Requisites of a negotiable instrument HSBC Ltd.-Phil. Branches vs. Comm.

of Internal
Revenue, G .R. No. 166018, June 04, 2014 Virgil Bombita
Key Take-away

Form of negotiable instruments.– 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

Recit-ready/Summary

HSBC performing as a custodial service manages passive investments of resident and non-resident
investor-clients wherein it serves as the collection/payment agent. HSBC’s investor-clients maintain
Philippine and/or foreign currency accounts, which are managed through electronic messages from said
investor-clients in purchasing shares of stock or other forms of securities in which said messages would be
sent from abroad instructing HSBC to debit from their accounts and pay the purchase price upon receipt of
the securities. Pursuant to Section 181 of the 1997 Tax Code imposes Documentary Stamp Tax on the
acceptance or payment of a bill of exchange or order for the payment of money, HSBC paid the DST from
the electronic messages from investor-clients in 1997. Pursuant to a issued BIR Ruling during 1999 that
issued to the effect that instructions or advises from abroad on the management of funds located in the
Philippines which do not involve transfer of funds from abroad are not subject to DST, HSBC claims the
refund on their erroneously paid DST based on the electronic messages.

Facts

• petitions for review on certiorari on assailing the decision of the CA reversing the decision of the CTA
in granting refund of petitioner’s payment of DST
• HSBC performs as a custodial service in which it manages the passive income of individual and
corporate, resident and non-resident investor-clients, wherein they maintain a Philippine and/or foreign
currency account.
• In purchasing shares of stock investor-clients send electronic messages instructing HSBC to debit from
their accounts and pay for the securities upon receipt.
• Pursuant to the electronic messages, HSBC payed Documentary Stamp Tax in the years 1997 and 1998
amounting to 19M and 32M respectively.
• August 1999 the BIR issued BIR Ruling No. 132-99 to the effect that instructions or advises from abroad
on the management of funds located in the Philippines which do not involve transfer of funds from abroad
are not subject to DST
• Pursuant to the ruling HSBC filed an administrative claim for refund with the BIR for the DST previously
paid, which was thereafter brought up to the CTA and subsequently granted, wherein it ruled that
electronic messages are not considered bills of exchange but are considered merely as memoranda.
• The CA reversed the decision of the CTA citing that the DST was levied on the acceptance and payment
made by HSBC pursuant to the order made by its client-investors as embodied in the cited electronic
messages

Issues/Ratio Articles/Laws Involved

WON the electronic messages are considered to be Section 1 of the Negotiable Instruments Law
bills of exchange subject to DST?

Held

NO, electronic messages are not considered to be bills of exchange. The electronic messages are not signed
by the investor-clients as supposed drawers of a bill of exchange; they do not contain an unconditional order
to pay a sum certain in money as the payment is supposed to come from a specific fund or account of the
investor-clients; and, they are not payable to order or bearer but to a specifically designated third party.