Nego-d: Lim vs.

Rodrigo (GR 76974, 18November 1988) Posted by Berne Guerrero under(a) oas,digests No Comments Lim vs. Rodrigo Fernan (J) Facts: Ko Hu issued 5 post dated checks amounting to P200,000 allegedly inpayment of a certain obligation to Benito Lim. Said checks were handed toLims brother, Vicente, at Ko Hus office in Nueva Street, Manila for deliveryto Benito Lim in Baguio City. When presented at Lims depository bank inBaguio City, the checks were dishonored for having been drawn against aclosed account. Lim filed a suit against Ko Hu for violation of BP 22 inBaguio City. Issue: Whether the delivery of the checks to Benito Lims brother is thedelivery contemplated by law (prelude to juridictional issue) Held: The venue of the offense lies at the place where the check wasexecuted and delivered to the payee and that the place where a check waswritten, signed or dated does not fix the place where it was executed, aswhat is of decisive importance is the delivery thereof which is the final actessential to its consummation as an obligation. The delivery contemplatedby law must be to a person who takes the check as a holder, i.e. thepayee or indorsee of a bill or note, who is in possession of it, or the bearerthereof. Vicente Lim, Benitos brother, cannot be said to have taken thechecks in the concept of a holder for he is neither the payee or indorseethereof. Neither could he be deemed to be Benitos agent with respectthereto, for he was purposely sent to Ko Hu to get certain stock certificatesand not the checks in question (This is similar to the People vs. Yabut case).Thu 25 Mar 2004 Nego-d: Lim vs. People (GR 130038, 18September 2000) Posted by Berne Guerrero under(a) oas,digests No Comments Lim vs. People Facts: Rosa Lim bought various kinds of jewelry worth P300,000 from thestore of Maria Antonia Seguan, by issuing a check payable to cash drawnagainst MetroBank. The next day, Lim again purchased jewelry valued atP241,668 by issuing another check payable to cash likewise drawn againstMetroBank. Seguan deposited the checks with her bank. The checks werereturned with a notice of dishonor as Lims accounts in said bank werealready closed. Upon demand, Lim promised to pay Seguan the amounts of the two dishonored checks. She never did. Rosa Lim was charge for twocounts of violation of BP 22, where she was found guilty, and sentenced to 1year imprisonment with fine (P200,000). Issue: Whether Lim has knowledge of the insufficiency of funds whenissuing the checks. Held: The elements of BP22 are (1) the making, drawing and issuance of any check to apply for account or for value, (2) the knowledge of the maker,drawer or issuer that at the time of issue he does not have sufficient funds inor credit with the drawee bank for the payment of such check in full upon itspresentment, and (3) the subsequent dishonor of the check by the draweebank for insufficiency of funds or credit or dishonor for the same reason hadnot the drawer, without any valid cause, ordered the bank to stop payment.Lim never denied issuing the check. Section 2 of BP 22 creates apresumption juris tantum that the second element prima facie exists whenthe first and third elements are present. If not rebutted, it suffices to sustaina conviction.It must be noted that similar to the Vaca case, the Court deleted the prisonsentences imposed upon Lim, holding that the two fines imposed for each of the violation (P200,000 each ) are appropriate and sufficient. Subsidiaryimprisonment not exceeding 6 months is provided in case of insolvency ornon-payment of the fines as decreed.Thu 25 Mar 2004

Nego-d: Lim vs. CA (GR 107898, 19 December1995) Posted by Berne Guerrero under(a) oas,digests No Comments Lim vs. CA Facts: Spouses Manuel and Rosita Lim are the president and treasurer,respectively, of RIGI Built Industries Inc. RIGI had been transacting businesswith Linton Commercial Company for years, the latter supplying the formerwith steel plates, steel bars, flat bars and purlin sticks which the companyuses in the fabrication, installation and building of steel structures. The Limsordered steel plates from Linton Commercial, delivering checks to the latterscollector as payment. The checks were dishonored for insufficiency of funds with the additional notation payment stopped (The Lims claimedthat the supplies delivered by Linton Commercial were not in accordancewith the specifications of purchase orders). Despite demands, the Limsrefused to make good the checks or to pay value of the deliveries. Issue: Whether the receipt of the checks by the collector of Linton is theissuance and delivery to the payee within the contemplation of the law (asprelude to jurisdiction issue). Held: Issue means the first delivery of the instrument complete in form toa person who takes it as a holder. Holder refers to the payee or indorsee of a note or who is in possession of it or the bearer thereof. The issuance aswell as the delivery of the check must be to a person who takes it as aholder. Delivery of the checks signifies transfer of possession (actual orconstructive) from one person to another with intent to transfer title thereto;the delivery being the final act essential to its consummation as anobligation. The collector was not the person who could take the checks as aholder. Neither could the collector be deemed an agent of Linton Commercialwith respect to the checks because he was a mere employee.Thu 25 Mar 2004 Nego-d: Lazaro vs. CA (GR 105461, 11November 1993) Posted by Berne Guerrero under(a) oas,digests No Comments Lazaro vs. CA Facts: Marlyn Lazaro received from Rudy Chua the amount of P90,000 asadvanced payment for deliveries of sugar, etc. Lazaro was only able todeliver partial delivery. To refund the undelivered goods, she issued a check for P72,000. When deposited, the check was dishonored and stamped account closed. To make up for the dishonor, Lazaro indorsed a checkissued by one Lolita Soriano, payable to Cash. It was likewise dishonoredand marked account closed. Chua sent a demand letter asking for thepayment of the amount covered by the first check within days from receiptof letter. For failure of the accused to pay the amount, Chua filed cases forestafa and violation of BP 22. Issue: The clear intention of the framers of BP 22 is to make themere act of issuing a check that is worthless malum prohibitum. The lawdoes not require that there be damage or prejudice to the individualcomplainant by reason of the issuance of the check. The fine provided for inBP 22 was intended as an additional penalty for the act of issuing aworthless check. BP 22 provides that a fine of not less than but not morethan double the amount of the dishonored check may be imposed by thecourt.Thu 25 Mar 2004 Nego-d: Lao vs. CA (GR 119178, 20 June1997) Posted by Berne Guerrero under(a) oas,digests No Comments Lao vs. CA Facts: Lim Lim Lao was a junior officer of Premier Investment House in itsBinondo branch. She was authorized to sign checks for and in behalf of thecorporation. In the course of business, she met Fr. Artelijo Palijo, provincialtreasurer of the Society of the Divine Word. Fr. Palijo was authorized toinvest donations of the

society and had been investing the societys moneywith Premiere. Fr. Palijo was issued checks in payment of interest for thesocietys investments. The checks were dishonored for insufficiency of funds. Fr. Palijo was only able to acquire P5,000 for his efforts indemanding the payment of the checks. Premiere, subsequently, was placedunder receivership. Fr. Palijo filed a suit against Lim Lao and his co-signatory, Teodulo Asprec, head of operations for violation of BP 22. Issue: Whether an employee who, as part of her regular duties, signs blank corporate check, be held for violation of BP22. Held: The checks co-signed by Lim Lao were signed in advance and in blank,delivered to the head of operations, who subsequently filled in the name of he payee, the amounts and corresponding dates of maturity; this procedurefollowed in keeping with her duties as a junior officer. Though BP 22provides the presumption that a drawer is knowledgeable of the fact of insufficiency of funds, such presumption may be debunked by contraryevidence. Herein, Lim Lao does not have the power, duty or responsibility tomonitor and assess the balances against the issuance, nor to make sure thatthe checks were funded. Such responsibility devolved upon the corporationsTreasury Department in Cubao, Quezon City. Furthermore, no notice of dishonor was actually sent or received by Lim Lao to support the prima facieevidence of knowledge of insufficient funds. She was thus acquitted.Thu 25 Mar 2004 Nego-d: Kalalo vs. Luz (GR L-27782, 31 July1970) Posted by Berne Guerrero under(a) oas,digests No Comments Kalalo vs. Luz Facts: On 17 November 1959, Octavio Kalalo entered into an agreementwith Alfredo Luz where he was to render engineering design services for afee. On 11 December 1961, Kalalo sent Luz a statement of account wherethe balance due for services rendered was P59,505. On 18 May 1962, Luzsent 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 feesdue 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 theInternational Research Institute project) and the balance of P30,881.25 asfees; P17,0000 as consequential and moral damages; P55,000 as moraldamages, attorneys fees and litigation expenses; and P25,000 as actualdamages, attorneys fees and litigation expenses). The trial court ruled infavor of Kalalo. Luz filed an appeal directly with the Supreme Court raisingonly 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 instituteproject became due and demandable. Held: Luz obligation to pay Kalalo the sum of US$28,000 accrued on 25August 1961, or after the enactment of RA 529 (16 June 1950). Thus, theprovision of the statute which requires payment at the prevailing rate of exchange when the obligation was incurred cannot be applied. RA 529 doesnot provide for the rate of exchange for the payment of obligation incurredafter the enactment of the Act, and thus the rate of exchange should be thatprevailing at the time of payment. The view finds support in the ruling of theCourt in Engel vs. Velasco & Co. The trial court did not err in holding the rateof exchange is that at the time of payment.Thu 25 Mar 2004 Nego-d: Jimenez vs. Bucoy (GR L-10221, 28February 1958) Posted by Berne Guerrero under(a) oas,digests No Comments Jimenez vs. Bucoy Bengzon (J) Facts: In the proceedings in the intestate of Luther Young and Pacita Youngwho died in 1954 and 1952, respectively, Pacifica Jimenez presented forpayment 4 promissory notes signed by Pacita for different amounts totallingP21,000. Acknowledging receipt by Pacita during the Japanese occupation, inthe currency then prevailing, the Administrator manifested willingness to payprovided adjustment of the sums be made in line with the Ballantyneschedule. The claimant objected to the adjustment insisting on

