinguished from assignment of a negotiable instrument are, of course, different. 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 in
the face of the instrument:
The words "not negotiable," stamped on the face of the bill of
lading, did not destroy its assignability, but the sole effect was to
exempt the bill from the statutory provisions relative thereto, and a
bill, though not negotiable, may be transferred by assignment; the
assignee taking subject to the equities between the original
parties. 12 (Emphasis added)

This refers to our outstanding placement of P4,601,666.67 as evidenced by your


Promissory Note No. 143-A, dated April 10, 1980, to mature on April 6, 1981.
As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and
2731 for P2,000,000.00 each, dated April 10, 1980, to be offsetted [sic] against
your PN No. 143-A upon co-terminal maturity.
Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.
Very Truly Yours,
(Sgd.)
Florencio
B. Biagan
Senior Vice President 13
We find nothing in his "Letter of Agreement" which can be reasonably construed as a
prohibition upon Philfinance assigning or transferring all or part of DMC PN No.

18

Negotiable Instruments Law Case 1-6 Midterm Syllabus


2731, before the maturity thereof. It is scarcely necessary to add that, even had this
"Letter of Agreement" set forth an explicit prohibition of transfer upon Philfinance,
such a prohibition cannot be invoked against an assignee or transferee of the Note
who parted with valuable consideration in good faith and without notice of such
prohibition. It is not disputed that petitioner was such an assignee or transferee. Our
conclusion on this point is reinforced by the fact that what Philfinance and Delta
were doing by their exchange of their promissory notes was this: Delta invested, by
making a money market placement with Philfinance, approximately P4,600,000.00
on 10 April 1980; but promptly, on the same day, borrowed back the bulk of that
placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes: DMC PN
No. 2730 and DMC PN No. 2731, both also dated 10 April 1980. Thus, Philfinance
was left with not P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta
promissory notes.
Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN
No. 2731 had been effected without the consent of Delta, we note that such consent
was not necessary for the validity and enforceability of the assignment in favor of
petitioner. 14 Delta's argument that Philfinance's sale or assignment of part of its rights
to DMC PN No. 2731 constituted conventional subrogation, which required its
(Delta's) consent, is quite mistaken. Conventional subrogation, which in the first
place is never lightly inferred, 15 must be clearly established by the unequivocal terms
of the substituting obligation or by the evident incompatibility of the new and old
obligations on every point. 16 Nothing of the sort is present in the instant case.
It is in fact difficult to be impressed with Delta's complaint, since it released its DMC
PN No. 2731 to Philfinance, an entity engaged in the business of buying and selling
debt instruments and other securities, and more generally, in money market
transactions. In Perez v. Court of Appeals, 17 the Court, speaking through Mme.
Justice Herrera, made the following important statement:
There is another aspect to this case. What is involved here is a
money market transaction. As defined by Lawrence Smith "the
money market is a market dealing in standardized short-term credit
instruments (involving large amounts) where lenders and
borrowers do not deal directly with each other but through a
middle manor a dealer in the open market." It involves
"commercial papers" which are instruments "evidencing indebtness

of any person or entity. . ., which are issued, endorsed, sold or


transferred or in any manner conveyed to another person or entity,
with or without recourse". The fundamental function of the money
market device in its operation is to match and bring together in a
most impersonal manner both the "fund users" and the "fund
suppliers." The money market is an "impersonal market", free from
personal considerations. "The market mechanism is intended to
provide quick mobility of money and securities."
The impersonal character of the money market device overlooks
the individuals or entities concerned. The issuer of a commercial
paper in the money market necessarily knows in advance that it
would be expenditiously transacted and transferred to any
investor/lender without need of notice to said issuer. In practice,
no notification is given to the borrower or issuer of commercial
paper of the sale or transfer to the investor.
xxx xxx xxx
There is need to individuate a money market transaction, a
relatively novel institution in the Philippine commercial scene. It
has been intended to facilitate the flow and acquisition of capital
on an impersonal basis. And as specifically required by
Presidential Decree No. 678, the investing public must be given
adequate and effective protection in availing of the credit of a
borrower in the commercial paper market. 18(Citations omitted;
emphasis supplied)
We turn to Delta's arguments concerning alleged compensation or offsetting between
DMC PN No. 2731 and Philfinance PN No. 143-A. It is important to note that at the
time Philfinance sold part of its rights under DMC PN No. 2731 to petitioner on 9
February 1981, no compensation had as yet taken place and indeed none could have
taken place. The essential requirements of compensation are listed in the Civil Code
as follows:
Art. 1279. In order that compensation may be proper, it is
necessary:

