Garin, Diana M.

Negotiable Instruments

RAUL SESBREÑO, petitioner,

vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS
BANK, respondents.

Facts:

Petitioner Raul Sesbreño made a money market placement in the amount of P300,000.00 with the
Philfinance, the placement, with a term of thirty-two (32) days. Philfinance, issued to the petitioner
a the Certificate of Confirmation of Sale, "without recourse," of one Delta Motors Corporation
Promissory Note ("DMC PN") No. 2731;the Certificate of securities Delivery Receipt No. 16587
indicating the sale of DMC PN No. 2731 to petitioner, with the notation that the said security was
in custodianship of Pilipinas Bank; and post-dated checks payable on 13 March 1981 (i.e., the
maturity date of petitioner's investment), with petitioner as payee, Philfinance as drawer, and
Insular Bank of Asia and America as drawee, in the total amount of P304,533.33.

Petitioner sought to encash the postdated checks issued by Philfinance. However, the checks were
dishonored for having been drawn against insufficient funds.

Philfinance delivered to petitioner the DCR No. 10805 issued by private respondent Pilipinas Bank
("Pilipinas",) informing petitioner that Pilipinas, as duly Custodian Bank, certifies that the
securities may be inspected by the petitioner and shall be delivered to the latter if remained
outstanding in favor of the petitioner within 30 days after its maturity. This was signed by Elizabeth
De Villa of private respondent Pilipinas.

Petitioner approached de Villa, and handed her a demand letter informing the bank that his
placement with Philfinance in the amount reflected in the DCR No. 10805 had remained unpaid
and outstanding, and that he in effect was asking for the physical delivery of the underlying
promissory note. Petitioner then examined the original of the DMC PN No. 2731 and found: that
the security had been issued on 10 April 1980; that it would mature on 6 April 1981; that it had a
face value of P2,300,833.33, with the Philfinance as "payee" and private respondent Delta Motors
Corporation ("Delta") as "maker;" and that on face of the promissory note was stamped "NON
NEGOTIABLE." Pilipinas did not deliver the Note, nor any certificate of participation in respect
thereof, to petitioner.

Petitioner later made similar demand letter again asking private respondent Pilipinas for physical
delivery of the original of DMC PN No. 2731. Petitioner also made a written demand upon private
respondent Delta for the partial satisfaction of DMC PN No. 2731, explaining that Philfinance, as
payee thereof, had assigned to him said Note to the extent of P307,933.33. Delta, however, denied
any liability to petitioner.
Petitioner filed an action for damages with the Regional Trial Court ("RTC") of Cebu City, private
respondents. The trial court, in a decision dismissed the complaint and counterclaims.

Petitioner appealed to respondent Court of Appeals and the latter denied the appeal.

Hence, this Petition for Review on Certiorari.

Issue: Whether or not DMC PN No. 2731 marked as non-negotiable may be assigned

Held:

Yes. 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.12 (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.

WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of Appeals, are
hereby MODIFIED and SET ASIDE.
G.R. No. L-33549 January 31, 1978
BANCO ATLANTICO, petitioner,
vs.
AUDITOR GENERAL, respondent.

FACTS:

Virginia Boncan, then the Finance Officer of the Philippine Embassy in Madrid, Spain, negotiated
three with Banco Atlantico, a Philippine Embassy check in the sum of US$10,109.10, US$
35,000.75, and US$ 90,000.00, with petitioner, a commercial bank doing business in Madrid. The
first two checks were fraudulently altered by Boncan, by increasing the amounts for which the
checks were issued. The third was a demand note payable to Boncan. When she deposited it in her
account, she asked petitioner not to present the check for collection until a later date. Contrary to
normal banking, petitioner cashed the three checks without first clearing the same with the drawee
bank, Philippine National Bank, New York Branch. This was premised on the finding that Boncan
had special relations with the employees of the bank. Upon presentment for acceptance and
payment of said checks by petitioner, the drawee bank dishonored the checks by non-acceptance
on the ground that the drawer ordered payments to be stopped. The Philippine Embassy refused to
pay the petitioner. Petitioner then filed the corresponding claim with the Auditor General, but the
latter denied the same.

Issue:

Whether or not the bank is a holder in due course which would enable him to collect the amount
given to Boncan

Held:

A holder in due course is a holder who has taken the instrument under the following conditions:

1. That it is complete and regular on its face;

2. That he became the holder of it before it was overdue, and without notice that it has been
previously dishonored, if such was the fact;
3. That he took it in good faith and for value;
4. That at the time it was negotiated to him he had no notice of infirmity in the instrument
or defect in the title of the person negotiating it.

