CALTEX INC.
VS CA and SECURITY BANK and
TRUST COMPANY
FACTS:
• Security bank issues 280 certificates of
time deposit in favor of Angel Dela Cruz
who deposited to Security Bank the
amount of P1,120,000.
• Angel delivered the said CTDs to petitioner
Caltex for the security of his purchased
fuel products.
• Angel went to the bank and told them that
he lost all the certificates.
• The bank told Angel to submit an affidavit
of loss.
• On the basis of the affidavit of loss
submitted, the bank issued 280
replacement CTDs in favor of Angel.
• Angel negotiated and obtained a loan from
the bank in the amount of 875k and
executed a deed of assignment of time
deposit which stated that he surrenders to
bank full control of the CTDs and
authorizes the bank to pre-terminate,
setoff and apply such time deposits to the
payment of whatever amount may be
due.
• Sometime in November, Credit Manager of
Caltex went to the bank and presented for
verification the CTDs which were declared
lost by Angel alleging that the same were
delivered to them,
• Caltex asked to pre-terminate the CTDs.
The Bank asked for a copy of the
guarantee agreement with Angel Dela
Cruz but Caltex failed to furnish them a
copy and rejected Caltex’ demand and
claim for payment of the value of CTDs.
• Meantime, the loan of Angel became due,
the bank set-off and applied the time
deposits in question for the payment of
the matured loan.
• Because of it, Caltex filed the complaint
praying that respondent bank be ordered
to pay it the certificates.
• RTC – dismissed the complaint
• CA – affirmed the dismissal of RTC
o CTDs are non-negotiable
instrument
 It was stated in the CTDs
that it is payable to bearer
however it also stated that
it shall be “repayable to the
depositor”, CA interpreted
that such statements
manifest that the
instrument is payable not to
whoever purports to be the
“bearer” but only to the
specified person indicated,
the depositor.
ISSUE:
w/n the CTDs are negotiable instruments?
HELD: Yes, they are negotiable instruments.
• the accepted rule is that the negotiability
or non-negotiability of an instrument is
determined from the writing, that is, from
the face of the instrument itself. 9 In the
construction of a bill or note, the intention
of the parties is to control, if it can be
legally ascertained.
• While the writing may be read in the light
of surrounding circumstances in order to
more perfectly understand the intent and
meaning of the parties, yet as they have
constituted the writing to be the only
outward and visible expression of their
meaning, no other words are to be added
to it or substituted in its stead. The duty of
the court in such case is to ascertain, not
what the parties may have secretly
intended as contradistinguished from what
their words express, but what is the
meaning of the words they have used.
What the parties meant must be
determined by what they said.
• The documents provide that the amounts
deposited shall be repayable to the
depositor. And who, according to the
document, is the depositor? It is the
"bearer." The documents do not say that
the depositor is Angel de la Cruz and that
the amounts deposited are repayable
specifically to him. Rather, the amounts
are to be repayable to the bearer of the
documents or, for that matter, whosoever
may be the bearer at the time of
presentment.
• If it was really the intention of respondent
bank to pay the amount to Angel de la
Cruz only, it could have with facility so
expressed that fact in clear and
categorical terms in the documents,
instead of having the word "BEARER"
stamped on the space provided for the
name of the depositor in each CTD. On the
wordings of the documents, therefore, the
amounts deposited are repayable to
whoever may be the bearer thereof.
• Although the CTDs are bearer instruments,
a valid negotiation thereof for the true
purpose and agreement between it and De
la Cruz, as ultimately ascertained,
requires both delivery and
indorsement. For, although petitioner
seeks to deflect this fact, the CTDs were in
reality delivered to it as a security for De
la Cruz' purchases of its fuel products.
• If it were true that the CTDs were
delivered as payment and not as security,
 petitioner's credit manager could have
easily said so, instead of using the words
"to guarantee" in the letter aforequoted.
• Under the Negotiable Instruments Law, an
instrument is negotiated when it is
transferred from one person to another in
such a manner as to constitute the
transferee the holder thereof, 21 and a
holder may be the payee or indorsee of a
bill or note, who is in possession of it, or
the bearer thereof.
• There was no negotiation. Caltex is only a
holder for value because of its lien.
• As such holder of collateral security, he
would be a pledgee but the requirements
therefor and the effects thereof, not being
provided for by the Negotiable
Instruments Law, shall be governed by the
Civil Code provisions on pledge of
incorporeal rights.
• The mere delivery of the CTDs did not
legally vest in petitioner any right
effective against and binding upon
respondent bank.
• PETITION DENIED.
METROPOLITAN BANK AND TRUST COMPANY
vs CA, GOLDEN SAVINGS ASSOCIATION, INC,
CASTILLO
FACTS:
• Gomez opened an account in Golden
Savings and deposited 38 treasury
warrants with a total value of 1.7M.
• Castillo of Golden Savings sent those
treasury warrants to Metrobank for
clearing which in turn was forwarded to
Bureau of Treasury.
• Castillo went to Metrobank and asked if
the treasury warrants were already