full paymentin accordance with the notes. The court held that the notes should be paid inthe currency prevailing after the war, and thus entitling Jimemez to recoverP21,000 plus P2,000 as attorneys fees. Hence, the appeal. Issue: Whether the amounts should be paid, peso for peso; or whether areduction should be made in accordance with the Ballantyne schedule. Held: If the loan was expressly agreed to be payable only after the war, orafter liberation, or became payable after those dates, no reduction could beeffected, and peso-for-peso payment shall be ordered in Philippine currency.The Ballantyne Conversion Table does not apply where the monetary obligation, under the contract, was not payable during the Japaneseoccupation. Herein, the debtor undertook to pay six months after the war, peso for peso payment is indicated.Thu 25 Mar 2004 Nego-d: Ibasco vs. CA (GR 117488, 5September 1996) Posted by Berne Guerrero under(a) oas,digests No Comments Ibasco vs. CA Davide Jr.(J) Facts: The Ibasco spouses requested credit accommodation fro the supplyof ingredients in the manufacture of animal feeds from the Trivinio spouses.Ibasco issued 3 checks for 3 deliveries of darak. The checks bounced and theIbasco spouses were notified of the dishonor. Ibasco instead offered aproperty in Daet. The property, being across the sea, the Trivinio spousesdid not inspect the property. For the failure of the Ibasco spouses to settletheir account, the Trivinio spouses filed criminal cases against the former forviolation of BP22. Issue: Whether the checks were for accommodation or guarantee to acquirethe benefits of the interpretation of Ministry Circular 4 of the Department of Justice in relation to BP 22. Held: Ministry Circular 4, issued 1 December 1981 by the Department of Justice, provides that where a check is issued as part of an arrangement toguarantee or secure the payment of the obligation, pre-existing or not, thedrawer is not criminally liable for either estafa or violation of BP 22.Incidents however indicate that the checks were issued as payment and forvalue, and not for accommodation (i.e. pertaining to an arrangement made afavor to another, not upon a consideration received). as the checks failed tobear any statement for accommodation and for guarantee to showIbascos intent. ( It must be noted, however, that BP22 does not distinguishand applies even in cases where dishonored checks were issued as aguarantee or for deposit only. The erroneous interpretation of MinistryCircular 4 was rectified by the repealing Ministry Circular 12, issued on 8August 1984). Nego-d: Hongkong & Shanghai Bank vs.Peoples Bank and Trust (GR L-28226, 30September 1970) Posted by Berne Guerrero under(a) oas,digests No Comments Hongkong & Shanghai Bank vs. Peoples Bank and Trust -28226, Facts: The Philippine Long Distance Telephone Company (PLDT) drew acheck on the Hongkong & Shanghai Banking Corporation (HSBC) in thelatters favor for P14,608.05, and sent it through mail. The check fell into thehands of Florentino Changco, who was able to erase the name of the payeeand substituted his own, and deposited the altered check in his currentaccount with the Peoples Bank and Trust Co. (PBTC). The check was clearedby HSBC, and PBTC credited Changco the amount. The alteration was knownwhen the cancelled check was returned to PLDT. HSBC requested PBTC torefund the amount, but the latter refused. Issue: Whether HSBC can claim reimbursement from Aperson who presents fro payment checks guarantees the genuineness of thecheck, and the drawee bank need to concern itself with nothing but thegenuineness of the signature, and the state of the account with

it of thedrawee. If at all, whatever remedy, whatever remedy HSBC has would lienot against PBTC but as against the party responsible for changing the nameof the payee (i.e. Changco). Its failure to call the attention of PBTC as tosuch alteration until after the lapse of 27 days would, in the light of CentralBank Circular 9 (24-hour clearing house rule), negate whatever right itmight have had against PBTC.Thu 25 Mar 2004 Nego-d: Gempesaw vs. CA (GR 92244, 9February 1993) Posted by Berne Guerrero under(a) oas,digests No Comments Gempesaw vs. CA CamposJr. (J) Facts: Natividad Gempesaw issued checks, prepared by her bookkeeper, atotal of 82 checks in favor of several supplies. Most of the checks foramounts in excess of actual obligations as shown in their correspondinginvoices. It was only after the lapse of more than 2 years did she discoveredthe fraudulent manipulations of her bookkeeper. It was also learned that theindorsements of the payee were forged, and the checks were brought to thechief accountant of Philippine Bank of Commerce (the Drawee Bank, BuendiaBranch) who deposited them in the accounts of Alfredo Romero and BenitoLam. Gempesaw made demand upon the bank to credit the amount chargeddue the checks. The bank refused. Hence, the present action. Issue: Who shall bear the loss resulting from the forged indorsements. Held: As a rule, a drawee bank who has paid a check on which anindorsement has been forged cannot charge the drawers account for theamount of said check. An exception to the rule is where the drawer is guiltyof such negligence which causes the bank to honor such checks. Gempesawdid not exercise prudence in taking steps that a careful and prudentbusinessman would take in circumstances to discover discrepancies in heraccount. Her negligence was the proximate cause of her loss, and underSection 23 of the Negotiable Instruments Law, is precluded from usingforgery as a defense. On the other hand, the banking rule banningacceptance of checks for deposit or cash payment with more than oneindorsement unless cleared by some bank officials does not invalidate theinstrument; neither does it invalidate the negotiation or transfer of saidchecks. The only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the furthernegotiation thereof, pursuant to Section 36 of the Negotiable InstrumentsLaw. In light of any case not provided for in the Act that is to be governedby the provisions of existing legislation, pursuant to Section 196 of theNegotiable Instruments Law, the bank may be held liable for damages inaccordance with Article 1170 of the Civil Code. The drawee bank, in itsfailure to discover the fraud committed by its employee and in contraventionbanking rules in allowing a chief accountant to deposit the checks bearingsecond indorsements, was adjudged liable to share the loss with Gempesawon a 50:50 ratio. Nego-d: Firestone Tire and Rubber vs. InesChaves & Co. (GR L-17106, 19 October 1966) Posted by Berne Guerrero under(a) oas,digests No Comments Firestone Tire and Rubber vs. Ines Chaves & Co. -17106, 19 Facts: The check was intended as part of the payment of Ines Chaves debt.When presented to the Security Bank and Trust Co. by Firestone, the checkwas returned for insufficiency of funds. Despite repeated demands, InesChaves failed to settle its account; hence, the suit. Issue: Whether good faith is required in the issuance of a check. Held: Everyone must in the performance of his duties, observe honesty andgood faith. Where a person issues a postdated check without funds to coverit and informs the payee of this fact, he cannot be held guilty

of estafabecause there is no deceit. Herein, there is nothing in the record to showthat Firestone knew that there were no funds when it accepted the check,much less that Firestone agreed to take the check with knowledge of thelack of funds. As Ines Chavez is guilty of fraud (bad faith) in theperformance of its obligation, it is liable for damages. Its conduct wanting ingood faith, the award of attorneys fees was warranted.Thu 25 Mar 2004 Nego-d: Dela Victoria vs. Burgos (GR 111190,27 June 1995) Posted by Berne Guerrero under(a) oas,digests No Comments Dela Victoria vs. Burgos Facts: Raul Sesbreno filed a complaint for damages against Assistant CityFiscal Bienvenido Mabanto before the RTC of Cebu City. After trial, judgmentwas rendered ordering Mabanto to pay Sesbreno P11,000. The decisionhaving become final and executory, the trial court ordered its executionupon Sesbrenos motion. The writ of execution was issued despite Mabantosobjection. A notice of garnishment was served upon Loreto de la Victoria asCity Fiscal of Mandaue City where Mabanto was then detailed. De la Victoriamoved to quash the notice of garnishment claiming that he was not inpossession of any money, funds, etc. belonging to Mabanto until delivered tohim, and as such are still public funds which could not be subject of garnishment.. Issue: Whether the checks subject of garnishment belong to Mabanto orwhether they still belong to the government. Held: Under Section 16 of the Negotiable Instruments Law, every contracton a negotiable instrument is incomplete and revocable until delivery of theinstrument for the purpose of giving effect thereto. As ordinarily understood,delivery means the transfer of the possession of the instrument by themaker or drawer with the intent to transfer title to the payee and recognizehim as the holder thereof. Herein, the salary check of a government officeror employee does not belong to him before it is physically delivered to him.Inasmuch as said checks had not yet been delivered to Mabanto, they didnot belong to him and still had the character of public funds. As a necessaryconsequence of being public fund, the checks may not be garnished tosatisfy the judgment.Thu 25 Mar 2004 Nego-d: Vaca vs. CA (GR 43596, 31 October1936) Posted by Berne Guerrero under(a) oas,digests No Comments Vaca vs. CA Facts: Eduardo Vaca is the president and owner of Ervine International whileFernando Nieto, Vacas son-inlaw, is the firms purchasing manager. Theyissued a check for P10,000 to the General Agency for Reconnaissance,Detection and Security (GARDS) and drawn against China Bank. Whendeposited with PCIBank, the check was dishonored for insufficiency of funds.GARDS sent a demand letter but the drawers failed to pay within the timegiven (7 days from notice). A few days later, however, Vaca issued a checkto GARDS for P19,866.16, drawn against Associated Bank, replacing thedishonored check. GARDS did not return the dishonored check. Later on,GARDS Acting Operations Manager filed a criminal suit against Vaca andNieto for violation of BP 22. The trial court sentenced each to 1 yearimprisonment and to pay a fine of P10,000 and costs. Issue [1]: Whether the drawers had knowledge of insufficient funds inissuing the check. Held [1]: Section 2 of BP 22 provides a presumption of knowledge of insufficiency of funds if the drawer fails to maintain sufficient funds within 90days after the date of the check, or to make arrangement for payment in fullby the drawee of such check within 5 days after receiving notice that suchcheck has not been paid by the drawee. Herein, the second checksupposedly replacing the dishonored check is actually the payment of twoseparate bills, and was issued 15 days after notice. Such replacement cannot negate the presumption that the drawers knew of the insufficiency of funds.

