Facts: Defendant bank issued 280 certificates of time deposits (CTDs) in favor of Angel

dela Cruz whom herein defendant acknowledges as a depositor of the aggregate amount
of P1,120,000.00.

A sample text if the CTDs is reproduced below.

SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%

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) (Sgd. Illegible)

AUTHORIZED SIGNATURES

Plaintiff alleged that said CTDs were delivered to them by Angel dela Cruz as security
for purchases of fuel products made with Caltex.

Plaintiff formally informed the defendant bank of its possession of the CTDs and claim
payment of its value.

Defendant bank rejected the plaintiffs demand and claim for payment of the value of the
CTDs after the latter failed to furnish the former a copy of the document evidencing the
guarantee agreement with Angel dela Cruz, as well as details of obligation of Angel dela
Cruz as requested.

The respondent court dismissed the complaint of plaintiff for payment of the value of the
CTDs on the ground that the CTDs are non-negotiable instruments and that petitioner did
not become a holder in due course of the said certificates of deposit.

Issue:

1. WON the CTDs are negotiable instruments.

2. WON petitioner can rightfully recover the CTDs.
Held:

1. YES. The CTDs in question are negotiable instruments for it meets the requirements of
the law for negotiability. Section 1 Act No. 2031 enumerates the requisites for an
instrument to become negotiable:

(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.

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.

The documents provide that the amounts deposited shall be repayable to the depositor
the bearer. The documents do not say that the depositor is Angel de la Cruz and that the
amounts deposited are repayable specifically to him. Rather, the amounts are to be
repayable to the bearer of the documents or, for that matter, whosoever may be the bearer
at the time of presentment.

2. No. Under the Negotiable Instruments Law, an instrument is negotiated when it is

transferred from one person to another in such a manner as to constitute the transferee the
holder thereof, and a holder may be the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof.

In the present case, however, there was no negotiation in the sense of a transfer of the
legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere
delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as
security for the purchases of Angel de la Cruz could at the most constitute petitioner only
as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose
cannot be effected by mere delivery of the instrument since, necessarily, the terms
thereof and the subsequent disposition of such security, in the event of non-payment of
the principal obligation, must be contractually provided for.

During the Japanese occupation, Pacita Young issued three promissory notes to Pacifica
Jimenez. The total sum of the notes was P21k. All three promissory notes were couched
in this manner:
Received from Miss Pacifica Jimenez the total amount of ___________ payable six
months after the war, without interest.
When the promissory notes became due, Jimenez presented the notes for payment. Pacita
and her husband died and so the notes were presented to the administrator of the estate of
the spouses (Dr. Jose Bucoy). Bucoy manifested his willingness to pay but he said that
since the loan was contracted during the Japanee occupation the amount should be
deducted and the Ballantyne Schedule should be used, that is peso-for-yen (which would
lower the amount due from P21k). Bucoy also pointed out that nowhere in the not can be
seen an express promise to pay because of the absence of the words I promise to
pay
ISSUE: Whether or not Bucoy is correct.
HELD: No. The Ballantyne schedule may not be used here because the debt is not
payable during the Japanese occupation. It is expressly stated in the notes that the
amounts stated therein are payable six months after the war. Therefore, no reduction
could be effected, and peso-for-peso payment shall be ordered in Philippine currency.
The notes also amounted in effect to a promise to pay the amounts indicated therein. An
acknowledgment may become a promise by the addition of words by which a promise of
payment is naturally implied, such as, payable, payable on a given day, payable on
demand, paid . . . when called for, . . . To constitute a good promissory note, no
precise words of contract are necessary, provided they amount, in legal effect, to a
promise to pay. In other words, if over and above the mere acknowledgment of the debt
there may be collected from the words used a promise to pay it, the instrument may be
regarded as a promissory note.

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. This Court
has recognized the unique public interest possessed by the banking industry and the
need for the people to have full trust and confidence in their banks. For this reason,
banks are minded to treat their customers accounts with utmost care, confidence, and
honesty. In a checking transaction, the drawee bank has the duty to verify the
genuineness of the signature of the drawer and to pay the check strictly in accordance
with the drawers instructions, i.e., to the named payee in the check.

