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PRELIMS DIGESTED CASES IN NEGO

1. PHILIPPINE EDUCATION CO. vs. SORIANO

FACTS: Enrique Montinola sought to purchase from the Manila Post Office 10 money orders (P200 each), offering to
pay for them with a private check. Montinola was able to leave the building with his check and the 10 money orders
without the knowledge of the teller. Upon discovery that it was stolen, message was sent to all postmasters and banks
involving the unpaid money orders. One of the money orders was received by the Philippine Education Co. as part of
its sales receipt. It was deposited by the company with the Bank of America, which cleared it with the Bureau of Post.
The Postmaster, through the Chief of the Money Order Division of the Manila Post Office informed the bank of the
irregular issuance of the money order. The bank debited the account of the company. The company moved for
reconsideration.

ISSUE: Whether postal money orders are negotiable instruments and the petitioner as a holder in due course can
demand payment.

RULING: Philippine postal statutes are patterned from those of the United States, and the weight of authority in said
country is that Postal money orders are not negotiable instruments inasmuch as the establishment of a postal money
order is an exercise of governmental power for the public’s benefit. Furthermore, some of the restrictions imposed
upon money order by postal laws and regulations are inconsistent with the character of negotiable instruments. For
instance, postal money orders may be withheld under a variety of circumstances, and which are restricted to not more
than one indorsement. Hence, petitioner cannot demand payment and recover the amount debited.

2. TIBAJIA VS. CA

FACTS: A suit for collection of sum of money was ruled in favor of Eden Tan and against the spouses Norberto Jr.
and Carmen Tibajia. After the decision was made final, Tan filed a motion for execution and levied upon the garnished
funds which were deposited by the spouses with the cashier of the Regional Trial Court of Pasig. The spouses,
however, delivered to the deputy sheriff the total money judgment in the form of Cashier’s Check (P262,750) and
Cash (P135,733.70). Tan refused the payment and insisted upon the garnished funds to satisfy the judgment
obligation. The spouses filed a motion to lift the writ of execution on the ground that the judgment debt had already
been paid. The motion was denied.

ISSUE: Whether the spouses have satisfied the judgment obligation after the delivery of the cashier’s check and cash
to the deputy sheriff.

RULING: A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor (Philippine
Airlines vs. Court of Appeals; Roman Catholic Bishop of Malolos vs. Intermediate Appellate Court). The court is not,
by decision, sanctioning the use of a check for the payment of obligations over the objection of the creditor (Fortunado
vs. Court of Appeals).

3. PAL VS. CA

FACTS: CFI Manila ruled in favor of Amelia Tan [under the name and style of Able Printing Press] in a complaint for
damages against petitioner Philippine Airlines. On appeal, the CA upheld the decision of the CFI with minor
modifications as to the damages to be awarded. The corresponding writ of execution was duly referred to Deputy
Sheriff Emilio Z. Reyes for enforcement with checks in the name of the latter.

Four months later, Amelia Tan moved for the issuance of an alias writ of execution since the judgment remained
unsatisfied. The petitioner filed an opposition to the motion for the issuance of an alias writ of execution stating that it
had already fully paid its obligation to plaintiff through the deputy sheriff of the respondent court, Emilio Z. Reyes, as
evidenced by cash vouchers properly signed and received by said Emilio Z. Reyes. On March 3,1978, the Court of
Appeals denied the issuance of the alias writ for being premature, ordering the executing sheriff Emilio Z. Reyes to
appear with his return and explain the reason for his failure to surrender the amounts paid to him by petitioner PAL.
However, the order could not be served upon Deputy Sheriff Reyes because he already absconded or disappeared.

ISSUE: Whether the payment rendered through a check made by PAL to the absconding sheriff in his name operate
to satisfy the judgment debt.

RULING: Under ordinary circumstances, payment by the judgment debtor to the sheriff should be valid payment to
extinguish the judgment debt. There are circumstances, however, which compel a different conclusion such as when
the payment made by the petitioner to the absconding sheriff was not in cash or legal tender but in checks. The
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delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when through the fault of the creditor they have been
impaired. In the meantime, the action derived from the original obligation shall be held in abeyance. Since a
negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by
itself, operate as payment.

A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in payment of a
debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks
does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until
the payment by commercial document is actually realized (Art. 1249, Civil Code, par. 3).

PAL created a situation which permitted the said Sheriff to personally encash said checks and misappropriate the
proceeds thereof to his exclusive personal benefit. For the prejudice that resulted, the petitioner himself must bear the
fault. As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who
made it possible by his act of confidence must bear the loss.

