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CONCEPT OF NEGOTIABILITY
"Holder" means the payee or indorsee of a bill or note who is in
1. to specified person possession of it, or the bearer thereof;
2. transfer by assignment "Indorsement" means an indorsement completed by delivery;
3. Transferee is assignee. Assignee is similar to a subrogee.
Therefore, assignee only acquires the totality of the right of "Instrument" means negotiable instrument;
the transferor.
"Issue" means the first delivery of the instrument, complete in form, to
Negotiable Instrument a person who takes it as a holder;
1. to order or bearer
"Person" includes a body of persons, whether incorporated or not;
2. transfer by negotiation
3. Transferee is holder. Unlike an assignee, a holder is in due "Value" means valuable consideration;
course is free from all personal defenses available among
the parties. Thus, one of the big advantages of a holder is "Written" includes printed, and
that he can get rights better or superior to those rights of
his immediate transferor "writing" includes print.
Incidents in the Life of Negotiable Instruments
(1) Preparation and signing
(2) Issuance (to the payee) Functions of Negotiable Instruments
(3) Negotiation 1. Substitute for money
(4) Presentment for acceptance 2. Medium of exchange
(5) Acceptance 3. Credit instrument which increases credit circulation
(6) Dishonor by non-acceptance 4. Increase purchasing medium in circulation
(7) Presentment for payment 5. Evidence of transaction
(8) Payment
(9) Dishonor by non-payment Kinds of Negotiable Instruments
(10) Notice of dishonor/protest a) Negotiable Promissory Notes
(11) Discharge
Sec. 184. Promissory note,
defined. A negotiable promissory note within the meaning of
TYPES OF NEGOTIABLE INSTRUMENTS this Act is an unconditional promise in writing made by one
The Negotiable Instruments Law deals with three kinds of negotiable person to another, signed by the maker, engaging to pay on
instruments, namely: demand, or at a fixed determinable future time, a sum certain in
money to order or to bearer. Where a note is drawn to the
(1) Promissory notes, maker’s own order, it is not complete until indorsed by him.
(2) Bills of exchange, and
(3) Checks, which are also bills of exchange, but of a special kind. i. parties to a negotiable promissory note
Sec. 191. Definition and meaning of terms. - In this Act, unless the • Maker/promissor – party who promises to pay.
contract otherwise requires: • Payee –to whom payment is to be made
"Acceptance" means an acceptance completed by delivery or
notification; ii. Kinds of negotiable promissory note
"Action" includes counterclaim and set-off; • CERTIFICATE OF DEPOSIT – a form of promissory note which is
a written acknowledgment of a bank or its receipt of a certain sum
"Bank" includes any person or association of persons carrying on with a promise to pay the same.
the business of banking, whether incorporated or not;
• BONDS – a certificate or evidence of a debt on which the issuing
"Bearer" means the person in possession of a bill or note which is company or governmental body promises to pay the bondholders a
payable to bearer; specified amount of interest for a specified length of time and to
repay the loan on the expiration date.
"Bill" means bill of exchange, and
• DEBENTURE – a promissory note or bond backed by the general
"Note" means negotiable promissory note; credit of a corporation and usually not secured by a mortgage or lien
on any specific property.
"Delivery" means transfer of possession, actual or constructive, from
one person to another;
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Section 1. 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.
Bill of Exchange
1) It must be in writing and signed by the drawer
2) It must contain an unconditional order to pay a sum certain in
money
3) it must be payable on demand, or at a fixed or determinable future
time
4) it must be payable to order or bearer
5) the drawee must be named or otherwise indicated with reasonable
certainty
Promissory Note
1) It must be in writing and signed by the maker
2) It must contain an unconditional promise to pay a sum certain in
money
3) It must be payable on demand, or at a fixed or determinable future
time
4) It must be payable to order or to bearer
Agbayani: The name of the person on whom a bill is drawn should
appear on its face. Otherwise the instrument would not be
negotiable. But under Section 14, the drawee’s name may be omitted
and be filled in under implied authority like any other blank. And, an
acceptance may supply the omission of a designation.
