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1. SALAS vs. CA
January 22, 1990 | Fernan, C.J. | Section 8
C. SO & F. QUIJANO
PETITIONER: ​Juanita Salas
RESPONDENT: ​Hon. Court of Appeals and First Finance and Leasing
Corporation
RECIT-READY:
Juanita Salas bought a motor vehicle from Violago Motor Sales
Corporation (VMS) for P58,138.20 as evidenced by a promissory note.
The promissory note was endorsed to Filinvest Finance and Leasing
Corporation which financed the purchase.
Around 3 months later, the vehicle figured an accident. This accident
caused Salas to find out that the engine and chassis numbers of the
vehicle delivered to her were different from those indicated in the sales
invoice, certificate of registration and deed of chattel mortgage. Salas
found out that the vehicle delivered to her was a different one. She
stopped paying her installments to Filinvest.
This failure to pay prompted Filinvest to file a case for a sum of money
against Salas.
FACTS:
Salas imputed fraud, bad faith, and misrepresentation against VMS for
having delivered a different vehicle to her. She contends that because of
this, she should be absolved from her obligations to Filinvest.
ISSUE:
● W/N the promissory note endorsed by Juanita Salas to Filinvest
is a negotiable instrument which will bar completely all the
available defenses of Salas against Filinvest. ​YES
RULING: ​The Supreme Court ruled that the promissory note was not
merely an assignment of credit, but had the earmarks of negotiability,
fulfilling all the requisites of a negotiable instrument: [a] it is in writing
and signed by the maker Juanita Salas; [b] it contains an unconditional
promise to pay the amount of P58,138.20; [c] it is payable at a fixed or
determinable future time which is "P1,614.95 monthly for 36 months due
and payable on the 21 st day of each month starting March 21, 1980 thru
and inclusive of Feb. 21, 1983;" [d] it is payable to Violago Motor Sales
Corporation, or order and as such, [e] the drawee is named or indicated
with certainty. 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, petitioner cannot set up against respondent
the defense of nullity of the contract of sale between her and VMS.
DOCTRINE:
The instrument in order to be considered negotiable must contain the
so-called "words of negotiability — i.e., must be payable to "order" or
"bearer"". Under Section 8 of the Negotiable Instruments Law, there are
only two ways by which an instrument may be made payable to order.
There must always be a specified person named in the instrument and the
bill or note is to be paid to the person designated in the instrument or to
any person to whom he has indorsed and delivered the same. Without the
words "or order” or "to the order of", the instrument is payable only to
the person designated therein and is therefore non-negotiable.
● On February 6, 1980, Juanita Salas (hereinafter referred to as
petitioner) bought a motor vehicle from the Violago Motor Sales
Corporation (VMS for brevity) for P58,138.20 as evidenced by a
promissory note. This note was subsequently endorsed to Filinvest
Finance & Leasing Corporation (hereinafter referred to as private
respondent) which financed the purchase.
● Petitioner defaulted in her installments beginning May 21, 1980
allegedly due to a discrepancy in the engine and chassis numbers
of the vehicle delivered to her and those indicated in the sales
invoice, certificate of registration and deed of chattel mortgage,
which fact she discovered when the vehicle figured in an accident
on 9 May 1980.

● This failure to pay prompted private respondent to initiate Civil
Case No. 5915 for a sum of money against petitioner before the
Regional Trial Court of San Fernando, Pampanga.
● RTC ruled in favor of Filinvest.
● Imputing fraud, bad faith and misrepresentation against VMS for
having delivered a different vehicle to petitioner, the latter prayed
for a reversal of the trial court's decision so that she may be
absolved from the obligation under the contract.
● CA ruled in favor of Filinvest, stating: “A perusal of the evidence
shows that the amount of P58,138.20 stated in the promissory note
is the amount assumed by the plaintiff in financing the purchase of
defendant's motor vehicle from the Violago Motor Sales Corp., the
monthly amortization of winch is Pl,614.95 for 36 months.
Considering that the defendant was able to pay twice (as admitted
by the plaintiff, defendant's account became delinquent only
beginning May, 1980) or in the total sum of P3,229.90, she is
therefore liable to pay the remaining balance of P54,908.30 at l4%
per annum from October 2, 1980 until full payment.”
● Petitioner appealed.
● In the petition before the SC, petitioner assigns twelve (12) errors
which focus on the alleged fraud, bad faith and misrepresentation
of Violago Motor Sales Corporation in the conduct of its business
(for delivering a different vehicle) and which fraud, bad faith and
misrepresentation supposedly released petitioner from any liability
to private respondent who should instead proceed against VMS.
● VMS was not impleaded as a respondent in the case.
ISSUES:
● W/N the promissory note endorsed by Juanita Salas to Filinvest is
a negotiable instrument which will bar completely all the available
defenses of Salas against Filinvest.
RELEVANT ARGUMENTS (if any):
● Petitioner: Petitioner argues that in the light of the provision of the
law on sales by description which she alleges is applicable here, no
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contract ever existed between her and VMS and therefore none had
been assigned in favor of private respondent.
RATIO:
● The records reveal that involved herein is not a simple case of
assignment of credit as petitioner would have it appear, where the
assignee merely steps into the shoes of, is open to all defenses
available against and can enforce payment only to the same extent
as, the assignor-vendor.
● The promissory note is a negotiable instrument.
● The instrument in order to be considered negotiable must contain
the so-called "words of negotiability — i.e., must be payable to
"order" or "bearer"". Under Section 8 of the Negotiable
Instruments Law, there are only two ways by which an instrument
may be made payable to order. There must always be a specified
person named in the instrument and the bill or note is to be paid to
the person designated in the instrument or to any person to whom
he has indorsed and delivered the same.
● Without the words "or order” or "to the order of", the instrument is
payable only to the person designated therein and is therefore
non-negotiable. Any subsequent purchaser thereof will not enjoy
the advantages of being a holder of a negotiable instrument, but
will merely "step into the shoes" of the person designated in the
instrument and will thus be open to all defenses available against
the latter.
● In the case at bar, however, the situation is different. Indubitably,
the basis of private respondent's claim against petitioner is a
promissory note which bears all the earmarks of negotiability.
● A careful study of the questioned promissory note shows that it is a
negotiable instrument, having complied with the requisites under
the law as follows: [a] it is in writing and signed by the maker
Juanita Salas; [b] it contains an unconditional promise to pay the
amount of P58,138.20; [c] it is payable at a fixed or determinable
future time which is "P1,614.95 monthly for 36 months due and
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payable on the 21 st day of each month starting March 21, 1980

thru and inclusive of Feb. 21, 1983;" [d] it is payable to Violago
Motor Sales Corporation, or order and as such, [e] the drawee is
named or indicated with certainty.
● 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, respondent corporation 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, petitioner cannot set up against respondent the defense of
nullity of the contract of sale between her and VMS.
● Even assuming for the sake of argument that there is an iota of
truth in petitioner's allegation that there was in fact deception made
upon her in that the vehicle she purchased was different from that
actually delivered to her, this matter cannot be passed upon in the
case before us, where the VMS was never impleaded as a party.
Whatever issue is raised or claim presented against VMS must be
resolved in the "breach of contract" case.

WHEREFORE, the assailed decision is hereby AFFIRMED. With costs

against petitioner.

2. CONSOLIDATED PLYWOOD CORPORATION v. IFC LEASING
AND ACCEPTANCE CORPORATION
April 30 1987 | Gutierrez Jr., J. | Section 8
N. CALDOZO & CHECKER
PETITIONER: ​Consolidated Plywood Industries, Inc., Henry Wee, And
Rodolfo T. Vergara
RESPONDENT: ​IFC Leasing And Acceptance Corporation
RECIT-READY: ​Consolidated Plywood Industries, Inc. is a corporation
engaged in the logging business and it needed two (2) additional units of
tractors. Atlantic Gulf & Pacific Company of Manila, through its sister
company and marketing arm, Industrial Products Marketing, a
corporation dealing in tractors and other heavy equipment business,
offered to sell to petitioner-corporation two "Used" Allis Crawler
Tractors. After the assurance of the tractors being fit for the job, the
seller-assignor issued the sales invoice for the two (2) units of tractors. At
the same time, the deed of sale with chattel mortgage with promissory
note was executed and a deed of assignment, assigned its rights and
interest in the chattel mortgage in favor of IFC Leasing and Acceptance
Corporation. 14 days had elapsed after their delivery when one of the
tractors broke down and after another nine (9) days, the other tractor
likewise broke down. After several demands of petitioners to fix the
tractors, IFC Leasing and Acceptance Corporation filed a complaint
against petitioners for the sum of money. Petitioner argues that the
promissory note is clearly not a negotiable instrument as defined under
the law since it is neither payable to order nor to bearer. The respondent
is not a holder in due course: at best, it is a mere assignee of the subject
promissory note. Respondent however claims that they are a holder in
due course of the promissory note in question.
ISSUE:
● W/N the promissory note in question is a negotiable instrument
so as to bar completely all the available defenses of the
petitioner against the respondent-assignee? NO.
RULING: ​Considering that paragraph (d), Section 1 of the Negotiable
Instruments Law requires that a promissory note "must be payable to
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order or bearer," it cannot be denied that the promissory note in question
is not a negotiable instrument. (Look at the pertinent portion of the note
below).
DOCTRINE:
Therefore, considering that the subject promissory note is not a
negotiable instrument, it follows that the respondent can never be a
holder in due course but remains a mere assignee of the note in question.
Thus, the petitioner may raise against the respondent all defenses
available to it as against the seller-assignor, Industrial Products
Marketing.
FACTS:
● Consolidated Plywood Industries, Inc. is a corporation engaged in
the logging business. It had for its program of logging activities for
the year 1978 the opening of additional roads, and simultaneous
logging operations along the route of said roads, in its logging
concession area in Davao Oriental. For this purpose, it needed two
(2) additional units of tractors.
● Atlantic Gulf & Pacific Company of Manila, through its sister
company and marketing arm, Industrial Products Marketing (the
"seller-assignor"), a corporation dealing in tractors and other heavy
equipment business, offered to sell to petitioner-corporation two
"Used" Allis Crawler Tractors.
● After conducting said inspection, the Industrial Products Marketing
assured petitioner-corporation that the "Used" Allis Crawler
Tractors which were being offered were fit for the job, and gave
the corresponding warranty of ninety (90) days performance of the
machines and availability of parts.
● With said assurance and warranty, and relying on the
seller-assignor's skill and judgment, petitioner-corporation through
petitioners Wee and Vergara, president and vice-president,
respectively, agreed to purchase on installment said two (2) units

of "Used" Allis Crawler Tractors. It also paid the down payment of
P210,000.
● The seller-assignor issued the sales invoice for the two (2) units of
tractors. At the same time, the deed of sale with chattel mortgage
with promissory note was executed. Simultaneously, the
seller-assignor, by means of a deed of assignment, assigned its
rights and interest in the chattel mortgage in favor of the
respondent.
● 14 days had elapsed after their delivery when one of the tractors
broke down and after another nine (9) days, the other tractor
likewise broke down
● Petitioner Vergara formally advised the seller- assignor of the fact
that the tractors broke down and requested for the seller- assignor's
usual prompt attention under the warranty.
● In response to the formal advice by petitioner Rodolfo T. Vergara,
the seller-assignor sent to the jobsite its mechanics to conduct the
necessary repairs but the tractors did not come out to be what they
should be after the repairs were undertaken because the units were
no longer serviceable.
● Because of the breaking down of the tractors, the road building and
simultaneous logging operations of petitioner-corporation were
delayed and petitioner Vergara advised the seller-assignor that the
payments of the installments as listed in the promissory note would
likewise be delayed until the seller-assignor completely fulfills its
obligation under its warranty.
● Wee asked the seller-assignor to pull out the units and have them
reconditioned, and thereafter to offer them for sale. The proceeds
were to be given to the respondent and the excess, if any, to be
divided between the seller-assignor and petitioner-corporation
which offered to bear one-half (1/2) of the reconditioning cost.
● No response to the letter, IFC Leasing and Acceptance filed
against the petitioners for the recovery of the principal sum of
P1,093,789.71, accrued interest of P151,618.86 as of August 15,
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1979, accruing interest there after at the rate of twelve (12%)
percent per annum, attorney's fees of P249,081.71 and costs of suit.
ISSUES:
● W/N the promissory note in question is a negotiable instrument so
as to bar completely all the available defenses of the petitioner
against the respondent-assignee? NO.
RELEVANT ARGUMENTS (if any):
● Petitioner: On its face, the promissory note is clearly not a
negotiable instrument as defined under the law since it is neither
payable to order nor to bearer. The respondent is not a holder in
due course: at best, it is a mere assignee of the subject promissory
note.
● Respondent: That they are a holder in due course of the promissory
note in question.
RATIO:
● There is no question that the seller-assignor breached its express
90-day warranty because the findings of the trial court, adopted by
the respondent appellate court, that "14 days after delivery, the first
tractor broke down and 9 days, thereafter, the second tractor
became inoperable" are sustained by the records. The petitioner
was clearly a victim of a warranty not honored by the maker.
● It is patent then, that the seller-assignor is liable for its breach of
warranty against the petitioner. This liability as a general rule,
extends to the corporation to whom it assigned its rights and
interests unless the assignee is a holder in due course of the
promissory note in question.
● Going back to the core issue, we rule that the promissory note in
question is not a negotiable instrument.
● The pertinent portion of the note is as follows:
○ "FOR VALUE RECEIVED, I/we jointly and severally promise
to pay to the INDUSTRIAL PRODUCTS MARKETING, the

