CALTEX PHILIPPINES VS.

COURT OF APPEALS AND SECURITY BANK

GR No. 97753

FACTS:
Security Bank issued 280 certificates of time deposit (CTDs) in favor of one Angel Dela Cruz. Then Dela
Cruz delivered the said certificates to Caltex in connection to his purchase of fuel products of the latter.
After that, Angel Dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch Manager of Security Bank,
that he lost all the certificates of time deposit and upon his submission of a notarized affidavit of loss a
replacement for the said certificates was issued.
Subsequently, Dela Cruz negotiated and obtained a loan from Security Bank by executing a Deed of
Assignment in favor of the latter. Then, on November 26, 1982 Security Bank received a letter from
Caltex formally informing it of its possession of the Certificate of Time Deposits and its decision to pre-
terminate the same. However, when the former requested the copy of the document evidencing the
guarantee agreement with “Dela Cruz" as well as the details of his obligation against which Caltex
proposed to apply the said deposits the latter failed do so. Therefore the bank rejected its demand and
claim for payment of the value of the said certificates.
Then Caltex filed a complaint against the bank but the trial court dismissed the case. On appeal, the Court
of Appeals affirmed the dismissal of the complaint.

ISSUE:
Whether or not the certificates of time deposits (CTDs) are negotiable instruments?

HELD:
Yes. The Court held that the Certificate of Time deposits are negotiable instruments as it undoubtedly
meet the requirements of the law for negotiability as provided under Section 1 of the Law on Negotiable
instruments which provide that, an instrument to be negotiable it must conform to certain requirements,
hence, (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 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. In the construction of a bill or note, the intention of
the parties is to control, if it can be legally ascertained. While the writing may be read in the light of
surrounding circumstance 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 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.
In this case, the documents provide that the amounts deposited shall be repayable to the depositor and
according to the document, the depositor 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, whoever may be the bearer at the
time of presentment. However, Caltex cannot recover on the Certificate of Time Deposits as there is no
valid negotiation thereof for the true purpose and agreement between the latter and Dela Cruz because the
said certificates were delivered not as payment but as a security for Dela Cruz' fuel purchases.
 TRADERS ROYAL BANK VS COURT OF APPEALS
GR No. 93397

FACTS:
Filriters Guaranty Assurance Corporation executed a “Detached Assignment” to transfer and assign all its
rights and title to Central bank Certificates of Indebtedness to Philippine Underwriters Finance
Corporation (Philifinance). Through the said assignment Filriters irrevocably authorized Central Bank to
transfer the said certificates on the books of its fiscal agent. Subsequently, Philfinance entered into
repurchase agreement with Traders Royal Bank (TRB) and transferred the aforementioned certificates to
the latter however, the former failed to repurchase it on the agreed date of maturity. As agreed upon
Philfinance executed a Detached Assignment in favor of TRB transferring all its rights and title to the
central bank certificate of indebtedness but when the latter requested the issuance of a new certificate in
its name as absolute owner the Central bank failed and refused to do so even though TRB substantially
complied with the requirements governing the transfer of the said certificate.
Upon filing a complaint the Regional Trial Court of Manila found the successive assignments null and
void and has no effect. The Court of Appeals affirmed the Decision of the RTC because Alfredo O.
Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters, did not have the
necessary written authorization from the Board of Directors of Filriters to act for the latter.

ISSUE:
Whether or not the Central Bank Certificate of Indebtedness is negotiable

RULING:
No the Central Bank Certificate of Indebtedness is not a negotiable instrument, since the instrument
clearly stated that it was payable to Filriters, and the certificate lacked the words of negotiability which
serve as an expression of consent that the instrument may be transferred by negotiation. And before the
instrument become negotiable it must conform to the following requirements of Negotiable Instruments
Law: (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 language of negotiability which characterize a negotiable paper as a credit instrument is its freedom
to circulate as a substitute for money. Hence, freedom of negotiability is the touchtone relating to the
protection of holders in due course, and the freedom of negotiability is the foundation for the protection
which the law throws around a holder in due course. This freedom in negotiability is totally absent in a
certificate indebtedness as it merely to pay a sum of money to a specified person or entity for a period of
time.
As held in Caltex (Philippines), Inc. v. Court of Appeals, 16:
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. In the construction of a bill or note, the intention of
the parties is to control, if it can be legally ascertained. While the writing may be read in the light of
surrounding circumstance 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 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.
Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not
governed by the negotiable instruments law.
 JUANITA SALAS vs COURT OF APPEALS
GR NO. 76788