19

Negotiable Instruments Law Case 1-6 Midterm Syllabus


(1) That each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other;
(2) That both debts consists in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor. (Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was
due. This was explicitly recognized by Delta in its 10 April 1980 "Letter of
Agreement" with Philfinance, where Delta acknowledged that the relevant
promissory notes were "to be offsetted (sic) against [Philfinance] PN No. 143A upon co-terminal maturity."
As noted, the assignment to petitioner was made on 9 February 1981 or from fortynine (49) days before the "co-terminal maturity" date, that is to say, before any
compensation had taken place. Further, the assignment to petitioner would have
prevented compensation had taken place between Philfinance and Delta, to the extent
of P304,533.33, because upon execution of the assignment in favor of petitioner,
Philfinance and Delta would have ceased to be creditors and debtors of each other in
their own right to the extent of the amount assigned by Philfinance to petitioner.
Thus, we conclude that the assignment effected by Philfinance in favor of petitioner
was a valid one and that petitioner accordingly became owner of DMC PN No. 2731
to the extent of the portion thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the
assignment to him only on 14 July 1981, 19that is, after the maturity not only of the
money market placement made by petitioner but also of both DMC PN No. 2731 and
Philfinance PN No. 143-A. In other words, petitioner notified Delta of his rights as
assignee after compensation had taken place by operation of law because the

offsetting instruments had both reached maturity. It is a firmly settled doctrine that
the rights of an assignee are not any greater that the rights of the assignor, since the
assignee is merely substituted in the place of the assignor 20 and that the assignee
acquires his rights subject to the equities i.e., the defenses which the debtor
could have set up against the original assignor before notice of the assignment was
given to the debtor. Article 1285 of the Civil Code provides that:
Art. 1285. The debtor who has consented to the assignment of
rights made by a creditor in favor of a third person, cannot set up
against the assignee the compensation which would pertain to him
against the assignor, unless the assignor was notified by the debtor
at the time he gave his consent, that he reserved his right to the
compensation.
If the creditor communicated the cession to him but the debtor did
not consent thereto, the latter may set up the compensation of
debts previous to the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he
may set up the compensation of all credits prior to the same and
also later ones until he had knowledge of the assignment.
(Emphasis supplied)
Article 1626 of the same code states that: "the debtor who, before having knowledge
of the assignment, pays his creditor shall be released from the obligation." In Sison
v. Yap-Tico, 21 the Court explained that:
[n]o man is bound to remain a debtor; he may pay to him with
whom he contacted to pay; and if he pay before notice that his debt
has been assigned, the law holds him exonerated, for the reason
that it is the duty of the person who has acquired a title by transfer
to demand payment of the debt, to give his debt or notice. 22
At the time that Delta was first put to notice of the assignment in petitioner's favor on
14 July 1981, DMC PN No. 2731 had already been discharged by compensation.
Since the assignor Philfinance could not have then compelled payment anew by

20

Negotiable Instruments Law Case 1-6 Midterm Syllabus


Delta of DMC PN No. 2731, petitioner, as assignee of Philfinance, is similarly
disabled from collecting from Delta the portion of the Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the assignment or
sale was effected on 9 February 1981. He could have notified Delta as soon as his
money market placement matured on 13 March 1981 without payment thereof being
made by Philfinance; at that time, compensation had yet to set in and discharge DMC
PN No. 2731. Again petitioner could have notified Delta on 26 March 1981 when
petitioner received from Philfinance the Denominated Custodianship Receipt
("DCR") No. 10805 issued by private respondent Pilipinas in favor of petitioner.
Petitioner could, in fine, have notified Delta at any time before the maturity date of
DMC PN No. 2731. Because petitioner failed to do so, and because the record is bare
of any indication that Philfinance had itself notified Delta of the assignment to
petitioner, the Court is compelled to uphold the defense of compensation raised by
private respondent Delta. Of course, Philfinance remains liable to petitioner under
the terms of the assignment made by Philfinance to petitioner.
II.
We turn now to the relationship between petitioner and private respondent Pilipinas.
Petitioner contends that Pilipinas became solidarily liable with Philfinance and Delta
when Pilipinas issued DCR No. 10805 with the following words:
Upon your written instruction, we [Pilipinas] shall
undertake physical delivery of the above securities fully assigned
to you . 23
The Court is not persuaded. We find nothing in the DCR that establishes an
obligation on the part of Pilipinas to pay petitioner the amount of P307,933.33 nor
any assumption of liability in solidum with Philfinance and Delta under DMC PN
No. 2731. We read the DCR as a confirmation on the part of Pilipinas that:
(1) it has in its custody, as duly constituted custodian bank, DMC
PN No. 2731 of a certain face value, to mature on 6 April 1981 and
payable to the order of Philfinance;

