Negotiable Instruments

G.R. No. 101163 January 11, 1993

STATE INVESTMENT HOUSE, INC., petitioner,
vs.
COURT OF APPEALS and NORA B. MOULIC, respondents.
Facts:
Private respondent Nora B. Moulic issued to Corazon Victoriano, as security
for pieces of jewelry to be sold on commission, two (2) post-dated Equitable
Banking Corporation checks in the amount of Fifty Thousand Pesos
(P50,000.00) each, one dated 30 August 1979 and the other, 30 September
1979. Thereafter, the payee negotiated the checks to petitioner State
Investment House. Inc. (STATE).
MOULIC failed to sell the pieces of jewelry, so she returned them to the
payee before maturity of the checks. The checks, however, could no longer
be retrieved as they had already been negotiated. Consequently, before
their maturity dates, MOULIC withdrew her funds from the drawee bank.
Upon presentment for payment, the checks were dishonored for insufficiency
of funds. On 20 December 1979, STATE allegedly notified MOULIC of the
dishonor of the checks and requested that it be paid in cash instead,
although MOULIC avers that no such notice was given her.
On 6 October 1983, STATE sued to recover the value of the checks plus
attorney's fees and expenses of litigation.
In her Answer, MOULIC contends that she incurred no obligation on the
checks because the jewelry was never sold and the checks were negotiated
without her knowledge and consent. She also instituted a Third-Party
Complaint against Corazon Victoriano, who later assumed full responsibility
for the checks.
Issue:
Whether or not MOULIC can set up the defense of failure or absence of
consideration against STATE, a holder in due course?
Held:

The evidence clearly shows that: (a) on their faces the post-dated checks
were complete and regular: (b) petitioner bought these checks from the
3
payee, Corazon Victoriano, before their due dates; (c) petitioner took these
checks in good faith and for value, albeit at a discounted price; and, (d)
petitioner was never informed nor made aware that these checks were
merely issued to payee as security and not for value.
Consequently, STATE is indeed a holder in due course. As such, it holds the
instruments free from any defect of title of prior parties, and from defenses
available to prior parties among themselves; STATE may, therefore, enforce
4
full payment of the checks.
Sec. 119 of the Negotiable Instruments Law:
Sec. 119. Instrument; how discharged. A negotiable instrument
is discharged: (a) By payment in due course by or on behalf of the
principal debtor; (b) By payment in due course by the party
accommodated, where the instrument is made or accepted for his
accommodation; (c) By the intentional cancellation thereof by the
holder; (d) By any other act which will discharge a simple contract
for the payment of money; (e) When the principal debtor becomes
the holder of the instrument at or after maturity in his own right.
Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible
grounds for the discharge of the instrument. But, the intentional cancellation
contemplated under paragraph (c) is that cancellation effected by destroying
5
6
the instrument either by tearing it up, burning it, or writing the word
"cancelled" on the instrument. The act of destroying the instrument must
also be made by the holder of the instrument intentionally. Since MOULIC
failed to get back possession of the post-dated checks, the intentional
cancellation of the said checks is altogether impossible.
Correspondingly, MOULIC may not unilaterally discharge herself from her
liability by the mere expediency of withdrawing her funds from the drawee
bank. She is thus liable as she has no legal basis to excuse herself from
liability on her checks to a holder in due course.
Moreover, the fact that STATE failed to give Notice of Dishonor to MOULIC
is of no moment. After withdrawing her funds, she could not have expected
her checks to be honored. In other words, she was responsible for the
dishonor of her checks, hence, there was no need to serve her Notice of
Dishonor, which is simply bringing to the knowledge of the drawer or
indorser of the instrument, either verbally or by writing, the fact that a

By: Fersal, Nikki, Eydie and Caroline

Negotiable Instruments
specified instrument, upon proper proceedings taken, has not been accepted
8
or has not been paid, and that the party notified is expected to pay it.

slips for payment to respondent bank. It was at this point that the bone of
contention arose.

The drawing and negotiation of a check have certain effects aside from the
transfer of title or the incurring of liability in regard to the instrument by the
transferor. The holder who takes the negotiated paper makes a contract with
the parties on the face of the instrument. There is an implied representation
that funds or credit are available for the payment of the instrument in the
10
bank upon which it is drawn. Consequently, the withdrawal of the money
from the drawee bank to avoid liability on the checks cannot prejudice the
rights of holders in due course. In the instant case, such withdrawal renders
the drawer, Nora B. Moulic, liable to STATE, a holder in due course of the
checks.

On December 14, 1978, Citibank informed petitioner that special withdrawal

slips Nos. 42127 and 42129 dated June 15, 1978 and August 15, 1978,
respectively, were refused payment by respondent bank due to insufficiency
of Fojas-Arca's funds on deposit. That information came about six months
from the time Fojas-Arca purchased tires from petitioner using the subject
withdrawal slips. Citibank then debited the amount of these withdrawal slips
from petitioner's account, causing the alleged pecuniary damage subject of
petitioner's cause of action.

