Negotiable instruments - is a written contractual obligation signed by the maker or
drawer that contain an unconditional promise or order to pay a sum certain in
money, which is payable on demand or at fixed or determinable future time,
payable to order or to bearer.
Negotiability – allows negotiable instruments to be transferred rom one peron to
another so as to constitute the transferee a holder. **
Accumulation of secondary contracts - characteristic of a negotiable instrument
where additional parties become involved as they are transferred from one person
to another. Once an instrument is issued, additional parties can become involved.
Negotiation - Pertains to Negotiable Instruments. It is the transfer of an instrument
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. For a valid negotiation, there must be
indorsement and delivery, for order instruments, and mere delivery for bearer
instruments.
Indorsement - is the signing of the name of the indorser on the instrument with the
intent to transfer title to the same.
Holder - the payee or indorsee of a bill or note who is in possession of it, or the
bearer thereof
III
Negotiable Documents of title - is not negotiable under the Negotiable Instruments
law. The provisions governing Negotiable Documents of Title are Article 1507-1520 of
the New Civil Code.
Postal Money Order - Postal money order is not a negotiable instrument because, as
held in Phil. Education Co. vs Soriano, there are many restrictions which make them
incompatible with concepts of negotiable instruments, thereby making the order
conditional, in contrast to Sec. 1 of the NIL. Furthermore, such is governed by postal
rules and regulation and it may only be negotiated once.
Certificates of Stock - are not negotiable because there is no promise or order to pay.
It is the written evidence of shareholdings of a person in a corporation, hence, it does
not represent an obligation to pay a sum certain in money.
Treasury Warrants - A treasury warrant requires appropriations from the national
government which means that the particular fund may or may not exists which
renders it conditional, thereby non-negotiable.
PHILIPPINE EDUCATION CO., INC., plaintiff-appellant, vs. MAURICIO A. SORIANO, ET
AL., defendants-appellees.
10 money orders of P200.00 each payable to E. P. Montinola were being sought to
purchase by Enrique Montinola from the Manila Post Office. Montinolo offered to pay
for them with a private check after the postal teller had made out money orders
numbered 124685, 124687-124695.
The teller advised him to see the Chief of the Money Order Division, since private
checks were not generally accepted in payment of money orders, however instead of
doing so, Montinola managed to leave the building with his own check and the 10
money orders without the knowledge of the teller. On the same date, 18 April 1958,
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.
served upon all banks. instructing them not to pay anyone of the money orders
aforesaid if presented for payment. The Blank of America received a copy of said
notice 3 days later. On 23 April 1958 one of the above mentioned money orders
numbered 124688 was received by Philippine Education Co. 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 27 September 1961 respondent Soriano notified
the Bank of America that money order 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. Subsequently, the Bank of
America debited Philippine Education Co.'s account with the same amount and gave
it advice thereof by means of a debit memo. Petitioners herein requested the
Postmaster General to reconsider the action but his request was denied.
On 8 January 1962 Philippine Education Co. filed an action against Soriano, et al. in
the Municipal Court of Manila.
MTC ruled in favor of petitioners ordering to revoke the deduction from said Bank's
clearing account the sum of P200.00 representing the amount of postal money order
124688, or in the alternative, to indemnify Philippine Education Co. in the said sum of
P200.00 with interest.
Court of First Instance Dismissed petitioners complaints.
Issue: Whether the postal money order is a negotiable instrument.
Held: Philippine postal statutes were patterned after similar statutes in force in the
United States. For this reason, Philippine postal statutes are generally construed in
accordance with the construction given in the United States to their own postal
statutes, in the absence of any special reason justifying a departure from this policy
or practice. The weight of authority in the United Status is that postal money orders
are not negotiable instruments, 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. 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.
CALTEX (PHILIPPINES), INC., petitioner, vs. COURT OF APPEALS and SECURITY BANK
AND TRUST COMPANY, respondents.
On various dates, defendant, a commercial banking institution, through its Sucat
Branch issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz
who deposited with herein defendant the aggregate amount of P1,120,000.00.
Angel dela Cruz delivered the said certificates of time deposit (CTDs) to herein plaintiff
in connection with his purchase of fuel products from the latter.
Upon being informed by Ms. Dela Cruz that she lost all the CTDs, the Sucat Branch
Manager advised the former to execute a notarized affidavit of loss if she desired
replacement of the same. This was complied with by Dela Cruz.
Subsequently, Angel dela Cruz negotiated and obtained a loan from defendant bank
in the amount of P875,000.00. She also executed a notarized Deed of Assignment of
Time Deposit surrendering to defendant bank `full control of the indicated time
deposits from and after date of the assignment and further authorizes said bank to
pre-terminate, set-off and 'apply the said time deposits to the payment of whatever
amount or amounts may be due' on the loan upon its maturity.
Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.)