(2) Pilipinas was, from and after said date of the assignment by
Philfinance to petitioner (9 February 1981),holding that Note on
behalf and for the benefit of petitioner, at least to the extent it had
been assigned to petitioner by payee Philfinance; 24
(3) petitioner may inspect the Note either "personally or by
authorized representative", at any time during regular bank hours;
and
(4) upon written instructions of petitioner, Pilipinas would
physically deliver the DMC PN No. 2731 (or a participation
therein to the extent of P307,933.33) "should this Denominated
Custodianship receipt remain outstanding in [petitioner's] favor
thirty (30) days after its maturity."
Thus, we find nothing written in printers ink on the DCR which could reasonably be
read as converting Pilipinas into an obligor under the terms of DMC PN No. 2731
assigned to petitioner, either upon maturity thereof or any other time. We note that
both in his complaint and in his testimony before the trial court, petitioner referred
merely to the obligation of private respondent Pilipinas to effect the physical delivery
to him of DMC PN No. 2731. 25 Accordingly, petitioner's theory that Pilipinas had
assumed a solidary obligation to pay the amount represented by a portion of the Note
assigned to him by Philfinance, appears to be a new theory constructed only after the
trial court had ruled against him. The solidary liability that petitioner seeks to impute
Pilipinas cannot, however, be lightly inferred. Under article 1207 of the Civil Code,
"there is a solidary liability only when the law or the nature of the obligation requires
solidarity," The record here exhibits no express assumption of solidary liability vis-avis petitioner, on the part of Pilipinas. Petitioner has not pointed to us to any law
which imposed such liability upon Pilipinas nor has petitioner argued that the very
nature of the custodianship assumed by private respondent Pilipinas necessarily
implies solidary liability under the securities, custody of which was taken by
Pilipinas. Accordingly, we are unable to hold Pilipinas solidarily liable with
Philfinance and private respondent Delta under DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has no responsibility and liability
in respect of petitioner under the terms of the DCR. To the contrary, we find, after

21

Negotiable Instruments Law Case 1-6 Midterm Syllabus


prolonged analysis and deliberation, that private respondent Pilipinas had breached
its undertaking under the DCR to petitioner Sesbreo.

the impact of stipulations privately made between the borrowers or dealers and the
custodian banks, and disclosed to fund-providers only after trouble has erupted.

We believe and so hold that a contract of deposit was constituted by the act of
Philfinance in designating Pilipinas as custodian or depositary bank. The depositor
was initially Philfinance; the obligation of the depository was owed, however, to
petitioner Sesbreo as beneficiary of the custodianship or depository agreement. We
do not consider that this is a simple case of a stipulation pour autri. The
custodianship or depositary agreement was established as an integral part of the
money market transaction entered into by petitioner with Philfinance. Petitioner
bought a portion of DMC PN No. 2731; Philfinance as assignor-vendor deposited
that Note with Pilipinas in order that the thing sold would be placed outside the
control of the vendor. Indeed, the constituting of the depositary or custodianship
agreement was equivalent to constructive delivery of the Note (to the extent it had
been sold or assigned to petitioner) to petitioner. It will be seen that custodianship
agreements are designed to facilitate transactions in the money market by providing
a basis for confidence on the part of the investors or placers that the instruments
bought by them are effectively taken out of the pocket, as it were, of the vendors and
placed safely beyond their reach, that those instruments will be there available to the
placers of funds should they have need of them. The depositary in a contract of
deposit is obliged to return the security or the thing deposited upon demand of the
depositor (or, in the presented case, of the beneficiary) of the contract, even though a
term for such return may have been established in the said contract. 26 Accordingly,
any stipulation in the contract of deposit or custodianship that runs counter to the
fundamental purpose of that agreement or which was not brought to the notice of and
accepted by the placer-beneficiary, cannot be enforced as against such beneficiaryplacer.

In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the
security deposited with it when petitioner first demanded physical delivery thereof
on 2 April 1981. We must again note, in this connection, that on 2 April 1981, DMC
PN No. 2731 had not yet matured and therefore, compensation or offsetting against
Philfinance PN No. 143-A had not yet taken place. Instead of complying with the
demand of the petitioner, Pilipinas purported to require and await the instructions of
Philfinance, in obvious contravention of its undertaking under the DCR to effect
physical delivery of the Note upon receipt of "written instructions" from petitioner
Sesbreo. The ostensible term written into the DCR (i.e., "should this [DCR] remain
outstanding in your favor thirty [30] days after its maturity") was not a defense
against petitioner's demand for physical surrender of the Note on at least three
grounds: firstly, such term was never brought to the attention of petitioner Sesbreo
at the time the money market placement with Philfinance was made; secondly, such
term runs counter to the very purpose of the custodianship or depositary agreement
as an integral part of a money market transaction; and thirdly, it is inconsistent with
the provisions of Article 1988 of the Civil Code noted above. Indeed, in principle,
petitioner became entitled to demand physical delivery of the Note held by Pilipinas
as soon as petitioner's money market placement matured on 13 March 1981 without
payment from Philfinance.

