1 instrument.
If B purchases an overdue
Chan Wan vs Tan Kim
Facts:
11 checks payable to “cash or bearer” were
drawn by Tan Kim and her husband upon the
Equitable Banking Corporation and were then
issued to Pinong and Muy for some shoes they
had promised to make and “were intended as
mere receipts.”
Out of 11 checks, 8 bear across their face 2
parallel lines between the words written: non-
negotiable - China Banking Corporation. The
checks were presented by Chan Wan to the
drawee bank for payment himself.
Without any explanation on how Chan Wan got
the checks, the lower court held him not a holder
in due course since he knew that upon taking
them up, such checks had already been
dishonored.
Issue:
Whether or not Chan Wan has a right to collect
even if he is not a holder in due.
Held:
Chan Wan has a right to collect even if he is not
a holder in due course. The Negotiable
Instruments Law regulating the issuance of
negotiable checks, the rights and the liabilities
arising therefrom, does not mention “crossed
checks.” Art. 541 of the Code of Commerce
refers to such instruments which states that,
“The maker or any legal holder of a check shall
be entitled to indicate therein that it be paid to
certain banker or institution, which he shall do
by writing across the face the name of said
banker or institution, or only the words ‘and
company.’ The payment made to a person other
than the banker or institution shall not exempt
the person on whom it is drawn, if the payment
was not correctly made.”
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
negotiable promissory note signed by A, he is
not a holder in due course; but he may recover
from A, if the latter has no valid excuse for
refusing payment. The only advantage of holder
who is not a holder in due course is that the
negotiable instrument is subject to defense as if
it were non-negotiable.
2
Metropolitan Bank and Trust Company vs
CA
Facts:
In 1979, Eduardo Gomez opened an account
with Golden Savings and deposited over a
period of 2 months 38 treasury warrants which
were all drawn by the Philippine Fish Marketing
Authority. 6 of these were payable to Gomez.
All the warrants were subsequently indorsed by
Gloria Castillo, Cashier of Golden Savings, and
deposited to its Savings Account in Metrobank.
All of the warrants were sent for clearing, thus,
withdrawal was not allowed yet; but due to the
repeated inquiries of Gloria on whether the
warrants had been cleared, Metrobank allowed
Golden Savings to withdraw 3 times and Gomez
was subsequently then allowed by Golden
Savings to withdraw as well. However, when the
warrants were dishonored by the Bureau of
Treasury, Metrobank demanded a refund for the
amounts withdrawn.
Issue:
1) Can Metrobank, a mere collecting agent, not
be held liable?
2) Were the treasury warrants non-negotiable?
Held:
1) Yes, it can. 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, “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.
3) Yes, they were. 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 (e) where
the instrument is addressed to a drawee, he
must be named or otherwise indicated
therein with reasonable certainty.” 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 judgement. 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.
3
Kauffman vs PNB
Facts:
George A. Kauffman, a president of a domestic
corporaion engaged in the exportation of hemp
from Philippines and known as the Philippine
Fiber and Produce Company, of which he held
in his own right nearly the entire issue of capital
stock. In 1918, he was entitled to the sum of
P98,000.00.
In this connection, George B. Wicks, treasurer
of the Philippine Fiber and Produce Company,
presented himself in the exchange department of
the Philippine National Bank and requested a
telegraphic transfer of $45,000.00 should be
made to Kauffman. Wicks then informed
Kauffman that the $45,000.00 had been placed
to his credit in the New York agency of the
Philippine National Bank (PNB); however,
when Kauffman presented himself and
demanded the money, the payment was refused
due to the message from PNB to withhold the
said payment.
Issue:
1) Under the Negotiable Instruments Law, can
Kauffman maintain an action against the
bank for the non-performance of said
undertaking?
4) How about under the Civil Code?
Held:
1) No, he cannot. The question thus placed
before us is one purely of law; and at the
very threshold of the discussion it can be
stated that the provisions of the Negotiable
Instruments Law can come into operation
 there must be a document in existence of the
character described in Sec. 1 of the Law;
and no rights properly speaking arise in
respect to said instrument until it is
delivered. In the case before us 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 Sec. 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 obligation actually assumed by the
bank.
5) Yes, he can. The only express provision of
law has been cited as bearing directly on this
question is the second paragraph of Art.
1257 of the Civil Code; and unless the
present action can be maintained under the
provision, the plaintiff admittedly has no
case. This provision states an exception to
the more general rule expressed in the first
paragraph of the same article to the effect
that contracts are productive of effects only
between the parties who execute them; and
in harmony with this general rule are
numerous decisions of this court. The
paragraph introducing the exception which
we are now to consider is in these words:
“Should the contract contain any stipulation
in favor of a third person, he may demand its
fulfillment, provided he has given notice of
his acceptance to the person bound before
the stipulation has been revoked.
4 comply with the 4th requisite to be considered as
GSIS vs CA
Facts:
2 mortgages made together by Spouses Racho
and Spouses Lagasca in favor of the
Government Service Insurance System (GSIS)
amounting to P11,500.00 and P3,000.00 were
secured by a parcel of land co-owned by the
mortgagors; then a promissory note jointly,
severally and solidarily payable to GSIS was
later on executed.
Spouses Lagasca, subsequently, executed an
“Assumption Mortgage” in favor of GSIS in
order to secure the release of the parcel of land
covered by the mortgage. However, GSIS
extrajudicially foreclosed the mortgage and
caused the property to be sold at a public auction
due to their failure in complying with the
conditions of the mortgage.
About 2 years passed, Spouses Racho filed
against GSIS and Spouses Lagasca, praying for
the extrajudicial foreclosure to be null and void.
Also, they allege that they signed the mortgage
contracts not as sureties for Spouses Lagasca but
merely as an accommodation party.
Issue:
Were the promissory note and mortgage deeds
negotiable?
Held:
No, they were not. 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.
Both parties appears to be misdirected and their
reliance misplaced. The promissory note
hereinafter quoted, as well as the mortgage
deeds subject of this case, are clearly not
negotiable instruments. These documents do not
such under Section 1 of Act No. 2031 because
they are neither payable to order not 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.
5 Facts:
Tibajia vs CA
Facts:
Spouses Tibajia, who had a suit for collection of
a sum of money filed by Eden Tan, delivered to
Deputy Sheriff Eduardo Bolima the total money
judgement in the form of a cashier’s check and
cash. Eden Tan refused the payment made by
Spouses Tibajia and instead insisted that the
garnished funds deposited with the cashier of the
Regional Trial Court (RTC) be withdrawn to
satisfy the judgement obligation.
Issue:
Whether or not payment by means of check is
considered payment in legal tender.
Held:
Payment by means of check is not considered
payment in legal tender. From the aforequoted
provisions of law, it is clear that this petition
must fail. In the recent cases of Philippine
Airlines, Inc. vs. Court of Appeals and Roman
Catholic Bishop of Malolos, Inc. vs.
Intermediate Appellate Court, this Court held
that - 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. The ruling in these 2
cases merely applies the statutory provisions
which lay down the rule that a check is not legal
tender and that a creditor may validly refuse
payment by check, whether it be a manager’s,
cashier’s or personal check. In the more recent
case of Fortunado vs. Court of Appeals, this
Court stressed that, “We are not, by this
decision, sanctioning the use of a check for the
payment of obligations over the objection of the
creditor.”
6
PAL vs CA
Amelia Tan filed a Writ of Execution, which
was referred to Deputy Sheriff Emilio Z. Reyes,
under the name and style of Able Printing Press
against Philippine Airlines, inc. (PAL). Later on,
Tan moved for the issuance of an Alias Writ of
Execution stating that the judgement was still
unsatisfied. PAL opposed the issuance of the
said writ stating that it had fully paid its
obligation through Reyes, as evidenced by cash
vouchers properly signed and receipted by
Reyes. The Court of Appeals then denied the
said writ and ordered the executing Reyes to
appear and return. However, such order was not
served upon Reyes who absconded or
disappeared.
Afterwards, PAL received a copy of the first
Alias Writ of Execution. Tan then made an
extra-judicial demand through a letter. PAL filed
an Urgent Motion to Quash the Alias Writ of
Execution stating that no return of the writ was
made by Reyes and that the judgement debt had
already been fully satisfied.
Issue:
Was the judgement debt fully satisfied?
Held:
No, it was not. Under Art. 1249 of the Civil
Code, it provides that, “The payment of debts in
money shall be made in the currency stipulated,
and if it is not possible to deliver such currency,
then in the currency which is legal tender in the
Philippines. The 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.” In the absence of an
agreement, either express or implied, payment
means the discharge of a debt or obligation in
money and unless the parties so agree, a debtor
has no rights, except at his own peril, to
substitute in lieu of cash as medium of payment
of his debt. Consequently, unless authorized to
do so by law or by consent of the obligee a
public officer has no authority to accept
anything other than money in payment of an
obligation under a judgement being executed.
Strictly speaking, the acceptance by the sheriff
of the petitioner’s checks, in the case at bar, does
not, per se, operate as a discharge of the
judgement debt.
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 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
judgement. The obligation is not extinguished
and remains suspended until the payment by
commercial document is actually realized.
7 by the maker, engaging to pay on demand, or at
Rodrigo Rivera vs Spouses Salvador and
Violeta Chua
Facts:
Rivera, the godfather of Spouses Chua’s son and
a kumpadre of Salvador, obtained a loan of
P120,000.00, with interest upon default of
payment, from Spouses Chua. Almost 3 years
from the date of payment stipulated in the
promissory note, Rivera issued and delivered, on
different dates, 2 separate checks as partial
payment of the loan. The second check had
“cash” as payee. When Spouses Chua presented
the checks, both were dishonored due to
“account closed.”
Spouses Chua alleged to have demanded for
payment repeatedly but to no avail; however,
Rivera opposed, claimed for forgery and
declared that he delivered the check with a blank
space for the amount. The 2 agreed to fill
P1,300.00 for payment; however, Salvador
wrote P133,454.00.
Issue:
Whether or not the provisions of the Negotiable
Instruments Law (NIL) apply.
Held:
The provisions of the NIL do not apply. Sec.1 of
the NIL requires the concurrence of the
following elements to be a negotiable
instrument: (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.
On the other hand, Sec. 184 of the NIL defines
what negotiable promissory note is: A
negotiable promissory note within the meaning
of this Act is an unconditional promise in
writing made by one person to another, signed
a fixed or determinable future time, a sum
certain in money to order or to bearer. Where a
note is drawn to the maker’s own order, it is not
complete until indorsed by him.
The Promissory Note in this case is made out to
specific persons, herein respondents, the
Spouses Chua, and not to order or to bearer, or
to the order of the Spouses Chua as payees.
However, even if Rivera’s Promissory Note is
not a negotiable instrument and therefore outside
the coverage of Sec. 70 of the NIL which
provides that presentment for payment is not
necessary to charge the person liable on the
instrument. Rivera is still liable under the terms
of the Promissory Note that he issued.
8
Benjamin Abubakar vs The Auditor General
Facts:
Benjamin Abubakar filed against the Auditor
General for refusing to authorize the payment of
Treasury Warrant for P1,000.00 which was
issued in favor of Placido S. Urbanes, a
disbursing officer of the Food Administration,
but is now in his hands. The Auditor gave 2
reasons for his refusal: (1) the money available
for redemption of treasury warrants issued
before January 2, 1942, is appropriated by R.A.
No. 80 and such does not come within the
purview of said appropriation; and (2) the
requirements of his office had not been
complied with.
Abubakar argued 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.
Issue:
Does the Negotiable Instruments Law (NIL)
apply?
Held:
No, it does not. The treasury warrant is not
within the scope of the NIL. 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.
9
Philippine Education Company Inc. vs
Mauricio A. Soriano
Facts:
Enrique Montinola sought to purchase 10 money
orders of P200.00, each payable to him, from the
Manila Post Office. He offered to pay them with
private checks but such were not accepted since,
generally, it is to be paid in money. The teller
advised him to see the Mauricio A. Soriano,
Chief of the Money Order Division, but instead
of doing so, he left the building with his checks
and the 10 money orders without the knowledge
of the teller.
All postmasters and banks were immediately
informed not to pay anyone with such money
order. The Bank of America was notified 3 days
after. One worth P200.00 was received by the
Philippine Education Company, Inc. as part of
its sales receipts and was deposited in the Bank
of America.
Soriano and Postmaster Enrico Palomar notified
the Bank of America that the money order had
been found to be irregularly issued and that the
amount it represented had been deducted from
the bank’s clearing account. Eventually, the
Bank of America debited the account with the
same amount and gave it advice by means of
debit memo.
The Philippine Education Company Inc. then
requested to reconsider the action taken by his
office deducting the sum from the clearing
account of the Bank of America, but his request
was denied. Thus, they filed against them and
stated that postal money orders are negotiable
instruments that such is not affected by the letter
signed by the Director of Posts and that once
money orders are issued, a contractual
relationship of debtor and creditor is created.
Issue:
Whether or not postal money orders are
negotiable instruments?
Held:
Postal money orders are not negotiable
instruments. 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 to the public
benefit.
It is to be noted in this connection that some of
the restrictions imposed upon money orders may
be withheld under a variety of circumstances.
10
Consolidated Plywood Industries, Inc. et al vs
IFC Leasing and Acceptance Corporation
Facts:

Petitioner-corporation, engaged in a logging
business and in need of 2 additional units of
tractors, executed a promissory note for 2 used
Allis Crawler Tractors from Industrial Products
Marketing through Wee and Vergara, president
and vice-president, after the seller conducted an
inspection of the areas to be worked on and
offered warrants and future repairs within a
specified period to assure the petitioner that the
said tractors were fit for the job.
14 days passed after delivery, 1 of the tractors
broke down and then followed by the other after
9 days. The petitioner informed the seller and
such seller sent his mechanics to fix the 2
tractors; however, after fixing the 2 tractors,
they were no longer serviceable for its purpose.
The petitioners asked the seller to have the
tractors reconditioned and thereafter offer them
for sale, but no reply was given. Thus, the
petitioners filed for recovery.
On the other hand, the respondent, in its
comment to the petition, contended that the
petition was filed out of time; that the
promissory note is a negotiable instrument
and respondent a holder in due course; that
respondent is not liable for any breach of
warranty; and finally, that the promissory
note is admissible in evidence.
Issue:
Whether or not the promissory note was a
negotiable instrument.
Held:
No, it was not. Considering that paragraph (d) of
Sec. 1 of the Negotiable Instruments Law (NIL)
requires that a promissory note “must be payable
to order or bearer,” it cannot be denied that the
promissory note in question is not a negotiable
instrument.
There are only 2 ways by which an instrument
may be made payable to order. There must
always be a specified person named in the
instrument. It means that the bill or note is to be
paid to the person designated in the instrument
or to any person to whom he has indorsed and
delivered the same. Without the words “or
order” or “to the order of,” the instrument is
payable only to the person designated therein
and is therefore non-negotiable. Any subsequent
purchaser thereof will not enjoy the advantages
of being designated in the instrument and will
thus be open to all defenses available against the
latter.”
In the like manner, therefore, even assuming that
the subject promissory note is negotiable the
respondent, a financing company which actively
participated in the sale on installment of the
subject 2 Allis Crawler tractors, cannot be
regarded as a holder in due course of said note.
It follows that the respondent’s rights under the
promissory note involved in this case are subject
to all defenses that the petitioners have against
the seller-assignor, Industrial Products
Marketing. For Sec. 58 of the NIL provides that
“in the hands of any holder other than a holder
in due course, a negotiable instrument is subject
to the same defenses as if it were non-
negotiable....”
Sec. 52 of NIL provides what constitutes a
holder in due course - A holder in due course is
a holder who has taken the instrument under the
following conditions: xxx (c) that he took it in
good faith and for value; xxx (d) that the time it
was negotiated by him he had no notice of any
infirmity in the instrument of defect in the title
of the person negotiating it.
Also, Sec. 56 of NIL provides what constitutes
notice of defect - To constitute notice of an
infirmity in the instrument or defect in the title
of the person negotiating the same, the person to
whom it is negotiated must have had actual
knowledge of the infirmity or defect, or
knowledge of such facts that his action in taking
the instrument amounts to bad faith.
11
Ang Tek Lian vs CA
Facts:

Ang Tek Lian was convicted of estafa when he
drew a check, knowing he had no funds, upon
the China Banking Corporation for the sum of
P4,000.00 payable to the order of “cash.” He
delivered the check to Lee Hua Hong in
exchange for money which the latter handed;
however, when Lee Hua Hong presented the
check, it was dishonored due to insufficiency of
funds of a balance deposit of P335.00.
It is argued, however, that the check had not
been indorsed by Ang Tek Lian, thus, 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.”
Issue:
Whether or not indorsement of the drawer is
essential before honoring a check payable to
“cash.”
Held:
Indorsement is not essential. Under the
Negotiable Instruments Law (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
drawer’s indorsement. 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....
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 failing to do
so.... 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.... Anyway, it is significant, and
conclusive, that the form of the check was
totally unconnected with its dishonor. The Court
of Appeals declared that it was returned
unsatisfied because the drawer has insufficient
funds - not because the drawer’s indorsement
was lacking.
12
PNB vs Rodriguez
Facts:
Spouses Rodriguez, clients of Philippine
National Bank (PNB) and engaged in an
informal lending business, maintained a savings
and demand/checking accounts, PNBig Demand
Deposits. Their business had a discounting
arrangement with the Philnabank Employees
Savings and Loan Association (PEMSLA), a
client and association of PNB employees who
maintained a current and savings account with
PNB.
PEMSLA regularly grant loans and discounted
by the said spouses whenever postdated checks
were issued when the association was short of
funds by replacing the said checks with their
own checks.
PEMSLA has a policy on not to approve loans
on members with debts. To subvert it to the
PEMSLA officers obtain additional loans
despite their debts by placing unknown names of
members without the knowledge or consent of
the latter. This was done by forging the
indorsement of the payees in the checks.

While their scheme was successfully done, the
spouses eventually suffered losses from the
rediscounting. When the PNB found out such
fraudulent acts, they immediately closed the
current account of PEMSLA.
Issue:
Whether or not the checks were payable to order
or to bearer and who bears the loss?
Held:
As a rule, 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 a
bearer instrument. Sections 8 and 9 of the
Negotiable Instruments Law (NIL) states:
Sec. 8. When payable to order. - The instrument
is payable to order where it is drawn payable to
the order of a specified person or to him or his
order. It may be drawn payable to the order of -
(a) a payee who is not maker, drawer, or drawee;
or (b) the drawer or maker; or (c) the drawee; or
(d) two or more payees jointly; or (e) one or
some of several payees; or (f) the holder of an
office for the time being. Where the instrument
is payable to order, the payee must be named or
otherwise indicated therein with reasonable
certainty.
Sec. 9. When payable to bearer. - The instrument
is payable to bearer - (a) when it is expressed to
be so payable; or (b) when it is payable to a
person named therein or bearer; or (c) when 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; or (d) when the
name of the payee does not purport to be the
name of any person; or (e) where the only or last
indorsement is an indorsement in blank.
A review of 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. This usually occurs when
the maker places a name of an existing payee on
the check for convenience or to cover up an
illegal activity. Thus, a check made expressly
payable to a non-fictitious and existing person is
not necessarily an order instrument.
If the payee is not intended recipient of the
proceeds of the check, the payee is considered a
“fictitious” payee and the check is a bearer
instrument. In a fictitious-payee situation, the
drawee bank is absolved from liability and the
drawer bears the loss. When faced with a check
payable to a fictitious payee, it is treated as a
bearer instrument that can be negotiated by
delivery. The underlying theory is that one
cannot expect a fictitious payee to negotiate the
check by placing his indorsement thereon. And
since the maker knew this limitation, he must
have intended for the instrument to be
negotiated by mere delivery. Thus, in case of
controversy, the drawer of the check will bear
the loss. This rule is justified for otherwise, it
will be most convenient for the maker who
desires to escape payment of the check to always
deny the validity of the indorsement. This
despite the fact that the fictitious payee was
purposely named without any intention that the
payee should receive the proceeds of the check.
Verily, the subject checks are presumed order
instruments. This is because, as found by both
lower courts, PNB failed to present sufficient
evidence to defeat the claim or respondents-
spouses that the named payees were the intended
recipients of the checks’ proceeds. The bank
failed to satisfy a requisite condition of a
fictitious-payee situation - that the maker of the
check intended for the payee to have no interest
in the transaction.
Because of a failure to show that the payee were
“fictitious” in its broader sense, the fictitious-
payee rule does not apply. Thus, the checks are
to be deemed payable to order. Consequently,
the drawer bank bears the loss.
13
Philippine National Bank vs Manila Oil
Refining and By-Products Company
Facts:

The manager and the treasurer of the Manila Oil
Refining & By-Products Company, Inc.,
executed and delivered to the Philippine
National Bank (PNB), a promissory note
payable to the order of the PNB P61,000.00, and
to hereby authorize any attorney in the
Philippines, in case of non-payment at maturity,
to appear in their name and confess judgement
for such debt with interest, cost of suit and
attorney’s fees of 10% 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.
Issue:
Whether or not the promissory note authorizing
an attorney to appear and confess judgement
against the maker is valid.
Held:
In the case of First National Bank of Las Cruces
vs. Baker ([1919], 180 Pac., 291) it stated that,
“In some of the states the judgements upon
warrants of attorney are condemned as being
against public policy. By just what course of
reasoning it can be said by the courts that such
judgements are against public policy we are
unable to understand. It was practice from time
immemorial at common law, and the common
law comes down to us sanctioned as justified by
the reason and experience of English-speaking
peoples. If conditions have arisen in this country
which make the application of the common law
undesirable, it is for the Legislature to so
announce, and to prohibit the taking of
judgements can be declared as against the public
policy of the state. We are aware that the
argument against them is that they enable the
unconscionable creditor to take advantage of the
necessities of the poor debtor and cut him off
from his ordinary day in court. On the other
hand, it may be said in their favor that it
frequently enables a debtor to obtain money
which he could by no possibility otherwise
obtain. It strengthens his credit, and may be
most highly beneficial to him at times. In some
of the states their judgements have been
condemned by statute and of course in that case
are not allowed. Our conclusion in this case is
that a warrant of attorney given as security to a
creditor accompanying a promissory note
confers a valid power, and authorizes a
confession of judgement in any court of
competent jurisdiction in an action to be brought
upon said note; that our cognovit statute does
not cover the same field as that occupied by the
common-law practice of taking judgements
upon warrant of attorney, and does not impliedly
or otherwise abrogate such practice; and that the
practice of taking judgements upon warrants of
attorney as it was abrogates such practice; and
that the practice of taking judgements upon
warrants of attorney as it was pursued in this
case is not against any public policy of the state,
as declared by its laws.”
With reference to the conclusiveness of the
decisions here mentioned, it may be said that
they are based on the practice of the English-
American common law, and that the doctrines of
the common law are binding upon Philippine
courts only in so far as they are founded on
sound principles applicable to local conditions.
14
Republic Bankers Bank vs CA
Facts:
Shozo Yamaguchi and Fermin Canlas were
President/Chief Operating Officer and Treasurer
of Worldwide Garment Manufacturing, Inc.
Both were authorized to apply credit facilities
with Republic Planters Bank in the forms of
export advances and letters of credit/trust
receipts accommodations. Such bank issued 9
promissory notes payable to the order of the
bank itself In such note, both of their signatures
appear above their printed name with the phrase,
“and (in) his personal capacity” typewritten
below.
Later on, their corporation changed its corporate
name to Pinch Manufacturing Corporation.
Afterwards, the bank filed a complaint against
them for recovery of sums of money. However,
Yamaguchi never replied; Canlas, on the other
hand, replied and even declared that he is no
longer liable due to the change of the corporate
name.
Issue:
Whether or not Canlas is solidarily liable with
Pinch Manufacturing Corporation and Shozo
Yamaguchi, on the 9 promissory notes.
Held:
Canlas is solidarily liable on each of the
promissory note bearing his signature for the
following reasons:
The promissory notes are negotiable instruments
and must be governed by the Negotiable
Instruments Law (NIL).
Under the NIL, 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.
Based on the above provisions of law, there is
no denying that private respondent Fermin
Canlas is one of the co-makers of the promissory
notes. As such, he cannot escape liability arising
therefrom.
Where an instrument containing the words “I
promise to pay” is signed by 2 or more persons,
they are deemed to be jointly and severally
liable thereon. An instrument which begins with
“I,” “We,” or “Either of us” promise to, pay,
when signed by 2 or more persons, makes them
solidarily liable. The fact that the singular
pronoun is used indicates that the promise is
individual as to each other; meaning that each of
the co-signers is deemed to have made an
independent singular promise to pay the notes in
full.
As to whether the interpolation of the phrase
“and (in) his personal capacity” below the
signatures of the makers in the notes will affect
the liability of the makers. We do not find it
necessary to resolve and decide, because it is
immaterial and will not affect to the liability of
private respondent Fermin Canlas as a joint and
several debtor of the notes. With or without the
presence of said phrase, private respondent
Fermin Canlas is primarily liable as a co-maker
of each of the notes and his liability is that of a
solidary debtor.
As a general rule, officers or directors under the
old corporate name bear no personal liability for
acts done or contracts entered into by officers of
the corporation, if duly authorized. Inasmuch as
such officers acted in their capacity as agent of
the old corporation and the change of name
meant only the continuation of the old juridical
entity, the corporation bearing the same name is
still bound by the acts of its agents if authorized
by the Board. Under the NIL, the liability of a
person signing as an agent is specifically
provided for as follows: Sec. 20. Liability of a
person signing as agent and so forth. Where the
instrument contains or a person adds to his
signature words indicating that he signs for or on
behalf of a principal, or in a representative
capacity, he is not liable on the instrument if he
was duly authorized; but the mere addition of
words describing him as an agent, or as filling a
representative character, without disclosing his
principal, does not exempt him from personal
liability.
15
Spouses Evangelista vs Mercator Finance
Corporation
Facts:
Spouses Evangelista filed against Mercator
Finance Corporation, Lydia P. Salazar, Lamecs
Realty and Development Corporation, and the
Register of Deeds for the annulment of titles on
the parcels of land, owned by them, contained in
the Real Estate Mortgage executed by Embassy
Farms, Inc. and themselves as their officers, in
favor of Mercartor, since they were not able to
receive any proceeds from the loan as evidenced
by a promissory note, as all of it went to
Embassy Farms. Thus, the mortgage was
considered to be void but while such was void, a
foreclosure proceeding was conducted by
Mercator, the highest bidder in the public
auction; then there was an issuance of transfer
certificate of title in the name of Salazar and
Lamecs Realty & Development Corporation.