Sebastain: If the instrument is addressed to a drawee, he must be
named or otherwise indicated with reasonable certainly. This
suggests that there are two types of negotiable instruments. This
requirement is only applied in bills of exchange where there is a
drawee. The authority to pay is different from a direct instruction to
pay. Therefore, “I authorize (drawee) to pay…” is a nonnegotiable
instrument.
CASES: Primary consideration
Phil Educ Co vs Soriano
FACTS: On April 18, 1958 Enrique Montinola sought to purchase
from the Manila Post Office ten (10) money orders of P200.00 each
payable to E.P. After the postal teller had made out money
ordersnumbered 124685, 124687-124695, Montinola offered to pay
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for them with a private checks were not generally accepted in
payment of money orders, the teller advised him to see the Chief of
the Money Order Division, but instead of doing so, Montinola
managed to leave building with his own check and the ten (10)
money orders without the knowledge of the teller. upon discovery of
the disappearance of the unpaid money orders, an urgent message
was sent to all postmasters, and the following day notice was
likewise served upon all banks, instructing them not to pay anyone of
the money orders aforesaid if presented for payment. The Bank of
America received a copy of said notice three days later.
On April 23, 1958 one of the above-mentioned money orders
numbered 124688 was received by appellant as part of its sales
receipts. The following day it deposited the same with the Bank of
America, and one day thereafter the latter cleared it with the Bureau
of Posts and received from the latter its face value of P200.00.
On September 27, 1961, appellee Mauricio A. Soriano, Chief of the
Money Order Division of the Manila Post Office, acting for and in
behalf of his co-appellee, Postmaster Enrico Palomar, notified the
Bank of America that money order No. 124688 attached to his letter
had been found to have been irregularly issued and that, in view
thereof, the amount it represented had been deducted from the
bank's clearing account. For its part, on August 2 of the same year,
the Bank of America debited appellant's account with the same
amount and gave it advice thereof by means of a debit memo. On
October 12, 1961 appellant requested the Postmaster General to
reconsider the action taken by his office deducting the sum of
P200.00 from the clearing account of the Bank of America, but his
request was denied. So was appellant's subsequent request that the
matter be referred to the Secretary of Justice for advice. Thereafter,
appellant elevated the matter to the Secretary of Public Works and
Communications, but the latter sustained the actions taken by the
postal officers.
Court of First Instance:
Montinola Acquitted
ISSUE: that the postal money order in question is a negotiable
instrument.
HELD: No. Postal Money Order is not a negotiable instrument. 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.
It is to be noted in this connection that some of the restrictions
imposed upon money orders by postal laws and regulations are
inconsistent with the character of negotiable instruments. For
instance, such laws and regulations usually provide for not more than
one endorsement; payment of money orders may be withheld under
a variety of circumstances (49 C.J. 1153).
PAL vs. CA
FACTS: November 8, 1967: Amelia Tan, under the name and style of
Able Printing Press commenced a complaint for damages before the
CFI
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CFI: favored Amelia Tan against Philippine Airlines Inc. (PAL).CA
affirmed with modification
May 18, 1978: PAL received a copy of the first alias writ of execution
issued on the same day directing Special Sheriff Jaime K. del
Rosario to levy on execution in the sum of P25,000.00 with legal
interest thereon from July 20,1967 when respondent Amelia Tan
made an extra-judicial demand through a letter May 23, 1978: PAL
filed an urgent motion to quash the alias writ of execution stating that
no return of the writ had as yet been made and that the judgment
debt had already been fully satisfied as evidenced by the cash
vouchers signed and received by Deputy Sheriff Reyes who
absconded May 26,1978: served a notice of garnishment on the
depository bank of PAL
Issue: W/N payment made to the absconding sheriff by check in his
name operate to satisfy the judgment debt.
HELD: NO.
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. 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).
If bouncing checks had been issued in the name of Amelia Tan and
not the Sheriff's, there would have been no payment. After dishonor
of the checks, Ms. Tan could have run after other properties of PAL.
The theory is that she has received no value for what had been
awarded her. Because the checks were drawn in the name of Emilio
Z. Reyes, neither has she received anything. The same rule should
apply.
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.
