Philippine education Corporation vs Soriano

39 SCRA 587 – Commercial Law – Negotiable Instruments Law – Postal Money Orders Not
Negotiable Instruments
In April 1958, a certain Enrique Montinola was purchasing ten money orders from the
Manila Post Office. Each money order was worth P200.00. Montinola offered to pay the
money orders via a private check but the cashier told him he cannot pay via a private check.
But still somehow, Montinola was able to leave the post office with the money orders
without him paying for them.
Days later, the missing money orders were discovered. Meanwhile, the Philippine
Education Co., Inc. (PECI) presented one of the missing postal money orders before the
Bank of America. The money order was initially credited and so P200.00 was deposited in
PECI’s account with the bank. But then later the post office, through Mauricio Soriano (Chief
of the Money Order Division of the Post Office), advised the bank that the money order was
irregularly issued hence the P200.00 was debited back from PECI’s account.
PECI is now invoking that the money order was duly negotiated to them and thus they are
entitled to the amount it represents.
ISSUE: Whether or not postal money orders are negotiable instruments.
HELD: No. Postal money orders are not negotiable instruments. The rationale behind this
rule is the fact 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. In fact, postal money orders are subject to a lot
of restrictions limiting their negotiability. Particularly in this case, as far back as 1948, there
was already an agreement between Bank of America and the Manila Post Office, that in
case the post office would have an adverse claim against any Bank of America depositor
involving postal money orders issued by the post office, all amounts cleared in relation
thereto shall be refunded back to the post office’s account with the bank – this in itself is
already a limitation in the negotiability and nature of the postal money orders issued by the
post office because of the special conditions attached.
Metrobank vs. CA
Metropolitan Bank & Trust Company vs. Court of Appeals
G.R. No. 88866 February, 18, 1991
Cruz, J.:

Facts:
Eduardo GomezOPENED AN ACCOUNT with Golden Savings and deposited 38
treasury warrants. All warrants were subsequently indorsed by Gloria Castillo as Cashier of
Golden Savings and deposited to its Savings account in Metrobank branch in Calapan, Mindoro.
They were sent for clearance. Meanwhile, Gomez is not allowed to withdraw from his account,
later, however, “exasperated” over Floria repeated inquiries and also as an accommodation for a
“valued” client Metrobank decided to allow Golden Savings to withdraw from proceeds of the
warrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his
own account. Metrobank informed Golden Savings that 32 of the warrants had been dishonored
by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had
previously withdrawn, to make up the deficit in its account. The demand was rejected.
Metrobank then sued Golden Savings.

Issue:
2. Whether or not treasury warrants are negotiable instruments

Held:

No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is
the word: non negotiable.” Moreover, and this is equal significance, it is indicated that they are
payable from a particular fund, to wit, Fund 501. An instrument to be negotiable instrument must
contain an unconditional promise or orders to pay a sum certain in money. As provided by Sec 3
of NIL an unqualified order or promise to pay is unconditional though coupled with: 1st, an
indication of a particular fund out of which reimbursement is to be made or a particular account
to be debited with the amount; or 2nd, a statement of the transaction which give rise to the
instrument. But an order to promise to pay out of particular fund is not unconditional. The
indication of Fund 501 as the source of the payment to be made on the treasury warrants makes
the order or promise to pay “not conditional” and the warrants themselves non-negotiable. There
should be no question that the exception on Section 3 of NIL is applicable in the case at bar.
Firestone vs CA
Firestone Tire & Rubber Co. of the Phils. vs. Court of Appeals
[G.R. No. 113236. March 5, 2001]

FACTS:
Fojas-Arca Enterprises Company maintained a special account with respondent Luzon
Development Bank which authorized and allowed the former to withdraw funds from its
account through the medium of special withdrawal slips. Fojas-Arca purchased on
credit products from Firestone with a total amount of P4,896,000.00. In payment of
these purchases, Fojas-Arca delivered to plaintiff six special withdrawal slips drawn
upon the respondent bank. In turn, these were deposited by the plaintiff with its current
account with the Citibank. All of them were honored and paid by the
defendant. However, in a subsequent transaction involving the payment of withdrawal
slips by Fojas-Arca for purchases on credit from petitioner, two withdrawal slips for the
total sum of P2,078,092.80 were dishonored and not paid by respondent bank for the
reason "NO ARRANGEMENT".