Mercator asserted that since the promissory note
were signed by Spouses Evangelista and
Embassy Farmers as co-makers, thus, they are
considered to be jointly and severally liable. Due
to their failure to pay the obligation, the
foreclosure and subsequent sale of the
mortgaged properties were valid. It also
contended that Spouses Evangelista and
Embassy Farmers subsequently executed to
guarantee the indebtedness of Embassy Farms,
and the succeeding promissory notes
restructuring the loan.
Issue:
Was there ambiguity in the wording of the
promissory note?
Held:
No, there was not. Courts can interpret a
contract only if there is doubt in its letter. But,
an example of the promissory note shows no
such ambiguity. Besides, assuming arguendo
that there is an ambiguity, Section 17 of the
Negotiable Instruments Law (NIL) states: Sec.
17. Construction where instrument is
ambiguous. - where the language of the
instrument is ambiguous or there are omissions
therein, the following rules of construction
apply: (g) where an instrument containing the
word “I promise to pay” is signed by 2 or more
persons, they are deemed to be jointly and
severally liable thereon.
Petitioners also insist that the promissory note
does not convey their true intent in executing the
documents. The defense is unavailing. Even if
the petitioners intended to sign the note merely
as officers of Embassy Farms, still this does not
erase the fact that they subsequently executed a
continuing suretyship agreement. A surety is one
who is solidarily liable with the principal.
Petitioners cannot claim that they did not
personally receive any consideration for the
contract for the contract well-entrenched is the
rule that the consideration necessary to support a
surety obligation need not pass directly to the
surety, a consideration moving to the principal
alone being sufficient. A surety is bound by the
same consideration that makes the contract
effective between the principal parties thereto.
Having executed the suretyship agreement, there
can be no dispute on the personal liability of
petitioners.
In the case at bar, there are no genuine issues
raised by petitioners. Petitioners do not deny that
they obtained a loan from Mercator. They
merely claim that they got the loan as officers of
Embassy Farms without intending to personally
bind themselves or their property. However, a
simple perusal of the promissory note and the
continuing surety agreement shows otherwise.
These documentary evidence prove that
petitioners are solidary obligors with Embassy
Farms.
16
Dela Victoria vs Burgos
Facts:
A notice of garnishment from Mabanto Jr. was
served on Loreto D. Dela Victoria, a City Fiscal,
not to disburse, transfer, release or convey to
any other person except to the Deputy sheriff
concerned the salary checks or other checks,
monies, or cash due or belonging to Mabanto Jr.
However, Dela Victoria did not follow the order,
thus, this case was filed against him. Dela
Victoria then claimed that he was not in
possession of any money, funds, credit, property
or anything of value belonging to Mabanto Jr.,
except his salary and RATA checks, but said
checks were not yet properties of Mabanto, Jr.,
until delivered to him. Thus, such were still
public funds which could not be subjected to
garnishment.
Issue:
Were the checks owned by Mabanto Jr.?
Held:
No, they were not. Petitioner reiterates his
position that the salary checks were not owned
by Mabanto Jr., because they were not yet
delivered to him, and that petitioner as garnishee
has no legal obligation to hold and deliver them
to the trial court to be applied to Mabanto Jr.’s
judgement debt. The thesis of petitioner is that
the salary checks still formed part of public
funds and therefore beyond the reach of
garnishment proceedings.
Under Sec. 16 of the Negotiable Instruments
Law (NIL), every contract on a negotiable
instrument is incomplete and revocable until
delivery of the instrument for the purpose of
giving effect thereto. As ordinarily understood,
delivery means the transfer of the possession of
the instrument by the maker or drawer with
intent to transfer title to the payee and recognize
him as the holder thereof.
According to the trial court, the checks of
Mabanto Jr., were already released by the
Department of Justice (DOJ) duly signed by the
officer concerned through petitioner and upon
service of the writ of garnishment by the sheriff
petitioner was under obligation to hold them for
the judgement creditor. It recognized the role of
petitioner as custodian of the checks. At the
same time however it considered the checks as
no longer government funds and presumed
delivered to the payee based on the last sentence
of Sec. 16 of the NIL which states: “And where
the instrument is no longer in the possession of a
party whose signature appears thereon, a valid
and intentional delivery by him is presumed.”
Yet, the presumption is not conclusive because
the last portion of the provision says “until the
contrary is proved.” However this phrase was
deleted by the trial court for no apparent reason.
Proof to the contrary is its own finding that the
checks were in the custody of petitioner.
Inasmuch as said checks had not yet been
delivered to Mabanto Jr., they did not belong to
him and still had the character of public funds.
17
Sesbreno vs CA
Facts:
Raul Sesbreno made a P300,000.00 money
market placement with the Philippine
Underwriters Finance Corporation (Philfinance)
for which he was issued a Certificate of Sale of
Delta Motors Corporation (DMC) promissory
note with Philfinace as “payee” and Delta as
“maker.” When he sought to encash them, they
were dishonored due to insufficient funds.
Philfinance then delivered to Sesbreno the
Denominated Custodian Receipt (DCR) issued
by the Pilipinas Bank (Pilipinas). Afterwards,
Sesbreno approached Ms. Elizabeth de Villa and
handed her a demand letter for his placement in
which on the face of the promissory note was
stamped “non-negotiable,” and because of that,
Pilipinas did not deliver the note nor any
certificate. However, Sesbreno continuously sent
demand letters to Pilipinas, but the latter only
told him to proceed to Philfinance for
instructions. Philfinance then assigned it to
DMC. When Sesbreno sent a demand letter to
DMC for partial satisfaction of the note, Delta
denied liability. Thus, Sesbreno failed to collect
his investment and interest.
Issue:
Whether or not a non-negotiable instrument is
capable of assignment or transfer.
Held:
Firstly, 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. 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.
18
Consolidated Plywood vs IFC Leasing
Facts:
Petitioner-corporation, engaged in a logging
business and in need of 2 additional units of
tractors, executed a promissory note for 2 used
Allis Crawler Tractors from Industrial Products
Marketing through Wee and Vergara, president
and vice-president, after the seller conducted an
inspection of the areas to be worked on and
offered warrants and future repairs within a
specified period to assure the petitioner that the
said tractors were fit for the job.
14 days passed after delivery, 1 of the tractors
broke down and then followed by the other after
9 days. The petitioner informed the seller and
such seller sent his mechanics to fix the 2
tractors; however, after fixing the 2 tractors,
they were no longer serviceable for its purpose.
The petitioners asked the seller to have the
tractors reconditioned and thereafter offer them
for sale, but no reply was given. Thus, the
petitioners filed for recovery.
On the other hand, the respondent, in its
comment to the petition, contended that the
petition was filed out of time; that the
promissory note is a negotiable instrument
and respondent a holder in due course; that
respondent is not liable for any breach of
warranty; and finally, that the promissory
note is admissible in evidence.
Issue:
Whether or not the respondent is a holder in due
course.
Held:
The respondent is not a holder in due course.
Sections 52 and 56 of the Negotiable
Instruments Law provide that: negotiating it.
SEC. 52. WHAT CONSTITUTES A
HOLDER IN DUE COURSE. — A holder
in due course is a holder who has taken the
instrument under the following conditions:
xxx (c) That he took it in good faith and
for value; and (d) That the time it was
negotiated by him he had no notice of any
infirmity in the instrument of defect in the
title of the person negotiating it.
SEC. 56. WHAT CONSTITUTES NOTICE
OF DEFECT. — To constitute notice of an
infirmity in the instrument or defect in the
title of the person negotiating the same, the
person to whom it is negotiated must have
had actual knowledge of the infirmity or
defect, or knowledge of such facts that his
action in taking the instrument amounts to
bad faith.
In the like manner, therefore, even assuming
that the subject promissory note is
negotiable, the respondent, a financing
company which actively participated in the
sale on installment of the subject two Allis
Crawler tractors, cannot be regarded as a
holder in due course of said note. It follows
that the respondent's rights under the
promissory note involved in this case are
subject to all defenses that the petitioners
have against the seller-assignor, Industrial
Products Marketing. For Section 58 of the
Negotiable Instruments Law provides that "in
the hands of any holder other than a holder
in due course, a negotiable instrument is
subject to the same defenses as if it were
non-negotiable...."
19
Traders Royal Bank vs CA
Facts:
Filriters Guaranty Assurance Corporation
(Filriters), registered owner of Central Bank
Certificate of Indebtedness (CBCI) No. D891,
transferred the CBCI No. D891 to Philippine
Underwriters Finance Corporation (Philfinance)
in which they transferred to Traders Royal Bank
(TRB). The transfer was made under a
repurchase agreement where Philfinance is
granted with a right to repurchase the
instrument. When it failed to buy back the note
on maturity, it executed a deed of assignment
conveying to TRB all its right and title to CBCI
No. D891. Later on, TRB sought for the transfer
and registration of CBCI No. D891 in its name
before the Security and Servicing Department of
the Central Bank (CB); however, CB refused
due to Filriters’ adverse claim.
Issue:
Whether or not the CBCI may be negotiated.
Held:
The CBCI is not a negotiable instrument. As
worded, the instrument provides a promise
"to pay Filriters, the registered owner
hereof." Very clearly, the instrument is
payable only to Filriters, the registered
owner, whose name is inscribed thereon. It
lacks the words of negotiability which
should have served as an expression of
consent that the instrument may be
transferred by negotiation.
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.
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.
20
Casabuena vs CA
Facts:
Urdaneta, a grantee of a parcel of land bought by
City of Manila and conveyed to its less privilege
inhabitants through its land reform program,
assigned his rights and interest in 1/2 of the lot
to Arsenia Benin covering full payment of his
P500.00 debt.
A deed of sale with mortgage was executed by
Urdaneta with a promise to pay the City
P5,500.00. Later on, Ciriaco executed another of
assignment involving the whole lot, with
assignee Benin agreeing to shoulder all the
obligations including the amortization to the
City, in accordance with the contract between it
and Urdaneta. The parties verbally agreed that
Urdaneta could redeem the property upon
payment of the loan; failure to pay would
transfer physical possession of the lot to Benin.
Meanwhile, the administration of the property
was assigned to brothers Candido and Juan
Casabuena, to whom Benin, their rental
collector, had transferred her right, title and
interest for a consideration. After the lot was
fully paid by Urdaneta, a Release of Mortgage
was executed.
Afterwards, Angel Tanjuakio, the administrator,
filed a complaint for ejectment against
Casabuena, alleging that he stopped paying
rentals and ignored demand letters.
Upon learning the litigation, Urdaneta asked
them to vacate the property and surrender to him
the possession thereof. Due to their refusal,
Urdaneta filed for ejectment and recovery of
possession of property against Casabuena, Benin
and Tanjuakio.
Issue:
Can a deed of assignment transfer ownership of
the property to the assignee?
Held:
No, it cannot. An assignment of credit is an
agreement by virtue of which the owner of
a credit, known as the assignor, by a legal
cause, transfers his credit and its accessory
rights to another, known as the assignee,
who acquires the power to enforce it to the
same extent as the assignor could have
enforced it against the debtor. Stated simply,
it is the process of transferring the right of
the assignor to the assignee, who would then
be allowed to proceed against the debtor.
The assignment involves no transfer of
ownership but merely effects the transfer
