212 SCRA 448 Mercantile Law Negotiable Instruments Law Negotiable Instruments in General Bearer Instrument Certificate of Time

Time Deposit
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 are couched in the following manner:
This is to Certify that B E A R E R has deposited in this Bank the sum of _______ Pesos, Philippine Currency, repayable to said depositor _____ days. after date,
upon presentation and surrender of this certificate, with interest at the rate of ___ % per cent per annum.
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.
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.

257 SCRA 578 Mercantile Law Negotiable Instruments in General Signature of Makers Guaranty
In February 1983, Rene Naybe took out a loan from Philippine Bank of Communications (PBC) in the amount of P50k. For that he executed a promissory note in
the same amount. Naybe was able to convince Baldomero Inciong, Jr. and Gregorio Pantanosas to co-sign with him as co-makers. The promissory note went due
and it was left unpaid. PBC demanded payment from the three but still no payment was made. PBC then sue the three but PBC later released Pantanosas from its
obligations. Naybe left for Saudi Arabia hence cant be issued summons and the complaint against him was subsequently dropped. Inciong was left to face the
suit. He argued that that since the complaint against Naybe was dropped, and that Pantanosas was released from his obligations, he too should have been
released.
ISSUE: Whether or not Inciong should be held liable.

HELD: Yes. Inciong is considering himself as a guarantor in the promissory note. And he was basing his argument based on Article 2080 of the Civil Code which
provides that guarantors are released from their obligations if the creditors shall release their debtors. It is to be noted however that Inciong did not sign the
promissory note as a guarantor. He signed it as a solidary co-maker.
A guarantor who binds himself in solidum with the principal debtor does not become a solidary co-debtor to all intents and purposes. There is a difference between
a solidary co-debtor and a fiador in solidum (surety). The latter, outside of the liability he assumes to pay the debt before the property of the principal debtor has
been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-debtor has no other rights than
those bestowed upon him.
Because the promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable, any one, some or all of them
may be proceeded against for the entire obligation. The choice is left to the solidary creditor (PBC) to determine against whom he will enforce collection.
Consequently, the dismissal of the case against Pontanosas may not be deemed as having discharged Inciong from liability as well. As regards Naybe, suffice it to
say that the court never acquired jurisdiction over him. Inciong, therefore, may only have recourse against his co-makers, as provided by law.

103 Phil. 40 Mercantile Law Negotiable Instruments Law Negotiable Instruments in General Unconditional Promise To Pay
During the Japanese occupation, Pacita Young issued three promissory notes to Pacifica Jimenez. The total sum of the notes was P21k. All three promissory notes
were couched in this manner:
Received from Miss Pacifica Jimenez the total amount of ___________ payable six months after the war, without interest.
When the promissory notes became due, Jimenez presented the notes for payment. Pacita and her husband died and so the notes were presented to the
administrator of the estate of the spouses (Dr. Jose Bucoy). Bucoy manifested his willingness to pay but he said that since the loan was contracted during the
Japanee occupation the amount should be deducted and the Ballantyne Schedule should be used, that is peso-for-yen (which would lower the amount due from
P21k). Bucoy also pointed out that nowhere in the not can be seen an express promise to pay because of the absence of the words I promise to pay
ISSUE: Whether or not Bucoy is correct.
HELD: No. The Ballantyne schedule may not be used here because the debt is not payable during the Japanese occupation. It is expressly stated in the notes that
the amounts stated therein are payable six months after the war. Therefore, no reduction could be effected, and peso-for-peso payment shall be ordered in
Philippine currency.
The notes also amounted in effect to a promise to pay the amounts indicated therein. 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.

Abubakar vs. Auditor General

GR L-1405, 31 July 1948
First Division, Bengzon (J)
Facts: Treasury Warrant A-2867376 was issued in favor of Placide S. Urbanes on 10 December 1941 for
P1,000, but is now in the hands of Benjamin Abubakar. The Auditor refused to authorize the payment of the

treasury warrant. Abubakar contends he is a holder in good faith and for value and thus, entitled to the rights
and privileges of a holder in due course.
Issue: Whether Abubakar is a holder in due course.
Held: A treasury warrant is not a negotiable instrument; it being an order for payment out of a particular
fund, and is not unconditional and does not fulfill one of the essential requirements of a negotiable
instrument. Therefore, a holder of a treasury warrant cannot argue that he is a holder in good faith and for
value of a negotiable instrument and thus entitled to the rights and privileges of a holder in due course, free
from defenses.