The check for US$90,000.00 was a demand note. When Miss Boncan the payee of this check,
negotiated the same by depositing it in her account, at the game time informing the bank in writing
(copy of her letter is enclosed for ease of reference) that it be not presented for collection until a
later date, Banco Atlantico through its agent teller or cashier should have been put on guard that
there was something wrong with the check. The fact that the amount involved was quite big and it
was the payee herself who made the request that the same not be presented for collection until a
fixed date in the future was proof of a glaring infirmity or defect in the instrument. It loudly
proclaims, "Take me at your risk." The interest of the payee was the immediate punishment of the
check of which she was the beneficiary and not the deferment of the presentment for collection of
the same to the drawee bank. This being the case, Banco Atlantico was not a holder in due course
as defined by Section 52 of the N.I.L., because it was obvious that it had knowledge of the infirmity
or defect of the cheek. The fact that the check was honored by claimant bank was proof not only
of their gross negligence but a further manifestation of the special treatment they were according
Miss Boncan.

The Philippine Embassy in Madrid, as drawer of the three (3) checks in question, cannot be held
liable. It is apparent that the said three (3) checks were fraudulently altered by Virginia
Boncan as to their amounts and, therefore, wholly inoperative. No right of payment thereof
against any party thereto could have been acquired by the petitioner.

WHEREFORE, the decision of the Auditor General denying the claim of the petitioner for
payment of the three (3) checks, Annex "C", Annex "D", and Annex "E" of the petition, is hereby
affirmed, without pronouncement as to costs.
G.R. No. L-15380 September 30, 1960

CHAN WAN, plaintiff-appellant,

vs.
TAN KIM and CHEN SO, defendants-appellees.

Facts:

Tan Kim and her husband (Chens So) issued 11 checks payable to “cash or bearer” to be drawn
against their account with the Equitable Banking Corporation. The checks were negotiated to the
White House Shoe Supply (company). White House then deposited the checks to their China Bank
account. China Bank then presented the checks to Equitable Bank but the checks were returned
because Equitable Bank then had no funds to cover the checks. China Bank then stamped the
checks with “Account Closed” and “Non negotiable – China Bank Corporation”.

Such checks were all presented for payment by Chan Wan to the drawee bank (Chan Wan was not
able to explain in court how he got hold of the checks,) but they "were all dishonored and returned
to him unpaid due to insufficient funds and/or causes attributable to the drawer."

Tan Kim declared without contradiction that the checks had been issued to two persons named
Pinong and Muy for some shoes the former had promised to make and "were intended as mere
receipts."

In view of such circumstances, the trial court declined to order payment for two principal reasons:
(a) plaintiff failed to prove he was a holder in due course, and (b) the checks being crossed checks
should not have been deposited instead with the bank mentioned in the crossing.

Issue:

Whether or not the plaintiff has right to collect on the eleven commercial documents.

Held:

Eight of the checks here in question bear across their face two parallel transverse lines between
which these words are written: non-negotiable — China Banking Corporation. These checks have,
therefore, been crossed specially to the China Banking Corporation, and should have been
presented for payment by China Banking, and not by Chan Wan. Inasmuch, as Chan Wan did
present them for payment himself — the Manila court said — there was no proper presentment,
and the liability did not attach to the drawer.

The Court stated that the drawer in drawing the check engaged that "on due presentment, the check
would be paid, and that if it be dishonored, he will pay the amount thereof to the
holder". Wherefore, in the absence of due presentment, the drawer did not become liable.

Nevertheless we find, on the backs of the checks, endorsements which apparently show they had
been deposited with the China Banking Corporation and were, by the latter, presented to the
drawee bank for collection. These circumstances would seem to show deposit of the checks with
China Banking Corporation and subsequent presentation by the latter through the clearing office;
but as drawee had no funds, they were unpaid and returned, some of them stamped "account
closed". How they reached his hands, plaintiff did not indicate. Most probably, as the trial court
surmised, — this is not a finding of fact — he got them after they had been thus returned, because
he presented them in court with such "account closed" stamps, without bothering to explain.
Naturally and rightly, the lower court held him not to be a holder in due course under the
circumstances, since he knew, upon taking them up, that the checks had already been dishonored.

With the understanding that, as defendants did not appeal, their counterclaim must be and is hereby
definitely dismissed.