cleared and was informed to wait. Gomez
for the meantime was not allowed to
withdraw from his account.
• However, later, Golden Savings was
allowed to withdraw from the proceeds of
the warrants. Golden Savings made three
withdrawals.
• In turn, Gomez was allowed by Golden
Savings to make withdrawals from his
account.
• On July 1979, Metrobank informed Golden
Savings that the 32 warrants had been
dishonored and demanded the refund
from Golden Savings,
• Golden Savings refused prompting,
Metrobank to file a complaint in the RTC
against it.
• RTC – Golden Savings, CA – affirmed RTC’s
descision
ISSUE:
WoN the treasury warrants are negotiable
instruments and thus freeing Metrobank from
liability?
HELD:
No, the treasury warrants are not negotiable.
• Sec. 1b of the Negotiable instruments Law
states that a negotiable instrument must
contain an unconditional promise or order
to pay a sum certain in money. A treasury
warrant is payable from a particular fund.
An order or promise to pay out of a
particular fund is not unconditional. The
indication of Fund 501 as the source of
payment in this case makes the order or
promise to pay not unconditional and the
warrants themselves as non-negotiable.
• Metrobank cannot contend that by
indorsing the warrants in general, Golden
Savings assumed that they were "genuine
and in all respects what they purport to
be," in accordance with Section 66 of the
Negotiable Instruments Law.
• The simple reason is that this law is not
applicable to the non-negotiable treasury
warrants. The indorsement was made by
Gloria Castillo not for the purpose of
guaranteeing the genuineness of the
warrants but merely to deposit them with
Metrobank for clearing
• It was in fact Metrobank that made the
guarantee when it stamped on the back of
the warrants: "All prior indorsement and/or
lack of endorsements guaranteed,
Metropolitan Bank & Trust Co., Calapan
Branch."
• Golden Savings never represented that
the warrants were negotiable but signed
them only for the purpose of depositing
them for clearance
• Metrobank was negligent. It was the
clearance given by it that assured Golden
Savings it was already safe to allow
Gomez to withdraw the proceeds of the
treasury warrants he had deposited
Metrobank misled Golden Savings. There
may have been no express clearance, as
Metrobank insists (although this is refuted
by Golden Savings) but in any case that
clearance could be implied from its
allowing Golden Savings to withdraw from
its account not only once or even twice
but three times. The total withdrawal was
in excess of its original balance before the
treasury warrants were deposited, which
only added to its belief that the treasury
warrants had indeed been cleared.
• PETITION DENIED.
CONSOLIDATED PLYWOOD INDUSTRIES, INC,
vs IFC LEASING AND ACCEPTANCE CORP.
FACTS:
• Petitioner a logging business purchased
two “used” tractors based on the
recommendation of a seller-assignor.
• The seller-assignor issued a sales invoice
and the executed the deed of sale with
chattel mortgage with promissory note. At
the same time, a deed of assignment was
executed assigning its rights and interest
in the chattel mortgage in favor of
respondent.
• After sometime, the tractors broke down.
Petitioner advised the seller-assignor and
prompt his attention under the warranty.
• The tractors were repaired however after
some time it again broke down, and later
became unserviceable.
• Petitioner advised seller-assignor that the
payments of the installments as listed in
the promissory note be delayed until the
seller-assignor completely fulfills its
obligation of the warranty because their
services were also delayed.
• Petitioner asked seller-assignor to pull out
the units and have them reconditioned
and offer them for sale. The proceeds will
be divided between them and the
respondent.
• Seller-assignor did not reply to such letter.
• Respondent filed a complaint for the
collection of the sum of money.
• RTC and CA in favor of respondents.
ISSUE:
WoN the promissory note in question is a
negotiable instrument so as to bar completely all
the available defenses of the petitioner against
the respondents?
HELD: It is not a negotiable instrument
• 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.
o 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. . . .
o
• 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.
• Nell shouldered the shipping costs.
• This being so, there was no need for the
petitioner to implied the seller-assignor
when it was sued by the respondent-
assignee because the petitioner's
defenses apply to both or either of either
of them. Actually, the records show that
even the respondent itself admitted to
being a mere assignee of the promissory
note in question
• 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.
o The 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-financing company, which
is the respondent.
o 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.
o Respondent in bad faith.
• PETITION GRANTED.
EQUITABLE BANK vs IAC and THE EDWARD
NELL CO.
FACTS:
• Casals and Casville purchased from
respondent garrett skidders by way of
domestic letter of credit which Casals
promised to open in favor of respondent.
Casville Enterprises has a credit-line with
petitioner bank.
• Because of the assurance of Casville that
the shipping costs will be covered by the
letter of credit that will soon be opened,
 • Casals handed postdated checks to Nell as and which the Bank teller credited to the account
partial payment. of Casville.