G.R. No. 170325 September 26, 2008

Lessons Applicable: Fictitious Persons (Negotiable Instruments Law)
FACTS:

Spouses Erlando and Norma Rodriguez were engaged in the informal lending business and had a discounting arrangement with the Philnabank
Employees Savings and Loan Association (PEMSLA), an association of PNB employees
The association maintained current and savings accounts with Philippine National Bank (PNB)
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.
It was PEMSLAs policy not to approve applications for loans of members with outstanding debts.
o To subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan accounts.
They took out loans in the names of unknowing members, without the knowledge or consent of the latter.
The officers carried this out by forging the indorsement of the named payees in the checks
Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from the named payees.
This was an irregular procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch.
o this became the usual practice for the parties.
November 1998-February 1999: spouses issued 69 checks totalling to P2,345,804. These were payable to 47 individual payees who were all members of
PEMSLA
PNB eventually found out about these fraudulent acts
o To put a stop to this scheme, PNB closed the current account of PEMSLA.
o As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the reason Account Closed.
o The amounts were duly debited from the Rodriguez account
Spouses filed a civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and PNB.
o PNB credited the checks to the PEMSLA account even without indorsements = PNB violated its contractual obligation to them as depositors - so
PNB should bear the losses
RTC: favored Rodriguez

makers, actually did not intend for the named payees to receive the proceeds of the checks = fictitious payees (under the Negotiable Instruments
Law) = negotiable by mere delivery
CA: Affirmed - checks were obviously meant by the spouses to be really paid to PEMSLA = payable to order
o

ISSUE: W/N the 69 checks are payable to order for not being issued to fictitious persons thereby dismissing PNB from liability
HELD: NO. CA Affirmed

GR: when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a bearer instrument (Sections 8 and 9
of the NIL)
EX: 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.
The distinction between bearer and order instruments lies in their manner of negotiation
o order instrument - requires an indorsement from the payee or holder before it may be validly negotiated
o bearer instrument - mere delivery
US jurisprudence: fictitious if the maker of the check did not intend for the payee to in fact receive the proceeds of the check
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
o underlying theory: one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon
lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention on the part of respondents-spouses that the payees would
not receive the checks proceeds
PNB did not obey the instructions of the drawers when it accepted absent indorsement, forged or otherwise. It was negligent in the selection and
supervision of its employees .

10 SCRA 79 Mercantile Law Negotiable Instruments Law Negotiable Instruments in General Sum Certain in Money Currency Republic Act 529
Paz Arrieta is a rice dealer/importer. In May 1952, she participated in a public bidding held by the National Rice and Corn Corporation (NARIC). NARIC was
looking for someone to supply 20,000 metric tons of Burmese Rice. Arrieta was the lowest bidder at $203.00 per metric ton hence she won the bidding. So a
contract was made whereby Arrieta is to deliver the rice supply and NARIC is to pay for the imported rice by means of an irrevocable, confirmed and assignable
letter of credit in U.S. currency in favor of the Arrieta and/or supplier in Burma, immediately. Arrieta then proceeded to contact her supplier in Burma (Thiri Setkya)
and arranged the sale of the 20k metric ton of Burmese Rice, Arrieta promised Setkya that he will be paid by NARIC on August 4, 1952. Arrieta also made a 5%
deposit (P200k) as advance payment to Setkya.
Meanwhile, NARIC tried to open a letter of credit ion the amount of $3,614,000.00 with the Philippine National Bank. PNB agreed to open the letter of credit but
only on the condition that NARIC deposits 50% of the said amount. NARIC failed to do this and the letter of credit was not opened when the obligation to pay
Setkya became due. Because of this, Arrieta lost the opportunity to profit from the sale as the agreement was eventually forfeited. Her 5% depoit was likewise
forfeited pursuant to Burma laws.
ISSUE: Whether or not Arrieta is entitled to damages.
HELD: Yes. It is clear upon the records that the sole and principal reason for the cancellation of the allocation contracted by Arrieta in Rangoon, Burma, was the
failure of the letter of credit to be opened with the contemplated period. The letter of credit is in US currency. Normally, parties can stipulate as to which currency
shall be used in paying off an obligation provided that the exchange rate prevailing at the time of judgment shall prevail over the rate of exchange at the time of the
breach. This rule however is of no application in the case at bar due to the passage of Republic Act 529 which expressly declares such stipulations as contrary to