Under the facts of this case, STATE could not expect payment as MOULIC
left no funds with the drawee bank to meet her obligation on the
11
checks, so that Notice of Dishonor would be futile.

Whether or not respondent bank should be held liable for damages suffered
by petitioner, due to its allegedly belated notice of non-payment of the
subject withdrawal slips?

The petition is GRANTED. The decision appealed from is REVERSED and a

new one entered declaring private respondent NORA B. MOULIC liable to
petitioner STATE INVESTMENT HOUSE, INC., for the value of EBC Checks
Nos. 30089658 and 30089660 in the total amount of P100,000.00,
P3,000.00 as attorney's fees, and the costs of suit, without prejudice to any
action for recompense she may pursue against the VICTORIANOs as ThirdParty Defendants.

Held:

Costs against private respondent. SO ORDERED.

FIRESTONE TIRE & RUBBER COMPANY OF THE

PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.
Facts:
The initial transaction in this case was between petitioner and Fojas-Arca,
whereby the latter purchased tires from the former with special withdrawal
slips drawn upon Fojas-Arca's special savings account with respondent
bank. Petitioner in turn deposited these withdrawal slips with Citibank. The
latter credited the same to petitioner's current account, then presented the

Issue:

The petitioner admits that the withdrawal slips in question were nonnegotiable.9 Hence, the rules governing the giving of immediate notice of
dishonor of negotiable instruments do not apply in this case.10 Petitioner
itself concedes this point.11 Thus, respondent bank was under no obligation
to give immediate notice that it would not make payment on the subject
withdrawal slips. Citibank should have known that withdrawal slips were not
negotiable instruments. It could not expect these slips to be treated as
checks by other entities. Payment or notice of dishonor from respondent
bank could not be expected immediately, in contrast to the situation involving
checks.
In the case at bar, it appears that Citibank, with the knowledge that
respondent Luzon Development Bank, had honored and paid the previous
withdrawal slips, automatically credited petitioner's current account with the
amount of the subject withdrawal slips, then merely waited for the same to
be honored and paid by respondent bank. It presumed that the withdrawal
slips were "good."
It bears stressing that Citibank could not have missed the non-negotiable
nature of the withdrawal slips. The essence of negotiability which
characterizes a negotiable paper as a credit instrument lies in its freedom to

By: Fersal, Nikki, Eydie and Caroline

Negotiable Instruments
circulate freely as a substitute for money.
lacked this character.

12

The withdrawal slips in question

A bank is under obligation to treat the accounts of its depositors with

meticulous care, whether such account consists only of a few hundred pesos
13
or of millions of pesos. The fact that the other withdrawal slips were
honored and paid by respondent bank was no license for Citibank to
presume that subsequent slips would be honored and paid immediately. By
doing so, it failed in its fiduciary duty to treat the accounts of its clients with
14
the highest degree of care.
In the ordinary and usual course of banking operations, current account
deposits are accepted by the bank on the basis of deposit slips prepared
and signed by the depositor, or the latter's agent or representative, who
indicates therein the current account number to which the deposit is to be
credited, the name of the depositor or current account holder, the date of the
15
deposit, and the amount of the deposit either in cash or in check.
The withdrawal slips deposited with petitioner's current account with Citibank
were not checks, as petitioner admits. Citibank was not bound to accept the
withdrawal slips as a valid mode of deposit. But having erroneously
accepted them as such, Citibank and petitioner as account-holder
must bear the risks attendant to the acceptance of these instruments.
Petitioner and Citibank could not now shift the risk and hold private
respondent liable for their admitted mistake.
March 23, 2004
MICHAEL A. OSMEA, petitioner, vs.
CITIBANK, N.A., ASSOCIATED BANK and FRANK TAN, respondents.

Facts:
On February 22, 1991, the petitioner filed with the Regional Trial Court of
Makati an action for damages against the respondents Citibank, N.A. and
[3]
Associated Bank. The complaint materially alleged that, on or about
August 25, 1989, the petitioner purchased from the Citibank Managers
Check No. 20-015301 (the check for brevity) in the amount of P1,545,000
payable to respondent Frank Tan; the petitioner later received information
that the aforesaid managers check was deposited with the respondent
Associated Bank, Rosario Branch, to the account of a certain Julius Dizon
under Savings Account No. 19877; the clearing and/or payment by the

respondents of the check to an improper party and the absence of any

indorsement by the payee thereof, respondent Frank Tan, is a clear violation
of the respondents obligations under the Negotiable Instruments Law and
standard banking practice; considering that the petitioners intended payee
for the check, the respondent Frank Tan, did not receive the value thereof,
the petitioner demanded from the respondents Citibank and the Associated
Bank the payment or reimbursement of the value of the check; the
respondents, however, obstinately refused to heed his repeated demands
for payment and/or reimbursement of the amount of the check; hence, the
petitioner was compelled to file this complaint praying for the restitution of
the amount of the check, and for moral damages and attorneys fees.
On June 17, 1991, the petitioner, with leave of court, filed an Amended
[4]
Complaint impleading Frank Tan as an additional defendant. The
petitioner averred therein that the check was purchased by him as a demand
loan to respondent Frank Tan. Since apparently respondent Frank Tan did
not receive the proceeds of the check, the petitioner might have no right to
collect from respondent Frank Tan and is consequently left with no recourse
but to seek payment or reimbursement from either or both respondents
Citibank and/or Associated Bank.
[5]