As between two innocent persons, one of whom must suffer the
consequence of a breach of trust, the one who made it possible by
his act of confidence must bear the loss.
PAL without prudence, departed from what is generally observed and
done, and placed as payee in the checks the name of the errant
Sheriff and not the name of the rightful payee
BPI vs Spouses Royeca G.R. No. 176664, July 21, 2008
FACTS:
Spouses Reynaldo and Victoria Royeca (respondents) executed and
delivered to Toyota Shaw, Inc. a Promissory Note payable in 48
equal monthly installments. The Promissory Note provides for a
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penalty of 3% for every month or fraction of a month that an
installment remains unpaid.
Respondents executed a Chattel Mortgage in favor of Toyota over a
certain motor vehicle. Toyota, with notice to respondents, executed a
Deed of Assignment transferring all its rights, title, and interest in the
Chattel Mortgage to Far East Bank and Trust Company (FEBTC).
Claiming that the respondents failed to pay four (4) monthly, FEBTC
sent a formal demand to respondents, asking for the payment
thereof, plus penalty. The respondents refused to pay on the ground
that they had already paid their obligation. FEBTC filed a Complaint
for Replevin and Damages against the respondents with the
Metropolitan Trial Court (MeTC) of Manila praying for the delivery of
the vehicle. The complaint was later amended to substitute BPI as
plaintiff when it merged with and absorbed FEBTC.
Respondents alleged that they delivered to the Auto Financing
Department of FEBTC eight (8) postdated checks in different
amount. The Acknowledgment Receipt, which they attached to the
Answer, showed that FEBTC received the checks. respondents
further averred that they did not receive any notice from the drawee
banks or from FEBTC that these checks were dishonored. They
explained that, considering this and the fact that the checks were
issued three years ago, they believed in good faith that their
obligation had already been fully paid. They alleged that the
complaint is frivolous and plainly vexatious.
FEBTC admitted that they had, in fact, received the eight checks
from the respondents. However, two of these were dishonored. He
recalled that the remaining two checks were not deposited anymore
due to the previous dishonor of the two checks.
ISSUE:
Whether tender of checks constitutes payment.
RULING:
NO. A check is not legal tender and, therefore, cannot constitute a
valid tender of payment. 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. The
obligation is not extinguished and remains suspended until the
payment by commercial document is actually realized.
Rodrigo Rivera Vs. Spouses Salvador C. Chua and Violeta S.
Chua/Spouses Salvador C. Chua and Violeta S. Chua Vs.
Rodrigo Rivera
G.R. Nos. 184458/184472. January 14, 2015
A negotiable promissory note within the meaning of this Act is an
unconditional promise in writing made by one person to another,
signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to
bearer. Where a note is drawn to the maker’s own order, it is not
complete until indorsed by him.
FACTS:
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Petitioner Rodrigo Rivera obtained a load from his friends Spouses
Salvador and Violeta Chua:
PROMISSORY NOTE
120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay
spouses SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of
One Hundred Twenty Thousand Philippine Currency (120,000.00) on
December 31, 1995.
It is agreed and understood that failure on my part to pay the amount
of (120,000.00) One Hundred Twenty Thousand Pesos on December
31, 1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT
(5%) interest monthly from the date of default until the entire
obligation is fully paid for.
In October 1998, Rivera issued and delivered to the Spouses Chua,
as payee, a check numbered 012467, dated 30 December 1998, in
the amount of 25,000.00 and on 21 December 1998, another check
numbered 013224, duly signed and dated, but blank as to payee.
The second check was issued, as per understanding by the parties, n
the amount of 133,454.00 with “cash” as payee. Both checks were
dishonored for the reason “account closed.”
Due to Rivera’s unjustified refusal to pay, respondents were
constrained to file a suit on 11 June 1999.
In his Answer with Compulsory Counterclaim, Rivera countered,
among others, that the subject Promissory Note was forged and that
here was no demand for payment of the amount of 120,000.00 prior
to the encashment of PCIB Check No. 0132224. Respondents
presented documentary and oral evidence of NBI Senior Document
Examiner Antonio Magbojos who concluded that the questioned
signature appearing in the Promissory Note and the Rivera’s
specimen signatures on other documents written by one and the
same person.
