Assignment for September 23, 2021

C.   Requisites of Negotiability (Sec.1, NIL)

1.    Must be in Writing Signed by the Maker or Drawer (Sec. 191, NIL)
2.    Must be Contain an Unconditional Promise or Order to Pay a Sum Certain
in Money (Secs. 2, 3, 17a, NIL; R.A. No. 8183)      
3.    Must be Payable on Demand or at a Fixed or Determinable Future Time
(Secs. 4, 7, NIL)
4.    Must be Payable to Order or Bearer (Secs. 8,9, NIL)
5.    Identification of the Drawee (Sec. 128, NIL)

Section 1. Form of negotiable instruments. - An instrument to be

negotiable must conform to the following requirements: chanroblesvirtuallawlibrary

(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.

·      Abubakar vs. Auditor General, G.R. No. L1405, July 31, 1948
(A treasury warrant is an authorization that a payment be made from a
public treasury, usually in the form of a check. Government disbursements
are paid with treasury warrants.)

FACTS:
Placido Urbanes, a government employee in the province of La Union, was the
subject of a treasury warrant issued in 1941. The treasury warrant was issued
to support the province's Food Production Campaign. It was then sold to
Benjamin Abubakar, a private individual, by Urbanes. The Auditor General
declined Abubakar's request to have the treasury warrant encashed because,
first and foremost, it is against the appropriating law (Republic Act 80) to
sanction payments to private individuals in the case of treasury warrants.
Abubakar then claims that he is entitled to encash because he was a holder in
good faith.

ISSUE: WHETHER OR NOT A TREASURY WARRANT IS A NEGOTIABLE

INSTRUMENT.
HELD:  No. A treasury warrant is not a negotiable instrument. One of the
requirements of a negotiable instrument is that it must be unconditional. In
Section 3 of the Negotiable Instruments Law, an order or promise to pay out of
a particular fund makes the instrument conditional. A treasury warrant, like
the one in this case, comes from a particular fund, a particular appropriation.
In this case, it was written on the face of the treasury warrant that it is
“payable from the appropriation for food administration”. Thus, it is not
negotiable for being conditional.

NOTE the difference: However, an instrument is negotiable if it merely

mentions/indicates a particular fund out of which reimbursement is to be
made. This does not make the instrument conditional because it does not say
that such particular fund is the source of payment. It is only a notice to the
drawee that he can reimburse himself out of that particular fund after paying
the payee. As to the source of payment to the payee, there is no mention of it.

·      Metropolitan Bank and Trust Company vs. CA, G.R. No. 88866,
February 18, 1991 NON-NEGOTIABLE TREASURY WARRANTS : NOT
UNCONDITIONAL PROMISE TO PAY

Facts:
Eduardo Gomez opened an account with Golden Savings and deposited 38
treasury warrants. All warrants were then indorsed by Gloria Castillo, Golden
Savings' Cashier, and put in the company's Savings account at a Metrobank
branch in Calapan, Mindoro. They were submitted to the same bank for
clearance. Meanwhile, Gomez is unable to withdraw funds from his account;
nevertheless, after becoming "exasperated" with Gloria's frequent enquiries and
as a courtesy to a "valued" client, Metrobank agreed to enable Golden Savings
to withdraw funds from the warrant profits. As a result, Gomez was able to
make withdrawals from his own account at Golden Savings. Golden Savings
was notified by Metrobank that 32 of the warrants had been dishonored by the
Bureau of Treasury, and Metrobank sought a reimbursement of the money it
had previously withdrawn to cover the account's deficit.

Issue: WON the subject treasury warrants are negotiable instruments

Ruling: No.

Reasons:
1. Expressly stated on its face.
2. Conditional because they are out of a particular fund.
- Clearly stamped on their face is the word: “non negotiable.”
- Moreover, it is indicated that they are payable from a particular fund, to
wit, Fund 501. An instrument to be negotiable instrument must contain an
unconditional promise or orders to pay a sum certain in money. An
unqualified order or promise to pay is unconditional though coupled with:
1. 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
2. a statement of the transaction which give rise to the instrument. But an
order to promise to pay out of 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 conditional” and the
warrants themselves non-negotiable.

·      PNB vs. Rodriguez, G.R. No. 170325, September 26, 2008

 (fictitious-payee rule)

FACTS: Spouses Rodriguez were clients of PNB. The spouses being engaged in
the informal lending business had discounting arrangements with Philnabank
Employees Savings and Loan Association (PEMSLA).

PEMSLA would grant loans to its members and the spouses would rediscount
the postdated checks issued to its members whenever the association was
short on funds. PEMSLA’s officers devised a scheme where they took out loans
using other members without their consent and the PEMSLA checks issued for
these loans were then given to the spouses for rediscounting.