In its answer to the amended complaint, the respondent Associated Bank

alleged that the petitioner was not the real party-in-interest but respondent
Frank Tan who was the payee of the check. The respondent also
maintained that the check was deposited to the account of respondent Frank
Tan, a.k.a. Julius Dizon, through its Ayala Head Office and was credited to
the savings account of Julius Dizon; the Ayala office confirmed with the
Rosario Branch that the account of Julius Dizon is also in reality that of
respondent Frank Tan; it never committed any violation of its duties and
responsibilities as the proceeds of the check went and was credited to
respondent Frank Tan, a.k.a. Julius Dizon; the petitioners affirmative
allegation of non-payment to the payee is self-serving; as such, the
petitioners claim for damages is baseless, unfounded and without legal
basis.
On the other hand, the respondent Citibank, in answer to the amended
[6]
complaint, alleged that the payment of the check was made by it in due
course and in the exercise of its regular banking function. Since a
managers check is normally purchased in favor of a third party, the identity
of whom in most cases is unknown to the issuing bank, its only responsibility
when paying the check was to examine the genuineness of the check. It
had no way of ascertaining the genuineness of the signature of the payee
respondent Frank Tan who was a total stranger to it. If at all, the petitioner
had a cause of action only against the respondent Associated Bank which,
as depository or collecting bank, was obliged to make sure that the check in
question was properly endorsed by the payee. It is not expected of the

By: Fersal, Nikki, Eydie and Caroline

Negotiable Instruments
respondent Citibank to ascertain the genuineness of the indorsement of the
payee or even the lack of indorsement by him, most especially when the
check was presented for payment with the respondent Associated Banks
guaranteeing all prior indorsements or lack thereof.
Issue:
Whether or not the amount of P1,545,000.00 may be recovered from:
1. Frank Tan for his failure to pay the loan extended by plaintiff; and

a matter of fact, respondent Tan did not file his answer to the amended
[24]
complaint and was never seen or heard of by the petitioner.
Besides, if it
were really a fact that respondent Tan did not receive the proceeds of the
check, he could himself have initiated the instant complaint against
respondents Banks, or in the remotest possibility, joined the petitioner in
pursuing the instant claim.
Conversely, the records would disclose that even the petitioner himself had
misgivings about the truthfulness of his allegation that respondent Tan did
not receive the amount of the check. This is made implicit by respondent
Tan being made a party-defendant to the case when the petitioner filed his
amended complaint

2. Associated Bank and Citibank for having accepted for deposit and/or paid
the Citibank managers check despite the absence of any
signature/endorsement by the named payee, Frank Tan.
GR NO L- 1405
BENJAMIN ABUBAKAR v THE AUDITOR GENERAL

Held:
The check was endorsed by Julius Dizon and was deposited and credited
to Savings Account No. 19877 with the respondent Associated Bank. The
evidence on record shows that the said account was in the name of Frank
Tan Guan Leng, which is the Chinese name of the respondent Frank Tan,
who also uses the alias Julius Dizon.
On the other hand, Associated satisfactorily proved that Tan is using and is
also known by his alias of Julius Dizon. He signed the Agreement On Bills
Purchased (Exh. 1) and Continuing Suretyship Agreement (Exh. 2) both
acknowledged on January 16, 1989, where his full name is stated to be
FRANK Tan Guan Leng (aka JULIUS DIZON). Exh. 1 also refers to his
Account No. SA#19877, the very same account to which
the P1,545,000.00 from the managers check was deposited.
The respondent Associated Bank presented preponderant evidence to
support its assertion that respondent Tan, the payee of the check, did
receive the proceeds of the check. It adduced evidence that Julius Dizon
and Frank Tan are one and the same person. Respondent Tan was a
regular and trusted client or depositor of the respondent Associated Bank in
its branch at Rosario, Binondo, Manila.
By seeking to recover the loan from respondent Tan, the petitioner admitted
that respondent Tan received the amount of the check. This apprehension
was not without any basis at all, for after the petitioner attempted to
communicate with respondent Tan on January or February 1990, demanding
[23]
payment for the loan, respondent Tan became elusive of the petitioner. As

FACTS:
In 1941, a treasury warrant was issued in favor of Placido Urbanes,
a government
employee in
the
province
of
La
Union.
The
said treasury warrant was meant to augment the Food Production Campaign
in the said province. It was then negotiated by Urbanes to petitioner,
Benjamin Abubakar, a private individual. When petitioner Abubakar sought
to have the treasury warrant encashed, the Auditor General denied payment
because first of all, it is against the appropriating law (Republic Act 80) to
authorize payments to private individuals when it comes to treasury
warrants. Petitioner Abubakar then contends that he is entitled to encash as
he was a holder in good faith.
ISSUE:
Whether or not a treasury warrant is a negotiable instrument.
HELD:
No. A treasury warrant is not a negotiable instrument. One of the
requirements of a negotiable instrument is that it must be unconditional. In
Section 3 of the Negotiable Instruments Law, an order or promise to
pay out of a particular fund makes the instrument conditional.
A treasury warrant, like the one in this case, comes from a particular fund, a
particular appropriation. In this case, it was written on the face of