• Casals later informed Nell that their HELD: No

application for a letter of credit was
approved by the bank however, they
would need the sum of 300k to stand as
collateral or marginal deposit in favor of
respondent and an additional amount of
400k to clear the Estrada property
belonging to the Casals which had been
approved as a security for trust receipts to
be issued by the bank covering the
equipment.
1) The subject check was equivocal and patently
ambiguous. By making the check read:
Pay to the EQUITABLE BANKING
CORPORATION Order of A/C OF
CASVILLE ENTERPRISES, INC.
the payee ceased to be indicated with reasonable
certainty in contravention of Section 8 of the
Negotiable Instruments Law.

• Nell advanced the necessary amount to
facilitate the transaction
• Later, bank informed Casville that it is
ready to open the letters of credit upon
compliance with the requirements.
• Bank assured that the letters of credit
would be opened once the requirements
are complied.
• Nell issued a check payable to the "order
of EQUITABLE BANKING CORPORATION A/C
CASVILLE ENTERPRISES, INC." and drawn
against the first National City Bank
(Exhibit "E-l"). The check did not contain
the notation found in the previous check
issued by the plaintiff (Exhibit "2") 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.
• Casals deposited the check to the account
of Casville. Casville withdrew the money.
• Later on, the three checks issued by
Casals and Casville were dishonored for
having been drawn in a closed account.
As worded, it could be accepted as deposit to the
account of the party named after the symbols
"A/C," or payable to the Bank as trustee, or as an
agent, for Casville. Enterprises, Inc., with the
latter being the ultimate beneficiary. That
ambiguity is to be taken contra proferentem that
is, construed against NELL who caused the
ambiguity and could have also avoided it by the
exercise of a little more care.
2) Contrary to the finding of respondent Appellate
Court, 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 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.
3) NELL's own acts and omissions in connection
with the drawing, issuance and delivery of the 16
August 1976 check, ," 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

• when the three checks issued to it by

defendant Casville were dishonored, Nell
became apprehensive and sent Umali on
November 29, 1976, to inquire about the
status of the application for the letters of
credit. When Nell was informed that no
letters of credit were opened by the
defendant bank in its favor and then
discovered that defendant Casville
had in the meanwhile withdrawn the
entire amount of P427,300.00,
without paying its obligation to the
bank plaintiff filed the instant action.
• RTC and CA – respondents

ISSUE:

whether or not petitioner Equitable Banking

Corporation (briefly, the Bank) is liable to private
respondent Edward J. Nell Co. (NELL, for short) for
the value of the second check issued by NELL,
which was made payable

to the order of EQUITABLE Ashville

BANIUNG CORPORATION A/C OF
CASVILLE ENTERPRISES INC.