The MeTC ruled in Spouses Chua’s favor. On appeal, the RTC
affirmed the MeTC decision but deleted the award of attorney’s fees.
The CA also affirmed Rivera’s liability under the Promissory Note but
reduced the imposition of interest on the loan from 60% to 12% per
annum.
Both parties appealed before the SC. Respondent’s petition for
review on certiorari was denied for failure to show any reversible on
the CA ruling concerning the correct rate of interest on Rivera’s
indebtnesses under the Promissory Note. Rivera continued to deny
that he executed the Promissory Note and alleged that the Spouses
Chua “never demanded payment for the loan nor interest thereof
(sic) from [Rivera] for almost four (4) years from the time of the
alleged default in payment.
ISSUES:
1. Whether the CA erred in ruling that there was a valid promissory
note.
2. Whether the promissory note is negotiable instrument, thus the
Negotiable Instruments Law (NIL) applies to this case.
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3. Whether Rivera is still liable under the terms of the Promissory
Note assuming that it is not a negotiable instrument.
4. Whether the CA erred in reducing the interest rate from 60% to
12% per annum.
HELD:
1. Yes.
First, [the court] cannot give credence to such a naked claim of
forgery over the testimony of the National Bureau of Investigation
(NBI) handwriting expert on the integrity of the promissory note.
Indeed, Rivera had the burden of proving the material allegations
which he sets up in his Answer to the plaintiff’s claim or cause of
action, upon which issue is joined, whether they relate to the whole
case or only to certain issues in the case.
In this case, Rivera’s bare assertion is unsubstantiated and directly
disputed by the testimony of a handwriting expert from the NBI. While
it is true that resort to experts is not mandatory or indispensable to
the examination or the comparison of handwriting, the trial courts in
this case, on its own, using the handwriting expert testimony only as
an aid, found the disputed document valid.
In all, Rivera’s evidence or lack thereof consisted only of a barefaced
claim of forgery and a discordant defense to assail the authenticity
and validity of the Promissory Note. Although the burden of proof
rested on the Spouses Chua having instituted the civil case and after
they established a prima facie case against Rivera, the burden of
evidence shifted to the latter to establish his defense. Consequently,
Rivera failed to discharge the burden of evidence, refute the
existence of the Promissory Note duly signed by him and
subsequently, that he did not fail to pay his obligation thereunder. On
the whole, there was no question left on where the respective
evidence of the parties preponderated—in favor of plaintiffs, the
Spouses Chua.
2. No. The subject promissory note is not a negotiable instrument
and the provisions of the NIL do not apply to this case. Section 1 of
the NIL requires the concurrence of the following elements to be a
negotiable instrument:
(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
On the other hand, Section 184 of the NIL defines what negotiable
promissory note is:
SECTION 184. Promissory Note, Defined. – A negotiable promissory
note within the meaning of this Act is an unconditional promise in
writing made by one person to another, signed by the maker,
engaging to pay on demand, or at a fixed or determinable future time,
a sum certain in money to order or to bearer. Where a note is drawn
to the maker’s own order, it is not complete until indorsed by him.
 NEGO: OTAZA NOTES
The Promissory Note in this case is made out to specific persons,
herein respondents, the Spouses Chua, and not to order or to bearer,
or to the order of the Spouses Chua as payees.
3. Yes, even if Rivera’s Promissory Note is not a negotiable
instrument and therefore outside the coverage of Section 70 of the
NIL which provides that presentment for payment is not necessary to
charge the person liable on the instrument, Rivera is still liable under
the terms of the Promissory Note that he issued.
The Promissory Note is unequivocal about the date when the
obligation falls due and becomes demandable—31 December 1995.
As of 1 January 1996, Rivera had already incurred in delay when he
failed to pay the amount of 120,000.00 due to the Spouses Chua on
31 December 1995 under the Promissory Note
Article 1169 of the Civil Code explicitly provides:
Art. 1169. Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order
that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.
There are four instances when demand is not necessary to constitute
the debtor in default: (1) when there is an express stipulation to that
effect; (2) where the law so provides; (3) when the period is the
controlling motive or the principal inducement for the creation of the
obligation; and (4) where demand would be useless. In the first two
paragraphs, it is not sufficient that the law or obligation fixes a date
for performance; it must further state expressly that after the period
lapses, default will commence.