By: Fersal, Nikki, Eydie and Caroline

Negotiable Instruments
the treasury warrant that it is payable from the appropriation for food
administration. Thus, it is not negotiable for being conditional.
NOTE the difference:
However, an instrument is negotiable if it merely mentions/indicates a
particular fund out of which reimbursement is to be made. This does not
make the instrument conditional because it does not say that such particular
fund is the source of payment. It is only a notice to the drawee that he can
reimburse himself out of that particular fund after paying the payee. As to the
source of payment to the payee, there is no mention of it.
METROPLOTIAN BANK & TRUST COMPANY V COURT OF APPEALS,
GOLDEN SAVINGS & LOAN ASSOCIATION INC, LUCIA CASTILLO,
MAGNO CASTILLO AND GLORIA CASTILLO
FACTS:
Gomez opened an account with Golden Savings and deposited 38
treasury warrants. All these warrants were subsequently indorsed by
Castillo, cashier of Golden Savings and deposited to its Savings
Account in Metrobank. Gloria Castillo went several times to Metrobank
for the cleared warrants.
Exasperated over Glorias repeated inquiries and also as an
accommodation for a valued client, she was allowed to withdraw from
the proceeds of the warrants. In turn, Golden Savings subsequently
allowed Gomez to make withdrawals. After the withdrawal of Gomez,
Metrobank informed Golden Savings that the warrants were
dishonoured by the Bureau of Treasury for forgery of signatures and
demanded there fund of the amount contending that by indorsing the
warrants in general, Golden Savings assumed the warranty of a general
indorser under Section 66.
Issue:
Whether or not the treasury warrants are negotiable instruments
HELD:
No, the treasury warrants were not negotiable instruments as it was
indicated that it was non-negotiable and of equal significance is
the indication that they are payable from a particular fund, Fund
501. This indication as the source of payment to be made on
the treasury warrant makes the promise to pay conditional and the
warrants themselves non-negotiable.
Section 66 is not applicable to the warrants because the same is nonnegotiable. Metrobank then cannot contend that by indorsing the
warrants in general, Golden Savings assumed that they were genuine

and in all respects what they purport it to be, in accordance to Section

66 of the Negotiable Instruments Law. The simple reason is that the
law isnt applicable to the non-negotiable treasury warrants.
The
indorsement was made for the purpose of merely depositing them
with Metrobank for clearing.
It was in fact Metrobank which
stamped on the back of the warrants: All prior indorsements and/or
lack of endorsements guaranteed
GR NO L-22045
PHILIPPINE EDUCATIONAL CO., INC. V MAURICIO SORIANO ET
AL
FACTS:
In April 1958, a certain Enrique Montinola was purchasing ten money
orders from the Manila Post Office. Each money order was worth P200.00.
Montinola offered to pay the money orders via a private check but the
cashier told him he cannot pay via a private check. But still somehow,
Montinola was able to leave the post office with the money orders without
him paying for them.
Days later, the missing money orders were discovered. Meanwhile, the
Philippine Education Co., Inc. (PECI) presented one of the missing
postal money orders before the Bank of America. The money order was
initially credited and so P200.00 was deposited in PECIs account with the
bank. But then later the post office, through Mauricio Soriano (Chief of
the Money Order Division of the Post Office), advised the bank that
the money order was irregularly issued hence the P200.00 was debited back
from PECIs account.
PECI is now invoking that the money order was duly negotiated to them and
thus they are entitled to the amount it represents.
ISSUE:
Whether or not postal money orders are negotiable instruments
HELD:
No. Postal money orders are not negotiable instruments. The rationale
behind this rule is the fact that in establishing and operating a postal money
order system, the government is not engaging in commercial transactions
but merely exercising a governmental power for the public benefit. In fact,
postal money orders are subject to a lot of restrictions limiting their
negotiability. Particularly in this case, as far back as 1948, there was already