4. METROPOLITAN BANK & TRUST CO. vs. CA

FACTS: Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38
treasury warrants. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its
General Manager and counter-signed 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. On various dates
all these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its
Savings Account in the Metrobank. 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. After being told to wait several times,
Gloria Castillo and Gomez made subsequent withdrawals at Metrobank with the impression that the treasury warrants
had been cleared. Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of
Treasury and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the
deficit in its account. The demand was rejected.

ISSUE: Whether treasury warrants are negotiable instruments.

RULING: No. The treasury warrants in question are not negotiable instruments. Clearly stamped on their face is the
word "non-negotiable." Moreover, it is indicated that they are payable from a particular fund, to wit, Fund 501. Sections
1 and 3 of the Negotiable Instruments Law especially underscored this requirement. 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.

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.

5. CALTEX VS. COURT OF APPEALS

FACTS: Respondent bank issued 280 certificates of time deposit (CTDs) in favor of Angel dela Cruz who delivered
the same to herein petitioner in connection with his purchased fuel products. Eventually, dela Cruz executed and
delivered an Affidavit of Loss for the reissuance of the CTDs. Dela Cruz later on obtained a loan from respondent
bank and negotiated the said CTDs, executing a Deed of Assignment of Time Deposit which stated, among others,
that the bank has full control of the indicated time deposits from and after date of the assignment and may set-off such
and apply the same to the payment of amount or amounts that may be due on the loan upon maturity. Petitioner then
went to the Sucat branch for verification of the CTDs declared lost, alleging that the same were delivered to herein
petitioner as “security for purchases made with Caltex Philippines, Inc.” and requested that the CTDs be pre-
terminated, which was refused by the respondent bank due to the failure of petitioner to present requested documents
to prove such allegation. Petitioner then filed a complaint in the RTC, which was dismissed. On appeal, the CA
affirmed the decision of the RTC. Thus, the present petition.

ISSUE: Whether the CTDs are considered negotiable?

RULING: Yes. A sample text of the certificates of time deposit is reproduced below:

SECURITY BANK AND TRUST COMPANY

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6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICE P4,000.00
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)

AUTHORIZED SIGNATURES

Section 1, of Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an
instrument to become negotiable. The CTDs in question undoubtedly meet the requirements of the law for
negotiability. The accepted rule is that the negotiability or nonnegotiability of an instrument is determined from the
writing, that is, from the fact of the instrument itself. Contrary to what respondent court held (that the CTDs are
payable to the “depositor” which is Angel dela Cruz), 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 dela 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.

6. ANG TEK LIAN vs. COURT OF APPEALS

FACTS: In 1946, Ang Tek Lian approached Lee Hua and asked him if he could give him P4,000.00. He said that he
meant to withdraw from the bank but the bank’s already closed. In exchange, he gave Lee Hua a check which is
“payable to the order of ‘cash’”. The next day, Lee Hua presented the check for payment but it was dishonored due to
insufficiency of funds. Lee Hua eventually sued Ang Tek Lian. In his defense, Ang Tek Lian argued that he did not
indorse the check to Lee Hua and that when the latter accepted the check without Ang tek Lian’s indorsement, he had
done so fully aware of the risk he was running thereby.

ISSUE: Whether the indorsement of Ang Tek Lian is essential in a bearer instrument.

RULING: No. Under the Negotiable Instruments Law, a check drawn payable to the order of “cash” is a check payable
to bearer hence a bearer instrument, and the bank may pay it to the person presenting it for payment without the
drawer’s indorsement. The drawee bank need not obtain any indorsement of the check, but may pay it to the person
presenting it without any indorsement.

FACTS: Petitioner Ang Tek Lian approached Lee Hua and asked him if he could give him P4,000.00. He said that he
is supposed to withdraw from the bank but his bank was already closed. In exchange, he gave respondent Lee Hua a
check which is “payable to the order of ‘cash”. When Lee Hua presented the check for payment the next day, he
discovered that it has an insufficient funds, hence, was dishonored by the bank. In his defense, Ang Tek Lian argued
that he did not indorse the check to Lee Hua when the latter accepted the check without his indorsement.

ISSUE: Whether Ang Tek Lian’s indorsement of the said check is necessary to hold him liable for the dishonored
check.