Issue [2]: Whether the absence of damages incurred by the payee absolvesthe drawers from liability. Held [2]: The claim that the case was simply a result of amisunderstanding between GARDS and the drawers and that the securityagency did not suffer any damage from the dishonor of the check isflimsy. Even if the payee suffered no damage as a result of the issuance of the bouncing check, the damage to the integrity of the banking systemcannot be denied. Damage to the payee is not an element of the crimepunished in BP 22. Note: In this case, the Court recognized the contribution of Filipinoentrepreneurs to the national economy; and that to serve the ends of criminal justice, instead of the 1 year imprisonment, a fine of double theamount of the check involved was imposed as penalty. This was made toredeem valuable human material and prevent unnecessary deprivation of personal liberty and economic usefulness with due regard to the protectionof the social order.Thu 25 Mar 2004 Nego-d: Vda. de Eduque vs. Ocampo (GR L-222, 26 April 1950) Posted by Berne Guerrero under(a) oas,digests No Comments Vda. de Eduque vs. Ocampo Facts: On 16 February 1935, Dr. Jose Eduque secured two loans from Mariano Ocampo de Leon, Dona Escolastica delos Reyes and Don Jose M.Ocampo, with amount s of P40,000 and P15,000, both payable within 20years with interest of 5% per annum. Payment of the loans was guaranteedby mortgage on real property. On 6 December 1943, Salvacion F. Vda deEduque, as administratrix of the estate of Dr. Jose Eduque, tenderedpayment by means of a cashiers check representing Japanese War notes toJose M. Ocampo, who refused payment. By reason of such refusal, an actionwas brought and the cashiers check was deposited in court. After trial, judgment was rendered against Ocampo compelling him to accept theamount, to pay the expenses of consignation, etc. Ocampo accepted the judgment as to the second loan but appealed as to the first loan. Issue: Whether there is a tender of payment by means of a cashiers checkrepresenting war notes. Held: Japanese military notes were legal tender during the Japaneseoccupation; and Ocampo impliedly accepted the consignation of the cashierscheck when he asked the court that he be paid the amount of the secondloan (P15,000). It is a rule that a cashiers check may constitute a sufficienttender where no objection is made on this ground.Thu 25 Mar 2004 Nego-d: Crystal vs. CA (GR L-35767, 18 June1976) Posted by Berne Guerrero under(a) oas,digests No Comments Crystal vs. CA SecondDivision, Barredo (J) Facts: The Supreme Court, in its decision of 25 February 1975, affirmed thedecision of the Court of Appeals, holding that Raymundo Crystalsredemption of the property acquired by Pelagia Ocang, Pacita, Teodulo,Felicisimo, Pablo, Lydia, Dioscoro and Rodrigo, all surnamed de Garcia, wasinvalid as the check which Crystal used in paying the redemption price hasbeen either dishonored or had become stale (Ergo, the value of the checkwas never realized). Crystal filed a motion for reconsideration. Issue: Whether the conflicting circumstances of the check being dishonored and becoming stale affect the validity of the redemption sale. Held: For a check to be dishonored upon presentment and to be stale fornot being presented at all in time are incompatible developments that havevariant legal consequences. If indeed the questioned check was dishonored,the redemption was null and void. If it had only become state, it becomesimperative that the circumstances that caused its non-presentment bedetermined, for if it was not due to the fault of the

drawer, it would be unfairto deprive him of the rights he had acquired as redemptioner. Herein, itappears that there is a strong showing that the check was not dishonored,although it became stale, and that Pelagia Ocang had actually been paid thefull value thereof. The Supreme Court, thus, reconsidered its decision andremanded the case to the trial court for further proceedings.Thu 25 Mar 2004 Nego-d: Cruz vs. CA (GR 108738, 17 June1994) Posted by Berne Guerrero under(a) oas,digests No Comments Cruz vs. CA (J) Facts: Andrea Mayor is engaged in the business of granting interest-bearingloans and in rediscounting checks. Roberto Cruz, on the other hand, isengaged in selling ready to wear clothes at the Pasay Commercial Center.Cruz frequently borrows money from Mayor. In 1989, Cruz borrowedP176,000 from mayor, which Mayor delivered. In turn, Cruz issued aPremiere Bank check for the same amount. When the check matured, Mayorpresented it to the bank but was dishonored and marked account closed. When notified of the dishonor, Cruz promised to pay in cash. No paymentwas made, and thus the criminal action for violation of BP 22 was instituted. Issue: Whether Cruz is liable for violating BP 22, even upon the claim thatthe check was issued to serve a mere evidence of indebtedness, and not forcirculation or negotiation. Held: A check issued as an evidence of debt, though not intended to bepresented for payment has the same effect of an ordinary check, hence, itfalls within the ambit of BP 22. When a check is presented for payment, the drawee bank will generally accept the same regardless of whether it wasissued in payment of an obligation or merely to guarantee the saidobligation. What the law punishes is the issuance of a bouncing check, notthe purpose for which it was issued nor the term and conditions relating toits issuance. The mere act of issuing a worthless check is malum prohibitum.Thu 25 Mar 2004 Nego-d: Co vs. PNB (GR L-51767, 29 June1982) Posted by Berne Guerrero under(a) oas,digests No Comments Co vs. PNB LBarredo (J) Facts: Standard Parts Manufacturing Corporation mortgaged properties toPNB. When Standard failed to pay its obligation (P4,296,803,56 secured bysaid properties), PNB extra-judicially foreclosed the mortgages. Standard,meanwhile, transferred its rights in the mortgages to Citadel Insurance andSurety Co., which wrote PNB its interest to redeem the Makati property (oneof the property mortgaged) for P1,621,970. PNB rejected the offer. Citadelfiled suit against PNB, where the complaint was accompanied by an RCBCmanagers check and which was deposited under a savings bank accountwith RCBC by order of the trial court. Issue: Whether there was a valid and effective tender of payment. Held: The unequivocal tender of redemption was made, through amanagers check of RCBC (a well-known, big and reputable bankinginstitution) for the amount it believed it should pay as redemption price. PNBrejected it on the sole and only ground that it considered the amountinsufficient. Redemption was made on time, i.e. 1 year from the dateappearing as the date of the registration of the certificate of sale. Tender bymanagers check was not inefficacious as the Court has already sanctionedredemption by check (See Javellana vs. Mirasol).Thu 25 Mar 2004 Nego-d: Clark vs. Sellner (GR 16477, 22November 1921) Posted by Berne Guerrero under(a) oas,digests No Comments Clark vs. Sellner

Facts: George Sellner, with WH Clarke and John Mave, signed a note infavor of RN Clark dated 1 July 1914 in Manila for the amount of P12,000.The note matured, but its amount was not paid. Action was filed in court.Sellners counsel allege that Sellner did not receive anything of value for thetransaction, that the instrumnet was not presented to sellner for payment,and that Sellner, being an accommodation party is not liable unless the noteis negotiated, which was allegedly not done. Issue: Whether Sellner is an accommodation party liable for the note. Held: Sellner, as one of the signers of the note, is one of the joint andseveral debtors on the note, and as such he is liable under Section 60 of theNegotiable Instruments Law/ Sellner lent his name, not to the creditor, butto those who signed with him placing himself with respect to the creditor inthe same position and with the same liability as the said signers; and thus isa joint surety rather than an accommodation party. As to the presentmentfor payment, such action is not necessary in order to charge the personprimarily liable, as is Sellner (Section 70, Negotiable Instruments Law).Thu 25 Mar 2004 Nego-d: City Trust Banking vs. CA (GR 92591,30 April 1991) Posted by Berne Guerrero under(a) oas,digests No Comments City Trust Banking vs. CA Facts: William Samara purchased from Citytrust Bank Draft 23681 for US$40,000 the payee being Thai International Airways and the correspondingdrawee bank in the United States is Marine Midland. Samara executed a stop-payment order of the bank draft instructing Citytrust to inform MarineMidland about the order through telex. Marine Midland noted the order, andthus Citytrust credited Samaras account. Seven months later, Citytrust re-debited Samaras account upon discovery that Marine Midland had alreadydebited Citytrusts account. Issue: Who shall be liable for the amount. Held: Citytrust and Marine Midland were not in privity with each other in atransaction involving payment through a bank draft. A bank draft is a bill of exchange drawn by a bank upon its correspondent bank issued at thesolicitation of a stranger who purchases and pays therefor. It is an order forpayment of money. Citytrust was the drawer of the draft through which itordered Marine Midland, the drawee bank, to pay Thai Airways. The draweebank acting as payor bank is solely liable for acts not done in accordancewith the instructions of the drawer bank or the purchaser of the draft. Thedrawee bank has the burden of proof that it did not so violate. Meanwhile,the drawer, if sued by the purchaser of the draft, is liable for the act of debiting the customers account despite an instruction to stop payment. Thedrawer has the duty to prove that he complied with the order to inform thedrawee.Thu 25 Mar 2004 Nego-d: Caram Resources vs. Contreras (AMMTJ0830849, 26 October 1994) Posted by Berne Guerrero under(a) oas,digests No Comments Caram Resources vs. Contreras Facts: Teresita Dizon obtained a loan from Caram Resources payable ininstallments. She issued a promissory note and postdated BPI checks, fourof which were dishonored when presented to the bank as the accountagainst which they were drawn had been closed. Caram charged Dizon forviolation of BP22, but where Judge Contreras acquitted Dizon on the groundof reasonable doubt. Subsequently, Caram charged Judge Maximo Contreraswith gross ignorance of the law and gross misconduct committed in Dizonscriminal case. Issue: Whether malice is an essential element in BP 22. Held:

In the 4 criminal cases before Judge Contreras, Dizon as accusedadmitted that a loan was granted to her and in connection therewith sheexecuted a promissory note wherein she bound herself to pay the loan in 12installments. She issued the postdated checks to cover the installments asthey fall due. The checks were drawn against her BPI current account,which she closed in the same months she obtained the loan, so that whenthe checks were presented for payment they were dishonored. Malice andintent in issuing a worthless check are immaterial. The offense is committedby the very fact of its performance, i.e. the mere act of issuing a worthlesscheck. The offense is malum prohibitum. An act may not be considered bysociety as inherently wrong, hence, not malum in se, but because of theharm that it inflicts on the community, it can be outlawed and criminallypunished as malum prohibitum, pursuant to the States exercise of policepower. Nego-d: Caltex (Philippines) Inc. vs. CA (GR 97753, 10 August 1992) Posted by Berne Guerrero under(a) oas,digests No Comments Caltex (Philippines) Inc. vs. CA Facts: On various dates, Security Bank and Trust Co. (SEBTC), through itsSucat branch, issued 280 certificates of time deposit (CTD) in favor of oneAngel dela Cruz who deposited with the bank the aggregate amount of P1.12million. Anger de la Cruz delivered the CTDs to Caltex in connection with hispurchase of fuel products from the latter. Subsequently, dela Cruz informedthe bank that he lost all the CTDs, and thus executed an affidavit of loss tofacilitate the issuance of the replacement CTDs. De la Cruz was able toobtain a loan of P875,000 from the bank, and in turn, he executed anotarized Deed of Assignment of Time Deposit in favor of the bank.Thereafter, Caltex presented for verification the CTDs (which were declaredlost by de la Cruz) with the bank. Caltex formally informed the bank of itspossession of the CTDs and its decision to preterminate the same. The bankrejected Caltex claim and demand, after Caltex failed to furnish copy of therequested documents evidencing the guarantee agreement, etc. In 1983, dela Cruz loan matured and the bank set-off and applied the time deposits aspayment for the loan. Caltex filed the complaint, but which was dismissed. Issue [1]: Whether the Certificates of Time Deposit (CTDs) are negotiableinstruments. Held [1]: The CTDs in question meet the requirements of the law fornegotiability. Contrary to the lower courts findings, the CTDs are negotiableinstruments (Section 1). Negotiability or non-negotiability of an instrumentis determined from the writing, i.e. from the face of the instrument itself.The documents provided that the amounts deposited shall be repayable tothe depositor. The amounts are to be repayable to the bearer of thedocuments, i.e. whosoever may be the bearer at the time of Whether the CTDs negotiation require deliveryonly. Held [2]: Although the CTDs are bearer instruments, a valid negotiationthereof for the true purpose and agreement between it (Caltex) and de laCruz requires both delivery and indorsement; as the CTDs were delivered toit as security for dela Cruz purchases of its fuel products, and not forpayment. Herein, there was no negotiation in the sense of a transfer of title,or legal title, to the CTDs in which situation mere delivery of the bearer CTDswould have sufficed. The delivery thereof as security for the fuel purchasesat most constitutes Caltex as a holder for value by reason of his lien.Accordingly, a negotiation for such purpose cannot be effected by meredelivery of the instrument since the terms thereof and the subsequentdisposition of such security, in the event of non-payment of the principalobligation, must be contractually provided for.Wed 24 Mar 2004 Nego-d: Bataan Cigar and Cigarette Factoryvs. CA (GR 93048, 3 March 1994) Posted by Berne Guerrero under(a) oas,digests No Comments Bataan Cigar and Cigarette Factory vs. CA Facts: Bataan Cigar and Cigarette Factory Inc. (BCCFI) engaged one of itssuppliers, Kim Tim Pua George (George King), to deliver bales of tobaccoleaf. In consideration thereof, BCCFI issued postdated cross