Inc. went to the defendant bank's Sucat branch and presented for verification the
CTDs declared lost by Angel dela Cruz alleging that the same were delivered to herein
plaintiff `as security for purchases made with Caltex Philippines, Inc.' by said depositor
and informed defendant of its possession of the CTDs in question and of its decision amount involved was not disclosed) could at the most constitute petitioner only as a
to preterminate the same. Pertinent documents were requested by defendant from holder for value by reason of his lien
petitioner however no documents were furnished. Accordingly, defendant bank
rejected the plaintiff's demand and claim for payment of the value of the CTDs. Metropolitan Bank & Trust Company vs. Court of Appeals [GR 88866, 18 February
1991]
Eventually, the loan of dela Cruz with the defendant bank matured and fell due and
the latter and applied the time deposits in question to the payment of the same. In January 1979, a certain Eduardo Gomez opened an account with Golden Savings
and deposited over a period of 2 months 38 treasury warrants with a total value of
Plaintiff filed the instant complaint, praying that defendant bank be ordered to pay it P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and
the aggregate value of the certificates of time deposit plus accrued interest with purportedly signed by its General Manager and counter-signed by its Auditor. Of
damages. RTC dismissed the case. CA affirmed. these were directly payable to Gomez while the others appeared to have been
indorsed by their respective payees, followed by Gomez as second indorser.
Issue: Whether or not CTDs are negotiable instrument
Subsequently all these warrants were indorse by Gloria Castillo as Cashier of Golden
Whether or not petitioner can rightfully recover on the CTDs
Savings and deposited the same in Metrobank Branch in Calapan Mindoro.
Held: The CTDs in question undoubtedly meet the requirements of the law for Metrobank then sent the warrants to the Brureau of Treasury for special clearing.
negotiability the accepted rule is that the negotiability or non-negotiability of an
More than 2 weeks after the deposits, Gloria Castillo went to the Calapan branch
instrument is determined from the writing, that is, from the face of the instrument
several times to ask whether the warrants had been cleared. Accordingly, Gomez was
itself. The CTDs are negotiable instruments. The documents provide that the amounts
meanwhile not allowed to withdraw from his account. MetroBank then ly decided to
deposited shall be repayable to the depositor. And who, according to the document,
allow Golden Savings to withdraw from the proceeds of the warrants due to being
is the depositor? It is the "bearer." The documents do not say that the depositor is
exasperated over Gloria's repeated inquiries. The total withdrawal was P968,000.00.
Angel de la Cruz and that the amounts deposited are repayable specifically to him.
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his
Rather, the amounts are to be repayable to the bearer of the documents or, for that
own account, eventually collecting the total amount of P1,167,500.00 from the
matter, whosoever may be the bearer at the time of presentment.
proceeds of the apparently cleared warrants.
As to the second issue, Under the Negotiable Instruments Law, an instrument is
Metrobank informed Golden Savings that 32 of the warrants had been dishonored by
negotiated when it is transferred from one person to another in such a manner as to
the Bureau of Treasury on 19 July 1979, and demanded the refund by Golden Savings
constitute the transferee the holder thereof, 21 and a holder may be the payee or
of the amount it had previously withdrawn, to make up the deficit in its account. The
indorsee of a bill or note, who is in possession of it, or the bearer thereof. In the
demand was rejected. Metrobank then sued Golden Savings in the Regional Trial
present case, however, there was no negotiation in the sense of a transfer of the legal
Court of Mindoro. After trial, judgment was rendered in favor of Golden Savings,
title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere
which, however, filed a motion for reconsideration even as Metrobank filed its notice
delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as
of appeal. On 4 November 1986, the lower court modified its decision, by dismissing
security for the purchases of Angel de la Cruz (and we even disregard the fact that the
the complaint with costs against Metrobank
Issue: Whether the treasury warrants in question are negotiable instruments.
Held:
Clearly stamped on the treasury warrants' face is the word "non-negotiable."
Moreover, and this is of equal significance, it is indicated that they are payable from
a particular fund, to wit, Fund 501. Section 1 of the Negotiable Instruments Law. An
order or promise to pay out of a 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 unconditional" and the warrants themselves non-
negotiable. There should be no question that the exception on Section 3 of the
Negotiable Instruments Law is applicable in the present case. Metrobank cannot
contend that by indorsing the warrants in general, Golden Savings assumed that they
were "genuine and in all respects what they purport to be," in accordance with
Section 66 of the Negotiable Instruments Law. The simple reason is that this law is
not applicable to the non-negotiable treasury warrants. The indorsement was made
by Gloria Castillo not for the purpose of guaranteeing the genuineness of the warrants
but merely to deposit them with Metrobank for clearing. It was in fact Metrobank
that made the guarantee when it stamped on the back of the warrants: "All prior
indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust
Co., Calapan Branch."
Sesbreno vs. Court of Appeals [GR 89252, 24 May 1993]
JUANITA SALAS, petitioner, vs. HON. COURT OF APPEALS and FILINVEST FINANCE &
LEASING CORPORATION, respondents.
Juanita Salas bought a motor vehicle from the Violago Motor Sales Corporation (VMS)
for P58,138.20 as evidenced by a promissory note. This note was subsequently
endorsed to Filinvest Finance & Leasing Corporation which financed the purchase.
Salas defaulted in her installments prompting Filinvest to initiate a case for the
collection of sum of money against Salas before the RTC which was granted.