RULING: No. Under Section 9 of the Negotiable Instruments Law, 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 drawer’s
indorsement. Consequently, the form of the check was totally unconnected with its dishonor. The check was returned
unsatisfied because the drawer had insufficient funds and not because the drawer’s indorsement was lacking. Hence,
Ang Tek Lian may be held liable for estafa because under article 315, paragraph d, subsection 2 of the Revised Penal
Code, one who issues a check payable to cash to accomplish deceit and knows that at the time he had no sufficient
deposit with the bank to cover the amount of the check and without informing the payee of such circumstances is
guilty of estafa.

7. PHILIPPINE NATIONAL BANK vs. RODRIGUEZ

Doctrine: When Instrument is Payable to Bearer

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FACTS: Respondents Spouses Rodriguez maintained savings and demand/checking accounts as well as demand
deposits (Checkings/Current Account) with petitioner PNB. They are also engaged in the informal lending business of
discounting arrangement with Philnabank Employees Savings and Loan Association (PEMSLA), an association of
PNB. PEMSLA regularly granted loans to its member and Spouses would rediscount the apostate checks issued to
members whenever the association was short of funds. At the same time, the spouses would replace the postdated
checks with their own checks issued in the same name. PEMSLA’s policy would not approve applications with
outstanding debts and in order to subvert this they created a scheme to obtain additional loans in the names of
unknowing members without their knowledge and consent. PEMSLA checks were then given to spouses for
rediscounting and were carried out by forging the endorsement of the named payees in the checks. Rodriguez checks
were deposited directly to PEMSLA without any endorsement from the named payees. Petitioner found out about the
fraudulent acts, and took measures by closing the current account of PEMSLA. Since PEMSLA checks were
dishonored and returned the respondents incurred losses from the rediscounting transactions. Spouses filed a civil
complaint against PEMSLA and PNB, the court rendering judgment in favor of respondent.

ISSUE: Whether the disputed checks were payable to bearer and order making petitioner liable if it is of the latter and
respondent liable is it is the former.

RULING: The checks were payable to order, making petitioner liable for the losses. As a rule, if the payee is fictitious
or not intended to be the true recipient of the proceeds of the check it is considered as a bearer instrument—according
to Sections 8 and 9 of the Negotiable Instruments Law. The distinction lies in the manner of their negotiation. An order
instrument from the payee or holder requires endorsement. A bearer instrument does not required endorsement—
negotiable by mere delivery. However, under Section 9 of the same law, a checks is payable to a specified payee may
nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person,
and such fact is known to the person making it so payable. According to US jurisprudence, an actual, existing and
living payee may also be “fictitious” if the maker of the check did not intend for the payee to receive the check. If such
a case happens then the check is a bearer instrument. In a fictitious-payee situation, the drawee bank is absolved
from liability and the drawer bears the loss. However, if there is showing of commercial bad faith on the part of the
drawee bank, or any transferee of the check for that matter, will work to strip it of this defense. PNB’s failure to show
that the payees were “fictitious”, the fictitious-payee rule does not apply making the instrument payable to order. Also,
PNB was remiss in its duty as the drawee bank since its employees were the one who crested the whole fraudulent
scheme.

8. PNB VS. MANILA OIL REFINING

FACTS: The manager and treasurer of respondent company executed and delivered to the Philippine National Bank
(PNB), a promissory note which provides a promise to pay petitioner bank the amount of P61,000 and that in case
payment was not made at time of maturity, any lawyer in the Philippines is authorize to represent the company and
confess judgment for the said sum with interest, cost of suit and attorney's fees of ten% for collection, a release of all
errors and waiver of all rights to inquisition and appeal, and to the benefit of all laws exempting property, real or
personal, from levy or sale. Indeed, Manila Oil has failed to pay on demand. This prompted the bank to file a case in
court, wherein an attorney associated with them entered his appearance for the defendant. To this the defendant
objected.

ISSUE: Whether provisions in notes authorizing attorneys to appear and confess judgments against makers should
not be recognized in Philippine jurisdiction by implication.

RULING: No. Judgments by confession as appeared at common law were considered an amicable, easy, and cheap
way to settle and secure debts. They are quick remedy serve to save the court's time. They also save time and money
of the litigants and the government the expenses that a long litigation entails. In one sense, instruments of this
character may be considered as special agreements, with power to enter up judgments on them, binding the parties to
the result as they themselves viewed it.