rights which the assignor has at the time, to
the assignee. Benin having been deemed
subrogated to the rights and obligations of
the spouses, she was bound by exactly the
same conditions to which the latter were
bound. This being so, she and the Casabuenas
were bound to respect the prohibition against
selling the property within the five-year
period imposed by the City government.
The act of assignment could not have
operated to efface liens or restrictions
burdening the right assigned, because an
assignee cannot acquire a greater right than
that pertaining to the assignor. At most, an
assignee can only acquire rights duplicating
those which his assignor is entitled by law
to exercise. In the case at bar, the
Casabuenas merely stepped into Benin's
shoes, who was not so much an owner as a
mere assignee of the rights of her debtors.
Not having acquired any right over the land
in question, it follows that Benin conveyed
nothing to defendants with respect to the
property.
21
Manuel Lim vs CA
Facts:
Spouses Lim, the president and treasurer of Rigi
Bilt Industries, Inc. (RIGI), ordered supplies
from LINTON, to be paid upon delivery through
the checks issued from Consolidated Bank and
Trust Company (SOLIDBANK). However,
when William Yu Bin, vice president and sales
manager of LINTON, deposited the checks, they
were dishonored for insuffieciency of funds with
the additional notation “payment stopped”
stamped thereon. Despite of William’s demands,
Spouses Lim refused to make good the checks or
pay the value of the deliveries. Thus, Spouses
Lim were charged with estafa and for the
violation of BP Blg. 22.
The Spouses Lim assailed that the Regional
Trial Court (RTC) of Malabon had no
jurisdiction over the cases because the offenses
charged are committed outside its territory, that
they could not be held liable for estafa because
the checks were issued by them several weeks
after the deliveries of the goods, and neither
could they be held liable for violating BP Blg.
22 as they ordered payment of the checks to be
stopped because the goods delivered were not
those specified by them, besides they had
sufficient funds to pay the checks.
Issue:
Whether or not the place of issue should be the
place where the checks were dishonored.
Held:
Under Sec. 191 of the Negotiable Instruments
Law the term "issue" means the first delivery of
the instrument complete in form to a person who
takes it as a holder. On the other hand, the term
"holder" refers to the payee or indorsee of a bill
or note who is in possession of it or the bearer
thereof.
. . . The place where the bills were written,
signed, or dated does not necessarily fix or
determine the place where they were
executed. What is of decisive importance is
the delivery thereof. The delivery of the
instrument is the final act essential to its
consummation as an obligation. An
undelivered bill or note is inoperative. Until
delivery, the contract is revocable. And the
issuance as well as the delivery of the check
must be to a person who takes it as a
holder, which means "(t)he payee or
indorsee of a bill or note, who is in
possession of it, or the bearer thereof."
Delivery of the check signifies transfer of
possession, whether actual or constructive,
from one person to another with intent to
transfer title thereto . . .
Although LINTON sent a collector who
received the checks from petitioners at their
place of business in Kalookan City, they
were actually issued and delivered to
LINTON at its place of business in Balut,
Navotas. The receipt of the checks by the
collector of LINTON is not the issuance and
delivery to the payee in contemplation of
law. The collector was not the person who
could take the checks as a holder, i.e., as a
payee or indorsee thereof, with the intent to
transfer title thereto. Neither could the
collector be deemed an agent of LINTON
with respect to the checks because he was a
mere employee.
22
Dela Victoria vs Burgos
Facts:
A notice of garnishment from Mabanto Jr. was
served on Loreto D. Dela Victoria, a City Fiscal,
not to disburse, transfer, release or convey to
any other person except to the Deputy sheriff
concerned the salary checks or other checks,
monies, or cash due or belonging to Mabanto Jr.
However, Dela Victoria did not follow the order,
thus, this case was filed against him. Dela
Victoria then claimed that he was not in
possession of any money, funds, credit, property
or anything of value belonging to Mabanto Jr.,
except his salary and RATA checks, but said
checks were not yet properties of Mabanto, Jr.,
until delivered to him. Thus, such were still
public funds which could not be subjected to
garnishment
Issue:
Were the checks owned by Mabanto Jr.?
Held:
No, they were not. Petitioner reiterates his
position that the salary checks were not owned
by Mabanto Jr., because they were not yet
delivered to him, and that petitioner as garnishee
has no legal obligation to hold and deliver them
to the trial court to be applied to Mabanto Jr.’s
judgement debt. The thesis of petitioner is that
the salary checks still formed part of public
funds and therefore beyond the reach of
garnishment proceedings.
Under Sec. 16 of the Negotiable Instruments
Law (NIL), every contract on a negotiable
instrument is incomplete and revocable until
delivery of the instrument for the purpose of
giving effect thereto. As ordinarily understood,
delivery means the transfer of the possession of
the instrument by the maker or drawer with
intent to transfer title to the payee and recognize
him as the holder thereof.
According to the trial court, the checks of
Mabanto Jr., were already released by the
Department of Justice (DOJ) duly signed by the
officer concerned through petitioner and upon
service of the writ of garnishment by the sheriff
petitioner was under obligation to hold them for
the judgement creditor. It recognized the role of
petitioner as custodian of the checks. At the
same time however it considered the checks as
no longer government funds and presumed
delivered to the payee based on the last sentence
of Sec. 16 of the NIL which states: “And where
the instrument is no longer in the possession of a
party whose signature appears thereon, a valid
and intentional delivery by him is presumed.”
Yet, the presumption is not conclusive because
the last portion of the provision says “until the
contrary is proved.” However this phrase was
deleted by the trial court for no apparent reason.
Proof to the contrary is its own finding that the
checks were in the custody of petitioner.
Inasmuch as said checks had not yet been
delivered to Mabanto Jr., they did not belong to
him and still had the character of public funds.
23
Development Bank of Rizal vs Sima Wei
Facts:
Sima Wei executed and delivered a promissory
note to Development Bank of Rizal (Bank) in
order to pay his loan. After Sima made partial
payments on the note. He issued 2 crossed
checks payable to the Bank drawn against China
Banking Corporation. The 2 checks were issued
in full settlement of the drawer’s account;
however, the 2 checks were not delivered to the
Bank or to any of its authorized representatives.
Surprisingly, the checks were in the hands of
Lee Kian Huat, who deposited the checks
without the Bank’s indorsement to the account
of Plastic Corporation.
Issue:
Whether or not the Bank has a cause of action
against any or all of them, in the alternative or
otherwise.
Held:
It has no cause of action. The normal parties to
a check are the drawer, the payee and the
drawee bank. Courts have long recognized
the business custom of using printed checks
where blanks are provided for the date of
issuance, the name of the payee, the amount
payable and the drawer's signature. All the
drawer has to do when he wishes to issue a
check is to properly fill up the blanks and
sign it. However, the mere fact that he has
done these does not give rise to any liability
on his part, until and unless the check is
delivered to the payee or his representative.
A negotiable instrument, of which a check
is, is not only a written evidence of a
contract right but is also a species of
property. Just as a deed to a piece of land
must be delivered in order to convey title to
the grantee, so must a negotiable instrument
be delivered to the payee in order to
evidence its existence as a binding contract.
Section 16 of the Negotiable Instruments
Law, which governs checks, provides in
part:
Every contract on a negotiable instrument is
incomplete and revocable until delivery of
the instrument for the purpose of giving
effect thereto. . . .
Thus, the payee of a negotiable instrument
acquires no interest with respect thereto until
its delivery to him. Delivery of an instrument
means transfer of possession, actual or
constructive, from one person to another.
Without the initial delivery of the instrument
from the drawer to the payee, there can be
no liability on the instrument. Moreover,
such delivery must be intended to give
effect to the instrument.
24
Enrique Montinola vs PNB
Facts:
Ubaldo D. Laya, a Provincial Treasurer of
Misamis Oriental, issued a check as drawer and
the Philippine National Bank (PNB) as drawee,
to Mariano V. Ramos as payee. Ramos sold
P30,000.00 of the check to Enrique P. Montinola
for P90,000.00 Japanese military notes, of which
only P45,000.00 was paid by Montinola. Ramos
left an instruction at the back of the check for
the bank to pay Montinola P30,000.00; however,
this was replaced by an indorsement.
At the time the check was transferred to
Montinola, such was already payable on
demand. Montinola testified that when Ramos
approached him for the negotiation of the check,
he consulted PNB President Carmona who
assured him that the check was good and
negotiable. However, President Carmona denied
his claim and assured that he only saw him only
after the PNB was reopened after liberation, and
as for the check showed to him, he told him that
it was stale.
Issue:
Whether or not the instrument was negotiable.
Held:
It was not negotiable. The insertion of the
words "Agent, Phil. National Bank" which
converts the bank from a mere drawee to a
drawer and therefore changes its liability,
constitutes a material alteration of the
instrument without the consent of the parties
liable thereon, and so discharges the
instrument. The check was not legally
negotiated within the meaning of the
Negotiable Instruments Law. Section 32 of
the same law provides that "the indorsement
must be an indorsement of the entire
instrument. An indorsement which purports
to transfer to the indorsee a part only of the
amount payable,... does not operate as a
negotiation of the instrument." Montinola may
therefore not be regarded as an indorsee. At
most he may be regarded as a mere assignee
of the P30,000.00 sold to him by Ramos, in
which case, as such assignee, he is subject
to all defenses available to the drawer
Provincial Treasurer of Misamis Oriental and
against Ramos. Neither can Montinola be
considered as a holder in due course
because Section 52 of said law defines a
holder in due course as a holder who has
taken the instrument under certain conditions,
one of which is that he became the holder
before it was overdue. When Montinola
received the check, it was long overdue.
And, Montinola is not even a holder because
Section 191 of the same law defines holder
as the payee or indorsee of a bill or note
and Montinola is not a payee. Neither is he
an indorsee for as already stated, at most he
can be considered only as assignee. Neither
could it be said that he took it in good
faith. As already stated, he has not paid the
full amount of P90,000.00 for which Ramos
sold him P30,000.00 of the value of the
check. In the second place, as was stated by
the trial court in its decision, Montinola
speculated on the check and took a chance
on its being paid after the war. Montinola
must have known that at the time the check
was issued in May, 1942, the money
circulating in Mindanao and the Visayas was
only the emergency notes and that the check
was intended to be payable in that currency.
Also, he should have known that a check
for such a large amount of P100,000.00
could not have been issued to Ramos in his
private capacity but rather in his capacity as
disbursing officer of the USAFFE, and that
at the time that Ramos sold a part of the
check to him, Ramos was no longer
connected with the USAFFE but already a
civilian who needed the money only for
himself and his family.
25
Ang Tek Lian vs CA
Facts:
Ang Tek Lian was convicted of estafa when he
drew a check, knowing he had no funds, upon
the China Banking Corporation for the sum of
P4,000.00 payable to the order of “cash.” He
delivered the check to Lee Hua Hong in
exchange for money which the latter handed;
however, when Lee Hua Hong presented the
check, it was dishonored due to insufficiency of
funds of a balance deposit of P335.00.
It is argued, however, that the check had not
been indorsed by Ang Tek Lian, thus, 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.”