sum of ONE MILLION NINETY THREE THOUSAND
SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only
(P1,093,789.71), Philippine Currency, the said principal sum, to
be payable in 24 monthly installments starting July 15, 1978 and
every 15th of the month thereafter until fully paid. . . . ."
● Considering that paragraph (d), Section 1 of the Negotiable
Instruments Law requires that a promissory note "must be payable
to order or bearer," it cannot be denied that the promissory note in
question is not a negotiable instrument.
● Therefore, considering that the subject promissory note is not a
negotiable instrument, it follows that the respondent can never be a
holder in due course but remains a mere assignee of the note in
question. Thus, the petitioner may raise against the respondent all
defenses available to it as against the seller-assignor, Industrial
Products Marketing.
● Secondly​, even conceding for purposes of discussion that the
promissory note in question is a negotiable instrument, the
respondent cannot be a holder in due course for a more significant
reason.
● The evidence presented in the instant case shows that prior to the
sale on installment of the tractors, there was an arrangement
between the seller-assignor, Industrial Products Marketing, and the
respondent whereby the latter would pay the seller-assignor the
entire purchase price and the seller-assignor, in turn, would assign
its rights to the respondent which acquired the right to collect the
price from the buyer, herein petitioner Consolidated Plywood
Industries, Inc.
● A mere perusal of the Deed of Sale with Chattel Mortgage with
Promissory Note, the Deed of Assignment and the Disclosure of
Loan/Credit Transaction shows that said documents evidencing the
sale on installment of the tractors were all executed on the same
day by and among the buyer, which is herein petitioner
Consolidated Plywood Industries, Inc.; the seller-assignor which is
the Industrial Products Marketing; and the assignee- nancing
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company, which is the respondent. Therefore, the respondent had
actual knowledge of the fact that the seller-assignor's right to
collect the purchase price was not unconditional, and that it was
subject to the condition that the tractors sold were not defective.
The respondent knew that when the tractors turned out to be
defective, it would be subject to the defense of failure of
consideration and cannot recover the purchase price from the
petitioners. Even assuming for the sake of argument that the
promissory note is negotiable, the respondent, which took the same
with actual knowledge of the foregoing facts so that its action in
taking the instrument amounted to bad faith, is not a holder in due
course. As such, the respondent is subject to all defenses which the
petitioners may raise against the seller-assignor. Any other
interpretation would be most inequitous to the unfortunate buyer
who is not only saddled with two useless tractors but must also
face a lawsuit from the assignee for the entire purchase price and
all its incidents without being able to raise valid defenses available
as against the assignor.
WHEREFORE, in view of the foregoing, the decision of the respondent
appellate court dated July 17, 1985, as well as its resolution dated
October 17, 1986, are hereby ANNULLED and SET ASIDE. The
complaint against the petitioner before the trial court is DISMISSED.

3. PECO v. SORIANO
June 30, 1971 | Dizon, J. | Sec. 8
V. BARLONGAY & N. CALDOZO
PETITIONER: ​Philippine Education Co., Inc.
RESPONDENT: ​Mauricio A Soriano et al
RECIT-READY: ​Enrique Montinola purchased 10 money orders
from Manila Post Office amounting to P 200 each. He issued a
personal check to pay for the money orders and since it is irregular to
have checks as payments, he was advised to see the Chief of the Money
Order Division. He didn’t do so but left the office with the money orders
and checks. A notice was thereafter issued to all post offices as well as
the Bank of America, about the irregularly issued money orders and the
advice not to accept such orders.
Philippine Education Co., Inc was one of those who received the
subject money orders . PECO deposited the same with the Bank of
America, and was cleared with the Bureau of Posts and received its face
value of P200.00. Manila Post Office however, deducted the amount
represented from the Bank of America’s clearing account. The Bank of
America, in return, debited appellant's account with the same amount.
ISSUE:
● W/N Post Office Money Orders are negotiable instrument. ​NO
RULING: ​Postal money orders are not negotiable instruments. The
reason behind this rule is 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. In this case, there is an agreement between
the Bank of America and the Manila Post Office that in case there is an
adverse claim against any Bank of America depositor involving postal
money orders issued by the post office, all amounts cleared shall be
refunded back to the post office’s account with the bank.
DOCTRINE:
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Postal money orders are not negotiable instruments. In establishing and
operating a postal money order system, the government is not engaged in
commercial transactions but merely exercises a governmental power for
the public benefit. Moreover, some restrictions imposed on money
orders by postal laws and regulations are inconsistent with the character
of negotiable instruments.
FACTS:
● On April 18, 1958 Enrique Montinola sought to purchase from the
Manila Post Office 10 money orders of P200.00 each payable to
E.P. Montinola.
● After the postal teller had made out money orders numbered
124685, 124687-124695, Montinola offered to pay for them with
private checks.
● 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.
● But instead of doing so, Montinola managed to leave building with
his own check and the 10 money orders without the knowledge of
the teller.
● On the same date, upon discovery of the disappearance of the
unpaid money orders, an urgent message was sent to all
postmasters, notice was likewise served upon all banks, instructing
them not to pay anyone of the money orders 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 (Philippine Education
Co., Inc) 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, Mauricio A. Soriano, Chief of the Money
Order Division of the Manila Post Office, notified the Bank of
America that money order No. 124688 attached to his letter had
been found to have been irregularly issued and that, the amount it
represented had been deducted from the bank's clearing account.
● On August 2 of the same year, the Bank of America debited
appellant's account with the same amount.
● 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.
● Montinola was charged with theft in the CFI of Manila but after
trial he was acquitted on the ground of reasonable doubt.
● 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 denied. Appellant
elevated the matter to the Secretary of Public Works and
Communications, but the latter sustained the actions taken by the
postal officers.
● Appelant won in the Municipal Court of Manila. The case was
appealed to the Court of First Instance of Manila where the
appealed decision dismissing the complaint was rendered.
ISSUES:
● WON Post Office Money Orders are negotiable instrument. No
RELEVANT ARGUMENTS (if any):
● Petitioner: The postal money order in question is a negotiable
instrument; that its nature is not affected by the letter dated
October 26, 1948 signed by the Director of Posts and addressed to
all banks with a clearing account with the Post Office ​and that
money orders, once issued, create a contractual relationship of
debtor and creditor, between the government, on the one hand, and
the remitters payees or endorses, on the other.
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RATIO:
● Our postal statutes were patterned after statutes in force in the
United States. ​The weight of authority in the United States 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.
● In particular, there is a condition imposed by the Director of Post
to the Bank of America that "in cases of adverse claim, the money
order or money orders involved will be returned to the bank and
the corresponding amount will have to be refunded to the
Postmaster who reserves the right to deduct the value thereof from
any amount due you if such a step is deemed necessary."
● The conditions thus imposed in order to enable the bank to
continue enjoying the facilities theretofore enjoyed by its
depositors, were accepted by the Bank of America. The latter is
therefore bound by them. That it is so is clearly referred from the
fact that, upon receiving advice that the amount represented by the
money order in question had been deducted from its clearing
account with the Manila Post Office, it did not file any protest
against such action.
WHEREFORE, the appealed decision being in accordance with law,
the same is hereby affirmed with costs.

4. EQUITABLE BANKING vs. IAC
May 25, 1988 | Melencio-Herrera, J. | Section 8
R. BARRALES & T. DELA ROSA
PETITIONER: ​Equitable Banking Corporation
RESPONDENT: ​IAC and Edward J. Nell Co.
RECIT-READY: ​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. Meanwhile, 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 the check to Casville’s
account with Equitable Bank. Casals later withdrew all the P427,300.00
and appropriated it to himself.
ISSUE:
● W/N Equitable Banking Corporation is liable to private
respondent Edward J. Nell Co. ​NO
RULING: ​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
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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.
DOCTRINE:
Sec. 8. When payable to order. - The instrument is payable to order
where it is drawn payable to the order of a ​specified person or ​to him or
his order​. It may be drawn payable to the order of:
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, ​the payee must be named
or otherwise indicated therein with reasonable certainty.
FACTS:
● In 1975 defendant Liberato Casals went to plaintiff Edward J. Nell
Company and told its senior sales engineer, Amado Claustro that
he was interested in buying one of the plaintiff's ​garrett
skidders.​(bulldozers)
● Plaintiff was a dealer of machineries, equipment and supplies.
Defendant Casals represented himself as the majority stockholder,
president and general manager of Casville Enterprises, Inc., a firm
engaged in the large scale production, procurement and processing
of logs and lumber products, which had a plywood plant in Sta.
Ana, Metro Manila.
● When Javier asked for cash payment for the skidders, defendant
Casals informed him that his corporation, defendant Casville
Enterprises, Inc., had a credit line with defendant Equitable
Banking Corporation.

● Javier agreed to have the skidders paid by way of a domestic letter
of credit which defendant Casals promised to open in plaintiffs
favor, in lieu of cash payment.
● Accordingly, on December 22, 1975, defendant Casville, through
its president, defendant Casals, ordered from plaintiff two units of
garrett skidders
● In a letter dated April 21, 1976, defendants Casals and Casville
requested from plaintiff the delivery of one (1) unit of the bidders,
complete with tools and cables, to Cagayan de Oro, on or before
Saturday, April 24,1976, on board a Lorenzo shipping vessel, with
the information that an irrevocable Domestic Letter of Credit
would be opened in plaintiff's favor on or before June 30, 1976
under the terms and conditions agreed upon
● In compliance with defendant Casvile's recognition request,
plaintiff shipped to Cagayan de Oro City a Garrett skidder.
● Plaintiff paid the shipping cost in the amount of P10,640.00
because of the verbal assurance of defendant Casville that it would
be covered by the letter of credit soon to be opened.
● In a letter dated August 3, 1976, defendants Casville informed the
plaintiff that their application for a letter of credit for the payment
of the Garrett skidders had been approved by the Equitable
Banking Corporation.
● However, the defendants said that they would need the sum of
P300,000.00 to stand as collateral or marginal deposit in favor of
Equitable Banking Corporation and an additional amount of
P100,000.00, also in favor of Equitable Banking Corporation, ​to
clear the title of the Estrada property belonging to defendant Casals
which had been approved as security for the trust receipts to be
issued by the bank, covering the above-mentioned equipment.
● Edward J. Nell agreed to advance the necessary amount in order to
facilitate the transaction.
● Accordingly, on August 5,1976, plaintiff issued a check in the
amount of P400,000.00 drawn against the First National City Bank
10
and made payable to the order of Equitable Banking Corporation
and with the following notation or memorandum:
● On August 16, 1976, plaintiff issued a check for P427,300.00,
payable to the ​"order of EQUITABLE BANKING
CORPORATION A/C CASVILLE ENTERPRISES, INC." and
drawn against the first National City Bank.
● The check did not contain the notation found in the previous check
issued by the plaintiff but the substance of said notation was
reproduced in a covering letter dated August 16,1976 that went
with the check.
● Both the check and the covering letter were sent to defendant bank
through defendant Casals.
● Plaintiff entrusted the delivery of the check and the latter to
defendant Casals because it believed that no one, including
defendant Casals, could encash the same as it was made payable to
the defendant bank alone.
● Upon receiving the check for P427,300.00 entrusted to him by
plaintiff defendant Casals immediately deposited it with the
defendant bank and the bank teller accepted the same for deposit in
defendant Casville's checking account.
● After depositing said check, defendant Casville, acting through
defendant Casals, then withdrew all the amount deposited.
ISSUES:
● W/N Equitable Banking Corporation is liable to private respondent
Edward J. Nell Co. ​NO
RATIO:
● The subject check was equivocal and patently ambiguous.
● The payee 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 Edward J. Nell Co. 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.
● The subject check was, initially, not non-negotiable. Neither was it
a crossed check. The rubber-stamping transversall on the face of
the subject check of the words "Non-negotiable for Payee's
Account Only" between two (2) parallel lines, and
"Non-negotiable, Teller- No. 4, August 17, 1976," separately
boxed, was made only by the Bank teller in accordance with
11
customary bank practice, and not by NELL as the drawer of the
check, and simply meant that thereafter the same check could no
longer be negotiated.
● NELL's own acts and omissions in connection with the drawing,
issuance and delivery of the 16 August 1976 check, Exhibit "E-l,"
and its implicit trust in Casals, were the proximate cause of its own
defraudation
● It was NELL's own acts, which put it into the power of Casals and
Casville Enterprises to perpetuate the fraud against it and,
consequently, it must bear the loss
WHEREFORE, the Petition is granted and the Decision of respondent
Appellate Court, are hereby SET ASIDE.