checks to King.King sold the checks, at a discount, to the State Investment House Inc.(SIHI). As King failed to deliver the bales of tobacco leaf despite demand,BCCFI issued stop payment orders on the checks. Efforts by SIHI to collectfrom BCCFI failed. SIHI filed suit. Issue: Whether SIHI can recover the value of the checks, premised on theissue whether SIHI is a holder in due course. Held: The facts of the case are on all fours to the case of SIHI vs.Intermediate Appellate Court. The crossing of the checks should put theholder on inquiry and upon him devolves the duty to ascertain the indorserstitle to the check or the nature of his possession. Failing in this respect, theholder is declared guilty of gross negligence amounting to legal absence of good faith, contrary to Section 52 (c) of the Negotiable Instruments Law,and as such the consensus of authority is to the effect that the holder of thecheck is not a holder in due course. BCCFI cannot be obliged to pay thechecks as there is a failure of consideration (King being unable to supply thebales of tobacco leaf, for which the checks were intended for). Still, SIHI aholder not in due course can collect from the immediate indorser, GeorgeKing. Such is the disadvantage of a holder not in due course, i.e. theinstrument is subject to defenses as if it were nonnegotiable.Wed 24 Mar 2004 Nego-d: Associated Bank vs. CA (GR 107382,31 January 1996) Posted by Berne Guerrero under(a) oas,digests No Comments Associated Bank vs. CA Division,Romero (J) Facts: The Province of Tarlac maintains a current account with the PhilippineNational Bank (PNB Tarlac Branch) where the provincial funds are deposited.Portions of the funds were allocated to the Concepcion Emergency Hospital.Checks were issued to it and were received by the hospitals administrativeofficer and cashier (Fausto Pangilinan). Pangilinan, through the help of Associated Bank but after forging the signature of the hospitals chief (AdenaCanlas), was able to deposit the checks in his personal account. All thechecks bore the stamp All prior endorsement guaranteed Associated Bank. Through post-audit, the province discovered that the hospital did not receiveseveral allotted checks, and sought the restoration of the debited amountsfrom PNB. In turn, PNB demanded reimbursement from Associated Bank.Both banks resisted payment. Hence, the present action. Issue: Who shall bear the loss resulting from the forged checks. Held: PNB is not negligent as it is not required to return the check to thecollecting bank within 24 hours as the banks involved are covered by CentralBank Circular 580 and not the rules of the Philippine Clearing House.Associated Bank, and not PNB, is the one duty-bound to warrant theinstrument as genuine, valid and subsisting at the time of indorsementpursuant to Section 66 of the Negotiable Instruments Law. The stampguaranteeing prior indorsement is not an empty rubric; the collecting bank isheld accountable for checks deposited by its customers. However, due to thefact that the Province of Tarlac is equally negligent in permitting Pangilinanto collect the checks when he was no longer connected with the hospital, itshares the burden of loss from the checks bearing a forged indorsement.Therefore, the Province can only recover 50% of the amount from thedrawee bank (PNB), and the collecting bank (Associated Bank) is liable toPNB for 50% of the same amount.Wed 24 Mar 2004 Nego-d: Associated Bank vs. CA (GR 89802, 7May 1992) Posted by Berne Guerrero under(a) oas,digests No Comments Associated Bank vs. CA Facts: Melissas RTWs customers issued cross checks payable to MelissasRTW, which its proprietor Merle Reyes did not receive. It was learned thatthe checks had been deposited with the Associated Bank by one

RafaelSayson. Sayson was not authorized by Reyes to deposit and encash saidchecks. Reyes filed an action for the recovery of the total value of the checksplus damages. Issue: Whether the bank was negligent for the loss. Held: Crossing a check means that the drawee bank should not encash thecheck but merely accept it for deposit, that the check may be negotiatedonly once by one who has an account in a bank, and that the check servesas warning that it was issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose. The effect, thus, relate to the mode of its presentment for payment, in accordance with Section 72of the Negotiable Instruments Law. The bank paid the checksnotwithstanding that title had not passed to the indorser, as the checks hadbeen crossed and issued for payees account only. It does did so in its ownperil and became liable to the payee for the value of the checks. The failureof the bank to make an inquiry as to Saysons authority was a breach of itsduty. The bank is negligent and is thus liable to Reyes.Wed 24 Mar 2004 Nego-d: Arrieta vs. National Rice & CornCorporation (GR L-15645, 31 January 1964) Posted by Berne Guerrero under(a) oas,digests No Comments Arrieta vs. National Rice & Corn Corporation (NARIC) Banc, Regala (J) Facts: On 19 May 1952, Paz and Vitaliado Arrieta participated in the publicbidding called by NARIC for the supply of 20,000 metric tons of Burmeserice. Ad her bid of $203 per metric ton was the lowest, she was awarded thecontract for the same. As a result of the delay in the opening of the letter of credit by NARIC, the allocation of Arrietas supplier in Rangoon was cancelledand the 5% deposit amounting to an equivalent of P200,000 was forfeited.Arrieta endeavored but failed to restore the cancelled Burmese riceallocation, and thus offered Thailand rice instead. Such offer was rejected byNARIC. Subsequently, Arrieta sent a letter to NARIC, demandingcompensation for the damages caused her in the sum of US$286,000representing unrealized profit. The demand having been rejected, sheinstituted the case. Issue: Whether the rate of exchange to be applied in the conversion is thatprevailing at the time of breach, or at the time the obligation was incurred,or on the promulgation of the decision. Held: As pronounced in Eastboard Navigation vs. Ismael, if there is anyagreement to pay an obligation in the currency other than Philippine legaltender, the same is null and void as contrary to public policy (RA 529), andthe most that could be demanded is to pay said obligation in Philippinecurrency to be measured in the prevailing rate of exchange at the time the obligation was incurred. Herein, the rate of exchange to be applied is that of 1 July 1952, when the contract was executed.Wed 24 Mar 2004 Nego-d: Ang Tiong vs. Ting (GR L-26767, 22February 1968) Posted by Berne Guerrero under(a) oas,digests No Comments Ang Tiong vs. Ting Facts: Lorenzo Ting issued a check for P4,000 payable to cash or bearer. With Felipe Angs signature (indorsement in blank) at the back thereof, theinstrument was received by Ang Tiong who thereafter presented it to thebank for payment. The drawee bank dishonored it. Ang Tiong made writtendemands on both Ting and Ang to make good the amount represented bythe check. These demands unheeded. Ang Tiong filed suit for collection. Thetrial court adjudged for Ang Tiong. Only Ang appealed, maintaining that he isonly an accommodation party. Issue: Whether Felipe Ang is an accommodation party. Held:

Felipe Ang is a general indorser (Section 63, Negotiable InstrumentsLaw), in the absence of any indication by appropriate words his intention tobe bound in some other capacity. Even on the assumption that Ang is amere accommodation party, he is liable on the instrument to a holder forvalue notwithstanding that such holder at the time of taking the instrumentknew him to be only an accommodation party (Section 29, NegotiableInstruments Law). Assuming further that Ang is an accommodation indorser,the fact that Ang may obtain security from the maker to protect himself against the danger of insolvency of the latter cannot in any manner affecthis liability to Ang Tiong, as the said remedy is a matter of concernexclusively between an accommodation indorser and an accommodatedparty. The liability of Felipe Ang remains primary and unconditional. Nego-d: Abubakar vs. Auditor General (GR L-1405, 31 July 1948) Posted by Berne Guerrero under(a) oas,digests No Comments Abubakar vs. Auditor General -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 thetreasury warrant. Abubakar contends he is a holder in good faith and forvalue and thus, entitled to the rights and privileges of a holder in duecourse. Issue: Whether Abubakar is a holder in due course. Held: A treasury warrant is not a negotiable instrument; it being an orderfor payment out of a particular fund, and is not unconditional and does notfulfill one of the essential requirements of a negotiable instrument.Therefore, a holder of a treasury warrant cannot argue that he is a holder ingood faith and for value of a negotiable instrument and thus entitled to therights and privileges of a holder in due course, free from defenses. NEW PACIFIC TIMBER & SUPPLY CO. INC. VS. SENERIS NEW PACIFIC TIMBER & SUPPLY CO. INC. VS. SENERIS 10 SCRA 686 FACTS: Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a complaint for collection of money filed by private respondent, Ricardo A. Tong. In this complaint, respondent Judge rendered a compromise judgment based on the amicable settlement entered by the parties wherein petitioner will pay to private respondent P54,500.00 at 6% interest per annum and P6,000.00 as attorneys fee of which P5,000.00 has been paid. Upon failure of the petitioner to pay the judgment obligation, a writ of execution worth P63,130.00 was issued levied on the personal properties of the petitioner. Before the date of the auction sale, petitioner deposited with the Clerk of Court in his capacity as the Ex-Officio Sheriff P50,000.00 in Cashiers Check of the Equitable Banking Corporation and P13,130.00 in cash for a total of P63,130.00. Private respondent refused to accept the check and the cash and requested for the auction sale to proceed. The properties were sold for P50,000.00 to the highest bidder with a deficiency of P13,130.00. Petitioner subsequently filed an ex-parte motion for issuance of certificate of satisfaction of judgment which was denied by the respondent Judge. Hence this present petition, alleging that the respondent Judge capriciously and whimsically abused his discretion in not granting the requested motion for the reason that the judgment obligation was fully satisfied before the auction sale with the deposit made by the petitioner to the Ex-Officio Sheriff. In upholding the refusal of the private respondent to accept the check, the respondent Judge cited Article 1249 of the New Civil Code which provides that payments of debts shall be made in the currency which is the legal tender of the Philippines and Section 63 of the Central Bank Act which provides that checks representing deposit money do not have legal tender power. In sustaining the contention of the private respondent to refuse the acceptance of the cash, the respondent Judge cited Article 1248 of the New Civil Code which provides that creditor cannot be compelled to accept partial payment unless there is an express stipulation to the contrary.