public policy, void and of no effect. If there is any agreement to pay an obligation in a currency other than Philippine legal tender, the same is null and void as
contrary to public policy (Republic Act 529), and the most that could be demanded is to pay said obligation in Philippine currency to be measured in the prevailing
rate of exchange at the time the obligation was incurred.

Ponce vs. CA
GR L-49444, 31 May 1979
First Division, Melencio-Herrera (J)
Facts: On 3 June 1969, Jesus Afable, together with Feliza Mendoza and Ma. Aurora Dino executed a
promissory note in favor of Nelia Ponce in the sum of P814,868.42 payable without interest on or before 31
July 1969, subject to an interest of 12% per annum if not paid at maturity, and an additional sum equivalent to
10% of total amount due as attorneys fees in case it is necessary to bring suit, and the execution of a first
mortgage on their properties or the Carmen Planas Memorial Inc. in the event of failure to pay the
indebtedness in accordance with the terms. Upon failure of the debtors to pay, a complaint was filed against
them for the recovery of the principal sum, plus interest and damages. The trial court rendered judgment in
favor of Ponce. The Court of Appeals affirmed the decision of the trial court. On the second motion for
reconsideration, however, the appellate court reversed the judgment and opined that the intent of the parties
was that the note was payable in US dollars which is illegal, with neither party entitled to recover under the
in pari delicto rule.
Issue: Whether an agreement to pay in dollars defeat a creditors claim for payment.
Held: If there is an agreement to pay an obligation in a currency other than Philippine legal tender, the same
is illegal / null and void as contrary to public policy, pursuant to RA 529, and the most that can be demanded
is to pay the said obligation in Philippine currency. It cannot defeat a creditors claim for payment, for such
will allow a person to enrich himself inequitably at anothers expense. What RA 529 prohibits is the payment
of an obligation in dollars. A creditor cannot oblige the debtor to pay in dollars, even if the loan was given in
said currency. In such case, the indemnity is expressed in Philippine currency on the basis of the current rate
of exchange at the time of payment.
Kalalo vs. Luz
GR L-27782, 31 July 1970
En Banc, Zaldivar (J)
Facts: On 17 November 1959, Octavio Kalalo entered into an agreement with Alfredo Luz where he was to
render engineering design services for a fee. On 11 December 1961, Kalalo sent Luz a statement of account
where the balance due for services rendered was P59,505. On 18 May 1962, Luz sent Kalalo a resume of fees
due to the latter, and a check for P10,861.08. Kalalo refused to accept the check as full payment of the balance
of the fees due him. On 10 August 1962, Kalalo filed a complaint containing 4 causes of action, i.e. $28,000
(representing 20% of the amount paid to Luz in the International Research Institute project) and the balance
of P30,881.25 as fees; P17,0000 as consequential and moral damages; P55,000 as moral damages, attorneys
fees and litigation expenses; and P25,000 as actual damages, attorneys fees and litigation expenses). The trial
court ruled in favor of Kalalo. Luz filed an appeal directly with the Supreme Court raising only questions of
law.
Issue: Whether the rate of exchange of dollar to peso are those at the time of the payment of the judgment or
at the time when the research institute project became due and demandable.

Held: Luz obligation to pay Kalalo the sum of US$28,000 accrued on 25 August 1961, or after the enactment
of RA 529 (16 June 1950). Thus, the provision of the statute which requires payment at the prevailing rate of
exchange when the obligation was incurred cannot be applied. RA 529 does not provide for the rate of
exchange for the payment of obligation incurred after the enactment of the Act, and thus the rate of exchange
should be that prevailing at the time of payment. The view finds support in the ruling of the Court in Engel vs.
Velasco & Co. The trial court did not err in holding the rate of exchange is that at the time of payment