5. PHILIPPINE NATIONAL BANK v ERLANDO T. RODRIGUEZ &
NORMA RODRIGUEZ
September 26, 2008 | REYES, R.T., J | Sec. 9 of NIL
T. DELA ROSA & A. REINOSO
PETITIONER: ​Philippine National Bank
RESPONDENT:​ Erlando and Norma Rodriguez
RECIT-READY:
Sps. Rodriguez were engaged in the informal lending business. They had
accounts with PNB (specifically the Amelia Avenue Branch in Cebu
city). Due to their business, they had a discounting arrangement
agreement with Philnabank Employees Savings and Loan Associations
(PEMSLA), an association of PNB employees. PEMSLA also maintained
a current and savings account in the PNB Amelia Avenue branch.
PEMSLA then began taking loans out in the name of unknowing
members (they did this to subvert PEMSLA’s policy which was that they
wouldn’t approve applications for loans of members with outstanding
debts.). These PEMSLA checks were given to the spouses for
rediscounting, and in turn, the spouses would issue their personal checks
in the name of their members and these were deposited to the PEMSLA
account without indorsement. PNB found out about the scheme and
closed PEMSLA’s account, so when Sps Rodriguez tried to deposit the
PEMSLA checks, they were dishonored because the account was closed.
Sps filed a case to recover the money taken from their account and
deposited to PEMSLA’s account. PNB was arguing that Sps Rodriguez
knew that the payees in their issued checks were “fictitious” in the sense
that they didn’t really intend to give the money to the named payees; as
such, the checks were payable to order and the Sps should bear the loss.
The RTC ruled in favor of the spouses and the CA (although they
reversed the decision at first) eventually agreed with the RTC. The SC
held that there was no proof that the Sps. Rodriguez never intended for
the named payees to receive the money. As such, the checks are
PAYABLE TO ORDER and PNB is liable for the loss due to their
negligence.
12
DOCTRINE:
SEC. 9. When payable to bearer. — The instrument is payable to bearer
—
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing
person, and such fact is known to the person making it so payable; ​or
(d) When the name of the payee does not purport to be the name of any
person; or
(e) Where the only or last indorsement is an indorsement in blank.
Recall: Sec 30 of NIL states that if payable to bearer, it is negotiated by
delivery; if payable to order, it is negotiated by the indorsement of the
holder completed by delivery.
A check payable to a specified payee is an order instrument. BUT check
payable to a specified payee may nevertheless be considered as a bearer
instrument if it is payable to the order of a fictitious or non- existing
person, and such fact is known to the person making it so payable.
In this case however, PNB was not able to prove that the Sps. Rodriguez
never intended for the named payees to receive the money. As such, they
checks are payable to order.
FACTS:
● Respondents-Spouses Erlando and Norma Rodriguez were clients
of petitioner Philippine National Bank (PNB), Amelia Avenue
Branch, Cebu City. The spouses were engaged in the informal
lending business
● They had PNBig Demand Deposit Accounts under Erlando and/or
Norma and one under Erlando.

● In line with their business, they had a discounting arrangement
agreement with Philnabank Employees Savings and Loan
Associations (PEMSLA), an association of PNB employees.
PEMSLA also maintained a current and savings account in the
branch
● PEMSLA regularly granted loans to its members. Spouses
Rodriguez would rediscount the postdated checks issued to
members whenever the association was short of funds. As was
customary, the spouses would replace the postdated checks
with their own checks issued in the name of the members.
● PEMSLA’s policy was not to approve applications for loans of
members with outstanding debts. To subvert this, some of their
officers devised a scheme to obtain additional loans despite
having outstanding loan accounts.
○ They took out loans in the names of unknowing
members, without the knowledge or consent of the
latter. The PEMSLA checks issued for these loans
were then given to the spouses for rediscounting. The
officers carried this out by forging the indorsement of
the named payees in the checks.
● The spouses Rodriguez would then issue their personal checks
in the name of the members and delivered the checks to a
PEMSLA officer. The PEMSLA checks meanwhile were
deposited by the spouses to their account.
● The Rodriguez checks were deposited directly to the PEMSLA
account ​without any indorsement from the named payees.
● From November 1998 to February 1999, the spouses issued 60
checks amounting to P2,345,804. These were payable to 47
individual payees who were PEMSLA members.
● PNB eventually found out about this scheme so they closed the
current account of PEMSLA. As a result, the PEMSLA checks in
the Rodriguez accounts were returned/dishonored for the reason
“Account closed”.
13
● The Rodriguez checks however were deposited as usual to the
PEMSLA savings account. As such, they were duly debited from
the Rodriguez account. The Rodriguez spouses incurred losses
from the rediscounting transactions since the PEMSLA checks
given as payment returned.
● The Sps. Rodriguez filed a civil complaint for damagages against
PEMSLA, PNM and the Multi-Purpose Cooperative of
Philnabankers (MCP). They sought to recover the value of their
checks that were deposited to the PEMSLA savings account
amounting to P2,345,804.00. The spouses contended that because
PNB credited the checks to the PEMSLA account even without
indorsements, PNB violated its contractual obligation to them as
depositors.
● PNB claimed it is not liable for the checks which it paid to the
PEMSLA account without any indorsement from the payees. The
bank contended that spouses Rodriguez, the makers, actually did
not intend for the named payees to receive the proceeds of the
checks. Consequently, the payees were considered as " ctitious
payees" as de ned under the Negotiable Instruments Law.
● RTC rendered judgment in favor of Sps. Rodriguez and ruled that
PNB is liable to return the value of the checks.
● The CA reversed and set aside the RTC decisions. They concluded
that the checks were obviously meant by the spouses to be really
paid to PEMSLA. They found that they were bearer instruments
that do not require indorsement for negotiation.
● BUT THE CA REVERSED ITSELF. They ruled in favor of Sps.
Rodriguez.
○ The CA ruled that the checks were payable to order.
According to the appellate court, PNB failed to present su
cient proof to defeat the claim of the spouses Rodriguez
that they really intended the checks to be received by the
specified payees. Thus, PNB is liable for the value of the
checks which it paid to PEMSLA without indorsements
from the named payees

○ In sum, we rule that the defendant-appellant PNB is liable
to the plaintiffs- appellees Sps. Rodriguez for the
following:
■ 1. Actual damages in the amount of P2,345,804
with interest at 6% per annum from 14 May 1999
until fully paid;
ISSUES:
● W/N the subject checks are payable to order or to bearer and
who bears the loss? PAYABLE TO ORDER. PNB bears the
loss.
RATIO:
● As a rule, when the payee is fictitious or not intended to be the true
recipient of the proceeds, the check is considered as a bearer
instrument. A check is "a bill of exchange drawn on a bank
payable on demand". It is either an order or a bearer instrument.
● SEC. 8. When payable to order. — The instrument is payable to
order where it is drawn payable to the order of a specified person
or to him or his order. It may be drawn payable to the order of —
○ (a) A payee who is not maker, drawer, or drawee; or
○ (b) The drawer or maker; or
○ (c) The drawee; or
○ (d) Two or more payees jointly; or
○ (e) One or some of several payees; or
○ (f) The holder of an office for the time being.
○ Where the instrument is payable to order, the payee must
be named or otherwise indicated therein with reasonable
certainty.
● SEC. 9. When payable to bearer. ​— The instrument is payable to
bearer —
○ (a) When it is expressed to be so payable; or
○ (b) When it is payable to a person named therein or
bearer; or
14
○ (c) When it is payable to the order of a fictitious or
non-existing person, and such fact is known to the
person making it so payable; ​or
○ (d) When the name of the payee does not purport to be the
name of any person; or
○ (e) Where the only or last indorsement is an indorsement
in blank.
● Recall: Sec 30 of NIL states that if payable to bearer, it is
negotiated by delivery; if payable to order, it is negotiated by
the indorsement of the holder completed by delivery.
● A check payable to a specified payee is an order instrument.
BUT check payable to a specified payee may nevertheless be
considered as a bearer instrument if it is payable to the order
of a fictitious or non- existing person, and such fact is known to
the person making it so payable
● A review of US jurisprudence yields that an actual, existing,
and living payee may also be "fictitious" if the maker of the
check did not intend for the payee to in fact receive the
proceeds of the check
● Thus, a check made expressly payable to a non-fictitious and
existing person is not necessarily an order instrument. If the
payee is not the intended recipient of the proceeds of the check,
the payee is considered a “fictitious" payee and the check is a
bearer instrument.
● In a fictitious-payee situation, the drawee bank is absolved
from liability and the drawer bears the loss. When faced with a
check payable to a fictitious payee, it is treated as a bearer
instrument that can be negotiated by delivery
○ underlying theory is that one cannot expect a fictitious
payee to negotiate the check by placing his indorsement
thereon. And since the maker knew this limitation, he
must have intended for the instrument to be negotiated by
mere delivery.

○ This rule is justified for otherwise, it will be most
convenient for the maker who desires to escape payment
of the check to always deny the validity of the
indorsement.
● However, there is a commercial bad faith exception to the
fictitious- payee rule. A showing of commercial bad faith on
the part of the drawee bank, or any transferee of the check for
that matter, will work to strip it of this defense. The exception
will cause it to bear the loss. Commercial bad faith is present if
the transferee of the check acts dishonestly, and is a party to
the fraudulent scheme
● In the case under review, the Rodriguez checks were payable
to specified payees. It is unrefuted that the 69 checks were
payable to specific persons. Likewise, it is uncontroverted that
the payees were actual, existing, and living persons who were
members of PEMSLA that had a rediscounting arrangement
with spouses Rodriguez.
● For the fictitious-payee rule to be available as a defense, PNB
must show that the makers did not intend for the named
payees to be part of the transaction involving the checks. At
most, the bank's thesis shows that the payees did not have
knowledge of the existence of the checks. This lack of
knowledge on the part of the payees, however, was not
tantamount to a lack of intention on the part of Sps. Rodriguez
that the payees would not receive the checks’ proceeds.
● Because of a failure to show that the payees were "fictitious" in
its broader sense, the fictitious-payee rule does not apply.
Thus, the checks are to be deemed payable to order.
Consequently, the drawee bank bears the loss.
● The SC notes that PNB was remiss in its duty as the drawee bank.
Order instruments can only be negotiated with a valid indorsement.
A bank that regularly processes checks that are neither payable to
the customer nor duly indorsed by the payee is apparently grossly
negligent in its operations.
15
● In the case at bar, respondents-spouses were the bank's depositors.
The checks were drawn against respondents-spouses' accounts.
PNB, as the drawee bank, had the responsibility to ascertain the
regularity of the indorsements, and the genuineness of the
signatures on the checks before accepting them for deposit. Lastly,
PNB was obligated to pay the checks in strict accordance with the
instructions of the drawers. Petitioner miserably failed to discharge
this burden.
● The checks were presented to PNB for deposit by a representative
of PEMSLA absent any type of indorsement, forged or otherwise.
The facts clearly show that the bank did not pay the checks in strict
accordance with the instructions of the drawers,
respondents-spouses. Instead, it paid the values of the checks not to
the named payees or their order, but to PEMSLA, a third party to
the transaction between the drawers and the payees.
WHEREFORE, the appealed Amended Decision is AFFIRMED with the
MODIFICATION that the award for moral damages is reduced to
P50,000.00, and that this is without prejudice to whatever civil, criminal, or
administrative action PNB might take against PEMSLA, MPC, and the
employees involved.
SO ORDERED.