The date of default under the Promissory Note is 1 January 1996, the
day following 31 December 1995, the due date of the obligation. On
that date, Rivera became liable for the stipulated interest which the
Promissory Note says is equivalent to 5% a month. In sum, until 31
December 1995, demand was not necessary before Rivera could be
held liable for the principal amount of 120,000.00. Thereafter, on 1
January 1996, upon default, Rivera became liable to pay the
Spouses Chua damages, in the form of stipulated interest.
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The liability for damages of those who default, including those who
are guilty of delay, in the performance of their obligations is laid down
on Article 1170 of the Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of payment
of interest as an indemnity for damages when the obligor incurs in
delay:
Art. 2209. If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six percent per annum.
4. No.
At the time interest accrued from 1 January 1996, the date of default
under the Promissory Note, the then prevailing rate of legal interest
was 12% per annum under Central Bank (CB) Circular No. 416 in
cases involving the loan or forbearance of money. Thus, the legal
interest accruing from the Promissory Note is 12% per annum from
the date of default on 1 January 1996.
However, the 12% per annum rate of legal interest is only applicable
until 30 June 2013, before the advent and effectivity of Bangko
Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013 reducing
the rate of legal interest to 6% per annum. Pursuant to our ruling
in Nacar v. Gallery Frames, BSP Circular No. 799 is prospectively
applied from 1 July 2013. In short, the applicable rate of legal
interest from 1 January 1996, the date when Rivera defaulted, to
date when this Decision becomes final and executor is divided into
two periods reflecting two rates of legal interest: (1) 12% per annum
from 1 January 1996 to 30 June 2013; and (2) 6% per annum FROM
1 July 2013 to date when this Decision becomes final and executory.
CASES: Negotiability
Equitable Bank vs IAC 1988
In 1975, Liberato Casals, majority stockholder of Casville
Enterprises, went to buy two garrett skidders (bulldozers) from
Edward J. Nell Company amounting to P970,000.00. To pay the
bulldozers, Casals agreed to open a letter of credit with the Equitable
Banking Corporation. Pursuant to this, Nell Company shipped one of
the bulldozers to Casville. Meanwile, Casville advised Nell Company
that in order for the letter of credit to be opened, Casville needs to
deposit P427,300.00 with Equitable Bank, and that since Casville is a
little short, it requested Nell Company to pay the deposit in the
meantime.
Nell Company agreed and so it eventually sent a check in the
amount of P427,300.00. The check read:
Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF
CASVILLE ENTERPRISES, INC.
Nell Company sent the check to Casville so that it would be the latter
who could send it to Equitable Bank to cover the deposit in lieu of the
letter of credit. Casals received the check, he went to Equitable
Bank, and the teller received the check. The teller, instead of
applying the amount as deposit in lieu of the letter of credit, credited
 NEGO: OTAZA NOTES
the check to Casville’s account with Equitable Bank. Casals later
withdrew all the P427,300.00 and appropriated it to himself.
ISSUE: Whether or not Equitable Bank is liable to cover for the loss.
HELD: No. The subject check was equivocal and patently
ambiguous. Reading on the wordings of the check, the payee
thereon ceased to be indicated with reasonable certainty in
contravention of Section 8 of the Negotiable Instruments Law. As
worded, it could be accepted as deposit to the account of the party
named after the symbols “A/C,” or payable to the Bank as trustee, or
as an agent, for Casville Enterprises, Inc., with the latter being the
ultimate beneficiary. That ambiguity is to be
taken contra proferentem that is, construed against Nell Company
who caused the ambiguity and could have also avoided it by the
exercise of a little more care. Thus, Article 1377 of the Civil Code,
provides:
Art. 1377. The interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity.