We believe that the position taken above is supported by considerations of public


policy. If there is any party that needs the equalizing protection of the law in money
market transactions, it is the members of the general public whom place their savings
in such market for the purpose of generating interest revenues. 27 The custodian bank,
if it is not related either in terms of equity ownership or management control to the
borrower of the funds, or the commercial paper dealer, is normally a preferred or
traditional banker of such borrower or dealer (here, Philfinance). The custodian bank
would have every incentive to protect the interest of its client the borrower or dealer
as against the placer of funds. The providers of such funds must be safeguarded from

We conclude, therefore, that private respondent Pilipinas must respond to petitioner


for damages sustained by arising out of its breach of duty. By failing to deliver the
Note to the petitioner as depositor-beneficiary of the thing deposited, Pilipinas
effectively and unlawfully deprived petitioner of the Note deposited with it. Whether
or not Pilipinas itself benefitted from such conversion or unlawful deprivation
inflicted upon petitioner, is of no moment for present purposes.Prima facie, the
damages suffered by petitioner consisted of P304,533.33, the portion of the DMC PN
No. 2731 assigned to petitioner but lost by him by reason of discharge of the Note by
compensation, plus legal interest of six percent (6%) per annum containing from 14
March 1981.
The conclusion we have reached is, of course, without prejudice to such right of
reimbursement as Pilipinas may havevis-a-vis Philfinance.

22

Negotiable Instruments Law Case 1-6 Midterm Syllabus


III.
The third principal contention of petitioner that Philfinance and private
respondents Delta and Pilipinas should be treated as one corporate entity need not
detain us for long.
In the first place, as already noted, jurisdiction over the person of Philfinance was
never acquired either by the trial court nor by the respondent Court of Appeals.
Petitioner similarly did not seek to implead Philfinance in the Petition before us.
Secondly, it is not disputed that Philfinance and private respondents Delta and
Pilipinas have been organized as separate corporate entities. Petitioner asks us to
pierce their separate corporate entities, but has been able only to cite the presence of
a common Director Mr. Ricardo Silverio, Sr., sitting on the Board of Directors of
all three (3) companies. Petitioner has neither alleged nor proved that one or another
of the three (3) concededly related companies used the other two (2) as mere alter
egos or that the corporate affairs of the other two (2) were administered and managed
for the benefit of one. There is simply not enough evidence of record to justify
disregarding the separate corporate personalities of delta and Pilipinas and to hold
them liable for any assumed or undetermined liability of Philfinance to petitioner. 28
WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of
Appeals in C.A.-G.R. CV No. 15195 dated 21 march 1989 and 17 July 1989,
respectively, are hereby MODIFIED and SET ASIDE, to the extent that such
Decision and Resolution had dismissed petitioner's complaint against Pilipinas Bank.
Private respondent Pilipinas bank is hereby ORDERED to indemnify petitioner for
damages in the amount of P304,533.33, plus legal interest thereon at the rate of six
percent (6%) per annum counted from 2 April 1981. As so modified, the Decision
and Resolution of the Court of Appeals are hereby AFFIRMED. No pronouncement
as to costs.
SO ORDERED.
GR 89252, 24 May 1993
FACTS
On 9 February 1981, Raul Sesbreno made a money market placement in the amount

of P300,000 with the Philippine Underwriters Finance Corporation (PhilFinance),


with a term of 32 days. PhilFinance issued to Sesbreno the Certificate of
Confirmation of Sale of a Delta Motor Corporation Promissory Note (2731), the
Certificate of Securities Delivery Receipt indicating the sale of the note with notation
that said security was in the custody of Pilipinas Bank, and postdated checks drawn
against the Insular Bank of Asia and America for P304,533.33 payable on 13 March
1981. The checks were dishonored for having been drawn against insufficient funds.
Pilipinas Bank never released the note, nor any instrument related thereto, to
Sesbreno; but Sesbreno learned that the security was issued 10 April 1980, maturing
on 6 April 1981, has a face value of P2,300,833.33 with PhilFinance as payee and
Delta Motors as maker; and was stamped non-negotiable on its face. As Sesbreno
was unable to collect his investment and interest thereon, he filed an action for
damages against Delta Motors and Pilipinas Bank.
ISSUE
Whether non-negotiability of a promissory note prevents its assignment.
HELD
Only an instrument qualifying as a negotiable instrument under the relevant statute
may be negotiated either by indorsement thereof coupled with delivery, or by
delivery alone if it is in bearer form. A negotiable instrument, instead of being
negotiated, may also be assigned or transferred. The legal consequences of
negotiation and assignment of the instrument are different. A 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.
herein, there was no prohibition stipulated.
G.R. No. 113236

March 5, 2001

FIRESTONE TIRE & RUBBER COMPANY OF THE


PHILIPPINES, petitioner, vs.
COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.
QUISUMBING, J.:
This petition assails the decision 1 dated December 29, 1993 of the Court of Appeals
in CA-G.R. CV No. 29546, which affirmed the judgment 2 of the Regional Trial

23

Negotiable Instruments Law Case 1-6 Midterm Syllabus


Court of Pasay City, Branch 113 in Civil Case No. PQ-7854-P, dismissing Firestone's
complaint for damages.