By: Fersal, Nikki, Eydie and Caroline

Negotiable Instruments
an agreement between Bank of America and the Manila Post Office, that in
case the post office would have an adverse claim against any Bank of
America depositor involving postal money orders issued by the post office,
all amounts cleared in relation thereto shall be refunded back to the post
offices account with the bank this in itself is already a limitation in the
negotiability and nature of the postal money orders issued by the post office
because of the special conditions attached.
GR NO 45125
LORRETA SERRANO V COURT OF APPEALS, AND LONG LIFE
PAWNSHOP
FACTS:
Serrano bought some jewelry from Ribaya. Due to need of finances, she
decided to have the jewelry pawned. She instructed her secretary to do so
for her, which the secretary did but absconded after receiving the
proceeds. It is to be noted that the pawnshop ticket indicated that the
jewelry was redeemable by presentation by the bearer. Afterwards,
there was a lead on where the jewelry was pawned. An investigation was
done to verify the suspicion. The jewelry was to be sold in a public auction
then. The petitioner and police authorities informed the pawnshop owner not
to sell the jewelry as she was the rightful owner thereof. Despite of
this however, the jewelry was redeemed by a Tomasa de Leon who
presented the pawnshop ticket.
ISSUE:
Whether or not the pawnshop ticket presented was a negotiable instrument
HELD:
Having been informed by the petitioner and the police that jewelry pawned to
it was either stolen or involved in an embezzlement of the proceeds of the
pledge, pawnbroker became duty bound to hold the things pledged and to
give notice to the petitioner and authorities of any effort to redeem
them. Such a duty was imposed by Article 21 of the Civil Code. The
circumstance that the pawnshop ticket stated that the pawn was redeemable
by the bearer, didnt dissolve this duty. The pawnshop ticket wasnt a
negotiable instrument under the Negotiable instruments Law, nor was it a
negotiable document of title under Article 1507of the Civil Code. If the third
person Tomasa de Leon, who redeemed the things pledged a day after

petitioner and the police had notified Long Life, claimed to be owner thereof,
the prudent recourse of the pawnbroker was to file an interpleader suit,
impleading both petitioner and Tomasa de Leon. The respondent
pawnbroker was, of course, entitled to demand payment of the loan
extended on the security of the pledge before surrendering the jewelry, upon
the assumption that it had given the loan in good faith and was not a "fence"
for stolen articles and had not conspired with the faithless Josefina Rocco or
with Tomasa de Leon. Respondent pawnbroker acted in reckless disregard
of that duty in the instant case and must bear the consequences, without
prejudice to its right to recover damages from Josefina Rocco.
8. CALTEX VS CA
In 1982, Angel de la Cruz obtained certificates of time deposit
(CTDs) from Security Bank and Trust Company for the formers deposit with
the said bank amounting to P1,120,000.00. The said CTDs did not specify to
whom it is designated but only written as BEARER
Angel de la Cruz subsequently delivered the CTDs to Caltex in
connection with the purchase of fuel products from Caltex.
In March 1982, Angel de la Cruz advised Security Bank that he lost
the CTDs. He executed an affidavit of loss and submitted it to the bank. The
bank then issued another set of CTDs. In the same month, Angel de la Cruz
acquired a loan of P875,000.00 and he used his time deposits as collateral.
In November 1982, a representative from Caltex went to Security
Bank to present the CTDs (delivered by de la Cruz) for verification. Caltex
advised Security Bank that de la Cruz delivered Caltex the CTDs as security
for purchases he made with the latter. Security Bank refused to accept the
CTDs and instead required Caltex to present documents proving the
agreement made by de la Cruz with Caltex. Caltex however failed to
produce said documents.
In April 1983, de la Cruz loan with Security bank matured and no
payment was made by de la Cruz. Security Bank eventually set-off the time
deposit to pay off the loan.
Caltex sued Security Bank to compel the bank to pay off the CTDs.
Security Bank argued that the CTDs are not negotiable instruments even
though the word bearer is written on their face because the word bearer
contained therein refer to depositor and only the depositor can encash the
CTDs and no one else.
ISSUE: Whether or not the certificates of time deposit are negotiable.

By: Fersal, Nikki, Eydie and Caroline

Negotiable Instruments
HELD: Yes. The CTDs indicate that they are payable to the bearer; that
there is an implication that the depositor is the bearer but as to who the
depositor is, no one knows. It does not say on its face that the depositor is
Angel de la Cruz. 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.
Thus, de la Cruz is the depositor insofar as the bank is
concerned, but obviously other parties not privy to the transaction between
them would not be in a position to know that the depositor is not the bearer
stated in the CTDs.
However, Caltex may not encash the CTDs because although the
CTDs are bearer instruments, a valid negotiation thereof for the true purpose
and agreement between Caltex and De la Cruz, requires both delivery and
indorsement. As discerned from the testimony of Caltex representative, the
CTDs were delivered to them by de la Cruz merely for guarantee or security
and not as payment.

9. Astro Electronics Corp. vs. Philippine Export and Foreign Loan

Guarantee Corporation
[GR 136729, 23 September 2003]
Facts:
Astro Electronics Corporation (Astro) was granted several
loans by the Philippine Trust Company amounting to P3,000,000.00
with interest and secured by three promissory notes. In each of these
promissory notes, it appears that Peter Roxas signed twice, as
President of Astro and in his personal capacity. Roxas also signed a
Continuing Suretyship Agreement in favor of Philtrust Bank, as
President of Astro and as surety. Thereafter, Philippine Export and
Foreign Loan Guarantee Corporation, with the consent of Astro,
guaranteed in favor of Philtrust the payment of 70% of Astro's loan,
subject to the condition that upon payment by Phil guarantee of said
amount, it shall be proportionally subrogated to the rights of Philtrust
against Astro. As a result of Astro's failure to pay its loan obligations,
despite demands, Philguarantee paid 70% of the guaranteed loan to
Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a
complaint for sum of money with the RTC of Makati. In his Answer,
Roxas disclaims any liability on the instruments, alleging, that he merely
signed the same in blank and the phrases "in his personal capacity" and