FACTS:

On February 6, 1980, Juanita Salas bought a motor vehicle from the Violago Motor Sales Corporation for
P58,138.20 as evidenced by a promissory note. This note was subsequently endorsed to Filinvest Finance
& Leasing Corporation which financed the purchase. However, Salas defaulted in her installments due to
alleged discrepancy in the engine and chassis numbers of the vehicle delivered to her and those indicated
in the sales invoice, certificate of registration and deed of chattel mortgage, which fact she discovered
when the vehicle figured in an accident.
Subsequently the Filinvest Finance & Leasing Corporation filed a civil action for collection of sum of
money against Salas before the Regional Trial Court of San Fernando Pampanga. In its decision dated
September 10, 1982, the trial court ordered Salas to pay Filinvest Finance the sum of P28,414.40 with
interest thereon at the rate of 14% from October 2, 1980 until the said sum is fully paid. Upon appeal the
decision of the RTC was affirmed by the Court of Appeals with modification to the amount of the
obligation.

Issue:
Whether or not the promissory note is a negotiable instrument

Ruling:
Yes, it is a negotiable instrument, having complied with the requisites under the law as follows: [a] it is in
writing and signed by the maker Juanita Salas; [b] it contains an unconditional promise to pay the amount
of P58,138.20; [c] it is payable at a fixed or determinable future time which is "P1,614.95 monthly for 36
months due and payable on the 21 st day of each month starting March 21, 1980 thru and inclusive of
Feb. 21, 1983;" [d] it is payable to Violago Motor Sales Corporation, or order and as such, [e] the drawee
is named or indicated with certainty.
It was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest
Finance and Leasing Corporation and it is an indorsement of the entire instrument.
Under the circumstances, there appears to be no question that Filinvest is a holder in due course, having
taken the instrument under the following conditions: [a] it is complete and regular upon its face; [b] it
became the holder thereof before it was overdue, and without notice that it had previously been
dishonored; [c] it took the same in good faith and for value; and [d] when it was negotiated to Filinvest,
the latter had no notice of any infirmity in the instrument or defect in the title of VMS Corporation.
Accordingly, Filinvest holds the instrument free from any defect of title of prior parties, and free from
defenses available to prior parties among themselves, and may enforce payment of the instrument for the
full amount thereof. This being so, petitioner cannot set up against respondent the defense of nullity of
the contract of sale between her and VMS.
 HONGKONG & SHANGHAI BANKING VS
COMMISSIONER OF INTERNAL REVENUE
GR NO. 166018

FACTS:

HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which are managed
by HSBC through instructions given through electronic messages. The said instructions are standard
forms known in the banking industry as SWIFT, or "Society for Worldwide Interbank Financial
Telecommunication." In purchasing shares of stock and other investment in securities, the investor-clients
would send electronic messages from abroad instructing HSBC to debit their local or foreign currency
accounts and to pay the purchase price therefor upon receipt of the securities. Pursuant to the electronic
messages of its investor-clients, HSBC purchased and paid Documentary Stamp Tax (DST) from
September to December 1997 and also from January to December 1998 amounting to ₱19,572,992.10 and
₱32,904,437.30.

Subsequently, the Commissioner of Bureau of Internal Revenue Beethoven Rualo, issued a ruling to the
effect that instructions or advises from abroad on the management of funds located in the Philippines
which do not involve transfer of funds from abroad are not subject to DST. In view of the said ruling
HSBC filed an administrative claim for the refund of the amount of ₱19,572,992.10 and ₱32,904,437.30
allegedly representing erroneously paid DST to the BIR for the period covering September 1997 to
December 1998.