Both Salas and Filinvest appealed the aforesaid decision to the Court of Appeals.
Imputing fraud, bad faith and misrepresentation against VMS for having delivered a
different vehicle to Salas, the latter prayed for a reversal of the trial court's decision
so that she may be absolved from the obligation under the contract. The appellate
court ordered Salas to pay Philinvest the sum of P54,908.30 at 14% per annum from
2 October 1980 until full payment, with costs against Salas.
Issue: Whether the promissory note in question is a negotiable instrument which will
bar completely all the available defenses of Salas against Philinvest.
Held:
The questioned promissory note is a negotiable instrument, having complied with the
requisites under the law. It was negotiated by indorsement in writing on the
instrument itself payable to the Order of Filinvest Finance and Leasing Corporation
and it is an indorsement of the entire instrument. Under the circumstances, there
appears to be no question that Filinvest is a holder in due course, having taken the
instrument under the following conditions: [a] it is complete and regular upon its face;
[b] it became the holder thereof before it was overdue, and without notice that it had
previously been dishonored; [c] it took the same in good faith and for value; and [d]
when it was negotiated to Filinvest, the latter had no notice of any infirmity in the
instrument or defect in the title of VMS Corporation. Accordingly, Filinvest holds the
instrument free from any defect of title of prior parties, and free from defenses
available to prior parties among themselves, and may enforce payment of the
instrument for the full amount thereof. This being so, Salas cannot set up against
Filinvest the defense of nullity of the contract of sale between her and VMS.
FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner, vs., COURT
OF APPEALS and LUZON DEVELOPMENT BANK, respondents.
Fojas-Arca maintained a special savings account with the defendant, the latter
authorized and allowed withdrawals of funds therefrom through the medium of
special withdrawal slips. These are supplied by the defendant to Fojas-Arca.
In January 1978, plaintiff and Fojas-Arca entered into a "Franchised Dealership
Agreement" (Exh. B) whereby Fojas-Arca has the privilege to purchase on credit and
sell plaintiff's products. Pursuant to the aforesaid Agreement, Fojas-Arca purchased
on credit Firestone products from plaintiff with a total amount of P4,896,000.00. In
payment of these purchases, Fojas-Arca delivered to plaintiff six (6) special
withdrawal slips drawn upon the defendant. 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. Plaintiff continued extending to Fojas-Arca further purchase on
credit on the belief that the withdrawal slips were likewise sufficiently funded and
that it had received full value and payment from the latter.
However, plaintiff was informed by Citibank that special withdrawal slips were
dishonored and not paid for the reason 'NO ARRANGEMENT.' As a consequence, the
Citibank debited plaintiff's account for the total sum of P2,078,092.80 representing
the aggregate amount of the above-two special withdrawal slips. Under such
situation, plaintiff averred that the pecuniary losses it suffered is caused by and
directly attributable to defendant's gross negligence
Petitioner's complaint for a sum of money and damages with the RTC was dismissed.
CA affirmed.
Issue: Whether or not the withdrawal slips are non-negotiable.
Held:
At the outset, we note that petitioner admits that the withdrawal slips in question
were non-negotiable.[9] Hence, the rules governing the giving of immediate notice of
dishonor of negotiable instruments do not apply in this case.[10] Petitioner itself
concedes this point.[11] Thus, 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.
It bears stressing that Citibank could not have missed the non-negotiable nature of
the withdrawal slips. 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.[12] The withdrawal slips in question lacked this character.
The withdrawal slips deposited with petitioner's current account with Citibank were
not checks, as petitioner admits. 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. Petitioner and Citibank could not now shift the risk
and hold private respondent liable for their admitted mistake.
Ang Tek Lian drew on Saturday, 16 November 1946, a check upon the China Banking
Corporation for the sum of P4,000, payable to the order of "cash" knowing he had no
funds therefor. He delivered it to Lee Hua Hong in exchange for money which the
latter handed in the act. The next business day, the check was presented by Lee Hua
Hong to the drawee bank for payment, but it was dishonored for insufficiency of
funds. Ang Tek Lian was charged and was convicted of estafa in the Court of First
Instance of Manila. The Court of Appeals affirmed the verdict.
Issue: Whether indorsement is necessary for the presentation of a bearer instrument
for payment.
Held:

Under Section 9(d) of the Negotiable Instruments Law, a check drawn payable to the
order of "cash" is a check payable to bearer, and the bank may pay it to the person
presenting it for payment without the drawer's indorsement. A check payable to the
order of cash is a bearer instrument. 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." The bank may nonetheless require identification or assurance, for its
protection, that the indorsement of the drawer — or of some other person known to
it — be obtained. But where the Bank is satisfied of the identity and/or the economic
standing of the bearer who tenders the check for collection, it will pay the instrument
without further question; and it would incur no liability to the drawer in thus acting.
A check payable to bearer is authority for payment to the holder. Where a check is in
the ordinary form, and is payable to bearer, so that no indorsement is required, a
bank, to which it is presented for payment, need not have the holder identified, and
is not negligent in failing to do so. Consequently, a drawee bank to which a bearer
check is presented for payment need not necessarily have the holder identified and
ordinarily may not be