The RODRIGUEZ CHECKS were deposited directly by PEMSLA without any

endorsement from the named payees. The spouses endorsed 69 checks from
Nov 1998 to Feb 1999 payable to 47 individual payees.

Petitioner PNB eventually found out the fraudulent scheme and closed the
current account of PEMSLA which led to the checks issued by the spouses
being dishonored for being withdrawn from a closed account. Alarmed, the
spouses filed a civil complaint for damages against PEMSLA and PNB where
they sought to recover the value of the checks deposited to the closed PEMSLA
account amounting to Php2,345,804.00.

RTC RULED IN FAVOR OF THE SPOUSES RODRIGUEZ.

CA REVERSED THE RTC RULING; SPOUSES FILED MR; CA REVERSED
ITSELF.

ISSUE: WON THE SUBJECT CHECKS ARE PAYABLE TO ORDER OR

BEARER.
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.

General rule is that 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
specific payee may nevertheless be considered as 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 (FICTITIOUS-PAYEE RULE).

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 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 endorsement thereon.

For the fictitious-payee rule to be available as a defense, PNB must show that
the makers did not intend for the named payees to be part of the transaction
involving the checks. In this case however, the bank’s only shows that the
payees did not have knowledge of the existence of the checks. This lack of
knowledge on the part of the payees, however, was not tantamount to a lack of
intention on the part of respondents-spouses that the payees would not receive
the checks’ proceeds. Considering that respondents-spouses were transacting
with PEMSLA and not the individual payees, it is understandable that they
relied on the information given by the officers of PEMSLA that the payees would
be receiving the checks.

Verily, the subject checks are presumed order instruments for PNB failed to
present sufficient evidence to defeat the claim of 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 payees 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 drawee bank bears the loss.

(PNB was remiss in its duty as the drawee bank. It does not dispute the fact
that its teller or tellers accepted the 69 checks for deposit to the PEMSLA
account even without any endorsement from the named payees. It bears
stressing that order instruments can only be negotiated with a valid
endorsement. A bank that regularly processes checks that are neither payable
to the customer nor duly indorsed by the payee is apparently grossly negligent
in its operations. In the case at bar, respondents-spouses were the bank’s
depositors. The checks were drawn against respondents-spouses’ accounts.
PNB, had the responsibility to ascertain the regularity of the
indorsements, and the genuineness of the signatures on the checks before
accepting them for deposit. Lastly, PNB was obligated to pay the checks in
strict accordance with the instructions of the drawers. Petitioner miserably
failed to discharge this burden.
The checks were presented to PNB for deposit by a representative of PEMSLA
absent any type of indorsement, forged or otherwise. The facts clearly show
that the bank did not pay the checks in strict accordance with the instructions
of the drawers, respondents-spouses. Instead, it paid the values of the checks
not to the named payees or their order, but to PEMSLA, a third party to the
transaction between the drawers and the payees.
A bank that has been remiss in its duty must suffer the consequences of its
negligence. Being issued to named payees, PNB was duty-bound by law and by
banking rules and procedure to require that the checks be properly indorsed
before accepting them for deposit and payment. In fine, PNB should be held
liable for the amounts of the checks.
WHEREFORE, the appealed Amended Decision is AFFIRMED.

D.    Interpretation of Negotiable Instruments

1.    Omissions Affecting Negotiability (Sec. 6, NIL)
2.    Additional Provisions Affecting Negotiability (Sec. 5, NIL)
3.    Rules in Interpretation of Negotiable Instruments (Secs. 10, 17, NIL)

·      Spouses Evangelista vs. Mercator Finance Corp., G.R. No. 148864,

August 21, 2003

(JOINTLY AND SOLIDARILY LIABLE IN THEIR PERSONAL CAPACITY) “I

PROMISE TO PAY”

Facts: Spouses Evangelista together with Embassy Farms, Inc. obtained a loan
from Mercator Finance Corp. Such contract is secured by a Real Estate
Mortgage on parcels of lands owned by the spouses. However, alleging that
they did not receive the proceeds of the loan evidenced by a promissory note,
as all of it went to Embassy Farms, Spouses Evangelista filed a complaint for
annulment of titles against Mercator Finance Corp. They also alleged that they
executed the Real Estate Mortgage in favor of Mercator only as officers of
Embassy Farms. Thus, they contended that the mortgage was without any
consideration as to them since they did not personally obtain any loan or credit
accommodations. There being no principal obligation on which the mortgage
rests, the real estate mortgage is void. With the void mortgage, they assailed
the validity of the foreclosure proceedings conducted by Mercator, the sale to it
as the highest bidder in the public auction, the issuance of the transfer
certificates of title to it, the subsequent sale of the same parcels of land to
Lydia P. Salazar, and the transfer of the titles to her name, and lastly, the sale
and transfer of the properties to respondent Lamecs Realty & Development
Corporation.