Facts: Spouses Rodriguez maintained a savings and demand/checking accounts with

petitioners Philippines National Bank (PNB). They were engaged in the informal lending
business and had a discounting arrangement with the Philnabank Employees Savings and
Loan Association (PEMSLA), an association of PNB employees, which likewise
maintained current and savings accounts with petitioner bank. PEMSLA regularly
granted loans to its members. Spouses Rodriguez would rediscount the postdated checks
issued to members whenever the association was short of funds. As was customary, the
spouses would replace the postdated checks with their own checks issued in the name of
the members.

It was PEMSLAs policy not to approve applications for loans of members with
outstanding debts. To subvert this policy, some PEMSLA officers devised a scheme to
obtain additional loans despite their outstanding loan accounts. They took out loans in
the names of unknowing members, without the knowledge or consent of the latter. The
PEMSLA checks issued for these loans were then given to the spouses for rediscounting.
The officers carried this out by forging the indorsement of the named payees in the
checks. In return, the spouses issued their personal checks (Rodriguez checks) in the
name of the members and delivered the checks to an officer of PEMSLA. The PEMSLA
checks, on the other hand, were deposited by the spouses to their account. Meanwhile,
the Rodriguez checks were deposited directly by PEMSLA to its savings account without
any indorsement from the named payees. This usual irregular procedure is made possible
through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in
the PNB Branch.

The spouses issued 69 checks, in the total amount of P2,345,804.00, payable to 47

members of PEMSLA. After finding out such fraudulent act, PNB closed the current
account of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were
returned or dishonored for the reason Account Closed. The corresponding Rodriguez
checks, however, were deposited as usual to the PEMSLA savings account. The amounts
were duly debited from the Rodriguez account. Thus, because the PEMSLA checks given
as payment were returned, spouses Rodriguez incurred losses from the rediscounting
transactions. Spouses Rodriguez sued PEMSLA and PNB. They contended that because
PNB credited the checks to the PEMSLA account even without indorsements, PNB
violated its contractual obligation to them as depositors. PNB paid the wrong payees,
hence, it should bear the loss. Trial court ruled in favor of spouses and ordered PNB to
pay. CA affirmed the decision. Hence this petition

Issue: Whether or not PNB can be made liable to pay the amount of checks which were
deposited to the PEMSLA savings account.

Held: 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. This
Court has recognized the unique public interest possessed by the banking industry and
the need for the people to have full trust and confidence in their banks. For this reason,
banks are minded to treat their customers accounts with utmost care, confidence, and
honesty. In a checking transaction, the drawee bank has the duty to verify the
genuineness of the signature of the drawer and to pay the check strictly in accordance
with the drawers instructions, i.e., to the named payee in the check. It should charge to
the drawers accounts only the payables authorized by the latter. Otherwise, the drawee
will be violating the instructions of the drawer and it shall be liable for the amount
charged to the drawers account. Rodriguez checks are payable to order since the bank
failed to prove that the named payees therein are fictitious. Hence, the fictitious-payee
rule which will make the instrument payable to bearer does not apply. PNB accepted the
69 checks for deposit to the PEMSLA account even without any indorsement from the
named payees. It bears stressing that order instruments can only be negotiated with a
valid indorsement.

In 1946, Ang Tek Lian approached Lee Hua and asked him if he could give him
P4,000.00. He said that he meant to withdraw from the bank but the banks already
closed. In exchange, he gave Lee Hua a check which is payable to the order of cash.
The next day, Lee Hua presented the check for payment but it was dishonored due to
insufficiency of funds. Lee Hua eventually sued Ang Tek Lian. In his defense, Ang Tek
Lian argued that he did not indorse the check to Lee Hua and that when the latter
accepted the check without Ang tek Lians indorsement, he had done so fully aware of
the risk he was running thereby.
ISSUE: Whether or not Ang Tek Lian is correct.
HELD: No. Under the Negotiable Instruments Law (sec. 9 [d]), a check drawn payable
to the order of cash is a check payable to bearer hence a bearer instrument, and the
bank may pay it to the person presenting it for payment without the drawers
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.