I.

Introduction

Topic: Applicability of the Negotiable Instruments Law

Kauffman v. Philippine National Bank

G. R. No. 16454, 29 September 1921
42 Phil. 182

Facts:
George Kauffman, the President of the Philippine Fiber and Produce Company, received from his treasurer
George Wicks, a check through a telegraphic transfer, in the amount of P90,355.50, which was accepted
by the officer selling the exchange in payment of the transfer in question, and later PNB dispatched a
cablegram to New York for Kauffman to be paid P45,000.00 but it was withheld. He was told that the said
amount was put into his credit in the New York branch of PNB, but when Kauffman went to PNB in New
York City, jhe was refused payment due to the said withdrawal.

Issue:
Whether or not the check delivered to Kauffman is negotiable.

Held:
No.
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 section 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 section 16 of the same Law. In this
connection it is unnecessary to point out that the official receipt delivered by the bank to the purchaser of
the telegraphic order, and already set out above, cannot itself be viewed in the light of a negotiable
instrument, although it affords complete proof of the obligation actually assumed by the bank.

Government Service Insurance System v. Court of Appeals

G. R. No. L-40824, 23 February 1989
170 SCRA 533

Facts:
Spouses Racho executed two deeds of mortgage with the spouses Lagasca in connection with two loans
granted by the GSIS in which a parcel of land was given as security. They executed a promissory note
indicating that they will pay GSIS the loan in equal monthly installments. However, after they mortgaged the
property to GSIS, the undertaking was not fulfilled, which led to the foreclosure of the said mortgage and
later on, the filing of the case by Racho against GSIS and Lagasca. The trial court dismissed the complaint
for lack of cause of action which was reversed by the CA.

Issue:
Whether or not the promissory note executed by spouses Racho is negotiable.

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

This approach of both parties appears to be misdirected and their reliance misplaced. The promissory note
hereinbefore quoted, as well as the mortgage deeds subject of this case, are clearly not negotiable
instruments. These documents do not comply with the fourth requisite to be considered as such under
Section 1 of Act No. 2031 because they are neither payable to order nor to bearer. The note is payable to a
specified party, the GSIS. Absent the aforesaid requisite, the provisions of Act No. 2031 would not apply;
governance shall be afforded, instead, by the provisions of the Civil Code and special laws on mortgages.
Topic: Concept of Negotiable Instruments

Subtopic: What is Legal Tender

Tibajia, Jr. v. Court of Appeals

G. R. No. 100290, 4 June 1993
223 SCRA 163

Facts:
Norberto Tibajia, Jr. and his wife Carmen were the respondents in a sum of money case filed by a certain
Eden Tan against them, in which the trial court ordered them to pay her. The couple paid in cash and in
check but Tan refused to accept it, insisting the withdrawal of the garnished funds deposited to the trial
court to satisfy the judgment obligation. Tibajia filed a motion to lift the writ of execution on the ground that
the judgment debt had already been paid, but it was denied because the payment in check is not in legal
tender. The CA dismissed the petition filed by Tibajia.

Issue:
Whether or not the check used by Tibajia as payment is a payment in legal tender.

Held:
No.
The provisions of law applicable to the case at bar are the following:

a. Article 1249 of the Civil Code which provides:

Art. 1249. 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.;

b. Section 1 of Republic Act No. 529, as amended, which provides:

Sec. 1. Every provision contained in, or made with respect to, any obligation which purports to give the
obligee the right to require payment in gold or in any particular kind of coin or currency other than Philippine
currency or in an amount of money of the Philippines measured thereby, shall be as it is hereby declared
against public policy null and void, and of no effect, and no such provision shall be contained in, or made
with respect to, any obligation thereafter incurred. Every obligation heretofore and hereafter incurred,
whether or not any such provision as to payment is contained therein or made with respect thereto, shall be
discharged upon payment in any coin or currency which at the time of payment is legal tender for public
and private debts.

c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides:

Sec. 63. Legal character Checks representing deposit money do not have legal tender power and their
acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided,
however, that a check which has been cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account.

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 two (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.
Philippine Airlines, Inc. v. Court of Appeals
G. R. No. L-49188, 30 January 1990
181 SCRA 557

Facts:
Amelia Tan filed a complaint against PAL for damages. The trial court ruled in favor of Tan which was later
affirmed by the CA. The case was later on remanded to the trial court for execution, in which Tan moved for
the issuance of the alias writ of execution but PAL opposed on the ground that they already paid her.

Issue:
Whether or not the payment made by PAL is in legal tender.

Held:
No.
Article 1249 of the Civil Code provides:

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 (US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and unless the parties so agree, a
debtor has no rights, except at his own peril, to substitute something in lieu of cash as medium of payment
of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47 Am. St. Rep. 402). 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 judgment 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 judgment 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 (See. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil
Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61).
A check, whether a manager's check or ordinary cheek, 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.
Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial document is actually realized (Art.
1249, Civil Code, par. 3).

Topic: Negotiable Instruments Compared with Other Papers

Sesbreo v. Court of Appeals

G. R. No. 89252, 24 May 1993
222 SCRA 466

Facts:
Raul Sesbreo made a money market placement with the Philippine Underwriters Finance Corporation
(Philfinance) together with the issuance of a promissory note from Delta Motors and some postdated
checks, but were dishonored because it was drawn out of insufficient fund. he approached Pilipinas Bank
and presented a demand letter asking him to deliver the promissory note but when he inspected it, the face
of the not was stamped "non negotiable". The bank did not deliver the note to him. Sesbreo repeatedly
demanded the bank to deliver the promissory note but it was never released, thus, the case in court against
Pilipinas Bank and Delta Motors. The trial court dismissed the complaint which was affirmed by the CA.

Issue:
Whether or not the promissory note with a stamp on its face stating "non negotiable" is still negotiable.

Held:
Yes.
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. (Emphasis added)

DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-transferable"
or "non-assignable." It contained no stipulation which prohibited Philfinance from assigning or transferring,
in whole or in part, that Note.

Topic: Some Non-Negotiable Instruments

Subtopic: Postal Money Order

Philippine Education Co., Inc. v. Soriano

G. R. No. L-22405, 30 June 1971
39 SCRA 587

Facts:
Enrique Montinola purchased 10 money orders from the Manila Post Office in which he offered to pay for
them with a check which were not accepted as payment for money orders. After being advised to see the
Money Order Division Chief Mauricio Soriano, he left the building instead with the check and the money
orders without the knowledge of the latter. Upon discovery of the incident, all banks were notified by the
postmasters not to accept any money order as payment. Soriano notified the Bank of America that the
money order attached to his letter have been found to be irregularly issued. Then the Philippine Education
Co., Inc. requested the Postmaster General to reconsider the action taken by his office deducting the sum
of P200.00 from the Bank of America clearing account but it was denied. Montinola was charged with theft
but later on acquitted. The municipal court ruled in favor of the Postmaster General, which was affirmed by
the CFI.

Issue:
Whether or not the postal money orders are negotiable.

Held:
No.
It is not disputed that our postal statutes were patterned after statutes in force in the United States. For this
reason, ours are generally construed in accordance with the construction given in the United States to their
own postal statutes, in the absence of any special reason justifying a departure from this policy or practice.
The weight of authority in the United States is that postal money orders are not negotiable instruments
(Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912), 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 for the public benefit.