As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the matter to the
Court of Tax Appeals which ruled that HSBC is entitled to a tax refund or tax credit because Sections 180
and 181 of the 1997 Tax Code do not apply to electronic message instructions transmitted by HSBC’s
non-resident investor-clients. However, the Court of Appeals reversed the decision of the CTA and ruled
that the electronic messages of HSBC’s investor-clients are subject to DST

ISSUE:

Whether or not the electronic messages are considered transactions pertaining to negotiable instruments
that warrant the payment of DST

RULING:

NO, the electronic messages "cannot be considered negotiable instruments as they lack the feature of
negotiability, which, is the ability to be transferred" and that the said electronic messages are "mere
memoranda" of the transaction consisting of the "actual debiting of the investor-client-payor’s local or
foreign currency account in the Philippines" and "entered as such in the books of account of the local
bank," HSBC. Furthermore, they do not comply with the requisites of negotiability under Section 1 of the
Negotiable Instruments Law because The electronic messages are not signed by the investor-clients as
supposed drawers of a bill of exchange; they do not contain an unconditional order to pay a sum certain in
money as the payment is supposed to come from a specific fund or account of the investor-clients; and,
they are not payable to order or bearer but to a specifically designated third party. Thus, the electronic
messages are not bills of exchange. As there was no bill of exchange or order for the payment drawn
abroad and made payable here in the Philippines, there could have been no acceptance or payment that
will trigger the imposition of the DST under Section 181 of the Tax Code.
 PHILIPPINE NATIONAL BANK vs.
SPS. ERLANDO and NORMA RODRIGUEZ
G.R. No. 170325

FACTS:

Spouses Erlando and Norma Rodriguez were clients of Philippine National Bank (PNB), Amelia Avenue
Branch, Cebu City. The spouses were engaged in the informal lending business where they had a
discounting arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an
association of PNB employees. As customary they would replace the post-dated checks with their own
checks issued in the name of the members.

One of PEMSLA’s policy is not to approve applications for loans of members with outstanding debt but
some of PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan
accounts. They took out loans in the names of unknowing members, without the knowledge or consent of
the latter. In which the spouses issued their personal checks in the name of the members and delivered the
checks to the officer of PEMSLA. The said checks were deposited by the spouses to their account while,
their checks were deposited directly by PEMSLA to its savings account without any indorsement from the
named payees. This irregular procedure was possible through the facilitation of Edmundo Palermo, Jr.,
treasurer of PEMSLA and bank teller in the PNB Branch however, PNB eventually found out the said
scheme therefore, it closed the current account of PEMSLA.

As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the reason
"Account Closed." However, the checks of the spouses were deposited as usual to the PEMSLA savings
account and were duly debited from the account of the spouses. Thus, the latter incurred losses from the
rediscounting transactions.

Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil complaint for damages
against PEMSLA, the Multi-Purpose Cooperative of Philnabankers and PNB assailing that the latter
violated its contractual obligation to them as depositors as it paid the wrong payees. After trial, the RTC
rendered judgment in favor of spouses Rodriguez. Upon appeal, the Court of Appeals reversed and set
aside the said decision as it found that the checks were bearer instruments, thus they do not require
indorsement for negotiation; and that spouses Rodriguez and PEMSLA conspired with each other to
accomplish this money-making scheme. The payees in the checks were "fictitious payees" because they
were not the intended payees at all.

ISSUE:

Whether or not the subject checks are payable to order or to bearer and who bears the loss

RULING:

The said checks are payable to order because when the payee is fictitious or not intended to be the true
recipient of the proceeds, the check is considered as a bearer instrument. A check is a bill of exchange
drawn on a bank payable on demand. It is either an order or bearer instrument. The distinction between
bearer and order instruments lies in their manner of negotiation. Under Section 30 of the Negotiable
Instrument Law, an order instrument requires an indorsement from the payee or holder before it may be
validly negotiated. A bearer instrument, on the other hand, does not require an indorsement to be validly
negotiated. It is negotiable by mere delivery.

A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the
NIL, a check payable to a specified payee may nevertheless be considered as a bearer instrument if it is
payable to the order of a fictitious or non-existing person, and such fact is known to the person making it
so payable.

US jurisprudence yields that an actual, existing, and living payee may also be fictitious if the maker of the
check did not intend for the payee to in fact receive the proceeds of the check and the check is a bearer
instrument. The bank, as drawee, was authorized to make payment to the bearer of the check, regardless
of whether prior indorsements were genuine or not.
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss.
The underlying theory is that one cannot expect a fictitious payee to negotiate the check by placing his
indorsement thereon.