6. ANG TEK LIAN V. CA
September 25, 1950 | Bengzon, J. | Section 9
M. LUCES & L. ABIOG
PETITIONER: ​Ang Tek Lian
RESPONDENT: ​Court of Appeals
RECIT-READY: ​Ang Tek Lian issued a rubber check and was
convicted of estafa. Petitioner drew the check at the bank for the sum of
P4,000, payable to the order of “cash”. He delivered the check to Lee
Hua Hong in exchange for money, but was later on dishonored for
insufficiency of funds. Despite repeated efforts to notify him, Ang Tek
Lian could not be located anywhere, until this case for estafa was filed.
ISSUE:
● W/N under the facts founds, estafa had been accomplished -
YES
RULING: ​A check 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. It is conclusive, that the form of the
check Exhibit A was totally unconnected with its dishonor. The CA
declared that it was returned unsatisfied because the drawer had
insufficient funds—not because the drawer's indorsement was lacking.
Of course, if the bank is not sure of the bearer's identity or financial
solvency, it has the right to demand identification and/or assurance
against possible complications. The bank may therefore require, 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.
DOCTRINE: ​Under the NIL, Section 9, a check drawn payable to the
16
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 endorsement.
FACTS:
● For having issued a rubber check, Ang Tek Lian was convicted of
estafa in the CFI of Manila.
● It appears that, knowing he had no funds therefor, Ang Tek Lian
drew the check Exhibit A upon the China Banking Corporation for
the sum of P4,000, payable to the order of “cash”.
● He delivered it to Lee Hua Hong in exchange for money which the
latter handed in the act. On November 18, 1946, 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.
● The CA believed the version of Lee Huan Hong who testified that
appellant (Ang Tek Lian) went to his (complainant's) office and
asked him to exchange Exhibit A—which he (appellant) then
brought with him—with cash alleging that he needed badly the
sum of P4,000 represented by the check, but could not withdraw it
from the bank, it being then already closed; that in view of this
request and relying upon appellant's assurance that he had
sufficient funds in the bank to meet Exhibit A, and because they
used to borrow money from each other, even before the war, and
appellant owns a hotel and restaurant known as the North Bay
Hotel, said complainant delivered to him, on the same date, the
sum of P4,000 in cash; that despite repeated efforts to notify him
that the check had been dishonored by the bank, appellant could
not be located anywhere, until he was summoned in the City
Fiscal's Office in view of the complaint for estafa filed in
connection therewith.
 17

ISSUES: ○ "A check payable to bearer is authority for payment to the

● W/N under the facts found, estafa had been accomplished - ​YES holder. Where a check is in the ordinary form, and is
payable to bearer, so that no indorsement is required, a
RELEVANT ARGUMENTS (if any): bank, to which it is presented for payment, need not have
● Petitioner: Estafa is committed by issuing either a postdated check the holder identified, and is not negligent in failing to do
or an ordinary check to accomplish the deceit. It is argued, so. * * *"
however, that as the check had been made payable to "cash" and ○ "* * * Consequently, a drawee bank to which a bearer
had not been endorsed by Ang Tek Lian, the defendant is not check is presented for payment need not necessarily have
guilty of the offense charged. the holder identified and ordinarily may not be charged
with negligence in failing to do so.”
RATIO: ● It is conclusive, that the form of the check Exhibit A was totally
● Petitioner was properly held liable under Art. 315 (d) of the RPC unconnected with its dishonor. The CA declared that it was
on swindling by postating or issuance a check knowing he had no returned unsatisfied because the drawer had insufficient
funds therefor. funds—not because the drawer's indorsement was lacking.
● Under the NIL, Section 9, 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 WHEREFORE, there being no question as to the correctness of the
endorsement. penalty imposed on the appellant, the writ of certiorari is denied and
● Instances have undoubtedly occurred wherein the Bank required the decision of the Court of Appeals is hereby affirmed, with costs.
the indorsement of the drawer before honoring a check payable to
"cash." But cases there are too, where no such requirement had
been made. It depends upon the circumstances of each transaction.
● Of course, if the bank is not sure of the bearer's identity or
financial solvency, it has the right to demand identification and/or
assurance against possible complications,—for instance, (a)
forgery of drawer's signature, (b) loss of the check by the rightful
owner, (c) raising of the amount payable, etc. The bank may
therefore require, 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.

7. JIMENEZ v BUCOY
Feb 28, 1958 |BENGZON, J. | Section 10
M.NOEL & K. LOPEZ DE LEON
PETITIONER: ​Intestate of Luther Young and Pacita Young, spouses.
PACIFICA JIMENEZ
RESPONDENT: ​Dr. JOSE BUCOY
RECIT-READY: ​Start typing here.
INSTRUMENT: Promissory Note (four, totalling to Php 21,000)
PAYEE: PACIFICA JIMENEZ
MAKER: PACITA YOUNG (deceased)
Pacifica Jimenez received several promissory notes from Pacita young.
the note was written as such :
“Executed in the month of August 1944, the first promissory note read as
follows:
Received from Miss Pacifica Jimenez the total amount of P10,000) ten
thousand pesos payable six months after the war, without interest.”
Jimenez is seeking its collection from the administrator of the young’s
estate, Dr. Jose Bucoy who alleges that these notes are merely
acknowledgements of debts, but NOT promissory notes. He asserts this
because they do not contain any express promise to pay an amount
certain.
The SC ruled that an acknowledgment may become a promise by the
addition of words by which a promise of payment is naturally implied, in
this case “payable six months after the war...”
To constitute a promissory note, no precise words are necessary so long
as they provide in legal effect, the promise to pay.
18
DOCTRINE:
Sec. 10. Terms, when sufficient. - The instrument need not follow the
language of this Act, but any terms are sufficient which clearly indicate
an intention to conform to the requirements hereof.
An acknowledgement becomes a promise to pay by the addition of words
by which a payment is naturally implied
FACTS:
● Pacita Young, before her death, gave four promissory notes to
Pacifica Jimenez different amounts totalling twenty-one thousand
pesos (P21,000).
Pacita is now seeking collection of the notes.
● The contents of the promissory note/s: “Received from Miss
Pacifica Jimenez the total amount of P10,000 ten thousand pesos
payable six months after the war, without interest.”
● The other notes are written in the same terms albeit different
amounts and dates.
● Administrator Jose Bucoy argues that while it is an
acknowledgement of debt, it does not contain any express or
unconditional promise to pay any amount certain.
● other facts not related to NIL: The question of what amount and
which currency should be used, given that this was during and after
the Japanese occupation. (Discussion about the Ballantyne
Schedule, not related to Negotiable Instruments but the SC ruled
that the Ballantyne schedule does not apply to this case because the
promise is to pay after the war).
ISSUES:
 19

● Whether or not the amounts should be paid, in full or a reduction

should be made in accordance with the Ballantyne schedule. (NO.
not related to NIL)
● Whether or not the note is a Negotiable Instrument and not merely
an acknowledgement of debt (YES.)

RATIO:

● SC: “In accordance with doctrines on the matter, the note

herein-above quoted amounted in effect to "a promise to pay ten
thousand pesos six months after the war, without interest." And so
of the other notes...”
● "An acknowledgment ​may become a promise by the addition of
words by which a promise of payment is naturally implied,
such as, "payable," "payable" on a given day, "payable on
demand," "paid . . . when called for," . . .
● "To constitute a good promissory note, no precise words of
contract are necessary, provided they amount, in legal effect, to a
promise to pay.
● In other words, if over and above the mere acknowledgment of the
debt there may be collected from the words used a promise to pay
it, ​the instrument may be regarded as a promissory note.
● When a note is payable after the war, the Ballantyne Schedule
cannot apply as it is only applicable when a note is payable during
the war. As such, no reduction can be effected, and peso-for-peso
payment shall be ordered in Philippine currency (unrelated to
NIL).

WHEREFORE, in view of the foregoing considerations, the appealed

decision is affirmed, except as to the attorney's fees which are hereby
disapproved. So ordered.

8. PACHECO v. CA
December 2, 1999 | Ynares-Santiago, J. | Section 12-13
N. SABBAN & R. BARRALES
PETITIONER:​ Ernesto T. Pacheco and Virginia O. Pacheco
RESPONDENT:​ Court of Appeals and People of the Philippines
RECIT-READY:
Sps. Pacheco borrowed money from Sps. Vicencio due to financial
difficulties. Mrs. Vicencio required them to issue an undated check as
evidence of loan, which allegedly will not be presented to the bank, to
which the Pachecos agreed upon. Sps. Pachecos had several loan
transactions with the Vicencios. They borrowed money amounting to a
total of P85,000. Consequently, six checks were issued by Sps. Pacheco,
as required by Sps. Vicencio as evidence of indebtedness. Of the P85,000
loan, Sps. Pacheco has paid off a total of P70,000. However, on the due
date of the remaining balance of P15,000, petitioners were not able to
pay. So, the Vicencios came over to their house convincing Mrs. Pacheco
to sign the previously issued undated check. Mrs. Pacheco informed the
Vicencios that their account with RCBC is already closed but they still
insisted that she sign the check so she reluctantly did. Later on, Sps.
Pacheco were surprised to receive a demand letter from Mr. Vicencio
informing them that the checks presented for payment were dishonored
due to "Account Closed."
Two informations for estafa were filed against Sps. Pacheco. The
information alleged that Sps. Pacheco "through fraud and false pretenses
and in payment of a diamond ring (gold necklace)" issued checks which
when presented for payment were dishonored
ISSUE:​ Whether Sps. Pacheco committed estafa? ​NO
RULING: ​In the absence of the essential element of deceit, no estafa
was committed by petitioners. ​There’s no deceit on the part of the Sps.
Pacheco because they agreed with the obligee at the time of the issuance
and postdating of the checks that the same shall not be encashed or
presented to the banks.
20
● As per assurance of the lender, the checks are nothing but
evidence of the loan or indebtedness. It has been ruled that a
drawer who issues a check as security or evidence of investment
is not liable for estafa.
● The allegation of Mrs. Vicencio that the date to be placed by
Virginia was necessary so as to make the check evidence of
indebtedness is nothing but a ploy. Sps. Pacheco openly
disclosed and never hid the fact that they no longer have funds
in the bank as their bank account was already closed.
● Knowledge by the complainant that the drawer does not have
sufficient funds in the bank at the time it was issued to him does
not give rise to a case for estafa through bouncing checks.
DOCTRINE:
● Under Section 13, the holder need not even ask the petitioners to
place a date on the check, because as holder of the check, he
could have inserted the date pursuant to Section 13 of the
Negotiable Instruments Law (NIL).
● Section 14 states that complainant, as the person in possession
of the check, has prima facie a​ uthority to complete it by filling
up the blanks.
● Pursuant to Section 12 of the same law, a negotiable instrument
is not rendered invalid by reason only that it is antedated or
postdated.
FACTS:
● Spouses Pacheco are engaged in the construction business, while
Romualdo Vicencio was a former judge and his wife Luz Vicencio
owns a pawnshop in Samar.
● Due to financial difficulties and delays in the payment of their
receivables for their construction projects from the DPWH, Sps.
Pacheco obtained a loan of P10,000 from Mrs. Vicencio. Instead of
requiring a note of indebtedness, Mr. Vicencio required the