Mercator, on the other hand, contended that since the spouses and
Embassy Farms signed the promissory note as co-makers, aside from the
Continuing Suretyship Agreement subsequently executed to guarantee the
indebtedness of Embassy Farms, and the succeeding promissory notes
restructuring the loan, then the spouses are jointly and severally liable with
Embassy Farms. Due to their failure to pay the obligation, the foreclosure and
subsequent sale of the mortgaged properties are valid. Mercator also argued
that petitioners had admitted in their pre-trial brief the existence of the
promissory note, the continuing suretyship agreement and the subsequent
promissory notes restructuring the loan, hence, there is no genuine issue
regarding their liability. The mortgage, foreclosure proceedings and the
subsequent sales are valid and the complaint must be dismissed.

Issue: Whether the spouses are solidarily liable with Embassy Farms, in light
of the promissory note signed by them.

Held: The promissory note and the Continuing Suretyship Agreement prove
that the spouses are solidary obligors with Embassy Farms. The promissory
notes subsequently executed by the spouses and Embassy Farms,
restructuring their loan, likewise prove that the spouses are solidarily liable
with Embassy Farms. An examination of the promissory note shows no
such ambiguity. Besides, assuming arguendo that there is an ambiguity,
Section 17 of the Negotiable Instruments Law states that "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 two or more persons, they are deemed to be jointly
and severally liable thereon."

Further, even if the spouses 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. The spouses cannot claim that they did not personally
receive any consideration for the contract for 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 the
spouses.

·      Ilano vs. Hon. Espanol, G.R. NO. 161756, December 16, 2005
(undated check)

Facts:
Amelia Alonzo, who has worked for Ilano for several years, has earned
Ilano's trust. Because of Ilano's trust and confidence in ALONZO, there were
times when ALONZO was entrusted with Ilano's METROBANK Check Book,
which contained either signed or unsigned blank checks, particularly when
Ilano traveled to the United States for medical treatment. Sometime later
ALONZO, by means of deceit and abuse of confidence succeeded in procuring
Promissory Notes and signed blank checks from Ilano who was then
recuperating from illness. Several blank checks and promissory notes were
issued to certain individuals with corresponding amount by Alonzo who
allegedly procured the signature of Ilano. A Complaint for
Revocation/Cancellation of Promissory Notes and Bills of Exchange (Checks)
was then filed against Alonzo and others. Here, the subject checks, except one,
were all drawn against a closed account of Ilano. The other check was drawn
against another account of Ilano.

ISSUES:

1.) WON Checks drawn from a closed account is still negotiable. (NO)
2.) WON undated Check is negotiable (YES)

HELD:
1.) With respect to the checks subject drawn all against Ilano’s Metrobank
Account No. 00703- 955536-7 and was dishonored due to “Account Closed”,
when Ilano filed her complaint in the year 2000, all the checks subject hereof
which were drawn against the same closed account were already rendered
valueless or non-negotiable, hence, Ilano had, with respect to them, no cause
of action.

2.)With respect to the one check which was drawn against another account of
Ilano, although the date of issue bears only the year 1999, its validity and
negotiable character at the time the complaint was filed was not affected.

For Section 6 of the Negotiable Instruments Law provides:

Section 6. Omission; seal; particular money. The validity and negotiable
character of an instrument are not affected by the fact that

(a) It is not dated; or

(b) Does not specify the value given, or that any value had been given therefor;
(c) Does not specify the place where it is drawn or the place where it is payable;
(d) Bears a seal; or
(e) Designates a particular kind of current money in which payment is to be
made.

**Note However, even if the holder of Check No. 0084078 would have filled up
the month and day of issue thereon to be December and 31, respectively, it
would have, as it did, become stale six (6) months or 180 days thereafter,
following current banking practice. (so still no cause of action)

** Promissory Note
It is, however, with respect to the questioned promissory notes that the present
petition assumes merit. For, Ilano’s allegations in the complaint relative
thereto, even if lacking particularity, does not as priorly stated call for the
dismissal of the complaint.

(The promissory notes show that some of the [respondents] were actually
creditors of Ilano and who were issued the subject checks as securities for the
loan/obligation incurred. Having taken the instrument in good faith and for
value, the [respondents] are therefore considered holders thereof in due course
and entitled to payment.)

WHEREFORE, the petition is PARTLY GRANTED.

The March 21, 2003 decision of the appellate court affirming the October 12,
2000 Order of the trial court, Branch 20 of the RTC of Imus, Cavite, is
AFFIRMED with MODIFICATION in light of the foregoing discussions.
The trial court is DIRECTED to REINSTATE Civil Case No. 2079-00 to its
docket and take further proceedings thereon only insofar as the complaint
seeks the revocation/cancellation of the subject promissory notes and
damages.
Let the records of the case be then REMANDED to the trial court.