June 15, 1978

42127

P1,198,092.80

July 15, 1978

42128

940,190.00

Aug. 15, 1978

42129

880,000.00

Sep. 15, 1978

42130

981,500.00

The facts of this case, adopted by the CA and based on findings by the trial court, are
as follows:
. . . [D]efendant is a banking corporation. It operates under a certificate of
authority issued by the Central Bank of the Philippines, and among its
activities, accepts savings and time deposits. Said defendant had as one of
its client-depositors the Fojas-Arca Enterprises Company ("Fojas-Arca" for
brevity). Fojas-Arca maintaining a special savings account with the
defendant, the latter authorized and allowed withdrawals of funds therefrom
through the medium of special withdrawal slips. These are supplied by the
defendant to Fojas-Arca.
In January 1978, plaintiff and Fojas-Arca entered into a "Franchised
Dealership Agreement" (Exh. B) whereby Fojas-Arca has the privilege to
purchase on credit and sell plaintiff's products.
On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid
Agreement, Fojas-Arca purchased on credit Firestone products from
plaintiff with a total amount of P4,896,000.00. In payment of these
purchases, Fojas-Arca delivered to plaintiff six (6) special withdrawal slips
drawn upon the defendant. In turn, these were deposited by the plaintiff
with its current account with the Citibank. All of them were honored and
paid by the defendant. This singular circumstance made plaintiff believe
[sic] and relied [sic] on the fact that the succeeding special withdrawal slips
drawn upon the defendant would be equally sufficiently funded. Relying on
such confidence and belief and as a direct consequence thereof, plaintiff
extended to Fojas-Arca other purchases on credit of its products.
On the following dates Fojas-Arca purchased Firestone products on credit
(Exh. M, I, J, K) and delivered to plaintiff the corresponding special
withdrawal slips in payment thereof drawn upon the defendant, to wit:

DATE

WITHDRAWAL
SLIP NO.

AMOUNT

These were likewise deposited by plaintiff in its current account with


Citibank and in turn the Citibank forwarded it [sic] to the defendant for
payment and collection, as it had done in respect of the previous special
withdrawal slips. Out of these four (4) withdrawal slips only withdrawal
slip No. 42130 in the amount of P981,500.00 was honored and paid by the
defendant in October 1978. Because of the absence for a long period
coupled with the fact that defendant honored and paid withdrawal slips No.
42128 dated July 15, 1978, in the amount of P981,500.00 plaintiff's belief
was all the more strengthened that the other withdrawal slips were likewise
sufficiently funded, and that it had received full value and payment of
Fojas-Arca's credit purchased then outstanding at the time. On this basis,
plaintiff was induced to continue extending to Fojas-Arca further purchase
on credit of its products as per agreement (Exh. "B").
However, on December 14, 1978, plaintiff was informed by Citibank that
special withdrawal slips No. 42127 dated June 15, 1978 for P1,198,092.80
and No. 42129 dated August 15, 1978 for P880,000.00 were dishonored and
not paid for the reason 'NO ARRANGEMENT.' As a consequence, the
Citibank debited plaintiff's account for the total sum of P2,078,092.80
representing the aggregate amount of the above-two special withdrawal
slips. Under such situation, plaintiff averred that the pecuniary losses it
suffered is caused by and directly attributable to defendant's gross
negligence.
On September 25, 1979, counsel of plaintiff served a written demand upon
the defendant for the satisfaction of the damages suffered by it. And due to

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defendant's refusal to pay plaintiff's claim, plaintiff has been constrained to
file this complaint, thereby compelling plaintiff to incur litigation expenses
and attorney's fees which amount are recoverable from the defendant.
Controverting the foregoing asseverations of plaintiff, defendant
asserted, inter alia that the transactions mentioned by plaintiff are that of
plaintiff and Fojas-Arca only, [in] which defendant is not involved;
Vehemently, it was denied by defendant that the special withdrawal slips
were honored and treated as if it were checks, the truth being that when the
special withdrawal slips were received by defendant, it only verified
whether or not the signatures therein were authentic, and whether or not the
deposit level in the passbook concurred with the savings ledger, and
whether or not the deposit is sufficient to cover the withdrawal; if plaintiff
treated the special withdrawal slips paid by Fojas-Arca as checks then
plaintiff has to blame itself for being grossly negligent in treating the
withdrawal slips as check when it is clearly stated therein that the
withdrawal slips are non-negotiable; that defendant is not a privy to any of
the transactions between Fojas-Arca and plaintiff for which reason
defendant is not duty bound to notify nor give notice of anything to
plaintiff. If at first defendant had given notice to plaintiff it is merely an
extension of usual bank courtesy to a prospective client; that defendant is
only dealing with its depositor Fojas-Arca and not the plaintiff. In
summation, defendant categorically stated that plaintiff has no cause of
action against it (pp. 1-3, Dec.; pp. 368-370, id).3
Petitioner's complaint4 for a sum of money and damages with the Regional Trial
Court of Pasay City, Branch 113, docketed as Civil Case No. 29546, was dismissed
together with the counterclaim of defendant.
Petitioner appealed the decision to the Court of Appeals. It averred that respondent
Luzon Development Bank was liable for damages under Article 21765 in relation to
Articles 196 and 207 of the Civil Code. As noted by the CA, petitioner alleged the
following tortious acts on the part of private respondent: 1) the acceptance and
payment of the special withdrawal slips without the presentation of the depositor's
passbook thereby giving the impression that the withdrawal slips are instruments
payable upon presentment; 2) giving the special withdrawal slips the general
appearance of checks; and 3) the failure of respondent bank to seasonably warn
petitioner that it would not honor two of the four special withdrawal slips.
On December 29, 1993, the Court of Appeals promulgated its assailed decision. It
denied the appeal and affirmed the judgment of the trial court. According to the
appellate court, respondent bank notified the depositor to present the passbook