ISSUE:
Whether respondent bank should be held liable for damages suffered by petitioner, due
to its allegedly belated notice of non-payment of the subject withdrawal slips.

RULING:
The essence of negotiability which characterizes a negotiable paper as a credit
instrument lies in its freedom to circulate freely as a substitute for money. The
withdrawal slips in question lacked this character. As the withdrawal slips in question
were non-negotiable, the rules governing the giving of immediate notice of dishonor of
negotiable instruments do not apply. The respondent bank was under no obligation to
give immediate notice that it would not make payment on the subject withdrawal
slips. Citibank should have known that withdrawal slips were not negotiable
instruments. It could not expect these slips to be treated as checks by other
entities. Payment or notice of dishonor from respondent bank could not be expected
immediately, in contrast to the situation involving checks. Citibank was not bound to
accept the withdrawal slips as a valid mode of deposit. But having erroneously
accepted them as such, Citibank – and petitioner as account-holder – must bear the
risks attendant to the acceptance of these instruments.
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 bank’s 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 Lian’s 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 drawer’s 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.
Dev't Bank of Rizal vs Sima Wei

DEVELOPMENT BANK OF RIZAL vs. SIMA WEI, ET AL.

G.R. No. 85419 March 9, 1993

--complete undelivered

FACTS:

Respondent Sima Wei executed and delivered to petitioner Bank a promissory note engaging to
pay the petitioner Bank or order the amount of P1,820,000.00. Sima Wei subsequently issued
two crossed checks payable to petitioner Bank drawn against China Banking Corporation in full
settlement of the drawer's account evidenced by the promissory note. These two checks
however were not delivered to the petitioner-payee or to any of its authorized representatives
but instead came into the possession of respondent Lee Kian Huat, who deposited the checks
without the petitioner-payee's indorsement to the account of respondent Plastic Corporation with
Producers Bank. Inspite of the fact that the checks were crossed and payable to petitioner
Bank and bore no indorsement of the latter, the Branch Manager of Producers Bank authorized
the acceptance of the checks for deposit and credited them to the account of said Plastic
Corporation.

ISSUE:

Whether petitioner Bank has a cause of action against Sima Wei for the undelivered checks.

RULING:

No. A negotiable instrument must be delivered to the payee in order to evidence its existence
as a binding contract. Section 16 of the NIL provides that every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of giving
effect thereto. Thus, the payee of a negotiable instrument acquires no interest with respect
thereto until its delivery to him. Without the initial delivery of the instrument from the drawer to
the payee, there can be no liability on the instrument. Petitioner however has a right of action
against Sima Wei for the balance due on the promissory note.
PBCom vs Aruego

Philippine Bank of Commerce vs. Aruego

GR L-25836-37, 31 January 1981, 102 scra 530

--agents

FACTS:

To facilitate payment of the printing of a periodical called “World Current Events.”, Aruego, its
publisher, obtained a credit accommodation from the Philippine Bank of Commerce. For every
printing of the periodical, the printer collected the cost of printing by drawing a draft against the
bank, said draft being sent later to Aruego for acceptance. As an added security for the payment
of the amounts advanced to the printer, the bank also required Aruego to execute a trust receipt
in favor of the bank wherein Aruego undertook to hold in trust for the bank the periodicals and to
sell the same with the promise to turn over to the bank the proceeds of the sale to answer for
the payment of all obligations arising from the draft. The bank instituted an action against
Aruego to recover the cost of printing of the latter’s periodical. Aruego however argues that he
signed the supposed bills of exchange only as an agent of the Philippine Education Foundation
Company where he is president.

ISSUES:

Whether Aruego can be held liable by the petitioner although he signed the supposed bills of
exchange only as an agent of Philippine Education Foundation Company.

RULING:

Aruego did not disclose in any of the drafts that he accepted that he was signing as
representative of the Philippine Education Foundation Company. For failure to disclose his
principal, Aruego is personally liable for the drafts he accepted, pursuant to Section 20 of the
NIL which provides that when a person adds to his signature words indicating that he signs for
or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he
was duly authorized; but the mere addition of words describing him as an agent or as filing a
representative character, without disclosing his principal, does not exempt him from personal
liability.