Pachecos to issue an undated check as evidence of the loan which
allegedly will not be presented to the bank.
● Despite being informed by Sps. Pacheco that their bank account no
longer had any funds, Mrs. Vicencio insisted that they issue the
check, which according to her was only a formality.
● Further, Mrs. Vicencio also required Mr. Pacheco, to sign the
check on the same understanding that the check is not to be
encashed but merely intended as an evidence of indebtedness
which cannot be negotiated.
● In 1989, Virginia obtained another loan of P50,000.00 from Mrs.
Vicencio. She received only P35,000.00 as the previous loan of
P10,000.00 as well as the 10% interest amounting to P5,000.00 on
the new loan were deducted by the latter. With the payment of the
previous debt, Virginia asked for the return of the first check
(RCBC check no. 101756) but Mrs. Vicencio told her that her
filing clerk was absent.
● Despite several demands for the return of the first check, Mrs.
Vicencio told Virginia that they can no longer locate the folder
containing that check. For the new loan, she also required Virginia
to issue three (3) more checks in various amounts — two checks
for P20,000.00 each and the third check for P10,000.00.
● On June 20 and July 21, 1989, Virginia obtained two more loans,
one for P10,000.00 and another for P15,000.00. Again she issued
two more RCBC checks for P10,000.00 and P15,000.00
respectively.
● All the checks were undated at the time petitioners handed them to
Mrs. Vicencio. ​The six checks represent a total obligation of
P85,000.00. However, since the loan of P10,000.00 under the
first check was already paid when it was deducted from the
proceeds of the second loan, the remaining balance was only
P75,000.00. ​Sps. Pacheco were able to pay in cash P60,000.00 in
July 1989. After which, Sps. Pacheco never had any
transaction nor ever dealt with the Vicencios again.
21
● Sps. Pacheco were not able to pay the remaining balance of
P15,000.00 on its due date. Hence, Mrs. Vicencio together with her
husband and their daughter Lucille, went to Pacheco's residence to
persuade Virginia to place the date "August 15, 1992" on 2 checks
which were previously given undated to Mrs. Vicencio on May 17,
1989 and July 21, 1989. Yet again, despite being informed by
Virginia that their account with RCBC, Mrs. Vicencio and her
daughter insisted that she place a date on the checks.
● Later, Sps. Pacheco received a demand letter from Mrs. Vicencio's
spouse informing them that the checks presented for payment on
August 25, 1992 were dishonored due to "Account Closed."
● Two informations for estafa were filed against them. The
information alleged that Sps. Pacheco "through fraud and false
pretenses and in payment of a diamond ring (gold necklace)"
issued checks which when presented for payment were dishonored.
ISSUES​:
● Whether Sps. Pacheco committed estafa - ​No.
RATIO:
In the absence of the essential element of deceit, no estafa was
committed by petitioners.
● There’s no deceit on the part of the Sps. Pacheco because they
agreed with the obligee at the time of the issuance and postdating
of the checks that the same shall not be encashed or presented to
the banks.
● As per assurance of the lender, the checks are nothing but evidence
of the loan or indebtedness. It has been ruled that a drawer who
issues a check as security or evidence of investment is not liable
for estafa.
● Knowledge by the complainant that the drawer does not have
sufficient funds in the bank at the time it was issued to him does
not give rise to a case for estafa through bouncing checks.

● The first and third elements are not present in this case. (See
requirements in doctrine below). A check has the character of
negotiability and at the same time it constitutes an evidence of
indebtedness. By mutual agreement of the parties, the negotiable
character of a check may be waived and the instrument may be
treated simply as proof of an obligation.
● Both the RTC and CA relied so much on the fact that Mrs.
Vicencio's husband is a former Judge who knows the law. He
should have known, then, that he need not even ask the
petitioners to place a date on the check, because as holder of
the check, he could have inserted the date pursuant to Section
13 of the Negotiable Instruments Law (NIL).
● Moreover, ​as stated in Section 14, complainant, as the person in
possession of the check, has prima facie a​ uthority to complete it
by filling up the blank​s.
● Besides, ​pursuant to Section 12 of the same law, a negotiable
instrument is not rendered invalid by reason only that it is
antedated or postdated.
● Thus, the allegation of Mrs. Vicencio that the date to be placed by
Virginia was necessary so as to make the check evidence of
indebtedness is nothing but a ploy.
Doctrine:
Art. 315.Swindling (estafa). Any person who shall defraud another by any
of the means mentioned hereinbelow shall be punished by:
xxx xxx xxx
2. By means of any of the following false pretenses or fraudulent acts
executed prior to or simultaneously with the commission of the fraud:
xxx xxx xxx
22
(d) By postdating a check, or issuing a check in payment of an
obligation when the offender had no funds in the bank, or his funds
deposited therein were not sufficient to cover the amount of the check. The
failure of the drawer of the check to deposit the amount necessary to cover
his check within three (3) days from receipt of notice from the bank and/or
the payee or holder that said check has been dishonored for lack or
insufficiency of funds shall be prima facie ​evidence of deceit constituting
false pretense or fraudulent act.
The essential elements in order to sustain a conviction under the above
paragraph are:
1. that the offender postdated or issued a check in payment of an
payment obligation contracted at the time the check was issued;
2. that such postdating or issuing a check was done when the offender
had no funds in the bank, or his funds deposited therein were not sufficient
to cover the amount of the check;
3. deceit or damage to the payee thereof.
*In this case, the first and third elements are not present.
Sps. Pacheco are still liable to pay their outstanding obligation of
P15,000.00 in favor of Mrs. Vicencio and it shall earn legal interest at the
rate of twelve per cent (12%) per annum ​pursuant to Central Bank (CB)
Circular No. 416.
WHEREFORE, the assailed Decision is REVERSED and SET ASIDE.
Petitioners are ACQUITTED of the charge of estafa but they are
ORDERED to pay Mrs. Vicencio the amount of P15,000.00 without
interest. However, from the time this judgment becomes final and
executory, the amount due shall earn legal interest of twelve percent
(12%)​per annum ​until full payment.

9. PATRIMONIO v. GUTIERREZ
June 4, 2014 | Brion, ​J​ | Authority on Negotiable Instrument with
Missing Material Particular
A. ALVERO & J. CARILLO
PETITIONER: ​Alvin Patrimonio
RESPONDENT: ​Napoloeon Gutierrez and Octavio Marasigan III
RECIT-READY: ​Patrimonio pre-signed several blank checks and
entrusted those to Gutierrez to finance their business expenses under
Slam Dunk. Patriminio gave specific instructions to Gutierrez not to fill
them out without previous notification and approval by the petitioner.
Gutierrez loaned from Marasigan ₱200,000 saying that it is for
construction of Patrimonio’s house offering him and additional interest of
5% per month to the principal amount. Marasigan gave Gutierrez the
loaned money.
Gutierrez delivered to Marasigan one of the blank checks the petitioner
pre-signed with the ​blank portions filled out with the words "​Cash"
"Two Hundred Thousand Pesos Only​", and the amount of
"P200,000.00"​. Upper right portion of the check indicating date was also
filled out with the words "May 23, 1994" but petitioner said that the same
was not written by Gutierrez.
Marasigan deposited the check but was dishonored and sought recovery
from Gutierrez but to no avail. He then filed a criminal case for violation
of B.P. 22 against Patrimonio when several demand letters to the
petitioner went unheeded.
RTC ruled in favor of Marasigan declaring him as a holder in due course
and dismissed petitioner’s complaint ordering Patrimonio to pay the face
value of the check with a right to claim reimbursement from Gutierrez.
23
CA affirmed the RTC ruling premised on different findings that
Marasigan is not a holder in due course and the loan may not be nullified
since it is grounded on an obligation arising from law and that the
petitioner is still liable to pay Marasigan.
ISSUE:
● W/N there is basis to hold the petitioner liable for the payment
of ₱200,000 loan under the issued instrument? ​NO
RULING: ​The instrument (pre-signed blank checks) had not been filled
up strictly in accordance with the authority given by the petitioner.
Gutierrez exceeded his authority to fill up the blanks and use the check
not for the operation of business and did not secure prior approval from
Patrimonio on its use.
Marasigan is not a holder in due course because he knew that the
petitioner is not a party or a privy to the contract of loan, and had no
obligation or liability to him, which renders him dishonest, hence, in bad
faith.
Patrimonio can validly set up a personal defense that the blanks were not
filled up in accordance with the authority he gave under the provisions of
NIL section 14. Consequently, Marasigan has no right to enforce
payment against the petitioner and the latter cannot be obliged to pay the
face value of the check.
DOCTRINE:
Under NIL Section 14, an instrument wanting in a material particular can
be filled up by a person with ​prima facie authority t​ o complete the
blanks. When the maker or drawer delivers a pre-signed blank paper to
another person for the purpose of converting it into a negotiable
instrument, ​that person is deemed to have prima facie authority to fill
it up​.
In order however that one who is not a holder in due course can enforce
the instrument against a party prior to the instrument's completion, two

requisites must exist: (1) that ​the blank must be filled strictly in
accordance with the authority given​; and (2) it must be filled up within
a reasonable time.
If it was proven that the instrument had not been filed up strictly in
accordance with the authority given and within a reasonable time,
the maker can set this up as a personal defense and avoid liability.
FACTS:
● Petitioner (a decorated basketball player) and respondent
(well-know sports columnist) entered into a business venture under
the name of Slam Dunk Corporation (Slam Dunk) producing
mini-concerts and shows related to basketball.
● Petitioner pre-signed several checks for the expenses of Slam
Dunk. ​Although signed, these checks had no payee's name, date
or amount​. The ​blank checks were entrusted to Gutierrez ​with
the specific ​instruction not to fill them out without previous
notification to and approval by the petitioner​. so that he could
verify the validity of the payment and make the proper
arrangements to fund the account.
● In 1993, without the petitioner's knowledge and consent, Gutierrez
secured a P200,000.00 loan from Marasigan (petitioner’s former
teammate) on the excuse that the petitioner needed the money for
the construction of his house. Gutierrez assured Marasigan that an
interest of 5% per month in addition to the principal amount will
be paid.
● Marasigan acceded to Gutierrez' request and gave him P200,000.00
sometime in February 1994.
● Gutierrez simultaneously delivered to Marasigan one of the blank
checks the petitioner pre-signed with Pilipinas Bank, Greenhills
Branch, Check No. 21001764 with the ​blank portions filled out
with the words "​Cash" "Two Hundred Thousand Pesos Only​",
and the amount of ​"P200,000.00"​.
24
● Upper right portion of the check corresponding to the date was also
filled out with the words "May 23, 1994" but the petitioner
contended that the same was not written by Gutierrez.
● On May 24, 1994, Marasigan deposited the check but it was
dishonored for the reason "ACCOUNT CLOSED." because the
petitioner's account with the bank had been closed since May 28,
1993.
● Marasigan sought recovery from Gutierrez but to no avail.
● Marasigan filed a criminal case for violation of B.P. 22 against the
petitioner when the several demand letters to the petitioner asking
for the payment of P200,000.00, went unheeded.
● Petitioner filed before the RTC a Complaint for Declaration of
Nullity of Loan and Recovery of Damages against Gutierrez and
Marasigan completely denying that he authorized the loan or the
check's negotiation and asserted that he was not privy to the
parties' loan agreement.
● RTC ruled in favor of Marasigan declaring him as a holder in due
course and dismissed petitioner’s complaint ordering Patrimonio to
pay Marasigan the face value of the check with a right to claim
reimbursement from Gutierrez.
● RTC said that in issuing the pre-signed blank checks, Patrimonion
had the intention of issuing a negotiable instrument and even if
Gutierrez deliberately violated petitioner's specific instructions and
took advantage of the trust reposed in him by the latter under Sec.
14 of NIL Gutierrez still had the prima facie authority to complete
the checks by filling up the blanks.
● CA affirmed the RTC ruling premised on different factual findings.
CA agreed with petitioner that Marasigan is not a holder in due
course as he did not receive the check in good faith. CA also
concluded that the check had been strictly filled out by Gutierrez in
accordance with the petitioner's authority and the loan may not be
nullified since it is grounded on an obligation arising from law and
petitioner is still liable to pay Marasigan the sum of P200,000.00.
 25

ISSUES: ● Consequently, Marasigan has no right to enforce payment against

● Whether or not there is basis to hold the petitioner liable for the the petitioner and the latter cannot be obliged to pay the face value
payment of ₱200,000 loan under the issued check? ​NO of the check.

RATIO: WHEREFORE, judgment is hereby rendered GRANTING the

● The instrument (pre-signed blank checks) had not been filled up petitioner Alvin Patrimonio's petition for review on certiorari. The
strictly in accordance with the authority given by the petitioner. appealed decision and the Resolution of the CA are consequently
Gutierrez exceeded his authority to fill up the blanks and use the ANNULLED AND SET ASIDE. Costs against the respondents.
check other than for the operation of business and did not secure
prior approval from Patrimonio on its use.
● Marasigan is not a holder in due course because he knew that the
petitioner is not a party or a privy to the contract of loan, and had
no obligation or liability to him, which renders him dishonest,
hence, in bad
● Patrimonio can validly set up a personal defense that the blanks
were not filled up in accordance with the authority he gave under
the provisions of NIL section 14. Section 14 of the Negotiable
Instruments Law (NIL) provides:
Sec. 14. Blanks; when may be filled. — Where the instrument is
wanting in any material particular, the person in possession
thereof has a prima facie authority to complete it by filling up
the blanks therein. And a signature on a blank paper delivered
by the person making the signature in order that the paper may
be converted into a negotiable instrument operates as a prima
facie authority to fill it up as such for any amount. In order,
however, that any such instrument when completed may be
enforced against any person who became a party thereto prior to
its completion, ​it must be filled up strictly in accordance with
the authority given and within a reasonable time​. But if any
such instrument, after completion, is ​negotiated to a holder in
due course​, it is valid and effectual for all purposes in his hands,
and he may enforce it as if it had been filled up strictly in
accordance with the authority given and within a reasonable
time.

