NEGOTIABLE INSTRUMENTS CASE DIGEST

A. FORM AND INTERPRETATION

1. REQUISITS OF NEGOTIABILITY
1.1
Equitable Banking Corp vs IAC
161 SCRA 518 – Mercantile Law – Negotiable Instruments Law – Negotiable Instruments in
General – Certainty of Payee
FACTS:
In 1975, Liberato Casals, majority stockholder of Casville Enterprises, went to buy two
garrett skidders (bulldozers) from Edward J. Nell Company amounting to P970,000.00. To pay the
bulldozers, Casals agreed to open a letter of credit with the Equitable Banking Corporation.
Pursuant to this, Nell Company shipped one of the bulldozers to Casville. Meanwile, Casville
advised Nell Company that in order for the letter of credit to be opened, Casville needs to deposit
P427,300.00 with Equitable Bank, and that since Casville is a little short, it requested Nell
Company to pay the deposit in the meantime.
Nell Company agreed and so it eventually sent a check in the amount of P427,300.00. The check
read:
Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES, INC.
Nell Company sent the check to Casville so that it would be the latter who could send it to
Equitable Bank to cover the deposit in lieu of the letter of credit. Casals received the check, he
went to Equitable Bank, and the teller received the check. The teller, instead of applying the
amount as deposit in lieu of the letter of credit, credited the check to Casville’s account with
Equitable Bank. Casals later withdrew all the P427,300.00 and appropriated it to himself.
ISSUE:
Whether or not Equitable Bank is liable to cover for the loss.
HELD:
No. The subject check was equivocal and patently ambiguous. Reading on the wordings of
the check, the payee thereon ceased to be indicated with reasonable certainty in contravention
of Section 8 of the Negotiable Instruments Law. As worded, it could be accepted as deposit to the
account of the party named after the symbols “A/C,” or payable to the Bank as trustee, or as an
agent, for Casville Enterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity
is to be taken contra proferentem that is, construed against Nell Company who caused the
ambiguity and could have also avoided it by the exercise of a little more care. Thus, Article 1377
of the Civil Code, provides:

Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.
 1.2
SALAS V. CA 181 SCRA 296

FACTS:
Petitioner bought a car from Viologo Motor Sales Company, which was secured by a
promissory note, which was later on indorsed to Filinvest Finance, which financed the
transaction. Petitioner later on defaulted in her installment payments, allegedly due to
the fraud imputed by VMS in
selling her a different vehicle from what was agreed upon. This default in payment prompted
Filinvest Finance to initiate a case against petitioner. The trial court decided in favor of
Filinvest, to which the appellate court upheld by increasing the amount to be paid.
It is the contention of petitioner that since the agreement between her and the motor company
was inexistent, none had been assigned in favor of private respondent.

HELD:
Petitioner’s liability on the promissory note, the due execution and genuineness of
which she never denied under oath, is under the foregoing factual milieu, as inevitable as it is
clearly established.
The records reveal that involved herein is not a simple case of assignment of credit as
petitioner would have it appear, where the assignee merely steps into the shoes of, is
open to all defenses available against and can enforce payment only to the same extent as,
the assignor-vendor.
The instrument to be negotiable must contain the so-called words of negotiability. There
are only 2 ways for an instrument to be payable to order. There must always be a
specified person named in the instrument and 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 thus non-negotiable. Any subsequent purchaser thereof
will not enjoy the advantages of being a
holder in due course but will merely step into the shoes of the person designated in the
instrument and will thus be open to the defenses available against the latter.
In the case at bar, the promissory notes is earmarked with negotiability and Filinvest is a
holder in due course.
1.3
Caltex Inc. v. Court of Appeals [G.R. No. 97753. August 10, 1992]
FACTS:
On various dates, Security Bank and Trust Company (SBTC), through its Sucat Branch
issued 280 certificates of time deposit (CTD) in favor of one Angel dela Cruz who later lost them.