TRADERS ROYAL VS CA
FACTS:
Requisites of negotiability to antedated and postdated instruments
(Negotiable Instrument Law)
FACTS: Filriters (assigned) > Philfinance (still under the name of
Filriters assigned) > Traders Royal Bank = ? (valid or not)
November 27, 1979: Filriters Guaranty Assurance Corporation
(Filriters) executed a "Detached Assignment whereby Filriters, as
registered owner, sold, transferred, assigned and delivered unto
Philippine Underwriters Finance Corporation (Philfinance) all its
rights and title to Central Bank Certificates of Indebtedness (CBCI) of
P500k and having an aggregate value of P3.5M The Detached
Assignment contains an express authorization executed by the
transferor intended to complete the assignment through the
registration of the transfer in the name of PhilFinance February 4,
1981: Traders Royal Bank (Traders) entered into a Repurchase
Agreement w/ PhilFinance whereby in consideration of the sum of
P500,000.00, PhilFinance sold, transferred and delivered a CBCI w/
a face value of P500K which CBCI was among those previously
acquired by PhilFinance from Filriters PhilFinance failed to
repurchase on the agreed date of maturity, April 27, 1981, when the
checks it issued in favor of petitioner were dishonored for insufficient
funds Philfinance transferred and assigned all, its rights and title in
the CBCI to Traders Respondent failed and refused to register the
transfer as requested, and continues to do so notwithstanding
petitioner's valid and just title over the same and despite repeated
demands in writing Traders prayed for the registration by the Central
Bank of the subject CBCI in its name.
CA affirmed RTC: subsequent assignment in favor of Traders Royal
Bank null and void and of no force and effect.
Philfinance acquired no title or rights under CBCI which it could
assign or transfer to Traders and which it can register with the
Central Bank instrument is payable only to Filriters, the registered
owner
ISSUE: W/N the CBCI is a negotiable instrument
6
HELD: NO. Petition is dismissed. CA affirmed.
CBCI is not a negotiable instrument in the absence of words of
negotiability within the meaning of the negotiable instruments law
(Act 2031) certificate of indebtedness = certificates for the creation
and maintenance of a permanent improvement revolving fund
similar to a "bond" properly understood as acknowledgment of an
obligation to pay a fixed sum of money usually used for the purpose
of long term loans
Philfinance merely borrowed the CBCI from Filriters, a sister
corporation.
 lack of any consideration = assignment is a complete nullity
 Filriters to Philfinance did not conform to the "Rules and
Regulations Governing Central Bank Certificates of
Indebtedness" (Central Bank Circular No. 769, series of
1980) under which the note was issued.
 Published in the Official Gazette on November 19, 1980,
Section 3 thereof provides that any assignment of registered
certificates shall not be valid unless made . . . by the registered
owner thereof in person or by his representative duly authorized
in writing
 Alfredo O. Banaria, who signed the deed of assignment
purportedly for and on behalf of Filriters, did not have the
necessary written authorization from the BOD
 Traders, being a commercial bank, cannot feign ignorance of
Central Bank Circular 769, and its requirements.
 The fact that Filfinance owns majority shares in Filriters is not by
itself a ground to disregard the independent corporate status of
Filriters.
 Traders knew that Philfinance is not registered owner of the
CBCI.
 The fact that a non-owner was disposing of the registered CBCI
owned by another entity was a good reason for petitioner to
verify of inquire as to the title Philfinance to dispose to the
CBCI.
 Nemo potest nisi quod de jure potest — no man can do
anything except what he can do lawfully.
Garcia Vs. Llamas
FACTS: A complaint for sum of money was filed by respondent
Dionisio Llamas against Petitioner Romeo Garcia and Eduardo de
Jesus alleging that the two borrowed Php 400, 000 from him. They
bound themselves jointly and severally to pay the loan on or before
January 23, 1997 with a 15% interest per month. The loan remained
unpaid despite repeated demands by respondent.
Petitioner resisted the complaint alleging that he signed the
promissory note merely as an accommodation party for de Jesus and
 NEGO: OTAZA NOTES
the latter had already paid the loan by means of a check and that the
issuance of the check and acceptance thereof novated or
superseded the note.
The trial court rendered a judgment on the pleadings in favor of the
respondent and directed petitioner to pay jointly and severally
respondent the amounts of Php 400, 000 representing the principal
amount plus interest at 15% per month from January 23, 1997 until
the same shall have been fully paid, less the amount of Php 120,000
representing interests already paid.