ISSUE: Can the check be considered a valid payment of the judgment obligation? RULING: Yes. It is to be emphasized that it is a well-known and accepted practice in the business sector that a Cashiers Check is deemed cash. Moreover, since the check has been certified by the drawee bank, this certification implies that the check is sufficiently funded in the drawee bank and the funds will be applied whenever the check is presented for payment. The object of certifying a check is to enable the holder to use it as money. When the holder procures the check to be certified, it operates as an assignment of a part of the funds to the creditors. Hence, the exception provided in Section 63 of the Central Bank Act which states that checks which have been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash the amount equal to that which is credited to his account. The Cashiers Check and the cash are valid payment of the obligation of the petitioner. The private respondent has no valid reason to refuse the acceptance of the check and cash as full payment of the obligation

METROPOLITAN BANK & TRUST COMPANY, petitioner,vs. COURT OF APPEALS, GOLDEN SAVINGS & LOANA S S O C I A T I O N , I N C . , L U C I A C A S T I L L O , M A G N O CASTILLO and GLORIA CASTILLO, respondents . FACTS Eduardo Gomez opened an account with Golden Savingsand deposited over a period of two months 38 treasurywarrants with a total value of P1,755,228.37. They were alld r a w n b y t h e P h i l i p p i n e F i s h M a r k e t i n g A u t h o r i t y a n d p u r p o r t e d l y s i g n e d b y i t s G e n e r a l M a n a g e r a n d countersigned by its Auditor. Six of these were directlypayable to Gomez while the others appeared to have beenindorsed by their respective payees, followed by Gomez assecond indorser. 1 All these warrants were subsequently indorsed by GloriaCastillo as Cashier of Golden Savings and deposited to itsS a v i n g s A c c o u n t N o . 2 4 9 8 i n t h e M e t r o b a n k b r a n c h i n Calapan, Mindoro. They were then sent for clearing by thebranch office to the principal office of Metrobank, whichf o r w a r d e d t h e m t o t h e B u r e a u o f T r e a s u r y f o r s p e c i a l clearing. 2 Gloria Castillo went to the Calapan branch several times toask whether the warrants had been cleared. Gomez wasmeanwhile not allowed to withdraw from his account. Later,however, "exasperated" over Gloria's repeated inquiriesand also as an accommodation for a "valued client," the petitioner says it finally decided to allow Golden Savings tow i t h d r a w f r o m t h e p r o c e e d s o f t h e warrants.In turn, Golden Savings subsequently allowed Gomez tom a k e w i t h d r a w a l s f r o m h i s o w n a c c o u n t , e v e n t u a l l y c o l l e c t i n g t h e t o t a l a m o u n t o f P 1 , 1 6 7 , 5 0 0 . 0 0 f r o m t h e proceeds of the apparently cleared warrants.Eventually, Metrobank informed Golden Savings that 32 of t h e w a r r a n t s h a d b e e n d i s h o n o r e d b y t h e B u r e a u o f Treasury and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account. The demand was rejected. Metrobank then sued GoldenSavings. ISSUE Whether or not the treasury warrants involved in this caseare not negotiable instruments. HELD The treasury warrants are non-negotiable instruments.It would appear to the Court that Metrobank was indeednegligent in giving Golden Savings the impression that thetreasury warrants had been cleared and that, consequently,i t w a s s a f e t o a l l o w G o m e z t o w i t h d r a w t h e p r o c e e d s thereof from his

account with it. Without such assurance,Golden Savings would not have allowed the withdrawals.I t w a s , i n f a c t , t o s e c u r e t h e c l e a r a n c e o f t h e t r e a s u r y warrants that Golden Savings deposited them to its accountwith Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of the warrants through its own services. A n o l e s s i m p o r t a n t c o n s i d e r a t i o n i s t h e circumsta nce that the treasury warrants in questionare not negotiable instruments. Clearly stamped ontheir face is the word "non-negotiable." Moreover,and this is of equal significance, it is indicated thatthey are payable from a particular fund, to wit, Fund501.The following sections of the Negotiable InstrumentsLaw, especially the underscored parts, are pertinent:Sec. 1. Form of negotiable instruments . A n instrument to be negotiable must conform to thefollowing requirements:(a) It must be in writing and signed by the makeror drawer;(b) M u s t c o n t a i n a n u n c o n d i t i o n a l p r o m i s e o r order to pay a sum certain in money ;(c) Must be payable on demand, or at a fixed or determinable future time;(d) Must be payable to order or to bearer; and( e ) W h e r e t h e i n s t r u m e n t i s a d d r e s s e d t o a d r a w e e , h e m u s t b e n a m e d o r o t h e r w i s e indicated therein with reasonable certainty.xxx xxx xxxS e c . 3 . When promise is unconditional . A n u n q u a l i f i e d o r d e r o r p r o m i s e t o p a y i s unconditio n a l w i t h i n t h e m e a n i n g o f t h i s A c t though coupled with (a) An indication of a particular fund out of whichr e i m b u r s e m e n t i s t o b e m a d e o r a p a r t i c u l a r account to be debited with the amount; or(b) A statement of the transaction which gives rise to the instrument judgment. But an order or promise to pay out of a particular fund is not unconditional .T h e i n d i c a t i o n o f F u n d 5 0 1 a s t h e s o u r c e o f t h e payment to be made on the treasury warrants makesthe order or promise to pay "not unconditional" andthe warrants themselves nonnegotiable.N A R C I S A B U E N C A M I N O , A M A D A D E L E O N - E R A A , ENCARNACION DE LEON and BIENVENIDO B. ERAA vs C. HERNANDEZ FACTS: The Land Tenure Administration, LTA for short, purchasedfrom the petitioners Narcisa Buencamino, Amada de Leon-Eraa, and Encarnacion de Leon, and other members of thede Leon family their hacienda in Talavera, Nueva Ecija for atotal consideration of P2,746,000.00. For the purpose, aMemorandum Agreement was executed on the said datewhich expressly declared that the LTA was purchasing thehacienda upon petition of the tenants thereof in accordancewith Republic Act No. 1400, otherwise known as the LandReform Act of 1955. T h e p a r t i e s t o t h e s a l e a g r e e d t h a t o f t h e f u l l p r i c e o f P2,746,000.00, 50% or P1,373,000.00 was to be paid incash and the balance in negotiable land certificates . The condition in the certificate regarding its encashmentonly after the lapse of five years from the date of executionof the Deed of Sale of Hacienda de Leon was adopted ortaken from the Memorandum AgreementU n d e r t h e d e e d o f s a l e , d a t e d J u l y 3 1 , 1 9 5 7 , t h e a b o v e condition was That the VENDORS shall not, however, within five(5) years, present for encashment the negotiableland certificates amounting to ONE MILLION THREEH U N D R E D S E V E N T Y T H R E E T H O U S A N D P E S O S ( P 1 , 3 7 3 , 0 0 0 . 0 0 ) b u t n e v e r t h e l e s s , s h a l l b e authorized to use the same for payment of landtaxes or obligations due and payable in favor of the Government and such other uses or purposesp r o v i d e d f o r b y S e c t i o n 1 0 o f R e p u b l i c A c t N o . 1400 within the said period of five (5) years fromthis date. (page 4, Absolute Deed of Sale)Availing themselves of what they considered was theircontractual and statutory rights under the certificate, thepetitioners presented two of them to the respondent City Treasurer in payment of certain 1957 realty tax obligationsto Quezon City. The

respondent Treasurer refused to acceptthe same and claimed that as per the opinion rendered bythe Secretary of Finance, it was discretionary on his part,t h e r e s p o n d e n t T r e a s u r e r , t o a c c e p t o r r e j e c t t h e s a i d certificates. And, invokin g his discretion in the premises,t h e r e s p o n d e n t T r e a s u r e r e x p l a i n e d t h a t h e c o u l d n o t accept the certificates offered as Quezon City was then ingreat need of funds. The petitioners were thus obliged to settle in cash the 1957tax obligation aforementioned. Subsequently, however, thepetitioners tendered once more the same certificates inpayment of their 1958 realty taxes and the respondent Treasurer similarly rejected the tender. As a result, thepetitioners filed the instant mandamus proceedings with theCourt of First Instance of Quezon City. T o t h e a b o v e p e t i t i o n , t h e L T A f i l e d a t i m e l y a n s w e r sustaining the petitioners' stand. The Secretary of Finance,represented by the Solicitor General, also filed an answer,which argued that he was not a necessary party to the caseas he was not the officer with the duty of collecting taxes.In effect, however, they resolve themselves into the singleq u e s t i o n o f w h e t h e r o r n o t t h e s a i d c e r t i f i c a t e s w h e r e d r a w n p a y a b l e o n d e m a n d a s r e q u i r e d b y S e c t i o n 9 o f Republic Act 1400. T h e r e s p o n d e n t T r e a s u r e r c o n t e n d s t h a t t h e certificates in qu e s t i o n w e r e n o t i s s u e d s t r i c t l y i n accordance with the provisions of Republic Act No.1 4 0 0 b e c a u s e w h i l e S e c t i o n 9 o f t h a t A c t i n q u i r e s that "negotiable land certificates shall be issued in denominations of one thousand pesos or multiples of one thousand pesos and shall be payable to beareron demand . . ., " the ones issue to the petitioners w e r e p a y a b l e t o b e a r e r n o t o n d e m a n d b u t , o n l y upon the expiration of the five -year period there inspecified. On the other hand, the petitioners contend that although the certificates issued could not really be encashed withinthe period therein mentioned, they could, however, still beused for the settlement of tax liabilities at any time after their issue in accordance with Section 10 of the same Act. The petitioners maintain that the 5-year restriction againstencashment referred merely and exclusively to the timewhen the certificates may be conve rted to cash and notanymore to the utility of the said instruments as substitutesfor tax obligations. ISSUE W h e t h e r o r n o t t h e r e f u s a l o f r e s p o n d e n t T r e a s u r e r t o accept the land certificates to be legally justified. HELD YES. We hold the refusal of the respondent Treasurerto accept the land certificates to be legally justified.T h e y f a i l e d t o c o m p l y w i t h t h e r e q u i r e m e n t s o f Republic Act No. 1400.Under the above-mentioned law, the land certificates"shall be payable to bearer on demand." (Section 9)T h e o n e i s s u e d , h o w e v e r , w e r e p a y a b l e t o b e a r e r only after the lapse of five years from a given period.Obviously then, the requirement that they should bepayable on demand was not met since an instrumentpayable on demand is one which (a) is expressed tob e p a y a b l e o n d e m a n d , o r a t s i g h t , o r o n presen tation; or (b) expresses no time for payment( S e c . 7 , N e g o t i a b l e I n s t r u m e n t s L a w ) T h e 5 y e a r p e r i o d w i t h i n w h i c h t h e c e r t i f i c a t e s c o u l d n o t b e encashed was an expression of the time for paymentcontrary to paragraph (b) of the last law cited.FAR EAST BANK AND TRUST COMPANY vs ESTRELLAO. QUERIMITFACTS E s t r e l l a O . Q u e r i m i t w o r k e d a s i n t e r n a l a u d i t o r o f t h e Philippine Savings Bank (PSB) for 19 years, from 1963 to 1992. She opened a dollar savings account in petitioner'sHarrison Plaza branch,[4]for which she was issued four (4)Certificates of Deposit each certificate representing theamount of $15,000.00, or a total amount of $60,000.00. Thecertificates were to mature in 60 days and were payable tobearer at 4.5% interest per annum. The certificates bore thew o r d " a c c r u e d , " w h i c h m e a n t t h a t i f t h e y w e r e n o t p r e s e n t e d f o r e n c a s h m e n t o r p r e - t e r m i n a t e d p r i o r t o maturity, the money deposited with accrued interest