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR
THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000& 00 CTS Pesos, Philippine
Currency, repayable to said depositor 731 days. after date, upon presentation and
surrender of this certificate, with interest at the rate of 16% per cent per annum.

(Sgd. Illegible)

Caltex (Phils.) Inc. went to the SBTCSucat branch and presented for verification the CTDs
declared lost by Angel dela Cruz alleging that the same were delivered to herein plaintiff “as
security for purchases made with Caltex Philippines, Inc.” by said depositor. SBTC rejected
Caltex’s demand and claim. Caltex sued SBTC but case was dismissed rationalizing that CTD’s
are non-negotiable instruments.

ISSUE:
Whether or not Certificate of Time Deposit (CTD) is a negotiable instrument.

HELD:
YES. The CTDs in question undoubtedly meet the requirements of the law for negotiability
under Section 1 of the Negotiable Instruments Law. 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. Here, if it was really the intention of respondent bank to pay the
amount to Angel de la Cruz only, it could have with facility so expressed that fact in clear and
categorical terms in the documents, instead of having the word “BEARER” stamped on the space
provided for the name of the depositor in each CTD.
While the writing may be read in the light of surrounding circumstances 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.

1.4
TRADERS ROYAL BANK V CA G.R. No. 93397 March 3, 1997
FACTS:
Filriters registered owner of Central Bank Certificate of Indebtedness (CBCI). Filriters
transferred it to Philfinance by one of its officers without authorization from the company.
Subsequently, Philfinance transferred same CBCI to Traders Royal Bank (TRB) under a repurchase
agreement. When Philfinance failed to do so, The TRB tried to register in its name in the CBCI.
The Central Bank did not want to recognize the transfer.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action
was originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court, to compel
the Central Bank of the Philippines to register the transfer of the subject CBCI to petitioner
Traders Royal Bank (TRB).
DECISION OF LOWER COURTS: * RTC: transfer is null and void. * CA: The appellate court ruled
that the subject CBCI is not a negotiable instrument. Philfinance acquired no title or rights under
CBCI No. D891 which it could assign or transfer to Traders Royal Bank and which the latter can
register with the Central Bank. Thus, the transfer of the instrument from Philfinance to TRB was
merely an assignment, and is not governed by the negotiable instruments law.
APPLICABLE LAWS:
Under section 1 of Act no. 2031 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.
Under section 3, Article V of Rules and Regulations Governing Central Bank Certificates of
Indebtedness states that the assignment of registered certificates shall not be valid unless made
at the office where the same have been issued and registered or at the Securities Servicing
Department, Central Bank of the Philippines, and by the registered owner thereof, in person or by
his representative, duly authorized in writing. For this purpose, the transferee may be designated
as the representative of the registered owner.
ISSUES & RULING:
1. Whether the CBCI is negotiable instrument or not.
The pertinent portions of the subject CBCI read:
The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay bearer,
of if this Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE
CORPORATION, the registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND
PESOS.
NO. The CBCI is not a negotiable instrument, since the instrument clearly stated that it was
payable to Filriters, and the certificate lacked the words of negotiability which serve as an
expression of consent that the instrument may be transferred by negotiation.
Before the instruments become negotiable instruments, the instrument must conform to the
requirements under the Negotiable Instrument Law. Otherwise instrument shall not bind the
parties.

2. Whether the Assignment of registered certificate is valid or null and void.

IT'S NULL AND VOID. Obviously the Assignment of certificate from Filriters to Philfinance was null
and void. One of officers who signed the deed of assignment in behalf of Filriters did not have the
necessary written authorization from the Board of Directors of Filriters. For lack of such authority
the assignment is considered null and void.
Clearly shown in the record is the fact that Philfinance's title over CBCI is defective since
it acquired the instrument from Filriters fictitiously. Under 1409 of the Civil Code those
contracts which are absolutely simulated or fictitious are considered void and inexistent from the
beginning.
Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a
non-owner was disposing of the registered CBCI owned by another entity was a good reason for
petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI.

OTHER NOTES:
1. the mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of
separate corporate personalities.