10. MANUEL LIM V. COURT OF APPEALS
December 19, 1995 | Bellosillo, J. | Section 16
F. QUIJANO & V. BARLONGAY
PETITIONER: ​Manuel Lim and Rosita Lim
RESPONDENT: ​Court of Appeals and People of the Philippines
RECIT-READY: ​The Spouses Lim ordered for mild steel plates and
“Z” Purlins from Linton Commercial Company. They issued as payment
seven checks. These checks were dishonored upon deposit to the Rizal
Commercial Banking Corporation for insufficiency of funds. Despite
demand, Sps. Lim refused to make good the checks. They were charged
with estafa and violation of B.P. Blg. 22. ​The following acts material and
essential to each crime and requisite to its consummation must be
considered: (a) the seven (7) checks were issued to LINTON at its place
of business in Balut, Navotas; b) they were delivered to LINTON at the
same place; (c) they were dishonored in Caloocan City; and, (d)
petitioners had knowledge of the insufficiency of their funds in
SOLIDBANK at the time the checks were issued.
ISSUE:
● Whether or not the RTC of Malabon has jurisdiction over the
case even when the checks were all issued, delivered, and
dishonored in Caloocan City? ​YES
RULING: ​Although LINTON sent a collector who received the checks
from petitioners at their place of business in Caloocan City, they were
actually issued and delivered to LINTON at its place of business in Balut,
Navotas. The receipt of the checks by the collector of LINTON is not the
issuance and delivery to the payee in contemplation of law. The collector
was not the person who could take the checks as a holder, ​i.​ ​e​., as a payee
or indorsee thereof, with the intent to transfer title thereto.
The Informations in the cases under consideration allege that the offenses
were committed in the Municipality of Navotas which is controlling and
sufficient to vest jurisdiction upon the Regional Trial Court of Malabon.
DOCTRINE:
Under Sec. 191 of the Negotiable Instruments Law the term "issue"
26
means the first delivery of the instrument complete in form to a person
who takes it as a holder. On the other hand, the term "holder" refers to the
payee or indorsee of a bill or note who is in possession of it or the bearer
thereof.
FACTS:
● Manuel Lim and Rosita Lim are the ​president and treasurer,
respectively, of Rigi Bilt Industries, Inc. (RIGI). RIGI had been
transacting business with LINTON for years​.
● The Lims ordered 100 pieces of mild steel plates worth P51,815.00
from. To pay LINTON for the delivery the Lims issued a check in
the amount of P51,800.00​. The Lims ordered another 65 pieces of
mild steel plates worth P63,455.00 from LINTON. They issued as
payment a check in the amount of P63,455.00.
● The Lim spouses also ordered 2,600 "Z" purlins worth
P241,800.00 which were delivered to them on various dates. To
pay for the deliveries, they issued seven checks​.
● William Yu Bin, Vice President and Sales Manager of LINTON,
testified that when seven (7) of those checks were deposited with
the Rizal Commercial Banking Corporation they were dishonored
for "insufficiency of funds" with the additional notation "payment
stopped" stamped thereon. Despite demand Manuel and Rosita
refused to make good the checks or pay the value of the deliveries​.
● Manuel Lim admitted having issued the seven (7) checks in
question to pay for deliveries made by LINTON but denied that his
company's account had insufficient funds to cover the amounts of
the checks. He presented the bank ledger showing a balance of
P65,752.75. Also, he claimed that he ordered SOLIDBANK to
stop payment because the supplies delivered by LINTON were not
in accordance with the specifications in the purchase orders.
● On the basis of the evidence thus presented the trial court held both
accused guilty of estafa and violation of B.P. Blg. 22

● Respondent Court of Appeals acquitted accused-appellants of
estafa on the ground that indeed the checks were not made in
payment of an obligation contracted at the time of their issuance.
However it affirmed the finding of the trial court that they were
guilty of having violated B.P. Blg. 22.
ISSUES:
● Whether or not the RTC of Malabon has jurisdiction over the case?
YES
RELEVANT ARGUMENTS (if any):
● Petitioner: ​Prosecution failed to prove that any of the essential
elements of the crime punishable under B.P. Blg. 22 was
committed within the jurisdiction of the Regional Trial Court of
Malabon. They claim that what was proved was that all the
elements of the offense were committed in Caloocan City. The
checks were issued at their place of business, received by a
collector of LINTON, and dishonored by the drawee bank, all in
Caloocan City. Considering that the checks were all issued,
delivered, and dishonored in Caloocan City, the trial court of
Malabon exceeded its jurisdiction when it tried the case and
rendered judgment thereon.
● Respondent:
RATIO:
● The following acts material and essential to each crime and
requisite to its consummation must be considered: (a) the seven (7)
checks were issued to LINTON at its place of business in Balut,
Navotas; b) they were delivered to LINTON at the same place; (c)
they were dishonored in Caloocan City; and, (d) petitioners had
knowledge of the insufficiency of their funds in SOLIDBANK at
the time the checks were issued.
27
● Under Sec. 191 of the Negotiable Instruments Law the term "issue"
means the first delivery of the instrument complete in form to a
person who takes it as a holder. On the other hand, the term
"holder" refers to the payee or indorsee of a bill or note who is in
possession of it or the bearer thereof.
● Although LINTON sent a collector who received the checks from
petitioners at their place of business in Caloocan City, they were
actually issued and delivered to LINTON at its place of business in
Balut, Navotas. The receipt of the checks by the collector of
LINTON is not the issuance and delivery to the payee in
contemplation of law. The collector was not the person who could
take the checks as a holder, ​i​.​e​., as a payee or indorsee thereof,
with the intent to transfer title thereto. Neither could the collector
be deemed an agent of LINTON with respect to the checks because
he was a mere employee.
● Venue or jurisdiction is determined by the allegations in the
Information. The Informations in the cases under consideration
allege that the offenses were committed in the Municipality of
Navotas which is controlling and sufficient to vest jurisdiction
upon the Regional Trial Court of Malabon.
WHEREFORE, ​the decision of the Court of Appeals dated 18
September 1992 affirming the conviction of petitioners Manuel Lim
and Rosita Lim as well as its resolution of 6 November 1992 denying
reconsideration thereof, is AFFIRMED. Costs against petitioners.

11. PEOPLE vs. GROSPE
January 20, 1988| Melencio-Herrera, J. | Section 16
J. CARILLO & N. SABBAN
PETITIONER: ​People of the Philippines representing San Miguel
Corporagtion (SMC)
RESPONDENT:​N​ATHANIEL M. GROSPE, Presiding Judge, Branch
44, Regional Trial Court of Pampanga and MANUEL PARULAN
RECIT-READY:
Parolan was an authorized wholesale dealer of SMC. Parulan was
charged of 2 crimes:
1) BP 22 – issuing a check for P86, 071.20 in favor of SMC which was
dishonored due to insufficient funds.
2) Estafa – P11, 918.80 check in favor of SMC in payment of beer he
purchased. Check was also refused.
The two cases were tried jointly before the RTC of Pampanga. The
checks were issued by the accused on various occasions at the Sales
office of SMC at Guiguinto, Bulacan and which checks he handed to
SMC Supervisor in the same municipality. Judge Grospe of the RTC of
Pampanga dismissed the case because of lack of jurisdiction since the
checks were dishonored by the Planters Development Bank (Bulacan),
the drawee bank. Judge Grospe held that the essential elements of estafa
(deceit and damage) were committed in Bulacan, not in Pampanga since
the checks were issued in Guiguinto, Bulacan and were delivered to SMC
Supervisor who holds office in the same municipality and subsequently
dishonored by the drawee bank at Sta. Maria, Bulacan.
ISSUE:
The issue is whether or not venue was sufficiently conferred in the
Regional Trial Court of Pampanga in the two cases in relation to the
postdating of checks. (​YES​)
RULING:
Estafa by postdating or issuing a bad check may be a transitory
or continuing offense. Its basic elements of deceit and damage
28
may arise independently in separate places. In this case, it did and
jurisdiction may be conferred in any of the two places wherein the two
elements arose.
For while the subject check was issued in Bulacan, it wasn't
completely drawn thereat, but in Pampanga. What is of
decisive importance is the delivery thereof. The delivery of the
instrument is the final act essential to its consummation as an
obligation. For although the check was received by the SMC
Supervisor in Bulacan, that was not delivery in the
contemplation of law. The rule is that the issuance as well as the delivery
of the check must be to a person who takes it as a holder, which means
the payee or indorser of a bill or note, who is in possession of it,
or the bearer thereof. The said representative had to forward the
check to the SMC regional office, who thereafter forwarded it to the
Finance Officer and later on to the depository bank.
DOCTRINE:
The place where the bills were written, signed or dated does not
necessarily fix or determine the place where they were executed.
What is of decisive importance is the delivery thereof. The delivery of
the instrument is the final act essential to its consummation as an
obligation.
An undelivered bill or note is inoperative. Until delivery, the contract
is revocable. And the issuance as well as the delivery of the check
must be to a person who takes it as a holder, which means "(t)he
payee or indorsee of a bill or note, who is in possession of it, or the
bearer thereof"​ (Sec. 190, Negotiable Instruments Law).
Delivery of the check signifies transfer of possession, whether actual or
constructive, from one person to another with intent to transfer title
thereto ​(Sec. 190, Negotiable Instruments Law)​.
FACTS:

● Manuel Parulan (Respondent-accused) , is an authorized wholesale
dealer of petitioner San Miguel Corporation (SMC, for short) in
Bulacan.
● Regional Trial Court of Pampanga charged Parulan with:
1. Violation of the Bouncing Checks Law (B.P. Blg. 22) - for having issued
a check for P86,071.20) in favor of SMC but which was dishonored for
having been drawn against 'insufficient funds and, in spite of repeated
demands, for having failed and refused to make good said check.
2. Estafa under Article 315 OF RPC - for having made out a check with the
sum of P11,918.80 in favor of SMC in payment of beer he had purchased,
but which check was refused payment for "insufficient funds" and, in spite
of repeated demands, for having failed and refused to redeem said check.
● The checks were handed and delivered to the sales Supervisor of
SMC, Mr. Ruben Cornelio, who holds office in that municipality.
● Both checks dishonored by the drawee bank, the Planters
Development (PDB) Bank, at Santa Maria, Bulacan for clearing
purposes.
● The Court did not believe the claim of the accused that the checks
which he admittedly signed and delivered to Mr. Cornelio in blank
were filled up without his knowledge particularly the amounts
appearing therein.
● The accused had been engaged in business for some time involving
amounts that are quite considerable, and it is hard to believe that he
will agree to this kind of arrangement which placed or exposed
him to too much risks and uncertainties.
● Lower court (dismissed due to want of jurisdiction): ​Deceit and
damage are the two essential elements that make up the offenses
involving dishonored checks. The two essential elements did not
occur within the territorial jurisdiction of his Court in Pampanga,
but rather in Bulacan where false assurances were given by
Respondent-accused and where the checks he had issued were
dishonored.
29
● The other element of damage pertaining to the offenses charged in
these cases was inflicted on the offended party, the SMC, right at
the moment the checks issued by the accused were dishonored by
the PDB, the drawee bank, at Santa Maria, Bulacan.
● Solicitor General: Each dishonored checks are subject to different
penal laws and with different basic elements.
● In the crime of Estafa by postdating or issuing a bad check, deceit
and damage are essential elements of the offense and have to be
established with satisfactory proof to warrant conviction.
● For Violation of the Bouncing Checks Law, on the other hand, the
elements of deceit and damage are not essential nor required. An
essential element of that offense is knowledge on the part of the
maker or drawer of the check of the insufficiency of his funds. The
Anti-Bouncing Checks Law makes the mere act of issuing a
worthless check a special offense punishable thereunder Malice
and intent in issuing the worthless check are immaterial, the
offense being ​malum prohibitum ​The gravamen of the offense is
the issuance of a check, not the non-payment of an obligation.
ISSUE:
Whether or not venue was sufficiently conferred in the Regional Trial Court
of Pampanga in the two cases in relation to the postdating of checks. ​(YES)
RELEVANT ARGUMENTS (if any):
● (in the facts)
RATIO:
● Section 14(a) of Rule 110 of the Revised Rules of Court, which
has been carried over in Rules of Criminal Procedure:
● A person charged with a transitory crime may be validly tried in
any municipality or province where the offense was in part
committed. In transitory or continuing offenses in which some acts
material and essential to the crime and requisite to its
consummation occur in one province and some in another, the
Court of either province has jurisdiction to try the case, it being