"in his official capacity" were fraudulently inserted without his

knowledge. After trial, the RTC rendered its decision in favor of
Philguarantee, ordering Astro and Roxas to solidarily pay Philguarantee
the sum of P3,621,187.52 representing the total obligation of Astro and
Roxas in favor of Philguarantee as of 31 December 1984 with interest at
the stipulated rate of 16% per annum and stipulated penalty charges of
16% per annum computed from 1 January 1985 until the amount is fully
paid. On appeal, the Court of Appeals affirmed the RTC decision
agreeing with the trial court that Roxas failed to explain satisfactorily
why he had to sign twice in the contract and therefore the presumption
that private transactions have been fair and regular must be sustained.
Astro and Roxas filed the petition for review on certiorari.
Issue:
W/N Roxas should be jointly and severally liable (solidary) with
Astro for the sum awarded by the RTC.
Held:
YES. Astro's loan with Philtrust Bank is secured by three
promissory notes. These promissory notes are valid and binding against
Astro and Roxas. As it appears on the notes, Roxas signed twice: first,
as president of Astro and second, in his personal capacity. In signing his
name aside from being the President of Astro, Roxas became a comaker of the promissory notes and cannot escape any liability arising
from it. Under the Negotiable Instruments Law, persons who write their
names on the face of promissory notes are makers, promising that they
will pay to the order of the payee or any holder according to its tenor.
Thus, even without the phrase "personal capacity," Roxas will still be
primarily liable as a joint and several debtor under the notes considering
that his intention to be liable as such is manifested by the fact that he
affixed his signature on each of the promissory notes twice which
necessarily would imply that he is undertaking the obligation in two
different capacities, official and personal. Further, the three promissory
notes uniformly provide: "FOR VALUE RECEIVED, I/We jointly,
severally and solidarily, promise to pay to PHILTRUST BANK or order."
An instrument which begins with "I", "We", or "Either of us" promise to
pay, when signed by two or more persons, makes them solidarily liable.
Also, the phrase "joint and several" binds the makers jointly and
individually to the payee so that all may be sued together for its
enforcement, or the creditor may select one or more as the object of the
suit. Having signed under such terms, Roxas assumed the solidary
liability of a debtor and Philtrust Bank may choose to enforce the notes
against him alone or jointly with Astro. Furthermore, Roxas is the
President of Astro and reasonably, a businessman who is presumed to
take ordinary care of his concerns. Absent any countervailing evidence,
it cannot be gain said that he will not sign a document without first

By: Fersal, Nikki, Eydie and Caroline

Negotiable Instruments
informing himself of its contents and consequences. Clearly, he knew
the nature of the transactions and documents involved as he not only
executed these notes on two different dates but he also executed, and
again, signed twice, a "Continuing Suretyship Agreement" notarized on
31 July 1981. Such continuing suretyship agreement even re-enforced
his solidary liability to Philtrust because as a surety, he bound himself
jointly and severally with Astro's obligation. Roxas cannot now avoid
liability by hiding under the convenient excuse that he merely signed the
notes in blank and the phrases "in his personal capacity" and "in his
official capacity" were fraudulently inserted without his knowledge.

the checks he previously issued. A bank is under no obligation to make

part payment on a check, up to only the amount of the
drawers funds, where the check is drawn for an amount
larger than what the drawer has on deposit. A check is
intended not only to transfer a right to the amount named in it,
but to serve the further purpose of affording evidence for the bank of the
payment of such amount when the check is taken up. Clearly, a bank is
not liable for its refusal to pay a check on account of insufficient
funds, notwithstanding the fact that a deposit may be made
later in the day. Before a bank depositor may maintain a suit to
recover a specific amount from his bank, he must first show that he had
on deposit sufficient funds to meet his demand

10. Moran vs. CAGR 105836

Facts:
George and Librada Moran maintained 3 joint
accounts with CityTrust Banking Corporation. The Morans
issued checks in favor of Petrophil Corporation, which were dishonored
for insufficiency of funds .Moran deposited the amount that would cover
the checks the day after the checks clearing. Petrophil did not
deliver the Morans
fuel orders for their W ackW ack Petron Gasoline station, prompting
the latter to
temporarily stop business operations. The Morans sued the bank for
damages.
Issue:
Whether a bank is liable for its refusal to pay a check on
account of insufficient funds, notwithstanding the fact the fact that a
deposit was made later in the day.
Held:
A check is a bill of exchange drawn on a bank payable on
demand. Where the bank possesses funds of a depositor, it is bound to
honor his checks to the extent of the amount of the deposits. Failure to
do so, when deposit is sufficient, entitles the drawer to
substantial damages without proof of actual damages.
Herein, however, the balance of the account maintained in the bank
was not enough to cover either of the two checks when they were
dishonored. A check, as distinguished from an ordinary bill of exchange,
is supposed to be drawn against a previous deposit of funds. As such, a
drawer must remember his responsibilities every time he issues a
check. He must personally keep track of his available balance in
the bank and not rely on the bank to notify him of the necessity to fund

11. IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO

PALANCA, Deceased, GEORGE PAY,
vs. SEGUNDINA CHUA VDA. DE PALANCA
Facts:
Petitioner George Pay is a creditor of the Late Justo Palanca
who died in Manila on July 3, 1963. The claim of the petitioner is based
on a promissory note dated January 30, 1952, whereby the late Justo
Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to pay
George Pay the amount of P26,900.00, with interest thereon at the rate
of 12% per annum. George Pay is now before this Court, asking that
Segundina Chua vda. de Palanca, surviving spouse of the late Justo
Palanca, he appointed as administratrix of a certain piece of property
which is a residential dwelling in the name of Justo Palanca, assessed
at P41,800.00. The idea is that once said property is brought under
administration, George Pay, as creditor, can file his claim against the
administratrix." It then stated that the petition could not prosper as there
was a refusal on the part of Segundina Chua Vda. de Palanca to be
appointed as administratrix; that the property sought to be administered
no longer belonged to the debtor, the late Justo Palanca; and that the
rights of petitioner-creditor had already prescribed. The promissory
note, dated January 30, 1962, is worded thus: " `For value received
from time to time since 1947, we [jointly and severally promise to] pay to
Mr. [George Pay] at his office at the China Banking Corporation the sum
of [Twenty Six Thousand Nine Hundred Pesos] (P26,900.00), with
interest thereon at the rate of 12% per annum upon receipt by either of
the undersigned of cash payment from the Estate of the late Don Carlos
Palanca or upon demand'. . . . As stated, this promissory note is signed

By: Fersal, Nikki, Eydie and Caroline

Negotiable Instruments
.

by Rosa Gonzales Vda. de Carlos Palanca and Justo Palanca." Then

came this paragraph: "The Court has inquired whether any cash
payment has been received by either of the signers of this promissory
note from the Estate of the late Carlos Palanca. Petitioner informed that
he does not insist on this provision but that petitioner is only claiming on
his right under the promissory note ." After which, came the ruling that
the wording of the promissory note being "upon demand," the obligation
was immediately due. Since it was dated January 30, 1952, it was clear
that more "than ten (10) years has already transpired from that time until
to date. The action, therefore, of the creditor has definitely prescribed."
The result, as above noted, was the dismissal of the petition.

ISSUE:
Whether or not the cause of action has already been barred by
prescription.

RULING:
From the manner in which the promissory note was executed, it would
appear that petitioner was hopeful that the satisfaction of his credit
could he realized either through the debtor sued receiving cash
payment from the estate of the late Carlos Palanca presumptively as
one of the heirs, or, as expressed therein, "upon demand." Article 1179
of the Civil Code provides: "Every obligation whose performance does
not depend upon a future or uncertain event, or upon a past event
unknown to the parties, is demandable at once." The obligation being
due and demandable, it would appear that the filing of the suit after
fifteen years was much too late. For again, according to the Civil Code,
which is based on Section 43 of Act No. 190, the prescriptive period for
a written contract is that of ten years.

13. CONSOLIDATED PLYWOOD INDUSTRIES vs IFC LEASING &

ACCEPTANCE CORP.

Facts:
Consolidated Plywood Industries Inc. (CPII) is a corporation
engaged in the logging business. It had for its program of logging
activities the opening of additional roads, and simultaneous logging
operations along the route of said roads. With this, it requires two more
units of tractors to attain its objective. Atlantic Gulf and Pacific Company of
Manilas sister company, Industrial Products Marketing (IPM), offered to sell to
CPII 2 "Used" Allis Crawler Tractors. IPM assured CPII that the "Used"
Allis Crawler Tractors which were offered are fit for the job, and gave
the corresponding warranty of 90 days performance of the machines
and availability of parts. The president and vice president of CPII,
agreed to purchase on installment said 2 units of "Used" Allis Crawler
Tractors relying on IPMs guarantee. They paid a down payment of
210,000.00. After issuance of the sales invoice, the deed of sale with
chattel mortgage with promissory note was executed. Simultaneously
with the execution of the deed of sale with chattel mortgage with
promissory note, IPM, by means of a deed of assignment, assigned its
rights and interest in the chattel mortgage in favor of IFC Leasing and
Acceptance Corporation. Immediately thereafter, IPM delivered said 2 units of
"Used tractors to CPII's jobsite as agreed upon. Eventually, one of the tractors
broke down, 9 days subsequent to the incident; the other tractor also
broke down. IPM sent mechanics to fix the tractors but was unable to do
so as the units were not serviceable. Due to this, the road building and
simultaneous logging operations were delayed. The Vice President of
CPII advised IPM that the payments of the installment as listed in the
promissory note would likewise be delayed until IPM completely fulfills
its obligation under its warranty. Since the tractors were no longer
serviceable, the President asked IPM to pull out the units and have
them reconditioned, and thereafter to offer them for sale. The proceeds
were to be given to IFC Leasing and the excess, if any, to be divided
between IPM and CPII which offered to bear 1/2 of their conditioning
cost. No response to this letter was received by CPII and despite
several follow-up calls; IPM did nothing with regard to the request until
the complaint in the case was filed by IFC Leasing against CPII. The
trial court rendered judgment ordering CPII, et al. to pay jointly and
severally in their official and personal capacities the principal sum of P1,
093,798.71 with accrued interest. CPII et al.'s motion for reconsideration
was denied by the Intermediate Appellate Court Hence, this case.