wouldbe "rolled over" by the bank and annual interest wouldaccumulate automatically. The petitioner bank's manage assured respondent that her deposit would be renewed andearn interest upon maturity even without the surrender of the certificates if these were not indorsed and withdrawn.Respondent kept her dollars in the bank so that they wouldearn interest and so that she could use the fund after sheretired.In 1989, respondent accompanied her husband DominadorQuerimit to the United States for medical treatment. Sheused her savings in the Bank of the Philippine Islands (BPI)to pay for the trip and for her husband's medical expenses.Her husband died and Estrella returned to the Philippines.She went to petitioner FEBTC to withdraw her deposit but,t o h e r d i s m a y , s h e w a s t o l d t h a t h e r h u s b a n d h a d w i t h d r a w n t h e m o n e y i n d e p o s i t . T h r o u g h c o u n s e l , respondent sent a demand letter to petitioner FEBTC. Ina n o t h e r l e t t e r , r e s p o n d e n t r e i t e r a t e d h e r r e q u e s t f o r u p d a t i n g a n d p a y m e n t o f t h e c e r t i f i c a t e s o f d e p o s i t , including interest earned.[10] As petitioner FEBTC refusedrespondent's demands, the latter filed a complaint. FEBTCa l l e g e d t h a t i t h a d g i v e n r e s p o n d e n t ' s l a t e h u s b a n d Dominador an "accommodation" to allow him to withdrawEstrella's deposit. Petitioner presented certified true copiesof documents showing that payment had been made. The trial court rendered judgment for respondent. Court of Appeals affirmed the decision of the trial court. The appealscourt stated that petitioner FEBTC failed to prove that thecertificates of deposit had been paid out of its funds, since"the evidence by the [respondent] stands unrebutted thatt h e s u b j e c t c e r t i f i c a t e s o f d e p o s i t u n t i l n o w r e m a i n unindorsed, undelivered and unwithdrawn by her. ISSUE Whether the subject certificates of deposit have already been paid by petitioner .HELDNO. Petitioner bank failed to prove that it had already paidE s t r e l l a Q u e r i m i t , t h e b e a r e r a n d l a w f u l h o l d e r o f t h e subject certificates of deposit. The finding of the trial courton this point, as affirmed by the Court of Appeals, is thatpetitioner did not pay either respondent Estrella or herhusband the amounts evidenced by the subject certificatesof deposit. A certificate of deposit is defined as a writtenacknowledgment by a bank or banker of the receipt of as u m o f m o n e y o n d e p o s i t w h i c h t h e b a n k o r b a n k e r p r o m i s e s t o p a y t o t h e d e p o s i t o r , t o t h e o r d e r o f t h e depositor, or to some other person or his order, wherebythe relation of debtor and creditor between the bank andthe depositor is created. The principles governing othertypes of bank deposits are applicable to certificates of deposit,[25] as are the rules governing promissory noteswhen they contain an unconditional promise to pay a sumc e r t a i n o f m o n e y a b s o l u t e l y . [ 26] T h e p r i n c i p l e t h a t payment, in order to discharge a debt, must be madeto someone authorized to receive it is applicable tothe payment of certificates of deposit . T h u s , a b a n k will be protected in making payment to the holder of acertificate indorsed by the payee, unless it has notice of theinvalidity of the indorsement or the holder's want of title.[27] A bank acts at its peril when it pays d e p o s i t s e v i d e n c e d b y a c e r t i f i c a t e o f d e p o s i t , w i t h o u t i t s production and surrender after proper indorsement .[28] A s a r u l e , o n e w h o p l e a d s p a y m e n t h a s t h e burden of proving it. Even where the plaintiff musta l l e g e n o n p a y m e n t , t h e g e n e r a l r u l e i s t h a t t h e burden rests on the defendant to prove payment,rather than on the plaintiff to prove payment. Thed e b t o r h a s t h e b u r d e n o f s h o w i n g w i t h l e g a l certainty that the obligation has been discharged bypayment.[29]In this case, the certificates of deposit were clearlymarked payable to "bearer," which means, to "[t]he person in possession of an instrument, document of t i t l e o r s e c u r i t y p a y a b l e t o b e a r e r o r i n d o r s e d i n blank."[

30 ] P e t i t i o n e r s h o u l d n o t h a v e p a i d respondent's husband o r a n y t h i r d p a r t y w i t h o u t requiring the surrender of the certificates of deposit.P e t i t i o n e r c l a i m s t h a t i t d i d n o t d e m a n d t h e surrender of the subject certificates of deposit sincerespondent's husband, Dominador Querimit, was oneof the bank's senior managers . PHILIPPINE NATIONAL BANK vs. E R L A N D O T . RODRIGUEZ and NORMA RODRIGUEZFACTS Respondents-Spouses Erlando and Norma Rodriguez wereclients of petitioner Philippine National Bank (PNB). Theym a i n t a i n e d s a v i n g s a n d d e m a n d / c h e c k i n g a c c o u n t s , namely, PNBig Demand Deposits (Checking/Current AccountN o . 8 1 0 6 2 4 6 under the account name Erlando and/orN o r m a R o d r i g u e z ) , a n d P N B i g D e m a n d D e p o s i t (Checking/Current Account No. 810480-4 under the accountname Erlando T. Rodriguez). T h e s p o u s e s w e r e e n g a g e d i n t h e i n f o r m a l l e n d i n g b u s i n e s s . I n l i n e w i t h t h e i r b u s i n e s s , t h e y h a d a discounting 3 arrangement with the Philnabank EmployeesSavings and Loan Association (PEMSLA), an association of PNB employees. Naturally, PEMSLA was likewise a client of PNBPEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued tomembers whenever the association was short of funds. Aswas customary, the spouses would replace the postdatedchecks with their own checks issued in the name of the members.It was PEMSLAs policy not to approve applications for loansof members with outstanding debts. To subvert this policy,s o m e P E M S L A o f f i c e r s d e v i s e d a s c h e m e t o o b t a i n additional loans desp ite their outstanding loan accounts. They took out loans in the names of unknowing members,without the knowledge or consent of the latter. The PEMSLAc h e c k s i s s u e d f o r t h e s e l o a n s w e r e t h e n g i v e n t o t h e spouses for rediscounting. The officers carried this out byforging the indorsement of the named payees in the checks.I n r e t u r n , t h e s p o u s e s i s s u e d t h e i r p e r s o n a l c h e c k s ( R o d r i g u e z c h e c k s ) i n t h e n a m e o f t h e m e m b e r s a n d delivered the checks to an officer of PEMSLA. The PEMSLAchecks, on the other hand, were deposited by the spousesto their account. The Rodriguez checks were deposited directly by PEMSLA toi t s s a v i n g s a c c o u n t w i t h o u t a n y i n d o r s e m e n t f r o m t h e n a m e d p a y e e s . T h i s w a s a n i r r e g u l a r p r o c e d u r e m a d e possible through the facilitation of Edmundo Palermo, Jr.,treasurer of PEMSLA and bank teller in the PNB Branch Petitioner PNB eventually found out about these fraudulentacts. To put a stop to this scheme, PNB closed the currenta c c o u n t o f P E M S L A . A s a r e s u l t , t h e P E M S L A c h e c k s deposited by the spouses were returned or dishonored forthe reason "Account Closed." The corresponding Rodriguezchecks, however, were deposited as usual to the PEMSLAsavings account. The amounts were duly debited from theRodriguez account. Thus, because the PEMSLA checks givenas payment were returned, spouses Rodriguez incurredlosses from the rediscounting transactions.R T C r e n d e r e d j u d g m e n t i n f a v o r o f s p o u s e s R o d r i g u e z (plaintiffs). It ruled that PNB (defendant) is liable to returnthe value of the checks. The CA concluded that the checks were obviously meant bythe spouses to be really paid to PEMSLA. The court a quodeclared:Not swayed by the contention of the plaintiffs-appellees(Spouses Rodriguez) that their cause of action arose fromthe alleged breach of contract by the defendantappellant( P N B ) w h e n i t p a i d t h e v a l u e o f t h e c h e c k s t o P E M S L A despite the checks being payable to order. Rather, we aremore convinced by the strong and credible evidence for thedefendantappellant with regard to the plaintiffs-appelleesand PEMSLAs business arrangement that the value of therediscounted checks of the plaintiffs-appellees would bedeposited in PEMSLAs account for payment of the loans ithas approved in exchange for PEMSLAs checks with the fullvalue of the said loans. The CA found that the checks were bearer instruments, thusthey do not require indorsement for negotiation; and thatspouses Rodriguez and PEMSLA conspired with each otherto accomplish this money-making scheme. The payees inthe checks were "fictitious payees" because they were notthe intended payees at all.