On the other hand, are disadvantages to the commercial world which outweigh the considerations just mentioned.
Such warrants of attorney are void as against public policy, because they enlarge the field for fraud, because under
these instruments the promissor bargains away his right to a day in court, and because the effect of the instrument is
to strike down the right of appeal accorded by statute. The recognition of such form of obligation would bring about a
complete reorganization of commercial customs and practices, with reference to short-term obligations. It can readily
be seen that judgment notes, instead of resulting to the advantage of commercial life in the Philippines, might be the
source of abuse and oppression, and make the courts involuntary parties thereto. If the bank has a meritorious case,
the judgment is ultimately certain in the courts.

The Court is of the opinion thus that warrants of attorney to confess judgment are not authorized nor contemplated by
Philippine law; and that provisions in notes authorizing attorneys to appear and confess judgments against makers
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should not be recognized in this jurisdiction by implication and should only be considered as valid when given express
legislative sanction.

9. REPUBLIC PLANTERS BANK vs. CA

FACTS: In 1979, World Garment Manufacturing, through its board authorized Shozo Yamaguchi (president) and
Fermin Canlas (treasurer) to obtain credit facilities from Republic Planters Bank (RPB). For this, 9 promissory notes
were executed. Each promissory note was uniformly written in the following manner:

___________, after date, for value received, I/we, jointly and severally promise to pay to the
ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of ___________
PESOS(….) Philippine Currency… Please credit proceeds of this note to:

________ Savings Account ______XX Current Account No. 1372-00257-6 of WORLDWIDE

GARMENT MFG. CORP.

Sgd. Shozo Yamaguchi

Sgd. Fermin Canlas

The note became due and no payment was made. RPB eventually sued Yamaguchi and Canlas. Canlas, in his
defense, averred that he should not be held personally liable for such authorized corporate acts that he performed
inasmuch as he signed the promissory notes in his capacity as officer of the defunct Worldwide Garment
Manufacturing.

ISSUE: Whether Canlas should be held liable for the promissory notes.

RULING: Yes. The solidary liability of private respondent Fermin Canlas is made clearer and certain, without reason
for ambiguity, by the presence of the phrase “joint and several” as describing the unconditional promise to pay to the
order of Republic Planters Bank. Where an instrument containing the words “I promise to pay” is signed by two or
more persons, they are deemed to be jointly and severally liable thereon.

Here, Canlas is solidarily liable on each of the promissory notes bearing his signature for the following reasons: The
promissory notes are negotiable instruments and must be governed by the Negotiable Instruments Law. Under the
Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers and are liable
as such. By signing the notes, the maker promises to pay to the order of the payee or any holder according to the
tenor thereof.

10. SPS. EVANGELISTA vs. MERCATER FINANCE CORP.

FACTS: Petitioner spouses filed a complaint against respondents for the foreclosure of the mortgage on their property
and eventual its eventual sale, claiming, among others, that they executed the said mortgage on their capacity as
officers of Embassy Farms, and not on their personal capacity, thus, there is no consideration received by them,
making the mortgage voidable. Respondent, on the other hand, claims that the promissory note for the loan, for which
the mortgage was executed, shows that the spouses signed as co-makers, also with the succeeding promissory
notes. The RTC, upon motion of the respondent, granted summary judgment and dismissed the complaint. On appeal,
the CA affirmed in toto the decision of the RTC.

ISSUE: Whether petitioners are solidarily liable with Embassy Farms for the loan as evidenced by the promissory
note.

RULING: Yes. The promissory note reads:

For value received, I/We jointly and severally promise to pay to the order of MERCATOR FINANCE
CORPORATION at its office, the principal sum of EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED
TWENTY-FIVE PESOS & 78/100 (P 844,625.78), Philippine currency, x x x, in installments as follows:

September 16, 1982 - P154,267.87

October 16, 1982 - P154,267.87
November 16, 1982 - P154,267.87
December 16, 1982 - P154,267.87
January 16, 1983 - P154,267.87
February 16, 1983 - P154,267.87
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The note was signed by petitioners and Embassy Farms, Inc. with the signature of Eduardo Evangelista below it. Sec.
17 of the Negotiable Instruments Law provide: “Construction where instrument is ambiguous – Where the language of
the instrument is ambiguous or there are omissions therein, the following rules of construction shall apply:

(g) Where an instrument containing the word “I promise to pay” is signed by two or more persons, they are deemed to
be jointly and severally liable thereon.

As such, the promissory note itself proves that petitioners are solidarily liable with Embassy Farms. Moreover,
even if petitioners signed merely as officers, it does not erase the fact that they subsequently executed a
continuing suretyship agreement which makes them solidarily liable with the principal. They cannot eventually
claim that they did not personably receive any consideration for the contract.