By: Fersal, Nikki, Eydie and Caroline

Negotiable Instruments
Issue:
Whether the promissory note in question is a negotiable instrument?
Held:
The pertinent portion of the note provides that ""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
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." These words serve as an expression
of consent that the instrument maybe transferred. This consent is
indispensable since a maker assumes greater risk under a negotiable
instrument than under a non-negotiable one. 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. Therefore, considering that the subject
promissory note is not a negotiable instrument, it follows that IFC
Leasing can never be a holder in due course but remains a mere
assignee of the note in question. Thus, CPII may raise against IFC
Leasing all defenses available to it as against IPM. This being so, there
was no need for CPII to implead IPM when it was sued by IFC Leasing
because CPII's defenses apply to both or either of them.

loans granted by the latter in the sums of P 11,500.00 and P 3,000.00,

respectively. A parcel of land covered by Transfer Certificate of Title No.
38989 of the Register of Deed of Quezon City, co-owned by said
mortgagor spouses, was given as security under the two deeds. They
also executed a 'promissory note".
On July 11, 1961, the Lagasca spouses executed an instrument
denominated "Assumption of Mortgage," obligating themselves to assume
the said obligation to the GSIS and to secure the release of the mortgage
covering that portion of the land belonging to spouses Racho and which was
mortgaged to the GSIS. This undertaking was not fulfilled. Upon failure of
the mortgagors to comply with the conditions of the mortgage, particularly
the payment of the amortizations due, GSIS extrajudicially foreclosed the
mortgage and caused the mortgaged property to be sold at public auction on
December 3, 1962.
For more than two years, the spouses Racho filed a complaint against the
spouses Lagasca praying that the extrajudicial foreclosure "made on, their
property and all other documents executed in relation thereto in favor of the
Government Service Insurance System" be declared null and void.
The trial court rendered judgment on February 25, 1968 dismissing the
complaint for failure to establish a cause of action. However, said decision
was reversed by the respondent Court of Appeals, stating that, although
formally they are co-mortgagors, the GSIS required their consent to the
mortgage of the entire parcel of land which was covered with only one
certificate of title, with full knowledge that the loans secured were solely for
the benefit of the appellant Lagasca spouses who alone applied for the loan.
ISSUES:
1.

Whether the respondent court erred in annulling the mortgage as it

affected the share of private respondents in the reconveyance of
their property?

2.

Whether private respondents benefited from the loan, the mortgage

and the extrajudicial foreclosure proceedings are valid?

14. GSIS vs COURT OF APPEALS

HELD:
Facts:
Private respondents, Mr. and Mrs. Isabelo R. Racho, together with
spouses Mr. and Mrs Flaviano Lagasca, executed a deed of mortgage,
dated November 13, 1957, in favor of petitioner GSIS and subsequently,
another deed of mortgage, dated April 14, 1958, in connection with two

Both parties relied on the provisions of Section 29 of Act No. 2031,

otherwise known as the Negotiable Instruments Law, which provide that an
accommodation party is one who has signed an instrument as maker,
drawer, acceptor of indorser without receiving value therefor, but is held

By: Fersal, Nikki, Eydie and Caroline

Negotiable Instruments
liable on the instrument to a holder for value although the latter knew him to
be only an accommodation party.
The promissory note, as well as the mortgage deeds subject of this
case are clearly not negotiable instruments. These documents do not
comply with the fourth requisite to be considered as such under Section
1 of Act No. 2031 because they are neither payable to order nor to
bearer. The note is payable to a specified party, the GSIS. Absent the
aforesaid requisite, the provisions of Act No. 2031 would not apply;
governance shall be afforded, instead, by the provisions of the Civil
Code and special laws on mortgages.
As earlier indicated, the factual findings of respondent court are that
private respondents signed the documents "only to give their consent to
the mortgage as required by GSIS", with the latter having full knowledge
that the loans secured thereby were solely for the benefit of the Lagasca
spouses.
Contrary to the holding of the respondent court, it cannot be said that
private respondents are without liability under the aforesaid mortgage
contracts. The factual context of this case is precisely what is
contemplated in the last paragraph of Article 2085 of the Civil Code to
the effect that third persons who are not parties to the principal
obligation may secure the latter by pledging or mortgaging their own
property. So long as valid consent was given, the fact that the loans
were solely for the benefit of the Lagasca spouses would not invalidate
the mortgage with respect to private respondents' share in the property.

By: Fersal, Nikki, Eydie and Caroline