ISSUE W h e t h e r t h e s u b j e c t c h e c k s a r e p a y a b l e t o o r d e r o r t o bearer and who bears the loss. HELDThe checks are order instruments. As a rule, when the payee is fictitious or not intended to bethe true recipient of the proceeds, the check is consideredas a bearer instrument. A check is "a bill of exchange drawnon a bank payable on demand." 11 It is either an order or a bearer instrument. Sections 8 and 9 of the NIL states:SEC. 8. When payable to order. The instrument is payablet o o r d e r w h e r e i t i s d r a w n p a y a b l e t o t h e o r d e r o f 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 mustbe named or otherwise indicated therein with reasonablecertainty.S E C . 9 . W h e n p a y a b l e t o b e a r e r . T h e i n s t r u m e n t i s payable to bearer (a) When it is expressed to be so payable; or(b) When it is payable to a person named thereinor bearer; or(c) When it is payable to the order of a fictitious ornon-existing person, and such fact is known to theperson making it so payable; or(d) When the name of the payee does not purportto be the name of any person; or( e ) W h e r e t h e o n l y o r l a s t i n d o r s e m e n t i s a n indorsement in blank. 12 (Underscoring supplied) The distinction between bearer and order instruments liesin their manner of negotiation. Under Section 30 of the NIL,a n o r d e r i n s t r u m e n t r e q u i r e s a n i n d o r s e m e n t f r o m t h e p a y e e o r h o l d e r b e f o r e i t m a y b e v a l i d l y n e g o t i a t e d . A bearer instrument, on the other hand, does not require anindorsement to be validly negotiated. It is negotiable bymere delivery. The provision reads:SEC. 30. What constitutes negotiation. An instrument isn e g o t i a t e d w h e n i t i s t r a n s f e r r e d f r o m o n e p e r s o n t o another in such manner as to constitute the transferee theholder thereof. If payable to bearer, it is negotiated byd e l i v e r y ; i f p a y a b l e t o o r d e r , i t i s n e g o t i a t e d b y t h e indorsement of the holder completed by delivery.A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the NIL, a checkp a y a b l e t o a s p e c i f i e d p a y e e m a y n e v e r t h e l e s s b e considered as a bearer instrument if it is payable to the order of a fictitious or non-existing person, and such fact isknown to the person making it so payable. Thus, checks issued to "Prinsipe Abante" or "Si Malakas at si Maganda,"who are well-known characters in Philippine mythology, arebearer instruments because the named payees are fictitiousand non-existent. 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 payeet o i n f a c t r e c e i v e t h e p r o c e e d s o f t h e c h e c k . Thisusually occurs when the maker places a name of anexisting payee on the check for convenience or to c o v e r u p a n i l l e g a l a c t i v i t y . 14 Thus, a check madeexpressly payable to a nonf i c t i t i o u s a n d e x i s t i n g person is not necessarily an order instrument. If thepayee is not the intended recipient of the proceedsof 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 absolvedfrom liability and the drawer bears the loss. When facedw i t h a c h e c k p a y a b l e t o a f i c t i t i o u s p a y e e , i t i s t r e a t e d a s a b e a r e r i n s t r u m e n t t h a t c a n b e negotiated by delivery. The underlying theory is thatone cannot expect a fictitious payee to negotiate thecheck by placing his indorsement thereon. And sincet h e m a k e r k n e w t h i s l i m i t a t i o n , h e m u s t h a v e i n t e n d e d f o r the instrument to be negotiated b y m e r e d e l i v e r y . T h u s , i n c a s e o f c o n t r o v e r s y , t h e drawer of the check will bear the loss. This rule is justified for otherwise, it will be most convenient fort h e

maker who desires to escape payment o f t h e c h e c k t o a l w a y s d e n y t h e v a l i d i t y o f t h e ind orsement. This despite the fact that the fictitiouspayee was purposely named without any intentionthat the payee should receive the proceeds of the check. 15 The fictitious-payee rule is best illustrated in Mueller& M a r t i n v . L i b e r t y I n s u r a n c e B a n k . 16 In the saidc a s e , t h e c o r p o r a t i o n M u e l l e r & M a r t i n w a s defrauded by George L. Martin, one of its authorizedsignatories. Martin drew seven checks payable to theGerman Savings Fund Company Building Association( G S F C B A ) a m o u n t i n g t o $ 2 , 9 7 2 . 5 0 a g a i n s t t h e account of the corporation without authority fromthe latter. Martin was also an officer of the GSFCBAbut did not have signing authority. At the back of thec h e c k s , M a r t i n p l a c e d t h e r u b b e r s t a m p o f t h e GSFCBA and signed his own name as indorsement.H e t h e n s u c c e s s f u l l y d r e w t h e f u n d s f r o m L i b e r t y Insurance Bank for his own personal profit. When thec o r p o r a t i o n f i l e d a n a c t i o n a g a i n s t t h e b a n k t o r e c o v e r t h e a m o u n t o f t h e c h e c k s , t h e c l a i m w a s denied.The US Supreme Court held in Mueller that when theperson making the check so payable did not intendf o r t h e s p e c i f i e d p a y e e t o h a v e a n y p a r t i n t h e transactions, the payee is considered as a fictitious p a y e e . T h e c h e c k i s t h e n c o n s i d e r e d a s a b e a r e r instrument to be validly negotiated by mere delivery.T h u s , t h e U S S u p r e m e C o u r t h e l d t h a t L i b e r t y Insurance Bank, as drawee, was authorized to makepayment to the bearer of the check, regardless of whether prior indorsements were genuine or not. 17 However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of commercialb a d f a i t h o n t h e p a r t o f t h e d r a w e e b a n k , o r a n y transferee of the check for that matter, will work tostrip it of this defense. The exception will cause it tobear the loss. Commercial bad faith is present if thet r a n s f e r e e o f t h e c h e c k a c t s d i s h o n e s t l y , a n d i s a p a r t y t o t h e f r a u d u l e n t s c h e m e . S a i d t h e U S Supreme Court in Getty: there is a "commercial bad faith" exceptionto UCC 3 -405, applicable when the transferee "actsdishonestly where it has actual knowledge of factsand circumstances that amount to bad faith, thusitself becoming a participant in a fraudulent scheme. x x x The principle that the fictitious -payee rule extendsp r o t e c t i o n e v e n t o n o n - b a n k t r a n s f e r e e s o f t h e checks. In the case under review: the Rodriguez checks werepayable to specified payees. It is unrefuted that the 69checks were payable to specific persons. Likewise, it isuncontroverted that the payees were actual, existing, andliving persons who were members of PEMSLA that had a rediscounting arrangement with spouses Rodriguez.What remains to be determined i s if the payees, thoughexisting persons, were "fictitious" in its broader context.For the fictitious-payee rule to be available as a defense,P N B m u s t s h o w t h a t t h e m a k e r s d i d n o t i n t e n d f o r t h e named payees to be part of the transaction involving thechecks. At most, the banks thesis shows that the payeesdid not have knowledge of the existence of the checks. Thislack of knowledge on the part of the payees, however, wasn o t t a n t a m o u n t t o a l a c k o f i n t e n t i o n o n t h e p a r t o f respondents-spouses that the payees would not receive thechecks proceeds. Considering that respondentsspousesw e r e t r a n s a c t i n g w i t h P E M S L A a n d n o t t h e i n d i v i d u a l p a y e e s , i t i s u n d e r s t a n d a b l e t h a t t h e y r e l i e d o n t h e information given by the officers of PEMSLA that the payeeswould be receiving the checks.Verily, the subject checks are presumed

orderinstruments . T h i s i s b e c a u s e , a s f o u n d b y b o t h l o w e r courts, PNB failed to present sufficient evidence to defeatthe claim of respondents-spouses that the named payeeswere the intended recipients of the checks proceeds. Thebank failed to satisfy a requisite condition of a fictitious -payee situation that the maker of the check intended forthe payee to have no interest in the transaction. Because of a failure to show that the payees were"fictitious" in its broader sense, the fictitiouspayeer u l e d o e s n o t a p p l y . T h u s , t h e c h e c k s a r e t o b e deemed payable to order. Consequently, the draweebank bears the loss.CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and RODOLFO VERGARA vs. IFC LEASING ANDACCEPTANCE CORPORATIONFACTS T h e p e t i t i o n e r i s a c o r p o r a t i o n e n g a g e d i n t h e l o g g i n g business. For its program of logging activities the openingof additional roads, and simultaneous logging operationsalong the route of said roads, it needed two (2) additionalunits of tractors.Cognizant of petitionercorporation's need and purpose,Atlantic Gulf & Pacific Company of Manila, through its sistercompany and marketing arm, Industrial Products Marketinga c o r p o r a t i o n d e a l i n g i n t r a c t o r s a n d o t h e r h e a v y equipment business, offered to sell to petitioner-corporationtwo (2) "Used" Allis Crawler Tractors.I n o r d e r t o a s c e r t a i n t h e extent of work to which t h e t r a c t o r s w e r e t o b e e x p o s e d , a n d t o d e t e r m i n e t h e capability of the "Used" tractors being offered, petitioner-corporation requested the seller-assignor to inspect the jobsite. After conducting said inspection, the seller-assignorassured petitioner-corporation that the "Used" Allis Crawler Tractors which were being offered were fit for the job With said assurance and warranty, and relying on the seller-a s s i g n o r ' s s k i l l a n d j u d g m e n t , p e t i t i o n e r c o r p o r a t i o n through petitioners Wee and Vergara, president and vice-president, respectively, agreed to purchase on installmentsaid two (2) units of "Used" Allis Crawler Tractors. It alsopaid the down payment of Two Hundred Ten ThousandPesos (P210,000.00). The seller-assignor issued the sales invoice for the two 2)units of tractors at the same time, the deed of sale withchattel mortgage with promissory note was executed. T h e s e l l e r - a s s i g n o r , b y m e a n s o f a d e e d o f assignment, assigned its rights and interest in the chattel mortgage in favor of the respondent. Barely fourteen (14) days had elapsed after their deliverywhen one of the tractors broke down and after another nine(9) days, the other tractor likewise broke down. Rodolfo T.Vergara formally advised the seller-assignor of the fact thatt h e t r a c t o r s b r o k e d o w n a n d r e q u e s t e d f o r t h e s e l l e r assignor's usual prompt attention under the warranty. Theseller-assignor sent to the job site its mechanics to conductthe necessary repairsbut the tractors did not come out tobe what they should be after the repairs were undertakenbecause the units were no longer serviceable.Because of the breaking down of the tractors, the roadbuilding and simultaneous logging operations of petitioner-corporation were delayed and petitioner Vergara advisedthe seller-assignor that the payments of the installments aslisted in the promissory note would likewise be delayed untilthe seller-assignor completely fulfills its obligation under itswarranty.Since the tractors were no longer serviceable, on April 7,1979, petitioner Wee asked the seller-assignor to pull outthe units and have them reconditioned, and thereafter tooffer them for sale. The proceeds were to be given to therespondent and the excess, if any, to be divided betweenthe sellerassignor and petitioner-corporation which offeredto bear one-half (1/2) of the reconditioning The sellerassignor did nothing with regard to the request,until the complaint in this case was filed by the respondentagainst the petitioners, the corporation, Wee, and Vergara. The complaint was filed by the respondent against thep e t i t i o n e r s f o r t h e r e c o v e r y o f t h e p r i n c i p a l s u m a n d accrued interest ISSUE: W h e t h e r o r n o t t h e p r o m i s s o r y n o t e i n q u e s t i o n i s a negotiable instrumen t s o a s t o b a r c o m p l e t e l y a l l t h e available defenses of the petitioner against the respondentassignee. HELDThe promissory note is NOT a negotiable instrument .It is patent then, that the seller-assignor is liable for itsbreach of warranty against the petitioner. This liability as