understood that the first Court taking cognizance of the Case will
exclude the others.
● Estafa by postdating or issuing a bad check, may be a
transitory or continuing offense. Its basic elements of deceit and
damage may arise independently in separate places. In this case,
deceit took place in San Fernando, Pampanga, while the damage
was inflicted in Bulacan where the cheek was dishonored by the
drawee bank in that place. ​Jurisdiction may, therefore, be
entertained by either the Bulacan Court or the Pampanga
Court.
● For while the subject check was issued in Guiguinto, Bulacan,
it was not completely drawn thereat, but in San Fernando,
Pampanga, where it was uttered and delivered. "What is of
decisive importance is the delivery thereat The delivery of the
instrument is the final act essential to its consummation as an
obligation"
● For although the check was received by the SMC Sales Supervisor
at Guiguinto, Bulacan, that was not the delivery in contemplation
of law to the payee, SMC. ​Said supervisor was not the person
who could take the check as a holder, that is, as a payee or
indorsee thereof, with the intent to transfer title thereto. The
rule is that the issuance as well as the delivery of the check
must be to a person who takes it as a holder, which means "the
payee or indorsee of a bill or note, who is in possession of it, or
the bearer, thereof" ​(Sec. 190, Negotiable Instruments Law)
Thus, said representative had to forward the check to the SMC
Regional Office in San Fernando, Pampanga, which was delivered
to the Finance Officer thereat who, in turn, deposited it at the SMC
depository bank in San Fernando, Pampanga.
● The element of deceit, therefore, took place in San Fernando,
Pampanga, where the rubber check was legally issued and
delivered so that jurisdiction could properly be laid upon the Court
in that locality.
30
● The estafa charged in the two informations appear to be transitory
or continuing in nature. Deceit has taken place in Malolos,
Bulacan, while the damage in Caloocan City, where the checks
were dishonored by the drawee banks there. Jurisdiction can,
therefore, be entertained by either the Malolos court or the
Caloocan court.
● The place where the bills were written, signed or dated does
not necessarily fix or determine the place where they were
executed. What is of decisive importance is the delivery
thereof. The delivery of the instrument is the final act essential
to its consummation as an obligation.
● An undelivered bill or note is inoperative. Until delivery, the
contract is revocable. And the issuance as well as the delivery
of the check must be to a person who takes it as a holder,
which means "(t)he payee or indorsee of a bill or note, who is
in possession of it, or the bearer thereof" (Sec. 190, Negotiable
Instruments Law).
● Delivery of the check signifies transfer of possession, whether
actual or constructive, from one person to another with intent to
transfer title thereto ​(Sec. 190, Negotiable Instruments Law).​
● Clearly, therefore, the element of deceit thru the issuance and
delivery of the worthless checks to the complainant took place in
Malolos, Bulacan, conferring upon a court in that locality
jurisdiction to try the case.
● In respect of the Bouncing Checks Case, the offense also appears
to be continuing in nature. It is true that the offense is committed
by the very fact of its performance ; and that the Bouncing Checks
Law penalizes not only the fact of dishonor of a check but also the
act of making or drawing and issuance of a bouncing check. The
case, therefore, could have been filed also in Bulacan.
● The dismissal of the subject criminal cases by Respondent Judge,
predicated on his lack of jurisdiction, is correctable by Certiorari.
 31

● In sum, Respondent Judge had jurisdiction to try and decide the

subject criminal case, venue having been properly laid.

WHEREFORE, the Decision of Respondent Judge of February 17,

1986 is hereby set aside and he is hereby ordered to reassume
jurisdiction over Criminal Cases Nos. 2800 and 2813 of his Court and
to render judgment of either conviction or acquittal in accordance with
the evidence already adduced during the joint trial of said two cases.

12. DELA VICTORIA v. BURGOS
June 27, 1995 | Bellosillo, J.| Section 16
L. ABIOG & J. SALAMAT
PETITIONER: LORETO DELA VICTORIA
RESPONDENT: JOSE BURGOS, RAUL SESBRENO
RECIT-READY: ​This case is about damages complaint filed by Raul
Sesbreno against Mabanto Jr. worth P11,000.00. The order has become
final and executory. Thus, the court ordered for its execution, even
though herein defendants questioned such order before the CA.
On February 4, 1992, a notice of garnishment was served on petitioner de
la Victoria directing him not to disburse, transfer, release, or convey to
any other person except the deputy sheriff the salary checks of Mabanto
Jr.
The appeal before the CA having been dismissed, the Trial Court directed
petitioner to submit his report showing the amount of the garnished
salaries of Mabanto Jr. within 15 days from receipt of such order.
Herein petitioner moved to quash the notice of garnishment claiming he
was not in possession of any money, funds, etc. of Mabanto. He further
claimed that public funds cannot be subjected to garnishment,
The trial court denied both motions and ordered petitioner to immediately
comply with its order, as they held that the salaries of Mabanto was
already released through him by the DOJ duly signed by the officer
concerned. Upon service of the writ of garnishment, petitioner as
custodian of the checks was under obligation to hold them for the
judgment creditor.
Petitioner reiterates his position that the salary checks were not owned by
Mabanto, Jr., because they were not yet delivered to him, and that
petitioner as garnishee has no legal obligation to hold and deliver them to
the trial court to be applied to Mabanto, Jr.' s judgment debt. The thesis
32
of petitioner is that the salary checks still formed part of public funds and
therefore beyond the reach of garnishment proceedings.
As a necessary consequence of being public fund, the checks may not be
garnished to satisfy the judgment. The rationale behind this doctrine is
obvious consideration of public policy. The Court succinctly stated in
Commissioner of Public Highways v. San Diego 10 that – “​The functions
and public services rendered by the State cannot be allowed to be
paralyzed or disrupted by the diversion of public funds from their
legitimate and specific objects, as appropriated by law.​”
ISSUE:
● (Nego issue) W/N a check still in the hands of the maker or its
duly authorized representative is owned by the payee before
physical delivery to the latter​; ​NO
● (Not a nego issue) W/N the salary check of a government
official or employee funded with public funds can be subject to
garnishment.​ ​NO
RULING: ​The court ruled in favor of the petitioner, saying that being
taken from public funds, the checks were not subject to garnishment to
satisfy the judgment of the trial court. As regards the topic on Section 16,
since the checks were not yet physically delivered to respondents, they
were likewise not in possession of the same.
DOCTRINE:
The salary check of a government officer or employee such as a teacher
does not belong to him before it is physically delivered to him. Until that
time the check belongs to the government. Accordingly, before there is
actual delivery of the check, the payee has no power over it (Section 16,
NIL); he cannot assign it without the consent of the Government.
FACTS:
● RAUL H. SESBREÑO filed a complaint for damages against
Assistant City Fiscals Bienvenido N. Mabanto, Jr., before the

Regional Trial Court of Cebu City. After trial Judgment was
rendered ordering the defendants to pay P11,000.00 to the plaintiff
(private respondent). The decision having become final and
executory, on motion of the latter, the trial court ordered its
execution. This order was questioned by the defendants before the
Court of Appeals. However, on 15 January 1992 a writ of
execution was issued.
● On 4 February 1992 a notice of garnishment was served on
petitioner Loreto D. de la Victoria as City Fiscal of Mandaue City
where defendant Mabanto, Jr., was then detailed. The Notice
directed petitioner not to disburse, transfer, release or convey to
any other person except to the deputy sheriff concerned the salary
checks, monies, or cash due or belonging to Mabanto, Jr., under
penalty of law. On 10 March 1992 private respondent filed a
motion before the trial court for examination of the garnishees.
● On 25 May 1992 the petition pending before the Court of Appeals
was dismissed. Thus, the trial court, finding no more legal obstacle
to act on the motion for examination of the garnishees, directed
petitioner on 4 November 1992 to submit his report showing the
amount of the garnished salaries of Mabanto, Jr., within (15) days
from receipt 2 taking into consideration the provisions of Sec. 12,
pars. (f) and (i), Rule 39 of the Rules of Court.
● On the other hand, on 19 January 1993 petitioner moved to quash
the notice of garnishment claiming that he was not in possession of
any money, funds, credit, property or anything of value belonging
to Mabanto, Jr., until delivered to him. He further claimed that, as
such, they were still public funds which could not be subject to
garnishment.
● On 9 March 1993 the trial court denied both motions and ordered
petitioner to immediately comply with its order of 4 November
1992… Additionally there was no sufficient reason for petitioner
to hold the checks because they were no longer government funds
and presumably delivered to the payee, conformably with the last
sentence of Sec. 16 of the Negotiable Instruments Law.
33
● The trial court explained that it was not the duty of the garnishee to
inquire or judge for himself whether the issuance of the order of
execution, writ of execution and notice of garnishment was
justified. His only duty was to turn over the garnished checks to
the trial court which issued the order of execution.
ISSUES:
● (Nego issue) W/N a check still in the hands of the maker or its duly
authorized representative is owned by the payee before physical
delivery to the latter​; - ​NO
● (Not a nego issue) W/N the salary check of a government official
or employee funded with public funds can be subject to
garnishment.​ - ​NO
RELEVANT ARGUMENTS (if any):
RATIO:
● The salary check of a government officer or employee such as a
teacher does not belong to him before it is physically delivered.
Until that time the check belongs to the government. Accordingly,
before there is actual delivery of the check, the payee has no power
over it; he cannot assign it without the consent of the Government.
As a necessary consequence of being public fund, the checks may
not be garnished to satisfy the judgment.

13. DEVELOPMENT BANK OF RIZAL v. SIMA WEI
March 9, 1993 | Campos Jr., J | Section 16
A. REINOSO & M. NOEL
PETITIONER: ​Development Bank of Rizal
RESPONDENT: ​Sima Wei and/or Lee Kian Huat, Mary Cheng Uy,
Samson Tung, Asian Industrial Plastic Corporation and Producers Bank
of the Philippines.
RECIT-READY: ​Sima Wei obtained a loan from Development Bank of
Rizal. She issued a promissory note worth P1,820,0000 with interest of
32% per annum. Sima made partial payments on the note leaving a
balance of P1,032,450. Sima then issued two crossed checks payable to
Development Bank of Rizal, drawn against China Banking Corporation,
in the amounts of P550,000 and P500,000, allegedly in full settlement of
her promissory note. For reasons unknown, these two checks were never
delivered to Development Bank of Rizal.
The checks ended up in the hands of Lee Kian Huat who deposited the
checks to the account of Asian Industrial Plastic Corporation, without
Development Bank of Rizal’s indorsement. The branch manager of
Producer’s Bank, where the checks were deposited, assured the cashier
that the transaction was regular and instructed him to accept the checks.
Development Bank of Rizal filed a complaint. The RTC and CA
dismissed the complaint for lack of cause of action.
ISSUE:
WoN Development Bank of Rizal has a cause of action?
RULING: ​The SC ruled that, Development Bank of Rizal has no cause
of action against the respondents as to the checks but it has a cause of
action as to the loan balance of Sima Wei.
A cause of action is defined as an act or omission of one party in
violation of the legal right or rights of another. A negotiable instrument,
like a check, must be delivered to the payee in order to evidence its
34
existence as a binding contract. Section 16 of the Negotiable Instruments
Law states 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. In the present case, Development
Bank of Rizal never received the checks. Without the delivery of said
checks, it did not acquire any right or interest in them. Development
Bank of Rizal cannot therefore assert any cause of action, founded on
said checks, whether against any of the respondents. Notwithstanding the
above, Sima Wei is not freed from liability. Her allegation that she paid
the balance of her loan with the two checks payable has no merit since
these checks were never delivered. Development Bank of Rizal has a
right of action against her for the balance due on the loan.
DOCTRINE:
Section 16 of the Negotiable Instruments Law states 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.
FACTS:
1. In consideration for a loan extended by Development Bank of
Rizal (Bank) ​to Sima Wei, the latter executed and delivered to the
Bank a promissory note, engaging to pay the Bank or order the
amount of P1,820,000.00 on or before June 24, 1983 with interest
at 32%​ per annum.​
2. Sima Wei made partial payments on the note, leaving a balance of
P1,032,450.02. On November 18, 1983, Sima Wei issued two
crossed checks payable to Bank drawn against China Banking
Corporation, for the amount of P550,000.00 and P500,000.00. The
said checks were allegedly issued in full settlement of the drawer's
account evidenced by the promissory note.

