G.R. No.

L-15380 September 30, 1960 determine if he is indeed entitled to payment based on some other transactions
involving those checks.
CHAN WAN, plaintiff-appellant,
vs.
TAN KIM and CHEN SO, defendants-appellees.

Tan Kim and her husband (Chen So) issued 11 checks payable to ―cash or bearer‖
to be drawn against their account with the Equitable Banking Corporation. The
checks were negotiated to the White House Shoe Supply (company). White House
then deposited the checks to their ChinaBank account. China Bank then presented
the checks to Equitable Bank but the checks were returned because Equitable Bank
then had no funds to cover the checks. China Bank then stamped the checks with
“Account Closed” and “Non-negotiable – China Bank Corporation”.

But somehow, Chan Wan got hold of these checks (Chan Wan was not able to
explain in court how he got hold of the checks). Chan Wan now wants to encash
the checks but Equitable Bank refused accept the said checks.

ISSUE:

Whether or not Chan Wan is a holder in due course.

HELD:

No. As a general rule, a dishonored check/instrument may still be negotiated either

by indorsment or delivery and the holder may be a holder in due course provided
that he received no notice regarding the dishonor of the instrument. In this case,
the checks were already crossed on their face hence Chan Wan was properly
notified of the dishonor of the checks at the time of his acquisition.

But may Chan Wan still recover?

Yes. The Negotiable Instruments Law does not provide that a holder who is not a
holder in due course, may not in any case, recover on the instrument. The holder
may recover directly from the drawee, in this case Tan Kim and Chen So, unless the
drawees have a valid excuse in refusing payment. The only disadvantage of a holder
who is not a holder in due course is that the negotiable instrument is subject to
defense as if it were non- negotiable. The case was remanded to the lower court
for a proper determination as to how Chan Wan acquired the checks and to
GSIS v. Court of Appeals [G.R. No. L-40824. February 23, 1989]

FACTS

Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the spouses Mr.
and Mrs. Flaviano Lagasca, executed a deed of mortgage, in favor of petitioner
Government Service Insurance System (GSIS) and subsequently, another deed of
mortgage, in connection with two loans granted by the latter in the sums of P
11,500.00 and P 3,000.00, respectively. A parcel of land co-owned by said
mortgagor spouses, was given as security under the aforesaid two deeds. They also
executed a ‘promissory note” which states in part:

… for value received, we the undersigned … JOINTLY, SEVERALLY and SOLIDARILY,

promise to pay the GOVERNMENT SERVICE INSURANCE SYSTEM the sum of . . . (P
11,500.00) Philippine Currency, with interest at the rate of six (6%) per centum
compounded monthly payable in . . . (120)equal monthly installments of . . . (P
127.65) each.

Both parties relied on the provisions of Section 29 of Act No. 2031, otherwise
known as the Negotiable Instruments Law, which provide that an accommodation
party is one who has signed an instrument as maker, drawer, acceptor of indorser
without receiving value therefor, but is held liable on the instrument to a holder
for value although the latter knew him to be only an accommodation party.

ISSUE:

Whether or not the executed promissory note is a negotiable instrument.

RULING:

NO. The promissory note hereinbefore quoted, as well as the mortgage deeds
subject of this case, are clearly not negotiable instruments. These documents do
not comply with the fourth requisite to be considered as such under Section 1 of
Act No. 2031 because they are neither payable to order nor to bearer. The note is
payable to a specified party, the GSIS. Absent the aforesaid requisite, the provisions
of Act No. 2031 would not apply; governance shall be afforded, instead, by the
provisions of the Civil Code and special laws on mortgages.
GOVERNMENT SERVICE INSURANCE SYSTEM vs. COURT OF APPEALS G.R. No. L-
40824, February 23, 1989
Fact:
Private respondents, together with the spouses Lagasca, executed a deed of
mortgage, in favor of petitioner GSIS of deed of mortgage. A parcel of land co-
owned by said mortgagor spouses Lagasca and Private respondents was given as
security under the aforesaid deed. Lagasca executed an instrument denominated
“Assumption of Mortgage” under which they obligated themselves to assume the
aforesaid obligation to the GSIS and to secure the release of the mortgage covering
that portion of the land belonging to herein private respondents and which was
mortgaged to the GSIS. This undertaking was not fulfilled, GSIS extrajudicially
foreclosed the mortgage and caused the mortgaged property to be sold at public
auction. Private respondents filed a complaint against the petitioner and the
Lagasca spouses in the CFI praying to declared the extrajudicially foreclosed of GSIS
of their property is null and void. The trial court dismissed the complaint for failure
to establish a cause of action. Said decision was reversed by the respondent Court
of Appeals, Hence this case.
Issue:
Whether the transaction of the parties was covered by the Negotiable Instruments
Law?
Held:
No, the promissory note hereinbefore quoted, as well as the mortgage deeds
subject of this case, are clearly not negotiable instruments. These documents do
not comply with the fourth requisite to be considered as such under Section 1 of
Act No. 2031 because they are neither payable to order nor to bearer. The note is
payable to a specified party, the GSIS. Absent the aforesaid requisite, the provisions
of Act No. 2031 would not apply; governance shall be afforded, instead, by the
provisions of the Civil Code and special laws on mortgages.
KAUFFMAN vs THE PHILIPPINE NATIONAL BANK G.R. No. 16454, September
29, 1921
Fact:
Plaintiff, President of Philippine Fiber and Produce Company was entitled to
dividend from the said company. The treasurer of the company Cabled transfer the
said dividends through Respondent bank to New York, then upon the confirmation
the New York branch of the receipt of the funds, communicated the said receipt to
the plaintiff informing the availability of the fund. Subsequently, the respondent
bank decided to withhold the said funds denying the plaintiff of its access. The
plaintiff questioned the action of the respondent in the court. The respondent
argued that the plaintiff has not cause of action because he is not a party in the
contract of transferring funds and the transaction will not fall under the provisions
of the Negotiable Instrument Law.
Issue:
Whether the plaintiff has cause of action in with respect to the Negotiable
Instrument Law?
Held:
No, the plaintiff has no cause of action with respect only to the Negotiable
Instrument Law. The transaction of the Respondent and the Philippine Fiber and
Produce Company is not a negotiable Instrument. The provisions of the Negotiable
Instruments Law can come into operation there must be a document in existence
of the character described in section 1 of the Law; and no rights properly speaking
arise in respect to said instrument until it is delivered. In this case there was an
order, it is true, transmitted by the defendant bank to its New York branch, for the
payment of a specified sum of money to George A. Kauffman. But this order was
not made payable “to order or “to bearer,” as required in subsection (d) of that
Act; and inasmuch as it never left the possession of the bank, or its representative
in New York City, there was no delivery in the sense intended in section 16 of the
same Law. In this connection it is unnecessary to point out that the official receipt
delivered by the bank to the purchaser of the telegraphic order, and already set
out above, cannot itself be viewed in the light of a negotiable instrument, although
it affords complete proof of the obligation actually assumed by the bank.
Borromeo vs Sun
G.R. No. 75908. October 22, 1999
PURISIMA, J
At bar is a Petition for review on Certiorari under Rule 45 of the Revised Rules of
Court seeking to set aside the Resolution of the then Intermediate Appellate
Court, which reversed its earlier Decision setting aside the Decision of the former
Court of the First Instance of Rizal.
Facts:
Amancio Sun brought before the then Court of the First Instance of Rizal an action
against Lourdes O. Borromeo (in her capacity as corporate secretary), Federico O.
Borromeo and Federico O. Borromeo (F.O.B.), Inc., to compel the transfer to his
name in the books of F.O.B., Inc., shares of stock registered in the name of Federico
O. Borromeo, as evidenced by a Deed of Assignment. Private respondent averred
that all the shares of stock of F.O.B. Inc. registered in the name of Federico O.
Borromeo belong to him, as the said shares were placed in the name of Federico
O. Borromeo 'only to give the latter personality and importance in the business
world.' On the other hand, petitioner Federico O. Borromeo disclaimed any
participation in the execution of the Deed of Assignment, theorizing that his
supposed signature thereon was forged.
The lower court of origin came out with a decision declaring the questioned
signature on subject Deed of Assignment as the genuine signature of Federico O.
Borromeo. After considering the testimonies of the two expert witnesses for the
parties and after a careful and judicious study and analysis of the questioned
signature as compared to the standard signatures. On appeal by petitioners, the
Court of Appeals adjudged as forgery the controverted signature of Federico O.
Borromeo. Amancio Sun interposed a motion for reconsideration of the said
decision, contending that Segundo Tabayoyong, petitioners' expert witness, is not
a credible witness. Acting on the aforesaid motion for reconsideration, the Court
of Appeals reconsidered its decision.
Issue: WON the signature of Frederico O. Borromeo in the Deed of Assignments is
a genuine signature.
Held:
Pertinent records reveal that the subject Deed of Assignment is embodied in blank
form for the assignment of shares with authority to transfer such shares in the
books of the corporation. It was clearly intended to be signed in blank to facilitate
the assignment of shares from one person to another at any future time. This is
similar to Section 14 of the Negotiable Instruments Law where the blanks may be
filled up by the holder, the signing in blank being with the assumed authority to do
so. Indeed, as the shares were registered in the name of Federico O. Borromeo just
to give him personality and standing in the business community, private
respondent had to have a counter evidence of ownership of the shares involved.
Thus, the execution of the deed of assignment in blank, to be filled up whenever
needed. The same explains the discrepancy between the date of the deed of
assignment and the date when the signature was affixed thereto.
While it is true that the 1974 standard signature of Federico O. Borromeo is to the
naked eye dissimilar to his questioned signature circa 1954-1957, which could have
been caused by sheer lapse of time, Col. Jose Fernandez, respondent's expert
witness, found the said signatures similar to each other after subjecting the same
to stereomicroscopic examination and analysis because the intrinsic and natural
characteristic of Federico O. Borromeo's handwriting were present in all the
exemplar signatures used by both Segundo Tabayoyong and Col. Jose Fernandez.
Sesbreño v. Court of Appeals [G.R. No. 89252. May 24, 1993]
FACTS
Petitioner Raul Sesbreño made a money market placement in the amount of
P300,000.00 with the Philippine Underwriters Finance Corporation (“Philfinance”).
The latter issued a Certificate of Confirmation of Sale “without recourse” from
Delta Motors Corporation Promissory Note, a Certificate of securities indicating the
sale to petitioner, with the notation that the said security was in custodianship of
Pilipinas Bank, andpost-dated checks payable with petitioner as payee, Philfinance
as drawer. Petitioner approached private respondent Pilipinas Bank and handed
her a demand letter informing the bank that his placement with Philfinance had
remained unpaid and outstanding, and that he in effect was asking for the physical
delivery of the underlying promissory note. Pilipinas did not deliver the Note, nor
any certificate of participation in respect thereof, to petitioner.

ISSUES

(a) Whether or not Pilipinas Bank is liable for its action.

(b)Whether or not non-negotiable instruments are transferrable.

RULING

(1) YES. Private respondent Pilipinas bank is liable for damages plus legal interest
thereon 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.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. 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 Sesbreño.

(2) YES. 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. It is important to bear in mind that
the negotiation of a negotiable instrument must be distinguished from
the assignment 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.