Issue:
Whether or not indorsement of the drawer is
essential before honoring a check payable to
“cash.”
Held:
Indorsement is not essential. Under the
Negotiable Instruments Law (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
drawer’s indorsement. 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....
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 failing to do
so.... 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.... Anyway, it is significant, and
conclusive, that the form of the check was
totally unconnected with its dishonor. The Court
of Appeals declared that it was returned
unsatisfied because the drawer has insufficient
funds - not because the drawer’s indorsement
was lacking
26
Metropol (Bacolod) Financing vs Sambok
Motors
Facts:
Dr. Javier Villaruel executed a promissory note
in favor of Ng Sambok Sons Motors Co., Ltd.
(Ng Sambok), provided that in case on non-
payment of any of the installments, the total
unpaid principal shall become due and payable
with additional interest. Such note was
negotiated and indorsed by Sambok Motors
Company (Sambok), sister company of Ng
Sambok Sons Motors Co., Ltd., in favor of
Metropol Financing and Investment Corporation
(Metropol).
Dr. Villaruel defaulted payment and, thus,
Metropol notified Sambok that such note has
been dishonored and on demand. However,
Sambok failed to pay. Metropol then filed
against them for collection of a sum of money.
Sambok did not deny its liability but contended
that it is only obliged to pay until Dr. Villaruel
has been declared insolvent.
During the pendency of the case, Dr. Villaruel
died.
Issue:
Whether or not Sambok Motors Co. is a
qualified indorser.
Held:
It is not a qualified indorser. A qualified
indorsement constitutes the indorser a mere
assignor of the title to the instrument. It
may be made by adding to the indorser's
signature the words "without recourse" or
any words of similar import. Such an
indorsement relieves the indorser of the
general obligation to pay if the instrument is
dishonored but not of the liability arising
from warranties on the instrument as
provided in Section 65 of the Negotiable
Instruments Law already mentioned herein.
"Recourse" means resort to a person who is
secondarily liable after the default of the
person who is primarily liable. Appellant, by
indorsing the note "with recourse" does not
make itself a qualified indorser but a general
indorser who is secondarily liable, because
by such indorsement, it agreed that if Dr.
Villaruel fails to pay the note, plaintiff-
appellee can go after said appellant. The
effect of such indorsement is that the note
was indorsed without qualification. A person
who indorses without qualification engages
that on due presentment, the note shall be
accepted or paid, or both as the case may
be, and that if it be dishonored, he will pay
the amount thereof to the holder. Appellant
Sambok's intention of indorsing the note
without qualification is made even more
apparent by the fact that the notice of
demand, dishonor, protest and presentment
were waived. The words added by said
appellant do not limit his liability, but rather
confirm his obligation as a general indorser.
27
Gempesaw vs CA
Facts:
Natividad O. Gempesaw, owns and operates 4
grocery stores and among them are D.G
Shopper’s Mart and D.G. Whole Sale Mart. She
maintained a checking account with Philippine
Bank of Communications (Bank) where she
draws checks in order to pay her debts to her
suppliers. Without verifying the checks, she
signed all of them and left in the hands of her
bookkeeper, Alicia Galang, the amount and
names of the payees to be written on the checks.
The said checks had an amount in excess of her
actual obligations and were all payable in favor
to Alfredo Y. Romero and Benito Lam. All of
the said checks were issued and honored by the
Bank were all crossed checks, and aside from
the daily notice given to Gempesaw by the
Bank, the Bank also furnished her with a
monthly statement of her transactions, attaching
all those that were cancelled and debited against
her current account. The fraudulent acts of her
bookkeeper were found after 2 years.
Gempesaw argued that the Bank should not have
honored the checks because they were crossed
checks.
Issue:
Whether or not the issuance of “crossed checks”
is a restrictive indorsement.
Held:
Issuing a crossed check imposes no legal
obligation on the drawee not to honor such
a check. It is more of a warning to the
holder that the check cannot be presented to
the drawee bank for payment in cash.
Instead, the check can only be deposited
with the payee's bank which in turn must
present it for payment against the drawee
bank in the course of normal banking
transactions between banks. The crossed
check cannot be presented for payment but it
can only be deposited and the drawee bank
may only pay to another bank in the payee's
or indorser's account.
Petitioner likewise contends that banking
rules prohibit the drawee bank from having
checks with more than one indorsement. The
banking rule banning acceptance of checks
for deposit or cash payment with more than
one indorsement unless cleared by some bank
officials does not invalidate the instrument;
neither does it invalidate the negotiation or
transfer of the said check. In effect, this
rule destroys the negotiability of bills/checks
by limiting their negotiation by indorsement
of only the payee. Under the NIL, the only
kind of indorsement which stops the further
negotiation of an instrument is a restrictive
indorsement which prohibits the further
negotiation thereof.
Sec. 36. When indorsement restrictive. —
An indorsement is restrictive which either (a)
Prohibits further negotiation of the
instrument; or xxx.