whenever it received a collection note from another bank, belying petitioner's claim
that respondent bank was negligent in not requiring a passbook under the subject
transaction. The appellate court also found that the special withdrawal slips in
question were not purposely given the appearance of checks, contrary to petitioner's
assertions, and thus should not have been mistaken for checks. Lastly, the appellate
court ruled that the respondent bank was under no obligation to inform petitioner of
the dishonor of the special withdrawal slips, for to do so would have been a violation
of the law on the secrecy of bank deposits.
Hence, the instant petition, alleging the following assignment of error:
25. The CA grievously erred in holding that the [Luzon Development] Bank
was free from any fault or negligence regarding the dishonor, or in failing to
give fair and timely advice of the dishonor, of the twointermediate LDB
Slips and in failing to award damages to Firestone pursuant to Article 2176
of the New Civil Code.8
The issue for our consideration is whether or not respondent bank should be held
liable for damages suffered by petitioner, due to its allegedly belated notice of nonpayment of the subject withdrawal slips.
The initial transaction in this case was between petitioner and Fojas-Arca, whereby
the latter purchased tires from the former with special withdrawal slips drawn upon
Fojas-Arca's special savings account with respondent bank. Petitioner in turn
deposited these withdrawal slips with Citibank. The latter credited the same to
petitioner's current account, then presented the slips for payment to respondent bank.
It was at this point that the bone of contention arose.
On December 14, 1978, Citibank informed petitioner that special withdrawal slips
Nos. 42127 and 42129 dated June 15, 1978 and August 15, 1978, respectively, were
refused payment by respondent bank due to insufficiency of Fojas-Arca's funds on
deposit. That information came about six months from the time Fojas-Arca
purchased tires from petitioner using the subject withdrawal slips. Citibank then
debited the amount of these withdrawal slips from petitioner's account, causing the
alleged pecuniary damage subject of petitioner's cause of action.
At the outset, we note that petitioner admits that the withdrawal slips in question
were non-negotiable.9 Hence, the rules governing the giving of immediate notice of
dishonor of negotiable instruments do not apply in this case.10Petitioner itself
concedes this point.11 Thus, respondent bank was under no obligation to give
immediate notice that it would not make payment on the subject withdrawal slips.
Citibank should have known that withdrawal slips were not negotiable instruments.

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It could not expect these slips to be treated as checks by other entities. Payment or
notice of dishonor from respondent bank could not be expected immediately, in
contrast to the situation involving checks.
In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon
Development Bank, had honored and paid the previous withdrawal slips,
automatically credited petitioner's current account with the amount of the subject
withdrawal slips, then merely waited for the same to be honored and paid by
respondent bank. It presumed that the withdrawal slips were "good."
It bears stressing that Citibank could not have missed the non-negotiable nature of
the withdrawal slips. The essence of negotiability which characterizes a negotiable
paper as a credit instrument lies in its freedom to circulate freely as a substitute for
money.12 The withdrawal slips in question lacked this character.
A bank is under obligation to treat the accounts of its depositors with meticulous
care, whether such account consists only of a few hundred pesos or of millions of
pesos.13 The fact that the other withdrawal slips were honored and paid by
respondent bank was no license for Citibank to presume that subsequent slips would
be honored and paid immediately. By doing so, it failed in its fiduciary duty to treat
the accounts of its clients with the highest degree of care.14
In the ordinary and usual course of banking operations, current account deposits are
accepted by the bank on the basis of deposit slips prepared and signed by the
depositor, or the latter's agent or representative, who indicates therein the current
account number to which the deposit is to be credited, the name of the depositor or
current account holder, the date of the deposit, and the amount of the deposit either
in cash or in check.15
The withdrawal slips deposited with petitioner's current account with Citibank were
not checks, as petitioner admits. Citibank was not bound to accept the withdrawal
slips as a valid mode of deposit. But having erroneously accepted them as such,
Citibank and petitioner as account-holder must bear the risks attendant to the
acceptance of these instruments. Petitioner and Citibank could not now shift the risk
and hold private respondent liable for their admitted mistake.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in
CA-G.R. CV No. 29546 is AFFIRMED. Costs against petitioner.