3. These two checks were not delivered to the petitioner-payee or to
any of its authorized representatives. For reasons not shown, these
checks came into the possession of respondent Lee Kian Huat, who
deposited the checks without the petitioner-payee's indorsement
(forged or otherwise) to the account of respondent Plastic
Corporation, at the Balintawak branch, Caloocan City, of the
Producers Bank.
4. Cheng Uy, Branch Manager of the Balintawak branch of Producers
Bank, relying on the assurance of respondent Samson Tung,
President of Plastic Corporation, that the transaction was legal and
regular, instructed the cashier of Producers Bank to accept the
checks for deposit and to credit them to the account of said Plastic
Corporation, inspite of the fact that the checks were crossed and
payable to Bank and bore no indorsement of the latter.
5. Hence, petitioner filed the complaint as aforestated.
ISSUES:
1. WoN Development Bank of Rizal has a cause of action against
any or all of the defendants?
SC: Development Bank or Rizal has ​has no cause of action against
the respondents as to the checks but it has a cause of action as to
the loan balance of Sima Wei.
RATIO:
● A cause of action is defined as an act or omission of one party in
violation of the legal right or rights of another.
○ The essential elements are: (1) legal right of the plaintiff;
(2) correlative obligation of the defendant; and (3) an act
or omission of the defendant in violation of said legal
right.
● The normal parties to a check are the drawer, the payee and the
drawee bank.
● Courts have long recognized the business custom of using printed
checks where blanks are provided for the date of issuance, the
name of the payee, the amount payable and the drawer's signature.
35
○ All the drawer has to do when he wishes to issue a check
is to properly fill up the blanks and sign it.
○ However, the mere fact that he has done these does not
give rise to any liability on his part, until and unless the
check is delivered to the payee or his representative.
● A negotiable instrument, of which a check is, is not only a written
evidence of a contract right but is also a species of property. Just as
a deed to a piece of land must be delivered in order to convey title
to the grantee, so must a negotiable instrument be delivered to the
payee in order to evidence its existence as a binding contract.
● Section 16 of the Negotiable Instruments Law, which governs
checks, provides in part:
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.
○ Delivery of an instrument means transfer of possession,
actual or constructive, from one person to another.
○ Without the initial delivery of the instrument from the
drawer to the payee, there can be no liability on the
instrument.
○ Moreover, such delivery must be intended to give effect
to the instrument.
● The allegations of the petitioner in the original complaint show that
the two (2) China Bank checks, numbered 384934 and 384935,
were not delivered to the payee, the Development Bank of Rizal.
● Without the delivery of said checks to petitioner-payee (the Bank),
the former did not acquire any right or interest therein and cannot
therefore assert any cause of action, founded on said checks​,
whether against the drawer Sima Wei or against the Producers
Bank or any of the other respondents.
● In the original complaint, petitioner Bank, as plaintiff, sued Sima
Wei on the promissory note, and the alternative defendants,
including Sima Wei, on the two checks.
○ On appeal from the orders of dismissal of the Regional
Trial Court.
 36

○ petitioner Bank alleged that its cause of action was not said respondents, in the alternative or otherwise. If at all,
based on collecting the sum of money evidenced by the it is Sima Wei, the drawer, who would have a cause of
negotiable instruments stated but on ​quasi-delict — a action against her co-respondents, if the allegations in the
claim for damages on the ground of fraudulent acts and complaint are found to be true.
evident bad faith of the alternative respondents. ● We find it unnecessary to discuss the applicability of Section 13,
○ This was clearly an attempt by the petitioner Bank to Rule 3 of the Rules of Court in view of Our finding that the
change not only the theory of its case but the basis of his petitioner Bank did not acquire any right or interest in the checks
cause of action. due to lack of delivery.
○ It is well-settled that a party cannot change his theory on ● It therefore has no cause of action against the respondents, in
appeal, as this would in effect deprive the other party of the alternative or otherwise.
his day in court. ● In the light of the foregoing, the judgment of the Court of Appeals
● Notwithstanding the above, it does not necessarily follow that the dismissing the petitioner's complaint is AFFIRMED insofar as the
drawer Sima Wei is freed from liability to petitioner Bank under second cause of action is concerned. On the first cause of action,
the loan evidenced by the promissory note agreed to by her. the case is REMANDED to the trial court for a trial on the merits,
○ Her allegation that she has paid the balance of her loan consistent with this decision, in order to determine whether
with the two checks payable to petitioner Bank has no respondent Sima Wei is liable to the Development Bank of Rizal
merit for, as We have earlier explained, these checks were for any amount under the promissory note allegedly signed by her.
never delivered to petitioner Bank.
○ And even granting, without admitting, that there was
delivery to petitioner Bank, the delivery of checks in
payment of an obligation does not constitute payment
unless they are cashed or their value is impaired through
the fault of the creditor.
○ None of these exceptions were alleged by respondent
Sima Wei.
● Therefore, ​unless respondent Sima Wei proves that she has
been relieved from liability on the promissory note by some
other cause, petitioner Bank has a right of action against her
for the balance due thereon.
● However, ​insofar as the other respondents are concerned,
petitioner Bank has no privity with them.
○ Since petitioner Bank never received the checks on which
it based its action against said respondents, it never owned
them (the checks) nor did it acquire any interest therein.
Thus, anything which the respondents may have done
with respect to said checks could not have prejudiced
petitioner Bank. It had no right or interest in the checks
which could have been violated by said respondents.
Petitioner Bank has therefore no cause of action against

14. SAN MIGUEL CORPORATION v.BARTOLOME PUZON, JR
September 22, 2010 | DEL CASTILLO, J. | Section 16
G. SALUD & C. SO
PETITIONER: ​San Miguel Corporation
RESPONDENT:​ Bartolome Puzon Jr.
RECIT-READY:
Puzon purchased SMC products on credit. SMC then required him to
issue postdated checks equivalent to the value of the products purchased
on credit before the same were released to him. Said checks were
returned to Puzon when the transactions covered by these checks were
paid or settled in full. Puzon purchased products on credit (11M) for
which he issued and gave to SMC 2 BPI checks to cover said transaction.
Puzon thereafter visited the SMC Sales Office in Parañaque wherein he
requested to see BPI Check #3 (diff from the 2 wc he issued). When he
got hold of BPI Check #2 which was attached to a bond paper together
with BPI check #3, he immediately left the office, bringing the checks
with him. SMC sent a letter to Puzon demanding the return of the checks.
When Puzon ignored such demand, SMC filed a complaint against him
for theft.
FACTS:
ISSUE:
W/N ownership of the subject check was transferred to SMC. ​NO (Thus,
Puzon cannot be held liable for theft; bc the 2nd element of theft is
lacking)
RULING:
The evidence of SMC failed to establish that the check was given in
payment of the obligation of Puzon. Both parties did not intend for the
check to pay for the beer products. The evidence proves that the check
was accepted, not as payment, but in accordance with the long-standing
policy of SMC to require its dealers to issue postdated checks to cover its
receivables. The check was only meant to cover the transaction and in the
meantime Puzon was to pay for the transaction by some other means
other than the check. This being so, title to the check did not transfer to
SMC; it remained with Puzon.
37
DOCTRINE:
“Sec. 12. Antedated and postdated.—The instrument is not invalid for the
reason only that it is antedated or postdated, provided this is not done for
an illegal or fraudulent purpose. ​The person to whom an instrument so
dated is delivered acquires the title thereto as of the date of delivery.​”
Delivery as the term is used means that the party delivering did so for the
purpose of giving effect thereto. Otherwise, it cannot be said that there
has been delivery of the negotiable instrument. Once there is delivery, the
person to whom the instrument is delivered gets the title to the instrument
completely and irrevocably.
If the subject check was given by Puzon to SMC in payment of the
obligation — the purpose of giving effect to the instrument is evident
thus title to or ownership of the check was transferred upon delivery.
But if the check was not given as payment, there being no intent to give
effect to the instrument — then ownership of the check was not
transferred to SMC.
● Puzon, owner of Bartenmyk Enterprises, was a dealer of beer
products of San Miguel Corporation (SMC) for Parañaque City.
● Puzon purchased SMC products on credit.
○ To ensure payment and as a business practice, SMC
required him to issue postdated checks equivalent to the
value of the products purchased on credit before the same
were released to him.
○ Said checks were returned to Puzon when the transactions
covered by these checks were paid or settled in full.
● Puzon purchased products on credit amounting to P11M for which
he issued and gave to SMC 2 BPI checks to cover the said
transaction.

● On a later date, Puzon, together with his accountant, visited the
SMC Sales Office in Parañaque City to reconcile his account with
SMC.
○ During that visit Puzon allegedly requested to see BPI
check #3 (diff from the ones he issued).
○ But when he got hold of 1 of his BPI checks which was
attached to a bond paper together with BPI Check #3 he
allegedly immediately left the office with his accountant,
bringing the checks with them.
● SMC sent a letter to Puzon demanding the return of the said
checks. Puzon ignored the demand.
○ SMC filed a complaint against him for theft with the City
Prosecutor’s Office of Parañaque City.
 of the same.
DOJ Ruling
● Investigating prosecutor Guray found that the relationship between
SMC and Puzon appears to be one of credit or creditor-debtor
relationship.
● The problem lies in the reconciliation of accounts and the non-
payment of beer empties which cannot give rise to a criminal
prosecution for theft.
● She recommended the dismissal of the case for lack of evidence.
● DOJ affirmed her resolution.
CA Ruling
● The CA found that the postdated checks were issued by Puzon
merely as a security for the payment of his purchases and that these
were not intended to be encashed.
● Thus, SMC did not acquire ownership of the checks as it was duty
bound to return the same checks to Puzon after the transactions
covering them were settled.
ISSUES:
Whether ownership of the subject check was transferred to SMC. ​NO
38
RELEVANT ARGUMENTS (if any):
● Petitioner: SMC contends that Puzon was positively identified by
its employees to have taken the subject postdated checks.
○ It also contends that ​ownership of the checks was
transferred to it because these were issued, not merely
as security but were, in payment of Puzon’s purchases.
● Respondent: Puzon contends that SMC raises questions of fact that
are beyond the province of an appeal on certiorari.
○ He also insists that there is no probable cause to charge
him with theft because ​the subject checks were issued
only as security and he therefore retained ownership
RATIO:
● Section 12 of the NIL: “The person to whom an instrument so
dated is delivered acquires the title thereto as of the date of
delivery.”
○ Delivery as the term is used means that the party
delivering did so for the purpose of giving effect thereto.
○ Otherwise, it cannot be said that there has been delivery
of the negotiable instrument.
○ Once there is delivery, the person to whom the instrument
is delivered gets the title to the instrument completely and
irrevocably.
● If the subject check was given by Puzon to SMC in payment of the
obligation — the purpose of giving effect to the instrument is
evident thus title to or ownership of the check was transferred upon
delivery.
● But if the check was not given as payment, there being no intent to
give effect to the instrument — then ownership of the check was
not transferred to SMC.

● The evidence of SMC failed to establish that the check was
given in payment of the obligation of Puzon.
○ There was no provisional receipt or official receipt issued
for the amount of the check.
○ What was issued was a receipt for the document, a
“POSTDATED CHECK SLIP.”
● SMC’s demand letter states ​“As per company policies on
receivables, all issuances are to be covered by post-dated checks.
However, you have deviated from this policy by forcibly taking
away the check you have issued to us to c​ over the December
issuance.”
○ Note that the term “payment” was not used instead the
terms “covered” and “cover” were used
● Both parties did not intend for the check to pay for the beer
products.
○ The evidence proves that the check was accepted, not as
payment, but in accordance with the long-standing policy
of SMC to require its dealers to issue postdated checks to
cover its receivables.
○ The check was only meant to cover the transaction and in
the meantime Puzon was to pay for the transaction by
some other means other than the check.
39
○ This being so, title to the check did not transfer to SMC; it
remained with Puzon.
● The 2nd element of the felony of theft was not established. SMC
was not able to show that Puzon took a check that belonged to
another.
WHEREFORE, the petition is DENIED. The December 21, 2004
Decision and March 28, 2005 Resolution of the Court of Appeals in
CA-G.R. SP. No. 83905 are AFFIRMED.
NOTES:
Elements of Theft:
1. that there be a taking of personal property;
2. that said property belongs to another; (MISSING)
3. that the taking be done with intent to gain;
4. that the taking be done without the consent of the owner; and
5. that the taking be accomplished without the use of violence or
intimidation against persons or force upon things.