In this kind of restrictive indorsement, the
prohibition to transfer or negotiate must be
written in express words at the back of the
instrument, so that any subsequent party may
be forewarned that ceases to be negotiable.
However, the restrictive indorsee acquires the
right to receive payment and bring any
action thereon as any indorser, but he can no
longer transfer his rights as such indorsee
where the form of the indorsement does not
authorize him to do so.
28
Bibiano Bañas vs. CA
Facts:
Bibiano Bañas Jr. sold land to Ayala Investment
Corporation (AYALA). The Deed of Sale
provided that upon signing a contract AYALA
shall partially pay for the said land. AYALA
then issued a promissory note for the remaining
balance to be paid in 4 equal consecutive annual
installments with 12% interest per annum on
outstanding balance. Bañas discounted the said
promissory note with AYALA for its value
evidenced by a Deed of Assignment signed by
them. AYALA issued 9 checks to Bañas, drawn
against Bank of the Philippine Islands (BPI).
that income shall be taxable in the year in which
it is "received," the profit from an installment
sale is to be apportioned between or among the
years in which such installments are paid and
received.
Although the proceeds of a discounted
promissory note is not considered initial
payment, it must be included as taxable income
on the year it was converted to cash. When
Bañas had the promissory notes covering the
succeeding installment payments of the land
issued by AYALA, discounted by AYALA
itself, on the same day of the sale, he lost
entitlement to report the sale as a sale on
installment since, a taxable disposition resulted
the income derived from the discounting. What
Bañas did is tantamount to an attempt to
circumvent the rule on payment of income taxes
gained from the sale of the land to AYALA.

A few years later, a tax examiner discovered that

Bañas had no outstanding receivable from the
sale of the land to AYALA and concluded that
the sale was cash and the entire profit should
have been taxable since that he received income
as a whole.

Issue:

Whther or not the promissory note should be

declared cash transaction for purposes of
taxation.

Held:

It should be declared as a cash transaction. As a

general rule, the whole profit accruing from a
sale of property is taxable as income in the year
the sale is made. But if not all of the sale price is
received during such year, and a statute provides