Firestone Tire & Rubber Co. of the Phils. vs. Court of Appeals
[G.R. No. 113236. March 5, 2001]
FACTS:
Fojas-Arca Enterprises Company maintained a special account with respondent
Luzon Development Bank which authorized and allowed the former to withdraw
funds from its account through the medium of special withdrawal slips. Fojas-Arca
purchased on credit products from Firestone with a total amount of
P4,896,000.00. In payment of these purchases, Fojas-Arca delivered to plaintiff six
special withdrawal slips drawn upon the respondent bank. In turn, these were
deposited by the plaintiff with its current account with the Citibank. All of them
were honored and paid by the defendant. However, in a subsequent transaction
involving the payment of withdrawal slips by Fojas-Arca for purchases on credit
from petitioner, two withdrawal slips for the total sum of P2,078,092.80 were
dishonored and not paid by respondent bank for the reason "NO ARRANGEMENT".
ISSUE:
Whether respondent bank should be held liable for damages suffered by petitioner,
due to its allegedly belated notice of non-payment of the subject withdrawal slips.
RULING:
The essence of negotiability which characterizes a negotiable paper as a credit
instrument lies in its freedom to circulate freely as a substitute for money. The
withdrawal slips in question lacked this character. As the withdrawal slips in
question were non-negotiable, the rules governing the giving of immediate notice of
dishonor of negotiable instruments do not apply. The respondent bank was under no
obligation to give immediate notice that it would not make payment on the subject
withdrawal slips. Citibank should have known that withdrawal slips were not
negotiable instruments. It could not expect these slips to be treated as checks by
other entities. Payment or notice of dishonor from respondent bank could not be
expected immediately, in contrast to the situation involving checks. Citibank was not
bound to accept the withdrawal slips as a valid mode of deposit. But having
erroneously accepted them as such, Citibank and petitioner as account-holder
must bear the risks attendant to the acceptance of these instruments.

SO ORDERED.
G.R. No. L-2516

September 25, 1950

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ANG TEK LIAN, petitioner, vs.
THE COURT OF APPEALS, respondent.
Laurel, Sabido, Almario and Laurel for petitioner.
Office of the Solicitor General Felix Bautista Angelo and Solicitor Manuel Tomacruz
for respondent.
BENGZON, J.:
For having issued a rubber check, Ang Tek Lian was convicted of estafa in the Court
of First Instance of Manila. The Court of Appeals affirmed the verdict.
It appears that, knowing he had no funds therefor, Ang Tek Lian drew on Saturday,
November 16, 1946, the check Exhibits A upon the China Banking Corporation for
the sum of P4,000, payable to the order of "cash". He delivered it to Lee Hua Hong
in exchange for money which the latter handed in act. On November 18, 1946, the
next business day, the check was presented by Lee Hua Hong to the drawee bank for
payment, but it was dishonored for insufficiency of funds, the balance of the deposit
of Ang Tek Lian on both dates being P335 only.
The Court of Appeals believed the version of Lee Huan Hong who testified that "on
November 16, 1946, appellant went to his (complainant's) office, at 1217 Herran,
Paco, Manila, and asked him to exchange Exhibit A which he (appellant) then
brought with him with cash alleging that he needed badly the sum of P4,000
represented by the check, but could not withdraw it from the bank, it being then
already closed; that in view of this request and relying upon appellant's assurance
that he had sufficient funds in the blank to meet Exhibit A, and because they used to
borrow money from each other, even before the war, and appellant owns a hotel and
restaurant known as the North Bay Hotel, said complainant delivered to him, on the
same date, the sum of P4,000 in cash; that despite repeated efforts to notify him that
the check had been dishonored by the bank, appellant could not be located anywhere, until he was summoned in the City Fiscal's Office in view of the complaint
for estafa filed in connection therewith; and that appellant has not paid as yet the
amount of the check, or any part thereof."
Inasmuch as the findings of fact of the Court of Appeals are final, the only question
of law for decision is whether under the facts found, estafa had been accomplished.

Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes
swindling committed "By post dating a check, or issuing such check in payment of
an obligation the offender knowing that at the time he had no funds in the bank, or
the funds deposited by him in the bank were not sufficient to cover the amount of the
check, and without informing the payee of such circumstances".
We believe that under this provision of law Ang Tek Lian was properly held liable. In
this connection, it must be stated that, as explained in People vs. Fernandez (59 Phil.,
615), estafa is committed by issuing either a postdated check or an ordinary check to
accomplish the deceit.
It is argued, however, that as the check had been made payable to "cash" and had not
been endorsed by Ang Tek Lian, the defendant is not guilty of the offense charged.
Based on the proposition that "by uniform practice of all banks in the Philippines a
check so drawn is invariably dishonored," the following line of reasoning is
advanced in support of the argument:
. . . When, therefore, he (the offended party ) accepted the check (Exhibit A)
from the appellant, he did so with full knowledge that it would be
dishonored upon presentment. In that sense, the appellant could not be said
to have acted fraudulently because the complainant, in so accepting the
check as it was drawn, must be considered, by every rational consideration,
to have done so fully aware of the risk he was running thereby." (Brief for
the appellant, p. 11.)
We are not aware of the uniformity of such practice. Instances have undoubtedly
occurred wherein the Bank required the indorsement of the drawer before honoring a
check payable to "cash." But cases there are too, where no such requirement had
been made . It depends upon the circumstances of each transaction.
Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the
order of "cash" is a check payable to bearer, and the bank may pay it to the person
presenting it for payment without the drawer's indorsement.
A check payable to the order of cash is a bearer instrument.
Bacal vs. National City Bank of New York (1933), 146 Misc., 732; 262 N.
Y. S., 839; Cleary vs. De Beck Plate Glass Co. (1907), 54 Misc., 537; 104

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N. Y. S., 831; Massachusetts Bonding & Insurance Co. vs. Pittsburgh Pipe
& Supply Co. (Tex. Civ. App., 1939), 135 S. W. (2d), 818. See also H. Cook
& Son vs. Moody (1916), 17 Ga. App., 465; 87 S. E., 713.
Where a check is made payable to the order of "cash", the word cash "does
not purport to be the name of any person", and hence the instrument is
payable to bearer. The drawee bank need not obtain any indorsement of the
check, but may pay it to the person presenting it without any
indorsement. . . . (Zollmann, Banks and Banking, Permanent Edition, Vol. 6,
p. 494.)
Of course, if the bank is not sure of the bearer's identity or financial solvency, it has
the right to demand identification and /or assurance against possible complications,
for instance, (a) forgery of drawer's signature, (b) loss of the check by the rightful
owner, (c) raising of the amount payable, etc. The bank may therefore require, for its
protection, that the indorsement of the drawer or of some other person known to it
be obtained. But where the Bank is satisfied of the identity and /or the economic
standing of the bearer who tenders the check for collection, it will pay the instrument
without further question; and it would incur no liability to the drawer in thus acting.
A check payable to bearer is authority for payment to holder. Where a check
is in the ordinary form, and is payable to bearer, so that no indorsement is
required, a bank, to which it is presented for payment, need not have the
holder identified, and is not negligent in falling to do so. . . . (Michie on
Banks and Banking, Permanent Edition, Vol. 5, p. 343.)
. . . Consequently, a drawee bank to which a bearer check is presented for
payment need not necessarily have the holder identified and ordinarily may
not be charged with negligence in failing to do so. See Opinions 6C:2 and
6C:3 If the bank has no reasonable cause for suspecting any irregularity, it
will be protected in paying a bearer check, "no matter what facts unknown
to it may have occurred prior to the presentment." 1 Morse, Banks and
Banking, sec. 393.
Although a bank is entitled to pay the amount of a bearer check without
further inquiry, it is entirely reasonable for the bank to insist that holder give
satisfactory proof of his identity. . . . (Paton's Digest, Vol. I, p. 1089.)

Anyway, it is significant, and conclusive, that the form of the check Exhibit A was
totally unconnected with its dishonor. The Court of Appeals declared that it was
returned unsatisfied because the drawer had insufficient funds not because the
drawer's indorsement was lacking.
Wherefore, there being no question as to the correctness of the penalty imposed on
the appellant, the writ ofcertiorari is denied and the decision of the Court of Appeals
is hereby affirmed, with costs.
Moran, C. J., Ozaeta, Paras, Pablo, Tuason, and Reyes, JJ., concur.
Ang Tek Lian vs. Court of Appeals
L-2516
September, 1950
Bengzon, J.:
Facts:
Ang Tek Lian knowing that he had no funds therefor, drew a check upon
China Banking Corporation payable to the order of cash. He delivered it toLee
Hua Hong in exchange for money. The check was presented by Lee Hua hong to the
drawee bank for payment, but it w3as dishonored for insufficiency of funds. With
this, Ang Tek Lian was convicted of estafa.
Issue:
Whether or not the check issued by Ang Tek Lian that is payable to the order
to cash and not have been indorsed by Ang Tek Lian, making him not guilty for the
crime of estafa.
Held:
No.Under Sec. 9 of NIL a check drawn payable to the order of cash is a
check payable to bearer and the bank may pay it to the person presenting it for
payment without the drawers indorsement. However, if the bank is not sure of the
bearers identity or financial solvency, it has the right to demand identification or
assurance against possible complication, such as forgery of drawers signature, loss
of the check by the rightful owner, raising of the amount payable, etc. But where the
bank is satisfied of the identity or economic standing of the bearer who tenders the

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check for collection, it will pay the instrument without further question; and it would
incur no liability to the drawer in thus acting.

NBANK
(By Eliza
Illegible S

29