The Court of Appeals ruled that no novation, express or implied, had
taken place when respondent accepted the check from de Jesus.
According to the CA, the check was issued precisely to pay for the
loan that was covered by the promissory note jointly and severally
undertaken by petitioner and de Jesus. Respondent’s acceptance of
the check did not serve to make de Jesus the sole debtor because
first, the obligation incurred by him and petitioner was joint and
several; and second, the check which had been intended to
extinguish the obligation bounced upon its presentment.
Issues:
(1) Whether or not there was novation of the obligation
(2) Whether or not the defense that petitioner was only an
accommodation party had any basis.
Held: For novation to take place, the following requisites must
concur: (1) There must be a previous valid obligation; (2) the parties
concerned must agree to a new contract; (3) the old contract must be
extinguished; and (4) there must be a valid new contract.
The parties did not unequivocally declare that the old obligation had
been extinguished by the issuance and the acceptance of the check
or that the check would take the place of the note.
(2) By its terms, the note was made payable to a specific person
rather than bearer to or order—a requisite for negotiability. Hence,
petitioner cannot avail himself of the NIL’s provisions on the liabilities
and defenses of an accommodation party. Besides, a non-negotiable
note is merely a simple contract in writing and evidence of such
intangible rights as may have been created by the assent of the
parties. The promissory note is thus covered by the general
provisions of the Civil Code, not by the NIL.
Even granting that the NIL was applicable, still petitioner would be
liable for the note. An accommodation party is liable for the
instrument to a holder for value even if, at the time of its taking, the
latter knew the former to be only an accommodation party. The
relation between an accommodation party and the party
accommodated is, in effect, one of principal and surety. It is a settled
rule that a surety is bound equally and absolutely with the principal
and is deemed an original promissory debtor from the beginning. The
liability is immediate and direct.
METROPOLITAN BANK V. CA
194 SCRA 169
FACTS:
Gomez opened an account with Golden Savings bank and
deposited 38 treasury warrants. All these warrants were
indorsed by the cashier of Golden Savings, and deposited it to
the savings account in a Metrobank branch. They were sent
later on for clearing by the branch office to the principal office
of Metrobank, which forwarded them to the Bureau of Treasury
for special clearing. On persistent inquiries on whether the
warrants have been cleared, the branch manager allowed withdrawal
of the warrants, only to find out later on that the treasury
7
warrants have been
dishonored.
HELD:
The treasury warrants were not negotiable instruments.
Clearly, it is indicated that it was non-negotiable and of equal
significance is the indication that they are payable from a
particular fund, Fund 501. This indication as the source of
payment to be made on the treasury warrant
makes the promise to pay conditional and the warrants
themselves non-negotiable.
Metrobank then cannot contend that by indorsing the warrants in
general, GS assumed that they were genuine and in all respects
what they purport it to be, in accordance to Section 66 of the NIL.
The simple reason is that the law isn’t applicable to the non-
negotiable treasury warrants. The endorsement was made for
the purpose of merely depositing them with Metrobank for
clearing. It was in fact Metrobank which stamped on the back
of the warrants: “All prior indorsements and/or lack of endorsements
guaranteed…”
Philippine Education Co., Inc. vs Mauricio Soriano, et al
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.
 NEGO: OTAZA NOTES
Negotiable Instruments Case Digest: Caltex (Phils.) Inc. V. CA
And Security Bank And Trust Co. (1992)
Lessons Applicable: Requisites of negotiability to antedated and
postdated instruments (Negotiable Instrument Law)
FACTS:
 Security Bank and Trust Company (Security Bank), a
commercial banking institution, through its Sucat Branch issued
280 certificates of time deposit (CTDs) in favor of Angel dela
Cruz who deposited with Security Bank the total amount of
P1,120,000
 Angel delivered the CTDs to Caltex for his purchase of fuel
products
 March 18, 1982: Angel informed Mr. Tiangco, the Sucat Branch
Manager that he lost all CTDs, submitted the required Affidavit
of Loss and received the replacement
 March 25, 1982: Angel dela Cruz negotiated and obtained a
loan from Security Bank in the amount of P875,000 and
executed a notarized Deed of Assignment of Time Deposit
 November, 1982: Mr. Aranas, Credit Manager of Caltex went to
the Sucat branch to verify the CTDs declared lost by Angel
 November 26, 1982: Security Bank received a letter from Caltex
formally informing it of its possession of the CTDs in question
and of its decision to pre-terminate the same.