ag e n e r a l r u l e , e x t e n d s t o t h e c o r p o r a t i o n t o w h o m i t assigned its rights and interests unless the assignee is aholder in due course of the promissory note in question,assuming the note is negotiable, in which case the latter'sr i g h t s a r e b a s e d o n t h e n e g o t i a b l e i n s t r u m e n t a n d assuming further that the petitioner's defenses may notprevail against it. The pertinent portion of the note is as follows:FOR VALUE RECEIVED, I/we jointly ands e v e r a l l y p r o m i s e t o p a y t o t h e I NDUSTRIAL PRODUCTS MARKETING, thes u m o f O N E M I L L I O N N I N E T Y T H R E E T H OUSAND SEVEN HUNDRED EIGHTYN I N E P E S O S & 7 1 / 1 0 0 o n l y ( P 1,093,789.71), Philippine Currency, thesaid principal sum, to be payable in 24m o n t h l y i n s t a l l m e n t s s t a r t i n g J u l y 1 5 , 1 9 7 8 a n d e v e r y 1 5 t h o f t h e m o n t h thereafter until fully paid. ...Considering that paragraph (d), Section 1 of the NegotiableInstruments Law requires that a promissory note "must bepayable to order or bearer, " it cannot be denied that thepromissory note in question is not a negotiable instrument. The instrument in order to be consideredn e g o t i a b l i l i t y - i . e . m u s t c o n t a i n t h e s o c a l l e d ' w o r d s o f n e g o t i a b l e , m u s t b e payable to 'order' or 'bearer'. These wordsserve as an expression of consent thatthe instrument may be transferred. Thisconsent is indispensable since a makerassumes greater risk under a negotiableinstrument than under a non-negotiableone. ...xxx xxx xxxWhen instrument is payable to order.SEC. 8. WHEN PAYABLE TO ORDER. Theinstrument is payable to order where it isdrawn payable to the order of a specifiedperson or to him or his order. . . .xxx xxx xxx These are the only two ways by which ani n s t r u m e n t m a y b e m a d e p a y a b l e t o order. There must always be a specifiedperson named in the instrument. It meansthat the bill or note is to be paid to the person designated in the instrument or toany person to whom he has indorsed anddelivered the same. Without the words" o r o r d e r " o r " t o t h e o r d e r o f , " t h e instrument is payable only to the persondesignated 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 instrumenta n d w i l l t h u s b e o p e n t o a l l d e f e n s e s available against the latter." Therefore, considering that the subject promissory note isnot a negotiable instrument, it follows that the respondentcan never be a holder in due course but remains a mere assignee of the note in question. Thus, the petitioner mayraise against the respondent all defenses available to it asagainst the seller-assignor Industrial Products Marketing.Secondly, even conceding for purposes of discussion thatthe promissory note in question is a negotiable instrument,the respondent cannot be a holder in due course for a moresignificant reason: The respondent had actual knowledge of the fact that theseller-assignor's right to collect the purchase price was notunconditional, and that it was subject to the condition thatthe tractors -sold were not defective. The respondent knewthat when the tractors turned out to be defective, it wouldbe subject to the defense of failure of consideration andcannot recover the purchase price from the petitioners.E v e n a s s u m i n g f o r t h e s a k e o f a r g u m e n t t h a t t h e promis sory note is negotiable, the respondent, which tookthe same with actual knowledge of the foregoing facts sothat its action in taking the instrument amounted to bad faith, is not a holder in due course. SAN MIGUEL CORPORATION vs. BARTOLOME PUZON, JR.FACTS R e s p o n d e n t B a r t o l o m e V . P u z o n , J r . , ( P u z o n ) o w n e r o f Bartenmyk Enterprises, was a dealer of beer products of petitioner San Miguel Corporation. Puzon purchased SMCproducts on credit. To ensure payment and as a businessp r a c t i c e , S M C r e q u i r e d h i m t o i s s u e p o s t d a t e d c h e c k s equivalent to the value of the products purchased on creditbefore the same were released to him. Said checks werereturned to Puzon when the transactions covered by thesechecks were paid or settled in full.P u z o n p u r c h a s e d p r o d u c t s o n c r e d i t a m o u n t i n g to P11,820,327 for which he issued, and gave to SMC, Banko f t h e P h i l i p p i n e I s l a n d s ( B P I ) C h e c k N o s . 2 7 9 0 4 (for P309,500.00) and 27903 (forP11,510,827.00) to coverthe said transaction.Puzon, together with his accountant, visited the SMC SalesOffice to reconcile his account with SMC. During that

visitPuzon allegedly requested to see BPI Check No. 17657.However, when he got hold of BPI Check No. 27903 whichwas attached to a bond paper together with BPI Check No.17657 he allegedly immediately left the office with hisaccountant, bringing the checks with them.SMC sent a letter to Puzon demanding the return of the saidc h e c k s . P u z o n i g n o r e d t h e d e m a n d h e n c e S M C f i l e d a complaint against him for theft with the City ProsecutorsOffice. R u l i n g s o f t h e P r o s e c u t o r a n d t h e S e c r e t a r y o f Department of Justice (DOJ) The investigating prosecutor, Elizabeth Yu Guray found thatthe "relationship between [SMC] and [Puzon] appears to beone of credit or creditor-debtor relationship. The problemlies in the reconciliation of accounts and the non-paymento f b e e r e m p t i e s w h i c h c a n n o t g i v e r i s e t o a c r i m i n a l prosecution for theft." She recommended the dismissal of the case for lack of evidence. SMC appealed. The DOJ issued its resolution 5 affirming the prosecutorsResolution dismissing the case. Ruling of the Court of Appeals The CA found that the postdated checks were issued byP u z o n m e r e l y a s a s e c u r i t y f o r t h e p a y m e n t o f h i s p u r c h a s e s a n d t h a t t h e s e w e r e n o t i n t e n d e d t o b e encashed. It thus concluded that SMC di d n o t a c q u i r e ownership of the checks as it was duty bound to return thesame checks to Puzon after the transactions covering themwere settled. The CA agreed with the prosecutor that therewas no theft, considering that a person cannot be chargedw i t h t h e f t f o r t a k i n g p e r s o n a l p r o p e r t y t h a t b e l o n g s t o himself. ISSUE Whether the checks issued by Puzon were payments for hispurchases or were intended merely as security to ensurepayment." [ T ] h e e s s e n t i a l e l e m e n t s o f t h e c r i m e o f t h e f t a r e t h e following: (1) that there be a taking of personal property;(2) that said property belongs to another; (3) that the takingbe done with intent to gain; (4) that the taking be done without the consent of the owner; and (5) that the taking beaccomplished without the use of violence or intimidationagainst persons or force upon things."C o n s i d e r i n g t h a t t h e s e c o n d e l e m e n t i s t h a t t h e t h i n g taken belongs to another , i t i s r e l e v a n t t o d e t e r m i n e whether ownership of the subject check was transferred topetitioner. On this point the Negotiable Instruments Lawprovides: Sec. 12. Antedated and postdated The instrument is not invalid for the reason only that it is antedatedor postdated, provided this is not done for an illegalo r f r a u d u l e n t p u r p o s e . T h e p e r s o n t o w h o m a n instrument so d ated is delivered acquires the titlet h e r e t o a s o f t h e d a t e o f d e l i v e r y . ( U n d e r s c o r i n g supplied.)Note however that delivery as the term is used in thea f o r e m e n t i o n e d p r o v i s i o n m e a n s t h a t t h e p a r t y d e l i v e r i n g d i d s o f o r t h e p u r p o s e o f g i v i n g e f f e c t thereto . 12 Otherwise, it cannot be said that there has beend e l i v e r y o f t h e n e g o t i a b l e i n s t r u m e n t . O n c e t h e r e i s 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 inp a y m e n t o f t h e o b l i g a t i o n , t h e p u r p o s e o f g i v i n g e f f e c t t o t h e instrument is evident thus title to oro w n e r s h i p o f t h e c h e c k w a s t r a n s f e r r e d u p o n delivery. H o w e v e r , i f t h e c h e c k w a s n o t g i v e n a s payment, there being no intent to give effect to thei n s t r u m e n t , t h e n o w n e r s h i p o f t h e c h e c k w a s n o t transferred to SMC.T h e e v i d e n c e o f S M C failed to establish that thecheck was given in payment of t h e o b l i g a t i o n o f Puzon. There was no provisional receipt or official receipt issued for the amount of the check. What

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"POSTDATED CHECK SLIP." 13 Furthermore, the petitioner's demand letter sent tor e s p o n d e n t s t a t e s " A s p e r c o m p a n y p o l i c i e s o n receivables, all issuances are to be covered by post-dated checks. However, you have deviated from thispolicy by forcibly taking away the check you havei s s u e d t o u s t o c o v e r t h e D e c e m b e r issuance." 14 N o t a b l y , t h e t e r m " p a y m e n t " w a s n o t used instead the terms "covered" and "cover" wereused. The evidence proves that the check was accepted, not aspayment, but in accordance with the longstanding policy of SMC to require its dealers to issue postdated checks toc o v e r i t s r e c e i v a b l e s . T h e c h e c k w a s o n l y m e a n t to cover the transaction and in the meantime Puzon was topay for the transaction by some other means other than thecheck. This being so, title to the check did not transfer toSMC; it remained with Puzon. Firestone Tire and Rubber vs. Ines Chaves & Co. GR L-17106, 19 October 1966En Banc, Regala (J) Facts: The check was intended as part of the payment of Ines Chaves debt. When presented to the Security Bankand Trust Co. by Firestone, the check was returned forinsufficiency of funds. Despite repeated demands, InesChaves failed to settle its account; hence, the suit. Issue: Whether good faith is required in the issuance of acheck. Held: Everyone must in the performance of his duties,observe honesty and good faith. Where a person issues apostdated check without funds to cover it and informs thepayee of this fact, he cannot be held guilty of estafabecause there is no deceit. Herein, there is nothing in therecord to show that Firestone knew that there were nofunds when it accepted the check, much less that Firestoneagreed to take the check with knowledge of the lack of funds. As Ines Chavez is guilty of fraud (bad faith) in theperformance of its obligation, it is liable for damages. Itsconduct wanting in good faith, the award of attorneys feeswas warranted.