 December 8, 1982: Caltex was requested by Security Bank to
furnish:
 a copy of the document evidencing the guarantee agreement
with Mr. Angel dela Cruz
 the details of Mr. Angel's obligation against which Caltex
proposed to apply the time deposits
 Security Bank rejected Caltex demand for payment bec. it failed
to furnish a copy of its agreement w/ Angel
 April 1983, the loan of Angel dela Cruz with Security Bank
matured
 August 5, 1983: CTD were set-off w/ the matured loan
 Caltex filed a complaint praying the bank to pay 1,120,000 plus
16% interest
 CA affirmed RTC to dismiss complaint
ISSUE:
1. W/N the CTDs are negotiable
8
2. W/N Caltex as holder in due course can rightfully recover on
the CTDs
HELD: Petition is Denied and appealed decision is affirmed.
1. YES.
Section 1 Act No. 2031, otherwise known as the Negotiable
Instruments Law, enumerates the requisites for an instrument to
become negotiable, viz:
(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 -check
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
 The documents provide that the amounts deposited shall be
repayable to the depositor
 depositor = bearer
 If it was really the intention of respondent bank to pay the
amount to Angel de la Cruz only, it could have with facility so
expressed that fact in clear and categorical terms in the
documents, instead of having the word "BEARER" stamped on
the space provided for the name of the depositor in each CTD
 negotiability or non-negotiability of an instrument is determined
from the writing, that is, from the face of the instrument itself
2. NO.
although the CTDs are bearer instruments, a valid negotiation thereof
for the true purpose and agreement between it and De la Cruz, as
ultimately ascertained, requires both delivery and indorsement CTDs
were in reality delivered to it as a security for De la Cruz' purchases
of its fuel products 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. Where the holder has a lien on the instrument
arising from contract, he is deemed a holder for value to the extent of
his lien. As such holder of collateral security, he would be a pledgee
but the requirements therefor and the effects thereof, not being
provided for by the Negotiable Instruments Law, shall be governed
by the Civil Code provisions on pledge of incorporeal rights:
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . .
. may also be pledged. The instrument proving the right pledged shall
be delivered to the creditor, and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a
description of the thing pledged and the date of the pledge do not
appear in a public instrument.
Art. 1625. An assignment of credit, right or action shall produce no
effect as against third persons, unless it appears in a public
 NEGO: OTAZA NOTES
instrument, or the instrument is recorded in the Registry of Property
in case the assignment involves real property.

Negotiable Instruments Case Digest: Salas V. CA (1990)

essons Applicable: Introduction to Negotiable Instruments
(Negotiable Instruments Law)

FACTS:
 February 6, 1980: Juanita Salas bought a motor vehicle from
the Violago Motor Sales Corp. (VMS) for P58,138.20 as
evidence by a promissory note
 This note was subsequently endorsed to Filinvest Finance
&Leasing Corp. (FFLC)
 May 21, 1980: Salas defaulted in her installments allegedly due
to discrepancies in the engine and chassis number of the
vehicle delivered and discovery of certificate of reg. and deed of
mortgage
 VMS initiated for a sum of money at the RTC
 RTC: favored VMS
 CA: Affirmed
ISSUE: W/N the promissory note is a negotiable which will bar
completely all defenses of Salas against VMS

HELD: YES. Affirmed

 Requisites under the law (Sec. 1
of Negotiable Instruments Law)
 it is in writing and signed by the maker (Salas)
 it contains an unconditional promise to pay the amount
P58,138.20
 it is payable at a fixed or determinable future time which
is P1,614.95 monthly for 36 months due and payable on
the 21st day of each month starting March 21, 1980 thru
and inclusive of Feb 21 1983
 It is payable to VMS or order and as such
 drawee is named or indicated with certainty
 Filinvest = holder in due course